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As filed with the Securities and Exchange Commission on June 20, 2003
 
Registration No. 333-85848
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

	
 
POST-EFFECTIVE AMENDMENT NO. 4 TO
FORM S-11
REGISTRATION STATEMENT
Under
The Securities Act of 1933

	
 
WELLS REAL ESTATE INVESTMENT TRUST, INC.
(Exact name of registrant as specified in governing instruments)
 
6200 The Corners Parkway, Suite 250
Norcross, Georgia 30092
(770) 449-7800
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant’s Principal Executive Offices)
 
Donald Kennicott, Esq.
Michael K. Rafter, Esq.
Holland & Knight LLP
One Atlantic Center, Suite 2000
1201 West Peachtree Street, N.W.
Atlanta, Georgia 30309-3400
(404) 817-8500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Agent for Service)

	
 
Maryland	 	58-2328421	
(State or other
Jurisdiction of Incorporation)	 	(I.R.S. Employer
Identification Number)	

	
 
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨                 
 
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨                 
 
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨                 
 
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.  ¨                
 
Approximate date of commencement of proposed sale to the public: As soon as practicable following effectiveness of this Registration Statement.

	

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[The following is text to a sticker to be attached to the front cover page of the prospectus in a manner that will not obscure the Risk Factors:]
 
SUPPLEMENTAL INFORMATION—The prospectus of Wells Real Estate Investment Trust, Inc. consists of this sticker, the prospectus dated July 26, 2002, Supplement No. 1 dated August 14, 2002, Supplement No. 2 dated August 29, 2002, Supplement No. 3 dated October 15, 2002, Supplement No. 4 dated December 10, 2002, Supplement No. 5 dated January 15, 2003, Supplement No. 6 dated April 14, 2003, Supplement No. 7 dated May 15, 2003, and Supplement No. 8 dated June 15, 2003. Supplement No. 1 includes descriptions of acquisitions of buildings in San Antonio, Texas; Houston, Texas; Duncan, South Carolina; and Suwanee, Georgia, updated unaudited financial statements and certain other revisions to the prospectus. Supplement No. 2 includes descriptions of acquisitions of buildings in Irving, Texas; and Austin, Texas, description of a lease of a build-to-suit office building in Chandler, Arizona, declaration of fourth quarter dividends and certain other revisions to the prospectus. Supplement No. 3 includes descriptions of acquisitions of buildings in Holtsville, New York; Parsippany, New Jersey; Indianapolis, Indiana; Colorado Springs, Colorado; Des Moines, Iowa; Plano, Texas; and Westlake, Texas, description of a build-to-suit office building in Chandler, Arizona, audited financial statements relating to acquisitions of buildings in Austin, Texas; Holtsville, New York; and Parsippany, New Jersey, and certain other revisions to the prospectus. Supplement No. 4 includes descriptions of acquisitions of buildings in Washington, D.C.; Glen Allen, Virginia; and Nashville, Tennessee, audited financial statements relating to acquisitions of buildings in Washington, D.C.; and Nashville, Tennessee, updated unaudited financial statements, declaration of first quarter dividends for 2003 and certain other revisions to the prospectus. Supplement No. 5 includes descriptions of acquisitions of buildings in Fishers, Indiana; Glendale, California; and Mayfield Heights, Ohio, description of the second transaction under the Section 1031 Exchange Program, audited financial statements relating to the acquisition of the building in Glendale, California, updated unaudited financial statements, and certain other revisions to the prospectus. Supplement No. 6 includes descriptions of acquisition of a building in Detroit, Michigan, declaration of second quarter dividends for 2003, updated financial statements and prior performance tables, revisions to the “ERISA Considerations—Annual Valuations” section and certain other revisions to the prospectus. Supplement No. 7 includes descriptions of acquisitions of buildings in Englewood Cliffs, New Jersey; Minneapolis, Minnesota; Chicago, Illinois; and Auburn Hills, Michigan, updated status reports on three build-to-suit properties; description of a new unsecured line of credit, audited financial statements relating to the acquisition of the buildings in Minneapolis, Minnesota and Chicago, Illinois, updated unaudited financial statements of the Wells REIT for the first quarter of 2003, and certain other revisions to the prospectus. Supplement No. 8 includes description of a notice received from the NASD relating to an enforcement action and declaration of third quarter dividends for 2003.

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
Up to 300,000,000 shares offered to the public

	
 
Wells Real Estate Investment Trust, Inc. (Wells REIT) is a real estate investment trust. We invest in commercial real estate properties primarily consisting of high grade office and industrial buildings leased to large corporate tenants. As of July 1, 2002, we owned interests in 53 real estate properties located in 19 states.
 
We are offering and selling to the public up to 300,000,000 shares for $10 per share and up to 30,000,000 shares to be issued pursuant to our dividend reinvestment plan at a purchase price of $10 per share. We are registering an additional 6,600,000 shares for issuance at $12 per share to participating broker-dealers upon their exercise of warrants.
 
You must purchase at least 100 shares for $1,000.
 
The most significant risks relating to your investment include the following:
 
•	 	lack of a public trading market for the shares;	
 
•	 	reliance on Wells Capital, Inc., our advisor, to select properties and conduct our operations;	
 
•	 	authorization of substantial fees to the advisor and its affiliates;	
 
•	 	borrowing—which increases the risk of loss of our investments; and	
 
•	 	conflicts of interest facing the advisor and its affiliates.	
 
You should see the complete discussion of therisk factors beginning on page 17.
 
The Offering:
 
•	 	The shares will be offered on a best efforts basis to investors at $10 per share.	
 
•	 	We will pay selling commissions to broker-dealers of 7% and a dealer manager fee of 2.5% out of the offering proceeds raised.	
 
•	 	We will invest approximately 84% of the offering proceeds raised in real estate properties, and the balance will be used to pay fees and expenses.	
 
•	 	This offering will terminate on or before July 25, 2004.	
 
Neither the Securities and Exchange Commission, the Attorney General of the State of New York nor any other state securities regulator has approved or disapproved of these securities or determined if this prospectus is truthful or complete. It is a criminal offense if someone tells you otherwise.
 
The use of projections or forecasts in this offering is prohibited. No one is permitted to make any oral or written predictions about the cash benefits or tax consequences you will receive from your investment.
 
WELLS INVESTMENT SECURITIES, INC.
 
July 26, 2002

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TABLE OF CONTENTS
 
Questions and Answers About this Offering	  	1	
Prospectus Summary	  	10	
Risk Factors	  	17	
Investment Risks	  	17	
Real Estate Risks	  	22	
Section 1031 Exchange Program Risks	  	25	
Federal Income Tax Risks	  	27	
Retirement Plan Risks	  	28	
Suitability Standards	  	28	
Estimated Use of Proceeds	  	30	
Management	  	31	
General	  	31	
Committees of the Board of Directors	  	33	
Executive Officers and Directors	  	34	
Compensation of Directors	  	38	
Independent Director Stock Option Plan	  	38	
Independent Director Warrant Plan	  	40	
2000 Employee Stock Option Plan	  	40	
Limited Liability and Indemnification of Directors, Officers, Employees and Other Agents	  	41	
The Advisor	  	43	
The Advisory Agreement	  	44	
Shareholdings	  	46	
Affiliated Companies	  	47	
Management Decisions	  	49	
Management Compensation	  	49	
Stock Ownership	  	53	
Conflicts of Interest	  	54	
Interests in Other Real Estate Programs	  	54	
Other Activities of Wells Capital and its Affiliates	  	55	
Competition	  	55	
Affiliated Dealer Manager	  	56	
Affiliated Property Manager	  	56	
Lack of Separate Representation	  	56	
Joint Ventures with Affiliates of Wells Capital	  	56	
Receipt of Fees and Other Compensation by Wells Capital and its Affiliates	  	56	
Certain Conflict Resolution Procedures	  	57	
Investment Objectives and Criteria	  	58	
General	  	58	
Acquisition and Investment Policies	  	59	
Development and Construction of Properties	  	61	
Terms of Leases and Tenant Creditworthiness	  	61	
Joint Venture Investments	  	62	
Section 1031 Exchange Program	  	63	
Borrowing Policies	  	64	
Disposition Policies	  	65	
Investment Limitations	  	65	
Change in Investment Objectives and Limitations	  	67	
 
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Description of Real Estate Investments	  	67	
General	  	67	
Joint Ventures with Affiliates	  	71	
Description of Properties	  	74	
Property Management Fees	  	99	
Real Estate Loans	  	99	
Selected Financial Data	  	101	
Management's Discussion and Analysis of Financial Condition and Results of Operations	  	101	
General	  	101	
Liquidity and Capital Resources	  	102	
Cash Flows From Operating Activities	  	102	
Cash Flow From Investing Activities	  	103	
Cash Flows From Financing Activities	  	103	
Results of Operations	  	103	
Property Operations	  	104	
Funds From Operations	  	105	
Inflation	  	106	
Critical Accounting Policies	  	106	
Straight-Lined Rental Revenues	  	107	
Operating Cost Reimbursements	  	107	
Real Estate	  	107	
Deferred Project Costs	  	107	
Deferred Offering Costs	  	107	
Prior Performance Summary	  	108	
Publicly Offered Unspecified Real Estate Programs	  	109	
Federal Income Tax Considerations	  	117	
General	  	117	
Requirements for Qualification as a REIT	  	119	
Failure to Qualify as a REIT	  	124	
Sale-Leaseback Transactions	  	124	
Taxation of U.S. Stockholders	  	124	
Treatment of Tax-Exempt Stockholders	  	126	
Special Tax Considerations for Non-U.S. Stockholders	  	127	
Statement of Stock Ownership	  	129	
State and Local Taxation	  	129	
Tax Aspects of Our Operating Partnership	  	129	
ERISA Considerations	  	132	
Plan Asset Considerations	  	134	
Other Prohibited Transactions	  	135	
Annual Valuation	  	136	
Description of Shares	  	137	
Common Stock	  	137	
Preferred Stock	  	137	
Meetings and Special Voting Requirements	  	137	
Restriction on Ownership of Shares	  	138	
Dividends	  	139	
Dividend Reinvestment Plan	  	140	
Share Redemption Program	  	141	
Restrictions on Roll-Up Transactions	  	142	
Business Combinations	  	143	
Control Share Acquisitions	  	143	
 
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The Operating Partnership Agreement	  	143	
General	  	143	
Capital Contributions	  	144	
Operations	  	144	
Exchange Rights	  	145	
Transferability of Interests	  	145	
Plan of Distribution	  	146	
General	  	146	
Underwriting Compensation and Terms	  	146	
Subscription Procedures	  	150	
Supplemental Sales Material	  	151	
Legal Opinions	  	152	
Experts	  	152	
Changes in Principal Accountant	  	152	
Audited Financial Statements	  	152	
Unaudited Financial Statements	  	153	
Additional Information	  	153	
Glossary	  	153	
Financial Statements	  	154	
Prior Performance Tables	  	210	
Subscription Agreement	  	Exhibit A	
Amended and Restated Dividend Reinvestment Plan	  	Exhibit B	
 
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QUESTIONS AND ANSWERS ABOUT THIS OFFERING
 
Below we have provided some of the more frequently asked questions and answers relating to an offering of this type. Please see the “Prospectus Summary” and the remainder of this prospectus for more detailed information about this offering.
 
Q:	 	What is a REIT?	
 
A:	 	In general, a REIT is a company that:	
 
 	•	 	combines the capital of many investors to acquire or provide financing for real estate properties;	
 
 	•	 	pays dividends to investors of at least 90% of its taxable income;	
 
 	•	 	avoids the “double taxation” treatment of income that would normally result from investments in a corporation because a REIT is not generally subject to federal corporate income taxes on its net income, provided certain income tax requirements are satisfied; and	
 
 	•	 	allows individual investors to invest in a large-scale diversified real estate portfolio through the purchase of interests, typically shares, in the REIT.	
 
Q:	 	What is Wells Real Estate Investment Trust, Inc.?	
 
A:	 	Wells Real Estate Investment Trust, Inc. is a non-traded REIT formed with the intent to provide investors the potential for income and growth through the acquisition and operation of high-grade commercial office and industrial buildings leased long-term to high net worth companies (typically having a minimum net worth of $100,000,000). The Wells REIT was incorporated in the State of Maryland in 1997.	
 
Q:	 	Who will choose which real estate properties to invest in?	
 
A:	 	Wells Capital, Inc. (Wells Capital) is the advisor to the Wells REIT and, as such, manages our daily affairs and makes recommendations on all property acquisitions to our board of directors. Our board of directors must approve all of our property acquisitions.	
 
Q:	 	Who is Wells Capital?	
 
A:	 	Wells Capital, as our advisor, provides investment advisory and management, marketing, sales and client services on our behalf. Wells Capital was incorporated in the State of Georgia in 1984. As of June 30, 2002, Wells Capital had sponsored public real estate programs which have raised in excess of $1,795,000,000 from approximately 65,000 investors and which own and operate a total of 78 commercial real estate properties.	

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Q:	 	What are the specific criteria Wells Capital uses when selecting a potential property acquisition?	
 
A:	 	Wells Capital generally seeks to acquire high quality office and industrial buildings located in densely populated metropolitan markets on an economically “triple-net” basis leased to large companies having a net worth in excess of $100,000,000. Current tenants of public real estate programs sponsored by Wells Capital include The Coca-Cola Company, State Street Bank, AT&T, Siemens Automotive, PricewaterhouseCoopers, Novartis and SYSCO Corporation.	
 
To find properties that best meet our selection criteria for investment, Wells Capital’s property acquisition team studies regional demographics and market conditions and interviews local brokers to gain the practical knowledge that these studies sometimes lack. An experienced commercial construction engineer inspects the structural soundness and the operating systems of each building, and an environmental firm investigates all environmental issues to ensure each property meets our quality specifications.
 
Q.	 	How many real estate properties do you currently own?	
 
A.	 	As of July 1, 2002, we had acquired and owned interests in 53 real estate properties, all of which were 100% leased to tenants. We own the following properties directly:	
 
Property Name

	  	Tenant

	  	Building Type

	  	Location

	
ISS Atlanta	  	Internet Security Systems, Inc.        	  	Office Buildings	  	Atlanta, GA	
 	 	 	 	
MFS Phoenix	  	Massachusetts Financial Services
Company	  	Office Building	  	Phoenix, AZ	
 	 	 	 	
TRW Denver	  	TRW, Inc.	  	Office Building	  	Aurora, CO	
 	 	 	 	
Agilent Boston	  	Agilent Technologies, Inc.	  	Office Building	  	Boxborough, MA	
 	 	 	 	
Experian/TRW	  	Experian Information Solutions, Inc.	  	Office Buildings	  	Allen, TX	
 	 	 	 	
BellSouth Ft. Lauderdale	  	BellSouth Advertising and Publishing
Corporation	  	Office Building	  	Ft. Lauderdale, FL	
 	 	 	 	
Agilent Atlanta	  	Agilent Technologies, Inc. and
Koninklijke Philips Electronics N.V.	  	Office Building	  	Alpharetta, GA	
 	 	 	 	
Travelers Express Denver	  	Travelers Express Company, Inc.	  	Office Buildings	  	Lakewood, CO	
 	 	 	 	
Dana Kalamazoo	  	Dana Corporation	  	Office and Industrial Building	  	Kalamazoo, MI	
 	 	 	 	
Dana Detroit	  	Dana Corporation	  	Office and Research and
Development Building	  	Farmington Hills, MI	
 	 	 	 	
Novartis Atlanta	  	Novartis Opthalmics, Inc.	  	Office Building	  	Duluth, GA	
 	 	 	 	
Transocean Houston	  	Transocean Deepwater Offshore
Drilling, Inc. and Newpark Drilling
Fluids, Inc.	  	Office Building	  	Houston, TX	
 	 	 	 	
Arthur Andersen	  	Arthur Andersen LLP	  	Office Building	  	Sarasota, FL	
 	 	 	 	
Windy Point I	  	TCI Great Lakes, Inc., The Apollo
Group, Inc., and Global Knowledge
Network, Inc.	  	Office Building	  	Schaumburg, IL	
 	 	 	 	
Windy Point II	  	Zurich American Insurance Company,
Inc.	  	Office Building	  	Schaumburg, IL	
 	 	 	 	
Convergys	  	Convergys Customer Management
Group, Inc.	  	Office Building	  	Tamarac, FL	
 	 	 	 	
Lucent	  	Lucent Technologies, Inc.	  	Office Building	  	Cary, NC	
 	 	 	 	
Ingram Micro	  	Ingram Micro L.P.	  	Distribution Facility	  	Millington, TN	
 	 	 	 	
Nissan	  	Nissan Motor Acceptance Corporation	  	Office Building	  	Irving, TX	
 
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Property Name

	  	Tenant

	  	Building Type

	  	Location

	
IKON	  	IKON Office Solutions, Inc.        	  	Office Buildings	  	Houston, TX	
 	 	 	 	
State Street	  	SSB Realty LLC	  	Office Building	  	Quincy, MA	
 	 	 	 	
Metris Minnesota	  	Metris Direct, Inc.	  	Office Building	  	Minnetonka, MN    	
 	 	 	 	
Stone & Webster	  	Stone & Webster, Inc. and
SYSCO Corporation	  	Office Building	  	Houston, TX	
 	 	 	 	
Motorola Plainfield	  	Motorola, Inc.	  	Office Building	  	S. Plainfield, NJ	
 	 	 	 	
Delphi	  	Delphi Automotive Systems, Inc.	  	Office Building	  	Troy, MI	
 	 	 	 	
Avnet	  	Avnet, Inc.	  	Office Building	  	Tempe, AZ	
 	 	 	 	
Motorola Tempe	  	Motorola, Inc.	  	Office Building	  	Tempe, AZ	
 	 	 	 	
ASML	  	ASM Lithography, Inc.	  	Office and Warehouse Building	  	Tempe, AZ	
 	 	 	 	
Dial	  	Dial Corporation	  	Office Building	  	Scottsdale, AZ	
 	 	 	 	
Metris Tulsa	  	Metris Direct, Inc.	  	Office Building	  	Tulsa, OK	
 	 	 	 	
Cinemark	  	Cinemark USA, Inc. and The
Coca-Cola Company	  	Office Building	  	Plano, TX	
 	 	 	 	
Videojet Technologies Chicago	  	Videojet Technologies, Inc.	  	Office, Assembly and
Manufacturing Building	  	Wood Dale, IL	
 	 	 	 	
Alstom Power Richmond	  	Alstom Power, Inc.	  	Office Building	  	Midlothian, VA	
 	 	 	 	
Matsushita	  	Matsushita Avionics Systems
Corporation	  	Office Building	  	Lake Forest, CA	
 	 	 	 	
PwC	  	PricewaterhouseCoopers	  	Office Building	  	Tampa, FL	
 
We own interests in the following real estate properties through joint ventures with affiliates:
 
Property Name

	  	Tenant

	  	Building Type

	  	Location

	
ADIC	  	Advanced Digital Information
Corporation	  	Office Buildings	  	Parker, CO 1/8            	
 	 	 	 	
AmeriCredit	  	AmeriCredit Financial Services
Corporation	  	Office Building	  	Orange Park, FL	
 	 	 	 	
Comdata	  	Comdata Network, Inc.	  	Office Building	  	Brentwood, TN	
 	 	 	 	
AT&T Oklahoma	  	AT&T Corp. and Jordan
Associates	  	Office Buildings	  	Oklahoma City, OK	
 	 	 	 	
Quest	  	Quest Software, Inc.	  	Office Building	  	Irvine, CA	
 	 	 	 	
Siemens	  	Siemens Automotive Corporation	  	Office Building	  	Troy, MI	
 	 	 	 	
Gartner	  	Gartner Group, Inc.	  	Office Building	  	Fort Myers, FL	
 	 	 	 	
Johnson Matthey	  	Johnson Matthey, Inc.	  	Research and Development,
Office and Warehouse
Building	  	Wayne, PA	
 	 	 	 	
Sprint	  	Sprint Communications Company
L.P.	  	Office Building	  	Leawood, KS	
 	 	 	 	
EYBL CarTex	  	EYBL CarTex, Inc.	  	Manufacturing and Office
Building	  	Fountain Inn, SC	
 	 	 	 	
Cort Furniture	  	Cort Furniture Rental Corporation	  	Office and Warehouse Building	  	Fountain Valley, CA	
 	 	 	 	
Fairchild	  	Fairchild Technologies U.S.A., Inc.	  	Manufacturing and Office
Building	  	Fremont, CA	
 	 	 	 	
Avaya	  	Avaya, Inc.	  	Office Building	  	Oklahoma City, OK	
 	 	 	 	
Iomega	  	Iomega Corporation	  	Office and Warehouse
Building	  	Ogden, UT	
 	 	 	 	
Interlocken	  	ODS Technologies, L.P. and
GAIAM, Inc.	  	Office Building	  	Broomfield, CO	
 	 	 	 	
Ohmeda	  	Ohmeda, Inc.	  	Office Building	  	Louisville, CO	
 	 	 	 	
Alstom Power Knoxville	  	Alstom Power, Inc.	  	Office Building	  	Knoxville, TN	
 
If you want to read more detailed information about each of these properties, see the “Description of Real Estate Investments” section of this prospectus.
 
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Q:	 	Why do you acquire properties in joint ventures?	
 
A:	 	We acquire some of our properties in joint ventures in order to diversify our portfolio of properties in terms of geographic region, property type and industry group of our tenants.	
 
Q:	 	What steps do you take to make sure you purchase environmentally compliant property?	
 
A:	 	We always obtain a Phase I environmental assessment of each property purchased. In addition, we generally obtain a representation from the seller that, to its knowledge, the property is not contaminated with hazardous materials.	
 
Q:	 	What are the terms of your leases?	
 
A:	 	We seek to secure leases with creditworthy tenants prior to or at the time of the acquisition of a property. Our leases are generally economically “triple-net” leases, which means that the tenant is responsible for the cost of repairs, maintenance, property taxes, utilities, insurance and other operating costs. In most of our leases, we are responsible for replacement of specific structural components of a property such as the roof of the building or the parking lot. Our leases generally have terms of eight to 10 years, many of which have renewal options for additional five-year terms.	
 
Q:	 	How does the Wells REIT own its real estate properties?	
 
A:	 	We own all of our real estate properties through an “UPREIT” called Wells Operating Partnership, L.P. (Wells OP). Wells OP was organized to own, operate and manage real properties on our behalf. The Wells REIT is the sole general partner of Wells OP.	
 
Q:	 	What is an “UPREIT”?	
 
A:	 	UPREIT stands for “Umbrella Partnership Real Estate Investment Trust.” The UPREIT structure is used because a sale of property directly to the REIT is generally a taxable transaction to the selling property owner. In an UPREIT structure, a seller of a property who desires to defer taxable gain on the sale of his property may transfer the property to the UPREIT in exchange for limited partnership units in the UPREIT and defer taxation of gain until the seller later exchanges his UPREIT units on a one-for-one basis for REIT shares. If the REIT shares are publicly traded, the former property owner will achieve liquidity for his investment. Using an UPREIT structure gives us an advantage in acquiring desired properties from persons who may not otherwise sell their properties because of unfavorable tax results.	
 
Q:	 	If I buy shares, will I receive dividends and how often?	
 
A:	 	We have been making and intend to continue to make dividend distributions on a quarterly basis to our stockholders. The amount of each dividend distribution is determined by our board of directors and typically depends on the amount of distributable funds, current and projected cash	
 
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  	 	requirements, tax considerations and other factors. However, in order to remain qualified as a REIT, we must make distributions of at least 90% of our REIT taxable income.	
 
Q:	 	How do you calculate the payment of dividends to stockholders?	
 
A:	 	We calculate our quarterly dividends on a daily basis to stockholders of record so your dividend benefits will begin to accrue immediately upon becoming a stockholder.	
 
Q:	 	What have your dividend payments been since you began operations on June 5, 1998?	
 
A:	 	We have paid the following dividends since we began operations:	
 
Quarter

	 	Approximate Amount (Rounded)

	 	Annualized
Percentage Return
on an Investment
of $10 per Share

	
3rd Qtr. 1998                  	 	$0.150 per share	 	6.00%	
4th Qtr. 1998                  	 	$0.163 per share	 	6.50%	
1st Qtr. 1999                  	 	$0.175 per share	 	7.00%	
2nd Qtr. 1999                  	 	$0.175 per share	 	7.00%	
3rd Qtr. 1999                  	 	$0.175 per share	 	7.00%	
4th Qtr. 1999                  	 	$0.175 per share	 	7.00%	
1st Qtr. 2000                  	 	$0.175 per share	 	7.00%	
2nd Qtr. 2000                  	 	$0.181 per share	 	7.25%	
3rd Qtr. 2000                  	 	$0.188 per share	 	7.50%	
4th Qtr. 2000                  	 	$0.188 per share	 	7.50%	
1st Qtr. 2001                  	 	$0.188 per share	 	7.50%	
2nd Qtr. 2001                  	 	$0.188 per share	 	7.50%	
3rd Qtr. 2001                  	 	$0.188 per share	 	7.50%	
4th Qtr. 2001                  	 	$0.194 per share	 	7.75%	
1st Qtr. 2002                  	 	$0.194 per share	 	7.75%	
2nd Qtr. 2002                  	 	$0.194 per share	 	7.75%	
3rd Qtr. 2002                  	 	$0.194 per share	 	7.75%	
 
Q:	 	May I reinvest my dividends in shares of the Wells REIT?	
 
A:	 	Yes.    You may participate in our dividend reinvestment plan by checking the appropriate box on the Subscription Agreement or by filling out an enrollment form we will provide to you at your request. The purchase price for shares purchased under the dividend reinvestment plan is currently $10 per share.	
 
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Q:	 	Will the dividends I receive be taxable as ordinary income?	
 
A:	 	Yes and No.    Generally, dividends that you receive, including dividends that are reinvested pursuant to our dividend reinvestment plan, will be taxed as ordinary income to the extent they are from current or accumulated earnings and profits. We expect that some portion of your dividends will not be subject to tax in the year in which they are received because depreciation expenses reduce the amount of taxable income but do not reduce cash available for distribution. The portion of your distribution which is not subject to tax immediately is considered a return of capital for tax purposes and will reduce the tax basis of your investment. This, in effect, defers a portion of your tax until your investment is sold or the Wells REIT is liquidated, at which time you will be taxed at capital gains rates. However, because each investor’s tax considerations are different, we suggest that you consult with your tax advisor. You should also review the section of the prospectus entitled “Federal Income Tax Considerations.”	
 
Q:	 	What will you do with the money raised in this offering?	
 
A:	 	We will use your investment proceeds to purchase high-grade commercial office and industrial buildings. We intend to invest a minimum of 84% of the proceeds from this offering to acquire real estate properties, and the remaining proceeds will be used to pay fees and expenses of this offering and acquisition-related expenses. The payment of these fees and expenses will not reduce your invested capital. Your initial invested capital amount will remain $10 per share, and your dividend yield will be based on your $10 per share investment.	
 
Until we invest the proceeds of this offering in real estate, we may invest in short-term, highly liquid or other authorized investments. Such short-term investments will not earn as high of a return as we expect to earn on our real estate investments, and we cannot guarantee how long it will take to fully invest the proceeds in real estate.
 
We received approximately $132,181,919 in gross offering proceeds from the sale of 13,218,192 shares of common stock in our initial public offering, which commenced on January 30, 1998 and was terminated on December 19, 1999. Of the $132,181,919 raised in the initial offering, we invested a total of $111,032,812 in real estate properties. We received approximately $175,229,193 in gross offering proceeds from the sale of 17,522,920 shares of common stock in our second public offering, which commenced on December 20, 1999 and was terminated on December 19, 2000. Of the $175,229,193 raised in the second offering, we invested a total of $147,192,522 in real estate properties. As of June 30, 2002, we had received approximately $1,148,480,414 in gross offering proceeds from the sale of 114,895,413 shares of common stock in our third offering, which commenced on December 20, 2000. Of this additional $1,148,480,414 raised in the third offering, we have invested $627,067,589 in real estate properties and, as of June 30, 2002, we have $344,269,118 available for investment in properties.
 
Q:	 	What kind of offering is this?	
 
A:	 	We are offering the public up to 300,000,000 shares of common stock on a “best efforts” basis.	
 
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Q:	 	How does a “best efforts” offering work?	
 
A:	 	When shares are offered to the public on a “best efforts” basis, the brokers participating in the offering are only required to use their best efforts to sell the shares and have no firm commitment or obligation to purchase any of the shares.	
 
Q:	 	How long will this offering last?	
 
A:	 	The offering will not last beyond July 25, 2004.	
 
Q:	 	Who can buy shares?	
 
A:	 	You can buy shares pursuant to this prospectus provided that you have either (1) a net worth of at least $45,000 and an annual gross income of at least $45,000, or (2) a net worth of at least $150,000. For this purpose, net worth does not include your home, home furnishings or personal automobiles. These minimum levels may be higher in certain states, so you should carefully read the more detailed description in the “Suitability Standards” section of this prospectus.	
 
Q:	 	Is there any minimum investment required?	
 
A:	 	Yes.    Generally, you must invest at least $1,000. Except in Maine, Minnesota, Nebraska and Washington, investors who already own our shares or who have purchased units from an affiliated Wells public real estate program can make purchases for less than the minimum investment. These minimum investment levels may be higher in certain states, so you should carefully read the more detailed description of the minimum investment requirements appearing later in the “Suitability Standards” section of this prospectus.	
 
Q:	 	How do I subscribe for shares?	
 
A:	 	If you choose to purchase shares in this offering, you will need to fill out a Subscription Agreement, like the one contained in this prospectus as Exhibit A, for a specific number of shares and pay for the shares at the time you subscribe.	
 
Q:	 	If I buy shares in this offering, how may I later sell them?	
 
A:	 	At the time you purchase the shares, they will not be listed for trading on any national securities exchange or over-the-counter market. In fact, we expect that there will not be any public market for the shares when you purchase them, and we cannot be sure if one will ever develop. As a result, you may find it difficult to find a buyer for your shares and realize a return on your investment. You may sell your shares to any buyer unless such sale would cause the buyer to own more than 9.8% of our outstanding stock. See “Description of Shares—Restriction on Ownership of Shares.”	
 
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In addition, after you have held your shares for at least one year, you may be able to have your shares repurchased by the Wells REIT pursuant to our share redemption program. See the “Description of Shares—Share Redemption Program” section of the prospectus.
 
If we have not listed the shares on a national securities exchange or over-the-counter market by January 30, 2008, our articles of incorporation require us to begin selling our properties and other assets and return the net proceeds from these sales to our stockholders through distributions.
 
Q:	 	What is the experience of your officers and directors?	
 
A:	 	Our management team has extensive previous experience investing in and managing commercial real estate. Below is a short description of the background of each of our directors. See the “Management—Executive Officers and Directors” section on page 34 of this prospectus for a more detailed description of the background and experience of each of our directors.	
 
 	•	 	Leo F. Wells, III—President of the Wells REIT and founder of Wells Real Estate Funds and has been involved in real estate sales, management and brokerage services for over 30 years	
 
 	•	 	Douglas P. Williams—Executive Vice President, Secretary and Treasurer of the Wells REIT and former accounting executive at OneSource, Inc., a supplier of janitorial and landscape services	
 
 	•	 	John L. Bell—Former owner and Chairman of Bell-Mann, Inc., the largest flooring contractor in the Southeast	
 
 	•	 	Michael R. Buchanan—Former Managing Director of the Real Estate Banking Group of Bank of America	
 
 	•	 	Richard W. Carpenter—Former President and Chairman of the Board of Southmark Properties, an Atlanta-based REIT investing in commercial properties	
 
 	•	 	Bud Carter—Former broadcast news director and anchorman and current Senior Vice President for The Executive Committee, an organization established to aid corporate presidents and CEOs	
 
 	•	 	William H. Keogler, Jr.—Founder and former executive officer and director of Keogler, Morgan & Company, Inc., a full service brokerage firm	
 
 	•	 	Donald S. Moss—Former executive officer of Avon Products, Inc.	
 
 	•	 	Walter W. Sessoms—Former executive officer of BellSouth Telecommunications, Inc.	
 
 	•	 	Neil H. Strickland—Founder of Strickland General Agency, Inc., a property and casualty general insurance agency concentrating on commercial customers	
 
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Q:	 	Will I be notified of how my investment is doing?	
 
A:	 	Yes, you will receive periodic updates on the performance of your investment with us, including:	
 
 	•	 	Four detailed quarterly dividend reports;	
 
 	•	 	An annual report;	
 
 	•	 	An annual IRS Form 1099;	
 
 	•	 	Supplements to the prospectus;	
 
 	•	 	A quarterly investor newsletter; and	
 
 	•	 	Regular acquisition reports detailing our latest property acquisitions.	
 
Q:	 	When will I get my detailed tax information?	
 
A:	 	Your Form 1099 tax information will be placed in the mail by January 31 of each year.	
 
Q:	 	Who can help answer my questions?	
 
A:	 	If you have more questions about the offering or if you would like additional copies of this prospectus, you should contact your registered representative or contact:	
 
Client Services Department
Wells Real Estate Funds, Inc.
Suite 250
6200 The Corners Parkway
Atlanta, Georgia 30092
(800) 557-4830 or (770) 243-8282
www.wellsref.com
 
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PROSPECTUS SUMMARY
 
This prospectus summary highlights selected information contained elsewhere in this prospectus. It is not complete and does not contain all of the information that is important to your decision whether to invest in the Wells REIT. To understand this offering fully, you should read the entire prospectus carefully, including the “Risk Factors” section and the financial statements.
 
Wells Real Estate Investment Trust, Inc.
 
Wells Real Estate Investment Trust, Inc. is a REIT that owns net leased commercial real estate properties. As of July 1, 2002, we owned interests in 53 commercial real estate properties located in 19 states. Our office is located at 6200 The Corners Parkway, Suite 250, Atlanta, Georgia 30092. Our telephone number outside the State of Georgia is 800-557-4830 (770-243-8282 in Georgia). We refer to Wells Real Estate Investment Trust, Inc. as the Wells REIT in this prospectus.
 
Our Advisor
 
Our advisor is Wells Capital, Inc., which is responsible for managing our affairs on a day-to-day basis and for identifying and making acquisitions on our behalf. We refer to Wells Capital, Inc. as Wells Capital in this prospectus.
 
Our Management
 
Our board of directors must approve each real property acquisition proposed by Wells Capital, as well as certain other matters set forth in our articles of incorporation. We have ten members on our board of directors. Eight of our directors are independent of Wells Capital and have responsibility for reviewing its performance. Our directors are elected annually by the stockholders.
 
Our REIT Status
 
As a REIT, we generally are not subject to federal income tax on income that we distribute to our stockholders. Under the Internal Revenue Code, REITs are subject to numerous organizational and operational requirements, including a requirement that they distribute at least 90% of their taxable income to their stockholders. If we fail to qualify for taxation as a REIT in any year, our income will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as a REIT for the four-year period following our failure to qualify. Even if we qualify as a REIT for federal income tax purposes, we may still be subject to state and local taxes on our income and property and to federal income and excise taxes on our undistributed income.
 
Summary Risk Factors
 
Following are the most significant risks relating to your investment:
 
 	•	 	There is no public trading market for the shares, and we cannot assure you that one will ever develop. Until the shares are publicly traded, you will have a difficult time trying to sell your shares.	
 
 	•	 	You must rely on Wells Capital, our advisor, for the day-to-day management of our business and the selection of our real estate properties.	
 
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 	•	 	To ensure that we continue to qualify as a REIT, our articles of incorporation prohibit any stockholder from owning more than 9.8% of our outstanding shares.	
 
 	•	 	We may not remain qualified as a REIT for federal income tax purposes, which would subject us to the payment of tax on our income at corporate rates and reduce the amount of funds available for payment of dividends to our stockholders.	
 
 	•	 	You will not have preemptive rights as a stockholder, so any shares we issue in the future may dilute your interest in the Wells REIT.	
 
 	•	 	We will pay significant fees to Wells Capital and its affiliates.	
 
 	•	 	Real estate investments are subject to cyclical trends that are out of our control.	
 
 	•	 	You will not have an opportunity to evaluate all of the properties that will be in our portfolio prior to investing.	
 
 	•	 	Loans we obtain will be secured by some of our properties, which will put those properties at risk of forfeiture if we are unable to pay our debts.	
 
 	•	 	Our investment in vacant land to be developed may create risks relating to the builder’s ability to control construction costs, failure to perform or failure to build in conformity with plans, specifications and timetables.	
 
 	•	 	The vote of stockholders owning at least a majority of our shares will bind all of the stockholders as to certain matters such as the election of our directors and amendment of our articles of incorporation.	
 
 	•	 	If we do not obtain listing of the shares on a national exchange by January 30, 2008, our articles of incorporation provide that we must begin to sell all of our properties and distribute the net proceeds to our stockholders.	
 
 	•	 	Our advisor will face various conflicts of interest resulting from its activities with affiliated entities.	
 
Before you invest in the Wells REIT, you should see the complete discussion of the “Risk Factors” beginning on page 17 of this prospectus.
 
Description of Real Estate Investments
 
Please refer to the “Description of Real Estate Investments” section of this prospectus for a description of the real estate properties we have purchased to date and the various real estate loans we have outstanding. Wells Capital is currently evaluating additional potential property acquisitions. As we acquire new properties, we will provide supplements to this prospectus to describe these properties.
 
Estimated Use of Proceeds of Offering
 
We anticipate that we will invest at least 84% of the proceeds of this offering in real estate properties. We will use the remainder of the offering proceeds to pay selling commissions, fees and expenses relating to the selection and acquisition of properties and the costs of the offering.
 
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Investment Objectives
 
Our investment objectives are:
 
 	•	 	to maximize cash dividends paid to you;	
 
 	•	 	to preserve, protect and return your capital contribution;	
 
 	•	 	to realize growth in the value of our properties upon our ultimate sale of such properties; and	
 
 	•	 	to provide you with liquidity of your investment by listing the shares on a national exchange or, if we do not obtain listing of the shares by January 30, 2008, by selling our properties and distributing the cash to you.	
 
We may only change these investment objectives by a vote of our stockholders holding a majority of our outstanding shares. See the “Investment Objectives and Criteria” section of this prospectus for a more complete description of our business and objectives.
 
Conflicts of Interest
 
Wells Capital, as our advisor, will experience conflicts of interest in connection with the management of our business affairs, including the following:
 
 	•	 	Wells Capital will have to allocate its time between the Wells REIT and other real estate programs and activities in which it is involved;	
 
 	•	 	Wells Capital must determine which properties the Wells REIT or another Wells program or joint venture should acquire and which Wells program or other entity should enter into a joint venture with the Wells REIT for the acquisition and operation of specific properties;	
 
 	•	 	Wells Capital may compete with other Wells programs for the same tenants in negotiating leases or in selling similar properties at the same time; and	
 
 	•	 	Wells Capital and its affiliates will receive fees in connection with transactions involving the purchase, management and sale of our properties regardless of the quality of the property acquired or the services provided to us.	
 
See the “Conflicts of Interest” section of this prospectus on page 54 for a detailed discussion of the various conflicts of interest relating to your investment, as well as the procedures that we have established to resolve a number of these potential conflicts.
 
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The following chart shows the ownership structure of the various Wells entities that are affiliated with Wells Capital.

 
Prior Offering Summary
 
Wells Capital and its affiliates have previously sponsored 14 publicly offered real estate limited partnerships and the Wells REIT on an unspecified property or “blind pool” basis. As of June 30, 2002, they have raised approximately $1,795,000,000 from approximately 65,000 investors in these 15 public real estate programs. The “Prior Performance Summary” on page 108 of this prospectus contains a discussion of the Wells programs sponsored to date. Certain statistical data relating to the Wells programs with investment objectives similar to ours is also provided in the “Prior Performance Tables” included at the end of this prospectus.
 
The Offering
 
We are offering up to 300,000,000 shares to the public at $10 per share and up to 30,000,000 shares pursuant to our dividend reinvestment plan at $10 per share. We reserve the right in the future to reallocate additional dividend reinvestment shares out of the shares we are offering to the public, if necessary. We are also offering up to 6,600,000 shares to broker-dealers pursuant to warrants whereby participating broker-dealers will have the right to purchase one share for every 50 shares they sell in this offering. The exercise price for shares purchased pursuant to the warrants is $12 per share.
 
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Terms of the Offering
 
We will begin selling shares in this offering upon the effective date of this prospectus, and this offering will terminate on or before July 25, 2004. However, we may terminate this offering at any time prior to such termination date. We will hold your investment proceeds in our account until we withdraw funds for the acquisition of real estate properties or the payment of fees and expenses. We generally admit stockholders to the Wells REIT on a daily basis.
 
Compensation to Wells Capital
 
Wells Capital and its affiliates will receive compensation and fees for services relating to this offering and the investment and management of our assets. The most significant items of compensation are included in the following table:
 
Type of Compensation

	 	Form of Compensation

	 	Estimated $$ Amount for Maximum
Offering (330,000,000 shares)

	
 	
Offering Stage	
Selling Commissions	 	7.0% of gross offering proceeds	 	$231,000,000	
Dealer Manager Fee	 	2.5% of gross offering proceeds	 	$82,500,000	
Organization and Offering Expenses	 	3.0% of gross offering proceeds	 	$49,500,000 (estimated)	
 	
Acquisition and Development Stage	
Acquisition and Advisory Fees	 	3.0% of gross offering proceeds	 	$99,000,000	
Acquisition Expenses	 	0.5% of gross offering proceeds	 	$16,500,000	
 	
Operational Stage	
Property Management	 	4.5% of gross revenues	 	N/A	
Initial Lease-Up Fee for Newly Constructed Property	 	Competitive fee for geographic location of property based on a survey of brokers and agents (customarily equal to the first month’s rent)	 	N/A	
 	 	 	
Real Estate Commissions	 	3.0% of contract price for properties sold after investors receive a return of capital plus an 8.0% return on capital	 	N/A	
 	 	 	
Subordinated Participation In Net Sale Proceeds (Payable only if the Wells REIT is not listed on an exchange)	 	10.0% of remaining amounts of net sale proceeds after return of capital plus payment to investors of an 8.0% cumulative non-compounded return on the capital contributed by investors	 	N/A	
 	 	 	
Subordinated Incentive Listing Fee (Payable only if the Wells REIT is listed on an exchange)	 	10.0% of the amount by which the adjusted market value of the Wells REIT exceeds the aggregate capital contributions contributed by investors	 	N/A	
 
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There are many additional conditions and restrictions on the amount of compensation Wells Capital and its affiliates may receive. There are also some smaller items of compensation and expense reimbursements that Wells Capital may receive. For a more detailed explanation of these fees and expenses payable to Wells Capital and its affiliates, please see the “Management Compensation” section of this prospectus on page 49.
 
Dividend Policy
 
In order to remain qualified as a REIT, we are required to distribute 90% of our annual taxable income to our stockholders. We have paid dividends to our stockholders at least quarterly since the first quarter after we commenced operations on June 5, 1998. We calculate our quarterly dividends based upon daily record and dividend declaration dates so investors will be entitled to dividends immediately upon purchasing our shares. We expect to pay dividends to you on a quarterly basis.
 
Listing
 
Our articles of incorporation allow us to list our shares on a national securities exchange on or before January 30, 2008. In the event we do not obtain listing prior to that date, our articles of incorporation require us to begin selling our properties and liquidating our assets.
 
Dividend Reinvestment Plan
 
You may participate in our dividend reinvestment plan pursuant to which you may have the dividends you receive reinvested in shares of the Wells REIT. If you participate, you will be taxed on your share of our taxable income even though you will not receive the cash from your dividends. As a result, you may have a tax liability without receiving cash dividends to pay such liability. We may terminate the dividend reinvestment plan at our discretion at any time upon 10 days notice to you. (See “Description of Shares—Dividend Reinvestment Plan.”)
 
Share Redemption Program
 
We may use proceeds received from the sale of shares pursuant to our dividend reinvestment plan to redeem your shares. After you have held your shares for a minimum of one year, our share redemption program provides an opportunity for you to redeem your shares, subject to certain restrictions and limitations, for the lesser of $10 per share or the price you actually paid for your shares. Our board of directors reserves the right to amend or terminate the share redemption program at any time. Our board of directors has delegated to our officers the right to (1) waive the one-year holding period in the event of the death or bankruptcy of a stockholder or other exigent circumstances, or (2) reject any request for redemption at any time and for any reason. You will have no right to request redemption of your shares should our shares become listed on a national exchange. (See “Description of Shares—Share Redemption Program.”)
 
Wells Operating Partnership, L.P.
 
We own all of our real estate properties through Wells Operating Partnership, L.P. (Wells OP), our operating partnership. We are the sole general partner of Wells OP. Wells Capital is currently the only limited partner based on its initial contribution of $200,000. Our ownership of properties in Wells OP is referred to as an “UPREIT.” The UPREIT structure allows us to acquire real estate properties in exchange for limited partnership units in Wells OP. This structure will also allow sellers of properties to transfer their properties to Wells OP in exchange for units of Wells OP
 
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and defer gain recognition for tax purposes with respect to such transfers of properties. At present, we have no plans to acquire any specific properties in exchange for units of Wells OP. The holders of units in Wells OP may have their units redeemed for cash under certain circumstances. (See “The Operating Partnership Agreement.”)
 
ERISA Considerations
 
The section of this prospectus entitled “ERISA Considerations” describes the effect the purchase of shares will have on individual retirement accounts (IRAs) and retirement plans subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA), and/or the Internal Revenue Code. ERISA is a federal law that regulates the operation of certain tax-advantaged retirement plans. Any retirement plan trustee or individual considering purchasing shares for a retirement plan or an IRA should read this section of the prospectus very carefully.
 
Description of Shares
 
General
 
Your investment will be recorded on our books only. We will not issue stock certificates. If you wish to transfer your shares, you are required to send us an executed transfer form. We will provide you the required form upon request.
 
Stockholder Voting Rights and Limitations
 
We hold annual meetings of our stockholders for the purpose of electing our directors or conducting other business matters that may be presented at such meetings. We may also call a special meeting of stockholders from time to time for the purpose of conducting certain matters. You are entitled to one vote for each share you own at any of these meetings.
 
Restriction on Share Ownership
 
Our articles of incorporation contain restrictions on ownership of the shares that prevents one person from owning more than 9.8% of our outstanding shares. These restrictions are designed to enable us to comply with share accumulation restrictions imposed on REITs by the Internal Revenue Code. (See “Description of Shares—Restriction on Ownership of Shares.”)
 
For a more complete description of the shares, including restrictions on the ownership of shares, please see the “Description of Shares” section of this prospectus on page 137.
 
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RISK FACTORS
 
Your purchase of shares involves a number of risks. In addition to other risks discussed in this prospectus, you should specifically consider the following:
 
Investment Risks
 
Marketability Risk
 
There is no public trading market for your shares.
 
There is no current public market for the shares and, therefore, it will be difficult for you to sell your shares promptly. In addition, the price received for any shares sold is likely to be less than the proportionate value of the real estate we own. Therefore, you should purchase the shares only as a long-term investment. See “Description of Shares—Share Redemption Program” for a description of our share redemption program.
 
Management Risks
 
You must rely on Wells Capital for selection of properties.
 
Our ability to achieve our investment objectives and to pay dividends is dependent upon the performance of Wells Capital, our advisor, in the quality and timeliness of our acquisitions of real estate properties, the selection of tenants and the determination of any financing arrangements. Except for the investments described in this prospectus, you will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments. You must rely entirely on the management ability of Wells Capital and the oversight of our board of directors.
 
We depend on key personnel.
 
Our success depends to a significant degree upon the continued contributions of certain key personnel, including Leo F. Wells, III, Douglas P. Williams, M. Scott Meadows, David H. Steinwedell, and John G. Oliver, each of whom would be difficult to replace. None of our key personnel are currently subject to employment agreements, nor do we maintain any key person life insurance on our key personnel. If any of our key personnel were to cease employment with us, our operating results could suffer. We also believe that our future success depends, in large part, upon our ability to hire and retain highly skilled managerial, operational and marketing personnel. Competition for such personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such skilled personnel.
 
Conflicts of Interest Risks
 
Wells Capital will face conflicts of interest relating to time management.
 
Wells Capital, our advisor, and its affiliates are general partners and sponsors of other real estate programs having investment objectives and legal and financial obligations similar to the Wells REIT. Because Wells Capital and its affiliates have interests in other real estate programs and also engage in other business activities, they may have conflicts of interest in allocating their time between our business and these other activities. During times of intense activity in other programs and ventures, they may devote less time and resources to our business than is necessary or appropriate. (See “Conflicts of Interest.”) If Wells Capital, for any reason, is not able to provide investment opportunities to us consistent with our investment objectives in a timely manner, we may have lower returns on our investments.
 
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Wells Capital will face conflicts of interest relating to the purchase and leasing of properties.
 
We may be buying properties at the same time as one or more of the other Wells programs are buying properties. There is a risk that Wells Capital will choose a property that provides lower returns to us than a property purchased by another Wells program. We may acquire properties in geographic areas where other Wells programs own properties. If one of the Wells programs attracts a tenant that we are competing for, we could suffer a loss of revenue due to delays in locating another suitable tenant. (See “Conflicts of Interest.”)
 
Certain of our officers and directors face conflicts of interest relating to the positions they hold with other entities.
 
Certain of our executive officers and directors are also officers and directors of Wells Capital, our advisor and the general partner of various other Wells programs, Wells Management Company, Inc., our Property Manager, and Wells Investment Securities, Inc., our Dealer Manager, and, as such, owe fiduciary duties to these various entities and their stockholders and limited partners. Such fiduciary duties may from time to time conflict with the fiduciary duties owed to the Wells REIT and its stockholders. (See “Conflicts of Interest.”)
 
We will be subject to additional risks as a result of our joint ventures with affiliates.
 
We have entered in the past and are likely to continue in the future to enter into joint ventures with other Wells programs for the acquisition, development or improvement of properties. We may also purchase and develop properties in joint ventures or in partnerships, co-tenancies or other co-ownership arrangements with sellers of properties, affiliates of sellers, developers or other persons. Such investments may involve risks not otherwise present with an investment in real estate, including, for example:
 
 	•	 	the possibility that our co-venturer, co-tenant or partner in an investment might become bankrupt;	
 
 	•	 	that such co-venturer, co-tenant or partner may at any time have economic or business interests or goals which are or which become inconsistent with our business interests or goals; or	
 
 	•	 	that such co-venturer, co-tenant or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives.	
 
Actions by such a co-venturer, co-tenant or partner might have the result of subjecting the property to liabilities in excess of those contemplated and may have the effect of reducing your returns.
 
Wells Capital will face conflicts of interest relating to joint ventures with affiliates.
 
Wells Capital, our advisor, is currently sponsoring a public offering on behalf of Wells Real Estate Fund XIII, L.P. (Wells Fund XIII), which is an unspecified property real estate program. (See “Prior Performance Summary.”) In the event that we enter into a joint venture with Wells Fund XIII or any other Wells program or joint venture, we may face certain additional risks and potential conflicts of interest. For example, securities issued by Wells Fund XIII and the other Wells public limited partnerships will never have an active trading market. Therefore, if we were to become listed on a national exchange, we may no longer have similar goals and objectives with respect to the resale of properties in the future. In addition, in the event that the Wells REIT is not listed on a securities exchange
 
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by January 30, 2008, our organizational documents provide for an orderly liquidation of our assets. In the event of such liquidation, any joint venture between the Wells REIT and another Wells program may be required to sell its properties at such time. Our joint venture partners may not desire to sell the properties at that time. Although the terms of any joint venture agreement between the Wells REIT and another Wells program would grant the other Wells program a right of first refusal to buy such properties, it is unlikely that any such program would have sufficient funds to exercise its right of first refusal under these circumstances.
 
Agreements and transactions between the parties with respect to joint ventures between the Wells REIT and other Wells programs will not have the benefit of arm’s length negotiation of the type normally conducted between unrelated co-venturers. Under these joint venture agreements, none of the co-venturers may have the power to control the venture, and an impasse could be reached regarding matters pertaining to the joint venture, which might have a negative impact on the joint venture and decrease potential returns to you. In the event that a co-venturer has a right of first refusal to buy out the other co-venturer, it may be unable to finance such buy-out at that time. It may also be difficult for us to sell our interest in any such joint venture or partnership or as a co-tenant in property. In addition, to the extent that our co-venturer, partner or co-tenant is an affiliate of Wells Capital, certain conflicts of interest will exist. (See “Conflicts of Interest—Joint Ventures with Affiliates of Wells Capital.”)
 
General Investment Risks
 
A limit on the number of shares a person may own may discourage a takeover.
 
Our articles of incorporation restrict ownership by one person to no more than 9.8% of the outstanding shares. This restriction may discourage a change of control of the Wells REIT and may deter individuals or entities from making tender offers for shares, which offers might be financially attractive to stockholders or which may cause a change in the management of the Wells REIT. (See “Description of Shares—Restriction on Ownership of Shares.”)
 
We will not be afforded the protection of Maryland Corporation Law relating to business combinations.
 
Provisions of Maryland Corporation Law prohibit business combinations, unless prior approval of the board of directors is obtained before the person became an interested stockholder, with:
 
 	•	 	any person who beneficially owns 10% or more of the voting power of our outstanding shares;	
 
 	•	 	any of our affiliates who, at any time within the two year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of our outstanding shares (interested stockholder); or	
 
 	•	 	an affiliate of an interested stockholder.	
 
These prohibitions are intended to prevent a change of control by interested stockholders who do not have the support of our board of directors. Since our articles of incorporation contain limitations on ownership of 9.8% or more of our common stock, we opted out of the business combinations statute in our articles of incorporation. Therefore, we will not be afforded the protections of this statute and, accordingly, there is no guarantee that the ownership limitations in our articles of incorporation would provide the same measure of protection as the business combinations statute and prevent an undesired change of control by an interested stockholder. (See “Description of Shares—Restriction on Ownership of Shares” and “Description of Shares—Business Combinations.”)
 
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You are bound by the majority vote on matters on which you are entitled to vote.
 
You may vote on certain matters at any annual or special meeting of our stockholders, including the election of our directors or amendments to our articles of incorporation. However, you will be bound by the majority vote on matters requiring approval of a majority of our stockholders even if you do not vote with the majority on any such matter.
 
You are limited in your ability to sell your shares pursuant to our share redemption program.
 
Even though our share redemption program provides you with the opportunity to redeem your shares for $10 per share (or the price you paid for the shares, if lower than $10) after you have held them for a period of one year, you should be fully aware that our share redemption program contains certain restrictions and limitations. Shares will be redeemed on a first-come, first-served basis and will be limited to the lesser of (1) during any calendar year, three percent (3%) of the weighted average number of shares outstanding during the prior calendar year, or (2) the proceeds we receive from the sale of shares under our dividend reinvestment plan such that in no event shall the aggregate amount of redemptions under our share redemption program exceed aggregate proceeds received from the sale of shares pursuant to our dividend reinvestment plan. Our board of directors reserves the right to amend or terminate the share redemption program at any time. In addition, the board of directors has delegated authority to our officers to reject any request for redemption for any reason at any time. Therefore, in making a decision to purchase shares of the Wells REIT, you should not assume that you will be able to sell any of your shares back to us pursuant to our share redemption program. (See “Description of Shares—Share Redemption Program.”)
 
We established the offering price on an arbitrary basis.
 
Our board of directors has arbitrarily determined the selling price of the shares, and such price bears no relationship to any established criteria for valuing issued or outstanding shares.
 
Your interest in the Wells REIT may be diluted if we issue additional shares.
 
Existing stockholders and potential investors in this offering do not have preemptive rights to any shares issued by the Wells REIT in the future. Therefore, existing stockholders and investors purchasing shares in this offering may experience dilution of their equity investment in the Wells REIT in the event that we:
 
 	•	 	sell shares in this offering or sell additional shares in the future, including those issued pursuant to the dividend reinvestment plan;	
 
 	•	 	sell securities that are convertible into shares;	
 
 	•	 	issue shares in a private offering of securities to institutional investors;	
 
 	•	 	issue shares of common stock upon the exercise of the options granted to our independent directors or employees of Wells Capital and Wells Management Company, Inc. (Wells Management) or the warrants issued and to be issued to participating broker-dealers or our independent directors; or	
 
 	•	 	issue shares to sellers of properties acquired by us in connection with an exchange of limited partnership units from Wells OP.	
 
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Payment of fees to Wells Capital and its affiliates will reduce cash available for investment and distribution.
 
Wells Capital and its affiliates will perform services for us in connection with the offer and sale of the shares, the selection and acquisition of our properties, and the management and leasing of our properties. They will be paid substantial fees for these services, which will reduce the amount of cash available for investment in properties or distribution to our stockholders. (See “Management Compensation.”)
 
The availability and timing of cash dividends is uncertain.
 
We bear all expenses incurred in our operations, which are deducted from cash funds generated by operations prior to computing the amount of cash dividends to be distributed to our stockholders. In addition, our board of directors, in its discretion, may retain any portion of such funds for working capital. We cannot assure you that sufficient cash will be available to pay dividends to you.
 
We are uncertain of our sources for funding of future capital needs.
 
Substantially all of the gross proceeds of the offering will be used for investment in properties and for payment of various fees and expenses. (See “Estimated Use of Proceeds.”) In addition, we do not anticipate that we will maintain any permanent working capital reserves. Accordingly, in the event that we develop a need for additional capital in the future for the improvement of our properties or for any other reason, we have not identified any sources for such funding, and we cannot assure you that such sources of funding will be available to us for potential capital needs in the future.
 
You will not have the benefit of independent due diligence review in connection with this offering.
 
Since Wells Investment Securities, our Dealer Manager, is an affiliate of Wells Capital, you will not have the benefit of independent due diligence review and investigation of the type normally performed by unaffiliated, independent underwriters in connection with securities offerings.
 
The conviction of Arthur Andersen LLP and recent events related thereto may adversely affect your ability to recover potential claims against Arthur Andersen in connection with their audits of our financials statements.
 
In June 2002, our former independent auditor, Arthur Andersen LLP (Andersen), was tried and convicted on federal obstruction of justice charges arising from its involvement as auditors for Enron Corporation. Events arising out of the conviction or other events relating to the financial condition of Andersen may adversely affect the ability of Andersen to satisfy any potential claims that may arise out of Andersen’s audits of the financial statements contained in this prospectus. In addition, Andersen has notified us that it will no longer be able to provide us with the necessary consents related to previously audited financial statements in our prospectus. Our inability to obtain such consents may also adversely affect your ability to pursue potential claims against Andersen.
 
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Real Estate Risks
 
General Real Estate Risks
 
Your investment will be affected by adverse economic and regulatory changes.
 
We will be subject to risks generally incident to the ownership of real estate, including:
 
 	•	 	changes in general economic or local conditions;	
 
 	•	 	changes in supply of or demand for similar or competing properties in an area;	
 
 	•	 	changes in interest rates and availability of permanent mortgage funds which may render the sale of a property difficult or unattractive;	
 
 	•	 	changes in tax, real estate, environmental and zoning laws; and	
 
 	•	 	periods of high interest rates and tight money supply.	
 
For these and other reasons, we cannot assure you that we will be profitable or that we will realize growth in the value of our real estate properties.
 
A property that incurs a vacancy could be difficult to sell or re-lease.
 
A property may incur a vacancy either by the continued default of a tenant under its lease or the expiration of one of our leases. A number of our properties may be specifically suited to the particular needs of our tenants. Therefore, we may have difficulty obtaining a new tenant for any vacant space we have in our properties. If the vacancy continues for a long period of time, we may suffer reduced revenues resulting in less cash dividends to be distributed to stockholders. In addition, the resale value of the property could be diminished because the market value of a particular property will depend principally upon the value of the leases of such property.
 
We are dependent on tenants for our revenue.
 
Most of our properties are occupied by a single tenant and, therefore, the success of our investments are materially dependent on the financial stability of our tenants. Lease payment defaults by tenants would most likely cause us to reduce the amount of distributions to stockholders. A default of a tenant on its lease payments to us would cause us to lose the revenue from the property and cause us to have to find one or more additional tenants. If there are a substantial number of tenants that are in default at any one time, we could have difficulty making mortgage payments that could result in foreclosures of properties subject to a mortgage. In the event of a default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-letting our property. If a lease is terminated, we cannot assure you that we will be able to lease the property for the rent previously received or sell the property without incurring a loss.
 
We rely on certain tenants.
 
As of July 1, 2002, our most substantial tenants based on rental income are SSB Realty, LLC (approximately 6.3%), Metris Direct, Inc. (approximately 5.6%), Motorola, Inc. (approximately 4.7%), and Zurich American Insurance Company, Inc. (approximately 4.6%). The revenues generated by the properties these tenants occupy are substantially reliant upon the financial condition of these tenants and, accordingly, any event of bankruptcy, insolvency or a general downturn in the business of any of these tenants may result in the failure or delay of such tenant’s rental payments which may have a substantial
 
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adverse effect on our financial performance. (See “Description of Real Estate Investments” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”)
 
We may not have funding for future tenant improvements.
 
When a tenant at one of our properties does not renew its lease or otherwise vacates its space in one of our buildings, it is likely that, in order to attract one or more new tenants, we will be required to expend substantial funds for tenant improvements and tenant refurbishments to the vacated space. Substantially all of our net offering proceeds will be invested in real estate properties, and we do not anticipate that we will maintain permanent working capital reserves. We also have no identified funding source to provide funds which may be required in the future for tenant improvements and tenant refurbishments in order to attract new tenants. We cannot assure you that we will have any sources of funding available to us for such purposes in the future.
 
Uninsured losses relating to real property may adversely affect your returns.
 
In the event that any of our properties incurs a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by any such uninsured loss. In addition, we have no current source of funding to repair or reconstruct the damaged property and cannot assure you that any such source of funding will be available to us for such purposes in the future.
 
Development and construction of properties may result in delays and increased costs and risks.
 
We may invest some or all of the proceeds available for investment in the acquisition and development of properties upon which we will develop and construct improvements at a fixed contract price. We will be subject to risks relating to the builder’s ability to control construction costs or to build in conformity with plans, specifications and timetables. The builder’s failure to perform may necessitate legal action by us to rescind the purchase or the construction contract or to compel performance. Performance may also be affected or delayed by conditions beyond the builder’s control. Delays in completion of construction could also give tenants the right to terminate preconstruction leases for space at a newly developed project. We may incur additional risks when we make periodic progress payments or other advances to such builders prior to completion of construction. Factors such as those discussed above can result in increased costs of a project or loss of our investment. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. Furthermore, we must rely upon projections of rental income and expenses and estimates of the fair market value of property upon completion of construction when agreeing upon a price to be paid for the property at the time of acquisition of the property. If our projections are inaccurate, we may pay too much for a property.
 
Competition for investments may increase costs and reduce returns.
 
We will experience competition for real property investments from individuals, corporations and bank and insurance company investment accounts, as well as other real estate investment trusts, real estate limited partnerships, and other entities engaged in real estate investment activities. Competition for investments may have the effect of increasing costs and reducing your returns.
 
Delays in acquisitions of properties may have an adverse effect on your investment.
 
Delays we encounter in the selection, acquisition and development of properties could adversely affect your returns. Where we acquire properties prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available space. Therefore, you could suffer delays in the distribution of cash dividends attributable to those
 
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particular properties. In addition, if we are unable to invest our offering proceeds in income producing real properties in a timely manner, we may not be able to continue to pay the dividend rates we are currently paying to our stockholders.
 
We may not be able to immediately invest proceeds in real estate.
 
Until we invest the proceeds of this offering in real estate investments, we may invest in short-term, highly liquid or other authorized investments. Such short-term investments are not likely to earn as high a return as we expect to earn on our real estate investments, and we cannot guarantee how long it will take us to fully invest the proceeds of this offering in real estate investments.
 
Uncertain market conditions and Wells Capital’s broad discretion relating to the future disposition of properties could adversely affect the return on your investment.
 
We generally will hold the various real properties in which we invest until such time as Wells Capital determines that a sale or other disposition appears to be advantageous to achieve our investment objectives or until it appears that such objectives will not be met. Otherwise, Wells Capital, subject to the approval of our board of directors, may exercise its discretion as to whether and when to sell a property, and we will have no obligation to sell properties at any particular time, except upon a liquidation of the Wells REIT if we do not list the shares by January 30, 2008. We cannot predict with any certainty the various market conditions affecting real estate investments that will exist at any particular time in the future. Due to the uncertainty of market conditions that may affect the future disposition of our properties, we cannot assure you that we will be able to sell our properties at a profit in the future. Accordingly, the extent to which you will receive cash distributions and realize potential appreciation on our real estate investments will be dependent upon fluctuating market conditions.
 
Discovery of previously undetected environmentally hazardous conditions may adversely affect our operating results.
 
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the cost of removal or remediation of hazardous or toxic substances on such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which properties may be used or businesses may be operated, and these restrictions may require expenditures. Environmental laws provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. We may be potentially liable for such costs in connection with the acquisition and ownership of our properties. The cost of defending against claims of liability, of compliance with environmental regulatory requirements or of remediating any contaminated property could materially adversely affect the business, assets or results of operations of the Wells REIT and, consequently, amounts available for distribution to you.
 
Financing Risks
 
If we fail to make our debt payments, we could lose our investment in a property.
 
We generally secure the loans we obtain to fund property acquisitions with first priority mortgages on some of our properties. If we are unable to make our debt payments as required, a lender could foreclose on the property or properties securing its debt. This could cause us to lose part or all of our investment which in turn could cause a reduction in the value of the shares and the dividends payable to our stockholders. (See “Description of Real Estate Investments—Real Estate Loans.”)
 
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Lenders may require us to enter into restrictive covenants relating to our operations.
 
In connection with obtaining certain financing, a lender could impose restrictions on us that would affect our ability to incur additional debt and our distribution and operating policies. Loan documents we enter into may contain customary negative covenants which may limit our ability to further mortgage the property, to discontinue insurance coverage, replace Wells Capital as our advisor or impose other limitations.
 
If we enter into financing arrangements involving balloon payment obligations, it may adversely affect our ability to pay dividends.
 
Some of our financing arrangements may require us to make a lump-sum or “balloon” payment at maturity. We may finance more properties in this manner. Our ability to make a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or our ability to sell the property. At the time the balloon payment is due, we may or may not be able to refinance the balloon payment on terms as favorable as the original loan or sell the property at a price sufficient to make the balloon payment. A refinancing or sale under these circumstances could affect the rate of return to stockholders and the projected time of disposition of our assets. In addition, payments of principal and interest made to service our debts may leave us with insufficient cash to pay the distributions that we are required to pay to maintain our qualification as a REIT.
 
Section 1031 Exchange Program Risks
 
We may have increased exposure to liabilities from litigation as a result of our participation in the Section 1031 Exchange Program.
 
Wells Development Corporation, an affiliate of Wells Capital, our advisor, is forming a series of single member limited liability companies (each of which is referred to in this prospectus as Wells Exchange) for the purpose of facilitating the acquisition of real estate properties to be owned in co-tenancy arrangements with persons (1031 Participants) who are looking to invest proceeds from a sale of real estate to qualify for like-kind exchange treatment under Section 1031 of the Internal Revenue Code (Section 1031 Exchange Program). There will be significant tax and securities disclosure risks associated with the private placement offerings of co-tenancy interests by Wells Exchange to 1031 Participants. For example, in the event that the Internal Revenue Service conducts an audit of the purchasers of co-tenancy interests and successfully challenges the qualification of the transaction as a like-kind exchange under Section 1031 of the Internal Revenue Code, even though it is anticipated that this tax risk will be fully disclosed to investors, purchasers of co-tenancy interests may file a lawsuit against Wells Exchange and its sponsors. In such event, even though Wells OP is not acting as a sponsor of the offering, is not commonly controlled with Wells Exchange, and is not recommending that 1031 Participants buy co-tenancy interests from Wells Exchange, as a result of our participation in the Section 1031 Exchange Program, and since Wells OP will be receiving fees in connection with the Section 1031 Exchange Program, we may be named in or otherwise required to defend against lawsuits brought by 1031 Participants. Any amounts we are required to expend for any such litigation claims may reduce the amount of funds available for distribution to stockholders of the Wells REIT. In addition, disclosure of any such litigation may adversely affect our ability to raise additional capital in the future through the sale of stock. (See “Investment Objectives and Criteria—Section 1031 Exchange Program.”)
 
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We will be subject to risks associated with co-tenancy arrangements that are not otherwise present in a real estate investment.
 
At the closing of each property Wells Exchange acquires pursuant to the Section 1031 Exchange Program, we anticipate that Wells OP will enter into a contractual arrangement providing that, in the event that Wells Exchange is unable to sell all of the co-tenancy interests in that particular property by the completion of its private placement offering, Wells OP will purchase, at Wells Exchange’s cost, any co-tenancy interests remaining unsold. Accordingly, in the event that Wells Exchange is unable to sell all co-tenancy interests in one or more of its properties, Wells OP will be required to purchase the unsold co-tenancy interests in such property or properties and, thus, will be subject to the risks of ownership of properties in a co-tenancy arrangement with unrelated third parties. (See “Investment Objectives and Criteria—Section 1031 Exchange Program. “)
 
Ownership of co-tenancy interests involves risks not otherwise present with an investment in real estate such as the following:
 
 	•	 	the risk that a co-tenant may at any time have economic or business interests or goals which are or which become inconsistent with our business interests or goals;	
 
 	•	 	the risk that a co-tenant may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives; or	
 
 	•	 	the possibility that a co-tenant might become insolvent or bankrupt, which may be an event of default under mortgage loan financing documents or allow the bankruptcy court to reject the tenants in common agreement or management agreement entered into by the co-tenants owning interests in the property.	
 
Actions by a co-tenant may subject the property to liabilities in excess of those contemplated and may have the effect of reducing your returns.
 
In the event that our interests become adverse to those of the other co-tenants, we will not have the contractual right to purchase the co-tenancy interests from the other co-tenants. Even if we are given the opportunity to purchase such co-tenancy interests in the future, we cannot guarantee that we will have sufficient funds available at the time to purchase co-tenancy interests from the 1031 Participants.
 
We might want to sell our co-tenancy interests in a given property at a time when the other co-tenants in such property do not desire to sell their interests. Therefore, we may not be able to sell our interest in a property at the time we would like to sell. In addition, we anticipate that it will be much more difficult to find a willing buyer for our co-tenancy interests in a property than it would be to find a buyer for a property we owned outright.
 
Our participation in the Section 1031 Exchange Program may limit our ability to borrow funds in the future.
 
Institutional lenders may view our obligations under agreements to acquire unsold co-tenancy interests in properties as a contingent liability against our cash or other assets, which may limit our ability to borrow funds in the future. Further, such obligations may be viewed by our lenders in such a manner as to limit our ability to borrow funds based on regulatory restrictions on lenders limiting the amount of loans they can make to any one borrower. (See “Investment Objectives and Criteria—Section 1031 Exchange Program.”)
 
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Federal Income Tax Risks
 
Failure to qualify as a REIT could adversely affect our operations and our ability to make distributions.
 
In order for us to qualify as a REIT, we must satisfy certain requirements set forth in the Internal Revenue Code and Treasury Regulations and various factual matters and circumstances which are not entirely within our control. We have and will continue to structure our activities in a manner designed to satisfy all of these requirements, however, if certain of our operations were to be recharacterized by the Internal Revenue Service, such recharacterization could jeopardize our ability to satisfy all of the requirements for qualification as a REIT. In addition, new legislation, regulations, administrative interpretations or court decisions could change the tax laws relating to our qualification as a REIT or the federal income tax consequences of our being a REIT.
 
If we fail to qualify as a REIT for any taxable year, we will be subject to federal income tax on our taxable income at corporate rates with no offsetting deductions for distributions made to stockholders. Further, in such event, we would generally be disqualified from treatment as a REIT for the four taxable years following the year in which we lose our REIT status. Accordingly, the loss of our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the substantial tax liabilities that would be imposed on us. We might also be required to borrow funds or liquidate some investments in order to pay the applicable tax.
 
Certain fees paid to Wells OP may affect our REIT status.
 
In connection with the Section 1031 Exchange Program, Wells OP will enter into a number of contractual arrangements with Wells Exchange that will, in effect, guarantee the sale of the co-tenancy interests being offered by Wells Exchange. (See “Investment Objectives and Criteria—Section 1031 Exchange Program.”) In consideration for entering into these agreements, Wells OP will be paid fees which could be characterized by the IRS as non-qualifying income for purposes of satisfying the “income tests” required for REIT qualification. (See “Federal Income Tax Consequences—Operational Requirements—Gross Income Tests.”) If this fee income were, in fact, treated as non-qualifying, and if the aggregate of such fee income and any other non-qualifying income in any taxable year ever exceeded 5.0% of our gross revenues for such year, we could lose our REIT status for that taxable year and the four ensuing taxable years. As set forth above, we will use all reasonable efforts to structure our activities in a manner intended to satisfy the requirements for our continued qualification as a REIT.
 
Recharacterization of the Section 1031 Exchange Program may result in taxation of income from a prohibited transaction.
 
In the event that the Internal Revenue Service were to recharacterize the Section 1031 Exchange Program such that Wells OP, rather than Wells Exchange, is treated as the bona fide owner, for tax purposes, of properties acquired and resold by Wells Exchange in connection with the Section 1031 Exchange Program, such characterization could result in the fees paid to Wells OP by Wells Exchange as being deemed income from a prohibited transaction, in which event all such fee income paid to us in connection with the Section 1031 Exchange Program would be subject to a 100% tax. (See “Investment Objectives and Criteria—Section 1031 Exchange Program.”)
 
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Legislative or regulatory action could adversely affect investors.
 
In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of the federal income tax laws applicable to investments similar to an investment in shares of the Wells REIT. Additional changes to tax laws are likely to continue to occur in the future, and we cannot assure you that any such changes will not adversely affect the taxation of our stockholders. Any such changes could have an adverse effect on an investment in shares or on the market value or the resale potential of our properties. You are urged to consult with your own tax advisor with respect to the impact of recent legislation on your investment in shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in shares.
 
Retirement Plan Risks
 
There are special considerations that apply to pension or profit sharing trusts or IRAs investing in shares.
 
If you are investing the assets of a pension, profit sharing, 401(k), Keogh or other qualified retirement plan or the assets of an IRA in the Wells REIT, you should satisfy yourself that:
 
 	•	 	your investment is consistent with your fiduciary obligations under ERISA and the Internal Revenue Code;	
 
 	•	 	your investment is made in accordance with the documents and instruments governing your plan or IRA, including your plan’s investment policy;	
 
 	•	 	your investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA;	
 
 	•	 	your investment will not impair the liquidity of the plan or IRA;	
 
 	•	 	your investment will not produce “unrelated business taxable income” for the plan or IRA;	
 
 	•	 	you will be able to value the assets of the plan annually in accordance with ERISA requirements; and	
 
 	•	 	your investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code.	
 
For a more complete discussion of the foregoing issues and other risks associated with an investment in shares by retirement plans, please see the “ERISA Considerations” section of this prospectus on page 132.
 
SUITABILITY STANDARDS
 
The shares we are offering are suitable only as a long-term investment for persons of adequate financial means. Initially, we do not expect to have a public market for the shares, which means that you may have difficulty selling your shares. You should not buy these shares if you need to sell them immediately or will need to sell them quickly in the future. In consideration of these factors, we have established suitability standards for initial stockholders and subsequent transferees. These suitability standards require that a purchaser of shares have either:
 
 	•	 	a net worth of at least $150,000; or	
 
 	•	 	gross annual income of at least $45,000 and a net worth of at least $45,000.	
 
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The minimum purchase is 100 shares ($1,000), except in certain states as described below. You may not transfer fewer shares than the minimum purchase requirement. In addition, you may not transfer, fractionalize or subdivide your shares so as to retain less than the number of shares required for the minimum purchase. In order to satisfy the minimum purchase requirements for retirement plans, unless otherwise prohibited by state law, a husband and wife may jointly contribute funds from their separate IRAs, provided that each such contribution is made in increments of $100. You should note that an investment in shares of the Wells REIT will not, in itself, create a retirement plan and that, in order to create a retirement plan, you must comply with all applicable provisions of the Internal Revenue Code.
 
The minimum purchase for Maine, New York and North Carolina residents is 250 shares ($2,500), except for IRAs which must purchase a minimum of 100 shares ($1,000). The minimum purchase for Minnesota residents is 250 shares ($2,500), except for IRAs and other qualified retirement plans which must purchase a minimum of 200 shares ($2,000).            
 
Except in the states of Maine, Minnesota, Nebraska and Washington, if you have satisfied the minimum purchase requirements and have purchased units in other Wells programs or units or shares in other public real estate programs, you may purchase less than the minimum number of shares set forth above, but in no event less than 2.5 shares ($25). After you have purchased the minimum investment, any additional purchase must be in increments of at least 2.5 shares ($25), except for (1) purchases made by residents of Maine and Minnesota, who must still meet the minimum investment requirements set forth above, and (2) purchases of shares pursuant to the dividend reinvestment plan of the Wells REIT or reinvestment plans of other public real estate programs, which may be in lesser amounts.
 
Several states have established suitability standards different from those we have established. Shares will be sold only to investors in these states who meet the special suitability standards set forth below.
 
Iowa, Massachusetts, Michigan, Missouri and Tennessee—Investors must have either (1) a net worth of at least $225,000, or (2) gross annual income of at least $60,000 and a net worth of at least $60,000.
 
Maine—Investors must have either (1) a net worth of at least $200,000, or (2) gross annual income of at least $50,000 and a net worth of at least $50,000.
 
Iowa, Missouri, Ohio and Pennsylvania—In addition to our suitability requirements, investors must have a net worth of at least 10 times their investment in the Wells REIT.
 
For purposes of determining suitability of an investor, net worth in all cases should be calculated excluding the value of an investor’s home, furnishings and automobiles.
 
In the case of sales to fiduciary accounts, these suitability standards must be met by the fiduciary account, by the person who directly or indirectly supplied the funds for the purchase of the shares or by the beneficiary of the account. These suitability standards are intended to help ensure that, given the long-term nature of an investment in our shares, our investment objectives and the relative illiquidity of our shares, shares of the Wells REIT are an appropriate investment for those of you desiring to become stockholders. Each participating broker-dealer must make every reasonable effort to determine that the purchase of shares is a suitable and appropriate investment for each stockholder based on information provided by the stockholder in the Subscription Agreement or otherwise. Each participating broker-dealer is required to maintain records of the information used to determine that an investment in shares is suitable and appropriate for each stockholder for a period of six years.
 
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ESTIMATED USE OF PROCEEDS
 
The following tables set forth information about how we intend to use the proceeds raised in this offering assuming that we sell 165,000,000 shares and 330,000,000 shares, respectively, pursuant to this offering. Many of the figures set forth below represent management’s best estimate since they cannot be precisely calculated at this time. We expect that at least 84.0% of the money you invest will be used to buy real estate, while the remaining up to 16.0% will be used for working capital and to pay expenses and fees, including the payment of fees to Wells Capital, our advisor, and Wells Investment Securities, our Dealer Manager.

 	  	165,000,000 Shares

	 	 	330,000,000 Shares

	 	
 	  	Amount(1)

	 	 	Percent

	 	 	Amount(2)

	 	 	Percent

	 	
Gross Offering Proceeds	  	$	1,650,000,000	 	 	100	%	 	$	3,300,000,000	 	 	100.0	%	
Less Public Offering Expenses:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
Selling Commissions and Dealer Manager Fee(3)	  	 	156,750,000	 	 	9.5	%	 	 	313,500,000	 	 	9.5	%	
Organization and Offering Expenses(4)	  	 	49,500,000	 	 	3.0	%	 	 	49,500,000	 	 	1.5	%	

	

	

	 	

	

	 	

	

	

	 	

	

	
Amount Available for Investment(5)	  	$	1,443,750,000	 	 	87.5	%	 	$	2,937,000,000	 	 	89.0	%	
Acquisition and Development:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
Acquisition and Advisory Fees(6)	  	 	49,500,000	 	 	3.0	%	 	 	99,000,000	 	 	3.0	%	
Acquisition Expenses(7)	  	 	8,250,000	 	 	0.5	%	 	 	16,500,000	 	 	0.5	%	
Initial Working Capital Reserve(8)	  	 	(8	)	 	—  	 	 	 	(8	)	 	—  	 	

	

	

	 	

	

	 	

	

	

	 	

	

	
Amount Invested in Properties(5)(9)	  	$	1,386,000,000	 	 	84.0	%	 	$	2,821,500,000	 	 	85.5	%	

	

	

	 	

	

	 	

	

	

	 	

	

	

(Footnotes to “Estimated Use of Proceeds”)
 
1.	 	Assumes that an aggregate of $1,650,000,000 will be raised in this offering for purposes of illustrating the percentage of estimated organization and offering expenses at two different sales levels. See Note 4 below.	
2.	 	Assumes the maximum offering is sold which includes 300,000,000 shares offered to the public at $10 per share and 30,000,000 shares offered pursuant to our dividend reinvestment plan at $10 per share. Excludes 6,600,000 shares to be issued upon exercise of the soliciting dealer warrants.	
3.	 	Includes selling commissions equal to 7.0% of aggregate gross offering proceeds which commissions may be reduced under certain circumstances and a  dealer manager fee  equal to 2.5% of aggregate gross offering proceeds, both of which are payable to the Dealer Manager, an affiliate of our advisor. The Dealer Manager, in its sole discretion, may reallow selling commissions of up to 7.0% of gross offering proceeds to other broker-dealers participating in this offering (Participating Dealers) attributable to the amount of shares sold by them. In addition, the Dealer Manager may reallow a portion of its dealer manager fee to Participating Dealers in the aggregate amount of up to 1.5% of gross offering proceeds to be paid to such Participating Dealers as marketing fees, or to reimburse representatives of such Participating Dealers the costs and expenses of attending our educational conferences and seminars. The amount of selling commissions may often be reduced under certain circumstances for volume discounts. See the “Plan of Distribution” section of this prospectus for a description of such provisions.	
4.	 	Organization and offering expenses consist of reimbursement of actual legal, accounting, printing and other accountable offering expenses, other than selling commissions and the dealer manager fee, including amounts to reimburse Wells Capital, our advisor, for all marketing related costs and expenses, including, but not limited to, salaries and direct expenses of our advisor’s employees while engaged in registering and marketing the shares and other marketing and organization costs, technology costs and expenses attributable to the offering, costs and expenses of conducting our	
 
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 	educational conferences and seminars, payment or reimbursement of bona fide due diligence expenses, and costs and expenses we incur for attending retail seminars conducted by broker-dealers. Wells Capital and its affiliates will be responsible for the payment of organization and offering expenses, other than selling commissions and the dealer manager fee, to the extent they exceed 3.0% of aggregate gross offering proceeds from all of our offerings without recourse against or reimbursement by the Wells REIT. We currently estimate that approximately $49,500,000 of organization and offering costs will be incurred if the maximum offering of 330,000,000 shares is sold. Notwithstanding the above, in no event shall organization and offering expenses, including selling commissions, the dealer manager fee and all other underwriting compensation, exceed 15% of gross offering proceeds.	
5.	 	Until required in connection with the acquisition and development of properties, substantially all of the net proceeds of the offering and, thereafter, the working capital reserves of the Wells REIT, may be invested in short-term, highly-liquid investments including government obligations, bank certificates of deposit, short-term debt obligations and interest-bearing accounts or other authorized investments as determined by our board of directors.	
6.	 	Acquisition and advisory fees are defined generally as fees and commissions paid by any party to any person in connection with the purchase, development or construction of properties. We will pay Wells Capital, as our advisor, acquisition and advisory fees up to a maximum amount of 3.0% of gross offering proceeds in connection with the acquisition of the real estate properties. Acquisition and advisory fees do not include acquisition expenses.	
7.	 	Acquisition expenses include legal fees and expenses, travel expenses, costs of appraisals, nonrefundable option payments on property not acquired, accounting fees and expenses, title insurance premiums and other closing costs and miscellaneous expenses relating to the selection, acquisition and development of real estate properties. We will pay Wells Capital, our advisor, acquisition expenses up to a maximum of 0.5% of gross offering proceeds as reimbursement for the payment of such expenses.	
8.	 	Because the vast majority of leases for the properties acquired by the Wells REIT will provide for tenant reimbursement of operating expenses, we do not anticipate that a permanent reserve for maintenance and repairs of real estate properties will be established. However, to the extent that we have insufficient funds for such purposes, we may apply an amount of up to 1.0% of gross offering proceeds for maintenance and repairs of real estate properties. We also may, but are not required to, establish reserves from gross offering proceeds, out of cash flow generated by operating properties or out of nonliquidating net sale proceeds, defined generally to mean the net cash proceeds received by the Wells REIT from any sale or exchange of properties.	
9.	 	Includes amounts anticipated to be invested in properties net of fees and expenses. We estimate that at least 84.0% of the proceeds received from the sale of shares will be used to acquire properties.	
 
MANAGEMENT
 
General
 
We operate under the direction of our board of directors, the members of which are accountable to us and our stockholders as fiduciaries. The board is responsible for the management and control of our affairs. The board has retained Wells Capital to manage our day-to-day affairs and the acquisition and disposition of our investments, subject to the board’s supervision. Our articles of incorporation were reviewed and ratified by our board of directors, including the independent directors, at their initial meeting. This ratification by our board of directors was required by the NASAA Guidelines.
 
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Our articles of incorporation and bylaws provide that the number of directors of the Wells REIT may be established by a majority of the entire board of directors but may not be fewer than three nor more than 15. We currently have a total of ten directors. Our articles of incorporation also provide that a majority of the directors must be independent directors. An “independent director” is a person who is not an officer or employee of the Wells REIT, Wells Capital or their affiliates and has not otherwise been affiliated with such entities for the previous two years. Of the ten current directors, eight of our directors are considered independent directors.
 
Proposed transactions are often discussed before being brought to a final board vote. During these discussions, independent directors often offer ideas for ways in which deals can be changed to make them acceptable and these suggestions are taken into consideration when structuring transactions. Each director will serve until the next annual meeting of stockholders or until his successor has been duly elected and qualified. Although the number of directors may be increased or decreased, a decrease shall not have the effect of shortening the term of any incumbent director.
 
Any director may resign at any time and may be removed with or without cause by the stockholders upon the affirmative vote of at least a majority of all the votes entitled to be cast at a meeting called for the purpose of the proposed removal. The notice of the meeting shall indicate that the purpose, or one of the purposes, of the meeting is to determine if the director shall be removed.
 
Unless filled by a vote of the stockholders as permitted by Maryland Corporation Law, a vacancy created by an increase in the number of directors or the death, resignation, removal, adjudicated incompetence or other incapacity of a director shall be filled by a vote of a majority of the remaining directors and,
 
 	•	 	in the case of a director who is not an independent director (affiliated director), by a vote of a majority of the remaining affiliated directors, or	
 
 	•	 	in the case of an independent director, by a vote of a majority of the remaining independent directors,	
 
unless there are no remaining affiliated directors or independent directors, as the case may be. In such case a majority vote of the remaining directors shall be sufficient. If at any time there are no independent or affiliated directors in office, successor directors shall be elected by the stockholders. Each director will be bound by our articles of incorporation and bylaws.
 
Our directors are not required to devote all of their time to our business and are only required to devote the time to our affairs as their duties may require. Our directors will meet quarterly or more frequently if necessary in order to discharge their duties as directors. We do not expect that our directors will be required to devote a substantial portion of their time in discharging such duties. Consequently, in the exercise of their fiduciary responsibilities, our directors will be relying heavily on Wells Capital. Our board is empowered to fix the compensation of all officers that it selects and may pay compensation to directors for services rendered to us in any other capacity.
 
Our general investment and borrowing policies are set forth in this prospectus. Our directors may establish further written policies on investments and borrowings and shall monitor our administrative procedures, investment operations and performance to ensure that the policies are fulfilled and are in the best interest of the stockholders. We will follow the policies on investments and borrowings set forth in this prospectus unless and until they are modified by our directors.
 
Our board is responsible for reviewing our fees and expenses on at least an annual basis and with sufficient frequency to determine that the expenses incurred are in the best interest of the stockholders. In
 
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addition, a majority of the independent directors, and a majority of directors not otherwise interested in the transaction, must approve all transactions with Wells Capital or its affiliates. The independent directors will also be responsible for reviewing the performance of Wells Capital and Wells Management and determining that the compensation to be paid to Wells Capital and Wells Management is reasonable in relation to the nature and quality of services to be performed and that the provisions of the advisory agreement and the property management agreement are being carried out. Specifically, the independent directors will consider factors such as:
 
 	•	 	the amount of the fee paid to Wells Capital and Wells Management in relation to the size, composition and performance of our investments;	
 
 	•	 	the success of Wells Capital in generating appropriate investment opportunities;	
 
 	•	 	rates charged to other REITs and other investors by advisors performing similar services;	
 
 	•	 	additional revenues realized by Wells Capital and Wells Management through their relationship with us, whether we pay them or they are paid by others with whom we do business;	
 
 	•	 	the quality and extent of service and advice furnished by Wells Capital and Wells Management and the performance of our investment portfolio; and	
 
 	•	 	the quality of our portfolio relative to the investments generated by Wells Capital and managed by Wells Management for their other clients.	
 
Neither our directors nor their affiliates will vote or consent to the voting of shares they now own or hereafter acquire on matters submitted to the stockholders regarding either (1) the removal of Wells Capital, any director or any affiliate, or (2) any transaction between us and Wells Capital, any director or any affiliate.
 
Committees of the Board of Directors
 
Our entire board of directors considers all major decisions concerning our business, including all property acquisitions. However, our board has established an Audit Committee, a Compensation Committee and various advisory committees so that important items within the purview of these committees can be addressed in more depth than may be possible at a full board meeting.
 
Audit Committee
 
Under our Audit Committee Charter, our Audit Committee’s primary function is to assist the board of directors in fulfilling its oversight responsibilities by reviewing the financial information to be provided to the stockholders and others, the system of internal controls which management has established, and the audit and financial reporting process. The members of our Audit Committee are Messrs. Bell, Carpenter, Carter, Keogler, Moss, Sessoms and Strickland.
 
Compensation Committee
 
Our board of directors has established a Compensation Committee to administer the 2000 Employee Stock Option Plan, as described below, which was approved by the stockholders at our annual stockholders meeting held June 28, 2000. The Compensation Committee is comprised of Messrs. Bell, Carpenter, Carter, Keogler, Moss, Sessoms and Strickland. The primary function of the Compensation Committee is to administer the granting of stock options to selected employees of Wells Capital and
 
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Wells Management based upon recommendations from Wells Capital, and to set the terms and conditions of such options in accordance with the 2000 Employee Stock Option Plan. To date, we have not issued any stock options under our 2000 Employee Stock Option Plan.
 
Advisory Committees
 
The board of directors has established various advisory committees in which certain members of the board sit on these advisory committees to assist Wells Capital and its affiliates in the following areas which have a direct impact on the operations of the Wells REIT: asset management; new business development; personnel supervision; and budgeting.
 
Executive Officers and Directors
 
We have provided below certain information about our executive officers and directors.
 
Name

	  	Position(s)

	  	Age

	
Leo F. Wells, III	  	President and Director	  	58	
Douglas P. Williams	  	Executive Vice President, Secretary, Treasurer and Director	  	51	
John L. Bell	  	Director	  	62	
Michael R. Buchanan	  	Director	  	55	
Richard W. Carpenter	  	Director	  	65	
Bud Carter	  	Director	  	63	
William H. Keogler, Jr.	  	Director	  	57	
Donald S. Moss	  	Director	  	66	
Walter W. Sessoms	  	Director	  	68	
Neil H. Strickland	  	Director	  	66	
 
Leo F. Wells, III is the President and a director of the Wells REIT and the President, Treasurer and sole director of Wells Capital, our advisor. He is also the sole stockholder and sole director of Wells Real Estate Funds, Inc., the parent corporation of Wells Capital. Mr. Wells is President of Wells & Associates, Inc., a real estate brokerage and investment company formed in 1976 and incorporated in 1978, for which he serves as principal broker. He is also the President, Treasurer and sole director of:
 
 	•	 	Wells Management Company, Inc., our Property Manager;	
 
 	•	 	Wells Investment Securities, Inc., our Dealer Manager;	
 
 	•	 	Wells Advisors, Inc., a company he organized in 1991 to act as a non-bank custodian for IRAs; and	
 
 	•	 	Wells Development Corporation, a company he organized in 1997 to develop real properties. (See “Conflicts of Interest.”)	
 
Mr. Wells was a real estate salesman and property manager from 1970 to 1973 for Roy D. Warren & Company, an Atlanta-based real estate company, and he was associated from 1973 to 1976 with Sax Gaskin Real Estate Company, during which time he became a Life Member of the Atlanta Board of Realtors Million Dollar Club. From 1980 to February 1985 he served as Vice President of Hill-Johnson, Inc., a Georgia corporation engaged in the construction business. Mr. Wells holds a Bachelor of Business Administration degree in economics from the University of Georgia. Mr. Wells is a member of the International Association for Financial Planning (IAFP) and a registered NASD principal.
 
Mr. Wells has over 30 years of experience in real estate sales, management and brokerage services. In addition to being the President and a director of the Wells REIT, he is currently a co-general
 
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partner in a total of 27 real estate limited partnerships formed for the purpose of acquiring, developing and operating office buildings and other commercial properties. As of June 30, 2002, these 27 real estate limited partnerships represented investments totaling approximately $347,154,000 from approximately 28,000 investors.
 
Douglas P. Williams is the Executive Vice President, Secretary, Treasurer and a director of the Wells REIT. He is also a Senior Vice President of Wells Capital, our advisor, and is also a Vice President of:
 
 	•	 	Wells Investment Securities, Inc., our Dealer Manager;	
 
 	•	 	Wells Real Estate Funds, Inc.; and	
 
 	•	 	Wells Advisors, Inc. (See “Conflicts of Interest.”)	
 
Mr. Williams previously served as Vice President, Controller of OneSource, Inc., a leading supplier of janitorial and landscape services, from 1996 to 1999 where he was responsible for corporate-wide accounting activities and financial analysis. Mr. Williams was employed by ECC International Inc. (ECC), a supplier to the paper industry and to the paint, rubber and plastic industries, from 1982 to 1995. While at ECC, Mr. Williams served in a number of key accounting positions, including: Corporate Accounting Manager, U.S. Operations; Division Controller, Americas Region; and Corporate Controller, America/Pacific Division. Prior to joining ECC and for one year after leaving ECC, Mr. Williams was employed by Lithonia Lighting, a manufacturer of lighting fixtures, as a Cost and General Accounting Manager and Director of Planning and Control. Mr. Williams started his professional career as an auditor for KPMG Peat Marwick LLP.
 
Mr. Williams is a member of the American Institute of Certified Public Accountants and the Georgia Society of Certified Public Accountants and is licensed with the NASD as a financial and operations principal. Mr. Williams received a Bachelor of Arts degree from Dartmouth College and a Masters of Business Administration degree from the Amos Tuck School of Graduate Business Administration at Dartmouth College.
 
John L. Bell was the owner and Chairman of Bell-Mann, Inc., the largest commercial flooring contractor in the Southeast from February 1971 to February 1996. Mr. Bell also served on the board of directors of Realty South Investors, a REIT traded on the American Stock Exchange, and was the founder and served as a director of both the Chattahoochee Bank and the Buckhead Bank. In 1997, Mr. Bell initiated and implemented a “Dealer Acquisition Plan” for Shaw Industries, Inc., a floor covering manufacturer and distributor, which plan included the acquisition of Bell-Mann.
 
Mr. Bell currently serves on the Board of Directors of Electronic Commerce Systems, Inc. and the Cullasaja Club of Highlands, North Carolina. Mr. Bell is also extensively involved in buying and selling real estate both individually and in partnership with others. Mr. Bell graduated from Florida State University majoring in accounting and marketing.
 
Michael R. Buchanan was employed by Bank of America, N.A. and its predecessor banks, NationsBank and C&S National Bank, from 1972 until his retirement in March 2002. Mr. Buchanan has over 30 years of real estate banking and financial experience and, while at Bank of America, he held several key positions including Managing Director of the Real Estate Banking Group from 1998 until his retirement where he managed approximately 1,100 associates in 90 offices. This group was responsible for providing real estate loans including construction, acquisition, development and bridge financing for the commercial and residential real estate industry, as well as providing structured financing for REITs.
 
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Mr. Buchanan is a graduate of the University of Kentucky where he earned a Bachelor of Economics degree and a Masters of Business Administration degree. He also attended Harvard University in the graduate program for management development.
 
Richard W. Carpenter served as General Vice President of Real Estate Finance of The Citizens and Southern National Bank from 1975 to 1979, during which time his duties included the establishment and supervision of the United Kingdom Pension Fund, U.K.-American Properties, Inc. which was established primarily for investment in commercial real estate within the United States.
 
Mr. Carpenter is a managing partner of Carpenter Properties, L.P., a real estate limited partnership. He is also President and director of Commonwealth Oil Refining Company, Inc., a position he has held since 1984.
 
Mr. Carpenter previously served as Vice Chairman of the board of directors of both First Liberty Financial Corp. and Liberty Savings Bank, F.S.B. and Chairman of the Audit Committee of First Liberty Financial Corp. He has been a member of The National Association of Real Estate Investment Trusts and formerly served as President and Chairman of the Board of Southmark Properties, an Atlanta-based REIT which invested in commercial properties. Mr. Carpenter is a past Chairman of the American Bankers Association Housing and Real Estate Finance Division Executive Committee. Mr. Carpenter holds a Bachelor of Science degree from Florida State University, where he was named the outstanding alumnus of the School of Business in 1973.
 
Bud Carter was an award-winning broadcast news director and anchorman for several radio and television stations in the Midwest for over 20 years. From 1975 to 1980, Mr. Carter served as General Manager of WTAZ-FM, a radio station in Peoria, Illinois and served as editor and publisher of The Peoria Press, a weekly business and political journal in Peoria, Illinois. From 1981 until 1989, Mr. Carter was also an owner and General Manager of Transitions, Inc., a corporate outplacement company in Atlanta, Georgia.
 
Mr. Carter currently serves as Senior Vice President for The Executive Committee, an international organization established to aid presidents and CEOs to share ideas on ways to improve the management and profitability of their respective companies. The Executive Committee operates in numerous large cities throughout the United States, Canada, Australia, France, Italy, Malaysia, Brazil, the United Kingdom and Japan. The Executive Committee has more than 7,000 presidents and CEOs who are members. In addition, Mr. Carter was the first Chairman of the organization recruited in Atlanta and still serves as Chairman of the first two groups formed in Atlanta, each comprised of 16 noncompeting CEOs and presidents. Mr. Carter serves on the board of directors of Creative Storage Systems, Inc., DiversiTech Coporation and Wavebase9. He is a graduate of the University of Missouri where he earned degrees in journalism and social psychology.
 
William H. Keogler, Jr. was employed by Brooke Bond Foods, Inc. as a Sales Manager from June 1965 to September 1968. From July 1968 to December 1974, Mr. Keogler was employed by Kidder Peabody & Company, Inc. and Dupont, Glore, Forgan as a corporate bond salesman responsible for managing the industrial corporate bond desk and the utility bond area. From December 1974 to July 1982, Mr. Keogler was employed by Robinson-Humphrey, Inc. as the Director of Fixed Income Trading Departments responsible for all municipal bond trading and municipal research, corporate and government bond trading, unit trusts and SBA/FHA loans, as well as the oversight of the publishing of the Robinson-Humphrey Southeast Unit Trust, a quarterly newsletter. Mr. Keogler was elected to the Board of Directors of Robinson-Humphrey, Inc. in 1982. From July 1982 to October 1984, Mr. Keogler was Executive Vice President, Chief Operating Officer, Chairman of the Executive Investment Committee and member of the board of directors and Chairman of the MFA Advisory Board for the Financial Service
 
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Corporation. He was responsible for the creation of a full service trading department specializing in general securities with emphasis on municipal bonds and municipal trusts. Under his leadership, Financial Service Corporation grew to over 1,000 registered representatives and over 650 branch offices. In March 1985, Mr. Keogler founded Keogler, Morgan & Company, Inc., a full service brokerage firm, and Keogler Investment Advisory, Inc., in which he served as Chairman of the Board, President and Chief Executive Officer. In January 1997, both companies were sold to SunAmerica, Inc., a publicly traded New York Stock Exchange company. Mr. Keogler continued to serve as President and Chief Executive Officer of these companies until his retirement in January 1998.
 
Mr. Keogler serves on the Board of Trustees of Senior Citizens Services of Atlanta. He graduated from Adelphi University in New York where he earned a degree in psychology.
 
Donald S. Moss was employed by Avon Products, Inc. from 1957 until his retirement in 1986. While at Avon, Mr. Moss served in a number of key positions, including Vice President and Controller from 1973 to 1976, Group Vice President of Operations-Worldwide from 1976 to 1979, Group Vice President of Sales-Worldwide from 1979 to 1980, Senior Vice President-International from 1980 to 1983 and Group Vice President-Human Resources and Administration from 1983 until his retirement in 1986. Mr. Moss was also a member of the board of directors of Avon Canada, Avon Japan, Avon Thailand, and Avon Malaysia from 1980-1983.
 
Mr. Moss is currently a director of The Atlanta Athletic Club. He formerly was the National Treasurer and a director of the Girls Clubs of America from 1973 to 1976. Mr. Moss graduated from the University of Illinois where he received a degree in business.
 
Walter W. Sessoms was employed by Southern Bell and its successor company, BellSouth, from 1956 until his retirement in June 1997. While at BellSouth, Mr. Sessoms served in a number of key positions, including Vice President-Residence for the State of Georgia from June 1979 to July 1981, Vice President-Transitional Planning Officer from July 1981 to February 1982, Vice President-Georgia from February 1982 to June 1989, Senior Vice President-Regulatory and External Affairs from June 1989 to November 1991, and Group President-Services from December 1991 until his retirement on June 30, 1997.
 
Mr. Sessoms currently serves as a director of the Georgia Chamber of Commerce for which he is a past Chairman of the Board, the Atlanta Civic Enterprises and the Salvation Army’s Board of Visitors of the Southeast Region. Mr. Sessoms is also a past executive advisory council member for the University of Georgia College of Business Administration and past member of the executive committee of the Atlanta Chamber of Commerce. Mr. Sessoms is a graduate of Wofford College where he earned a degree in economics and business administration, and is currently a member of the Wofford College Board of Trustees. He is a member of the Governor’s Education Reform Commission. In addition, Mr. Sessoms is a member of the Board of Trustees of the Southern Center for International Studies and is currently President of the Atlanta Rotary Club.
 
Neil H. Strickland was employed by Loyalty Group Insurance (which subsequently merged with America Fore Loyalty Group and is now known as The Continental Group) as an automobile insurance underwriter. From 1957 to 1961, Mr. Strickland served as Assistant Supervisor of the Casualty Large Lines Retrospective Rating Department. From 1961 to 1964, Mr. Strickland served as Branch Manager of Wolverine Insurance Company, a full service property and casualty service company, where he had full responsibility for underwriting of insurance and office administration in the State of Georgia. In 1964, Mr. Strickland and a non-active partner started Superior Insurance Service, Inc., a property and casualty wholesale general insurance agency. Mr. Strickland served as President and was responsible for the underwriting and all other operations of the agency. In 1967, Mr. Strickland sold his interest in
 
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Superior Insurance Service, Inc. and started Strickland General Agency, Inc., a property and casualty general insurance agency concentrating on commercial customers. Mr. Strickland is currently the Senior Operation Executive of Strickland General Agency, Inc. and devotes most of his time to long-term planning, policy development and senior administration.
 
Mr. Strickland is a past President of the Norcross Kiwanis Club and served as both Vice President and President of the Georgia Surplus Lines Association. He also served as President and a director of the National Association of Professional Surplus Lines Offices. Mr. Strickland currently serves as a director of First Capital Bank, a community bank located in the State of Georgia. Mr. Strickland attended Georgia State University where he majored in business administration. He received his L.L.B. degree from Atlanta Law School.
 
Compensation of Directors
 
We pay each of our independent directors $3,000 per regularly scheduled quarterly board meeting attended, $1,000 per regularly scheduled advisory committee meeting attended and $250 per special board meeting attended whether held in person or by telephone conference. In addition, we have reserved 100,000 shares of common stock for future issuance upon the exercise of stock options granted to the independent directors pursuant to our Independent Director Stock Option Plan and 500,000 shares for future issuance upon the exercise of warrants to be granted to the independent directors pursuant to our Independent Director Warrant Plan. All directors receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attendance at meetings of the board of directors. If a director also is an officer of the Wells REIT, we do not pay separate compensation for services rendered as a director.
 
Independent Director Stock Option Plan
 
Our Independent Director Stock Option Plan (Director Option Plan) was approved by our stockholders at the annual stockholders meeting held June 16, 1999. We issued non-qualified stock options to purchase 2,500 shares (Initial Options) to each independent director pursuant to our Director Option Plan. In addition, we issued options to purchase 1,000 shares to each independent director then in office in connection with the 2000, 2001 and 2002 annual meeting of stockholders and will continue to issue options to purchase 1,000 shares (Subsequent Options) to each independent director then in office on the date of each annual stockholders’ meeting. The Initial Options and the Subsequent Options are collectively referred to as the “Director Options.” Director Options may not be granted at any time when the grant, along with grants to other independent directors, would exceed 10% of our issued and outstanding shares. As of the date of this prospectus, each independent director (except for Michael R. Buchanan, who was recently appointed as an independent director and will be awarded 2,500 Initial Options) had been granted options to purchase a total of 5,500 shares under the Director Option Plan, of which 3,000 of those options were exercisable.
 
The exercise price for the Initial Options is $12.00 per share. The exercise price for the Subsequent Options is the greater of (1) $12.00 per share or (2) the fair market value of the shares on the date they are granted. Fair market value is defined generally to mean:
 
 	•	 	the average closing price for the five consecutive trading days ending on such date if the shares are traded on a national exchange;	
 
 	•	 	the average of the high bid and low asked prices if the shares are quoted on NASDAQ;	
 
 	•	 	the average of the last 10 sales made pursuant to a public offering if there is a current public offering and no market maker for the shares;	
 
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 	•	 	the average of the last 10 purchases (or fewer if less than 10 purchases) under our share redemption program if there is no current public offering; or	
 
 	•	 	the price per share under the dividend reinvestment plan if there are no purchases under the share redemption program.	
 
One-fifth of the Initial Options were exercisable beginning on the date we granted them, one-fifth of the Initial Options became exercisable beginning in July 2000, one-fifth of the Initial Options became exercisable beginning in July 2001, one fifth of the Initial Options became exercisable beginning in July 2002 and the remaining one-fifth of the Initial Options will become exercisable beginning in July 2003. The Subsequent Options granted in connection with the 2000 annual stockholders’ meeting became exercisable in June 2002. The remaining Subsequent Options granted under the Director Option Plan will become exercisable on the second anniversary of the date we grant them.
 
A total of 100,000 shares have been authorized and reserved for issuance under the Director Option Plan. If the number of outstanding shares is changed into a different number or kind of shares or securities through a reorganization or merger in which the Wells REIT is the surviving entity, or through a combination, recapitalization or otherwise, an appropriate adjustment will be made in the number and kind of shares that may be issued pursuant to exercise of the Director Options. A corresponding adjustment to the exercise price of the Director Options granted prior to any change will also be made. Any such adjustment, however, will not change the total payment, if any, applicable to the portion of the Director Options not exercised, but will change only the exercise price for each share.
 
Options granted under the Director Option Plan shall lapse on the first to occur of (1) the tenth anniversary of the date we grant them, (2) the removal for cause of the independent director as a member of the board of directors, or (3) three months following the date the independent director ceases to be a director for any reason other than death or disability, and may be exercised by payment of cash or through the delivery of common stock. Director Options granted under the Director Option Plan are generally exercisable in the case of death or disability for a period of one year after death or the disabling event. No Director Option issued may be exercised if such exercise would jeopardize our status as a REIT under the Internal Revenue Code.
 
The independent directors may not sell, pledge, assign or transfer their options other than by will or the laws of descent or distribution.
 
Upon the dissolution or liquidation of the Wells REIT, upon our reorganization, merger or consolidation with one or more corporations as a result of which we are not the surviving corporation or upon sale of all or substantially all of our properties, the Director Option Plan will terminate, and any outstanding Director Options will terminate and be forfeited. The board of directors may provide in writing in connection with any such transaction for any or all of the following alternatives:
 
 	•	 	for the assumption by the successor corporation of the Director Options granted or the replacement of the Director Options with options covering the stock of the successor corporation, or a parent or subsidiary of such corporation, with appropriate adjustments as to the number and kind of shares and exercise prices;	
 
 	•	 	for the continuance of the Director Option Plan and the Director Options by such successor corporation under the original terms; or	
 
 	•	 	for the payment in cash or shares of common stock in lieu of and in complete satisfaction of such options.	

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Independent Director Warrant Plan
 
Our Independent Director Warrant Plan (Director Warrant Plan) was approved by our stockholders at the annual stockholders meeting held June 28, 2000. Our Director Warrant Plan provides for the issuance of warrants to purchase shares of our common stock (Warrants) to independent directors based on the number of shares of common stock that they purchase. The purpose of the Director Warrant Plan is to encourage our independent directors to purchase shares of our common stock. Beginning on the effective date of the Director Warrant Plan and continuing until the earlier to occur of (1) the termination of the Director Warrant Plan by action of the board of directors or otherwise, or (2) 5:00 p.m. EST on the date of listing of our shares on a national securities exchange, each independent director will receive one Warrant for every 25 shares of common stock he purchases. The exercise price of the Warrants will be $12.00 per share.
 
A total of 500,000 Warrants have been authorized and reserved for issuance under the Director Warrant Plan, each of which will be redeemable for one share of our common stock. Upon our dissolution or liquidation, or upon a reorganization, merger or consolidation, where we are not the surviving corporation, or upon our sale of all or substantially all of our properties, the Director Warrant Plan shall terminate, and any outstanding Warrants shall terminate and be forfeited; provided, however, that holders of Warrants may exercise any Warrants that are otherwise exercisable immediately prior to the effective date of the dissolution, liquidation, consolidation or merger. Notwithstanding the above, our board of directors may provide in writing in connection with any such transaction for any or all of the following alternatives: (1) for the assumption by the successor corporation of the Warrants theretofore granted or the substitution by such corporation for such Warrants of awards covering the stock of the successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; (2) for the continuance of the Director Warrant Plan by such successor corporation in which event the Director Warrant Plan and the Warrants shall continue in the manner and under the terms so provided; or (3) for the payment in cash or shares in lieu of and in complete satisfaction of such Warrants.
 
No Warrant may be sold, pledged, assigned or transferred by an independent director in any manner other than by will or the laws of descent or distribution. All Warrants exercised during the independent director’s lifetime shall be exercised only by the independent director or his legal representative. Any transfer contrary to the Director Warrant Plan will nullify and render void the Warrant. Notwithstanding any other provisions of the Director Warrant Plan, Warrants granted under the Director Warrant Plan shall continue to be exercisable in the case of death or disability of the independent director for a period of one year after the death or disabling event, provided that the death or disabling event occurs while the person is an independent director. No Warrant issued may be exercised if such exercise would jeopardize our status as a REIT under the Internal Revenue Code.
 
Employee Stock Option Plan
 
Our 2000 Employee Stock Option Plan (Employee Option Plan) was approved by our stockholders at the annual stockholders meeting held June 28, 2000. Our Employee Option Plan is designed to enable Wells Capital and Wells Management to obtain or retain the services of employees considered essential to our long range success and the success of Wells Capital and Wells Management by offering such employees an opportunity to participate in the growth of the Wells REIT through ownership of our common stock.
 
Our Employee Option Plan provides for the formation of a Compensation Committee consisting of two or more of our independent directors. (See “Committees of the Board of Directors.”) The Compensation Committee shall conduct the general administration of the Employee Option Plan. The
 
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Compensation Committee is authorized to grant “non-qualified” stock options (Employee Options) to selected employees of Wells Capital and Wells Management based upon the recommendation of Wells Capital and subject to the absolute discretion of the Compensation Committee and applicable limitations of the Employee Option Plan. The exercise price for the Employee Options shall be the greater of (1) $11.00 per share, or (2) the fair market value of the shares on the date the option is granted. A total of 750,000 shares have been authorized and reserved for issuance under our Employee Option Plan. To date, we have not issued any stock options under our Employee Option Plan.
 
The Compensation Committee shall set the term of the Employee Options in its discretion, although no Employee Option shall have a term greater than five years from the later of (1) the date our shares become listed on a national securities exchange, or (2) the date the Employee Option is granted. The employee receiving Employee Options shall agree to remain in employment with his employer for a period of one year after the Employee Option is granted. The Compensation Committee shall set the period during which the right to exercise an option vests in the holder of the option. No Employee Option issued may be exercised, however, if such exercise would jeopardize our status as a REIT under the Internal Revenue Code. In addition, no option may be sold, pledged, assigned or transferred by an employee in any manner other than by will or the laws of descent or distribution.
 
In the event that the Compensation Committee determines that any dividend or other distribution, recapitalization, stock split, reorganization, merger, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of our assets, or other similar corporate transaction or event, affects the shares such that an adjustment is determined by the Compensation Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Employee Option Plan or with respect to an Employee Option, then the Compensation Committee shall, in such manner as it may deem equitable, adjust the number and kind of shares or the exercise price with respect to any option.
 
Limited Liability and Indemnification of Directors, Officers, Employees and Other Agents
 
Our organizational documents limit the personal liability of our stockholders, directors and officers for monetary damages to the fullest extent permitted under current Maryland Corporation Law. We also maintain a directors and officers liability insurance policy. Maryland Corporation Law allows directors and officers to be indemnified against judgments, penalties, fines, settlements and expenses actually incurred in a proceeding unless the following can be established:
 
 	•	 	an act or omission of the director or officer was material to the cause of action adjudicated in the proceeding, and was committed in bad faith or was the result of active and deliberate dishonesty;	
 
 	•	 	the director or officer actually received an improper personal benefit in money, property or services; or	
 
 	•	 	with respect to any criminal proceeding, the director or officer had reasonable cause to believe his act or omission was unlawful.	
 
Any indemnification or any agreement to hold harmless is recoverable only out of our assets and not from our stockholders. Indemnification could reduce the legal remedies available to us and our stockholders against the indemnified individuals, however.
 
This provision does not reduce the exposure of our directors and officers to liability under federal or state securities laws, nor does it limit our stockholder’s ability to obtain injunctive relief or other
 
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equitable remedies for a violation of a director’s or an officer’s duties to us or our stockholders, although the equitable remedies may not be an effective remedy in some circumstances.
 
In spite of the above provisions of Maryland Corporation Law, our articles of incorporation provide that our directors, Wells Capital and its affiliates will be indemnified by us for losses arising from our operation only if all of the following conditions are met:
 
 	•	 	our directors, Wells Capital or its affiliates have determined, in good faith, that the course of conduct which caused the loss or liability was in our best interests;	
 
 	•	 	our directors, Wells Capital or its affiliates were acting on our behalf or performing services for us;	
 
 	•	 	in the case of affiliated directors, Wells Capital or its affiliates, the liability or loss was not the result of negligence or misconduct by the party seeking indemnification;	
 
 	•	 	in the case of independent directors, the liability or loss was not the result of gross negligence or willful misconduct by the party seeking indemnification; and	
 
 	•	 	the indemnification or agreement to hold harmless is recoverable only out of our net assets and not from the stockholders.	
 
We have agreed to indemnify and hold harmless Wells Capital and its affiliates performing services for us from specific claims and liabilities arising out of the performance of its obligations under the advisory agreement. As a result, we and our stockholders may be entitled to a more limited right of action than they would otherwise have if these indemnification rights were not included in the advisory agreement.
 
The general effect to investors of any arrangement under which any of our controlling persons, directors or officers are insured or indemnified against liability is a potential reduction in distributions resulting from our payment of premiums associated with insurance. In addition, indemnification could reduce the legal remedies available to the Wells REIT and our stockholders against the officers and directors.
 
The Securities and Exchange Commission takes the position that indemnification against liabilities arising under the Securities Act of 1933 is against public policy and unenforceable. Indemnification of our directors, officers, Wells Capital or its affiliates will not be allowed for liabilities arising from or out of a violation of state or federal securities laws, unless one or more of the following conditions are met:
 
 	•	 	there has been a successful adjudication on the merits of each count involving alleged securities law violations;	
 
 	•	 	such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction; or	
 
 	•	 	a court of competent jurisdiction approves a settlement of the claims against the indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Securities and Exchange Commission and of the published position of any state securities regulatory authority in which the securities were offered as to indemnification for violations of securities laws.	

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Indemnification will be allowed for settlements and related expenses of lawsuits alleging securities laws violations and for expenses incurred in successfully defending any lawsuits, provided that a court either:
 
 	•	 	approves the settlement and finds that indemnification of the settlement and related costs should be made; or	
 
 	•	 	dismisses with prejudice or there is a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee and a court approves the indemnification.	
 
The Advisor
 
The advisor of the Wells REIT is Wells Capital. Wells Capital has contractual responsibilities to the Wells REIT and its stockholders pursuant to the advisory agreement. Some of our officers and directors are also officers and directors of Wells Capital. (See “Conflicts of Interest.”)
 
The directors and executive officers of Wells Capital are as follows:
 
Name

	  	Age

	  	Positions

	
Leo F. Wells, III	  	58	  	President, Treasurer and sole director	
Douglas P. Williams	  	51	  	Senior Vice President and Assistant Secretary	
Stephen G. Franklin	  	54	  	Senior Vice President	
Kim R. Comer	  	48	  	Vice President	
Claire C. Janssen	  	39	  	Vice President	
David H. Steinwedell	  	42	  	Vice President	
 
The backgrounds of Messrs. Wells and Williams are described in the “Management—Executive Officers and Directors” section of this prospectus. Below is a brief description of the other executive officers of Wells Capital.
 
Stephen G. Franklin, Ph.D. is a Senior Vice President of Wells Capital. Mr. Franklin is responsible for marketing, sales and coordination of broker-dealer relations. Mr. Franklin also serves as Vice President of Wells Real Estate Funds, Inc. Prior to joining Wells Capital in 1999, Mr. Franklin served as President of Global Access Learning, an international executive education and management development firm. From 1997 to 1999, Mr. Franklin served as President, Chief Academic Officer and Director of EduTrek International, a publicly traded provider of international post-secondary education that owns the American InterContinental University, with campuses in Atlanta, Ft. Lauderdale, Los Angeles, Washington, D.C., London and Dubai. While at EduTrek, he was instrumental in developing the Masters and Bachelors of Information Technology, International MBA and Adult Evening BBA programs. Prior to joining EduTrek, Mr. Franklin was Associate Dean of the Goizueta Business School at Emory University and a former tenured Associate Professor of Business Administration. He served on the founding Executive MBA faculty, and has taught graduate, undergraduate and executive courses in management and organizational behavior, human resources management and entrepreneurship. He is also co-founder and Director of the Center for Healthcare Leadership in the Emory University School of Medicine. Mr. Franklin was a frequent guest lecturer at universities throughout North America, Europe and South Africa.
 
In 1984, Mr. Franklin took a sabbatical from Emory University and became Executive Vice President and a principal stockholder of Financial Service Corporation (FSC), an independent financial planning broker-dealer. Mr. Franklin and the other stockholders of FSC later sold their interests in FSC to Mutual of New York Life Insurance Company.
 
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Kim R. Comer is a Vice President of Wells Capital. He is primarily responsible for developing, implementing and monitoring initiatives to further the strategic objectives of Wells Capital. He rejoined Wells Capital as National Vice President of Marketing in April 1997 after working for Wells Capital in similar capacities from January 1992 through September 1995. In prior positions with Wells Capital, he served as both Vice President and Director of Customer Care Services and Vice President of Marketing for the southeast and northeast regions. Mr. Comer has over 10 years experience in the securities industry and is a registered representative and financial principal with the NASD. Additionally, he has substantial financial experience including experience as controller and chief financial officer of two regional broker-dealers. In 1976, Mr. Comer graduated with honors from Georgia State University with a BBA degree in accounting.
 
Claire C. Janssen is a Vice President of Wells Capital. She is primarily responsible for managing the corporate, real estate, investment and investor accounting areas of the company. Ms. Janssen also serves as a Vice President of Wells Management Company, Inc., our Property Manager. Prior to joining Wells Capital in 2001, Ms. Janssen served as a Vice President of Lend Lease Real Estate (formerly, Equitable Real Estate). From 1990 to 2000, she held various management positions, including Vice President of Institutional Accounting, Vice President of Business/Credit Analysis and Director of Tax/Corporate Accounting. From 1985 to 1990, Ms. Janssen served in management positions for Beers and Cutler, a Washington, D.C. based accounting firm, where she provided both audit and tax services for clients.
 
Ms. Janssen received a B.S. in business administration with a major in accounting from George Mason University. She is a Certified Public Accountant and a member of American Institute of Certified Public Accountants, Georgia Society of Certified Public Accountants and National Association of Real Estate Companies.
 
David H. Steinwedell is a Vice President of Wells Capital. He is primarily responsible for the acquisition of real estate properties. Prior to joining Wells Capital in 2001, Mr. Steinwedell served as a principal in Steinwedell and Associates, a capital markets advisory firm specializing in transactions and strategic planning for commercial real estate firms. His background also includes experience as the Executive Vice President of Investment Banking at Jones Lang LaSalle and as Managing Director for Real Estate Investments at Aetna Life and Casualty. He graduated from Hamilton College with a B.S. in Economics. Mr. Steinwedell is a licensed real estate broker in Georgia and is a member of the Urban Land Institute and NAIOP.
 
Wells Capital employs personnel, in addition to the directors and executive officers listed above, who have extensive experience in selecting and managing commercial properties similar to the properties sought to be acquired by the Wells REIT.
 
The Advisory Agreement
 
Many of the services to be performed by Wells Capital in managing our day-to-day activities are summarized below. This summary is provided to illustrate the material functions which Wells Capital will perform for us as our advisor, and it is not intended to include all of the services which may be provided to us by Wells Capital or by third parties. Under the terms of the advisory agreement, Wells Capital undertakes to use its best efforts to present to us investment opportunities consistent with our investment policies and objectives as adopted by our board of directors. In its performance of this undertaking, Wells Capital, either directly or indirectly by engaging an affiliate, shall, subject to the authority of the board:
 
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 	•	 	find, present and recommend to us real estate investment opportunities consistent with our investment policies and objectives;	
 
 	•	 	structure the terms and conditions of transactions pursuant to which acquisitions of properties will be made;	
 
 	•	 	acquire properties on our behalf in compliance with our investment objectives and policies;	
 
 	•	 	arrange for financing and refinancing of properties; and	
 
 	•	 	enter into leases and service contracts for the properties acquired.	
 
The term of the current advisory agreement ends on January 30, 2003 and may be renewed for an unlimited number of successive one-year periods. Additionally, the advisory agreement may be terminated:
 
 	•	 	immediately by us for “cause” or upon the bankruptcy of Wells Capital or a material breach of the advisory agreement by Wells Capital;	
 
 	•	 	without cause by a majority of the independent directors of the Wells REIT or a majority of the directors of Wells Capital upon 60 days’ written notice; or	
 
 	•	 	immediately with “good reason” by Wells Capital.	
 
“Good reason” is defined in the advisory agreement to mean either:
 
 	•	 	any failure by us to obtain a satisfactory agreement from our successor to assume and agree to perform our obligations under the advisory agreement; or	
 
 	•	 	any material breach of the advisory agreement of any nature whatsoever by us.	
 
“Cause” is defined in the advisory agreement to mean fraud, criminal conduct, willful misconduct or willful or negligent breach of fiduciary duty by Wells Capital or a breach of the advisory agreement by Wells Capital.
 
Wells Capital and its affiliates expect to engage in other business ventures and, as a result, their resources will not be dedicated exclusively to our business. However, pursuant to the advisory agreement, Wells Capital must devote sufficient resources to the administration of the Wells REIT to discharge its obligations. Wells Capital may assign the advisory agreement to an affiliate upon approval of a majority of the independent directors. We may assign or transfer the advisory agreement to a successor entity.
 
Wells Capital may not make any acquisition of property or financing of such acquisition on our behalf without the prior approval of a majority of our board of directors. The actual terms and conditions of transactions involving investments in properties shall be determined in the sole discretion of Wells Capital, subject at all times to such board approval.
 
We will reimburse Wells Capital for all of the costs it incurs in connection with the services it provides to us, including, but not limited to:
 
 	•	 	organization and offering expenses in an amount up to 3.0% of gross offering proceeds, which include actual legal, accounting, printing and expenses attributable to preparing the SEC registration statement, qualification of the shares for sale in the states and filing fees incurred by Wells Capital, as well as reimbursements for marketing, salaries and	

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direct expenses of its employees while engaged in registering and marketing the shares and other marketing and organization costs, other than selling commissions and the dealer manager fee;
 
 	•	 	the annual cost of goods and materials used by us and obtained from entities not affiliated with Wells Capital, including brokerage fees paid in connection with the purchase and sale of securities;	
 
 	•	 	administrative services including personnel costs, provided, however, that no reimbursement shall be made for costs of personnel to the extent that personnel are used in transactions for which Wells Capital receives a separate fee; and	
 
 	•	 	acquisition expenses, which are defined to include expenses related to the selection and acquisition of properties.	
 
Wells Capital must reimburse us at least annually for amounts paid to Wells Capital in any year to the extent that such payments cause our operating expenses to exceed the greater of (1) 2% of our average invested assets, which consists of the average book value of our real estate properties, both equity interests in and loans secured by real estate, before reserves for depreciation or bad debts or other similar non-cash reserves, or (2) 25% of our net income, which is defined as our total revenues less total operating expenses for any given period. Operating expenses includes all expenses paid or incurred by the Wells REIT as determined by generally accepted accounting principles, such as (1) real estate operating costs, net of reimbursements, (2) management and leasing fees, (3) general and administrative expenses, and (4) legal and accounting expenses, but excludes (A) expenses of raising capital such as organizational and offering expenses, (B) interest payments, (C) taxes, (D) non-cash expenditures such as depreciation, amortization and bad debt reserves, and (E) amounts payable out of capital contributions which are not treated as operating expenses under generally accepted accounting principles such as the acquisition and advisory fees payable to Wells Capital. To the extent that operating expenses payable or reimbursable by us exceed this limit and the independent directors determine that the excess expenses were justified based on unusual and nonrecurring factors which they deem sufficient, Wells Capital may be reimbursed in future years for the full amount of the excess expenses, or any portion thereof, but only to the extent the reimbursement would not cause our operating expenses to exceed the limitation in any year. Within 60 days after the end of any of our fiscal quarters for which total operating expenses for the 12 months then ended exceed the limitation, there shall be sent to the stockholders a written disclosure, together with an explanation of the factors the independent directors considered in arriving at the conclusion that the excess expenses were justified.
 
Wells Capital and its affiliates will be paid fees in connection with services provided to us. (See “Management Compensation.”) In the event the advisory agreement is terminated, Wells Capital will be paid all accrued and unpaid fees and expense reimbursements, and any subordinated acquisition fees earned prior to the termination. We will not reimburse Wells Capital or its affiliates for services for which Wells Capital or its affiliates are entitled to compensation in the form of a separate fee.
 
Shareholdings
 
Wells Capital currently owns 20,000 limited partnership units of Wells OP, our operating partnership, for which it contributed $200,000 and which constitutes 100% of the limited partner units outstanding at this time. Wells Capital may not sell any of these units during the period it serves as our advisor. Any resale of shares that Wells Capital or its affiliates may acquire in the future will be subject to the provisions of Rule 144 promulgated under the Securities Act of 1933, which rule limits the number of shares that may be sold at any one time and the manner of such resale. Although Wells Capital and its affiliates are not prohibited from acquiring shares of the Wells REIT, Wells Capital currently has no
 
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options or warrants to acquire any shares and has no current plans to acquire shares. Wells Capital has agreed to abstain from voting any shares it acquires in any vote for the election of directors or any vote regarding the approval or termination of any contract with Wells Capital or any of its affiliates.
 
Affiliated Companies
 
Property Manager
 
Our properties will be managed and leased initially by Wells Management Company, Inc. (Wells Management), our Property Manager. Wells Management is a wholly owned subsidiary of Wells Real Estate Funds, Inc., and Mr. Wells is the sole director of Wells Management. (See “Conflicts of Interest.”) The principal officers of Wells Management are as follows:
 
Name

	  	Age

	  	Positions

	
Leo F. Wells, III	  	58	  	President and Treasurer	
M. Scott Meadows	  	38	  	Senior Vice President and Secretary	
John G. Oliver	  	53	  	Vice President	
Michael L. Watson	  	59	  	Vice President	
 
The background of Mr. Wells is described in the “Management—Executive Officers and Directors” section of this prospectus. Below is a brief description of the other executive officers of Wells Management.
 
M. Scott Meadows is a Senior Vice President and Secretary of Wells Management. He is primarily responsible for the acquisition, operation, management and disposition of real estate investments. Prior to joining Wells Management in 1996, Mr. Meadows served as Senior Property Manager for The Griffin Company, a full-service commercial real estate firm in Atlanta, where he was responsible for managing a 500,000 square foot office and retail portfolio. Mr. Meadows previously managed real estate as a Property Manager for Sea Pines Plantation Company. He graduated from University of Georgia with a B.B.A. in management. Mr. Meadows is a Georgia real estate broker and holds a Real Property Administrator (RPA) designation from the Building Owners and Managers Institute International and a Certified Property Manager (CPM) designation from the Institute of Real Estate Management.
 
John G. Oliver is a Vice President of Wells Management. He is primarily responsible for operation and management of real estate properties. Prior to joining Wells Management in July 2000, Mr. Oliver served as Vice President with C.B. Richard Ellis where he was responsible for the management of properties occupied by Delta Airlines. Mr. Oliver previously was the Vice President of Property Management for Grubb and Ellis for their southeast region and served on their Executive Property Management Council. He graduated from Georgia State University with a B.S. in real estate. Mr. Oliver is a past President of the Atlanta chapter of BOMA (Building Owners and Managers Association) and holds a Certified Property Manager (CPM) designation from the Institute of Real Estate Management.
 
Michael L. Watson is a Vice President of Wells Management. He is primarily responsible for performing due diligence investigations on our properties and overseeing construction and tenant improvement projects including design, engineering, and progress-monitoring functions. Prior to joining Wells Management in 1995, Mr. Watson was Senior Project Manager with Abrams Construction in Atlanta from 1982 to 1995. His primary responsibilities included supervising a variety of projects consisting of high-rise office buildings, military bases, state projects and neighborhood shopping centers. He graduated from the University of Miami with a B.S. in civil engineering.
 
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Wells Management is engaged in the business of real estate management. It was organized and commenced active operations in 1983 to lease and manage real estate projects that Wells Capital and its affiliates operate or in which they own an interest. As of June 30, 2002, Wells Management was managing in excess of 8,800,000 square feet of office and industrial buildings and shopping centers. We will pay Wells Management property management and leasing fees not exceeding the lesser of: (A) 4.5% of gross revenues, or (B) 0.6% of the net asset value of the properties (excluding vacant properties) owned by the Wells REIT, calculated on an annual basis. For purposes of this calculation, net asset value shall be defined as the excess of (1) the aggregate of the fair market value of all properties owned by the Wells REIT (excluding vacant properties), over (2) the aggregate outstanding debt of the Wells REIT (excluding debts having maturities of one year or less). In addition, we may pay Wells Management a separate fee for the one-time initial rent-up or leasing-up of newly constructed properties in an amount not to exceed the fee customarily charged in arm’s length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area (customarily equal to the first month’s rent). Wells Management will also retain third-party property managers or subcontract manager services to third-party property managers as it deems appropriate for certain of our properties.
 
In the event that Wells Management assists a tenant with tenant improvements, a separate fee may be charged to the tenant and paid by the tenant. This fee will not exceed 5.0% of the cost of the tenant improvements.
 
Wells Management will hire, direct and establish policies for employees who will have direct responsibility for each property’s operations, including resident managers and assistant managers, as well as building and maintenance personnel. Some or all of the other employees may be employed on a part-time basis and may also be employed by one or more of the following:
 
 	•	 	Wells Capital;	
 
 	•	 	Wells Management;	
 
 	•	 	partnerships organized by Wells Management and its affiliates; and	
 
 	•	 	other persons or entities owning properties managed by Wells Management.	
 
Wells Management will direct the purchase of equipment and supplies and will supervise all maintenance activity.
 
The management fees to be paid to Wells Management will cover, without additional expense to the Wells REIT, the property manager’s general overhead costs such as its expenses for rent and utilities.
 
The principal office of Wells Management is located at 6200 The Corners Parkway, Suite 250, Atlanta, Georgia 30092.
 
Dealer Manager
 
Wells Investment Securities, Inc. (Wells Investment Securities), our Dealer Manager, is a member firm of the NASD, Inc. (NASD). Wells Investment Securities was organized in May 1984 for the purpose of participating in and facilitating the distribution of securities of Wells programs.
 
Wells Investment Securities will provide certain wholesaling, sales promotional and marketing assistance services to the Wells REIT in connection with the distribution of the shares offered pursuant to this prospectus. It may also sell shares at the retail level. (See “Plan of Distribution” and “Management Compensation.”)
 
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Wells Real Estate Funds, Inc. is the sole stockholder and Mr. Wells is the President, Treasurer and sole director of Wells Investment Securities. (See “Conflicts of Interest.”)
 
IRA Custodian
 
Wells Advisors, Inc. (Wells Advisors) was organized in 1991 for the purpose of acting as a non-bank custodian for IRAs investing in the securities of Wells real estate programs. Wells Advisors currently charges no fees for such services. Wells Advisors was approved by the Internal Revenue Service to act as a qualified non-bank custodian for IRAs on March 20, 1992. In circumstances where Wells Advisors acts as an IRA custodian, the authority of Wells Advisors is limited to holding limited partnership units or REIT shares on behalf of the beneficiary of the IRA and making distributions or reinvestments in such units or shares solely at the direction of the beneficiary of the IRA. Well Advisors is not authorized to vote any of such units or shares held in any IRA except in accordance with the written instructions of the beneficiary of the IRA. Mr. Wells is the President and sole director and owns 50% of the common stock and all of the preferred stock of Wells Advisors. As of June 30, 2002, Wells Advisors was acting as the IRA custodian for in excess of $373,442,000 in Wells real estate program investments.
 
Management Decisions
 
The primary responsibility for the management decisions of Wells Capital and its affiliates, including the selection of investment properties to be recommended to our board of directors, the negotiation for these investments, and the property management and leasing of these investment properties, will reside in Leo F. Wells, III, Douglas P. Williams, M. Scott Meadows, David H. Steinwedell and John G. Oliver. Wells Capital seeks to invest in commercial properties that satisfy our investment objectives, typically office and industrial buildings located in densely populated metropolitan markets in which the major tenant is a company with a net worth of in excess of $100,000,000. Our board of directors must approve all acquisitions of real estate properties.
 
MANAGEMENT COMPENSATION
 
The following table summarizes and discloses all of the compensation and fees, including reimbursement of expenses, to be paid by the Wells REIT to Wells Capital and its affiliates.
 
Form of
Compensation and
Entity Receiving

	  	Determination
of Amount

	  	Estimated Maximum
Dollar Amount(1)

	
 	 	 	
 	  	Organizational and Offering Stage	  	 	 	
 	 	 	
Selling Commissions
—Wells Investment
Securities	  	Up to 7.0% of gross offering proceeds before reallowance of commissions earned by participating broker-dealers. Wells Investment Securities, our Dealer Manager, intends to reallow 100% of commissions earned for those transactions that involve participating broker-dealers.	  	$	231,000,000	
 	 	 	
Dealer Manager Fee
—Wells Investment
Securities	  	Up to 2.5% of gross offering proceeds before reallowance to participating broker-dealers. Wells Investment Securities, in its sole discretion, may reallow a portion of its dealer manager fee of up to 1.5% of the gross offering proceeds to be paid to such participating broker-dealers.	  	$	82,500,000	
 
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Form of
Compensation and
Entity Receiving

	  	Determination
of Amount

	  	Estimated Maximum
Dollar Amount(1)

	
Reimbursement of Organization and Offering Expenses—Wells Capital or its Affiliates(2)	  	Up to 3.0% of gross offering proceeds. All organization and offering expenses (excluding selling commissions and the dealer manager fee) will be advanced by Wells Capital or its affiliates and reimbursed by the Wells REIT up to 3.0% of aggregate gross offering proceeds. We currently estimate that approximately $49,500,000 of organization and offering costs will be incurred if the maximum offering of 330,000,000 shares is sold.	  	$
 	  49,500,000
(estimated)	
 	 	 	
 	  	Acquisition and Development Stage	  	 	 	
 	 	 	
Acquisition and Advisory Fees—Wells Capital or its Affiliates(3)	  	Up to 3.0% of gross offering proceeds for the review and evaluation of potential real property acquisitions.	  	$	99,000,000	
 	 	 	
Reimbursement of
Acquisition Expenses—Wells Capital or its Affiliates(3)	  	Up to 0.5% of gross offering proceeds for reimbursement of expenses related to real property acquisitions, such as legal fees, travel expenses, property appraisals, title insurance premium expenses and other closing costs.	  	$	16,500,000	
 	 	 	
 	  	Operational Stage	  	 	 	
 	 	 	
Property Management and Leasing Fees—Wells Management	  	For the management and leasing of our properties, we will pay Wells Management, our Property Manager, property management and leasing fees of up to 4.5% of gross revenues; provided, however, that aggregate property management and leasing fees payable to Wells Management may not exceed the lesser of: (A) 4.5% of gross revenues; or (B) 0.6% of the net asset value of the properties (excluding vacant properties) owned by the Wells REIT, calculated on an annual basis. For purposes of this calculation, net asset value shall be defined as the excess of (1) the aggregate of the fair market value of all properties owned by the Wells REIT (excluding vacant properties), over (2) the aggregate outstanding debt of the Wells REIT (excluding debts having maturities of one year or less). In addition, we may pay Wells Management a separate fee for the one-time initial rent-up or leasing-up of newly constructed properties in an amount not to exceed the fee customarily charged in arm’s length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area (customarily equal to the first month’s rent).	  	 

 

 

 	Actual
amounts are
dependent
upon results
of operations
and therefore
cannot be
determined at
the present
time.	
 
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Form of
Compensation and
Entity Receiving

	  	Determination
of Amount

	  	Estimated Maximum
Dollar Amount(1)

	
Real Estate Commissions—
Wells Capital or its Affiliates	  	In connection with the sale of properties, an amount not exceeding the lesser of: (A) 50% of the reasonable, customary and competitive real estate brokerage commissions customarily paid for the sale of a comparable property in light of the size, type and location of the property; or (B) 3.0% of the contract price of each property sold, subordinated to distributions to investors from sale proceeds of an amount which, together with prior distributions to the investors, will equal (1) 100% of their capital contributions, plus (2) an 8.0% annual cumulative, noncompounded return on their net capital contributions; provided however, in no event will the amounts paid under (A) or (B) exceed an amount equal to 6.0% of the contract sales price when combined with real estate commissions paid to unaffiliated third parties.	  	Actual amounts are
dependent upon
results of
operations and
therefore cannot be
determined at the
present time.	
 	 	 	
Subordinated Participation in Net Sale Proceeds—
Wells Capital(4)	  	After investors have received a return of their net capital contributions and an 8.0% per year cumulative, noncompounded return, then Wells Capital is entitled to receive 10.0% of remaining net sale proceeds.	  	Actual amounts are
dependent upon
results of
operations and
therefore cannot be
determined at the
present time.	
 	 	 	
Subordinated Incentive Listing Fee—
Wells Capital(5)(6)	  	Upon listing, a fee equal to 10.0% of the amount by which (1) the market value of the outstanding stock of the Wells REIT plus distributions paid by the Wells REIT prior to listing, exceeds (2) the sum of the total amount of capital raised from investors and the amount of cash flow necessary to generate an 8.0% per year cumulative, noncompounded return to investors.	  	Actual amounts are
dependent upon
results of
operations and
therefore cannot be
determined at the
present time.	
 	 	 	
 	  	The Wells REIT may not reimburse any entity for operating expenses in excess of the greater of 2% of our average invested assets or 25% of our net income for the year.	  	 	

(Footnotes to “Management Compensation”)
 
(1)	 	The estimated maximum dollar amounts are based on the sale of a maximum of 300,000,000 shares to the public at $10 per share and the sale of 30,000,000 shares at $10 per share pursuant to our dividend reinvestment plan.	
(2)	 	These reimbursements will include organization and offering expenses previously advanced by Wells Capital with regards to prior offerings of our shares, to the extent not reimbursed out of proceeds from prior offerings, and subject for the 3.0% of gross offering proceeds overall limitation.	
(3)	 	Notwithstanding the method by which we calculate the payment of acquisition fees and expenses, as described in the table, the total of all such acquisition fees and acquisition expenses shall not exceed, in the aggregate, an amount equal to 6.0% of the contract price of all of the properties which we will purchase, as required by the NASAA Guidelines.	
(4)	 	The subordinated participation in net sale proceeds and the subordinated incentive listing fee to be received by Wells Capital are mutually exclusive of each other. In the event that the Wells REIT becomes listed and Wells Capital receives the subordinated incentive listing fee prior to its	
 
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receipt of the subordinated participation in net sale proceeds, Wells Capital shall not be entitled to any such participation in net sale proceeds.
(5)	 	If at any time the shares become listed on a national securities exchange or included for quotation on NASDAQ, we will negotiate in good faith with Wells Capital a fee structure appropriate for an entity with a perpetual life. A majority of the independent directors must approve the new fee structure negotiated with Wells Capital. In negotiating a new fee structure, the independent directors shall consider all of the factors they deem relevant, including but not limited to:	
 
 	•	 	the size of the advisory fee in relation to the size, composition and profitability of our portfolio;	
 
 	•	 	the success of Wells Capital in generating opportunities that meet our investment objectives;	
 
 	•	 	the rates charged to other REITs and to investors other than REITs by advisors performing similar services;	
 
 	•	 	additional revenues realized by Wells Capital through their relationship with us;	
 
 	•	 	the quality and extent of service and advice furnished by Wells Capital;	
 
 	•	 	the performance of our investment portfolio, including income, conservation or appreciation of capital, frequency of problem investments and competence in dealing with distress situations; and	
 
 	•	 	the quality of our portfolio in relationship to the investments generated by Wells Capital for the account of other clients.	
 
Our board of directors, including a majority of the independent directors, may not approve a new fee structure that is, in its judgment, more favorable to Wells Capital than the current fee structure.
 
(6)	 	The market value of the outstanding stock of the Wells REIT will be calculated based on the average market value of the shares issued and outstanding at listing over the 30 trading days beginning 180 days after the shares are first listed on a stock exchange.	
 
We have the option to pay the listing fee in the form of stock, cash, a promissory note or any combination thereof. In the event the subordinated incentive listing fee is paid to Wells Capital as a result of the listing of the shares, we will not be required to pay Wells Capital any further subordinated participation in net sale proceeds.
 
In addition, Wells Capital and its affiliates will be reimbursed only for the actual cost of goods, services and materials used for or by the Wells REIT. Wells Capital may be reimbursed for the administrative services necessary to the prudent operation of the Wells REIT provided that the reimbursement shall not be for services for which it is entitled to compensation by way of a separate fee.
 
Since Wells Capital and its affiliates are entitled to differing levels of compensation for undertaking different transactions on behalf of the Wells REIT such as the property management fees for operating the properties and the subordinated participation in net sale proceeds, Wells Capital has the ability to affect the nature of the compensation it receives by undertaking different transactions. However, Wells Capital is obligated to exercise good faith and integrity in all its dealings with respect to our affairs pursuant to the advisory agreement. (See “Management—The Advisory Agreement.”) Because these fees or expenses are payable only with respect to certain transactions or services, they may not be recovered by Wells Capital or its affiliates by reclassifying them under a different category.
 
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STOCK OWNERSHIP
 
The following table shows, as of June 30, 2002, the amount of our common stock beneficially owned (unless otherwise indicated) by (1) any person who is known by us to be the beneficial owner of more than 5% of the outstanding shares of our common stock, (2) our directors, (3) our executive officers, and (4) all of our directors and executive officers as a group.
 
 	  	    Shares Beneficially Owned

	
Name and Address of Beneficial Owner

	  	Shares

	  	Percentage

	
Leo F. Wells, III	  	698	  	*	
6200 The Corners Parkway, Suite 250
Atlanta, GA 30092	  	 	  	 	
Douglas P. Williams	  	None	  	N/A	
6200 The Corners Parkway, Suite 250
Atlanta, GA 30092	  	 	  	 	
John L. Bell(1)	  	3,000	  	*	
800 Mt. Vernon Highway, Suite 230
Atlanta, GA 30328	  	 	  	 	
Michael R. Buchanan	  	None	  	N/A	
1630 Misty Oaks Drive
Atlanta, GA 30350	  	 	  	 	
Richard W. Carpenter(1)	  	3,000	  	*	
Realmark Holdings Corporation
P.O. Box 421669 (30342)
5570 Glenridge Drive
Atlanta, GA 30342	  	 	  	 	
Bud Carter(1)	  	8,373	  	*	
The Executive Committee
100 Mount Shasta Lane
Alpharetta, GA 30022-5440	  	 	  	 	
William H. Keogler, Jr.(1)	  	3,000	  	*	
469 Atlanta Country Club Drive
Marietta, GA 30067	  	 	  	 	
Donald S. Moss(1)	  	80,717	  	*	
114 Summerour Vale
Duluth, GA 30097	  	 	  	 	
Walter W. Sessoms(1)	  	40,243	  	*	
5995 River Chase Circle NW
Atlanta, GA 30328	  	 	  	 	
Neil H. Strickland(1)	  	3,285	  	*	
Strickland General Agency, Inc.
3109 Crossing Park
P.O. Box 129
Norcross, GA 30091	  	 	  	 	
All directors and executive officers as a group(2)	  	142,316	  	*	

*	 	Less than 1% of the outstanding common stock.	
(1)	 	Includes options to purchase up to 3,000 shares of common stock, which are exercisable within 60 days of June 30, 2002.	
(2)	 	Includes options to purchase an aggregate of up to 21,000 shares of common stock, which are exercisable within 60 days of June 30, 2002.	
 
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CONFLICTS OF INTEREST
 
We are subject to various conflicts of interest arising out of our relationship with Wells Capital, our advisor, and its affiliates, including conflicts related to the arrangements pursuant to which Wells Capital and its affiliates will be compensated by the Wells REIT. (See “Management Compensation.”)
 
The independent directors have an obligation to function on our behalf in all situations in which a conflict of interest may arise and have a statutory obligation to act in the best interest of the stockholders. (See “Management—Limited Liability and Indemnification of Directors, Officers, Employees and Other Agents.”) These conflicts include, but are not limited to, the following:
 
Interests in Other Real Estate Programs
 
Wells Capital and its affiliates are general partners of other Wells programs, including partnerships which have investment objectives similar to those of the Wells REIT, and we expect that they will organize other such partnerships and programs in the future. Wells Capital and such affiliates have legal and financial obligations with respect to these partnerships that are similar to their obligations to the Wells REIT. As general partners, they may have contingent liability for the obligations of such partnerships as well as those of the Wells REIT that, if such obligations were enforced against them, could result in substantial reduction of their net worth.
 
Wells Capital and its affiliates are currently sponsoring a real estate program known as Wells Real Estate Fund XIII, L.P. (Wells Fund XIII). The registration statement of Wells Fund XIII was declared effective by the Securities and Exchange Commission (SEC) on March 29, 2001 for the offer and sale to the public of up to 4,500,000 units of limited partnership interest at a price of $10.00 per unit.
 
As described in the “Prior Performance Summary,” Wells Capital and its affiliates have sponsored the following 14 public real estate programs with substantially identical investment objectives as those of the Wells REIT:
 
  1.  Wells Real Estate Fund I (Wells Fund I),
 
  2.  Wells Real Estate Fund II (Wells Fund II),
 
  3.  Wells Real Estate Fund II-OW (Wells Fund II-OW),
 
  4.  Wells Real Estate Fund III, L.P. (Wells Fund III),
 
  5.  Wells Real Estate Fund IV, L.P. (Wells Fund IV),
 
  6.  Wells Real Estate Fund V, L.P. (Wells Fund V),
 
  7.  Wells Real Estate Fund VI, L.P. (Wells Fund VI),
 
  8.  Wells Real Estate Fund VII, L.P. (Wells Fund VII),
 
  9.  Wells Real Estate Fund VIII, L.P. (Wells Fund VIII),
 
10.  Wells Real Estate Fund IX, L.P. (Wells Fund IX),
 
11.  Wells Real Estate Fund X, L.P. (Wells Fund X),
 
12.  Wells Real Estate Fund XI, L.P. (Wells Fund XI),
 
13.  Wells Real Estate Fund XII, L.P. (Wells Fund XII), and
 
14.  Wells Real Estate Fund XIII, L.P. (Wells Fund XIII).
 
In the event that the Wells REIT, or any other Wells program or other entity formed or managed by Wells Capital or its affiliates is in the market for similar properties, Wells Capital will review the investment portfolio of each such affiliated entity prior to making a decision as to which Wells program will purchase such properties. (See “Certain Conflict Resolution Procedures.”)
 
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Wells Capital or one of its affiliates may acquire, for its own account or for private placement, properties which it deems not suitable for purchase by the Wells REIT, whether because of the greater degree of risk, the complexity of structuring inherent in such transactions, financing considerations or for other reasons, including properties with potential for attractive investment returns.
 
Other Activities of Wells Capital and its Affiliates
 
We rely on Wells Capital for the day-to-day operation of our business. As a result of its interests in other Wells programs and the fact that it has also engaged and will continue to engage in other business activities, Wells Capital and its affiliates will have conflicts of interest in allocating their time between the Wells REIT and other Wells programs and activities in which they are involved. (See “Risk Factors—Investment Risks.”) However, Wells Capital believes that it and its affiliates have sufficient personnel to discharge fully their responsibilities to all of the Wells programs and ventures in which they are involved.
 
In addition, certain of our executive officers and directors are also officers and directors of Wells Capital, our advisor and the general partner of the various real estate programs sponsored by Wells Capital and its affiliates described above, Wells Management, our Property Manager, and Wells Investment Securities, our Dealer Manager, and as such, owe fiduciary duties to these various entities and their stockholders and limited partners. Such fiduciary duties may from time to time conflict with the fiduciary duties owed to the Wells REIT and its stockholders. (See “Risk Factors—Investment Risks.”)
 
In addition to the real estate programs sponsored by Wells Capital and its affiliates described above, Wells Capital and its affiliates are also sponsoring an index mutual fund that invests in various REIT stocks known as the Wells S&P REIT Index Fund (REIT Index Fund). The REIT Index Fund is a mutual fund which seeks to provide investment results corresponding to the performance of the S&P REIT Index by investing in the REIT stocks included in the S&P REIT Index.
 
We may purchase or lease a property from Wells Capital or its affiliates upon a finding by a majority of our board of directors, including a majority of the independent directors, not otherwise interested in the transaction, that such transaction is competitive and commercially reasonable to the Wells REIT and at a price no greater than the cost of the property; provided, however, if the price is in excess of the cost of such property, that substantial justification for such excess exists and such excess is reasonable and the acquisition is disclosed. In no event may the Wells REIT:
 
 	•	 	loan funds to Wells Capital or any of its affiliates; or	
 
 	•	 	enter into agreements with Wells Capital or its affiliates for the provision of insurance covering the Wells REIT or any of our properties.	
 
Competition
 
Conflicts of interest will exist to the extent that we may acquire properties in the same geographic areas where other Wells programs own properties. In such a case, a conflict could arise in the leasing of properties in the event that the Wells REIT and another Wells program were to compete for the same tenants in negotiating leases, or a conflict could arise in connection with the resale of properties in the event that the Wells REIT and another Wells program were to attempt to sell similar properties at the same time. (See “Risk Factors—Investment Risks”). Conflicts of interest may also exist at such time as the Wells REIT or our affiliates managing property on our behalf seek to employ developers, contractors or building managers as well as under other circumstances. Wells Capital will seek to reduce conflicts relating to the employment of developers, contractors or building managers by making prospective employees aware of all such properties seeking to employ such persons. In addition, Wells Capital will seek to reduce conflicts which may arise with respect to properties available for sale or rent by making
 
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prospective purchasers or tenants aware of all such properties. However, these conflicts cannot be fully avoided in that Wells Capital may establish differing compensation arrangements for employees at different properties or differing terms for resales or leasing of the various properties.
 
Affiliated Dealer Manager
 
Since Wells Investment Securities, our Dealer Manager, is an affiliate of Wells Capital, we will not have the benefit of an independent due diligence review and investigation of the type normally performed by an unaffiliated, independent underwriter in connection with the offering of securities. (See “Plan of Distribution.”)
 
Affiliated Property Manager
 
Since we anticipate that properties we acquire will be managed and leased by Wells Management, our Property Manager, we will not have the benefit of independent property management. (See “Management—Affiliated Companies.”)
 
Lack of Separate Representation
 
Holland & Knight LLP is counsel to the Wells REIT, Wells Capital, Wells Investment Securities and their affiliates in connection with this offering and may in the future act as counsel to the Wells REIT, Wells Capital, Wells Investment Securities and their various affiliates. There is a possibility that in the future the interests of the various parties may become adverse. In the event that a dispute were to arise between the Wells REIT and Wells Capital, Wells Investment Securities or any of their affiliates, separate counsel for such matters will be retained as and when appropriate.
 
Joint Ventures with Affiliates of Wells Capital
 
We have entered into joint ventures with other Wells programs to acquire and own properties and are likely to enter into one or more joint venture agreements with other Wells programs for the acquisition, development or improvement of properties. (See “Investment Objectives and Criteria—Joint Venture Investments.”) Wells Capital and its affiliates may have conflicts of interest in determining which Wells program should enter into any particular joint venture agreement. The co-venturer may have economic or business interests or goals which are or which may become inconsistent with our business interests or goals. In addition, should any such joint venture be consummated, Wells Capital may face a conflict in structuring the terms of the relationship between our interests and the interest of the affiliated co-venturer and in managing the joint venture. Since Wells Capital and its affiliates will control both the affiliated co-venturer and, to a certain extent, the Wells REIT, agreements and transactions between the co-venturers with respect to any such joint venture will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers. (See “Risk Factors—Investment Risks.”)
 
Receipt of Fees and Other Compensation by Wells Capital and its Affiliates
 
A transaction involving the purchase and sale of properties may result in the receipt of commissions, fees and other compensation by Wells Capital and its affiliates, including acquisition and advisory fees, the dealer manager fee, property management and leasing fees, real estate brokerage commissions, and participation in nonliquidating net sale proceeds. However, the fees and compensation payable to Wells Capital and its affiliates relating to the sale of properties are subordinated to the return to the stockholders of their capital contributions plus cumulative returns on such capital. Subject to oversight by our board of directors, Wells Capital has considerable discretion with respect to all decisions relating to the terms and timing of all transactions. Therefore, Wells Capital may have conflicts of
 
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interest concerning certain actions taken on our behalf, particularly due to the fact that such fees will generally be payable to Wells Capital and its affiliates regardless of the quality of the properties acquired or the services provided to the Wells REIT. (See “Management Compensation.”)
 
Every transaction we enter into with Wells Capital or its affiliates is subject to an inherent conflict of interest. The board may encounter conflicts of interest in enforcing our rights against any affiliate in the event of a default by or disagreement with an affiliate or in invoking powers, rights or options pursuant to any agreement between us and any affiliate. A majority of the independent directors who are otherwise disinterested in the transaction must approve each transaction between us and Wells Capital or any of its affiliates as being fair and reasonable to us and on terms and conditions no less favorable to us than those available from unaffiliated third parties.
 
Certain Conflict Resolution Procedures
 
In order to reduce or eliminate certain potential conflicts of interest, our articles of incorporation contain a number of restrictions relating to (1) transactions we enter into with Wells Capital and its affiliates, (2) certain future offerings, and (3) allocation of properties among affiliated entities. These restrictions include, among others, the following:
 
 	•	 	Except as otherwise described in this prospectus, we will not accept goods or services from Wells Capital or its affiliates unless a majority of our directors, including a majority of the independent directors, not otherwise interested in the transactions, approve such transactions as fair and reasonable to the Wells REIT and on terms and conditions not less favorable to the Wells REIT than those available from unaffiliated third parties.	
 
 	•	 	We will not purchase or lease properties in which Wells Capital or its affiliates has an interest without a determination by a majority of our directors, including a majority of the independent directors, not otherwise interested in such transaction, that such transaction is competitive and commercially reasonable to the Wells REIT and at a price to the Wells REIT no greater than the cost of the property to Wells Capital or its affiliates, unless there is substantial justification for any amount that exceeds such cost and such excess amount is determined to be reasonable. In no event will we acquire any such property at an amount in excess of its appraised value. We will not sell or lease properties to Wells Capital or its affiliates or to our directors unless a majority of our directors, including a majority of the independent directors, not otherwise interested in the transaction, determine the transaction is fair and reasonable to the Wells REIT.	
 
 	•	 	We will not make any loans to Wells Capital or its affiliates or to our directors. In addition, Wells Capital and its affiliates will not make loans to us or to joint ventures in which we are a joint venture partner for the purpose of acquiring properties. Any loans made to us by Wells Capital or its affiliates or our directors for other purposes must be approved by a majority of our directors, including a majority of the independent directors, not otherwise interested in the transaction, as fair, competitive and commercially reasonable, and no less favorable to the Wells REIT than comparable loans between unaffiliated parties. Wells Capital and its affiliates shall be entitled to reimbursement, at cost, for actual expenses incurred by them on behalf of the Wells REIT or joint ventures in which we are a joint venture partner, subject to the limitation on reimbursement of operating expenses to the extent that they exceed the greater of 2% of our average invested assets or 25% of our net income, as described in the “Management—The Advisory Agreement” section of this prospectus.	
 
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 	•	 	In the event that an investment opportunity becomes available which is suitable, under all of the factors considered by Wells Capital, for the Wells REIT and one or more other public or private entities affiliated with Wells Capital and its affiliates, then the entity which has had the longest period of time elapse since it was offered an investment opportunity will first be offered such investment opportunity. In determining whether or not an investment opportunity is suitable for more than one program, Wells Capital, subject to approval by our board of directors, shall examine, among others, the following factors:	
 
 	•	 	the cash requirements of each program;	
 
 	•	 	the effect of the acquisition both on diversification of each program’s investments by type of commercial property and geographic area, and on diversification of the tenants of its properties;	
 
 	•	 	the policy of each program relating to leverage of properties;	
 
 	•	 	the anticipated cash flow of each program;	
 
 	•	 	the income tax effects of the purchase of each program;	
 
 	•	 	the size of the investment; and	
 
 	•	 	the amount of funds available to each program and the length of time such funds have been available for investment.	
 
If a subsequent event or development, such as a delay in the closing of a property or a delay in the construction of a property, causes any such investment, in the opinion of our board of directors and Wells Capital, to be more appropriate for a program other than the program that committed to make the investment, Wells Capital may determine that another program affiliated with Wells Capital or its affiliates will make the investment. Our board of directors has a duty to ensure that the method used by Wells Capital for the allocation of the acquisition of properties by two or more affiliated programs seeking to acquire similar types of properties shall be reasonable.
 
INVESTMENT OBJECTIVES AND CRITERIA
 
General
 
We invest in commercial real estate properties, including properties that are under development or construction, are newly constructed or have been constructed and have operating histories. Our investment objectives are:
 
 	•	 	to maximize cash dividends paid to you;	
 
 	•	 	to preserve, protect and return your capital contributions;	
 
 	•	 	to realize growth in the value of our properties upon our ultimate sale of such properties; and	
 
 	•	 	to provide you with liquidity of your investment by listing the shares on a national exchange or, if we do not obtain listing of the shares by January 30, 2008, our articles of incorporation require us to begin the process of selling our properties and distributing the net proceeds from such sales to you.	
 
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We cannot assure you that we will attain these objectives or that our capital will not decrease. We may not change our investment objectives, except upon approval of stockholders holding a majority of our outstanding shares. (See “Description of Shares.”)
 
Decisions relating to the purchase or sale of properties will be made by Wells Capital, as our advisor, subject to approval by our board of directors. See “Management” for a description of the background and experience of our directors and executive officers.
 
Acquisition and Investment Policies
 
We will seek to invest substantially all of the offering proceeds available for investment after the payment of fees and expenses in the acquisition of high-grade commercial office and industrial buildings located in densely populated metropolitan markets, which are newly constructed, under construction, or which have been previously constructed and have operating histories. We are not limited to such investments, however. We may invest in other real estate investments, including, but not limited to, warehouse and distribution facilities, shopping centers, business and industrial parks, manufacturing facilities and other types of real estate properties. To date, we have invested primarily in office and industrial buildings located in densely populated suburban markets. (See “Description of Real Estate Investments” and “Prior Performance Summary.”) We will primarily attempt to acquire commercial properties that are less than five years old, the space in which has been leased or preleased to one or more large corporate tenants who satisfy our standards of creditworthiness. (See “Terms of Leases and Tenant Creditworthiness.”)
 
We will seek to invest in properties that will satisfy the primary objective of providing cash dividends to our stockholders. However, because a significant factor in the valuation of income-producing real properties is their potential for future income, we anticipate that the majority of properties we acquire will have both the potential for growth in value and providing cash dividends to our stockholders. To the extent feasible, we will strive to invest in a diversified portfolio of properties in terms of geography, type of property and industry group of our tenants, that will satisfy our investment objectives of maximizing cash available for payment of dividends, preserving our capital and realizing growth in value upon the ultimate sale of our properties.
 
We anticipate that a minimum of 84% of the proceeds from the sale of shares will be used to acquire real estate properties and the balance will be used to pay various fees and expenses. (See “Estimated Use of Proceeds.”)
 
We anticipate purchasing land for the purpose of developing the types of commercial buildings described above. We will not invest more than 10% of the net offering proceeds available for investment in properties in unimproved or non-income producing properties. A property: (1) not acquired for the purpose of producing rental or other operating income, or (2) with no development or construction in process or planned in good faith to commence within one year will be considered unimproved property for purposes of this limitation.
 
Although we are not limited as to the form our investments may take, our investments in real estate will generally take the form of holding fee title or a long-term leasehold estate in the properties we acquire. We will acquire such interests either directly in Wells OP (See “The Operating Partnership Agreement”) or indirectly by acquiring membership interests in or acquisitions of property through limited liability companies or through investments in joint ventures, partnerships, co-tenancies or other co-ownership arrangements with developers of properties, affiliates of Wells Capital or other persons. (See “Joint Venture Investments” below.) We may invest in or make mortgage loans, junior debt or subordinated mortgage loans or combinations of debt and equity, subject to the limitations contained in
 
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our articles of incorporation. In addition, we may purchase properties and lease them back to the sellers of such properties. While we will use our best efforts to structure any such sale-leaseback transaction such that the lease will be characterized as a “true lease” so that we will be treated as the owner of the property for federal income tax purposes, we cannot assure you that the IRS will not challenge such characterization. In the event that any such sale-leaseback transaction is recharacterized as a financing transaction for federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed. (See “Federal Income Tax Considerations—Sale-Leaseback Transactions.”)
 
Although we are not limited as to the geographic area where we may conduct our operations, we currently intend to invest in properties located in the United States.
 
We are not specifically limited in the number or size of properties we may acquire or on the percentage of net proceeds of this offering that we may invest in a single property. The number and mix of properties we acquire will depend upon real estate and market conditions and other circumstances existing at the time we are acquiring our properties and the amount of proceeds we raise in this offering.
 
In making investment decisions for us, Wells Capital will consider relevant real estate property and financial factors, including the creditworthiness of major tenants, the location of the property, its suitability for any development contemplated or in progress, its income-producing capacity, the prospects for long-range appreciation, its liquidity and income tax considerations. In this regard, Wells Capital will have substantial discretion with respect to the selection of specific investments.
 
Our obligation to close the purchase of any investment will generally be conditioned upon the delivery and verification of certain documents from the seller or developer, including, where appropriate:
 
 	•	 	plans and specifications;	
 
 	•	 	environmental reports;	
 
 	•	 	surveys;	
 
 	•	 	evidence of marketable title subject to such liens and encumbrances as are acceptable to Wells Capital;	
 
 	•	 	title and liability insurance policies; and	
 
 	•	 	audited financial statements covering recent operations of properties having operating histories unless such statements are not required to be filed with the Securities and Exchange Commission.	
 
We will not close the purchase of any property unless and until we obtain an environmental assessment, a minimum of a Phase I review, for each property purchased and are generally satisfied with the environmental status of the property.
 
We may also enter into arrangements with the seller or developer of a property whereby the seller or developer agrees that if during a stated period the property does not generate a specified cash flow, the seller or developer will pay in cash to the Wells REIT a sum necessary to reach the specified cash flow level, subject in some cases to negotiated dollar limitations.
 
In determining whether to purchase a particular property, we may, in accordance with customary practices, obtain an option on such property. The amount paid for an option, if any, is normally
 
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surrendered if the property is not purchased and is normally credited against the purchase price if the property is purchased.
 
In purchasing, leasing and developing real estate properties, we will be subject to risks generally incident to the ownership of real estate, including:
 
 	•	 	changes in general economic or local conditions;	
 
 	•	 	changes in supply of or demand for similar or competing properties in an area;	
 
 	•	 	changes in interest rates and availability of permanent mortgage funds which may render the sale of a property difficult or unattractive;	
 
 	•	 	changes in tax, real estate, environmental and zoning laws;	
 
 	•	 	periods of high interest rates and tight money supply which may make the sale of properties more difficult;	
 
 	•	 	tenant turnover; and	
 
 	•	 	general overbuilding or excess supply in the market area.	
 
Development and Construction of Properties
 
We may invest substantially all of the proceeds available for investment in properties on which improvements are to be constructed or completed although we may not invest in excess of 10% of the offering proceeds available for investment in properties with respect to which construction is not planned in good faith to commence within one year from the date of their acquisition. To help ensure performance by the builders of properties that are under construction, completion of properties under construction may be guaranteed at the price contracted either by an adequate completion bond or performance bond. We may rely, however, upon the substantial net worth of the contractor or developer or a personal guarantee accompanied by financial statements showing a substantial net worth provided by an affiliate of the person entering into the construction or development contract as an alternative to a completion bond or performance bond. Development of real estate properties is subject to risks relating to a builder’s ability to control construction costs or to build in conformity with plans, specifications and timetables. (See “Risk Factors—Real Estate Risks.”)
 
We may directly employ one or more project managers to plan, supervise and implement the development of any unimproved properties that we may acquire. In such event, such persons would be compensated directly by the Wells REIT.
 
Terms of Leases and Tenant Creditworthiness
 
The terms and conditions of any lease we enter into with our tenants may vary substantially from those we describe in this prospectus. However, we expect that a majority of our leases will be economically what is generally referred to as “triple net” leases. A “triple net” lease provides that in addition to making its lease payments, the tenant will be required to pay or reimburse the Wells REIT for all real estate taxes, sales and use taxes, special assessments, utilities, insurance and building repairs, and other building operation and management costs.
 
Wells Capital has developed specific standards for determining the creditworthiness of potential tenants of our properties. While authorized to enter into leases with any type of tenant, we anticipate that a majority of our tenants will be large corporations or other entities which have a net worth in excess of
 
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$100,000,000 or whose lease obligations are guaranteed by another corporation or entity with a net worth in excess of $100,000,000. As of June 30, 2002, approximately 95% of the aggregate gross rental income of the Wells REIT was derived from tenants which are corporations, each of which at the time of lease execution had a net worth of at least $100,000,000 or whose lease obligations were guaranteed by another corporation having a net worth of at least $100,000,000.
 
In an attempt to limit or avoid speculative purchases, to the extent possible, Wells Capital will seek to secure, on our behalf, leases with tenants at or prior to the closing of our acquisitions of properties.
 
We anticipate that tenant improvements required to be funded by the landlord in connection with newly acquired properties will be funded from our offering proceeds. However, at such time as a tenant at one of our properties does not renew its lease or otherwise vacates its space in one of our buildings, it is likely that, in order to attract new tenants, we will be required to expend substantial funds for tenant improvements and tenant refurbishments to the vacated space. Since we do not anticipate maintaining permanent working capital reserves, we may not have access to funds required in the future for tenant improvements and tenant refurbishments in order to attract new tenants to lease vacated space. (See “Risk Factors—Real Estate Risks.”)
 
Joint Venture Investments
 
We have entered into joint ventures in the past, and are likely to enter into joint ventures in the future, with affiliated entities for the acquisition, development or improvement of properties for the purpose of diversifying our portfolio of assets. (See “Description of Real Estate Investments—Joint Ventures with Affiliates.”) In this connection, we will likely enter into joint ventures with Wells Fund XIII or other Wells programs. We may also enter into joint ventures, partnerships, co-tenancies and other co-ownership arrangements or participations with real estate developers, owners and other affiliated third-parties for the purpose of developing, owning and operating real properties. (See “Conflicts of Interest.”) In determining whether to invest in a particular joint venture, Wells Capital will evaluate the real property that such joint venture owns or is being formed to own under the same criteria described elsewhere in this prospectus for the selection of real estate property investments of the Wells REIT. (See generally “Investment Objectives and Criteria.”)
 
At such time as Wells Capital enters into a joint venture with another Wells program for the acquisition or development of a specific property, this prospectus will be supplemented to disclose the terms of such investment transaction. We may only enter into joint ventures with other Wells programs for the acquisition of properties if:
 
 	•	 	a majority of our directors, including a majority of the independent directors, approve the transaction as being fair and reasonable to the Wells REIT;	
 
 	•	 	the investment by the Wells REIT and such affiliate are on substantially the same terms and conditions; and	
 
 	•	 	we will have a right of first refusal to buy if such co-venturer elects to sell its interest in the property held by the joint venture.	
 
In the event that the co-venturer were to elect to sell property held in any such joint venture, however, we may not have sufficient funds to exercise our right of first refusal to buy the other co-venturer’s interest in the property held by the joint venture. In the event that any joint venture with an affiliated entity holds interests in more than one property, the interest in each such property may be specially allocated based upon the respective proportion of funds invested by each co-venturer in each such property. Our entering
 
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into joint ventures with other Wells programs will result in certain conflicts of interest. (See “Conflicts of Interest—Joint Ventures with Affiliates of Wells Capital.”)
 
Section 1031 Exchange Program
 
Wells Development Corporation (Wells Development), an affiliate of Wells Management, our Property Manager, and Wells Capital, our advisor, intends to form a series of single member limited liability companies (each of which is referred to in this prospectus as Wells Exchange) for the purpose of facilitating the acquisition of real estate properties to be owned in co-tenancy arrangements with persons (1031 Participants) who are looking to invest the proceeds from a sale of real estate held for investment in another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Internal Revenue Code. We anticipate that Wells Development will sponsor a series of private placement offerings of interests in limited liability companies owning co-tenancy interests in various properties to 1031 Participants.
 
Wells Development anticipates that properties acquired in connection with the Section 1031 Exchange Program will be financed by obtaining a new first mortgage secured by the property acquired. In order to finance the remainder of the purchase price for properties to be acquired by Wells Exchange, it is anticipated that Wells Exchange will obtain a short-term loan from an institutional lender for each property. Following its acquisition of a property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to pay off the short-term loan. At the closing of each property to be acquired by Wells Exchange, we anticipate that Wells OP, our operating partnership, will enter into a contractual arrangement providing that, in the event that Wells Exchange is unable to sell all of the co-tenancy interests in that particular property to 1031 Participants, Wells OP will purchase, at Wells Exchange’s cost, any co-tenancy interests remaining unsold. (See “Risk Factors—Section 1031 Exchange Program.”) In addition, Wells OP may enter into one or more additional contractual arrangements obligating it to purchase co-tenancy interests in a particular property directly from the 1031 Participants. In consideration for such obligations, Wells Exchange will pay Wells OP a fee (Take Out Fee) in an amount currently anticipated to range between 1.0% and 1.5% of the amount of the short-term loan being obtained by Wells Exchange. (See “Risk Factors—Federal Income Tax Risks.”)
 
Our board of directors, including a majority of our independent directors, will be required to approve each property acquired pursuant to the Section 1031 Exchange Program in the event that Wells OP has any obligation to potentially acquire any interest in the property. Accordingly, Wells Exchange intends to purchase only real estate properties which otherwise meet the investment objectives of the Wells REIT. Wells OP may execute an agreement providing for the potential purchase of the unsold co-tenancy interests from Wells Exchange only after a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction, approve of the transaction as being fair, competitive and commercially reasonable to Wells OP and at a price to Wells OP no greater than the cost of the co-tenancy interests to Wells Exchange. If the price to Wells OP is in excess of such cost, our directors must find substantial justification for such excess and that such excess is reasonable. In addition, a fair market value appraisal for each property must be obtained from an independent expert selected by our independent directors, and in no event may Wells OP purchase co-tenancy interests at a price that exceeds the current appraised value for the property interests.
 
As set forth above, pursuant to the terms of these contractual arrangements, Wells OP may be obligated to purchase co-tenancy interests in certain properties offered to 1031 Participants to the extent co-tenancy interests remain unsold at the end of the offering. All purchasers of co-tenancy interests, including Wells OP in the event that it is required to purchase co-tenancy interests, will be required to execute a tenants in common agreement with the other purchasers of co-tenancy interests in that particular property and a property management agreement providing for the property management and leasing of the
 
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property by Wells Management and the payment of property management and leasing fees to Wells Management equal to 4.5% of gross revenues. Accordingly, in the event that Wells OP is required to purchase co-tenancy interests pursuant to one or more of these contractual arrangements, we will be subject to various risks associated with co-tenancy arrangements which are not otherwise present in real estate investments such as the risk that the interests of the 1031 Participants will become adverse to our interests. (See “Risk Factors—Section 1031 Exchange Program.”)
 
Borrowing Policies
 
While we strive for diversification, the number of different properties we can acquire will be affected by the amount of funds available to us. See “Description of Real Estate Investments—Real Estate Loans” for a description of our existing loans and the outstanding loan balances.
 
Our ability to increase our diversification through borrowing could be adversely impacted by banks and other lending institutions reducing the amount of funds available for loans secured by real estate. When interest rates on mortgage loans are high or financing is otherwise unavailable on a timely basis, we may purchase certain properties for cash with the intention of obtaining a mortgage loan for a portion of the purchase price at a later time.
 
There is no limitation on the amount we may invest in any single improved property or on the amount we can borrow for the purchase of any property. The NASAA Guidelines only limit our borrowing to 75% of the value of all properties unless any excess borrowing is approved by a majority of the independent directors and is disclosed to stockholders in our next quarterly report. However, under our articles of incorporation, we have a self-imposed limitation on borrowing which precludes us from borrowing in the aggregate in excess of 50% of the value of all of our properties. As of June 30, 2002, we had an aggregate debt leverage ratio of 1.76% of the value of our properties.
 
By operating on a leveraged basis, we will have more funds available for investment in properties. This will allow us to make more investments than would otherwise be possible, resulting in a more diversified portfolio. Although our liability for the repayment of indebtedness is expected to be limited to the value of the property securing the liability and the rents or profits derived therefrom, our use of leveraging increases the risk of default on the mortgage payments and a resulting foreclosure of a particular property. (See “Risk Factors—Real Estate Risks.”) To the extent that we do not obtain mortgage loans on our properties, our ability to acquire additional properties will be restricted. Wells Capital will use its best efforts to obtain financing on our behalf on the most favorable terms available. Lenders may have recourse to assets not securing the repayment of the indebtedness.
 
Wells Capital will refinance properties during the term of a loan only in limited circumstances, such as when a decline in interest rates makes it beneficial to prepay an existing mortgage, when an existing mortgage matures or if an attractive investment becomes available and the proceeds from the refinancing can be used to purchase such investment. The benefits of the refinancing may include an increased cash flow resulting from reduced debt service requirements, an increase in dividend distributions from proceeds of the refinancing, if any, and/or an increase in property ownership if some refinancing proceeds are reinvested in real estate.
 
We may not borrow money from any of our directors or from Wells Capital and its affiliates for the purpose of acquiring real properties. Any loans by such parties for other purposes must be approved by a majority of our directors, including a majority of the independent directors, not otherwise interested in the transaction, as fair, competitive and commercially reasonable and no less favorable to the Wells REIT than comparable loans between unaffiliated parties.
 
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Disposition Policies
 
We intend to hold each property we acquire for an extended period. However, circumstances might arise which could result in the early sale of some properties. We may sell a property before the end of the expected holding period if, among other reasons:
 
 	•	 	the tenant has involuntarily liquidated;	
 
 	•	 	in the judgment of Wells Capital, the value of a property might decline substantially;	
 
 	•	 	an opportunity has arisen to improve other properties;	
 
 	•	 	we can increase cash flow through the disposition of the property;	
 
 	•	 	the tenant is in default under the lease; or	
 
 	•	 	in our judgment, the sale of the property is in the best interests of our stockholders.	
 
The determination of whether a particular property should be sold or otherwise disposed of will be made after consideration of relevant factors, including prevailing economic conditions, with a view to achieving maximum capital appreciation. We cannot assure you that this objective will be realized. The selling price of a property that is net leased will be determined in large part by the amount of rent payable under the lease. If a tenant has a repurchase option at a formula price, we may be limited in realizing any appreciation. In connection with our sales of properties we may lend the purchaser all or a portion of the purchase price. In these instances, our taxable income may exceed the cash received in the sale. (See “Federal Income Tax Considerations—Failure to Qualify as a REIT.”) The terms of payment will be affected by custom in the area in which the property being sold is located and the then-prevailing economic conditions.
 
If our shares are not listed for trading on a national securities exchange or included for quotation on NASDAQ by January 30, 2008, our articles of incorporation require us to begin the process of selling our properties and distributing the net sale proceeds to you in liquidation of the Wells REIT. In making the decision to apply for listing of our shares, our directors will try to determine whether listing our shares or liquidating our assets will result in greater value for the stockholders. We cannot determine at this time the circumstances, if any, under which our directors will agree to list our shares. Even if our shares are not listed or included for quotation, we are under no obligation to actually sell our portfolio within this time period since the precise timing will depend on real estate and financial markets, economic conditions of the areas in which the properties are located and federal income tax effects on stockholders which may be applicable in the future. Furthermore, we cannot assure you that we will be able to liquidate our assets, and it should be noted that we will continue in existence until all properties are sold and our other assets are liquidated. In addition, we may consider other business strategies such as reorganizations or mergers with other entities if our board of directors determines such strategies would be in the best interests of our stockholders. Any change in the investment objectives set forth in our articles of incorporation would require the vote of stockholders holding a majority of our outstanding shares.
 
Investment Limitations
 
Our articles of incorporation place numerous limitations on us with respect to the manner in which we may invest our funds, most of which are required by various provisions of the NASAA Guidelines. These limitations cannot be changed unless our articles of incorporation are amended, which requires approval of our stockholders. Unless our articles are amended, we will not:
 
 	•	 	borrow in excess of 50% of the aggregate value of all properties owned by us, provided that we may borrow in excess of 50% of the value of an individual property;	
 
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 	•	 	invest in equity securities unless a majority of our directors, including a majority of the independent directors, not otherwise interested in the transaction, approve such investment as being fair, competitive and commercially reasonable;	
 
 	•	 	invest in commodities or commodity futures contracts, except for futures contracts when used solely for the purpose of hedging in connection with our ordinary business of investing in real estate assets and mortgages;	
 
 	•	 	invest in real estate contracts of sale, otherwise known as land sale contracts, unless the contract is in recordable form and is appropriately recorded in the chain of title;	
 
 	•	 	make or invest in mortgage loans except in connection with a sale or other disposition of a property;	
 
 	•	 	make or invest in mortgage loans unless an appraisal is obtained concerning the underlying property except for those mortgage loans insured or guaranteed by a government or government agency. Mortgage debt on any property shall not exceed such property’s appraised value. In cases where our board of directors determines, and in all cases in which the transaction is with any of our directors or Wells Capital and its affiliates, such appraisal shall be obtained from an independent appraiser. We will maintain such appraisal in our records for at least five years and it will be available for your inspection and duplication. We will also obtain a mortgagee’s or owner’s title insurance policy as to the priority of the mortgage;	
 
 	•	 	make or invest in mortgage loans, including construction loans, on any one property if the aggregate amount of all mortgage loans on such property would exceed an amount equal to 85% of the appraised value of such property as determined by appraisal unless substantial justification exists for exceeding such limit because of the presence of other underwriting criteria;	
 
 	•	 	make or invest in mortgage loans that are subordinate to any mortgage or equity interest of any of our directors, Wells Capital or its affiliates;	
 
 	•	 	invest in junior debt secured by a mortgage on real property which is subordinate to the lien or other senior debt except where the amount of such junior debt plus any senior debt exceeds 90% of the appraised value of such property, if after giving effect thereto, the value of all such mortgage loans of the Wells REIT would not then exceed 25% of our net assets, which shall mean our total assets less our total liabilities;	
 
 	•	 	engage in any short sale or borrow on an unsecured basis, if the borrowing will result in asset coverage of less than 300%. “Asset coverage,” for the purpose of this clause, means the ratio which the value of our total assets, less all liabilities and indebtedness for unsecured borrowings, bears to the aggregate amount of all of our unsecured borrowings;	
 
 	•	 	make investments in unimproved property or indebtedness secured by a deed of trust or mortgage loans on unimproved property in excess of 10% of our total assets;	
 
 	•	 	issue equity securities on a deferred payment basis or other similar arrangement;	
 
 	•	 	issue debt securities in the absence of adequate cash flow to cover debt service;	
 
 	•	 	issue equity securities which are non-voting or assessable;	
 
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 	•	 	issue “redeemable securities,” as defined in Section 2(a)(32) of the Investment Company Act of 1940, except pursuant to our share redemption program;	
 
 	•	 	grant warrants or options to purchase shares to Wells Capital or its affiliates or to officers or directors affiliated with Wells Capital except on the same terms as the options or warrants are sold to the general public and the amount of the options or warrants does not exceed an amount equal to 10% of the outstanding shares on the date of grant of the warrants and options;	
 
 	•	 	engage in trading, as compared with investment activities, or engage in the business of underwriting or the agency distribution of securities issued by other persons;	
 
 	•	 	invest more than 5% of the value of our assets in the securities of any one issuer if the investment would cause us to fail to qualify as a REIT;	
 
 	•	 	invest in securities representing more than 10% of the outstanding voting securities of any one issuer if the investment would cause us to fail to qualify as a REIT; or	
 
 	•	 	lend money to our directors or to Wells Capital or its affiliates.	
 
Wells Capital will continually review our investment activity to attempt to ensure that we do not come within the application of the Investment Company Act of 1940. Among other things, Wells Capital will attempt to monitor the proportion of our portfolio that is placed in various investments so that we do not come within the definition of an “investment company” under the Act. If at any time the character of our investments could cause us to be deemed an investment company for purposes of the Investment Company Act of 1940, we will take the necessary action to attempt to ensure that we are not deemed to be an “investment company.”
 
Change in Investment Objectives and Limitations
 
Our articles of incorporation require that the independent directors review our investment policies at least annually to determine that the policies we are following are in the best interests of our stockholders. Each determination and the basis therefore is required to be set forth in our minutes. The methods of implementing our investment policies also may vary as new investment techniques are developed. The methods of implementing our investment objectives and policies, except as otherwise provided in the organizational documents, may be altered by a majority of our directors, including a majority of the independent directors, without the approval of the stockholders. Our investment objectives themselves, however, may only be amended by a vote of the stockholders holding a majority of our outstanding shares.
 
DESCRIPTION OF REAL ESTATE INVESTMENTS
 
General
 
As of July 1, 2002, we had purchased interests in 53 real estate properties located in 19 states, most of which are leased to tenants on an economicly triple-net basis. As of July 1, 2002, all of these properties were 100% leased to tenants. The cost of each of the properties will be depreciated for tax purposes over a 40-year period on a straight-line basis. We believe all of the properties are adequately covered by insurance and are suitable for their intended purposes. The following table provides certain additional information about these properties.
 
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Property Name

	 	Tenant

	 	Property Location

	 	%
Owned

	 	 	Purchase
Price

	  	Square
Feet

	  	Annual Rent

	
ISS Atlanta	 	Internet Security Systems, Inc.	 	Atlanta, GA	 	100	%	 	$	40,500,000	  	238,600	  	$	4,623,445	
MFS Phoenix	 	Massachusetts Financial Services Company	 	Phoenix, AZ	 	100	%	 	$	25,800,000	  	148,605	  	$	2,347,959	
TRW Denver	 	TRW, Inc.	 	Aurora, CO	 	100	%	 	$	21,060,000	  	108,240	  	$	2,870,709	
Agilent Boston	 	Agilent Technologies, Inc.	 	Boxborough, MA	 	100	%	 	$	31,742,274	  	174,585	  	$	3,578,993	
Experian/TRW	 	Experian Information Solutions, Inc.	 	Allen, TX	 	100	%	 	$	35,150,000	  	292,700	  	$	3,438,277	
BellSouth Ft. Lauderdale	 	BellSouth Advertising and Publishing Corporation	 	Ft. Lauderdale, FL	 	100	%	 	$	6,850,000	  	47,400	  	$	747,033	
Agilent Atlanta	 	Agilent Technologies, Inc. Koninklijke Philips Electronics N.V.	 	Alpharetta, GA	 	100	%	 	$	15,100,000	  	66,811
34,396	  	$
$	1,344,905
692,391	
Travelers Express Denver	 	Travelers Express Company, Inc.	 	Lakewood, CO	 	100	%	 	$	10,395,845	  	68,165	  	$	1,012,250	
Dana Kalamazoo	 	Dana Corporation	 	Kalamazoo, MI	 	100	%	 	$	41,950,000(1)	  	147,004	  	$	1,842,800	
Dana Detroit	 	Dana Corporation	 	Farmington Hills, MI	 	100	%	 	 	(see above) (1)	  	112,480	  	$	2,330,600	
Novartis Atlanta	 	Novartis Opthalmics, Inc.	 	Duluth, GA	 	100	%	 	$	15,000,000	  	100,087	  	$	1,426,240	
Transocean Houston	 	Transocean Deepwater
Offshore Drilling, Inc.	 	Houston, TX	 	100	%	 	$	22,000,000	  	103,260	  	$	2,110,035	
 	 	Newpark Drilling Fluids,
Inc.	 	 	 	 	 	 	 	 	  	52,731	  	$	1,153,227	
Arthur Andersen	 	Arthur Andersen LLP	 	Sarasota, FL	 	100	%	 	$	21,400,000	  	157,700	  	$	1,988,454	
Windy Point I	 	TCI Great Lakes, Inc.
The Apollo Group, Inc.
Global Knowledge Network
Various other tenants	 	Schaumburg, IL	 	100	%	 	$	32,225,000(2)	  	129,157
28,322
22,028
8,884	  	$
$
$
$	2,067,204
477,226
393,776
160,000	
Windy Point II	 	Zurich American Insurance	 	Schaumburg, IL	 	100	%	 	$	57,050,000(2)	  	300,034	  	$	5,091,577	
Convergys	 	Convergys Customer Management Group, Inc.	 	Tamarac, FL	 	100	%	 	$	13,255,000	  	100,000	  	$	1,248,192	
ADIC	 	Advanced Digital Information Corporation	 	Parker, CO	 	68.2	%	 	$	12,954,213	  	148,204	  	$	1,222,683	
Lucent	 	Lucent Technologies, Inc.	 	Cary, NC	 	100	%	 	$	17,650,000	  	120,000	  	$	1,800,000	
Ingram Micro	 	Ingram Micro, L.P.	 	Millington, TN	 	100	%	 	$	21,050,000	  	701,819	  	$	2,035,275	
Nissan (3)	 	Nissan Motor Acceptance Corporation	 	Irving, TX	 	100	%	 	$	42,259,000(4)	  	268,290	  	$	4,225,860(5)	
IKON	 	IKON Office Solutions, Inc.	 	Houston, TX	 	100	%	 	$	20,650,000	  	157,790	  	$	2,015,767	
State Street	 	SSB Realty, LLC	 	Quincy, MA	 	100	%	 	$	49,563,000	  	234,668	  	$	6,922,706	
AmeriCredit	 	AmeriCredit Financial Services Corporation	 	Orange Park, FL	 	68.2	%	 	$	12,500,000	  	85,000	  	$	1,336,200	
Comdata	 	Comdata Network, Inc.	 	Brentwood, TN	 	55.0	%	 	$	24,950,000	  	201,237	  	$	2,458,638	
AT&T Oklahoma	 	AT&T Corp.
Jordan Associates, Inc.	 	Oklahoma City, OK	 	55.0	%	 	$	15,300,000	  	103,500
25,000	  	$
$	1,242,000
294,500	
Metris Minnesota	 	Metris Direct, Inc.	 	Minnetonka, MN	 	100	%	 	$	52,800,000	  	300,633	  	$	4,960,445	
Stone & Webster	 	Stone & Webster, Inc.
SYSCO Corporation	 	Houston, TX	 	100	%	 	$	44,970,000	  	206,048
106,516	  	$
$	4,533,056
2,130,320	
Motorola Plainfield	 	Motorola, Inc.	 	S. Plainfield, NJ	 	100	%	 	$	33,648,156	  	236,710	  	$	3,324,428	
Quest	 	Quest Software, Inc.	 	Irvine, CA	 	15.8	%	 	$	7,193,000	  	65,006	  	$	1,287,119	
 
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Property Name

	 	Tenant

	 	Property Location

	 	%
Owned

	 	 	Purchase
Price

	  	Square
Feet

	 	Annual
Rent

	 	
Delphi	 	Delphi Automotive Systems, LLC	 	Troy, MI	 	100	%	 	$	19,800,000	  	107,193	 	$	1,955,524	 	
Avnet	 	Avnet, Inc.	 	Tempe, AZ	 	100	%	 	$	13,250,000	  	132,070	 	$	1,516,164	 	
Siemens	 	Siemens Automotive Corp.	 	Troy, MI	 	56.8	%	 	$	14,265,000	  	77,054	 	$	1,374,643	 	
Motorola Tempe	 	Motorola, Inc.	 	Tempe, AZ	 	100	%	 	$	16,000,000	  	133,225	 	$	1,843,834	 	
ASML	 	ASM Lithography, Inc.	 	Tempe, AZ	 	100	%	 	$	17,355,000	  	95,133	 	$	1,927,788	 	
Dial	 	Dial Corporation	 	Scottsdale, AZ	 	100	%	 	$	14,250,000	  	129,689	 	$	1,387,672	 	
Metris Tulsa	 	Metris Direct, Inc.	 	Tulsa, OK	 	100	%	 	$	12,700,000	  	101,100	 	$	1,187,925	 	
Cinemark	 	Cinemark USA, Inc.
The Coca-Cola Company	 	Plano, TX	 	100	%	 	$	21,800,000	  	65,521
52,587	 	$
$	1,366,491
1,354,184	 
 	
Gartner	 	The Gartner Group, Inc.	 	Ft. Myers, FL	 	56.8	%	 	$	8,320,000	  	62,400	 	$	830,656	 	
Videojet Technologies Chicago	 	Videojet Technologies, Inc.	 	Wood Dale, IL	 	100	%	 	$	32,630,940	  	250,354	 	$	3,376,746	 	
Johnson Matthey	 	Johnson Matthey, Inc.	 	Wayne, PA	 	56.8	%	 	$	8,000,000	  	130,000	 	$	854,748	 	
Alstom Power Richmond (3)	 	Alstom Power, Inc.	 	Midlothian, VA	 	100	%	 	$	11,400,000	  	99,057	 	$	1,213,324	 	
Sprint	 	Sprint Communications Company, L.P.	 	Leawood, KS	 	56.8	%	 	$	9,500,000	  	68,900	 	$	1,102,404	 	
EYBL CarTex	 	EYBL CarTex, Inc.	 	Fountain Inn,
SC	 	56.8	%	 	$	5,085,000	  	169,510	 	$	550,908	 	
Matsushita (3)	 	Matsushita Avionics Systems Corporation	 	Lake
Forest, CA	 	100	%	 	$	18,431,206	  	144,906	 	$	2,005,464	 	
AT&T Pennsylvania	 	Pennsylvania Cellular Telephone Corp.	 	Harrisburg, PA	 	100	%	 	$	12,291,200	  	81,859	 	$	1,442,116	 	
PwC	 	PricewaterhouseCoopers, LLP	 	Tampa, FL	 	100	%	 	$	21,127,854	  	130,091	 	$	2,093,382	 	
Cort Furniture	 	Cort Furniture Rental Corporation	 	Fountain
Valley, CA	 	44.0	%	 	$	6,400,000	  	52,000	 	$	834,888	 	
Fairchild	 	Fairchild Technologies U.S.A., Inc.	 	Fremont, CA	 	77.5	%	 	$	8,900,000	  	58,424	 	$	920,144	 	
Avaya	 	Avaya, Inc.	 	Oklahoma City,
OK	 	3.7	%	 	$	5,504,276	  	57,186	 	$	536,977	 	
Iomega	 	Iomega Corporation	 	Ogden, UT	 	3.7	%	 	$	5,025,000	  	108,250	 	$	659,868	 	
Interlocken	 	ODS Technologies, L.P. and GAIAM, Inc.	 	Broomfield, CO	 	3.7	%	 	$	8,275,000	  	51,975	 	$	1,070,515	 	
Ohmeda	 	Ohmeda, Inc.	 	Louisville, CO	 	3.7	%	 	$	10,325,000	  	106,750	 	$	1,004,520	 	
Alstom Power Knoxville	 	Alstom Power, Inc.	 	Knoxville, TN	 	3.7	%	 	$	7,900,000	  	84,404	 	$	1,106,520	 	

	

	 	

	

	  	

	 	

	

	

	
TOTALS	 	 	 	 	 	 	 	 	$	1,053,500,964	  	7,951,248	 	$	110,025,835	(5)	

	

	 	

	

	  	

	 	

	

	

	

(1)	 	Dana Kalamazoo and Dana Detroit were purchased for an aggregate purchase price of $41,950,000.	
(2)	 	Windy Point I and Windy Point II were purchased for an aggregate purchase price of $89,275,000.	
(3)	 	Includes the actual costs incurred or estimated to be incurred by Wells OP to develop and construct the building in addition to the purchase price of the land.	
(4)	 	Includes estimated costs for the planning, design, development, construction and completion of the Nissan Property.	
(5)	 	Total annual rent does not include $4,225,860 annual rent for Nissan Property, which does not take effect until construction of the building is completed and the tenant is occupying the building.	
 
As of July 1, 2002, no tenant leasing our properties accounted for more than 10% of our aggregate annual rental income. As of July 1, 2002, our most substantial tenants, based on annual rental income, were SSB Realty, LLC (approximately 6.3%), Metris Direct, Inc. (approximately 5.6%), Motorola, Inc. (approximately 4.7%), and Zurich American Insurance Company, Inc. (approximately 4.6%).
 
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Geographic Diversification Table
 
The following table shows a list of 53 real estate investments we owned as of July 1, 2002, grouped by the state where each of our investments is located.
 
State

	  	No. of
Properties

	  	Aggregate
Purchase Price

	  	Approx.
%

	 	 	Aggregate
Square Feet

	  	Approx.
%

	 	 	Aggregate
Annual Rent

	 	 	Approx.
%

	 	
Arizona	  	5	  	$	86,655,000	  	8.2	%	 	638,722	  	8.0	%	 	$	9,023,417	 	 	8.2	%	
California	  	4	  	$	40,924,206	  	3.9	%	 	320,336	  	4.0	%	 	$	5,047,615	 	 	4.6	%	
Colorado	  	5	  	$	63,010,058	  	6.0	%	 	483,334	  	6.1	%	 	$	7,180,677	 	 	6.5	%	
Florida	  	6	  	$	83,452,854	  	7.9	%	 	582,591	  	7.3	%	 	$	8,243,917	 	 	7.5	%	
Georgia	  	3	  	$	70,600,000	  	6.7	%	 	439,894	  	5.5	%	 	$	8,086,981	 	 	7.4	%	
Illinois	  	3	  	$	121,905,940	  	11.6	%	 	738,779	  	9.3	%	 	$	11,566,529	 	 	10.5	%	
Kansas	  	1	  	$	9,500,000	  	0.9	%	 	68,900	  	0.9	%	 	$	1,102,404	 	 	1.0	%	
Massachusetts	  	2	  	$	81,305,274	  	7.7	%	 	409,253	  	5.1	%	 	$	10,501,699	 	 	9.5	%	
Michigan	  	4	  	$	76,015,000	  	7.2	%	 	443,731	  	5.6	%	 	$	7,503,567	 	 	6.8	%	
Minnesota	  	1	  	$	52,800,000	  	5.0	%	 	300,633	  	3.8	%	 	$	4,960,445	 	 	4.5	%	
New Jersey	  	1	  	$	33,648,156	  	3.0	%	 	236,710	  	3.0	%	 	$	3,324,428	 	 	3.0	%	
North Carolina	  	1	  	$	17,650,000	  	1.7	%	 	120,000	  	1.5	%	 	$	1,800,000	 	 	1.6	%	
Oklahoma	  	3	  	$	33,504,276	  	3.2	%	 	286,786	  	3.6	%	 	$	3,261,402	 	 	3.0	%	
Pennsylvania	  	2	  	$	20,291,200	  	1.9	%	 	211,859	  	2.7	%	 	$	2,296,864	 	 	2.1	%	
South Carolina	  	1	  	$	5,085,000	  	0.5	%	 	169,510	  	2.1	%	 	$	550,908	 	 	0.5	%	
Tennessee	  	3	  	$	53,900,000	  	5.1	%	 	987,460	  	12.4	%	 	$	5,600,433	 	 	5.1	%	
Texas	  	6	  	$	186,829,000	  	17.7	%	 	1,305,443	  	16.4	%	 	$	18,101,357	*	 	16.5	%	
Utah	  	1	  	$	5,025,000	  	0.5	%	 	108,250	  	1.4	%	 	$	659,868	 	 	0.6	%	
Virginia	  	1	  	$	11,400,000	  	1.1	%	 	99,057	  	1.2	%	 	$	1,213,324	 	 	1.1	%	

	  	

	

	  	

	

	 	

	  	

	

	 	

	

	

	 	

	

	
Total	  	53	  	$	1,053,500,964	  	100	%	 	7,951,248	  	100	%	 	$	110,025,835	*	 	100	%	

	  	

	

	  	

	

	 	

	  	

	

	 	

	

	

	 	

	

	

*	 	Does not include $4,225,860 annual rent from the Nissan Project, located in Irving, Texas, which is not yet completed.	
 
Lease Expiration Table
 
The following table shows lease expirations during each of the next ten years for all our leases as of July 1, 2002, assuming no exercise of renewal options or termination rights:
 
Year of
Lease
Expiration

	  	Square
Feet
Expiring

	  	Percentage
of Total
Square Feet
Expiring

	 	 	Annualized
Base Base Rent
Expiring(1)

	  	Percentage
of Total
Annualized
Base Rent

	 	 	Wells REIT
Share of
Annualized
Base Rent
Expiring(1)

	  	Percentage
of Wells
REIT Share
of Total
Annualized
Base Rent

	 	
2002	  	8,074	  	0.10	%	 	$	104,408	  	$	0.09	%	 	$	3,874	  	0.00	%	
2003	  	64,223	  	0.81	%	 	 	1,040,723	  	 	0.95	%	 	 	372,232	  	0.37	%	
2004	  	123,430	  	1.55	%	 	 	2,207,263	  	 	2.01	%	 	 	916,348	  	0.92	%	
2005	  	280,537	  	3.53	%	 	 	3,768,626	  	 	3.43	%	 	 	2,069,308	  	2.08	%	
2006	  	52,587	  	0.66	%	 	 	1,354,184	  	 	1.23	%	 	 	1,354,184	  	1.36	%	
2007	  	742,700	  	9.34	%	 	 	11,108,693	  	 	10.10	%	 	 	9,197,835	  	9.26	%	
2008	  	837,973	  	10.54	%	 	 	10,490,790	  	 	9.53	%	 	 	9,244,256	  	9.30	%	
2009	  	513,359	  	6.46	%	 	 	7,235,244	  	 	6.58	%	 	 	6,599,857	  	6.64	%	
2010	  	1,329,000	  	16.71	%	 	 	19,026,036	  	 	17.29	%	 	 	17,847,500	  	17.96	%	
2011	  	2,868,456	  	36.08	%	 	 	39,494,347	  	 	35.90	%	 	 	38,680,622	  	38.92	%	
2012-2021	  	1,130,909	  	14.22	%	 	 	14,195,521	  	 	12.89	%	 	 	13,088,150	  	13.17	%	

	  	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	
Total	  	7,951,248	  	100	%	 	$	110,025,835	  	 	100	%	 	$	99,374,066	  	100	%	

	  	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

(1)	 	Average monthly gross rent over the life of the lease, annualized.	
 
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Joint Ventures with Affiliates
 
Wells OP owns some of its properties through ownership interests in the seven joint ventures listed below. Wells OP does not have control over the operations of the joint ventures; however, it does exercise significant influence. Accordingly, investments in joint ventures are recorded for accounting purposes using the equity method.
 
Joint Venture

	  	Joint Venture Partners

	  	Properties Held by Joint Venture

	
Fund XIII-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Wells Real Estate Fund XIII, L.P.	  	AmeriCredit Building
ADIC Buildings	
Fund XII-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Wells Real Estate Fund XII, L.P.	  	Siemens Building
AT&T Oklahoma
Buildings
Comdata Building	
Fund XI-XII-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Wells Real Estate Fund XI, L.P.
Wells Real Estate Fund XII, L.P.	  	EYBL CarTex
Building
Sprint Building
Johnson Matthey
Building
Gartner Building	
Fund IX-X-XI-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Wells Real Estate Fund IX, L.P.
Wells Real Estate Fund X, L.P.
Wells Real Estate Fund XI, L.P.	  	Alstom Power
Knoxville Building
Ohmeda Building
Interlocken Building
Avaya Building
Iomega Building	
Wells/Freemont Associates Joint Venture (Freemont Joint Venture)	  	Wells Operating Partnership, L.P.
Fund X-XI Joint Venture	  	Fairchild Building	
Wells/Orange County Associates Joint Venture (Orange County Joint Venture)	  	Wells Operating Partnership, L.P.
Fund X-XI Joint Venture	  	Cort Furniture
Building	
Fund VIII-IX-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Fund VIII-IX Joint Venture	  	Quest Building	
 
The Wells Fund XIII—REIT Joint Venture
 
Wells OP and Wells Fund XIII entered into a joint venture partnership known as the Wells Fund XIII-REIT Joint Venture Partnership (XIII-REIT Joint Venture). The investment objectives of Wells Fund XIII are substantially identical to our investment objectives. As of December 31, 2001, the joint venture partners of the XIII-REIT Joint Venture had made the following contributions and held the following equity percentage interests:
 
Joint Venture Partner

	  	Capital Contributions

	  	Equity Interest

	 	
Wells OP	  	$	17,359,875	  	68.2	%	
Wells Fund XIII	  	$	8,491,069	  	31.8	%	
 
The Wells Fund XII-REIT Joint Venture
 
Wells OP and Wells Fund XII entered into a joint venture partnership known as the Wells Fund XII-REIT Joint Venture Partnership (XII-REIT Joint Venture). The investment objectives of Wells Fund XII are substantially identical to our investment objectives. As of December 31, 2001, the joint venture partners of the XII-REIT Joint Venture had made the following contributions and held the following equity percentage interests:
 
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Joint Venture Partner

	  	Capital Contributions

	  	Equity Interest

	 	
Wells OP	  	$	29,950,668	  	55.0	%	
Wells Fund XII	  	$	24,613,401	  	45.0	%	
 
The Wells Fund XI-Fund XII-REIT Joint Venture
 
Wells OP entered into a joint venture partnership with Wells Fund XI and Wells Fund XII known as The Wells Fund XI-Fund XII-REIT Joint Venture (XI-XII-REIT Joint Venture). The XI-XII-REIT Joint Venture was originally formed on May 1, 1999 between Wells OP and Wells Fund XI. On June 21, 1999, Wells Fund XII was admitted to the XI-XII-REIT Joint Venture as a joint venture partner. The investment objectives of Wells Fund XI and Wells Fund XII are substantially identical to our investment objectives. As of December 31, 2001, the joint venture partners of the XI-XII-REIT Joint Venture had made the following contributions and held the following equity percentage interests:
 
Joint Venture Partner

	  	Capital Contributions

	  	Equity Interest

	 	
Wells OP	  	$	17,641,211	  	56.8	%	
Wells Fund XI	  	$	8,131,351	  	26.1	%	
Wells Fund XII	  	$	5,300,000	  	17.1	%	
 
The Fund IX, Fund X, Fund XI and REIT Joint Venture
 
Wells OP entered into a joint venture partnership with Wells Fund IX, Wells Fund X and Wells Fund XI, known as The Fund IX, Fund X, Fund XI and REIT Joint Venture (IX-X-XI-REIT Joint Venture). The IX-X-XI-REIT Joint Venture was originally formed on March 20, 1997 between Wells Fund IX and Wells Fund X. On June 11, 1998, Wells OP and Wells Fund XI were admitted as joint venture partners to the IX-X-XI-REIT Joint Venture. The investment objectives of Wells Fund IX, Wells Fund X and Wells Fund XI are substantially identical to our investment objectives. As of December 31, 2001, the joint venture partners of the IX-X-XI-REIT Joint Venture had made the following contributions and held the following equity percentage interests:
 
Joint Venture Partner

	  	Capital Contributions

	  	Equity Interest

	 	
Wells OP	  	$	1,421,466	  	3.7	%	
Wells Fund IX	  	$	14,982,435	  	39.1	%	
Wells Fund X	  	$	18,501,185	  	48.4	%	
Wells Fund XI	  	$	3,357,436	  	8.8	%	
 
The Fremont Joint Venture
 
Wells OP entered into a joint venture partnership known as Wells/Fremont Associates (Fremont Joint Venture) with Fund X and Fund XI Associates (X-XI Joint Venture), a joint venture between Wells Fund X and Wells Fund XI. The purpose of the Fremont Joint Venture is the acquisition, ownership, leasing, operation, sale and management of the Fairchild Building. As of December 31, 2001, the joint venture partners of the Fremont Joint Venture had made the following contributions and held the following equity percentage interests:
 
Joint Venture Partner

	  	Capital Contributions

	  	Equity Interest

	 	
Wells OP	  	$	6,983,111	  	77.5	%	
X-XI Joint Venture	  	$	2,000,000	  	22.5	%	
 
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Table of Contents
The Cort Joint Venture
 
Wells OP entered into a joint venture partnership with the X-XI Joint Venture known as Wells/Orange County Associates (Cort Joint Venture) for the purpose of the acquisition, ownership, leasing, operation, sale and management of the Cort Furniture Building. As of December 31, 2001, the joint venture partners of the Cort Joint Venture had made the following contributions and held the following equity percentage interests:
 
Joint Venture Partner

	  	Capital Contributions

	  	Equity Interest

	 	
Wells OP	  	$	2,871,430	  	43.7	%	
X-XI Joint Venture	  	$	3,695,000	  	56.3	%	
 
The Wells Fund VIII-Fund IX-REIT Joint Venture
 
Wells OP entered into a joint venture partnership with the Fund VIII-IX Joint Venture known as the Wells Fund VIII-Fund IX-REIT Joint Venture (VIII-IX-REIT Joint Venture) for the purpose of the ownership, leasing, operation, sale and management of the Quest Building. The investment objectives of Wells Fund VIII and Wells Fund IX are substantially identical to our investment objectives. As of December 31, 2001, the joint venture partners of the VIII-IX-REIT Joint Venture had made the following contributions and held the following equity percentage interests:
 
Joint Venture Partner

	  	Capital Contributions

	  	Equity Interest

	 	
Wells OP	  	$	1,282,111	  	15.8	%	
Wells Fund VIII	  	$	3,608,109	  	46.1	%	
Wells Fund IX	  	$	3,620,316	  	38.1	%	
 
General Provisions of Joint Venture Agreements
 
Wells OP is acting as the initial Administrative Venturer of each of the joint ventures described above and, as such, is responsible for establishing policies and operating procedures with respect to the business and affairs of each of these joint ventures. However, approval of the other joint venture partners will be required for any major decision or any action that materially affects these joint ventures or their real property investments.
 
The XIII-REIT Joint Venture Agreement, the XII-REIT Joint Venture Agreement, the XI-XII-REIT Joint Venture Agreement and the IX-X-XI-REIT Joint Venture Agreement each allow any joint venture partner to make a buy/sell election upon receipt by any other joint venture partner of a bona fide third-party offer to purchase all or substantially all of the properties or the last remaining property of the respective joint venture. Upon receipt of notice of such third-party offer, each joint venture partner must elect within 30 days after receipt of the notice to either (1) purchase the entire interest of each venture partner that wishes to accept the offer on the same terms and conditions as the third-party offer to purchase, or (2) consent to the sale of the properties or last remaining property pursuant to such third-party offer.
 
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Table of Contents
Description of Properties
 
ISS Atlanta Buildings
 
Wells OP acquired the ISS Atlanta Buildings on July 1, 2002 for a purchase price of $40,500,000. The ISS Atlanta Buildings, which were built in 2001, consist of two five-story buildings containing a total of 238,600 rentable square feet located in Atlanta, Georgia and were acquired by assigning to Wells OP an existing ground lease with the Development Authority of Fulton County (Development Authority). Fee simple title to the land upon which the ISS Atlanta Buildings are located is held by the Development Authority, which issued Development Authority of Fulton County Taxable Revenue Bonds (Bonds) totaling $32,500,000 in connection with the construction of these buildings. The Bonds, which entitle Wells OP to certain real property tax abatement benefits, were also assigned to Wells OP at the closing. Fee title interest to the land will be transferred to Wells OP upon payment of the outstanding balance on the Bonds, either upon a prepayment by Wells OP or at the expiration of the ground lease on December 1, 2015.
 
The entire rentable area of the ISS Atlanta Buildings is leased to Internet Security Systems, Inc., a Georgia corporation (ISS). The ISS Atlanta lease is guaranteed by the parent of ISS, Internet Security Systems, Inc., a Delaware corporation (ISS, Inc.), whose shares are traded on NASDAQ. ISS, Inc. has operations throughout America, Asia, Australia, Europe and the Middle East. ISS, Inc. provides computer security solutions to networks, servers and desktop computers for organizational customers, including corporate customers and governmental units. ISS, Inc. reported a net worth, as of March 31, 2002, of approximately $435 million.
 
The ISS Atlanta lease is a net lease that commenced in November 2000 and expires in May 2013. The current annual base rent payable under the ISS Atlanta lease is $4,623,445. ISS, at its option, has the right to extend the initial term of its lease for three additional five-year periods at 95% of the then-current market rental rate. In addition, ISS has obtained an $8,000,000 letter of credit from First Union National Bank to guarantee payments under the lease.
 
MFS Phoenix Building
 
Wells OP purchased the MFS Phoenix Building on June 5, 2002 for a purchase price of $25,800,000. The MFS Phoenix Building, which was built in 2000, is a three-story office building containing 148,605 rentable square feet located in Phoenix, Arizona.
 
The entire MFS Phoenix Building is leased to Massachusetts Financial Services Company (MFS). MFS is a Massachusetts corporation having its corporate headquarters in Boston, Massachusetts with offices in London, Tokyo and Singapore. MFS is an investment management firm which offers annuities, institutional products, insurance services, mutual funds and retirement products. MFS reported a net worth, as of December 31, 2001, of approximately $440 million.
 
The MFS Phoenix lease is a net lease that commenced in April 2001 and expires in July 2011. The current annual base rent payable under the MFS Phoenix lease is $2,347,959. MFS, at its option, has the right to extend the initial term of its lease for two additional five-year periods at 95% of the then-current market rental rate.
 
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TRW Denver Building
 
Wells OP purchased the TRW Denver Building on May 29, 2002 for a purchase price of $21,060,000. The TRW Denver Building, which was built in 1997, is a three-story office building containing 108,240 rentable square feet located in Aurora, Colorado.
 
The entire TRW Denver Building is leased to TRW, Inc. (TRW), a global technology, manufacturing and service company that provides advanced technology, systems and services to customers worldwide. TRW reported a net worth, as of March 31, 2002, of approximately $2.24 billion.
 
The TRW Denver lease is a net lease that commenced in October 1997 and expires in September 2007. The current annual base rent payable under the TRW Denver lease is $2,870,709. TRW, at its option, has the right to extend the initial term of its lease for two additional five-year periods at 95% of the then-current market rental rate.
 
Agilent Boston Building
 
Wells OP purchased the Agilent Boston Building on May 3, 2002 for a purchase price of $31,742,274. The Agilent Boston Building, which was built in 2002, is a three-story office building containing 174,585 rentable square feet located in Boxborough, Massachusetts. Wells OP assumed the obligation, as the landlord under the Agilent Boston lease described below, to provide Agilent $3,407,496 for tenant improvements.
 
The entire Agilent Boston Building is leased to Agilent Technologies, Inc. (Agilent). Agilent is a major producer of measuring and monitoring devices, semiconductor products and chemical analysis tools for communications and life sciences companies, such as Internet service providers and biopharmaceutical companies. Agilent reported a net worth, as of January 31, 2002, of approximately $5.4 billion.
 
The Agilent Boston lease is a net lease that commenced in September 2001 and expires in September 2011. The current annual base rent payable under the Agilent Boston lease is $3,578,993. Agilent, at its option, has the right to extend the initial term of its lease for one additional five-year period at a rate equal to the greater of (1) the then-current market rental rate, or (2) 75% of the annual base rent in the final year of the initial term of the Agilent Boston lease. In addition, Agilent may terminate the lease at the end of the seventh lease year by paying a $4,190,000 termination fee.
 
Experian/TRW Buildings
 
Wells OP purchased the Experian/TRW Buildings on May 1, 2002 for a purchase price of $35,150,000. The Experian/TRW Buildings, which were built in 1982 and 1993, respectively, are two two-story office buildings containing a total of 292,700 rentable square feet located in Allen, Texas.
 
The Experian/TRW Buildings are both leased to Experian Information Solutions, Inc. (Experian). Experian is an information services company that uses decision-making software and comprehensive databases of information on consumers, businesses, motor vehicles and property to provide companies with information about their customers. TRW, the original tenant on the Experian/TRW lease, assigned its interest in the Experian/TRW lease to Experian in 1996 but remains as an obligor of the Experian/TRW lease.
 
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The Experian/TRW lease is a net lease that commenced in April 1993 and expires in October 2010. The current annual base rent payable under the Experian lease is $3,438,277. Experian, at its option, has the right to extend the initial term of its lease for four additional five-year periods at 95% of the then-current market rental rate.
 
BellSouth Ft. Lauderdale Building
 
Wells OP purchased the BellSouth Ft. Lauderdale Building on April 18, 2002 for a purchase price of $6,850,000. The BellSouth Ft. Lauderdale Building, which was built in 2001, is a one-story office building containing 47,400 rentable square feet located in Ft. Lauderdale, Florida.
 
The entire BellSouth Ft. Lauderdale Building is leased to BellSouth Advertising and Publishing Corporation (BellSouth Advertising). BellSouth Advertising is a major provider of print directories throughout the southeastern states and markets served by BellSouth Corporation, which is the parent company of BellSouth Advertising.
 
The BellSouth Advertising lease is a net lease that commenced in July 2001 and expires in July 2008. The current annual base rent payable under the BellSouth Advertising lease is $747,033. BellSouth Advertising, at its option, has the right to extend the initial term of its lease for three additional five-year periods at 95% of the then-current market rental rate.
 
Agilent Atlanta Building
 
Wells OP purchased the Agilent Atlanta Building on April 18, 2002 for a purchase price of $15,100,000. The Agilent Atlanta Building, which was built in 2001, is a two-story office building containing 101,207 rentable square feet located in Alpharetta, Georgia.
 
Agilent leases 66,811 rentable square feet of the Agilent Atlanta Building (66%). The Agilent Atlanta lease commenced in September 2001 and expires in September 2011. The initial annual base rent payable under the Agilent Atlanta lease is $1,344,905. Agilent, at its option, has the right to extend the initial term of its lease for either (1) one additional three-year period, or (2) one additional five-year period, at the then-current market rental rate. In addition, Agilent may terminate the lease at the end of the seventh lease year by paying a $763,650 termination fee.
 
Koninklijke Philips Electronics N.V. (Philips) leases the remaining 34,396 rentable square feet of the Agilent Atlanta Building (34%). Philips is one of the world’s largest electronics companies and is a global leader in color television sets, lighting, electric shavers, medical diagnostic imaging, patient monitoring and one-chip TV products. Philips reported a net worth, as of March 31, 2002, of approximately $16.47 billion.
 
The Philips lease commenced in September 2001 and expires in September 2011. The current annual base rent payable under the Philips lease is $692,391. Philips, at its option, has the right to extend the initial term of its lease for either (1) one additional three-year period, or (2) one additional five-year period, at the then-current market rental rate. In addition, Philips may terminate the lease at the end of the seventh lease year by paying a $393,146 termination fee.
 
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Travelers Express Denver Buildings
 
Wells OP purchased the Travelers Express Denver Buildings on April 10, 2002 for a purchase price of $10,395,845. The Travelers Express Denver Buildings, which were built in 2002, are two connected one-story office buildings containing 68,165 rentable square feet located in Lakewood, Colorado.
 
The Travelers Express Denver Buildings are leased to Travelers Express Company, Inc. (Travelers). Travelers is the largest money order processor and second largest money-wire transfer company in the nation, processing more than 775 million transactions per year, including official checks and share drafts for financial institutions. Travelers is a wholly owned subsidiary of Viad Corporation, a public company whose shares are traded on the NYSE.
 
The Travelers lease commenced in April 2002 and expires in March 2012. The current annual base rent payable under the Travelers lease is $1,012,250. Travelers, at its option, has the right to extend the initial term of its lease for two additional five-year periods. The annual base rent for the first three years of the first renewal term shall be $19 per rentable square foot and the annual base rent for the last two years shall be $20.50 per rentable square foot. The annual base rent for the second renewal term shall be at the then-current market rental rate for each year of the renewal term. In addition, Travelers may terminate the Travelers lease at the end of the seventh lease year by paying a termination fee of $1,040,880. Travelers also has the right to expand the Travelers Express Denver Buildings between 10% and 20% by providing notice on or before May 1, 2004, subject to certain limitations and potential acceleration.
 
Dana Corporation Buildings
 
Wells OP purchased the Dana Corporation Buildings on March 29, 2001 for a purchase price of $41,950,000. The Dana Kalamazoo Building, which was built in 1999, is a two-story office and industrial building containing 147,004 rentable square feet located in Kalamazoo, Michigan. The Dana Detroit Building, which was built in 1999, is a three-story office and research and development building containing 112,480 rentable square feet located in Farmington Hills, Michigan. Wells OP purchased the Dana Corporation Buildings by purchasing all of the membership interests in two Delaware limited liability companies each of which owned title to one of the buildings.
 
The Dana Corporation Buildings are leased to Dana Corporation (Dana). Dana is one of the world’s largest suppliers of components, modules and complete systems to global vehicle manufacturers and their related aftermarkets. Dana operates approximately 300 major facilities in 34 countries and employs approximately 70,000 people. Dana reported a net worth, as of December 31, 2001, of approximately $1.9 billion.
 
The Dana Kalamazoo lease commenced in October 2001 and expires in October 2021. The current annual base rent payable under the Dana Kalamazoo lease is $1,842,800. Dana, at its option, has the right to extend the initial term of its lease for six additional five-year periods at the then-current market rental rate. Dana may terminate the lease at any time during the initial lease term after the sixth lease year and before the 19th lease year, subject to certain conditions.
 
The Dana Detroit lease commenced in October 2001 and expires in October 2021. The current annual base rent payable under the Dana Detroit lease is $2,330,600. Dana, at its option, has the right to extend the initial term of its lease for six additional five-year periods at the then-current market rental rate. Dana may terminate the lease at any time during the initial lease term after the 11th lease year, subject to certain conditions.            
 
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Novartis Atlanta Building
 
Wells OP purchased the Novartis Atlanta Building on March 28, 2002 for a purchase price of $15,000,000. The Novartis Atlanta Building, which was built in 2001, is a four-story office building containing 100,087 rentable square feet located in Duluth, Georgia.
 
The Novartis Atlanta Building is leased to Novartis Opthalmics, Inc. (Novartis). The Novartis lease is guaranteed by Novartis’ parent company, Novartis Corporation. Novartis Corporation, a public company whose shares are traded on the NYSE, is a world leader in healthcare with core businesses in pharmaceuticals, consumer health, generics, eye-care and animal health. Novartis Corporation reported a net worth, as of December 31, 2001, of approximately $28.1 billion.
 
The Novartis lease commenced in August 2001 and expires in July 2011. The current annual base rent payable under the Novartis lease is $1,426,240. Novartis, at its option, has the right to extend the initial term of its lease for three additional five-year periods at the then-current market rental rate. In addition, Novartis may terminate the lease at the end of the fifth lease year by paying a $1,500,000 termination fee.            
 
Transocean Houston Building
 
Wells OP purchased the Transocean Houston Building on March 15, 2002 for a purchase price of $22,000,000. The Transocean Houston Building, which was built in 1999, is a six-story office building containing 155,991 rentable square feet located in Houston, Texas.
 
Transocean Deepwater Offshore Drilling, Inc. (Transocean) leases 103,260 rentable square feet (67%) of the Transocean Houston Building. Transocean is an offshore drilling company specializing in technically demanding segments of the offshore drilling industry. The Transocean lease is guaranteed by Transocean Sedco Forex, Inc., one of the world’s largest offshore drilling companies whose shares are traded on the NASDAQ. Transocean Sedco Forex, Inc. reported a net worth, as of September 30, 2001, of approximately $10.86 billion.
 
The Transocean lease commenced in December 2001 and expires in March 2011. Transocean, at its option, has the right to extend the initial term of its lease for either (1) two additional five-year periods, or (2) one additional ten-year period, at the then-current market rental rate. In addition, Transocean has an expansion option and a right of first refusal for up to an additional 52,731 rentable square feet. The current annual base rent payable under the Transocean lease is $2,110,035.
 
Newpark Drilling Fluids, Inc. (Newpark) leases the remaining 52,731 rentable square feet (33%) of the Transocean Houston Building. Newpark is a full service drilling fluids processing, management and waste disposal company. The Newpark lease is guaranteed by Newpark Resources, Inc., which provides drilling fluids services to the oil and gas production industry, primarily in North America. Newpark Resources, Inc. reported a net worth, as of December 31, 2001, of approximately $294 million.
 
The Newpark lease commenced in August 1999 and expires in October 2009. The current annual base rent payable for the Newpark lease is $1,153,227.
 
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Arthur Andersen Building
 
Wells OP purchased the Arthur Andersen Building on January 11, 2002 for a purchase price of $21,400,000. The Arthur Andersen Building, which was built in 1999, is a three-story office building containing 157,700 rentable square feet located in Sarasota, Florida. Wells OP purchased the Arthur Andersen Building from Sarasota Haskell, LLC, which is not in any way affiliated with the Wells REIT, our advisor, Wells Capital, or Arthur Andersen, LLP, the tenant at the property.
 
The Arthur Andersen Building is leased to Arthur Andersen LLP (Andersen). In June 2002, Andersen was tried and convicted of federal obstruction of justice charges arising from its involvement as auditors for Enron Corporation. There may be a substantial risk that events arising out of this conviction or other events relating to the financial condition of Andersen could adversely affect the ability of Andersen to fulfill its obligations as tenant under the Andersen lease. The Andersen lease commenced in November 1998 and expires in October 2009. Andersen has the right to extend the initial 10-year term of this lease for two additional five-year periods at 90% of the then-current market rental rate. The current annual base rent payable under the Andersen lease is $1,988,454.
 
Andersen has the option to purchase the Arthur Andersen Building for a purchase price of $23,250,000 prior to the end of the fifth lease year. In addition, Andersen has the option to purchase the Arthur Andersen Building for a purchase price of $25,148,000 after the fifth lease year and prior to the expiration of the current lease term.
 
Windy Point Buildings
 
Wells OP purchased the Windy Point Buildings on December 31, 2001 for a purchase price of $89,275,000. The Windy Point Buildings, which were built in 1999 and 2001, respectively, consist of a seven-story office building containing 188,391 rentable square feet (Windy Point I) and an eleven-story office building containing 300,034 rentable square feet (Windy Point II) located in Schaumburg, Illinois.
 
The Windy Point Buildings are subject to a 20-year annexation agreement originally executed on December 12, 1995 with the Village of Schaumburg, Illinois (Annexation Agreement). The Annexation Agreement covers a 235-acre tract of land that includes a portion of the site of the Windy Point Buildings’ parking facilities relating to the potential construction of a new eastbound on-ramp interchange for I-90. Wells OP issued a $382,556 letter of credit pursuant to the request of the Village of Schaumburg, Illinois, representing the estimated costs of demolition and restoration of constructed parking and landscaped areas and protecting pipelines in connection with the potential construction. The obligation to maintain the letter of credit will continue until the costs of demolition and restoration are paid if the project proceeds or until the Annexation Agreement expires in December 2015. If Wells OP is unable to restore the parking spaces due to structural issues related to the utilities underground, Wells OP would then be required to construct a new parking garage on the site to accommodate the parking needs of its tenants. The cost for this construction is currently estimated at approximately $3,581,000. In addition, if the interchange is constructed, Wells OP will be required to pay for its share of the costs for widening Meacham Road as part of the project, which potential obligation is currently estimated to be approximately $288,300.
 
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Windy Point I building
 
The Windy Point I building is currently leased as follows:
 
Tenant

	  	Rentable
Sq. Ft.

	  	Percentage
of
Building

	 	
TCI Great Lakes, Inc.	  	129,157	  	69	%	
The Apollo Group, Inc.	  	28,322	  	15	%	
Global Knowledge Network, Inc.	  	22,028	  	12	%	
Multiple Tenants	  	8,884	  	4	%	
 
TCI Great Lakes, Inc. (TCI) occupies 129,157 rentable square feet (69%) of the Windy Point I building. The TCI lease commenced in December 1999 and expires in November 2009. TCI has the right to extend the initial 10-year term of its lease for two additional five-year periods at 95% of the then-current market rental rate. TCI may terminate certain portions of the TCI lease on the last day of the seventh lease year by providing 12 months prior written notice and paying Wells OP a termination fee of approximately $4,119,500. The current annual base rent payable under the TCI lease is $2,067,204.
 
TCI is a wholly-owned subsidiary of AT&T Broadband. AT&T Broadband provides basic cable and digital television services, as well as high-speed Internet access and cable telephony, with video-on-demand and other advanced services.            
 
The Apollo Group, Inc. (Apollo) leases28,322 rentable square feet (15%) of the Windy Point I building. The Apollo lease commenced in April 2002 and expires in June 2008. Apollo has the right to extend the initial term of its lease for one additional five-year period at 95% of the then-current market rental rate. The current annual base rent payable under the Apollo lease is $477,226.
 
Apollo is an Arizona corporation having its corporate headquarters in Phoenix, Arizona. Apollo provides higher education programs to working adults through its subsidiaries, the University of Phoenix, Inc., the Institute for Professional Development, the College for Financial Planning Institutes Corporation and Western International University, Inc. Apollo offers educational programs and services at 58 campuses and 102 learning centers in 36 states, Puerto Rico, and Vancouver, British Columbia. Apollo reported a net worth, as of February 28, 2002, of approximately $559 million.
 
Global Knowledge Network, Inc. (Global) leases 22,028 rentable square feet (12%) of the Windy Point I building. The Global lease commenced in May 2000 and expires in April 2010. Global has the right to extend the initial 10-year term of its lease for one additional five-year period at the then-current market rental rate. Wells OP has the right to terminate the Global lease on December 31, 2005 by giving Global written notice on or before April 30, 2005. The current annual base rent payable under the Global lease is $393,776.
 
Global is a privately held corporation with its corporate headquarters in Cary, North Carolina and international offices in Tokyo, London and Singapore. Global is owned by New York-based investment firm Welsh, Carson, Anderson and Stowe, a New York limited partnership which acts as a private equity investor in information services, telecommunications and healthcare. Global provides information technology education solutions and certification programs, offering more than 700 courses in more than 60 international locations and in 15 languages. Global has posted a $100,000 letter of credit as security for the Global lease.
 
Windy Point II building
 
Zurich American Insurance Company, Inc. (Zurich) leases the entire 300,034 rentable square feet of the Windy Point II building. The Zurich lease commenced in September 2001 and expires in August 2011. Zurich has the right to extend the initial 10-year term of its lease for two additional five-year
 
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periods at 95% of the then-current market rental rate. The current annual base rent payable under the Zurich lease is $5,091,577.
 
Zurich is headquartered in Schaumburg, Illinois and is a wholly-owned subsidiary of Zurich Financial Services Group (ZFSG). ZFSG, which has its corporate headquarters in Zurich, Switzerland, is a leading provider of financial protection and wealth accumulation solutions for some 35 million customers in over 60 countries. Zurich provides commercial property-casualty insurance and serves the multinational, middle market and small business sectors in the United States and Canada.
 
Zurich has the right to terminate the Zurich lease for up to 25% of the rentable square feet leased by Zurich at the end of the fifth lease year. If Zurich terminates a portion of the Zurich lease, it will be required to pay a termination fee to Wells OP equal to three months of the current monthly rent for the terminated space plus additional costs related to the space leased by Zurich. In addition, Zurich may terminate the entire Zurich lease at the end of the seventh lease year by providing Wells OP 18 months prior written notice and paying Wells OP a termination fee of approximately $8,625,000.
 
Convergys Building
 
Wells OP purchased the Convergys Building on December 21, 2001 for a purchase price of $13,255,000. The Convergys Building, which was built in 2001, is a two-story office building containing 100,000 rentable square feet located in Tamarac, Florida.
 
The Convergys Building is leased to Convergys Customer Management Group, Inc. (Convergys). The Convergys lease is guaranteed by Convergys’ parent company, Convergys Corporation, which is an Ohio corporation whose shares are traded on the NYSE having its corporate headquarters in Cincinnati, Ohio. Convergys Corporation provides outsourced billing and customer care services in the United States, Canada, Latin America, Israel and Europe. Convergys Corporation reported a net worth, as of December 31, 2001, of approximately $1.23 billion.
 
The Convergys lease commenced in September 2001 and expires in September 2011. Convergys has the right to extend the initial 10-year term of this lease for three additional five-year periods at 95% of the then-current market rental rate. Convergys may terminate the Convergys lease at the end of the seventh lease year (September 30, 2008) by providing 12 months prior written notice and paying Wells OP a termination fee of approximately $1,341,000. The current annual base rent payable under the Convergys lease is $1,248,192.
 
ADIC Buildings
 
Wells Fund XIII-REIT Joint Venture purchased the ADIC Buildings and an undeveloped 3.43 acre tract of land adjacent to the ADIC Buildings (Additional ADIC Land) on December 21, 2001 for a purchase price of $12,954,213. The ADIC Buildings, which were built in 2001, consist of two connected one-story office and assembly buildings containing a total of 148,204 rentable square feet located in Parker, Colorado.
 
The ADIC Buildings are currently leased to Advanced Digital Information Corporation (ADIC), which lease does not include the Additional ADIC Land. ADIC is a Washington corporation whose shares are traded on NASDAQ having its corporate headquarters in Redmond, Washington and regional management centers in Englewood, Colorado; Böhmenkirch, Germany; and Paris, France. ADIC manufactures data storage systems and specialized storage management software and distributes these products through its relationships with original equipment manufacturers such as IBM, Sony, Fujitsu,
 
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Siemens and Hewlett-Packard. ADIC reported a net worth, as of January 31, 2002, of approximately $335 million.
 
The ADIC lease commenced in December 2001 and expires in December 2011. ADIC has the right to extend the term of its lease for two additional five-year periods at the then-current fair market rental rate for the first year of each five-year extension. The annual base rent will increase 2.5% for each subsequent year of each five-year extension. The current annual base rent payable under the ADIC lease is $1,222,683.
 
Lucent Building
 
Wells OP purchased the Lucent Building from Lucent Technologies, Inc. (Lucent Technologies) in a sale-lease back transaction on September 28, 2001 for a purchase price of $17,650,000. The Lucent Building, which was built in 1999, is a four-story office building with 120,000 rentable square feet, which includes a 17.34 acre undeveloped tract of land, located in Cary, North Carolina.
 
The Lucent Building is leased to Lucent Technologies, whose shares are traded on the NYSE and has its corporate headquarters in Murray Hill, New Jersey. Lucent Technologies designs, develops and manufactures communications systems, software and other products. Lucent Technologies reported a net worth, as of December 31, 2001, of approximately $10.6 billion.
 
The Lucent lease commenced in September 2001 and expires in September 2011. Lucent Technologies has the right to extend the term of this lease for three additional five-year periods at the then-current fair market rental rate. The current annual base rent payable under the Lucent lease is $1,800,000.
 
Ingram Micro Building
 
On September 27, 2001, Wells OP acquired a ground leasehold interest in a 701,819 square foot distribution facility located in Millington, Tennessee, pursuant to a Bond Real Property Lease dated as of December 20, 1995 (Bond Lease). The ground leasehold interest under the Bond Lease, along with the Bond and the Bond Deed of Trust, were purchased from Ingram Micro L.P. (Ingram) in a sale-lease back transaction for a purchase price of $21,050,000. The Bond Lease expires in December 2026. Construction of the Ingram Micro Building was completed in 1997.
 
Fee simple title to the land upon which the Ingram Micro Building is located is held by the Industrial Development Board of the City of Millington, Tennessee (Industrial Development Board), which originally entered into the Bond Lease with Lease Plan North America, Inc. (Lease Plan). The Industrial Development Board issued an Industrial Development Revenue Note Ingram Micro L.P. Series 1995 (Bond) in a principal amount of $22,000,000 to Lease Plan in order to finance the construction of the Ingram Micro Building. The Bond is secured by a Fee Construction Mortgage Deed of Trust and Assignment of Rents and Leases (Bond Deed of Trust) executed by the Industrial Development Board for the benefit of Lease Plan. Lease Plan assigned to Ingram its ground leasehold interest in the Ingram Micro Building under the Bond Lease. Lease Plan also assigned all of its rights and interest in the Bond and the Bond Deed of Trust to Ingram.
 
Wells OP also acquired the Bond and the Bond Deed of Trust from Ingram at closing. Beginning in 2006, Wells OP has the option under the Bond Lease to purchase the land underlying the Ingram Micro Building from the Industrial Development Board for $100 plus satisfaction of the indebtedness evidenced by the Bond which, as set forth above, was acquired and is currently held by Wells OP.
 
Ingram Micro, Inc. (Micro) is the general partner of Ingram and a guarantor on the Ingram lease. Micro, whose shares are traded on the NYSE, has its corporate headquarters in Santa Ana, California.
 
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Micro provides technology products and supply chain management services through wholesale distribution. It targets three different market segments, including corporate resellers, direct and consumer marketers, and value-added resellers. Micro’s worldwide business consists of approximately 14,000 associates and operations in 36 countries. Micro reported a net worth, as of December 29, 2001, of approximately $1.87 billion.
 
The Ingram lease has a current term of 10 years with two successive options to extend for 10 years each at an annual rate equal to the greater of (1) 95% of the then-current fair market rental rate, or (2) the annual rental payment effective for the final year of the term immediately prior to such extension. Annual rent, as determined for each extended term, is also increased by 15% beginning in the 61 st  month of each extended term. The current annual base rent payable for the Ingram lease is $2,035,275.
 
Nissan Property
 
Purchase of the Nissan Property.    The Nissan Property is a build-to-suit property located in Irving, Texas which we purchased on September 19, 2001 for a purchase price of $5,545,700. We commenced construction on a three-story office building containing approximately 268,000 rentable square feet (Nissan Project) in January 2002. Wells OP obtained a construction loan in the amount of $32,400,000 from Bank of America, N.A. (BOA), which is more particularly described in the “Real Estate Loans” section of the prospectus, to fund the construction of a building on the Nissan Project.
 
Wells OP entered into a development agreement, an architect agreement and a design and build agreement to construct the Nissan Project on the Nissan Property.
 
Development Agreement.    Wells OP entered into a development agreement (Development Agreement) with Champion Partners, Ltd., a Texas limited partnership (Developer), as the exclusive development manager to supervise, manage and coordinate the planning, design, construction and completion of the Nissan Project. As compensation for the services to be rendered by the Developer under the Development Agreement, Wells OP is paying a development fee of $1,250,000. The fee is due and payable ratably as the construction and development of the Nissan Project is completed.
 
We anticipate that the aggregate of all costs and expenses to be incurred by Wells OP with respect to the acquisition of the Nissan Property and the planning, design, development, construction and completion of the Nissan Project will total approximately $42,259,000. Under the terms of the Development Agreement, the Developer has agreed that in the event that the total of all such costs and expenses exceeds $42,258,600, subject to certain adjustments, the amount of fees payable to the Developer shall be reduced by the amount of any such excess.
 
Construction Agreement.    Wells OP entered into a design and build construction agreement (Construction Agreement) with Thos. S. Byrne, Inc. (Contractor) for the construction of the Nissan Project. The Contractor is based in Ft. Worth, Texas and specializes in commercial, industrial and high-end residential buildings. The Contractor commenced operations in 1923 and has completed over 200 projects for a total of approximately 60 clients. The Contractor is presently engaged in the construction of over 20 projects with a total construction value of in excess of $235 million.
 
The Construction Agreement provides that Wells OP will pay the Contractor a maximum of $25,326,017 for the construction of the Nissan Project that includes all estimated fees and costs including the architect fees. The Contractor will be responsible for all costs of labor, materials, construction equipment and machinery necessary for completion of the Nissan Project. In addition, the Contractor will be required to secure and pay for any additional business licenses, tap fees and building permits which may be necessary for construction of the Nissan Project.
 
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Nissan Lease.    The Nissan Property is leased to Nissan Motor Acceptance Corporation (Nissan), a California corporation with its corporate headquarters in Torrance, California. Nissan is a wholly-owned subsidiary of Nissan North America, Inc. (NNA), a guarantor of Nissan’s lease. NNA is a California corporation, with headquarters in Gardenia, California. NNA handles the North American business sector of its Japanese parent, Nissan Motor Company, Ltd. NNA’s business activities include design, development, manufacturing and marketing of Nissan vehicles in North America. As a subsidiary of NNA, Nissan purchases retail and lease contracts from, and provides wholesale inventory and mortgage loan financing to, Nissan and Infiniti retailers.
 
The Nissan lease will extend 10 years beyond the rent commencement date. Construction on the building began in January 2002 and is expected to be completed by December 2003. The rent commencement date will occur shortly after completion. Nissan has the right to extend the initial 10-year term of this lease for an additional two years, upon written notice. Nissan also has the right to extend the lease for two additional five-year periods at 95% of the then-current market rental rate, upon written notice. The annual base rent payable for the Nissan lease beginning on the rent commencement date is expected to be $4,225,860.
 
IKON Buildings
 
Wells OP purchased the IKON Buildings on September 7, 2001 for a purchase price of $20,650,000. The IKON Buildings, which were built in 2000, consist of two one-story office buildings aggregating 157,790 rentable square feet located in Houston, Texas.
 
The IKON Buildings are leased to IKON Office Solutions, Inc. (IKON). IKON provides business communication products such as copiers and printers, as well as services such as distributed printing, facilities management, network design, e-business development and technology training. IKON’s customers include various sized businesses, professional firms and government agencies. IKON distributes products manufactured by companies such as Microsoft, IBM, Canon, Novell and Hewlett-Packard. IKON reported a net worth, as of December 31, 2001, of approximately $1.43 billion.
 
The IKON lease commenced in May 2000 and expires in April 2010. IKON has the right to extend the term of this lease for two additional five-year periods at the then-current fair market rental rate. The current annual base rent payable for the IKON lease is $2,015,767.
 
State Street Building
 
Wells OP purchased the State Street Building on July 30, 2001 for a purchase price of $49,563,000. The State Street Building, which was built in 1990, is a seven-story office building with 234,668 rentable square feet located in Quincy, Massachusetts.
 
The State Street Building is leased to SSB Realty, LLC (SSB Realty). SSB Realty is a wholly-owned subsidiary of State Street Corporation, a Massachusetts corporation (State Street). State Street, a guarantor of the SSB Realty lease, is a world leader in providing financial services to investment managers, corporations, public pension funds, unions, not-for-profit organizations and individuals. State Street’s services range from investment research and professional investment management to trading and brokerage services to fund accounting and administration. State Street reported a net worth, as of December 31, 2001, of approximately $3.8 billion.
 
The SSB Realty lease commenced in February 2001 and expires in March 2011. SSB has the right to extend the term of this lease for one additional five-year period at the then-current fair market rental rate. Pursuant to the SSB Realty lease, Wells OP is obligated to provide SSB Realty an allowance of up to
 
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approximately $2,112,000 for tenant, building and architectural improvements. The current annual base rent payable for the SSB Realty lease is $6,922,706.
 
AmeriCredit Building
 
The XIII-REIT Joint Venture purchased the AmeriCredit Building on July 16, 2001 for a purchase price of $12,500,000. The AmeriCredit Building, which was built in 2001, is a two-story office building containing 85,000 rentable square feet located in Orange Park, Florida.
 
The AmeriCredit Building is leased to AmeriCredit Financial Services Corporation (AmeriCredit). AmeriCredit is wholly-owned by, and serves as the primary operating subsidiary for, AmeriCredit Corp., a Texas corporation whose common stock is publicly traded on the NYSE. AmeriCredit Corp. is the guarantor of the lease. AmeriCredit is the world’s largest independent middle-market automobile finance company. AmeriCredit purchases loans made by franchised and select independent dealers to consumers buying late model used and, to a lesser extent, new automobiles. AmeriCredit Corp. reported a net worth, as of December 31, 2001, of approximately $1.2 billion.
 
The AmeriCredit lease commenced in June 2001 and expires in May 2011. AmeriCredit has the right to extend the AmeriCredit lease for two additional five-year periods of time. Each extension option must be exercised by giving written notice to the landlord at least 12 months prior to the expiration date of the then-current lease term. The monthly base rent payable for each extended term of the AmeriCredit lease will be equal to 95% of the then-current market rate. The AmeriCredit lease contains a termination option that may be exercised by AmeriCredit effective as of the end of the seventh lease year and requires AmeriCredit to pay the joint venture a termination payment estimated at approximately $1.9 million. AmeriCredit also has an expansion option for an additional 15,000 square feet of office space and 120 parking spaces. AmeriCredit may exercise this expansion option at any time during the first seven lease years. The current annual base rent payable under the AmeriCredit lease is $1,336,200.
 
Comdata Building
 
The XII-REIT Joint Venture purchased the Comdata Building on May 15, 2001 for a purchase price of $24,950,000. The Comdata Building, which was built in 1989 and expanded in 1997, is a three-story office building containing 201,237 rentable square feet located in Brentwood, Tennessee.
 
The Comdata Building is leased to Comdata Network, Inc. (Comdata). Comdata is a leading provider of transaction processing and information services to the transportation and other industries. Comdata provides trucking companies with fuel cards, electronic cash access, permit and licensing services, routing software, driver relationship services and vehicle escorts, among other services. Comdata provides these services to over 400,000 drivers, 7,000 truck stop service centers and 500 terminal fueling locations. Ceridian Corporation, the lease guarantor, is one of North America’s leading information services companies that serves the human resources and transportation markets. Ceridian and its subsidiaries generate, process and distribute data for customers and help customers develop systems plans and software to perform these functions internally. Ceridian Corporation reported a net worth, as of September 30, 2001, of approximately $1.1 billion.
 
The Comdata lease commenced in April 1997 and expires in May 2016. Comdata has the right to extend the Comdata lease for one additional five-year period of time at a rate equal to the greater of the base rent of the final year of the initial term or 90% of the then-current fair market rental rate. The current annual base rent payable for the Comdata lease is $2,458,638.
 
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AT&T Oklahoma Buildings
 
The XII-REIT Joint Venture purchased the AT&T Oklahoma Buildings on December 28, 2000 for a purchase price of $15,300,000. The AT&T Oklahoma Buildings, which were built in 1998 and 2000, respectively, consist of a one-story office building and a two-story office building, connected by a mutual hallway, containing an aggregate of 128,500 rentable square feet located in Oklahoma City, Oklahoma.
 
AT&T Corp. (AT&T) leases the entire 78,500 rentable square feet of the two-story office building and 25,000 rentable square feet of the one-story office building. AT&T is among the world’s leading voice and data communications companies, serving consumers, businesses and governments worldwide. AT&T has one of the largest digital wireless networks in North America and is one of the leading suppliers of data and Internet services for businesses. In addition, AT&T offers outsourcing, consulting and networking-integration to large businesses and is one of the largest direct internet access service providers for consumers in the United States. AT&T reported a net worth, as of December 31, 2001, of approximately $51.7 billion.
 
The AT&T lease commenced in April 2000 and expires in August 2010. AT&T has the right to extend the AT&T lease for two additional five-year periods of time at the then-current fair market rental rate. AT&T has a right of first offer to lease the remainder of the space in the one-story office building currently occupied by Jordan Associates, Inc. (Jordan), if Jordan vacates the premises. The current annual base rent payable for the AT&T lease is $1,242,000.
 
Jordan leases the remaining 25,000 rentable square feet contained in the one-story office building. Jordan provides businesses with advertising and related services including public relations, research, direct marketing and sales promotion. Through this corporate office and other offices in Tulsa, St. Louis, Indianapolis and Wausau, Wisconsin, Jordan provides services to major clients such as Bank One, Oklahoma, N.A., BlueCross & BlueShield of Oklahoma, Kraft Food Services, Inc., Logix Communications and the American Dental Association.
 
The Jordan lease commenced in December 1998 and expires in December 2008. Jordan has the right to extend the Jordan lease for one additional five-year period of time at the then-current fair market rental rate. The current annual base rent payable for the Jordan lease is $294,500.
 
Metris Minnesota Building
 
Wells OP purchased the Metris Minnesota Building on December 21, 2000 for a purchase price of $52,800,000. The Metris Minnesota Building, which was built in 2000, is a nine-story office building containing 300,633 rentable square feet located in Minnetonka, Minnesota.
 
The Metris Minnesota Building is Phase II of a two-phase office complex known as Crescent Ridge Corporate Center in Minnetonka, Minnesota, which is a western suburb of Minneapolis. Phase I of Crescent Ridge Corporate Center is an eight-story multi-tenant building which is connected to the Metris Minnesota Building by a single-story restaurant link building. Neither Phase I of Crescent Ridge Corporate Center nor the connecting restaurant are owned by Wells OP.
 
The Metris Minnesota Building is leased to Metris Direct, Inc. (Metris) as its corporate headquarters. Metris is a principal subsidiary of Metris Companies, Inc. (Metris Companies), a publicly traded company whose shares are listed on the NYSE (symbol MXT) which has guaranteed the Metris lease. Metris Companies is an information-based direct marketer of consumer credit products and fee-based services primarily to moderate income consumers. Metris Companies’ consumer credit products
 
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are primarily unsecured credit cards issued by its subsidiary, Direct Merchants Credit Card Bank. Metris Companies reported a net worth, as of December 31, 2001, of approximately $1.14 billion.
 
The Metris Minnesota lease commenced in September 2000 and expires in December 2011. Metris has the right to renew the Metris Minnesota lease for an additional five-year term at fair market rent, but in no event less than the basic rent payable in the immediately preceding period. In addition, Metris is required to pay annual parking and storage fees of $87,948 through December 2006 and $114,062 payable on a monthly basis for the remainder of the lease term. The current annual base rent payable for the Metris Minnesota lease is $4,960,445.
 
Stone & Webster Building
 
Wells OP purchased the Stone & Webster Building on December 21, 2000 for a purchase price of $44,970,000. The Stone & Webster Building, which was built in 1994, is a six-story office building with 312,564 rentable square feet located in Houston, Texas. In addition, the site includes 4.34 acres of unencumbered land available for expansion.
 
Stone & Webster is a full-service global engineering and construction company offering managerial and technical resources for solving complex energy, environmental, infrastructure and industrial challenges. The Stone & Webster lease is guaranteed by The Shaw Group, Inc., the parent company of Stone & Webster. Shaw Group is the largest supplier of fabricated piping systems and services in the world. The Shaw Group reported a net worth, as of February 28, 2002, of approximately $612 million.
 
The Stone & Webster lease commenced in December 2000 and expires in December 2010. Stone & Webster has the right to extend the Stone & Webster lease for two additional five-year periods of time for a base rent equal to the greater of (1) the last year’s rent, or (2) the then-current market rental rate. The current annual base rent payable for the Stone & Webster lease is $4,533,056.
 
SYSCO is the largest marketer and distributor of foodservice products in North America. SYSCO operates from approximately 100 distribution facilities and provides its products and services to about 356,000 restaurants and other users across the United States and portions of Canada. SYSCO reported a net worth, as of December 29, 2001, of approximately $2.2 billion.
 
The SYSCO lease commenced in October 1998 and expires in September 2008. The current annual base rent payable for the SYSCO lease is $2,130,320.
 
Motorola Plainfield Building
 
Wells OP purchased the Motorola Plainfield Building on November 1, 2000 for a purchase price of $33,648,156. The Motorola Plainfield Building, which was built in 1976, is a three-story office building containing 236,710 rentable square feet located in South Plainfield, New Jersey.
 
The Motorola Plainfield Building is leased to Motorola, Inc. (Motorola). Motorola is a global leader in providing integrated communications solutions and embedded electronic solutions, including software-enhanced wireless telephones, two-way radios and digital and analog systems and set-top terminals for broadband cable television operators. Motorola reported a net worth, as of December 31, 2001 , of approximately $13.7 billion.
 
The Motorola Plainfield lease commenced in November 2000 and expires in October 2010. Motorola has the right to extend the Motorola Plainfield lease for two additional five-year periods of time for a base rent equal to the greater of (1) base rent for the immediately preceding lease year, or (2) 95%
 
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of the then-current fair market rental rate. The current annual base rent payable for the Motorola Plainfield lease is $3,324,428.
 
The Motorola Plainfield lease grants Motorola a right of first refusal to purchase the Motorola Plainfield Building if Wells OP attempts to sell the property during the term of the lease. Additionally, Motorola has an expansion right for an additional 143,000 rentable square feet. If Motorola exercises its expansion option, upon completion of the expansion, the term of the Motorola Plainfield lease shall be extended an additional 10 years after Motorola occupies the expansion space. The base rent for the expansion space shall be determined by the construction costs and fees for the expansion. The base rent for the original building for the extended 10-year period shall be the greater of (1) the then-current base rent, or (2) 95% of the then-current fair market rental rate.            
 
Quest Building
 
The VIII-IX Joint Venture purchased the Quest Building on January 10, 1997 for a purchase price of $7,193,000. On July 1, 2000, the VIII-IX Joint Venture contributed the Quest Building to the VIII-IX-REIT Joint Venture. The Quest Building, which was built in 1984 and refurbished in 1996, is a two-story office building containing 65,006 rentable square feet located in Irvine, California.
 
The Quest Building is currently leased to Quest Software, Inc. (Quest). Quest, whose shares are publicly traded, is a corporation that provides software database management and disaster recovery services for its clients. Quest was established in April 1987 to develop and market software products to help insure uninterrupted, high performance access to enterprise and custom computing applications and databases. Quest reported a net worth, as of December 31, 2001, of approximately $441 million.
 
The Quest lease commenced in June 2000 and expires in January 2004. The annual base rent payable for the remaining portion of the initial lease term is $1,287,119. Quest has the right to extend the lease for two additional one-year periods of time at an annual base rent of $1,365,126.
 
Delphi Building
 
Wells OP purchased the Delphi Building on June 29, 2000 for a purchase price of $19,800,000. The Delphi Building, which was built in 2000, is a three-story office building containing 107,193 rentable square feet located in Troy, Michigan.
 
The Delphi Building is leased to Delphi Automotive Systems LLC (Delphi LLC). Delphi LLC is a wholly-owned subsidiary of Delphi Automotive Systems Corporation (Delphi), formerly the Automotive Components Group of General Motors, which was spun off from General Motors in May 1999. Delphi is the world’s largest automotive components supplier and sells its products to almost every major manufacturer of light vehicles in the world. Delphi reported a net worth, as of December 31, 2001, of approximately $2.22 billion.
 
The Delphi lease commenced in May 2000 and expires in April 2007. Delphi LLC has the right to extend the Delphi lease for two additional five-year periods of time at 95% of the then-current fair market rental rate. The current annual base rent payable for the Delphi lease is $1,955,524.
 
Avnet Building
 
Wells OP purchased the Avnet Building on June 12, 2000 for a purchase price of $13,250,000. The Avnet Building, which was built in 2000, is a two-story office building containing 132,070 rentable square feet located in Tempe, Arizona. The Avnet Building is subject to a first priority mortgage in favor of
 
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SouthTrust Bank, N.A. (SouthTrust) securing a SouthTrust Line of Credit, which is more particularly described in the “Real Estate Loans” section of this prospectus.
 
The Avnet Building is leased to Avnet, Inc. (Avnet). Avnet is a Fortune 300 company and one of the world’s largest industrial distributors of electronic components and computer products, including microprocessors, semi-conductors and electromechanical devices, serving customers in 60 countries. Additionally, Avnet sells products of more than 100 of the world’s leading component manufacturers to customers around the world. Avnet reported a net worth, as of December 28, 2001, of approximately $1.77 billion.
 
The Avnet lease commenced in May 2000 and expires in April 2010. Avnet has the right to extend the Avnet lease for two additional five-year periods of time. The annual rent payable for the first three years of each extension period will be at the current fair market rental rate at the end of the preceding term. The annual rent payable for the fourth and fifth years of each extension period will be the then-current fair market rental rate at the end of the preceding term multiplied by a factor of 1.093. The current annual base rent payable for the Avnet lease is $1,516,164.
 
Avnet has a right of first refusal to purchase the Avnet Building if Wells OP attempts to sell the Avnet Building. Avnet also has an expansion option. Wells OP has the option to undertake the expansion or allow Avnet to undertake the expansion at its own expense, subject to certain terms and conditions.
 
The Avnet ground lease commenced in April 1999 and expires in September 2083. Wells OP has the right to terminate the Avnet ground lease prior to the expiration of the 30th year. The current annual ground lease payment pursuant to the Avnet ground lease is $230,777.
 
Siemens Building
 
The XII-REIT Joint Venture purchased the Siemens Building on May 10, 2000 for a purchase price of $14,265,000. The Siemens Building, which was built in 2000, is a three-story office building containing 77,054 rentable square feet located in Troy, Michigan.
 
The Siemens Building is leased to Siemens Automotive Corporation (Siemens). Siemens is a subsidiary of Siemens Corporation USA, a domestic corporation which conducts the American operations of Siemens AG, the world’s second largest manufacturer of electronic capital goods. Siemens, part of the worldwide Automotive Systems Group of Siemens AG, is a supplier of advanced electronic and electrical products and systems to automobile manufacturers.
 
The Siemens lease commenced in January 2000 and expires in August 2010. Siemens has the right to extend the Siemens lease for two additional five-year periods at 95% of the then-current fair market rental rate. The current annual base rent payable for the Siemens lease is $1,374,643.
 
Siemens has a one-time right to cancel the Siemens lease effective after the 90th month of the lease term if Siemens pays a cancellation fee to the XII-REIT Joint Venture currently calculated to be approximately $1,234,160.
 
Motorola Tempe Building
 
Wells OP purchased the Motorola Tempe Building on March 29, 2000 for a purchase price of $16,000,000. The Motorola Tempe Building, which was built in 1998, is a two-story office building containing 133,225 rentable square feet in Tempe, Arizona. The Motorola Tempe Building is subject to a
 
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first priority mortgage in favor of SouthTrust securing a SouthTrust line of credit, which is more particularly described in the “Real Estate Loans” section of this prospectus.
 
The Motorola Tempe Building is leased to Motorola, Inc. (Motorola) and is occupied by Motorola’s Satellite Communications Division (SATCOM). SATCOM is a worldwide developer and manufacturer of space and ground communications equipment and systems. SATCOM is the prime contractor for the Iridium System and is primarily engaged in computer design and development functions.
 
The Motorola Tempe lease commenced in August 1998 and expires in August 2005. Motorola has the right to extend the Motorola Tempe lease for four additional five-year periods of time at the then-prevailing market rental rate. The current annual rent payable under the Motorola Tempe lease is $1,843,834.
 
The Motorola Tempe Building is subject to a ground lease that commenced in November 1997 and expires in December 2082. Wells OP has the right to terminate the Motorola Tempe ground lease prior to the expiration of the 30th year and prior to the expiration of each subsequent 10-year period thereafter. The current annual ground lease payment pursuant to the Motorola Tempe ground lease is $243,825.
 
ASML Building
 
Wells OP purchased the ASML Building on March 29, 2000 for a purchase price of $17,355,000. The ASML Building, which was built in 2000, is a two-story office and warehouse building containing 95,133 rentable square feet located in Tempe, Arizona. The ASML Building is subject to a first priority mortgage in favor of SouthTrust securing a SouthTrust line of credit, which is more particularly described in the “Real Estate Loans” section of this prospectus.
 
The ASML Building is leased to ASM Lithography, Inc. (ASML). ASML is a wholly-owned subsidiary of ASM Lithography Holdings NV (ASML Holdings), a Dutch multi-national corporation that supplies lithography systems used for printing integrated circuit designs onto very thin disks of silicon, commonly referred to as wafers. These systems are supplied to integrated circuit manufacturers throughout the United States, Asia and Western Europe. ASML Holdings, a guarantor of the ASML lease, reported a net worth, as of December 31, 2001, of approximately $1.1 billion.
 
The ASML lease commenced in June 1998 and expires in June 2013. The current annual base rent payable under the ASML lease is $1,927,788. ASML has an expansion option which allows ASML the ability to expand the building into at least an additional 30,000 rentable square feet, to be constructed by Wells OP. If the expansion option exercised is for less than 30,000 square feet, Wells OP may reject the exercise at its sole discretion. In the event that ASML exercises its expansion option after the first five years of the initial lease term, such lease term will be extended to 10 years from the date of such expansion.
 
The ASML Building is subject to a ground lease that commenced in August 1997 and expires in December 2082. Wells OP has the right to terminate the ASML ground lease prior to the expiration of the 30th year, and prior to the expiration of each subsequent 10-year period thereafter. The current annual ground lease payment pursuant to the ASML ground lease is $186,368.
 
Dial Building
 
Wells OP purchased the Dial Building on March 29, 2000 for a purchase price of $14,250,000. The Dial Building, which was built in 1997, is a two-story office building containing 129,689 rentable square feet located in Scottsdale, Arizona. The Dial Building is subject to a first priority mortgage in favor of SouthTrust securing a SouthTrust line of credit, which is more particularly described in the “Real Estate Loans” section of this prospectus.
 
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The Dial Building is leased to Dial Corporation (Dial). Dial currently has its headquarters in the Dial Building and is one of the leading consumer product manufacturers in the United States. Dial’s brands include Dial soap, Purex detergents, Renuzit air fresheners, Armour canned meats, and a variety of other leading consumer products. Dial reported a net worth, as of December 31, 2001, of approximately $81.8 million.
 
The Dial lease commenced in August 1997 and expires in August 2008. Dial has the right to extend the Dial lease for two additional five-year periods of time at 95% of the then-current fair market rental rate. The annual rent payable for the initial term of the Dial lease is $1,387,672.
 
Metris Tulsa Building
 
Wells OP purchased the Metris Tulsa Building on February 11, 2000 for a purchase price of $12,700,000. The Metris Tulsa Building, which was built in 2000, is a three-story office building containing 101,100 rentable square feet located in Tulsa, Oklahoma.
 
The Metris Tulsa Building is leased to Metris Direct, Inc. (Metris). Metris Companies, Inc., the parent company of Metris, has guaranteed the Metris Tulsa lease. The Metris Tulsa lease commenced in February 2000 and expires in January 2010. Metris has the right to extend the Metris Tulsa lease for two additional five-year periods of time. The monthly base rent payable for the renewal terms of the Metris Tulsa lease shall be equal to the then-current market rate. The current annual base rent payable for the Metris Tulsa lease is $1,187,925.
 
Cinemark Building
 
Wells OP purchased the Cinemark Building on December 21, 1999 for a purchase price of $21,800,000. The Cinemark Building, which was built in 1999, is a five-story office building containing 118,108 rentable square feet located in Plano, Texas. The Cinemark Building is subject to a first priority mortgage in favor of SouthTrust securing a SouthTrust line of credit, which is more particularly described in the “Real Estate Loans” section of this prospectus.
 
The entire 118,108 rentable square feet of the Cinemark Building is currently leased to two tenants. Cinemark USA, Inc. (Cinemark) occupies 65,521 rentable square feet (56%) of the Cinemark Building, and The Coca-Cola Company (Coca-Cola) occupies the remaining 52,587 (44%) rentable square feet of the Cinemark Building.
 
Cinemark, a privately owned company, is one of the largest motion picture exhibitors in North and South America. Cinemark currently operates in excess of 2,575 screens in 32 states within the United States and internationally in countries such as Argentina, Brazil, Canada, Chile, Costa Rica, Ecuador, El Salvador, Honduras, Nicaragua, Mexico and Peru. Cinemark reported a net worth, as of December 31, 2001, of approximately $25.3 million.
 
The Cinemark lease commenced in December 1999 and expires in December 2009. Cinemark has the right to extend the Cinemark lease for one additional five-year period of time and a subsequent additional 10-year period of time. The monthly base rent payable for the second renewal term of the Cinemark lease shall be equal to 95% of the then-current market rate. Cinemark has a right of first refusal to lease any of the remaining rentable area of the Cinemark Building that subsequently becomes vacant. The current annual base rent payable for the Cinemark lease is $1,366,491.
 
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Coca-Cola is the global soft-drink industry leader with world headquarters in Atlanta, Georgia. Coca-Cola manufactures and sells syrups, concentrates and beverage bases for Coca-Cola, the company’s flagship brand, and over 160 other soft drink brands in nearly 200 countries around the world. Coca-Cola reported a net worth, as of December 31, 2001, of approximately $11.4 billion.
 
The Coca-Cola lease commenced in December 1999 and expires in November 2006. Coca-Cola has the right to extend the lease for two additional five-year periods of time. The current annual base rent payable for the Coca-Cola lease is $1,354,184.
 
Gartner Building
 
The XI-XII-REIT Joint Venture purchased the Gartner Building on September 20, 1999 for a purchase price of $8,320,000. The Gartner Building, which was built in 1998, is a two-story office building containing 62,400 rentable square feet located in Fort Myers, Florida.
 
The Gartner Building is currently leased to The Gartner Group, Inc. (Gartner). The Gartner Building is occupied by Gartner’s Financial Services Division. Gartner is one of the world’s leading independent providers of research and analysis related to information and technology solutions. Gartner has over 80 locations worldwide and over 12,000 clients.
 
The Gartner lease commenced in February 1998 and expires in January 2008. Gartner has the right to extend the lease for two additional five-year periods of time at a rate equal to the lesser of (1) the prior rate increased by 2.5%, or (2) 95% of the then-current market rate. The current annual base rent payable for the Gartner lease is $830,656.
 
Videojet Technologies Chicago Building
 
Wells OP purchased the Videojet Technologies Chicago Building on September 10, 1999 for a purchase price of $32,630,940. The Videojet Technologies Chicago Building, which was built in 1991, is a two-story office, assembly and manufacturing building containing 250,354 rentable square located in Wood Dale, Illinois. The Videojet Technologies Chicago Building is subject to a first priority mortgage in favor of Bank of America, N.A. (BOA) securing the BOA loan, which is more particularly described in the “Real Estate Loans” section of this prospectus.
 
The Videojet Technologies Chicago Building is leased to Videojet Technologies, Inc. (Videojet). Videojet is one of the largest manufacturers of digital imaging, process control, and asset management systems worldwide. In February 2002, Videojet was acquired by Danaher Corporation (Danaher), a company whose shares are traded on the NYSE. Danaher is a leading manufacturer of process and environmental controls and tools and components.
 
The Videojet lease commenced in November 1991 and expires in November 2011. Videojet has the right to extend the Videojet lease for one additional five-year period of time. The current annual base rent payable for the Videojet lease is $3,376,746.
 
Johnson Matthey Building
 
The XI-XII-REIT Joint Venture purchased the Johnson Matthey Building on August 17, 1999 for a purchase price of $8,000,000. The Johnson Matthey Building, which was built in 1973 and refurbished in 1998, is a 130,000 square foot research and development, office and warehouse building located in Wayne, Pennsylvania.
 
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The Johnson Matthey Building is currently leased to Johnson Matthey, Inc. (Johnson Matthey). Johnson Matthey is a wholly-owned subsidiary of Johnson Matthey, PLC of the United Kingdom, a world leader in advanced materials technology. Johnson Matthey, PLC, a company whose shares are publicly traded, is over 175 years old, has operations in 38 countries and employs 12,000 people. Johnson Matthey reported a net worth, as of September 30, 2001, of approximately $1.16 billion.
 
The Johnson Matthey lease commenced in July 1998 and expires in June 2007. Johnson Matthey has the right to extend the lease for two additional three-year periods of time at the then-current fair market rent. Johnson Matthey has a right of first refusal to purchase the Johnson Matthey Building in the event that the XI-XII-REIT Joint Venture desires to sell the building to an unrelated third-party. The current annual base rent payable under the Johnson Matthey lease is $854,748.
 
Alstom Power Richmond Building
 
Wells OP purchased a 7.49 acre tract of land on July 22, 1999 for a purchase price of $936,250 and completed construction of the Alstom Power Richmond Building at an aggregate cost of approximately $11,400,000, including the cost of the land. The Alstom Power Richmond Building, which was built in 2000, is a four-story brick office building containing 99,057 gross square feet located in Midlothian, Virginia.
 
Wells OP originally obtained a construction loan from SouthTrust in the maximum principal amount of $9,280,000 to fund the development and construction of the Alstom Power Richmond Building. This loan, which is more specifically detailed in the “Real Estate Loans” section of this prospectus, was converted to a line of credit and is secured by a first priority mortgage against the Alstom Power Richmond Building, an assignment of the landlord’s interest in the Alstom Power Richmond lease and a $4,000,000 letter of credit issued by Unibank.
 
The Alstom Power Richmond Building is leased to Alstom Power, Inc. (Alstom Power). Alstom Power is the result of the December 30, 1999 merger between ABB Power Generation, Inc. and ABB Alstom Power, Inc. Alstom Power reported a net worth, as of September 30, 2001, of approximately $1.8 billion.
 
The Alstom Power Richmond lease commenced in July 2000 and expires in July 2007. Alstom Power has the right to extend the lease for two additional five-year periods of time at the then-current market rental rate. The current annual base rent payable for the Alstom Power lease is $1,213,324.
 
Alstom Power has a one-time option to terminate the Alstom Power lease as to a portion of the premises containing between 24,500 and 25,500 rentable square feet as of the fifth anniversary of the rental commencement date and Alstom Power will be required to pay a termination fee equal to six times the sum of the next due installments of rent plus the unamortized portions of the base improvement allowance, additional allowance and broker commission, each being amortized in equal monthly installments of principal and interest over the initial term of the lease at an annual rate of 10%.
 
Sprint Building
 
The XI-XII-REIT Joint Venture purchased the Sprint Building on July 2, 1999 for a purchase price of $9,500,000. The Sprint Building, which was built in 1992, is a three-story office building containing 68,900 rentable square feet located in Leawood, Kansas.
 
The Sprint Building is leased to Sprint Communications Company L.P. (Sprint). Sprint is the nation’s third largest long distance phone company, which operates on an all-digital long distance
 
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telecommunications network using state-of-the-art fiber optic and electronic technology. Sprint reported a net worth, as of December 31, 2001, of approximately $12.6 billion.
 
The Sprint lease commenced in May 1997 and expires in May 2007, subject to Sprint’s right to extend the lease for two additional five-year periods of time. The annual base rent payable under the Sprint lease is $1,102,404 for the remainder of the lease term. The monthly base rent payable for each extended term of the Sprint lease will be equal to 95% of the then-current market rental rate.
 
The Sprint lease contains a termination option which may be exercised by Sprint effective as of May 18, 2004 provided that Sprint has not exercised either expansion option, as described below. Sprint must provide notice to the XI-XII-REIT Joint Venture of its intent to exercise its termination option on or before August 21, 2003. If Sprint exercises its termination option, it will be required to pay the joint venture a termination payment equal to $6.53 per square foot, or $450,199.
 
Sprint also has an expansion option for an additional 20,000 square feet of office space. If Sprint exercises an expansion option, the XI-XII-REIT Joint Venture will be required to construct the expansion improvements in accordance with the specific drawings and plans attached as an exhibit to the Sprint lease. The joint venture will be required to fund the expansion improvements and to fund to Sprint a tenant finish allowance of $10 per square foot for the expansion space.
 
EYBL CarTex Building
 
The XI-XII-REIT Joint Venture purchased the EYBL CarTex Building on May 18, 1999 for a purchase price of $5,085,000. The EYBL CarTex Building, which was built in 1989, is a manufacturing and office building consisting of a total of 169,510 square feet located in Fountain Inn, South Carolina.
 
The EYBL CarTex Building is leased to EYBL CarTex, Inc. (EYBL CarTex). EYBL CarTex produces automotive textiles for BMW, Mercedes, GM Bali, VW Mexico and Golf A4. EYBL CarTex is a wholly-owned subsidiary of EYBL International, AG, Krems/Austria. EYBL International is the world’s largest producer of circular knit textile products and loop pile plushes for the automotive industry. EYBL International reported a net worth, as of September 30, 2001, of approximately $41.5 billion.
 
The EYBL CarTex lease commenced in March 1998 and expires in February 2008, subject to EYBL CarTex’s right to extend the lease for two additional five-year periods of time. The monthly base rent payable for each extended term of the lease will be equal to the fair market rent. In addition, EYBL CarTex has an option to purchase the EYBL CarTex Building at the expiration of the initial lease term by giving notice to the landlord by March 1, 2007. The current annual base rent payable under the EYBL CarTex lease is $550,908.
 
Matsushita Building
 
Wells OP purchased an 8.8 acre tract of land on March 15, 1999, for a purchase price of $4,450,230. Wells OP completed construction of the Matsushita Building in 2000 at an aggregate cost of $18,431,206, including the cost of the land. The Matsushita Building is a two-story office building containing 144,906 rentable square feet located in Lake Forest, California.
 
The Matsushita Building is leased to Matsushita Avionics Systems Corporation (Matsushita Avionics). Matsushita Avionics is a wholly-owned subsidiary of Matsushita Electric Corporation of America (Matsushita Electric). Matsushita Electric, a guarantor of the Matsushita lease, is a wholly-owned subsidiary of Matsushita Electric Industrial Co., Ltd. (Matsushita Industrial), a Japanese company which is the world’s largest consumer electronics manufacturer.
 
The Matsushita lease commenced in January 2000 and expires in January 2007. Matsushita Avionics has the option to extend the initial term of the Matsushita lease for two successive five-year
 
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periods at a rate of 95% of the stated rental rate. The monthly base rent during the option term shall be adjusted upward at the beginning of the 24th and 48th month of each option term by an amount equal to 6% of the monthly base rent payable immediately preceding such period. The current annual base rent payable for the Matsushita lease is $2,005,464.
 
AT&T Pennsylvania Building
 
Wells OP purchased the AT&T Pennsylvania Building on February 4, 1999 for a purchase price of $12,291,200. The AT&T Pennsylvania Building, which was built in 1998, is a four-story office building containing 81,859 rentable square feet located in Harrisburg, Pennsylvania.
 
The AT&T Pennsylvania Building is leased to Pennsylvania Cellular Telephone Corp. (Pennsylvania Telephone), a subsidiary of AT&T Corp. (AT&T), and the obligations of Pennsylvania Telephone under the Pennsylvania Telephone lease are guaranteed by AT&T.
 
The Pennsylvania Telephone lease commenced in November 1998 and expires in November 2008. Pennsylvania Telephone has the option to extend the initial term of the Pennsylvania Telephone lease for three additional five-year periods and one additional four year and 11-month period. The annual base rent for each extended term under the lease will be equal to 93% of the fair market rent. The fair market rent shall be multiplied by the fair market escalator (which represents the yearly rate of increases in the fair market rent for the entire renewal term), if any. The current annual base rent payable for the Pennsylvania Telephone lease is $1,442,116.
 
In addition, the Pennsylvania Telephone lease contains an option to expand the premises to create additional office space of not less than 40,000 gross square feet and not more than 90,000 gross square feet, as well as additional parking to accommodate such office space. If Pennsylvania Telephone exercises its option for the expansion improvements, Wells OP will be obligated to expend the funds necessary to construct the expansion improvements. Pennsylvania Telephone may exercise its expansion option by delivering written notice to Wells OP at any time before the last business day of the 96th month of the initial term of the Pennsylvania Telephone lease.
 
PwC Building
 
Wells OP purchased the PwC Building on December 31, 1998 for a purchase price of $21,127,854. The PwC Building, which was built in 1998, is a four-story office building containing 130,091 rentable square feet located in Tampa, Florida. Wells OP purchased the PwC Building subject to a loan from SouthTrust. The SouthTrust loan, which is more particularly described in the “Real Estate Loans” section of this prospectus, is secured by a first priority mortgage against the PwC Building.
 
The PwC Building is leased to PricewaterhouseCoopers (PwC). PwC provides a full range of business advisory services to leading global, national and local companies and to public institutions.
 
The PwC lease commenced in December 1998 and expires in December 2008, subject to PwC’s right to extend the lease for two additional five-year periods of time. The current annual base rent payable under the PwC lease is $2,093,382. The base rent escalates at the rate of 3% per year throughout the 10-year lease term. In addition, PwC is required to pay a “reserve” of $13,009 ($0.10 per square foot) as additional rent.
 
The annual base rent for each renewal term under the lease will be equal to the greater of (1) 90% of the then-current market rent rate for such space multiplied by the rentable area of the leased premises, or (2) 100% of the base rent paid during the last lease year of the initial term, or the then-current renewal term.
 
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In addition, the PwC lease contains an option to expand the premises to include an additional three or four-story building with an amount of square feet up to a total of 132,000 square feet which, if exercised by PwC, will require Wells OP to expend funds necessary to construct the expansion building. PwC may exercise its expansion option at any time prior to the expiration of the initial term of the PwC lease.
 
If PwC elects to exercise its expansion option, Wells OP will be required to expand the parking garage such that a sufficient number of parking spaces, at least equal to four parking spaces per 1,000 square feet of rentable area, is maintained. In the event that PwC elects to exercise its expansion option and Wells OP determines not to proceed with the construction of the expansion building as described above, or if Wells OP is otherwise required to construct the expansion building and fails to do so in a timely basis pursuant to the PwC lease, PwC may exercise its purchase option by giving Wells OP written notice of such exercise within 30 days after either such event. If PwC properly exercises its purchase option, PwC must simultaneously deliver a deposit in the amount of $50,000.
 
Cort Furniture Building
 
The Cort Joint Venture purchased the Cort Furniture Building on July 31, 1998 for a purchase price of $6,400,000. The Cort Furniture Building, which was built in 1975, is a one-story office, showroom and warehouse building containing 52,000 rentable square feet located in Fountain Valley, California.
 
The Cort Furniture Building is leased to Cort Furniture Rental Corporation (Cort). Cort uses the Cort Furniture Building as its regional corporate headquarters with an attached clearance showroom and warehouse storage areas. Cort is a wholly-owned subsidiary of Cort Business Services Corporation, the largest and only national provider of high-quality office and residential rental furniture and related accessories. The obligations of Cort under the Cort Furniture lease are guaranteed by Cort Business Services Corporation.
 
The Cort lease commenced in November 1988 and expires in October 2003. Cort has an option to extend the Cort lease for an additional five-year period of time at 90% of the then-fair market rental value, but will be no less than the rent in the 15th year of the Cort lease. The current annual base rent payable under the Cort lease is $834,888 for the remainder of the lease term.
 
Fairchild Building
 
The Fremont Joint Venture purchased the Fairchild Building on July 21, 1998 for a purchase price of $8,900,000. The Fairchild Building, which was built in 1985, is a two-story manufacturing and office building containing 58,424 rentable square feet located in Fremont, Alameda County, California.
 
The Fairchild Building is leased to Fairchild Technologies U.S.A., Inc. (Fairchild). Fairchild is a global leader in the design and manufacture of production equipment for semiconductor and compact disk manufacturing. Fairchild is a wholly-owned subsidiary of the Fairchild Corporation (Fairchild Corp), the largest aerospace fastener and fastening system manufacturer and one of the largest independent aerospace parts distributors in the world. The obligations of Fairchild under the Fairchild lease are guaranteed by Fairchild Corp. Fairchild Corp. reported a net worth, as of December 30, 2001, of approximately $403 million.
 
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The Fairchild lease commenced in December 1997 and expires in November 2004, subject to Fairchild’s right to extend the Fairchild lease for an additional five-year period. The base rent during the first year of the extended term of the Fairchild lease, if exercised by Fairchild, shall be 95% of the then-fair market rental value of the Fairchild Building subject to the annual 3% increase adjustments. The current annual base rent payable under the Fairchild lease is $920,144.
 
Avaya Building
 
The Avaya Building was purchased by the IX-X-XI-REIT Joint Venture on June 24, 1998 for a purchase price of $5,504,276. The Avaya Building, which was built in 1998, is a one-story office building containing 57,186 rentable square feet located in Oklahoma City, Oklahoma.
 
The Avaya Building is leased to Avaya, Inc. (Avaya), the former Enterprise Networks Group of Lucent Technologies Inc. (Lucent Technologies). Lucent Technologies, the former tenant, assigned the lease to Avaya on September 30, 2000. Lucent Technologies, which has not been released from its obligations as tenant to pay rent under the lease, is a telecommunications company which was spun off by AT&T in April 1996. Avaya reported a net worth, as of December 31, 2001, of approximately $452 million. Lucent Technologies reported a net worth, as of December 31, 2001, of approximately $10.63 billion.
 
The Avaya lease commenced in January 1998 and expires in January 2008. The current annual base rent payable under the Avaya lease is $536,977. Under the Avaya lease, Avaya also has an option to terminate the Avaya lease on the seventh anniversary of the rental commencement date. If Avaya elects to exercise its option to terminate the Avaya lease, Avaya would be required to pay a termination payment anticipated to be approximately $1,339,000.
 
Iomega Building
 
Wells Fund X originally purchased the Iomega Building on April 1, 1998 for a purchase price of $5,025,000 and, on July 1, 1998, contributed the Iomega Building to the IX-X-XI-REIT Joint Venture. The Iomega Building is a warehouse and office building with 108,250 rentable square feet located in Ogden, Utah.
 
The Iomega Building is leased to Iomega Corporation (Iomega). Iomega, a company whose shares are traded on the NYSE, is a manufacturer of computer storage devices used by individuals, businesses, government and educational institutions, including “Zip” drives and disks, “Jaz” one gigabyte drives and disks, and tape backup drives and cartridges. Iomega reported a net worth, as of December 31, 2001, of approximately $378.9 million.
 
The Iomega lease commenced in August 1996 and expires in April 2009. On March 1, 2003 and July 1, 2006, the monthly base rent payable under the Iomega lease will be increased to reflect an amount equal to 100% of the increase in the Consumer Price Index during the preceding 40 months; provided however, that in no event shall the base rent be increased with respect to any one year by more than 6% or by less than 3% per year, compounded annually, on a cumulative basis from the beginning of the lease term. The current annual base rent payable under the Iomega lease is $659,868.
 
Interlocken Building
 
The IX-X-XI-REIT Joint Venture purchased the Interlocken Building on March 20, 1998 for a purchase price of $8,275,000. The Interlocken Building, which was built in 1996, is a three-story multi-tenant office building containing 51,975 rentable square feet located in Broomfield, Colorado. The aggregate current annual base rent payable for all tenants of the Interlocken Building is $1,070,515.
 
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Ohmeda Building
 
The IX-X-XI-REIT Joint Venture purchased the Ohmeda Building on February 13, 1998 for a purchase price of $10,325,000. The Ohmeda Building, which was built in 1988, is a two-story office building containing 106,750 rentable square feet located in Louisville, Colorado.
 
The Ohmeda Building is leased to Ohmeda, Inc. (Ohmeda). Ohmeda is a medical supply firm based in Boulder, Colorado and is a worldwide leader in vascular access and hemodynamic monitoring for hospital patients. On April 13, 1998, Instrumentarium Corporation (Instrumentarium), a Finnish company, acquired the division of Ohmeda that occupies the Ohmeda Building. Instrumentarium, a guarantor on the Ohmeda lease, is an international health care company concentrating on selected fields of medical technology manufacturing, marketing and distribution. Instrumentarium reported a net worth, as of December 31, 2001, of approximately $480 million.
 
The Ohmeda lease expires in January 2005, subject to Ohmeda’s right to extend the Ohmeda lease for two additional five-year periods of time. The current annual base rent payable under the Ohmeda lease is $1,004,520.
 
The Ohmeda lease contains an option to expand the premises by an amount of square feet up to a total of 200,000 square feet which, if exercised by Ohmeda, will require the IX-X-XI-REIT Joint Venture to expend funds necessary to acquire additional land, if necessary, and to construct the expansion space.
 
Alstom Power Knoxville Building
 
Wells Fund IX purchased the land and constructed the Alstom Power Knoxville Building. The Alstom Power Knoxville Building, which was built in 1997, is a three-story multi-tenant steel-framed office building containing 84,404 square feet located in Knoxville, Tennessee. Wells Fund IX contributed the Alstom Power Knoxville Building to the IX-X-XI-REIT Joint Venture on March 26, 1997 and was credited with making a $7,900,000 capital contribution to the IX-X-XI-REIT Joint Venture.
 
The Alstom Power Knoxville Building is currently leased to Alstom Power, Inc. (Alstom Power). Alstom Power is the result of the December 30, 1999 merger between ABB Power Generation, Inc. and ABB Alstom Power, Inc. Alstom Power reported a net worth, as of September 30, 2001, of approximately $1.8 billion.
 
As security for Alstom Power’s obligations under its lease, Alstom Power has provided to the IX-X-XI-REIT Joint Venture an irrevocable standby letter of credit in accordance with the terms and conditions set forth in the Alstom Power Knoxville lease. The letter of credit maintained by Alstom Power is required to be in the amount of $4,000,000 until the seventh anniversary of the rental commencement date (January 2005), at which time it will be reduced by $1,000,000 each year until the end of the lease term.
 
The Alstom Power Knoxville lease commenced in January 1998 and expires in November 2007. The current annual base rent for the Alstom Power Knoxville lease is $1,106,520.
 
Alstom Power has an option to terminate the Alstom Power Knoxville lease as of the seventh anniversary of the rental commencement date. If Alstom Power elects to exercise this termination option, Alstom Power is required to pay to the IX-X-XI-REIT Joint Venture a termination payment currently estimated to be approximately $1,800,000 based upon certain assumptions.
 
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Property Management Fees
 
Wells Management, our Property Manager, has been retained to manage and lease substantially all of our properties. Except as set forth below, we pay management and leasing fees to Wells Management in an amount equal to the lesser of: (A) 4.5% of gross revenues, or (B) 0.6% of the net asset value of the properties (excluding vacant properties) owned by the Wells REIT, calculated on an annual basis. For purposes of this calculation, net asset value shall be defined as the excess of (1) the aggregate of the fair market value of all properties owned by the Wells REIT (excluding vacant properties), over (2) the aggregate outstanding debt of the Wells REIT (excluding debts having maturities of one year or less). In addition, we may pay Wells Management a separate fee for the one-time initial rent-up or leasing-up of newly constructed properties in an amount not to exceed the fee customarily charged in arm’s length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area (customarily equal to the first month’s rent).
 
Wells Management has also been retained to manage and lease all of the properties currently owned by the IX-X-XI-REIT Joint Venture and the VIII-IX-REIT Joint Venture. While both Wells Fund XI and the Wells REIT are authorized to pay management and leasing fees to Wells Management in the amount of 4.5% of gross revenues, Wells Fund VIII, Wells Fund IX and Wells Fund X are authorized to pay aggregate management and leasing fees to Wells Management in the amount of 6% of gross revenues. Accordingly, a portion of the gross revenues of these joint ventures will be subject to a 6% management and leasing fee and a portion of gross revenues will be subject to a 4.5% management and leasing fee based upon the respective ownership percentages of the joint venture partners in each of these two joint ventures.
 
Wells Management also received or will receive a one-time initial lease-up fee equal to the first month’s rent for the leasing of the Alstom Power Knoxville Building, the Avaya Building, the Matsushita Building, the Alstom Power Richmond Building and the Nissan Project.
 
Real Estate Loans
 
SouthTrust Loans
 
Wells OP has established various secured lines of credit with SouthTrust Bank, N.A. (SouthTrust) whereby SouthTrust has agreed to lend an aggregate amount of up to $72,140,000 in connection with its purchase of real properties. The interest rate on each of these separate lines of credit is an annual variable rate equal to the London InterBank Offered Rate (LIBOR) for a 30-day period plus 175 basis points. Wells OP will be charged an advance fee of 0.125% of the amount of each advance. As of June 30, 2002, the interest rate on each of the SouthTrust lines of credit was 3.625% per annum.
 
The $32,393,000 SouthTrust Line of Credit
 
The $32,393,000 SouthTrust line of credit requires monthly payments of interest only and matures on September 10, 2002. This SouthTrust line of credit is secured by first priority mortgages against the Cinemark Building, the Dial Building and the ASML Building. As of June 30, 2002, there was no outstanding principal balance due on the $32,393,000 SouthTrust line of credit.
 
The $12,844,000 SouthTrust Line of Credit
 
The $12,844,000 SouthTrust line of credit requires monthly payments of interest only and matures on September 10, 2002. This SouthTrust line of credit is secured by a first priority mortgage against the PwC Building. As of June 30, 2002, there was no outstanding principal balance due on the $12,844,000 SouthTrust line of credit.
 
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The $19,003,000 SouthTrust Line of Credit
 
The $19,003,000 SouthTrust line of credit requires monthly payments of interest only and matures on September 10, 2002. This SouthTrust line of credit is secured by first priority mortgages against the Avnet Building and the Motorola Tempe Building. As of June 30, 2002, there was no outstanding principal balance due on the $19,003,000 SouthTrust line of credit.
 
The $7,900,000 SouthTrust Line of Credit
 
Wells OP originally obtained a loan from SouthTrust Bank, N.A. in connection with the acquisition, development and construction of the Alstom Power Richmond Building. After completion of construction, SouthTrust converted the construction loan into a separate line of credit in the maximum principal amount of up to $7,900,000. This SouthTrust line of credit requires payments of interest only and matures on September 10, 2002. The $7,900,000 SouthTrust line of credit is secured by a first priority mortgage against the Alstom Power Richmond Building, the Alstom Power Richmond lease and a $4,000,000 letter of credit issued by Unibank. As of June 30, 2002, the outstanding principal balance on the $7,900,000 SouthTrust line of credit was $7,655,600.
 
BOA Line of Credit
 
Wells OP established a secured line of credit in the amount of $85,000,000 with Bank of America, N.A. (BOA Line of Credit) in connection with its purchase of real properties. In addition, Wells OP may increase the BOA Line of Credit up to an amount of $110,000,000 with the lender’s approval. The interest rate on the BOA Line of Credit is an annual variable rate equal to LIBOR for a 30-day period plus 180 basis points. The BOA Line of Credit requires monthly payments of interest only and matures on May 11, 2004. As of June 30, 2002, the interest rate on the BOA Line of Credit was 3.63% per annum. The BOA Line of Credit is secured by first priority mortgages against the Videojet Technologies Chicago Building, the AT&T Pennsylvania Building, the Motorola Tempe Building, the Matsushita Building, the Metris Tulsa Building and the Delphi Building. As of June 30, 2002, there was no outstanding principal balance due on the BOA Line of Credit.
 
BOA Construction Loan
 
Wells OP obtained a construction loan in the amount of $34,200,000 from Bank of America, N.A. (BOA Loan), to fund the construction of a building on the Nissan Property located in Irving, Texas. The loan requires monthly payments of interest only and matures on July 30, 2003. The interest rate on the loan is fixed at 5.91%. As of June 30, 2002, the outstanding principal balance on the BOA Loan was $8,002,541. The BOA Loan is secured by a first priority mortgage on the Nissan Property.
 
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SELECTED FINANCIAL DATA
 
The Wells REIT commenced active operations when it received and accepted subscriptions for a minimum of 125,000 shares on June 5, 1998. The following sets forth a summary of the selected financial data for the fiscal year ended December 31, 2001, 2000 and 1999:
 
 	  	2001

	  	2000

	  	1999

	
Total assets	  	$	753,224,519	  	$	398,550,346	  	$	143,852,290	
Total revenues	  	 	49,308,802	  	 	23,373,206	  	 	6,495,395	
Net income	  	 	21,723,967	  	 	8,552,967	  	 	3,884,649	
Net income allocated to Stockholders	  	 	21,723,967	  	 	8,552,967	  	 	3,884,649	
Earning per share:	  	 	 	  	 	 	  	 	 	
Basic and diluted	  	 	$0.43	  	 	$0.40	  	 	$0.50	
Cash distributions	  	 	0.76	  	 	0.73	  	 	0.70	
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
The following discussion and analysis should be read in conjunction with our accompanying financial statements and the notes thereto.
 
General
 
Forward Looking Statements
 
This section and other sections in the prospectus contain 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 Wells REIT, anticipated capital expenditures required to complete certain projects, amounts of anticipated cash distributions to stockholders in the future and certain other matters. Readers of this prospectus should be aware that there are various factors that could cause actual results to differ materially from any forward-looking statements made in this prospectus, which include changes in general economic conditions, changes in real estate conditions, construction costs which may exceed estimates, construction delays, increases in interest rates, 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. (See generally “Risk Factors.”)
 
REIT Qualification
 
We have made an election under Section 856 (c) of the Internal Revenue Code to be taxed as a REIT under the Internal Revenue Code beginning with its taxable year ended December 31, 1999. As a REIT for federal income tax purposes, we generally will not be subject to Federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is lost. Such an event could materially, adversely affect our net income. However, we believe that we are organized and operate in a manner, which has enabled us to qualify for treatment as a REIT for federal income tax purposes during the year ended December 31, 2001. In addition, we intend to continue to operate the Wells REIT so as to remain qualified as a REIT for federal income tax purposes.
 
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Liquidity and Capital Resources
 
During the fiscal year ended December 31, 2001, we received aggregate gross offering proceeds of $522,516,620 from the sale of 52,251,662 shares of our common stock. After payment of $18,143,307 in acquisition and advisory fees and acquisition expenses, payment of $58,387,809 in selling commissions and organization and offering expenses, and common stock redemptions of $4,137,427 pursuant to our share redemption program, we raised net offering proceeds available for investment in properties of $441,848,077 during the fiscal year ended December 31, 2001.
 
During the three months ended March 31, 2002, we received aggregate gross offering proceeds of $255,702,943 from the sale of 25,570,294 shares of our common stock. After payment of $8,843,134 in acquisition and advisory fees and acquisition expenses, payment of $27,106,265 in selling commissions and organization and offering expenses, and common stock redemptions of $3,041,981 pursuant to our share redemption program, we raised net offering proceeds of $216,711,563 during the first quarter of 2002, of which $185,290,197 remained available for investment in properties at quarter end.
 
During the three months ended March 31, 2001, we received aggregate gross offering proceeds of $66,174,704 from the sale of 6,617,470 shares of our common stock. After payment of $2,288,933 in acquisition and advisory fees and acquisition expenses, payment of $8,175,768 in selling commissions and organizational and offering expenses, and common stock redemptions of $776,555 pursuant to our share redemption program, we raised net offering proceeds of $54,933,448, of which $5,952,930 was available for investment in properties at quarter end.
 
The net increase in cash and cash equivalents during the fiscal year ended December 31, 2001, as compared to the fiscal year ended December 31, 2000, and for the three months ended March 31, 2002, as compared to the three months ended March 31, 2001, is primarily the result of raising increased amounts of capital from the sale of shares of common stock, offset by the acquisition of properties during 2001 and the first quarter of 2002, and the payment of acquisition and advisory fees and acquisition expenses, commissions and, organization and offering costs.
 
As of March 31, 2002, we owned interests in 44 real estate properties either directly or through interests in joint ventures. These properties are generating operating cash flow sufficient to cover our operating expenses and pay dividends to our stockholders. We pay dividends on a quarterly basis regardless of the frequency with which such distributions are declared. Dividends will be paid to investors who are stockholders as of the record dates selected by our board of directors. We currently calculate quarterly dividends based on the daily record and dividend declaration dates; thus, stockholders are entitled to receive dividends immediately upon the purchase of shares. Dividends declared during 2001 and 2000 totaled $0.76 per share and $0.73 per share, respectively. Dividends declared for the first quarter of 2002 and the first quarter of 2001 were approximately $0.194 and $0.188 per share, respectively.
 
Dividends to be distributed to the stockholders are determined by our board of directors and are dependent on a number of factors, including funds available for payment of dividends, financial condition, capital expenditure requirements and annual distribution requirements in order to maintain our status as a REIT under the Internal Revenue Code. Operating cash flows are expected to increase as additional properties are added to our investment portfolio.
 
Cash Flows From Operating Activities
 
Our net cash provided by operating activities was $42,349,342 for the fiscal year ended December 31, 2001, $7,319,639 for the fiscal year ended December 31, 2000 and $4,008,275 for the fiscal year ended December 31, 1999. The increase in net cash provided by operating activities was due primarily to the net income generated by properties acquired during 2000 and 2001.
 
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Our net cash provided by operating activities was $13,117,549 and $8,235,314 for the three months ended March 31, 2002 and 2001, respectively. The increase in net cash provided by operating activities was due primarily to the net income generated by additional properties acquired during 2002 and 2001.
 
Cash Flows From Investing Activities
 
Our net cash used in investing activities was $274,605,735 for the fiscal year ended December 31, 2001, $249,316,460 for the fiscal year ended December 31, 2000 and $105,394,956 for the fiscal year ended December 31, 1999. The increase in net cash used in investing activities was due primarily to investments in properties, directly and through contributions to joint ventures, and the payment of related deferred project costs.
 
Our net cash used in investing activities was $111,821,692 and $4,264,257 for the three months ended March 31, 2002 and 2001, respectively. The increase in net cash used in investing activities was due primarily to investments in properties and the payment of related deferred project costs, partially offset by distributions received from joint ventures.
 
Cash Flows From Financing Activities
 
Our net cash provided by financing activities was $303,544,260 for the fiscal year ended December 31, 2001, $243,365,318 for the fiscal year ended December 31, 2000, and $96,337,082 for the fiscal year ended December 31, 1999. The increase in net cash provided by financing activities was due primarily to the raising of additional capital offset by the repayment of notes payable. We raised $522,516,620 in offering proceeds for fiscal year ended December 31, 2001, as compared to $180,387,220 for fiscal year ended December 31, 2000, and $103,169,490 for fiscal year ended December 31, 1999. In addition, we received loan proceeds from financing secured by properties of $110,243,145 and repaid notes payable in the amount of $229,781,888 for fiscal year ended December 31, 2001.
 
Our net cash provided by financing activities was $210,144,548 for the three months ended March 31, 2002 and net cash used in financing activities for the three months ended March 31, 2001 was $113,042. The increase in net cash provided by financing activities was due primarily to the raising of additional capital and the related repayment of notes payable. We raised $255,702,943 in offering proceeds for the three months ended March 31, 2002, as compared to $66,174,705 for the same period in 2001.
 
Results of Operations
 
Comparison of Fiscal Years Ended December 31, 2001, 2000 and 1999
 
Gross revenues were $49,308,802 for the fiscal year ended December 31, 2001, $23,373,206 for fiscal year ended December 31, 2000 and $6,495,395 for fiscal year ended December 31, 1999. Gross revenues for the year ended December 31, 2001, 2000 and 1999 were attributable to rental income, interest income earned on funds we held prior to the investment in properties, and income earned from joint ventures. The increase in revenues for the fiscal year ended December 31, 2001 was primarily attributable to the purchase of additional properties during 2000 and 2001. The purchase of additional properties also resulted in an increase in expenses which totaled $27,584,835 for the fiscal year ended December 31, 2001, $14,820,239 for the fiscal year ended December 31, 2000 and $2,610,746 for the fiscal year ended December 31, 1999. Expenses in 2001, 2000 and 1999 consisted primarily of depreciation, interest expense and management and leasing fees. Our net income also increased from
 
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$3,884,649 for fiscal year ended December 31, 1999 to $8,552,967 for fiscal year ended December 31, 2000 to $21,723,967 for the year ended December 31, 2001.
 
Comparison of First Quarter 2002 and 2001
 
As of March 31, 2002, our real estate properties were 100% leased to tenants. Gross revenues were $19,192,803 and $10,669,713 for the three months ended March 31, 2002 and 2001, respectively. Gross revenues for the three months ended March 31, 2002 and 2001 were attributable to rental income, interest income earned on funds we held prior to the investment in properties, and income earned from joint ventures. The increase in revenues in 2002 was primarily attributable to the purchase of additional properties for $104,051,998 during 2002 and the purchase of additional properties for $227,933,858 in the last three quarters of 2001. The purchase of additional properties also resulted in an increase in expenses which totaled $8,413,139 for the three months ended March 31, 2002, as compared to $7,394,368 for the three months ended March 31, 2001. Expenses in 2002 and 2001 consisted primarily of depreciation, interest expense, management and leasing fees and general and administrative costs. As a result, our net income also increased from $3,275,345 for the three months ended March 31, 2001 to $10,779,664 for the three months ended March 31, 2002.
 
Property Operations
 
The following table summarizes the operations of the joint ventures in which we owned an interest as of December 31, 2001, 2000 and 1999:
 
 	  	Total Revenue
For Years Ended December 31

	  	Net Income
For Years Ended December 31

	  	Well REIT’s Share of Net Income
For Years Ended December 31

	
 	  	2001

	  	2000

	  	1999

	  	2001

	  	2000

	  	1999

	  	2001

	  	2000

	  	1999

	
Fund IX-X-XI-REIT Joint Venture	  	$	4,344,209	  	$	4,388,193	  	$	4,053,042	  	$	2,684,837	  	$	2,669,143	  	$	2,172,244	  	$	99,649	  	$	99,177	  	$	81,501	
 	 	 	 	 	 	 	 	 	 	
Orange County Joint Venture	  	 	797,937	  	 	795,545	  	 	795,545	  	 	546,171	  	 	568,961	  	 	550,952	  	 	238,542	  	 	248,449	  	 	240,585	
 	 	 	 	 	 	 	 	 	 	
Fremont Joint Venture	  	 	907,673	  	 	902,946	  	 	902,946	  	 	562,893	  	 	563,133	  	 	559,174	  	 	436,265	  	 	436,452	  	 	433,383	
 	 	 	 	 	 	 	 	 	 	
Fund XI-XII-REIT Joint Venture	  	 	3,371,067	  	 	3,349,186	  	 	1,443,503	  	 	2,064,911	  	 	2,078,556	  	 	853,073	  	 	1,172,103	  	 	1,179,848	  	 	488,500	
 	 	 	 	 	 	 	 	 	 	
Fund XII-REIT Joint Venture	  	 	4,708,467	  	 	976,865	  	 	N/A	  	 	2,611,522	  	 	614,250	  	 	N/A	  	 	1,386,877	  	 	305,060	  	 	N/A	
 	 	 	 	 	 	 	 	 	 	
Fund VIII-IX-REIT Joint Venture	  	 	1,208,724	  	 	563,049	  	 	N/A	  	 	566,840	  	 	309,893	  	 	N/A	  	 	89,779	  	 	24,887	  	 	N/A	
Fund XIII- REIT Joint Venture	  	 	706,373	  	 	N/A	  	 	N/A	  	 	356,355	  	 	N/A	  	 	N/A	  	 	297,745	  	 	N/A	  	 	N/A	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 	  	$	16,044,450	  	$	10,975,784	  	$	7,195,036	  	$	8,977,529	  	$	6,803,936	  	$	4,135,443	  	$	3,720,960	  	$	2,293,873	  	$	1,243,969	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	

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Funds From Operations
 
Funds From Operations (FFO), as defined by the National Association of Real Estate Investment Trusts (NAREIT), generally means net income, computed in accordance with GAAP excluding extraordinary items (as defined by GAAP) and gains (or losses) from sales of property, plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures and subsidiaries. We believe that FFO is helpful to investors as a measure of the performance of an equity REIT. However, our calculation of FFO, while consistent with NAREIT’s definition, may not be comparable to similarly titled measures presented by other REITs. Adjusted Funds From Operations (AFFO) is defined as FFO adjusted to exclude the effects of straight-line rent adjustments, deferred loan cost amortization and other non-cash and/or unusual items. Neither FFO nor AFFO represent cash generated from operating activities in accordance with GAAP and should not be considered as alternatives to net income as an indication of our performance or to cash flows as a measure of liquidity or ability to make distributions.
 
The following table reflects the calculation of FFO and AFFO for the three years ended December 31, 2001, 2000, and 1999, respectively:
 
 	  	December 31,
2001

	 	 	December 31,
2000

	 	 	December 31,
1999

	 	
FUNDS FROM OPERATIONS:	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	21,723,967	 	 	$	8,552,967	 	 	$	3,884,649	 	
Add:	  	 	 	 	 	 	 	 	 	 	 	 	
Depreciation of real assets	  	 	15,344,801	 	 	 	7,743,550	 	 	 	1,726,103	 	
Amortization of deferred leasing costs	  	 	303,347	 	 	 	350,991	 	 	 	0	 	
Depreciation and amortization—unconsolidated partnerships	  	 	3,211,828	 	 	 	852,968	 	 	 	652,167	 	

	

	

	 	

	

	

	 	

	

	

	
Funds from operations (FFO)	  	 	40,583,943	 	 	 	17,500,476	 	 	 	6,262,919	 	
Adjustments:	  	 	 	 	 	 	 	 	 	 	 	 	
Loan cost amortization	  	 	770,192	 	 	 	232,559	 	 	 	8,921	 	
Straight line rent	  	 	(2,754,877	)	 	 	(1,650,791	)	 	 	(847,814	)	
Straight line rent—unconsolidated partnerships	  	 	(543,039	)	 	 	(245,288	)	 	 	(140,076	)	
Lease acquisition fees paid	  	 	0	 	 	 	(152,500	)	 	 	0	 	
Lease acquisition fees paid—Unconsolidated partnerships	  	 	0	 	 	 	(8,002	)	 	 	(512	)	

	

	

	 	

	

	

	 	

	

	

	
Adjusted funds from operations	  	$	38,056,219	 	 	$	15,676,454	 	 	$	5,283,438	 	

	

	

	 	

	

	

	 	

	

	

	
WEIGHTED AVERAGE SHARES:	  	 	 	 	 	 	 	 	 	 	 	 	
BASIC AND DILUTED	  	 	51,081,867	 	 	 	21,616,051	 	 	 	7,769,298	 	

	

	

	 	

	

	

	 	

	

	

	
 
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The following table reflects the calculation of FFO and AFFO for the three months ended March 31, 2002 and 2001, respectively:
 
 	  	Three Months Ended
March 31, 2002

	 	 	Three Months Ended
March 31, 2001

	 	
FUNDS FROM OPERATIONS:	  	 	 	 	 	 	 	 	
Net income	  	$	10,779,664	 	 	$	3,275,345	 	
Add:	  	 	 	 	 	 	 	 	
Depreciation of real assets	  	 	5,744,452	 	 	 	3,187,179	 	
Amortization of deferred leasing costs	  	 	72,749	 	 	 	75,837	 	
Depreciation and amortization—unconsolidated partnerships	  	 	706,176	 	 	 	299,116	 	

	

	

	 	

	

	

	
Funds from operations (FFO)	  	 	17,303,041	 	 	 	6,837,477	 	
Adjustments:	  	 	 	 	 	 	 	 	
Loan cost amortization	  	 	175,462	 	 	 	214,757	 	
Straight line rent	  	 	(1,038,378	)	 	 	(616,465	)	
Straight line rent—unconsolidated partnerships	  	 	(99,315	)	 	 	(39,739	)	
Lease acquisition fees paid—unconsolidated partnerships	  	 	0	 	 	 	(2,356	)	

	

	

	 	

	

	

	
Adjusted funds from operations (AFFO)	  	$	16,340,810	 	 	$	6,393,674	 	

	

	

	 	

	

	

	
WEIGHTED AVERAGE SHARES:	  	 	 	 	 	 	 	 	
BASIC AND DILUTED	  	 	95,130,210	 	 	 	34,359,444	 	

	

	

	 	

	

	

	
 
Inflation
 
The real estate market has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. However, there are provisions in the majority of tenant leases which would protect us from the impact of inflation. These provisions include reimbursement billings for common area maintenance charges (CAM), 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.
 
Critical Accounting Policies
 
Our accounting policies have been established and conform with generally accepted accounting principles in the United States (GAAP). The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied; thus, resulting in a different presentation of our financial statements. Below is a discussion of the accounting policies that we consider to be critical in that they may require complex judgment in their application or require estimates about matters which are inherently uncertain.
 
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Straight-Lined Rental Revenues
 
We recognize rental income generated from all leases on real estate assets in which we have an ownership interest, either directly or through investments in joint ventures, on a straight-line basis over the terms of the respective leases. If a tenant was to encounter financial difficulties in future periods, the amount recorded as a receivable may not be realized.
 
Operating Cost Reimbursements
 
We generally bill tenants for operating cost reimbursements, either directly or through investments in joint ventures, on a monthly basis at amounts estimated largely based on actual prior period activity and the respective lease terms. Such billings are generally adjusted on an annual basis to reflect reimbursements owed to the landlord based on the actual costs incurred during the period and the respective lease terms. Financial difficulties encountered by tenants may result in receivables not being realized.
 
Real Estate
 
We continually monitor events and changes in circumstances indicating that the carrying amounts of the real estate assets in which we have an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When such events or changes in circumstances are present, we assess the potential impairment by comparing the fair market value of the asset, estimated at an amount equal to the future undiscounted operating cash flows expected to be generated from tenants over the life of the asset and from its eventual disposition, to the carrying value of the asset. In the event that the carrying amount exceeds the estimated fair market value, we would recognize an impairment loss in the amount required to adjust the carrying amount of the asset to its estimated fair market value. Neither the Wells REIT nor our joint ventures have recognized impairment losses on real estate assets in 2001, 2000 or 1999.
 
Deferred Project Costs
 
We record acquisition and advisory fees and acquisition expenses payable to Wells Capital, Inc., our advisor, by capitalizing deferred project costs and reimbursing our advisor in an amount equal to 3.5% of cumulative capital raised to date. As we invest our capital proceeds, deferred project costs are applied to real estate assets, either directly or through contributions to joint ventures, at an amount equal to 3.5% of each investment and depreciated over the useful lives of the respective real estate assets.
 
Deferred Offering Costs
 
Our advisor expects to continue to fund 100% of the organization and offering costs and recognize related expenses, to the extent that such costs exceed 3% of cumulative capital raised, on our behalf. Organization and offering costs include items such as legal and accounting fees, marketing and promotional costs, and printing costs, and specifically exclude sales costs and underwriting commissions. We record offering costs by accruing deferred offering costs, with an offsetting liability included in due to affiliates, at an amount equal to the lesser of 3% of cumulative capital raised to date or actual costs incurred from third-parties less reimbursements paid to our advisor. As the actual equity is raised, we reverse the deferred offering costs accrual and recognize a charge to stockholders’ equity upon reimbursing our advisor.
 
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PRIOR PERFORMANCE SUMMARY
 
The information presented in this section represents the historical experience of real estate programs managed by Wells Capital, our advisor, and its affiliates. Investors in the Wells REIT should not assume that they will experience returns, if any, comparable to those experienced by investors in such prior Wells real estate programs.
 
Of the 14 publicly offered real estate limited partnerships in which Leo F. Wells, III has served as a general partner, 13 of such limited partnerships have completed their respective offerings. These 13 limited partnerships and the year in which each of their offerings was completed are:
 
  1.  Wells Real Estate Fund I (1986),
 
  2.  Wells Real Estate Fund II (1988),
 
  3.  Wells Real Estate Fund II-OW (1988),
 
  4.  Wells Real Estate Fund III, L.P. (1990),
 
  5.  Wells Real Estate Fund IV, L.P. (1992),
 
  6.  Wells Real Estate Fund V, L.P. (1993),
 
  7.  Wells Real Estate Fund VI, L.P. (1994),
 
  8.  Wells Real Estate Fund VII, L.P. (1995),
 
  9.  Wells Real Estate Fund VIII, L.P. (1996),
 
10.  Wells Real Estate Fund IX, L.P. (1996),
 
11.  Wells Real Estate Fund X, L.P. (1997),
 
12.  Wells Real Estate Fund XI, L.P. (1998), and
 
13.  Wells Real Estate Fund XII, L.P. (2001).
 
In addition to the foregoing real estate limited partnerships, Wells Capital and its affiliates have sponsored three prior public offerings of shares of common stock of the Wells REIT. The initial public offering of the Wells REIT began on January 30, 1998 and was terminated on December 19, 1999. We received gross proceeds of approximately $132,181,919 from the sale of approximately 13,218,192 shares in our initial public offering. We commenced our second public offering of shares of common stock of the Wells REIT on December 20, 1999 and terminated the second offering on December 19, 2000. We received gross proceeds of approximately $175,229,193 from the sale of approximately 17,522,919 shares in our second public offering. We commenced our third public offering of shares of common stock of the Wells REIT on December 20, 2000. As of June 30, 2002, we had received gross proceeds of approximately $1,148,480,414 from the sale of approximately 114,848,041 shares in our third public offering. Accordingly, as of June 30, 2002, we had received aggregate gross offering proceeds of approximately $1,455,891,526 from the sale of approximately 145,589,153 shares in our three prior public offerings. After payment of $50,528,371 in acquisition and advisory fees and acquisition expenses, payment of $163,576,134 in selling commissions and organization and offering expenses, and common stock redemptions of $12,223,808 pursuant to our share redemption program, as of June 30, 2002, we had raised aggregate net offering proceeds available for investment in properties of $1,229,563,213, out of which $885,294,095 had been invested in real estate properties, and $344,269,118 remained available for investment in real estate properties.
 
Wells Capital and its affiliates are also currently sponsoring a public offering of 4,500,000 units on behalf of Wells Real Estate Fund XIII, L.P. (Wells Fund XIII), a public limited partnership. Wells Fund XIII began its offering on March 29, 2001 and, as of June 30, 2002, Wells Fund XIII had raised gross offering proceeds of $18,634,296 from 926 investors.
 
The Prior Performance Tables included in the back of this prospectus set forth information as of the dates indicated regarding certain of these Wells programs as to (1) experience in raising and investing funds (Table I); (2) compensation to sponsor (Table II); (3) annual operating results of prior programs (Table III); and (4) sales or disposals of properties (Table V).
 
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In addition to the real estate programs sponsored by Wells Capital and its affiliates discussed above, they are also sponsoring an index mutual fund that invests in various REIT stocks known as the Wells S&P REIT Index Fund (REIT Index Fund). The REIT Index Fund is a mutual fund that seeks to provide investment results corresponding to the performance of the S&P REIT Index by investing in the REIT stocks included in the S&P REIT Index. The REIT Index Fund began its offering on January 12, 1998 and, as of June 30, 2002, had raised offering proceeds net of redemptions of $136,709,717 from 6,719 investors.
 
Publicly Offered Unspecified Real Estate Programs
 
Wells Capital and its affiliates have previously sponsored the above listed 13 publicly offered real estate limited partnerships and are currently sponsoring Wells Fund XIII offered on an unspecified property or “blind pool” basis. The total amount of funds raised from investors in the offerings of these 14 publicly offered limited partnerships, as of December 31, 2001, was $331,193,410, and the total number of investors in such programs was 27,103.
 
The investment objectives of each of the other Wells programs are substantially identical to the investment objectives of the Wells REIT. Substantially all of the proceeds of the offerings of Wells Fund I, Wells Fund II, Wells Fund II-OW, Wells Fund III, Wells Fund IV, Wells Fund V, Wells Fund VI, Wells Fund VII, Wells Fund VIII, Wells Fund IX, Wells Fund X, Wells Fund XI and Wells Fund XII available for investment in real properties have been invested in properties.
 
Because of the cyclical nature of the real estate market, decreases in net income of the public partnerships could occur at any time in the future when economic conditions decline. No assurance can be made that the Wells programs will ultimately be successful in meeting their investment objectives. (See “Risk Factors.”)
 
The aggregate dollar amount of the acquisition and development costs of the properties purchased by the 14 publicly offered limited partnerships, as of December 31, 2001, was $275,358,446. Of this amount, approximately 90.2% was spent on acquiring or developing office buildings, and approximately 9.8% was spent on acquiring or developing shopping centers. Of this amount, approximately 22.6% was or will be spent on new properties, 57.1% on existing or used properties and 20.3% on construction properties. Following is a table showing a breakdown of the aggregate amount of the acquisition and development costs of the properties purchased by the Wells REIT, Wells Fund XIII and the 13 Wells programs listed above as of December 31, 2001:
 
Type of Property

	    	New

	 	 	Used

	 	 	    Construction

	 	
Office and Industrial Buildings	    	22.59	%	 	53.88	%	 	13.74	%	
Shopping Centers	    	0	%	 	3.21	%	 	6.58	%	
 
Wells Fund I terminated its offering on September 5, 1986, and received gross proceeds of $35,321,000 representing subscriptions from 4,895 limited partners ($24,679,000 of the gross proceeds were attributable to sales of Class A Units, and $10,642,000 of the gross proceeds were attributable to sales of Class B Units). Limited partners in Wells Fund I have no right to change the status of their units from Class A to Class B or vice versa. Wells Fund I owns interests in the following properties:
 
 	•	 	a condominium interest in a three-story medical office building in Atlanta, Georgia;	
 
 	•	 	a commercial office building in Atlanta, Georgia;	
 
 	•	 	a shopping center in Knoxville, Tennessee; and	
 
 	•	 	a project consisting of seven office buildings and a shopping center in Tucker, Georgia.	
 
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The prospectus of Wells Fund I provided that the properties purchased by Wells Fund I would typically be held for a period of eight to 12 years, but that the general partners may exercise their discretion on as to whether and when to sell the properties owned by Wells Fund I and that the general partners were under no obligation to sell the properties at any particular time.
 
Wells Fund I has sold the following properties from its portfolio:
 
Date of Sale

	  	Property Name

	  	%
Ownership

	 	 	Net Sale
Proceeds

	  	Taxable
Gain

	
Aug. 31, 2000	  	One of two buildings at Peachtree Place	  	90	%	 	$	633,694	  	$	205,019	
Jan. 11, 2001	  	Crowe’s Crossing	  	100	%	 	$	6,569,000	  	$	11,496	
Oct. 1, 2001	  	Cherokee Commons	  	24	%	 	$	2,037,315	  	$	52,461	
 
Wells Fund I is in the process of marketing its remaining properties for sale.
 
Wells Fund II and Wells Fund II-OW terminated their offerings on September 7, 1988, and received aggregate gross proceeds of $36,870,250 representing subscriptions from 4,659 limited partners ($28,829,000 of the gross proceeds were attributable to sales of Class A Units, and $8,041,250 of the gross proceeds were attributable to sales of Class B Units). Limited partners in Wells Fund II and Wells Fund II-OW have no right to change the status of their units from Class A to Class B or vice versa. Wells Fund II and Wells Fund II-OW own all of their properties through a joint venture, which owns interests in the following properties:
 
 	•	 	a project consisting of seven office buildings and a shopping center in Tucker, Georgia;	
 
 	•	 	a two-story office building in Charlotte, North Carolina which is currently unoccupied;	
 
 	•	 	a four-story office building in Houston, Texas, three floors of which are leased to Boeing;	
 
 	•	 	a restaurant property in Roswell, Georgia leased to Brookwood Grill of Roswell, Inc.; and	
 
 	•	 	a combined retail center and office development in Roswell, Georgia.	
 
The prospectus of Wells Fund II and Wells Fund II-OW provided that the properties purchased by Wells Fund II and Wells Fund II-OW would typically be held for a period of eight to 12 years, but that the general partners may exercise their discretion as to whether and when to sell the properties owned by Wells Fund II and Wells Fund II-OW and that the partnerships were under no obligation to sell their properties at any particular time.
 
Wells Fund II and Wells Fund II-OW sold the following property from its portfolio in 2001:
 
Date of Sale

	  	Property Name

	  	%
Ownership

	 	 	Net Sale
Proceeds

	  	Taxable
Gain

	
Oct. 1, 2001	  	Cherokee Commons	  	54	%	 	$	4,601,723	  	$	111,419	
 
Wells Fund II and Wells Fund II-OW are in the process of marketing their remaining properties for sale.
 
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Wells Fund III terminated its offering on October 23, 1990, and received gross proceeds of $22,206,310 representing subscriptions from 2,700 limited partners ($19,661,770 of the gross proceeds were attributable to sales of Class A Units, and $2,544,540 of the gross proceeds were attributable to sales of Class B Units). Limited partners in Wells Fund III have no right to change the status of their units from Class A to Class B or vice versa. Wells Fund III owns interests in the following properties:
 
 	•	 	a four-story office building in Houston, Texas, three floors of which are leased to Boeing;	
 
 	•	 	a restaurant property in Roswell, Georgia leased to Brookwood Grill of Roswell, Inc.;	
 
 	•	 	a combined retail center and office development in Roswell, Georgia;	
 
 	•	 	a two-story office building in Greenville, North Carolina;	
 
 	•	 	a shopping center in Stockbridge, Georgia having Kroger as the anchor tenant; and	
 
 	•	 	a two-story office building in Richmond, Virginia leased to Reciprocal Group.	
 
The prospectus of Wells Fund III provided that the properties purchased by Wells Fund III would typically be held for a period of eight to 12 years, but that the general partners may exercise their discretion as to whether and when to sell the properties owned by Wells Fund III and that they were under no obligation to sell the properties at any particular time. The general partners of Wells Fund III have decided to begin the process of positioning the properties for sale over the next several years.
 
Wells Fund IV terminated its offering on February 29, 1992, and received gross proceeds of $13,614,655 representing subscriptions from 1,286 limited partners ($13,229,150 of the gross proceeds were attributable to sales of Class A Units, and $385,505 of the gross proceeds were attributable to sales of Class B Units). Limited partners in Wells Fund IV have no right to change the status of their units from Class A to Class B or vice versa. Wells Fund IV owns interests in the following properties:
 
 	•	 	a shopping center in Stockbridge, Georgia having Kroger as the anchor tenant;	
 
 	•	 	a four-story office building in Jacksonville, Florida leased to IBM and Customized Transportation Inc. (CTI);	
 
 	•	 	a two-story office building in Richmond, Virginia leased to Reciprocal Group; and	
 
 	•	 	two substantially identical two-story office buildings in Stockbridge, Georgia.	
 
Wells Fund V terminated its offering on March 3, 1993, and received gross proceeds of $17,006,020 representing subscriptions from 1,667 limited partners ($15,209,666 of the gross proceeds were attributable to sales of Class A Units, and $1,796,354 of the gross proceeds were attributable to sales of Class B Units). Limited partners in Wells Fund V who purchased Class B Units are entitled to change the status of their units to Class A, but limited partners who purchased Class A Units are not entitled to change the status of their units to Class B. After taking into effect conversion elections made by limited partners subsequent to their subscription for units, as of December 31, 2001, $15,664,160 of units of Wells Fund V were treated as Class A Units, and $1,341,860 of units were treated as Class B Units. Wells Fund V owns interests in the following properties:
 
 	•	 	a four-story office building in Jacksonville, Florida leased to IBM and CTI;	
 
 	•	 	two substantially identical two-story office buildings in Stockbridge, Georgia;	
 
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 	•	 	a four-story office building in Hartford, Connecticut leased to Hartford Fire Insurance Company;	
 
 	•	 	restaurant properties in Stockbridge, Georgia leased to Apple Restaurants, Inc., Taco Mac, Dependable Ins and Tokyo Japanese Steak; and	
 
 	•	 	a three-story office building in Appleton, Wisconsin leased to Jaako Poyry Fluor Daniel.	
 
Wells Fund VI terminated its offering on April 4, 1994, and received gross proceeds of $25,000,000 representing subscriptions from 1,793 limited partners ($19,332,176 of the gross proceeds were attributable to sales of Class A Units, and $5,667,824 of the gross proceeds were attributable to sales of Class B Units). Limited partners in Wells Fund VI are entitled to change the status of their units from Class A to Class B and vice versa. After taking into effect conversion elections made by limited partners subsequent to their subscription for units, as of December 31, 2001, $22,363,610 of units of Wells Fund VI were treated as Class A Units, and $2,636,390 of units were treated as Class B Units. Wells Fund VI owns interests in the following properties:
 
 	•	 	a four-story office building in Hartford, Connecticut leased to Hartford Fire Insurance Company;	
 
 	•	 	restaurant properties in Stockbridge, Georgia leased to Apple Restaurants, Inc., Taco Mac, Dependable Insurance and Tokyo Japanese Steak;	
 
 	•	 	a restaurant and retail building in Stockbridge, Georgia;	
 
 	•	 	a shopping center in Stockbridge, Georgia;	
 
 	•	 	a three-story office building in Appleton, Wisconsin leased to Jaako Poyry Fluor Daniel;	
 
 	•	 	a combined retail and office development in Roswell, Georgia;	
 
 	•	 	a four-story office building in Jacksonville, Florida leased to Bellsouth Advertising and Publishing Corporation and American Express Travel Related Services Company, Inc.; and	
 
 	•	 	a shopping center in Clemmons, North Carolina having Harris Teeter, Inc. as the anchor tenant.	
 
Wells Fund VI sold its interest in the following property in 2001:
 
Date of Sale

	  	Property Name

	  	%
Ownership

	 	 	Net Sale
Proceeds

	  	Taxable
Gain

	
Oct. 1, 2001	  	Cherokee Commons	  	11	%	 	$	903,122	  	$	21,867	
 
Wells Fund VII terminated its offering on January 5, 1995, and received gross proceeds of $24,180,174 representing subscriptions from 1,910 limited partners ($16,788,095 of the gross proceeds were attributable to sales of Class A Units, and $7,392,079 of the gross proceeds were attributable to sales of Class B Units). Limited partners in Wells Fund VII are entitled to change the status of their units from Class A to Class B and vice versa. After taking into effect conversion elections made by limited partners subsequent to their subscriptions for units, as of December 31, 2001, $20,670,201 of units in Wells Fund VII were treated as Class A Units, and $3,509,973 of units were treated as Class B Units. Wells Fund VII owns interests in the following properties:
 
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 	•	 	a three-story office building in Appleton, Wisconsin leased to Jaako Poyry Fluor Daniel;	
 
 	•	 	a restaurant and retail building in Stockbridge, Georgia;	
 
 	•	 	a shopping center in Stockbridge, Georgia;	
 
 	•	 	a combined retail and office development in Roswell, Georgia;	
 
 	•	 	a two-story office building in Alachua County, Florida near Gainesville leased to CH2M Hill, Engineers, Planners, Economists, Scientists;	
 
 	•	 	a four-story office building in Jacksonville, Florida leased to Bellsouth Advertising and Publishing Corporation and American Express Travel Related Services Company, Inc.;	
 
 	•	 	a shopping center in Clemmons, North Carolina having Harris Teeter, Inc. as the anchor tenant; and	
 
 	•	 	a retail development in Clayton County, Georgia.	
 
Wells Fund VII sold its interest in the following property in 2001:
 
Date of Sale

	  	Property Name

	  	% Ownership

	 	 	Net Sale
Proceeds

	  	Taxable
Gain

	
Oct. 1, 2001	  	Cherokee Commons	  	11	%	 	$	903,122	  	$	21,867	
 
Wells Fund VIII terminated its offering on January 4, 1996, and received gross proceeds of $32,042,689 representing subscriptions from 2,241 limited partners ($26,135,339 of the gross proceeds were attributable to sales of Class A Units, and $5,907,350 were attributable to sales of Class B Units). Limited partners in Wells Fund VIII are entitled to change the status of their units from Class A to Class B and vice versa. After taking into effect conversion elections made by limited partners subsequent to their subscriptions for units and certain repurchases made by Wells Fund VIII, as of December 31, 2001, $28,065,187 of units in Wells Fund VIII were treated as Class A Units, and $3,967,502 of units were treated as Class B Units. Wells Fund VIII owns interests in the following properties:
 
 	•	 	a two-story office building in Alachua County, Florida near Gainsville leased to CH2M Hill, Engineers, Planners, Economists, Scientists;	
 
 	•	 	a four-story office building in Jacksonville, Florida leased to Bellsouth Advertising and Publishing Corporation and American Express Travel Related Services Company, Inc.;	
 
 	•	 	a shopping center in Clemmons, North Carolina having Harris Teeter, Inc. as the anchor tenant;	
 
 	•	 	a retail development in Clayton County, Georgia;	
 
 	•	 	a four-story office building in Madison, Wisconsin leased to US Cellular, a subsidiary of Bellsouth Corporation;	
 
 	•	 	a one-story office building in Farmers Branch, Texas leased to TCI Valwood Limited Partnership I;	
 
 	•	 	a two-story office building in Orange County, California leased to Quest Software, Inc.; and	
 
 	•	 	a two-story office building in Boulder County, Colorado leased to Cirrus Logic, Inc.	
 
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Wells Fund IX terminated its offering on December 30, 1996, and received gross proceeds of $35,000,000 representing subscriptions from 2,098 limited partners ($29,359,310 of the gross proceeds were attributable to sales of Class A Units, and $5,640,690 were attributable to sales of Class B Units). After taking into effect conversion elections made by limited partners subsequent to their subscriptions for units, as of December 31, 2001, $31,364,290 of units in Wells Fund IX were treated as Class A Units, and $3,635,710 of units were treated as Class B Units. Wells Fund IX owns interests in the following properties:
 
 	•	 	a one-story office building in Farmers Branch, Texas leased to TCI Valwood Limited Partnership I;	
 
 	•	 	a four-story office building in Madison, Wisconsin leased to US Cellular, a subsidiary of Bellsouth Corporation;	
 
 	•	 	a two-story office building in Orange County, California leased to Quest Software, Inc.;	
 
 	•	 	a two-story office building in Boulder County, Colorado leased to Cirrus Logic, Inc.;	
 
 	•	 	a two-story office building in Boulder County, Colorado leased to Ohmeda, Inc.;	
 
 	•	 	a three-story office building in Knox County, Tennessee leased to Alstom Power, Inc.;	
 
 	•	 	a one-story office and warehouse building in Weber County, Utah leased to Iomega Corporation;	
 
 	•	 	a three-story office multi-tenant building in Boulder County, Colorado; and	
 
 	•	 	a one-story office building in Oklahoma City, Oklahoma leased to Avaya, Inc.	
 
Certain financial information for Wells Fund IX is summarized below:
 
 	  	2001

	  	2000

	  	1999

	  	1998

	  	1997

	
Gross Revenues	  	$	1,874,290	  	$	1,836,768	  	$	1,593,734	  	$	1,561,456	  	$	1,199,300	
Net Income	  	$	1,768,474	  	$	1,758,676	  	$	1,490,331	  	$	1,449,955	  	$	1,091,766	
 
Wells Fund X terminated its offering on December 30, 1997, and received gross proceeds of $27,128,912 representing subscriptions from 1,812 limited partners ($21,160,992 of the gross proceeds were contributable to sales of Class A Units, and $5,967,920 were attributable to sales of Class B Units). After taking into effect conversion elections made by limited partners subsequent to their subscriptions for units, as of December 31, 2001, $23,166,181 of units in Wells Fund X were treated as Class A Units and $3,962,731 of units were treated as Class B Units. Wells Fund X owns interests in the following properties:
 
 	•	 	a three-story office building in Knox County, Tennessee leased to Alstom Power, Inc.;	
 
 	•	 	a two-story office building in Boulder County, Colorado leased to Ohmeda, Inc.;	
 
 	•	 	a one-story office and warehouse building in Weber County, Utah leased to Iomega Corporation;	
 
 	•	 	a three-story multi-tenant office building in Boulder County, Colorado;	
 
 	•	 	a one-story office building in Oklahoma City, Oklahoma leased to Avaya, Inc.;	
 
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 	•	 	a one-story office and warehouse building in Orange County, California leased to Cort Furniture Rental Corporation; and	
 
 	•	 	a two-story office and manufacturing building in Alameda County, California leased to Fairchild Technologies U.S.A., Inc.	
 
Certain financial information for Wells Fund X is summarized below:
 
 	  	2001

	  	2000

	  	1999

	  	1998

	  	1997

	
Gross Revenues	  	$	1,559,026	  	$	1,557,518	  	$	1,309,281	  	$	1,204,597	  	$	372,507	
Net Income	  	$	1,449,849	  	$	1,476,180	  	$	1,192,318	  	$	1,050,329	  	$	278,025	
 
Wells Fund XI terminated its offering on December 30, 1998, and received gross proceeds of $16,532,802 representing subscriptions from 1,345 limited partners ($13,029,424 of the gross proceeds were attributable to sales of Class A Units and $3,503,378 were attributable to sales of Class B Units). After taking into effect conversion elections made by limited partners subsequent to their subscriptions for units, as of December 31, 2001, $13,462,560 of units in Wells Fund XI were treated as Class A Units and $3,070,242 of units were treated as Class B Units. Wells Fund XI owns interests in the following properties:
 
 	•	 	a three-story office building in Knox County, Tennessee leased to Alstom Power, Inc.;	
 
 	•	 	a one-story office building in Oklahoma City, Oklahoma leased to Avaya, Inc.;	
 
 	•	 	a two-story office building in Boulder County, Colorado leased to Ohmeda, Inc.;	
 
 	•	 	a three-story multi-tenant office building in Boulder County, Colorado;	
 
 	•	 	a one-story office and warehouse building in Weber County, Utah leased to Iomega Corporation;	
 
 	•	 	a one-story office and warehouse building in Orange County, California leased to Cort Furniture Rental Corporation;	
 
 	•	 	a two-story office and manufacturing building in Alameda County, California leased to Fairchild Technologies U.S.A., Inc.;	
 
 	•	 	a two-story manufacturing and office building in Greenville County, South Carolina leased to EYBL CarTex, Inc.;	
 
 	•	 	a three-story office building in Johnson County, Kansas leased to Sprint Communications Company L.P.;	
 
 	•	 	a two-story research and development office and warehouse building in Chester County, Pennsylvania leased to Johnson Matthey, Inc.; and	
 
 	•	 	a two-story office building in Fort Myers, Florida leased to Gartner Group, Inc.	
 
Certain financial information for Wells Fund XI is summarized below:
 
 	  	2001

	  	2000

	  	1999

	  	1998

	
Gross Revenues	  	$	960,676	  	$	975,850	  	$	766,586	  	$	262,729	
Net Income	  	$	870,350	  	$	895,989	  	$	630,528	  	$	143,295	
 
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Wells Fund XII terminated its offering on March 21, 2001, and received gross proceeds of $35,611,192 representing subscriptions from 1,333 limited partners ($26,888,609 of the gross proceeds were attributable to sales of cash preferred units and $8,722,583 were attributable to sales of tax preferred units). After taking into effect conversion elections made by limited partners subsequent to their subscriptions for units, as of December 31, 2001, $27,786,067 of units in Wells Fund XII were treated as cash preferred units and $7,825,125 of units were treated as tax preferred units. Wells Fund XII owns interests in the following properties:
 
 	•	 	a two-story manufacturing and office building in Greenville County, South Carolina leased to EYBL CarTex, Inc.;	
 
 	•	 	a three-story office building in Johnson County, Kansas leased to Sprint Communications Company L.P.;	
 
 	•	 	a two-story research and development office and warehouse building in Chester County, Pennsylvania leased to Johnson Matthey, Inc.;	
 
 	•	 	a two-story office building in Fort Myers, Florida leased to Gartner Group, Inc.;	
 
 	•	 	a three-story office building in Troy, Michigan leased to Siemens Automotive Corporation;	
 
 	•	 	a one-story office building and a connecting two-story office building in Oklahoma City, Oklahoma leased to AT&T Corp. and Jordan Associates, Inc.; and	
 
 	•	 	a three-story office building in Brentwood, Tennessee leased to Comdata Network, Inc.	
 
Certain financial information for Wells Fund XII is summarized below:
 
 	  	2001

	  	2000

	  	1999

	
Gross Revenues	  	$	1,661,194	  	$	929,868	  	$	160,379	
Net Income	  	$	1,555,418	  	$	856,228	  	$	122,817	
 
Wells Fund XIII began its offering on March 29, 2001. As of June 30, 2002, Wells Fund XIII had received gross proceeds of $18,634,296 representing subscriptions from 926 limited partners ($15,743,298 of the gross proceeds were attributable to sales of cash preferred units and $2,890,998 were attributable to sales of tax preferred units). Wells Fund XIII owns interests in the following properties:
 
 	•	 	a two-story office building in Orange Park, Florida leased to AmeriCredit Financial Services Corporation; and	
 
 	•	 	two connected one-story office and assembly buildings in Parker, Colorado leased to Advanced Digital Information Corporation.	
 
The information set forth above should not be considered indicative of results to be expected from the Wells REIT.
 
The foregoing properties in which the above 14 limited partnerships have invested have all been acquired on an all cash basis.
 
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Leo F. Wells, III and Wells Partners, L.P. are the general partners of Wells Fund IV, Wells Fund V, Wells Fund VI, Wells Fund VII, Wells Fund VIII, Wells Fund IX, Wells Fund X, Wells Fund XI and Wells Fund XII. Wells Capital, which is the general partner of Wells Partners, L.P., and Leo F. Wells, III are the general partners of Wells Fund I, Wells Fund II, Wells Fund II-OW, Wells Fund III and Wells Fund XIII.
 
Potential investors are encouraged to examine the Prior Performance Tables included in the back of the prospectus for more detailed information regarding the prior experience of Wells Capital and its affiliates. In addition, upon request, prospective investors may obtain from us without charge copies of offering materials and any reports prepared in connection with any of the Wells programs, including a copy of the most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. For a reasonable fee, we will also furnish upon request copies of the exhibits to any such Form 10-K. Any such request should be directed to our secretary. Additionally, Table VI contained in Part II of the registration statement, which is not part of this prospectus, gives certain additional information relating to properties acquired by the Wells programs. We will furnish, without charge, copies of such table upon request.
 
FEDERAL INCOME TAX CONSIDERATIONS
 
General
 
The following is a summary of material federal income tax considerations associated with an investment in the shares. This summary does not address all possible tax considerations that may be material to an investor and does not constitute tax advice. Moreover, this summary does not deal with all tax aspects that might be relevant to you, as a prospective stockholder, in light of your personal circumstances; nor does it deal with particular types of stockholders that are subject to special treatment under the Internal Revenue Code, such as insurance companies, tax-exempt organizations, financial institutions or broker-dealers, or foreign corporations or persons who are not citizens or residents of the United States (Non-U.S. stockholders). The Internal Revenue Code provisions governing the federal income tax treatment of REITs are highly technical and complex, and this summary is qualified in its entirety by the express language of applicable Internal Revenue Code provisions, Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof.
 
We urge you, as a prospective investor, to consult your own tax advisor regarding the specific tax consequences to you of a purchase of shares, ownership and sale of the shares and of our election to be taxed as a REIT, including the federal, state, local, foreign and other tax consequences of such purchase, ownership, sale and election.
 
Opinion of Counsel
 
Holland & Knight LLP (Holland & Knight) has acted as our counsel, has reviewed this summary and is of the opinion that it fairly summarizes the federal income tax considerations addressed that are material to stockholders. It is also the opinion of our counsel that it is more likely than not that we qualified to be taxed as a REIT under the Internal Revenue Code for our taxable year ended December 31, 2001, provided that we have operated and will continue to operate in accordance with various assumptions and the factual representations we made to counsel concerning our business, properties and operations. We must emphasize that all opinions issued by Holland & Knight are based on various assumptions and are conditioned upon the assumptions and representations we made concerning our business and properties. Moreover, our qualification for taxation as a REIT depends on our ability to meet the various qualification tests imposed under the Internal Revenue Code discussed below, the results
 
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of which will not be reviewed by Holland & Knight. Accordingly, we cannot assure you that the actual results of our operations for any one taxable year will satisfy these requirements. (See “Risk Factors—Failure to Qualify as a REIT.”)
 
The statements made in this section of the prospectus and in the opinion of Holland & Knight are based upon existing law and Treasury Regulations, as currently applicable, currently published administrative positions of the Internal Revenue Service and judicial decisions, all of which are subject to change, either prospectively or retroactively. We cannot assure you that any changes will not modify the conclusions expressed in our counsel’s opinion. Moreover, an opinion of counsel is not binding on the Internal Revenue Service and we cannot assure you that the Internal Revenue Service will not successfully challenge our status as a REIT.
 
Taxation of the Company
 
If we qualify for taxation as a REIT, we generally will not be subject to federal corporate income taxes on that portion of our ordinary income or capital gain that we distribute currently to our stockholders, because the REIT provisions of the Internal Revenue Code generally allow a REIT to deduct distributions paid to its stockholders. This substantially eliminates the federal “double taxation” on earnings (taxation at both the corporate level and stockholder level) that usually results from an investment in a corporation.
 
Even if we qualify for taxation as a REIT, however, we will be subject to federal income taxation as follows:
 
 	•	 	we will be taxed at regular corporate rates on our undistributed REIT taxable income, including undistributed net capital gains;	
 
 	•	 	under some circumstances, we will be subject to “alternative minimum tax”;	
 
 	•	 	if we have net income from the sale or other disposition of “foreclosure property” that is held primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we will be subject to tax at the highest corporate rate on that income;	
 
 	•	 	if we have net income from prohibited transactions (which are, in general, sales or other dispositions of property other than foreclosure property held primarily for sale to customers in the ordinary course of business), the income will be subject to a 100% tax;	
 
 	•	 	if we fail to satisfy either of the 75% or 95% gross income tests (discussed below) but have nonetheless maintained our qualification as a REIT because certain conditions have been met, we will be subject to a 100% tax on an amount equal to the greater of the amount by which we fail the 75% or 95% test multiplied by a fraction calculated to reflect our profitability;	
 
 	•	 	if we fail to distribute during each year at least the sum of (1) 85% of our REIT ordinary income for the year, (2) 95% of our REIT capital gain net income for such year, and (3) any undistributed taxable income from prior periods, we will be subject to a 4% excise tax on the excess of the required distribution over the amounts actually distributed; and	
 
 	•	 	if we acquire any asset from a C corporation (i.e., a corporation generally subject to corporate-level tax) in a carryover-basis transaction and we subsequently recognize gain on the disposition of the asset during the 10-year period beginning on the date on which	
 
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 	we acquired the asset, then a portion of the gains may be subject to tax at the highest regular corporate rate, pursuant to guidelines issued by the Internal Revenue Service (Built-In-Gain Rules).	
 
Requirements for Qualification as a REIT
 
We elected to be taxable as a REIT for our taxable year ended December 31, 1998. In order for us to qualify as a REIT, however, we had to meet and we must continue to meet the requirements discussed below relating to our organization, sources of income, nature of assets and distributions of income to our stockholders.
 
Organizational Requirements
 
In order to qualify for taxation as a REIT under the Internal Revenue Code, we must:
 
 	•	 	be a domestic corporation;	
 
 	•	 	elect to be taxed as a REIT and satisfy relevant filing and other administrative requirements;	
 
 	•	 	be managed by one or more trustees or directors;	
 
 	•	 	have transferable shares;	
 
 	•	 	not be a financial institution or an insurance company;	
 
 	•	 	use a calendar year for federal income tax purposes;	
 
 	•	 	have at least 100 stockholders for at least 335 days of each taxable year of 12 months; and	
 
 	•	 	not be closely held.	
 
As a Maryland corporation, we satisfy the first requirement, and we have filed an election to be taxed as a REIT with the IRS. In addition, we are managed by a board of directors, we have transferable shares, and we do not intend to operate as a financial institution or insurance company. We utilize the calendar year for federal income tax purposes, and we have more than 100 stockholders. We would be treated as closely held only if five or fewer individuals or certain tax-exempt entities own, directly or indirectly, more than 50% (by value) of our shares at any time during the last half of our taxable year. For purposes of the closely-held test, the Internal Revenue Code generally permits a look-through for pension funds and certain other tax-exempt entities to the beneficiaries of the entity to determine if the REIT is closely held. Five or fewer individuals or tax-exempt entities have never owned more than 50% of our outstanding shares during the last half of any taxable year.
 
We are authorized to refuse to transfer our shares to any person if the sale or transfer would jeopardize our ability to satisfy the REIT ownership requirements. There can be no assurance that a refusal to transfer will be effective. However, based on the foregoing, we should currently satisfy the organizational requirements, including the share ownership requirements. Notwithstanding compliance with the share ownership requirements outlined above, tax-exempt stockholders may be required to treat all or a portion of their distributions from us as “unrelated business taxable income” if tax-exempt stockholders, in the aggregate, exceed certain ownership thresholds set forth in the Internal Revenue Code. (See “Taxation of Tax-Exempt Stockholders.”)
 
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Ownership of Interests in Partnerships and Qualified REIT Subsidiaries
 
In the case of a REIT that is a partner in a partnership, Treasury Regulations provide that the REIT is deemed to own its proportionate share, based on its interest in partnership capital, of the assets of the partnership and is deemed to have earned its allocable share of partnership income. Also, if a REIT owns a qualified REIT subsidiary, which is defined as a corporation wholly-owned by a REIT, the REIT will be deemed to own all of the subsidiary’s assets and liabilities and it will be deemed to be entitled to treat the income of that subsidiary as its own. In addition, the character of the assets and gross income of the partnership or qualified REIT subsidiary shall retain the same character in the hands of the REIT for purposes of satisfying the gross income tests and asset tests set forth in the Internal Revenue Code.
 
Operational Requirements—Gross Income Tests
 
To maintain our qualification as a REIT, we must satisfy annually two gross income requirements.
 
 	•	 	At least 75% of our gross income, excluding gross income from prohibited transactions, for each taxable year must be derived directly or indirectly from investments relating to real property or mortgages on real property. Gross income includes “rents from real property” and, in some circumstances, interest, but excludes gross income from dispositions of property held primarily for sale to customers in the ordinary course of a trade or business. Such dispositions are referred to as “prohibited transactions.” This is the 75% Income Test.	
 
 	•	 	At least 95% of our gross income, excluding gross income from prohibited transactions, for each taxable year must be derived from the real property investments described above and from distributions, interest and gains from the sale or disposition of stock or securities or from any combination of the foregoing. This is the 95% Income Test.	
 
 	•	 	The rents we receive or that we are deemed to receive qualify as “rents from real property” for purposes of satisfying the gross income requirements for a REIT only if the following conditions are met:	
 
 	•	 	the amount of rent received from a tenant generally must not be based in whole or in part on the income or profits of any person; however, an amount received or accrued generally will not be excluded from the term “rents from real property” solely by reason of being based on a fixed percentage or percentages of gross receipts or sales;	
 
 	•	 	rents received from a tenant will not qualify as “rents from real property” if an owner of 10% or more of the REIT directly or constructively owns 10% or more of the tenant (a “Related Party Tenant”) or a subtenant of the tenant (in which case only rent attributable to the subtenant is disqualified);	
 
 	•	 	if rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to the personal property will not qualify as “rents from real property”; and	
 
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 	•	 	the REIT must not operate or manage the property or furnish or render services to tenants, other than through an “independent contractor” who is adequately compensated and from whom the REIT does not derive any income. However, a REIT may provide services with respect to its properties, and the income derived therefrom will qualify as “rents from real property,” if the services are “usually or customarily rendered” in connection with the rental of space only and are not otherwise considered “rendered to the occupant.” Even if the services with respect to a property are impermissible tenant services, the income derived therefrom will qualify as “rents from real property” if such income does not exceed one percent of all amounts received or accrued with respect to that property.	
 
Prior to the making of investments in properties, we may satisfy the 75% Income Test and the 95% Income Test by investing in liquid assets such as government securities or certificates of deposit, but earnings from those types of assets are qualifying income under the 75% Income Test only for one year from the receipt of proceeds. Accordingly, to the extent that offering proceeds have not been invested in properties prior to the expiration of this one year period, in order to satisfy the 75% Income Test, we may invest the offering proceeds in less liquid investments approved by our board of directors such as mortgage-backed securities or shares in other REITs. We intend to trace offering proceeds received for purposes of determining the one year period for “new capital investments.” No rulings or regulations have been issued under the provisions of the Internal Revenue Code governing “new capital investments,” however, so that there can be no assurance that the Internal Revenue Service will agree with this method of calculation.
 
Except for amounts received with respect to certain investments of cash reserves, we anticipate that substantially all of our gross income will be derived from sources that will allow us to satisfy the income tests described above; however, we can make no assurance in this regard.
 
Notwithstanding our failure to satisfy one or both of the 75% Income and the 95% Income Tests for any taxable year, we may still qualify as a REIT for that year if we are eligible for relief under specific provisions of the Internal Revenue Code. These relief provisions generally will be available if:
 
 	•	 	our failure to meet these tests was due to reasonable cause and not due to willful neglect;	
 
 	•	 	we attach a schedule of our income sources to our federal income tax return; and	
 
 	•	 	any incorrect information on the schedule is not due to fraud with intent to evade tax.	
 
It is not possible, however, to state whether, in all circumstances, we would be entitled to the benefit of these relief provisions. For example, if we fail to satisfy the gross income tests because nonqualifying income that we intentionally earn exceeds the limits on this income, the Internal Revenue Service could conclude that our failure to satisfy the tests was not due to reasonable cause. As discussed above in “Taxation of the Company,” even if these relief provisions apply, a tax would be imposed with respect to the excess net income.
 
Operational Requirements—Asset Tests
 
At the close of each quarter of our taxable year, we also must satisfy the following three tests (Asset Tests) relating to the nature and diversification of our assets:
 
 	•	 	First, at least 75% of the value of our total assets must be represented by real estate assets, cash, cash items and government securities. The term “real estate assets” includes	
 
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real property, mortgages on real property, shares in other qualified REITs and a proportionate share of any real estate assets owned by a partnership in which we are a partner or of any qualified REIT subsidiary of ours;
 
 	•	 	Second, no more than 25% of our total assets may be represented by securities other than those in the 75% asset class; and	
 
 	•	 	Third, of the investments included in the 25% asset class, the value of any one issuer’s securities that we own may not exceed 5% of the value of our total assets. Additionally, we may not own more than 10% of any one issuer’s outstanding voting securities, or securities having a value of more than 10% of the total value of the outstanding securities of any one issuer.	
 
These tests must generally be met for any quarter in which we acquire securities. Further, if we meet the Asset Tests at the close of any quarter, we will not lose our REIT status for a failure to satisfy the Asset Tests at the end of a later quarter if such failure occurs solely because of changes in asset values. If our failure to satisfy the Asset Tests results from an acquisition of securities or other property during a quarter, we can cure the failure by disposing of a sufficient amount of nonqualifying assets within 30 days after the close of that quarter. We maintain, and will continue to maintain, adequate records of the value of our assets to ensure compliance with the Asset Tests and will take other action within 30 days after the close of any quarter as may be required to cure any noncompliance.
 
Operational Requirements—Annual Distribution Requirement
 
In order to be taxed as a REIT, we are required to make dividend distributions, other than capital gain distributions, to our stockholders each year in the amount of at least 90% of our REIT taxable income (computed without regard to the dividends paid deduction and our capital gain and subject to certain other potential adjustments).
 
While we must generally pay dividends in the taxable year to which they relate, we may also pay dividends in the following taxable year if (1) they are declared before we timely file our federal income tax return for the taxable year in question, and if (2) they are paid on or before the first regular dividend payment date after the declaration.
 
Even if we satisfy the foregoing dividend distribution requirement and, accordingly, continue to qualify as a REIT for tax purposes, we will still be subject to tax on the excess of our net capital gain and our REIT taxable income, as adjusted, over the amount of dividends distributed to stockholders.
 
In addition, if we fail to distribute during each calendar year at least the sum of:
 
 	•	 	85% of our ordinary income for that year;	
 
 	•	 	95% of our capital gain net income other than the capital gain net income which we elect to retain and pay tax on for that year; and	
 
 	•	 	any undistributed taxable income from prior periods;	
 
we will be subject to a 4% excise tax on the excess of the amount of such required distributions over amounts actually distributed during such year.
 
We intend to make timely distributions sufficient to satisfy this requirement; however, we may possibly experience timing differences between (1) the actual receipt of income and payment of
 
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deductible expenses, and (2) the inclusion of that income. We may also possibly be allocated a share of net capital gain attributable to the sale of depreciated property that exceeds our allocable share of cash attributable to that sale.
 
In such circumstances, we may have less cash than is necessary to meet our annual distribution requirement or to avoid income or excise taxation on certain undistributed income. We may find it necessary in such circumstances to arrange for financing or raise funds through the issuance of additional shares in order to meet our distribution requirements, or we may make taxable stock distributions to meet the distribution requirement.
 
If we fail to satisfy the distribution requirement for any taxable year by reason of a later adjustment to our taxable income made by the Internal Revenue Service, we may be able to pay “deficiency dividends” in a later year and include such distributions in our deductions for dividends paid for the earlier year. In such event, we may be able to avoid being taxed on amounts distributed as deficiency dividends, but we would be required in such circumstances to pay interest to the Internal Revenue Service based upon the amount of any deduction taken for deficiency dividends for the earlier year.
 
As noted above, we may also elect to retain, rather than distribute, our net long-term capital gains. The effect of such an election would be as follows:
 
 	•	 	we would be required to pay the tax on these gains;	
 
 	•	 	stockholders, while required to include their proportionate share of the undistributed long-term capital gains in income, would receive a credit or refund for their share of the tax paid by the REIT; and	
 
 	•	 	the basis of a stockholder’s shares would be increased by the amount of our undistributed long-term capital gains (minus the amount of capital gains tax we pay) included in the stockholder’s long-term capital gains.	
 
In computing our REIT taxable income, we will use the accrual method of accounting and depreciate depreciable property under the alternative depreciation system. We are required to file an annual federal income tax return, which, like other corporate returns, is subject to examination by the Internal Revenue Service. Because the tax law requires us to make many judgments regarding the proper treatment of a transaction or an item of income or deduction, it is possible that the Internal Revenue Service will challenge positions we take in computing our REIT taxable income and our distributions. Issues could arise, for example, with respect to the allocation of the purchase price of properties between depreciable or amortizable assets and nondepreciable or non-amortizable assets such as land and the current deductibility of fees paid to Wells Capital or its affiliates. Were the Internal Revenue Service to successfully challenge our characterization of a transaction or determination of our REIT taxable income, we could be found to have failed to satisfy a requirement for qualification as a REIT. If, as a result of a challenge, we are determined to have failed to satisfy the distribution requirements for a taxable year, we would be disqualified as a REIT, unless we were permitted to pay a deficiency distribution to our stockholders and pay interest thereon to the Internal Revenue Service, as provided by the Internal Revenue Code. A deficiency distribution cannot be used to satisfy the distribution requirement, however, if the failure to meet the requirement is not due to a later adjustment to our income by the Internal Revenue Service.
 
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Operational Requirements—Recordkeeping
 
In order to continue to qualify as a REIT, we must maintain certain records as set forth in applicable Treasury Regulations. Further, we must request, on an annual basis, certain information designed to disclose the ownership of our outstanding shares. We intend to comply with such requirements.
 
Failure to Qualify as a REIT
 
If we fail to qualify as a REIT for any reason in a taxable year and applicable relief provisions do not apply, we will be subject to tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. We will not be able to deduct dividends paid to our stockholders in any year in which we fail to qualify as a REIT. We also will be disqualified for the four taxable years following the year during which qualification was lost unless we are entitled to relief under specific statutory provisions. (See “Risk Factors—Federal Income Tax Risks.”)
 
Sale-Leaseback Transactions
 
Some of our investments may be in the form of sale-leaseback transactions. In most instances, depending on the economic terms of the transaction, we will be treated for federal income tax purposes as either the owner of the property or the holder of a debt secured by the property. We do not expect to request an opinion of counsel concerning the status of any leases of properties as true leases for federal income tax purposes.
 
The Internal Revenue Service may take the position that a specific sale-leaseback transaction, which we treat as a true lease, is not a true lease for federal income tax purposes but is, instead, a financing arrangement or loan. We may also structure some sale-leaseback transactions as loans. In this event, for purposes of the Asset Tests and the 75% Income Test, each such loan likely would be viewed as secured by real property to the extent of the fair market value of the underlying property. We expect that, for this purpose, the fair market value of the underlying property would be determined without taking into account our lease. If a sale-leaseback transaction were so recharacterized, we might fail to satisfy the Asset Tests or the Income Tests and, consequently, lose our REIT status effective with the year of recharacterization. Alternatively, the amount of our REIT taxable income could be recalculated which might also cause us to fail to meet the distribution requirement for a taxable year.
 
Taxation of U.S. Stockholders
 
Definition
 
In this section, the phrase “U.S. stockholder” means a holder of shares that for federal income tax purposes:
 
 	•	 	is a citizen or resident of the United States;	
 
 	•	 	is a corporation, partnership or other entity created or organized in or under the laws of the United States or of any political subdivision thereof;	
 
 	•	 	is an estate or trust, the income of which is subject to U.S. federal income taxation regardless of its source; or	
 
 	•	 	a trust if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.	
 
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For any taxable year for which we qualify for taxation as a REIT, amounts distributed to taxable U.S. stockholders will be taxed as described below.
 
Distributions Generally
 
Distributions to U.S. stockholders, other than capital gain distributions discussed below, will constitute dividends up to the amount of our current or accumulated earnings and profits and will be taxable to the stockholders as ordinary income. These distributions are not eligible for the dividends received deduction generally available to corporations. To the extent that we make a distribution in excess of our current or accumulated earnings and profits, the distribution will be treated first as a tax-free return of capital, reducing the tax basis in each U.S. stockholder’s shares, and the amount of each distribution in excess of a U.S. stockholder’s tax basis in its shares will be taxable as gain realized from the sale of its shares. Distributions that we declare in October, November or December of any year payable to a stockholder of record on a specified date in any of these months will be treated as both paid by us and received by the stockholder on December 31 of the year, provided that we actually pay the distribution no later than January 31 of the following calendar year. U.S. stockholders may not include any of our losses on their own federal income tax returns.
 
We will be treated as having sufficient earnings and profits to treat as a dividend any distribution by us up to the amount required to be distributed in order to avoid imposition of the 4% excise tax discussed above. Moreover, any “deficiency distribution” will be treated as an ordinary or capital gain distribution, as the case may be, regardless of our earnings and profits. As a result, stockholders may be required to treat as taxable some distributions that would otherwise result in a tax-free return of capital.
 
Capital Gain Distributions
 
Distributions to U.S. stockholders that we properly designate as capital gain distributions will be treated as long-term capital gains to the extent they do not exceed our actual net capital gain, for the taxable year without regard to the period for which the U.S. stockholder has held his stock.
 
Passive Activity Loss and Investment Interest Limitations
 
Our distributions and any gain you realize from a disposition of shares will not be treated as passive activity income, and stockholders may not be able to utilize any of their “passive losses” to offset this income on their personal tax returns. Our distributions (to the extent they do not constitute a return of capital) will generally be treated as investment income for purposes of the limitations on the deduction of investment interest. Net capital gain from a disposition of shares and capital gain distributions generally will be included in investment income for purposes of the investment interest deduction limitations only if, and to the extent, you so elect, in which case any such capital gains will be taxed as ordinary income.
 
Certain Dispositions of the Shares
 
In general, any gain or loss realized upon a taxable disposition of shares by a U.S. stockholder who is not a dealer in securities will be treated as long-term capital gain or loss if the shares have been held for more than 12 months and as short-term capital gain or loss if the shares have been held for 12 months or less. If, however, a U.S. stockholder has received any capital gains distributions with respect to his shares, any loss realized upon a taxable disposition of shares held for six months or less, to the extent of the capital gains distributions received with respect to his shares, will be treated as long-term capital loss. Also, the Internal Revenue Service is authorized to issue Treasury Regulations that would subject a portion of the capital gain a U.S. stockholder recognizes from selling his shares or from a capital
 
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gain distribution to a tax at a 25% rate, to the extent the capital gain is attributable to depreciation previously deducted.
 
Information Reporting Requirements and Backup Withholding for U.S. Stockholders
 
Under some circumstances, U.S. stockholders may be subject to backup withholding at a rate of 31% on payments made with respect to, or cash proceeds of a sale or exchange of, our shares. Backup withholding will apply only if the stockholder:
 
 	•	 	fails to furnish his or her taxpayer identification number (which, for an individual, would be his or her Social Security Number);	
 
 	•	 	furnishes an incorrect tax identification number;	
 
 	•	 	is notified by the Internal Revenue Service that he or she has failed properly to report payments of interest and distributions or is otherwise subject to backup withholding; or	
 
 	•	 	under some circumstances, fails to certify, under penalties of perjury, that he or she has furnished a correct tax identification number and that (a) he or she has not been notified by the Internal Revenue Service that he or she is subject to backup withholding for failure to report interest and distribution payments or (b) he or she has been notified by the Internal Revenue Service that he or she is no longer subject to backup withholding.	
 
Backup withholding will not apply with respect to payments made to some stockholders, such as corporations and tax-exempt organizations. Backup withholding is not an additional tax. Rather, the amount of any backup withholding with respect to a payment to a U.S. stockholder will be allowed as a credit against the U.S. stockholder’s U.S. federal income tax liability and may entitle the U.S. stockholder to a refund, provided that the required information is furnished to the Internal Revenue Service. U.S. stockholders should consult their own tax advisors regarding their qualifications for exemption from backup withholding and the procedure for obtaining an exemption.
 
Treatment of Tax-Exempt Stockholders
 
Tax-exempt entities such as employee pension benefit trusts, individual retirement accounts, charitable remainder trusts, etc. generally are exempt from federal income taxation. Such entities are subject to taxation, however, on any “unrelated business taxable income” (UBTI), as defined in the Internal Revenue Code. Our payment of dividends to a tax-exempt employee pension benefit trust or other domestic tax-exempt stockholder generally will not constitute UBTI to such stockholder unless such stockholder has borrowed to acquire or carry its shares.
 
In the event that we are deemed to be “predominately held” by qualified employee pension benefit trusts that each hold more than 10% (in value) of our shares, such trusts would be required to treat a percentage of the dividend distributions paid to them as UBTI. We would be deemed to be “predominately held” by such trusts if either (1) one employee pension benefit trust owns more than 25% in value of our shares, or (2) any group of such trusts, each owning more than 10% in value of our shares, holds in the aggregate more than 50% in value of our shares. If either of these ownership thresholds were ever exceeded, any qualified employee pension benefit trust holding more than 10% in value of our shares would be subject to tax on that portion of our dividend distributions made to it which is equal to the percentage of our income which would be UBTI if we, ourselves, were a qualified trust, rather than a REIT. We will attempt to monitor the concentration of ownership of employee pension benefit trusts in our shares, and we do not expect our shares to be deemed to be “predominately held” by qualified
 
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employee pension benefit trusts, as defined in the Internal Revenue Code, to the extent required to trigger the treatment of our income as UBTI to such trusts.
 
For social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans exempt from federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code, respectively, income from an investment in our shares will constitute UBTI unless the stockholder in question is able to deduct amounts “set aside” or placed in reserve for certain purposes so as to offset the UBTI generated. Any such organization that is a prospective investor in our shares should consult its own tax advisor concerning these “set aside” and reserve requirements.
 
Special Tax Considerations for Non-U.S. Stockholders
 
The rules governing U.S. income taxation of non-resident alien individuals, foreign corporations, foreign partnerships and foreign trusts and estates (collectively, Non-U.S. stockholders) are complex. The following discussion is intended only as a summary of these rules. Non-U.S. stockholders should consult with their own tax advisors to determine the impact of federal, state and local income tax laws on an investment in our shares, including any reporting requirements.
 
Income Effectively Connected With a U.S. Trade or Business
 
In general, Non-U.S. stockholders will be subject to regular U.S. federal income taxation with respect to their investment in our shares if the income derived therefrom is “effectively connected” with the Non-U.S. stockholder’s conduct of a trade or business in the United States. A corporate Non-U.S. stockholder that receives income that is (or is treated as) effectively connected with a U.S. trade or business also may be subject to a branch profits tax under Section 884 of the Internal Revenue Code, which is payable in addition to the regular U.S. federal corporate income tax.
 
The following discussion will apply to Non-U.S. stockholders whose income derived from ownership of our shares is deemed to be not “effectively connected” with a U.S. trade or business.
 
Distributions Not Attributable to Gain From the Sale or Exchange of a United States Real Property Interest
 
A distribution to a Non-U.S. stockholder that is not attributable to gain realized by us from the sale or exchange of a United States real property interest and that we do not designate as a capital gain distribution will be treated as an ordinary income distribution to the extent that it is made out of current or accumulated earnings and profits. Generally, any ordinary income distribution will be subject to a U.S. federal income tax equal to 30% of the gross amount of the distribution unless this tax is reduced by the provisions of an applicable tax treaty. Any such distribution in excess of our earnings and profits will be treated first as a return of capital that will reduce each Non-U.S. stockholder’s basis in its shares (but not below zero) and then as gain from the disposition of those shares, the tax treatment of which is described under the rules discussed below with respect to dispositions of shares.
 
Distributions Attributable to Gain From the Sale or Exchange of a United States Real Property Interest
 
Distributions to a Non-U.S. stockholder that are attributable to gain from the sale or exchange of a United States real property interest will be taxed to a Non-U.S. stockholder under Internal Revenue Code provisions enacted by the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). Under FIRPTA, such distributions are taxed to a Non-U.S. stockholder as if the distributions were gains
 
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“effectively connected” with a U.S. trade or business. Accordingly, a Non-U.S. stockholder will be taxed at the normal capital gain rates applicable to a U.S. stockholder (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of non-resident alien individuals). Distributions subject to FIRPTA also may be subject to a 30% branch profits tax when made to a corporate Non-U.S. stockholder that is not entitled to a treaty exemption.
 
Withholding Obligations With Respect to Distributions to Non-U.S. Stockholders
 
Although tax treaties may reduce our withholding obligations, based on current law, we will generally be required to withhold from distributions to Non-U.S. stockholders, and remit to the Internal Revenue Service:
 
 	•	 	35% of designated capital gain distributions or, if greater, 35% of the amount of any distributions that could be designated as capital gain distributions; and	
 
 	•	 	30% of ordinary income distributions (i.e., dividends paid out of our earnings and profits).	
 
In addition, if we designate prior distributions as capital gain distributions, subsequent distributions, up to the amount of the prior distributions, will be treated as capital gain distributions for purposes of withholding. A distribution in excess of our earnings and profits will be subject to 30% withholding if at the time of the distribution it cannot be determined whether the distribution will be in an amount in excess of our current or accumulated earnings and profits. If the amount of tax we withhold with respect to a distribution to a Non-U.S. stockholder exceeds the stockholder’s U.S. tax liability with respect to that distribution, the Non-U.S. stockholder may file a claim with the Internal Revenue Service for a refund of the excess.
 
Sale of Our Shares by a Non-U.S. Stockholder
 
A sale of our shares by a Non-U.S. stockholder will generally not be subject to U.S. federal income taxation unless our shares constitute a “United States real property interest” within the meaning of FIRPTA. Our shares will not constitute a United States real property interest if we are a “domestically controlled REIT.” A “domestically controlled REIT” is a REIT that at all times during a specified testing period has less than 50% in value of its shares held directly or indirectly by Non-U.S. stockholders. We currently anticipate that we will be a domestically controlled REIT. Therefore, sales of our shares should not be subject to taxation under FIRPTA. However, we cannot assure you that we will continue to be a domestically controlled REIT. If we were not a domestically controlled REIT, whether a Non-U.S. stockholder’s sale of our shares would be subject to tax under FIRPTA as a sale of a United States real property interest would depend on whether our shares were “regularly traded” on an established securities market and on the size of the selling stockholder’s interest in us. Our shares currently are not “regularly traded” on an established securities market.
 
If the gain on the sale of shares were subject to taxation under FIRPTA, a Non-U.S. stockholder would be subject to the same treatment as a U.S. stockholder with respect to the gain, subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of non-resident alien individuals. In addition, distributions that are treated as gain from the disposition of shares and are subject to tax under FIRPTA also may be subject to a 30% branch profits tax when made to a corporate Non-U.S. stockholder that is not entitled to a treaty exemption. Under FIRPTA, the purchaser of our shares may be required to withhold 10% of the purchase price and remit this amount to the Internal Revenue Service.
 
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Even if not subject to FIRPTA, capital gains will be taxable to a Non-U.S. stockholder if the Non-U.S. stockholder is a non-resident alien individual who is present in the United States for 183 days or more during the taxable year and some other conditions apply, in which case the non-resident alien individual will be subject to a 30% tax on his or her U.S. source capital gains.
 
Recently promulgated Treasury Regulations may alter the procedures for claiming the benefits of an income tax treaty. Our Non-U.S. stockholders should consult their tax advisors concerning the effect, if any, of these Treasury Regulations on an investment in our shares.
 
Information Reporting Requirements and Backup Withholding for Non-U.S. Stockholders
 
Additional issues may arise for information reporting and backup withholding for Non-U.S. stockholders. Non-U.S. stockholders should consult their tax advisors with regard to U.S. information reporting and backup withholding requirements under the Internal Revenue Code.
 
Statement of Stock Ownership
 
We are required to demand annual written statements from the record holders of designated percentages of our shares disclosing the actual owners of the shares. Any record stockholder who, upon our request, does not provide us with required information concerning actual ownership of the shares is required to include specified information relating to his or her shares in his or her federal income tax return. We also must maintain, within the Internal Revenue District in which we are required to file our federal income tax return, permanent records showing the information we have received about the actual ownership of shares and a list of those persons failing or refusing to comply with our demand.
 
State and Local Taxation
 
We and any operating subsidiaries we may form may be subject to state and local tax in states and localities in which we or they do business or own property. The tax treatment of the Wells REIT, Wells OP, any operating subsidiaries we may form and the holders of our shares in local jurisdictions may differ from the federal income tax treatment described above.
 
Tax Aspects of Our Operating Partnership
 
The following discussion summarizes certain federal income tax considerations applicable to our investment in Wells OP, our operating partnership. The discussion does not cover state or local tax laws or any federal tax laws other than income tax laws.
 
Classification as a Partnership
 
We will be entitled to include in our income a distributive share of Wells OP’s income and to deduct our distributive share of Wells OP’s losses only if Wells OP is classified for federal income tax purposes as a partnership, rather than as an association taxable as a corporation. Under applicable Treasury Regulations (Check-the-Box-Regulations), an unincorporated U.S. entity with at least two members may elect to be classified either as an association taxable as a corporation or as a partnership. If such an entity fails to make an election, it generally will be treated as a partnership for federal income tax purposes. Wells OP intends to be classified as a partnership for federal income tax purposes and will not elect to be treated as an association taxable as a corporation under the Check-the-Box-Regulations.
 
Even though Wells OP will be treated as a partnership for federal income tax purposes, since it will not elect to be taxable as a corporation under the Check-the-Box Regulations, it could still be taxed
 
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as a corporation if it were deemed to be a “publicly traded partnership.” A publicly traded partnership is a partnership whose interests are traded on an established securities market or are readily tradable on a secondary market (or the substantial equivalent thereof); provided, that even if the foregoing requirements are met, a publicly traded partnership will not be treated as a corporation for federal income tax purposes if at least 90% of such partnership’s gross income for a taxable year consists of “qualifying income” under Section 7704(d) of the Internal Revenue Code. Qualifying income generally includes any income that is qualifying income for purposes of the 95% Income Test applicable to REITs (90% Passive-Type Income Exception). (See “Requirements for Qualification as a REIT—Operational Requirements—Gross Income Tests.”)
 
Under applicable Treasury Regulations (PTP Regulations), limited safe harbors from the definition of a publicly traded partnership are provided. Pursuant to one of those safe harbors (Private Placement Exclusion), interests in a partnership will not be treated as readily tradable on a secondary market or the substantial equivalent thereof if (1) all interests in the partnership were issued in a transaction (or transactions) that was not required to be registered under the Securities Act of 1933, as amended, and (2) the partnership does not have more than 100 partners at any time during the partnership’s taxable year. In determining the number of partners in a partnership, a person owning an interest in a flow-through entity (such as a partnership, grantor trust or S corporation) that owns an interest in the partnership is treated as a partner in such partnership only if (a) substantially all of the value of the owner’s interest in the flow-through is attributable to the flow-through entity’s interest (direct or indirect) in the partnership, and (b) a principal purpose of the use of the flow-through entity is to permit the partnership to satisfy the 100 partner limitation. Wells OP qualifies for the Private Placement Exclusion. Further, even if Wells OP were to be considered a publicly traded partnership under the PTP Regulations because it is deemed to have more than 100 partners, Wells OP should not be treated as a corporation because it should be eligible for the 90% Passive-Type Income Exception described above.
 
We have not requested, and do not intend to request, a ruling from the Internal Revenue Service that Wells OP will be classified as a partnership for federal income tax purposes. Holland & Knight is of the opinion, however, that based on certain factual assumptions and representations, Wells OP will more likely than not be treated for federal income tax purposes as a partnership and not as an association taxable as a corporation, or as a publicly traded partnership. Unlike a tax ruling, however, an opinion of counsel is not binding upon the Internal Revenue Service, and no assurance can be given that the Internal Revenue Service will not challenge the status of Wells OP as a partnership for federal income tax purposes. If such challenge were sustained by a court, Wells OP would be treated as a corporation for federal income tax purposes, as described below. In addition, the opinion of Holland & Knight is based on existing law, which is to a great extent the result of administrative and judicial interpretation. No assurance can be given that administrative or judicial changes would not modify the conclusions expressed in the opinion.
 
If for any reason Wells OP were taxable as a corporation, rather than a partnership, for federal income tax purposes, we would not be able to qualify as a REIT. (See “Federal Income Tax Considerations—Requirements for Qualification as a REIT—Operational Requirements—Gross Income Tests” and “Requirements for Qualification as a REIT—Operational Requirements—Asset Tests.”) In addition, any change in Wells OP’s status for tax purposes might be treated as a taxable event, in which case we might incur a tax liability without any related cash distribution. Further, items of income and deduction of Wells OP would not pass through to its partners, and its partners would be treated as stockholders for tax purposes. Consequently, Wells OP would be required to pay income tax at corporate tax rates on its net income, and distributions to its partners would constitute dividends that would not be deductible in computing Wells OP’s taxable income.
 
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Income Taxation of the Operating Partnership and its Partners
 
Partners, Not a Partnership, Subject to Tax.    A partnership is not a taxable entity for federal income tax purposes. As a partner in Wells OP, we will be required to take into account our allocable share of Wells OP’s income, gains, losses, deductions, and credits for any taxable year of Wells OP ending within or with our taxable year, without regard to whether we have received or will receive any distribution from Wells OP.
 
Partnership Allocations.    Although a partnership agreement generally determines the allocation of income and losses among partners, such allocations will be disregarded for tax purposes if they do not comply with the provisions of Section 704(b) of the Internal Revenue Code and the Treasury Regulations promulgated thereunder. If an allocation is not recognized for federal income tax purposes, the item subject to the allocation will be reallocated in accordance with the partners’ interests in the partnership, which will be determined by taking into account all of the facts and circumstances relating to the economic arrangement of the partners with respect to such item. Wells OP’s allocations of taxable income and loss are intended to comply with the requirements of Section 704(b) of the Internal Revenue Code and the Treasury Regulations promulgated thereunder.
 
Tax Allocations With Respect to Contributed Properties.    Pursuant to Section 704(c) of the Internal Revenue Code, income, gain, loss, and deduction attributable to appreciated or depreciated property that is contributed to a partnership in exchange for an interest in the partnership must be allocated for federal income tax purposes in a manner such that the contributor is charged with, or benefits from, the unrealized gain or unrealized loss associated with the property at the time of the contribution. The amount of such unrealized gain or unrealized loss is generally equal to the difference between the fair market value of the contributed property at the time of contribution and the adjusted tax basis of such property at the time of contribution. Under applicable Treasury Regulations, partnerships are required to use a “reasonable method” for allocating items subject to Section 704(c) of the Internal Revenue Code and several reasonable allocation methods are described therein.
 
Under the partnership agreement for Wells OP, depreciation or amortization deductions of Wells OP generally will be allocated among the partners in accordance with their respective interests in Wells OP, except to the extent that Wells OP is required under Section 704(c) to use a method for allocating depreciation deductions attributable to its properties that results in us receiving a disproportionately large share of such deductions. We may possibly be allocated (1) lower amounts of depreciation deductions for tax purposes with respect to contributed properties than would be allocated to us if each such property were to have a tax basis equal to its fair market value at the time of contribution, and (2) taxable gain in the event of a sale of such contributed properties in excess of the economic profit allocated to us as a result of such sale. These allocations may cause us to recognize taxable income in excess of cash proceeds received by us, which might adversely affect our ability to comply with the REIT distribution requirements, although we do not anticipate that this event will occur. The foregoing principles also will affect the calculation of our earnings and profits for purposes of determining which portion of our distributions is taxable as a dividend. The allocations described in this paragraph may result in a higher portion of our distributions being taxed as a dividend than would have occurred had we purchased such properties for cash.
 
Basis in Operating Partnership Interest.    The adjusted tax basis of our partnership interest in Wells OP generally is equal to (1) the amount of cash and the basis of any other property contributed to Wells OP by us, (2) increased by (A) our allocable share of Wells OP’s income and (B) our allocable share of the indebtedness of Wells OP, and (3) reduced, but not below zero, by (A) our allocable share of Wells OP’s losses and (B) the amount of cash distributed to us, including constructive cash distributions resulting from a reduction in our share of the indebtedness of Wells OP.
 
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If the allocation of our distributive share of Wells OP’s losses would reduce the adjusted tax basis of our partnership interest in Wells OP below zero, the recognition of such losses will be deferred until such time as the recognition of such losses would not reduce our adjusted tax basis below zero. If a distribution from Wells OP or a reduction in our share of Wells OP’s liabilities (which is treated as a constructive distribution for tax purposes) would reduce our adjusted tax basis below zero, any such distribution, including a constructive distribution, would cause us to recognize taxable income equal to the amount of such distribution in excess of our adjusted tax basis. The gain realized by us upon the receipt of any such distribution or constructive distribution would normally be characterized as capital gain, and if our partnership interest in Wells OP has been held for longer than the long-term capital gain holding period (currently one year), the distribution would constitute long-term capital gain.
 
Depreciation Deductions Available to the Operating Partnership.    Wells OP will use a portion of contributions made by the Wells REIT from offering proceeds to acquire interests in properties. Wells OP’s initial basis in such properties for federal income tax purposes generally will be equal to the purchase price paid by Wells OP. Wells OP plans to depreciate each such depreciable property for federal income tax purposes under the alternative depreciation system of depreciation (ADS). Under ADS, Wells OP generally will depreciate buildings and improvements over a 40-year recovery period using a straight-line method and a mid-month convention and will depreciate furnishings and equipment over a 12-year recovery period. To the extent that Wells OP acquires properties in exchange for units of Wells OP, Wells OP’s initial basis in each such property for federal income tax purposes should be the same as the transferor’s basis in that property on the date of acquisition by Wells OP. Although the law is not entirely clear, Wells OP generally intends to depreciate such depreciable property for federal income tax purposes over the same remaining useful lives and under the same methods used by the transferors of such properties.
 
Sale of the Operating Partnership’s Property
 
Generally, any gain realized by Wells OP on the sale of property held for more than one year will be long-term capital gain, except for any portion of such gain that is treated as depreciation or cost recovery recapture. Any gain recognized by Wells OP upon the disposition of a property will be allocated among the partners in accordance with their respective percentage interests in Wells OP.
 
Our share of any gain realized by Wells OP on the sale of any property held by Wells OP as inventory or other property held primarily for sale to customers in the ordinary course of Wells OP’s trade or business will be treated as income from a prohibited transaction that is subject to a 100% penalty tax. Such prohibited transaction income also may have an adverse effect upon our ability to satisfy the Income Tests for maintaining our REIT status. (See “Federal Income Tax Considerations—Requirements for Qualification as a REIT—Gross Income Tests” above.) We, however, do not presently intend to acquire or hold or allow Wells OP to acquire or hold any property that represents inventory or other property held primarily for sale to customers in the ordinary course of our or Wells OP’s trade or business.
 
ERISA CONSIDERATIONS
 
The following is a summary of some non-tax considerations associated with an investment in our shares by a qualified employee pension benefit plan or an individual retirement account (IRA). This summary is based on provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and the Internal Revenue Code, as amended through the date of this prospectus, and relevant regulations and opinions issued by the Department of Labor and the Internal Revenue Service. We cannot assure you that there will not be adverse tax decisions or legislative, regulatory or administrative changes which would significantly modify the statements expressed herein. Any such changes may or may not apply to transactions entered into prior to the date of their enactment.
 
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Each fiduciary of an employee pension benefit plan subject to ERISA, such as a profit sharing, section 401(k) or pension plan, or of any other retirement plan or account subject to Section 4975 of the Internal Revenue Code, such as an IRA (Benefit Plans), seeking to invest plan assets in our shares must, taking into account the facts and circumstances of such Benefit Plan, consider, among other matters:
 
 	•	 	whether the investment is consistent with the applicable provisions of ERISA and the Internal Revenue Code;	
 
 	•	 	whether, under the facts and circumstances appertaining to the Benefit Plan in question, the fiduciary’s responsibility to the plan has been satisfied;	
 
 	•	 	whether the investment will produce UBTI to the Benefit Plan (see “Federal Income Tax Considerations—Treatment of Tax-Exempt Stockholders”); and	
 
 	•	 	the need to value the assets of the Benefit Plan annually.	
 
Under ERISA, a plan fiduciary’s responsibilities include the following duties:
 
 	•	 	to act solely in the interest of plan participants and beneficiaries and for the exclusive purpose of providing benefits to them, as well as defraying reasonable expenses of plan administration;	
 
 	•	 	to invest plan assets prudently;	
 
 	•	 	to diversify the investments of the plan unless it is clearly prudent not to do so;	
 
 	•	 	to ensure sufficient liquidity for the plan; and	
 
 	•	 	to consider whether an investment would constitute or give rise to a prohibited transaction under ERISA or the Internal Revenue Code.	
 
ERISA also requires that the assets of an employee benefit plan be held in trust and that the trustee, or a duly authorized named fiduciary or investment manager, have exclusive authority and discretion to manage and control the assets of the plan.
 
Prohibited Transactions
 
Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit specified transactions involving the assets of a Benefit Plan which are between the plan and any “party in interest” or “disqualified person” with respect to that Benefit Plan. These transactions are prohibited regardless of how beneficial they may be for the Benefit Plan. Prohibited transactions include the sale, exchange or leasing of property, and the lending of money or the extension of credit, between a Benefit Plan and a party in interest or disqualified person. The transfer to, or use by or for the benefit of, a party in interest, or disqualified person of any assets of a Benefit Plan is also prohibited. A fiduciary of a Benefit Plan also is prohibited from engaging in self-dealing, acting for a person who has an interest adverse to the plan or receiving any consideration for its own account from a party dealing with the plan in a transaction involving plan assets. Furthermore, Section 408 of the Internal Revenue Code states that assets of an IRA trust may not be commingled with other property except in a common trust fund or common investment fund.
 
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Plan Asset Considerations
 
In order to determine whether an investment in our shares by Benefit Plans creates or gives rise to the potential for either prohibited transactions or a commingling of assets as referred to above, a fiduciary must consider whether an investment in our shares will cause our assets to be treated as assets of the investing Benefit Plans. Neither ERISA nor the Internal Revenue Code define the term “plan assets,” however, U.S. Department of Labor Regulations provide guidelines as to whether, and under what circumstances, the underlying assets of an entity will be deemed to constitute assets of a Benefit Plan when the plan invests in that entity (Plan Assets Regulation). Under the Plan Assets Regulation, the assets of corporations, partnerships or other entities in which a Benefit Plan makes an equity investment will generally be deemed to be assets of the Benefit Plan unless the entity satisfies one of the exceptions to this general rule. As discussed below, we have received an opinion of counsel that, based on the Plan Assets Regulation, our underlying assets should not be deemed to be “plan assets” of Benefit Plans investing in shares, assuming the conditions set forth in the opinion are satisfied, based upon the fact that at least one of the specific exemptions set forth in the Plan Assets Regulation is satisfied, as determined under the criteria set forth below.
 
Specifically, the Plan Assets Regulation provides that the underlying assets of REITs will not be treated as assets of a Benefit Plan investing therein if the interest the Benefit Plan acquires is a “publicly-offered security.” A publicly-offered security must be:
 
 	•	 	sold as part of a public offering registered under the Securities Act of 1933, as amended, and be part of a class of securities registered under the Securities Exchange Act of 1934, as amended, within a specified time period;	
 
 	•	 	part of a class of securities that is owned by 100 or more persons who are independent of the issuer and one another; and	
 
 	•	 	“freely transferable.”	
 
Our shares are being sold as part of an offering of securities to the public pursuant to an effective registration statement under the Securities Act, and are part of a class registered under the Securities Exchange Act. In addition, we have well in excess of 100 independent stockholders. Thus, both the first and second criterion of the publicly-offered security exception will be satisfied.
 
Whether a security is “freely transferable” depends upon the particular facts and circumstances. For example, our shares are subject to certain restrictions on transferability intended to ensure that we continue to qualify for federal income tax treatment as a REIT. The regulation provides, however, that where the minimum investment in a public offering of securities is $10,000 or less, the presence of a restriction on transferability intended to prohibit transfers which would result in a termination or reclassification of the entity for state or federal tax purposes will not ordinarily affect a determination that such securities are “freely transferable.” The minimum investment in our shares is less than $10,000; thus, the restrictions imposed in order to maintain our status as a REIT should not cause the shares to be deemed not “freely transferable. “
 
In the event that our underlying assets were treated by the Department of Labor as the assets of investing Benefit Plans, our management would be treated as fiduciaries with respect to each Benefit Plan stockholder, and an investment in our shares might constitute an ineffective delegation of fiduciary responsibility to Wells Capital, our advisor, and expose the fiduciary of the Benefit Plan to co-fiduciary liability under ERISA for any breach by Wells Capital of the fiduciary duties mandated under ERISA.
 
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Further, if our assets are deemed to be “plan assets,” an investment by an IRA in our shares might be deemed to result in an impermissible commingling of IRA assets with other property.
 
If Wells Capital, our advisor, or its affiliates were treated as fiduciaries with respect to Benefit Plan stockholders, the prohibited transaction restrictions of ERISA and the Internal Revenue Code would apply to any transaction involving our assets. These restrictions could, for example, require that we avoid transactions with entities that are affiliated with us or our affiliates or restructure our activities in order to obtain an administrative exemption from the prohibited transaction restrictions. Alternatively, we might have to provide Benefit Plan stockholders with the opportunity to sell their shares to us or we might dissolve or terminate.
 
If a prohibited transaction were to occur, the Internal Revenue Code imposes an excise tax equal to 15% of the amount involved and authorizes the IRS to impose an additional 100% excise tax if the prohibited transaction is not “corrected” in a timely manner. These taxes would be imposed on any disqualified person who participates in the prohibited transaction. In addition, Wells Capital and possibly other fiduciaries of Benefit Plan stockholders subject to ERISA who permitted the prohibited transaction to occur or who otherwise breached their fiduciary responsibilities, or a non-fiduciary participating in a prohibited transaction, could be required to restore to the Benefit Plan any profits they realized as a result of the transaction or breach, and make good to the Benefit Plan any losses incurred by the Benefit Plan as a result of the transaction or breach. With respect to an IRA that invests in our shares, the occurrence of a prohibited transaction involving the individual who established the IRA, or his or her beneficiary, would cause the IRA to lose its tax-exempt status under Section 408(e)(2) of the Internal Revenue Code.
 
We have obtained an opinion from Holland & Knight that it is more likely than not that our shares will be deemed to constitute “publicly-offered securities” and, accordingly, that it is more likely than not that our underlying assets should not be considered “plan assets” under the Plan Assets Regulation, assuming the offering takes place as described in this prospectus. If our underlying assets were not deemed to be “plan assets,” the problems discussed in the immediately preceding three paragraphs are not expected to arise.
 
Other Prohibited Transactions
 
Regardless of whether the shares qualify for the “publicly-offered security” exception of the Plan Assets Regulation, a prohibited transaction could occur if the Wells REIT, Wells Capital, any selected dealer or any of their affiliates is a fiduciary (within the meaning of Section 3(21) of ERISA) with respect to any Benefit Plan purchasing the shares. Accordingly, unless an administrative or statutory exemption applies, shares should not be purchased by a Benefit Plan with respect to which any of the above persons is a fiduciary. A person is a fiduciary with respect to a Benefit Plan under Section 3(21) of ERISA if, among other things, the person has discretionary authority or control with respect to “plan assets” or provides investment advice for a fee with respect to “plan assets.” Under a regulation issued by the Department of Labor, a person shall be deemed to be providing investment advice if that person renders advice as to the advisability of investing in our shares and that person regularly provides investment advice to the Benefit Plan pursuant to a mutual agreement or understanding (written or otherwise) (1) that the advice will serve as the primary basis for investment decisions, and (2) that the advice will be individualized for the Benefit Plan based on its particular needs.
 
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Annual Valuation
 
A fiduciary of an employee benefit plan subject to ERISA is required to determine annually the fair market value of each asset of the plan as of the end of the plan’s fiscal year and to file a report reflecting that value with the Department of Labor. When the fair market value of any particular asset is not available, the fiduciary is required to make a good faith determination of that asset’s fair market value assuming an orderly liquidation at the time the determination is made. In addition, a trustee or custodian of an IRA must provide an IRA participant with a statement of the value of the IRA each year. In discharging its obligation to value assets of a plan, a fiduciary subject to ERISA must act consistently with the relevant provisions of the plan and the general fiduciary standards of ERISA.
 
Unless and until our shares are listed on a national securities exchange or are included for quotation on NASDAQ, it is not expected that a public market for the shares will develop. To date, neither the Internal Revenue Service nor the Department of Labor has promulgated regulations specifying how a plan fiduciary should determine the fair market value of the shares, namely when the fair market value of the shares is not determined in the marketplace. Therefore, to assist fiduciaries in fulfilling their valuation and annual reporting responsibilities with respect to ownership of shares, we intend to have our advisor prepare annual reports of the estimated value of our shares. The methodology to be utilized for determining such estimated share values will be for our advisor to estimate the amount a stockholder would receive if our properties were sold at their estimated fair market values at the end of the fiscal year and the proceeds therefrom (without reduction for selling expenses) were distributed to the stockholders in liquidation. Due to the expense involved in obtaining annual appraisals for all of our properties, we do not currently anticipate that actual appraisals will be obtained; however, in connection with the advisor’s estimated valuations, the advisor will obtain a third party opinion that its estimates of value are reasonable. We will provide our reports to plan fiduciaries and IRA trustees and custodians who identify themselves to us and request this information.
 
Until December 31, 2002, we intend to use the offering price of shares as the per share net asset value. Beginning at the end of year 2003, we will have our advisor prepare estimated valuations utilizing the methodology described above. You should be cautioned, however, that such valuations will be estimates only and will be based upon a number of assumptions that may not be accurate or complete. As set forth above, we do not currently anticipate obtaining appraisals for our properties and, accordingly, the advisor’s estimates should not be viewed as an accurate reflection of the fair market value of our properties, nor will they represent the amount of net proceeds that would result from an immediate sale of our properties. In addition, property values are subject to change and can always decline in the future. For these reasons, our estimated valuations should not be utilized for any purpose other than to assist plan fiduciaries in fulfilling their valuation and annual reporting responsibilities. Further, we cannot assure you:
 
 	•	 	that the estimated values we obtain could or will actually be realized by us or by our stockholders upon liquidation (in part because estimated values do not necessarily indicate the price at which assets could be sold and because no attempt will be made to estimate the expenses of selling any of our assets);	
 
 	•	 	that our stockholders could realize these values if they were to attempt to sell their shares; or	
 
 	•	 	that the estimated values, or the method used to establish values, would comply with the ERISA or IRA requirements described above.	
 
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DESCRIPTION OF SHARES
 
The following description of the shares is not complete but is a summary of portions of our articles of incorporation and is qualified in its entirety by reference to our articles of incorporation.
 
Under our articles of incorporation, we have authority to issue a total of 1,000,000,000 shares of capital stock. Of the total shares authorized, 750,000,000 shares are designated as common stock with a par value of $0.01 per share, 100,000,000 shares are designated as preferred stock and 150,000,000 shares are designated as shares-in-trust, which would be issued only in the event we have purchases in excess of the ownership limits described below. In addition, our board of directors may amend our articles of incorporation to increase or decrease the amount of our authorized shares.
 
As of June 30, 2002, approximately 144,366,772 shares of our common stock were issued and outstanding, and no shares of preferred stock or shares-in-trust were issued and outstanding.
 
Common Stock
 
The holders of common stock are entitled to one vote per share on all matters voted on by stockholders, including election of our directors. Our articles of incorporation do not provide for cumulative voting in the election of our directors. Therefore, the holders of a majority of the outstanding common shares can elect our entire board of directors. Subject to any preferential rights of any outstanding series of preferred stock, the holders of common stock are entitled to such dividends as may be declared from time to time by our board of directors out of legally available funds and, upon liquidation, are entitled to receive all assets available for distribution to our stockholders. All shares issued in the offering will be fully paid and non-assessable shares of common stock. Holders of shares of common stock will not have preemptive rights, which means that you will not have an automatic option to purchase any new shares that we issue.
 
We will not issue certificates for our shares. Shares will be held in “uncertificated” form which will eliminate the physical handling and safekeeping responsibilities inherent in owning transferable stock certificates and eliminate the need to return a duly executed stock certificate to effect a transfer. Wells Capital, our advisor, acts as our registrar and as the transfer agent for our shares. Transfers can be effected simply by mailing to Wells Capital a transfer and assignment form, which we will provide to you at no charge.
 
Preferred Stock
 
Our articles of incorporation authorize our board of directors to designate and issue one or more classes or series of preferred stock without stockholder approval. Our board of directors may determine the relative rights, preferences and privileges of each class or series of preferred stock so issued, which may be more beneficial than the rights, preferences and privileges attributable to the common stock. The issuance of preferred stock could have the effect of delaying or preventing a change in control of the Wells REIT. Our board of directors has no present plans to issue preferred stock, but may do so at any time in the future without stockholder approval.
 
Meetings and Special Voting Requirements
 
An annual meeting of the stockholders will be held each year, at least 30 days after delivery of our annual report. Special meetings of stockholders may be called only upon the request of a majority of our directors, a majority of the independent directors, the chairman, the president or upon the written request of stockholders holding at least 10% of the shares. The presence of a majority of the outstanding
 
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shares either in person or by proxy shall constitute a quorum. Generally, the affirmative vote of a majority of all votes entitled to be cast is necessary to take stockholder action authorized by our articles of incorporation, except that a majority of the votes represented in person or by proxy at a meeting at which a quorum is present is sufficient to elect a director.
 
Under Maryland Corporation Law and our articles of incorporation, stockholders are entitled to vote at a duly held meeting at which a quorum is present on (1) amendments to our articles of incorporation, (2) a liquidation or dissolution of the Wells REIT, (3) a reorganization of the Wells REIT, (4) a merger, consolidation or sale or other disposition of substantially all of our assets, and (5) a termination of our status as a REIT. The vote of stockholders holding a majority of our outstanding shares is required to approve any such action, and no such action can be taken by our board of directors without such majority vote of our stockholders. Accordingly, any provision in our articles of incorporation, including our investment objectives, can be amended by the vote of stockholders holding a majority of our outstanding shares. Stockholders voting against any merger or sale of assets are permitted under Maryland Corporation Law to petition a court for the appraisal and payment of the fair value of their shares. In an appraisal proceeding, the court appoints appraisers who attempt to determine the fair value of the stock as of the date of the stockholder vote on the merger or sale of assets. After considering the appraisers’ report, the court makes the final determination of the fair value to be paid to the dissenting stockholder and decides whether to award interest from the date of the merger or sale of assets and costs of the proceeding to the dissenting stockholders.
 
Wells Capital, as our advisor, is selected and approved annually by our directors. While the stockholders do not have the ability to vote to replace Wells Capital or to select a new advisor, stockholders do have the ability, by the affirmative vote of a majority of the shares entitled to vote on such matter, to elect to remove a director from our board.
 
Stockholders are entitled to receive a copy of our stockholder list upon request. The list provided by us will include each stockholder’s name, address and telephone number, if available, and number of shares owned by each stockholder and will be sent within 10 days of the receipt by us of the request. A stockholder requesting a list will be required to pay reasonable costs of postage and duplication. We have the right to request that a requesting stockholder represent to us that the list will not be used to pursue commercial interests.
 
In addition to the foregoing, stockholders have rights under Rule 14a-7 under the Securities Exchange Act, which provides that, upon the request of investors and the payment of the expenses of the distribution, we are required to distribute specific materials to stockholders in the context of the solicitation of proxies for voting on matters presented to stockholders or, at our option, provide requesting stockholders with a copy of the list of stockholders so that the requesting stockholders may make the distribution of proxies themselves.
 
Restriction on Ownership of Shares
 
In order for us to qualify as a REIT, not more than 50% of our outstanding shares may be owned by any five or fewer individuals, including some tax-exempt entities. In addition, the outstanding shares must be owned by 100 or more persons independent of us and each other during at least 335 days of a 12-month taxable year or during a proportionate part of a shorter taxable year. We may prohibit certain acquisitions and transfers of shares so as to ensure our continued qualification as a REIT under the Internal Revenue Code. However, we cannot assure you that this prohibition will be effective.
 
In order to assist us in preserving our status as a REIT, our articles of incorporation contain a limitation on ownership that prohibits any person or group of persons from acquiring, directly or
 
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indirectly, beneficial ownership of more than 9.8% of our outstanding shares. Our articles of incorporation provide that any transfer of shares that would violate our share ownership limitations is null and void and the intended transferee will acquire no rights in such shares, unless the transfer is approved by our board of directors based upon receipt of information that such transfer would not violate the provisions of the Internal Revenue Code for qualification as a REIT.
 
Shares in excess of the ownership limit which are attempted to be transferred will be designated as “shares-in-trust” and will be transferred automatically to a trust effective on the day before the reported transfer of such shares. The record holder of the shares that are designated as shares-in-trust will be required to submit such number of shares to the Wells REIT in the name of the trustee of the trust. We will designate a trustee of the share trust that will not be affiliated with us. We will also name one or more charitable organizations as a beneficiary of the share trust. Shares-in-trust will remain issued and outstanding shares and will be entitled to the same rights and privileges as all other shares of the same class or series. The trustee will receive all dividends and distributions on the shares-in-trust and will hold such dividends or distributions in trust for the benefit of the beneficiary. The trustee will vote all shares-in-trust during the period they are held in trust.
 
At our direction, the trustee will transfer the shares-in-trust to a person whose ownership will not violate the ownership limits. The transfer shall be made within 20 days of our receipt of notice that shares have been transferred to the trust. During this 20-day period, we will have the option of redeeming such shares. Upon any such transfer or redemption, the purported transferee or holder shall receive a per share price equal to the lesser of (1) the price per share in the transaction that created such shares-in-trust, or (2) the market price per share on the date of the transfer or redemption.
 
Any person who (1) acquires shares in violation of the foregoing restriction or who owns shares that were transferred to any such trust is required to give immediate written notice to the Wells REIT of such event, or (2) transfers or receives shares subject to such limitations is required to give the Wells REIT 15 days written notice prior to such transaction. In both cases, such persons shall provide to the Wells REIT such other information as we may request in order to determine the effect, if any, of such transfer on our status as a REIT.
 
The foregoing restrictions will continue to apply until (1) our board of directors determines it is no longer in our best interest to continue to qualify as a REIT, and (2) there is an affirmative vote of the majority of shares entitled to vote on such matter at a regular or special meeting of our stockholders.
 
The ownership limit does not apply to an offeror which, in accordance with applicable federal and state securities laws, makes a cash tender offer, where at least 85% of the outstanding shares are duly tendered and accepted pursuant to the cash tender offer. The ownership limit also does not apply to the underwriter in a public offering of shares or to a person or persons so exempted from the ownership limit by our board of directors based upon appropriate assurances that our qualification as a REIT is not jeopardized.
 
Any person who owns 5% or more of the outstanding shares during any taxable year will be asked to deliver a statement or affidavit setting forth the number of shares beneficially owned, directly or indirectly.
 
Dividends
 
Dividends will be paid on a quarterly basis regardless of the frequency with which such dividends are declared. Dividends will be paid to investors who are stockholders as of the record dates selected by our board of directors. We currently calculate our quarterly dividends based upon daily record and
 
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dividend declaration dates so our investors will be entitled to be paid dividends immediately upon their purchase of shares. We then make quarterly dividend payments following the end of each calendar quarter.
 
We are required to make distributions sufficient to satisfy the requirements for qualification as a REIT for tax purposes. Generally, income distributed as dividends will not be taxable to us under the Internal Revenue Code if we distribute at least 90% of our taxable income. (See “Federal Income Tax Considerations—Requirements for Qualification as a REIT.”)
 
Dividends will be declared at the discretion of our board of directors, in accordance with our earnings, cash flow and general financial condition. Our board’s discretion will be directed, in substantial part, by its obligation to cause us to comply with the REIT requirements. Because we may receive income from interest or rents at various times during our fiscal year, dividends may not reflect our income earned in that particular distribution period but may be made in anticipation of cash flow which we expect to receive during a later quarter and may be made in advance of actual receipt of funds in an attempt to make dividends relatively uniform. We may borrow money, issue securities or sell assets in order to make dividend distributions.
 
We are not prohibited from distributing our own securities in lieu of making cash dividends to stockholders, provided that the securities so distributed to stockholders are readily marketable. Stockholders who receive marketable securities in lieu of cash dividends may incur transaction expenses in liquidating the securities.
 
Dividend Reinvestment Plan
 
We currently have a dividend reinvestment plan available that allows you to have your dividends otherwise distributable to you invested in additional shares of the Wells REIT.
 
You may purchase shares under our dividend reinvestment plan for $10 per share until all of the shares registered as part of this offering have been sold. After this time, we may purchase shares either through purchases on the open market, if a market then exists, or through an additional issuance of shares. In any case, the price per share will be equal to the then-prevailing market price, which shall equal the price on the securities exchange or over-the-counter market on which such shares are listed at the date of purchase if such shares are then listed. A copy of our Amended and Restated Dividend Reinvestment Plan as currently in effect is included as Exhibit B to this prospectus.
 
You may elect to participate in the dividend reinvestment plan by completing the Subscription Agreement, the enrollment form or by other written notice to the plan administrator. Participation in the plan will begin with the next distribution made after receipt of your written notice. We may terminate the dividend reinvestment plan for any reason at any time upon 10 days’ prior written notice to participants. Your participation in the plan will also be terminated to the extent that a reinvestment of your dividends in our shares would cause the percentage ownership limitation contained in our articles of incorporation to be exceeded. In addition, you may terminate your participation in the dividend reinvestment plan at any time by providing us with written notice.
 
If you elect to participate in the dividend reinvestment plan and are subject to federal income taxation, you will incur a tax liability for dividends allocated to you even though you have elected not to receive the dividends in cash but rather to have the dividends withheld and reinvested pursuant to the dividend reinvestment plan. Specifically, you will be treated as if you have received the dividend from us in cash and then applied such dividend to the purchase of additional shares. You will be taxed on the
 
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amount of such dividend as ordinary income to the extent such dividend is from current or accumulated earnings and profits, unless we have designated all or a portion of the dividend as a capital gain dividend.
 
Share Redemption Program
 
Prior to the time that our shares are listed on a national securities exchange, stockholders of the Wells REIT who have held their shares for at least one year may receive the benefit of limited interim liquidity by presenting for redemption all or any portion of their shares to us at any time in accordance with the procedures outlined herein. At that time, we may, subject to the conditions and limitations described below, redeem the shares presented for redemption for cash to the extent that we have sufficient funds available to us to fund such redemption.
 
If you have held your shares for the required one-year period, you may redeem your shares for a purchase price equal to the lesser of (1) $10 per share, or (2) the purchase price per share that you actually paid for your shares of the Wells REIT. In the event that you are redeeming all of your shares, shares purchased pursuant to our dividend reinvestment plan may be excluded from the foregoing one-year holding period requirement, in the discretion of our board of directors. In addition, for purposes of the one-year holding period, limited partners of Wells OP who exchange their limited partnership units for shares in the Wells REIT shall be deemed to have owned their shares as of the date they were issued their limited partnership units in Wells OP. Our board of directors reserves the right in its sole discretion at any time and from time to time to (1) change the purchase price for redemptions, or (2) otherwise amend the terms of our share redemption program. In addition, our board of directors has delegated to our officers the right to (1) waive the one-year holding period in the event of the death or bankruptcy of a stockholder or other exigent circumstances, or (2) reject any request for redemption at any time and for any reason.
 
Redemption of shares, when requested, will be made quarterly on a first-come, first-served basis. Subject to funds being available, we will limit the number of shares redeemed pursuant to our share redemption program as follows: (1) during any calendar year, we will not redeem in excess of 3.0% of the weighted average number of shares outstanding during the prior calendar year; and (2) funding for the redemption of shares will come exclusively from the proceeds we receive from the sale of shares under our dividend reinvestment plan such that in no event shall the aggregate amount of redemptions under our share redemption program exceed aggregate proceeds received from the sale of shares pursuant to our dividend reinvestment plan. The board of directors, in its sole discretion, may choose to terminate the share redemption program or to reduce the number of shares purchased under the share redemption program if it determines the funds otherwise available to fund our share redemption program are needed for other purposes. (See “Risk Factors—Investment Risks.”)
 
We cannot guarantee that the funds set aside for our share redemption program will be sufficient to accommodate all requests made in any year. If we do not have such funds available, at the time when redemption is requested, you can (1) withdraw your request for redemption, or (2) ask that we honor your request at such time, if any, when sufficient funds become available. Such pending requests will be honored on a first-come, first-served basis.
 
Our share redemption program is only intended to provide interim liquidity for stockholders until a secondary market develops for the shares. No such market presently exists, and we cannot assure you that any market for your shares will ever develop.
 
The shares we redeem under our share redemption program will be cancelled, and will be held as treasury stock. We will not resell such shares to the public unless they are first registered with the
 
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Securities and Exchange Commission (Commission) under the Securities Act of 1933 and under appropriate state securities laws or otherwise sold in compliance with such laws.
 
Restrictions on Roll-Up Transactions
 
In connection with any proposed transaction considered a “Roll-up Transaction” involving the Wells REIT and the issuance of securities of an entity (a Roll-up Entity) that would be created or would survive after the successful completion of the Roll-up Transaction, an appraisal of all properties shall be obtained from a competent independent appraiser. The properties shall be appraised on a consistent basis, and the appraisal shall be based on the evaluation of all relevant information and shall indicate the value of the properties as of a date immediately prior to the announcement of the proposed Roll-up Transaction. The appraisal shall assume an orderly liquidation of properties over a 12-month period. The terms of the engagement of the independent appraiser shall clearly state that the engagement is for our benefit and the stockholders. A summary of the appraisal, indicating all material assumptions underlying the appraisal, shall be included in a report to stockholders in connection with any proposed Roll-up Transaction.
 
A “Roll-up Transaction” is a transaction involving the acquisition, merger, conversion or consolidation, directly or indirectly, of the Wells REIT and the issuance of securities of a Roll-up Entity. This term does not include:
 
 	•	 	a transaction involving our securities that have been for at least 12 months listed on a national securities exchange or included for quotation on NASDAQ; or	
 
 	•	 	a transaction involving the conversion to corporate, trust, or association form of only the Wells REIT if, as a consequence of the transaction, there will be no significant adverse change in any of the following: stockholder voting rights; the term of our existence; compensation to Wells Capital; or our investment objectives.	
 
In connection with a proposed Roll-up Transaction, the person sponsoring the Roll-up Transaction must offer to stockholders who vote “no” on the proposal the choice of:
 
(1)  accepting the securities of a Roll-up Entity offered in the proposed Roll-up Transaction; or
 
(2)  one of the following:
 
  (A)  remaining as stockholders of the Wells REIT and preserving their interests therein on the same terms and conditions as existed previously, or
 
  (B)  receiving cash in an amount equal to the stockholder’s pro rata share of the appraised value of our net assets.
 
We are prohibited from participating in any proposed Roll-up Transaction:
 
 	•	 	that would result in the stockholders having democracy rights in a Roll-up Entity that are less than those provided in our bylaws and described elsewhere in this prospectus, including rights with respect to the election and removal of directors, annual reports, annual and special meetings, amendment of our articles of incorporation, and dissolution of the Wells REIT;	
 
 	•	 	that includes provisions that would operate to materially impede or frustrate the accumulation of shares by any purchaser of the securities of the Roll-up Entity, except to the minimum extent necessary to preserve the tax status of the Roll-up Entity, or which	
 
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 	would limit the ability of an investor to exercise the voting rights of its securities of the Roll-up Entity on the basis of the number of shares held by that investor;	
 
 	•	 	in which investor’s rights to access of records of the Roll-up Entity will be less than those provided in the section of this prospectus entitled “Description of Shares—Meetings and Special Voting Requirements;” or	
 
 	•	 	in which any of the costs of the Roll-up Transaction would be borne by us if the Roll-up Transaction is not approved by the stockholders.	
 
Business Combinations
 
Maryland Corporation Law prohibits certain business combinations between a Maryland corporation and an interested stockholder or the interested stockholder’s affiliate for five years after the most recent date on which the stockholder becomes an interested stockholder. These provisions of the Maryland Corporation Law will not apply, however, to business combinations that are approved or exempted by the board of directors of the corporation prior to the time that the interested stockholder becomes an interested stockholder. As permitted by Maryland Corporation Law, we have provided in our articles of incorporation that the business combination provisions of Maryland Corporation Law will not apply to transactions involving the Wells REIT.
 
Control Share Acquisitions
 
Maryland Corporation Law provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquiror, or by officers or directors who are employees of the corporation are not entitled to vote on the matter. As permitted by Maryland Corporation Law, we have provided in our articles of incorporation that the control share provisions of Maryland Corporation Law will not apply to transactions involving the Wells REIT.
 
THE OPERATING PARTNERSHIP AGREEMENT
 
General
 
Wells Operating Partnership, L.P. (Wells OP) was formed in January 1998 to acquire, own and operate properties on our behalf. It is considered to be an Umbrella Partnership Real Estate Investment Trust (UPREIT), which is a structure generally utilized to provide for the acquisition of real property from owners who desire to defer taxable gain otherwise required to be recognized by them upon the disposition of their properties. Such owners may also desire to achieve diversity in their investment and other benefits afforded to stockholders in a REIT. For purposes of satisfying the Asset and Income Tests for qualification as a REIT for tax purposes, the REIT’s proportionate share of the assets and income of an UPREIT, such as Wells OP, will be deemed to be assets and income of the REIT.
 
The property owner’s goals are accomplished because a property owner may contribute property to an UPREIT in exchange for limited partnership units on a tax-deferred basis. Further, Wells OP is structured to make distributions with respect to limited partnership units which will be equivalent to the dividend distributions made to stockholders of the Wells REIT. Finally, a limited partner in Wells OP may later exchange his limited partnership units in Wells OP for shares of the Wells REIT (in a taxable transaction) and, if our shares are then listed, achieve liquidity for his investment.
 
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Substantially all of our assets are held by Wells OP, and we intend to make future acquisitions of real properties using the UPREIT structure. The Wells REIT is the sole general partner of Wells OP and, as of June 30, 2002, owned an approximately 99.72% equity percentage interest in Wells OP. Wells Capital, our advisor, contributed $200,000 to Wells OP and is currently the only limited partner owning the other approximately 0.28% equity percentage interest in Wells OP. As the sole general partner of Wells OP, we have the exclusive power to manage and conduct the business of Wells OP.
 
The following is a summary of certain provisions of the partnership agreement of Wells OP. This summary is not complete and is qualified by the specific language in the partnership agreement. You should refer to the partnership agreement, itself, which we have filed as an exhibit to the registration statement, for more detail.
 
Capital Contributions
 
As we accept subscriptions for shares, we will transfer substantially all of the net proceeds of the offering to Wells OP as a capital contribution; however, we will be deemed to have made capital contributions in the amount of the gross offering proceeds received from investors. Wells OP will be deemed to have simultaneously paid the selling commissions and other costs associated with the offering. If Wells OP requires additional funds at any time in excess of capital contributions made by us and Wells Capital or from borrowing, we may borrow funds from a financial institution or other lender and lend such funds to Wells OP on the same terms and conditions as are applicable to our borrowing of such funds. In addition, we are authorized to cause Wells OP to issue partnership interests for less than fair market value if we conclude in good faith that such issuance is in the best interest of Wells OP and the Wells REIT.
 
Operations
 
The partnership agreement of Wells OP provides that Wells OP is to be operated in a manner that will (1) enable the Wells REIT to satisfy the requirements for being classified as a REIT for tax purposes, (2) avoid any federal income or excise tax liability, and (3) ensure that Wells OP will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Internal Revenue Code, which classification could result in Wells OP being taxed as a corporation, rather than as a partnership. (See “Federal Income Tax Considerations—Tax Aspects of Our Operating Partnership—Classification as a Partnership.”)
 
The partnership agreement provides that Wells OP will distribute cash flow from operations to the limited partners of Wells OP in accordance with their relative percentage interests on at least a quarterly basis in amounts determined by the Wells REIT as general partner such that a holder of one unit of limited partnership interest in Wells OP will receive the same amount of annual cash flow distributions from Wells OP as the amount of annual dividends paid to the holder of one of our shares. Remaining cash from operations will be distributed to the Wells REIT as the general partner to enable us to make dividend distributions to our stockholders.
 
Similarly, the partnership agreement of Wells OP provides that taxable income is allocated to the limited partners of Wells OP in accordance with their relative percentage interests such that a holder of one unit of limited partnership interest in Wells OP will be allocated taxable income for each taxable year in an amount equal to the amount of taxable income to be recognized by a holder of one of our shares, subject to compliance with the provisions of Sections 704(b) and 704(c) of the Internal Revenue Code and corresponding Treasury Regulations. Losses, if any, will generally be allocated among the partners in accordance with their respective percentage interests in Wells OP.
 
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Upon the liquidation of Wells OP, after payment of debts and obligations, any remaining assets of Wells OP will be distributed to partners with positive capital accounts in accordance with their respective positive capital account balances. If the Wells REIT were to have a negative balance in its capital account following a liquidation, it would be obligated to contribute cash to Wells OP equal to such negative balance for distribution to other partners, if any, having positive balances in their capital accounts.
 
In addition to the administrative and operating costs and expenses incurred by Wells OP in acquiring and operating real properties, Wells OP will pay all administrative costs and expenses of the Wells REIT and such expenses will be treated as expenses of Wells OP. Such expenses will include:
 
 	•	 	all expenses relating to the formation and continuity of existence of the Wells REIT;	
 
 	•	 	all expenses relating to the public offering and registration of securities by the Wells REIT;	
 
 	•	 	all expenses associated with the preparation and filing of any periodic reports by the Wells REIT under federal, state or local laws or regulations;	
 
 	•	 	all expenses associated with compliance by the Wells REIT with applicable laws, rules and regulations; and	
 
 	•	 	all other operating or administrative costs of the Wells REIT incurred in the ordinary course of its business on behalf of Wells OP.	
 
Exchange Rights
 
The limited partners of Wells OP, including Wells Capital, have the right to cause Wells OP to redeem their limited partnership units for cash equal to the value of an equivalent number of our shares, or, at our option, we may purchase their limited partnership units by issuing one share of the Wells REIT for each limited partnership unit redeemed. These exchange rights may not be exercised, however, if and to the extent that the delivery of shares upon such exercise would (1) result in any person owning shares in excess of our ownership limits, (2) result in shares being owned by fewer than 100 persons, (3) result in the Wells REIT being “closely held” within the meaning of Section 856(h) of the Internal Revenue Code, (4) cause the Wells REIT to own 10% or more of the ownership interests in a tenant within the meaning of Section 856(d)(2)(B) of the Internal Revenue Code, or (5) cause the acquisition of shares by a redeemed limited partner to be “integrated” with any other distribution of our shares for purposes of complying with the Securities Act of 1933.
 
Subject to the foregoing, limited partners may exercise their exchange rights at any time after one year following the date of issuance of their limited partnership units; provided, however, that a limited partner may not deliver more than two exchange notices each calendar year and may not exercise an exchange right for less than 1,000 limited partnership units, unless such limited partner holds less than 1,000 units, in which case, he must exercise his exchange right for all of his units.
 
Transferability of Interests
 
The Wells REIT may not (1) voluntarily withdraw as the general partner of Wells OP, (2) engage in any merger, consolidation or other business combination, or (3) transfer its general partnership interest in Wells OP (except to a wholly-owned subsidiary), unless the transaction in which such withdrawal, business combination or transfer occurs results in the limited partners receiving or having the right to
 
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receive an amount of cash, securities or other property equal in value to the amount they would have received if they had exercised their exchange rights immediately prior to such transaction or unless, in the case of a merger or other business combination, the successor entity contributes substantially all of its assets to Wells OP in return for an interest in Wells OP and agrees to assume all obligations of the general partner of Wells OP. The Wells REIT may also enter into a business combination or we may transfer our general partnership interest upon the receipt of the consent of a majority-in-interest of the limited partners of Wells OP, other than Wells Capital. With certain exceptions, the limited partners may not transfer their interests in Wells OP, in whole or in part, without the written consent of the Wells REIT as the general partner. In addition, Wells Capital may not transfer its interest in Wells OP as long as it is acting as the advisor to the Wells REIT, except pursuant to the exercise of its right to exchange limited partnership units for Wells REIT shares, in which case similar restrictions on transfer will apply to the REIT shares received by Wells Capital.
 
PLAN OF DISTRIBUTION
 
General
 
We are offering a maximum of 300,000,000 shares to the public through Wells Investment Securities, our Dealer Manager, a registered broker-dealer affiliated with Wells Capital, our advisor. (See “Conflicts of Interest.”) The shares are being offered at a price of $10.00 per share on a “best efforts” basis, which means generally that the Dealer Manager will be required to use only its best efforts to sell the shares and it has no firm commitment or obligation to purchase any of the shares. We are also offering 30,000,000 shares for sale pursuant to our dividend reinvestment plan at a price of $10.00 per share. We reserve the right in the future to reallocate additional shares to our dividend reinvestment plan out of our public offering shares. An additional 6,600,000 shares are reserved for issuance upon exercise of soliciting dealer warrants, which are granted to participating broker-dealers based upon the number of shares they sell. Therefore, a total of 336,600,000 shares are being registered in this offering.
 
The offering of shares will terminate on or before July 25, 2004. However, we reserve the right to terminate this offering at any time prior to such termination date.
 
Underwriting Compensation and Terms
 
Except as provided below, the Dealer Manager will receive selling commissions of 7.0% of the gross offering proceeds. The Dealer Manager will also receive 2.5% of the gross offering proceeds in the form of a dealer manager fee as compensation for acting as the Dealer Manager and for expenses incurred in connection with marketing our shares and paying the employment costs of the Dealer Manager’s wholesalers. Out of its dealer manager fee, the Dealer Manager may pay salaries and commissions to its wholesalers in the aggregate amount of up to 1.0% of gross offering proceeds. We will not pay referral or similar fees to any accountants, attorneys or other persons in connection with the distribution of the shares. Stockholders who elect to participate in the dividend reinvestment plan will be charged selling commissions and dealer manager fees on shares purchased pursuant to the dividend reinvestment plan on the same basis as stockholders purchasing shares other than pursuant to the dividend reinvestment plan.
 
The Dealer Manager may authorize certain other broker-dealers who are members of the NASD (Participating Dealers) to sell our shares. In the event of the sale of shares by such Participating Dealers, the Dealer Manager may reallow its commissions in the amount of up to 7.0% of the gross offering proceeds to such Participating Dealers. In addition, the Dealer Manager may reallow a portion of its dealer manager fee to Participating Dealers in the aggregate amount of up to 1.5% of gross offering proceeds to be paid to such Participating Dealers as marketing fees, or to reimburse representatives of such Participating Dealers the costs and expenses of attending our educational conferences and seminars.
 
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In addition, unless otherwise agreed with the Dealer Manager, Participating Dealers will be reimbursed for bona fide due diligence expenses, not to exceed 0.5% of gross offering proceeds in the aggregate.
 
We will also award to the Dealer Manager one soliciting dealer warrant for every 50 shares sold to the public or issued to stockholders pursuant to our dividend reinvestment plan during the offering period, except for sales of shares made net of commissions, as described below, in which case no warrants will be issued. The Dealer Manager intends to reallow these warrants to Participating Dealers by awarding one soliciting dealer warrant for every 50 shares sold during the offering period, unless such issuance of soliciting dealer warrants is prohibited by either federal or state securities laws. The holder of a soliciting dealer warrant will be entitled to purchase one share from the Wells REIT at a price of $12 per share during the period beginning on the first anniversary of the effective date of this offering and ending five years after the effective date of this offering. Participating Dealers are restricted from transferring, assigning, pledging or hypothecating the soliciting dealer warrants (except to certain officers or partners of such Participating Dealers in accordance with applicable NASD Rules) for a period of one year following the effective date of this offering. The shares issuable upon exercise of the soliciting dealer warrants are being registered as part of this offering. For the life of the soliciting dealer warrants, Participating Dealers are given the opportunity to profit from a rise in the market price for the common stock without assuming the risk of ownership, with a resulting dilution in the interest of other stockholders upon exercise of such warrants. In addition, holders of the soliciting dealer warrants would be expected to exercise such warrants at a time when we could obtain needed capital by offering new securities on terms more favorable than those provided by the soliciting dealer warrants. Exercise of the soliciting dealer warrants is governed by the terms and conditions detailed in this prospectus and in the Warrant Purchase Agreement, which is an exhibit to the registration statement.
 
In no event shall the total aggregate underwriting compensation, including sales commissions, the dealer manager fee and underwriting expense reimbursements, exceed 9.5% of gross offering proceeds in the aggregate, except for the soliciting dealer warrants described above and bona fide due diligence expenses not to exceed 0.5% of gross offering proceeds in the aggregate.
 
We have agreed to indemnify the Participating Dealers, including the Dealer Manager, against certain liabilities arising under the Securities Act of 1933, as amended.
 
The Participating Dealers are not obligated to obtain any subscriptions on our behalf, and we cannot assure you that any shares will be sold.
 
Our executive officers and directors, as well as officers and employees of Wells Capital or other affiliates, may purchase shares in this offering at a discount. The purchase price for such shares shall be $8.90 per share reflecting the fact that the acquisition and advisory fees relating to such shares will be reduced by $0.15 per share (from $0.30 per share to $0.15 per share), and that selling commissions in the amount of $0.70 per share and dealer manager fees in the amount of $0.25 per share will not be payable in connection with such sales. The net offering proceeds we receive will not be affected by such sales of shares at a discount. Wells Capital and its affiliates shall be expected to hold their shares purchased as stockholders for investment and not with a view towards distribution. In addition, shares purchased by Wells Capital or its affiliates shall not be entitled to vote on any matter presented to the stockholders for a vote.
 
We may sell shares to retirement plans of Participating Dealers, to Participating Dealers in their individual capacities, to IRAs and qualified plans of their registered representatives or to any one of their registered representatives in their individual capacities for 93% of the public offering price in consideration of the services rendered by such broker-dealers and registered representatives in the offering. The net proceeds to the Wells REIT from such sales made net of commissions will be identical to net proceeds we receive from other sales of shares.
 
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In connection with sales of certain minimum numbers of shares to a “purchaser,” as defined below, certain volume discounts resulting in reductions in selling commissions payable with respect to such sales are available to investors. In such event, any such reduction will be credited to the investor by reducing the purchase price per share payable by the investor. The following table illustrates the various discount levels available:
 
 	  	 	  	Commissions on Sales per Incremental
Share in Volume Discount Range

	
Number of
Shares Purchased

	  	Purchase Price per
Incremental Share in
Volume Discount Range

	  	Percentage
(based on $10 per share)

	  	Amount

	
           1 to 50,000	  	$10.00	  	7.0%	  	$0.70	
    50,001 to 100,000	  	$  9.80	  	5.0%	  	$0.50	
100,001 and Over	  	$  9.60	  	3.0%	  	$0.30	
 
For example, if an investor purchases 200,000 shares he would pay (1) $500,000 for the first 50,000 shares ($10.00 per share), (2) $490,000 for the next 50,000 shares ($9.80 per share), and (3) $960,000 for the remaining 100,000 shares ($9.60 per share). Accordingly, he could pay as little as $1,950,000 ($9.75 per share) rather than $2,000,000 for the shares, in which event the commission on the sale of such shares would be $90,000 ($0.45 per share) and, after payment of the dealer manager fee of $50,000 ($0.25 per share), we would receive net proceeds of $1,810,000 ($9.05 per share). The net proceeds to the Wells REIT will not be affected by volume discounts. Requests to apply the volume discount provisions must be made in writing and submitted simultaneously with your subscription for shares.
 
Because all investors will be paid the same dividends per share as other investors, an investor qualifying for a volume discount will receive a higher percentage return on his investment than investors who do not qualify for such discount.
 
Subscriptions may be combined for the purpose of determining the volume discounts in the case of subscriptions made by any “purchaser,” as that term is defined below, provided all such shares are purchased through the same broker-dealer. The volume discount shall be prorated among the separate subscribers considered to be a single “purchaser.” Any request to combine more than one subscription must be made in writing submitted simultaneously with your subscription for shares, and must set forth the basis for such request. Any such request will be subject to verification by the Dealer Manager that all of such subscriptions were made by a single “purchaser.”
 
For the purposes of such volume discounts, the term “purchaser” includes:
 
 	•	 	an individual, his or her spouse and their children under the age of 21 who purchase the units for his, her or their own accounts;	
 
 	•	 	a corporation, partnership, association, joint-stock company, trust fund or any organized group of persons, whether incorporated or not;	
 
 	•	 	an employees’ trust, pension, profit sharing or other employee benefit plan qualified under Section 401(a) of the Internal Revenue Code; and	
 
 	•	 	all commingled trust funds maintained by a given bank.	
 
Notwithstanding the above, in connection with volume sales made to investors in the Wells REIT, investors may request in writing to aggregate subscriptions, including subscriptions to public real estate programs previously sponsored by our advisor or its affiliates, as part of a combined order for purposes of determining the number of shares purchased, provided that any aggregate group of subscriptions must be
 
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received from the same Participating Dealer, including the Dealer Manager. Any such reduction in selling commission will be prorated among the separate subscribers. An investor may reduce the amount of his purchase price to the net amount shown in the foregoing table, if applicable. As set forth above, all requests to aggregate subscriptions as a single “purchaser” or other application of the foregoing volume discount provisions must be made in writing, and except as provided in this paragraph, separate subscriptions will not be cumulated, combined or aggregated.
 
California residents should be aware that volume discounts will not be available in connection with the sale of shares made to California residents to the extent such discounts do not comply with the provisions of Rule 260.140.51 adopted pursuant to the California Corporate Securities Law of 1968. Pursuant to this Rule, volume discounts can be made available to California residents only in accordance with the following conditions:
 
 	•	 	there can be no variance in the net proceeds to the Wells REIT from the sale of the shares to different purchasers of the same offering;	
 
 	•	 	all purchasers of the shares must be informed of the availability of quantity discounts;	
 
 	•	 	the same volume discounts must be allowed to all purchasers of shares which are part of the offering;	
 
 	•	 	the minimum amount of shares as to which volume discounts are allowed cannot be less than $10,000;	
 
 	•	 	the variance in the price of the shares must result solely from a different range of commissions, and all discounts allowed must be based on a uniform scale of commissions; and	
 
 	•	 	no discounts are allowed to any group of purchasers.	
 
Accordingly, volume discounts for California residents will be available in accordance with the foregoing table of uniform discount levels based on dollar volume of shares purchased, but no discounts are allowed to any group of purchasers, and no subscriptions may be aggregated as part of a combined order for purposes of determining the number of shares purchased.
 
Investors may agree with their broker-dealer to reduce the amount of selling commissions payable with respect to the sale of their shares down to zero (1) in the event that the investor has engaged the services of a registered investment advisor or other financial advisor with whom the investor has agreed to pay compensation for investment advisory services or other financial or investment advice, or (2) in the event that the investor is investing in a bank trust account with respect to which the investor has delegated the decision-making authority for investments made in the account to a bank trust department. The net proceeds to the Wells REIT will not be affected by reducing the commissions payable in connection with such transactions.
 
Neither the Dealer Manager nor its affiliates will compensate any person engaged as an investment advisor by a potential investor as an inducement for such investment advisor to advise favorably for an investment in the Wells REIT.
 
In addition, subscribers for shares may agree with their Participating Dealers and the Dealer Manager to have selling commissions due with respect to the purchase of their shares paid over a six-year period pursuant to a deferred commission arrangement. Stockholders electing the deferred commission option will be required to pay a total of $9.40 per share purchased upon subscription, rather than $10.00 per share, with respect to which $0.10 per share will be payable as commissions due upon subscription. For the period of six years following subscription, $0.10 per share will be deducted on an annual basis
 
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from dividends or other cash distributions otherwise payable to the stockholders and used by the Wells REIT to pay deferred commission obligations. The net proceeds to the Wells REIT will not be affected by the election of the deferred commission option. Under this arrangement, a stockholder electing the deferred commission option will pay a 1% commission upon subscription, rather than a 7% commission, and an amount equal to a 1% commission per year thereafter for the next six years, or longer if required to satisfy outstanding deferred commission obligations, will be deducted from dividends or other cash distributions otherwise payable to such stockholder and used by the Wells REIT to satisfy commission obligations. The foregoing commission amounts may be adjusted with approval of the Dealer Manager by application of the volume discount provisions described previously.
 
Stockholders electing the deferred commission option who are subject to federal income taxation will incur tax liability for dividends or other cash distributions otherwise payable to them with respect to their shares even though such dividends or other cash distributions will be withheld from such stockholders and will instead be paid to third parties to satisfy commission obligations.
 
Investors who wish to elect the deferred commission option should make the election on their Subscription Agreement Signature Page. Election of the deferred commission option shall authorize the Wells REIT to withhold dividends or other cash distributions otherwise payable to such stockholder for the purpose of paying commissions due under the deferred commission option; provided, however, that in no event may the Wells REIT withhold in excess of $0.60 per share in the aggregate under the deferred commission option. Such dividends or cash distributions otherwise payable to stockholders may be pledged by the Wells REIT, the Dealer Manager, Wells Capital or their affiliates to secure one or more loans, the proceeds of which would be used to satisfy sales commission obligations.
 
In the event that, at any time prior to the satisfaction of our remaining deferred commission obligations, listing of the shares occurs or is reasonably anticipated to occur, or we begin a liquidation of our properties, the remaining commissions due under the deferred commission option may be accelerated by the Wells REIT. In either such event, we shall provide notice of any such acceleration to stockholders who have elected the deferred commission option. In the event of listing, the amount of the remaining commissions due shall be deducted and paid by the Wells REIT out of dividends or other cash distributions otherwise payable to such stockholders during the time period prior to listing. To the extent that the distributions during such time period are insufficient to satisfy the remaining commissions due, the obligation of Wells REIT and our stockholders to make any further payments of deferred commissions under the deferred commission option shall terminate, and Participating Dealers will not be entitled to receive any further portion of their deferred commissions following listing of our shares. In the event of a liquidation of our properties, the amount of remaining commissions due shall be deducted and paid by the Wells REIT out of dividends or net sale proceeds otherwise payable to stockholders who are subject to any such acceleration of their deferred commission obligations. In no event may the Wells REIT withhold in excess of $0.60 per share in the aggregate for the payment of deferred commissions.
 
Subscription Procedures
 
You should pay for your shares by check payable to “Wells Real Estate Investment Trust, Inc.” Subscriptions will be effective only upon our acceptance, and we reserve the right to reject any subscription in whole or in part. We may not accept a subscription for shares until at least five business days after the date you receive this prospectus. You will receive a confirmation of your purchase. We will initially deposit the subscription proceeds in an interest-bearing account with Bank of America, N.A., Atlanta, Georgia. Subscribers may not withdraw funds from the account. We will withdraw funds from the account periodically for the acquisition of real estate properties, the payment of fees and expenses or other investments approved by our board of directors. We generally admit stockholders to the Wells REIT on a daily basis.
 
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Except for purchases pursuant to our dividend reinvestment plan or reinvestment plans of other public real estate programs, all accepted subscriptions will be for whole shares and for not less than 100 shares ($1,000). (See “Suitability Standards.”) Except in Maine, Minnesota, Nebraska and Washington, investors who have satisfied the minimum purchase requirement and have purchased units or shares in Wells programs or units or shares in other public real estate programs may purchase less than the minimum number of shares discussed above, provided that such investors purchase a minimum of 2.5 shares ($25). After investors have satisfied the minimum purchase requirement, minimum additional purchases must be in increments of at least 2.5 shares ($25), except for purchases made pursuant to our dividend reinvestment plan or reinvestment plans of other public real estate programs.
 
Investors who desire to establish an IRA for purposes of investing in shares may do so by having Wells Advisors, Inc., a qualified non-bank IRA custodian affiliated with our advisor, act as their IRA custodian. In the event that an IRA is established having Wells Advisors, Inc. as the IRA custodian, the authority of Wells Advisors, Inc. will be limited to holding the shares on behalf of the beneficiary of the IRA and making distributions or reinvestments in shares solely at the discretion of the beneficiary of the IRA. Wells Advisors, Inc. will not have the authority to vote any of the shares held in an IRA except strictly in accordance with the written instructions of the beneficiary of the IRA.
 
The proceeds of this offering will be used only for the purposes set forth in the “Estimated Use of Proceeds” section. Subscriptions will be accepted or rejected within 30 days of receipt by the Wells REIT and, if rejected, all funds shall be returned to the rejected subscribers within 10 business days.
 
The Dealer Manager and each Participating Dealer who sells shares on behalf of the Wells REIT have the responsibility to make every reasonable effort to determine that the purchase of shares is appropriate for the investor and that the requisite suitability standards are met. (See “Suitability Standards.”) In making this determination, the Participating Dealer will rely on relevant information provided by the investor, including information as to the investor’s age, investment objectives, investment experience, income, net worth, financial situation, other investments, and other pertinent information. Each investor should be aware that the Participating Dealer will be responsible for determining suitability.
 
The Dealer Manager or each Participating Dealer shall maintain records of the information used to determine that an investment in shares is suitable and appropriate for an investor. These records are required to be maintained for a period of at least six years.
 
SUPPLEMENTAL SALES MATERIAL
 
In addition to this prospectus, we may utilize certain sales material in connection with the offering of the shares, although only when accompanied by or preceded by the delivery of this prospectus. In certain jurisdictions, some or all of such sales material may not be available. This material may include information relating to this offering, the past performance of Wells Capital, our advisor, and its affiliates, property brochures and articles and publications concerning real estate. In addition, the sales material may contain certain quotes from various publications without obtaining the consent of the author or the publication for use of the quoted material in the sales material.
 
The offering of shares is made only by means of this prospectus. Although the information contained in such sales material will not conflict with any of the information contained in this prospectus, such material does not purport to be complete, and should not be considered a part of this prospectus or the registration statement of which this prospectus is a part, or as incorporated by reference in this prospectus or said registration statement or as forming the basis of the offering of the shares.
 
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LEGAL OPINIONS
 
The legality of the shares being offered hereby has been passed upon for the Wells REIT by Holland & Knight LLP (Holland & Knight). The statements under the caption “Federal Income Tax Consequences” as they relate to federal income tax matters have been reviewed by Holland & Knight, and Holland & Knight has opined as to certain income tax matters relating to an investment in shares of the Wells REIT. Holland & Knight has also represented Wells Capital, our advisor, as well as various other affiliates of Wells Capital, in other matters and may continue to do so in the future. (See “Conflicts of Interest.”)
 
EXPERTS
 
Changes in Principal Accountant
 
On May 8, 2002, the audit committee of our board of directors recommended to the board of directors the dismissal of Arthur Andersen LLP (Andersen) as our independent public accountants, and our board of directors approved the dismissal of Andersen as our independent public accountants; effective immediately.
 
Andersen’s reports on the consolidated financial statements of the Wells REIT for the years ended December 31, 2001 and December 31, 2000 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.
 
During the fiscal years ended December 31, 2001 and December 31, 2000, and through the date of Andersen’s dismissal, there were no disagreements with Andersen on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure which, if not resolved to Andersen’s satisfaction, would have caused Andersen to make reference to the subject matter in connection with its report on the consolidated financial statements of the Wells REIT for such years and there were no reportable events as set forth in Item 304(a)(1)(v) of Regulation S-K.
 
On June 26, 2002, our board of directors approved the recommendation of the audit committee to engage Ernst & Young LLP (Ernst & Young) to audit the financial statements of the Wells REIT, effective immediately. During the fiscal years ended December 31, 2001 and December 31, 2000, and through the date hereof, the Wells REIT did not consult Ernst & Young with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the consolidated financial statements of the Wells REIT, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
 
Audited Financial Statements
 
The financial statements of the Wells REIT, as of December 31, 2001 and 2000, and for each of the years in the three-year period ended December 31, 2001, included in this prospectus and elsewhere in the registration statement, have been audited by Andersen, independent public accountants, as indicated in their report with respect thereto, and are included in this prospectus in reliance upon the authority of said firm as experts in giving said report.
 
In June 2002, Andersen was tried and convicted of federal obstruction of justice charges. Events arising out of the conviction or other events relating to the financial condition of Andersen may adversely affect the ability of Andersen to satisfy any potential claims that may arise out of Andersen’s audits of the financial statements contained in this prospectus. In addition, Andersen has notified us that it will no longer be able to provide us with the necessary consents related to previously audited financial statements
 
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contained in our prospectus. Our inability to obtain such consents may also adversely affect your ability to pursue potential claims against Andersen. (See “Risk Factors.”)
 
Unaudited Financial Statements
 
The Schedule III—Real Estate Investments and Accumulated Depreciation as of December 31, 2001, which is included in this prospectus, has not been audited.
 
The financial statements of the Wells REIT, as of March 31, 2002, and for the three month periods ended March 31, 2002 and March 31, 2001, which are included in this prospectus, have not been audited.
 
ADDITIONAL INFORMATION
 
We have filed with the Securities and Exchange Commission (Commission), Washington, D.C., a registration statement under the Securities Act of 1933, as amended, with respect to the shares offered pursuant to this prospectus. This prospectus does not contain all the information set forth in the registration statement and the exhibits related thereto filed with the Commission, reference to which is hereby made. Copies of the registration statement and exhibits related thereto, as well as periodic reports and information filed by the Wells REIT, may be obtained upon payment of the fees prescribed by the Commission, or may be examined at the offices of the Commission without charge, at the public reference facility in Washington, D.C. at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission maintains a Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission.
 
GLOSSARY
 
The following are definitions of certain terms used in this prospectus and not otherwise defined in this prospectus:
 
“IRA” means an individual retirement account established pursuant to Section 408 or Section 408A of the Internal Revenue Code.
 
“NASAA Guidelines” means the Statement of Policy Regarding Real Estate Investment Trusts of the North American Securities Administrators Association, Inc., as revised and adopted on September 29, 1993.
 
“UBTI” means unrelated business taxable income, as that term is defined in Sections 511 through 514 of the Internal Revenue Code.
 
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INDEX TO FINANCIAL STATEMENTS AND PRIOR PERFORMANCE TABLES
 
 	  	Page

	
Wells Real Estate Investment Trust, Inc. and Subsidiary	  	 	
 	 	
Audited Financial Statements	  	 	
 	 	
Report of Independent Public Accountants	  	155	
 	 	
Consolidated Balance Sheets as of December 31, 2001 and 2000	  	156	
 	 	
Consolidated Statements of Income for the years ended December 31,
2001, 2000 and 1999	  	157	
 	 	
Consolidated Statements of Shareholders’ Equity for the years ended December 31,
2001, 2000 and 1999	  	158	
 	 	
Consolidated Statements of Cash Flows for the years ended December 31,
2001, 2000 and 1999	  	159	
 	 	
Notes to Consolidated Financial Statements	  	160	
 	 	
Unaudited Financial Statements	  	 	
 	 	
Schedule III—Real Estate Investments and Accumulated Depreciation as of
December 31, 2001	  	194	
 	 	
Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001	  	198	
 	 	
Consolidated Statements of Income for the three months ended March 31, 2002
and March 31, 2001	  	199	
 	 	
Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2001
and for the three months ended March 31, 2002	  	200	
 	 	
Consolidated Statements of Cash Flows for the three months ended March 31, 2002
and March 31, 2001	  	201	
 	 	
Condensed Notes to Consolidated Financial Statements March 31, 2002	  	202	
 	 	
Prior Performance Tables (Unaudited)	  	210	
 
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Wells Real Estate Investment Trust, Inc.:
 
We have audited the accompanying consolidated balance sheets of WELLS REAL ESTATE INVESTMENT TRUST, INC. (a Maryland corporation)  AND SUBSIDIARY  as of December 31, 2001 and 2000 and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements and the schedule referred to below are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
 
We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 Investment Trust, Inc. and subsidiary as of December 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.
 
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule III––Real Estate Investments and Accumulated Depreciation as of December 31, 2001 is presented for purposes of complying with the Securities and Exchange Commission’s rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
 
ARTHUR ANDERSEN LLP
 
Atlanta, Georgia
January 25, 2002

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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000

 	  	2001

	 	 	2000

	 	
ASSETS	
REAL ESTATE ASSETS, at cost:	  	 	 	 	 	 	 	 	
Land	  	$	86,246,985	 	 	$	46,237,812	 	
Building, less accumulated depreciation of $24,814,454 and $9,469,653 at December 31, 2001 and 2000, respectively	  	 	472,383,102	 	 	 	287,862,655	 	
Construction in progress	  	 	5,738,573	 	 	 	3,357,720	 	

	

	

	 	

	

	

	
Total real estate assets	  	 	564,368,660	 	 	 	337,458,187	 	
 	 	 	
INVESTMENT IN JOINT VENTURES	  	 	77,409,980	 	 	 	44,236,597	 	
 	 	 	
CASH AND CASH EQUIVALENTS	  	 	75,586,168	 	 	 	4,298,301	 	
 	 	 	
INVESTMENT IN BONDS	  	 	22,000,000	 	 	 	0	 	
 	 	 	
ACCOUNTS RECEIVABLE	  	 	6,003,179	 	 	 	3,781,034	 	
 	 	 	
DEFERRED PROJECT COSTS	  	 	2,977,110	 	 	 	550,256	 	
 	 	 	
DUE FROM AFFILIATES	  	 	1,692,727	 	 	 	309,680	 	
 	 	 	
DEFERRED LEASE ACQUISITION COSTS	  	 	1,525,199	 	 	 	1,890,332	 	
 	 	 	
DEFERRED OFFERING COSTS	  	 	0	 	 	 	1,291,376	 	
 	 	 	
PREPAID EXPENSES AND OTHER ASSETS, net	  	 	718,389	 	 	 	4,734,583	 	

	

	

	 	

	

	

	
Total assets	  	$	752,281,412	 	 	$	398,550,346	 	

	

	

	 	

	

	

	
LIABILITIES AND SHAREHOLDERS’ EQUITY	
LIABILITIES:	  	 	 	 	 	 	 	 	
Notes payable	  	$	8,124,444	 	 	$	127,663,187	 	
Obligation under capital lease	  	 	22,000,000	 	 	 	0	 	
Accounts payable and accrued expenses	  	 	8,727,473	 	 	 	2,166,387	 	
Due to affiliate	  	 	2,166,161	 	 	 	1,772,956	 	
Dividends payable	  	 	1,059,026	 	 	 	1,025,010	 	
Deferred rental income	  	 	661,657	 	 	 	381,194	 	

	

	

	 	

	

	

	
Total liabilities	  	$	42,738,761	 	 	$	133,008,734	 	

	

	

	 	

	

	

	
COMMITMENTS AND CONTINGENCIES	  	 	 	 	 	 	 	 	
 	 	 	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200,000	 	 	 	200,000	 	

	

	

	 	

	

	

	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	
Common shares, $.01 par value; 125,000,000 shares authorized,
83,761,469 shares issued and 83,206,429 shares outstanding at December 31, 2001; 125,000,000 shares authorized, 31,509,807 shares issued, and 31,368,510 shares outstanding at December 31, 2000	  	 	837,614	 	 	 	315,097	 	
Additional paid–in capital	  	 	738,236,525	 	 	 	275,573,339	 	
Cumulative distributions in excess of earnings	  	 	(24,181,092	)	 	 	(9,133,855	)	
Treasury stock, at cost, 555,040 shares at December 31, 2001 and 141,297 shares at December 31, 2000	  	 	(5,550,396	)	 	 	(1,412,969	)	

	

	

	 	

	

	

	
Total shareholders’ equity	  	 	709,342,651	 	 	 	265,341,612	 	

	

	

	 	

	

	

	
Total liabilities and shareholders’ equity	  	$	752,281,412	 	 	$	398,550,346	 	

	

	

	 	

	

	

	
 
The accompanying notes are an integral part of these consolidated balance sheets.

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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 2001, 2000, and 1999
 
 	  	2001

	  	2000

	  	1999

	 	
REVENUES:	  	 	 	  	 	 	  	 	 	 	
Rental income	  	$	44,204,279	  	$	20,505,000	  	$	4,735,184	 	
Equity in income of joint ventures	  	 	3,720,959	  	 	2,293,873	  	 	1,243,969	 	
Take out fee (Note 9)	  	 	137,500	  	 	0	  	 	0	 	
Interest and other income	  	 	1,246,064	  	 	574,333	  	 	516,242	 	

	

	  	

	

	  	

	

	

	
 	  	 	49,308,802	  	 	23,373,206	  	 	6,495,395	 	

	

	  	

	

	  	

	

	

	
EXPENSES:	  	 	 	  	 	 	  	 	 	 	
Depreciation	  	 	15,344,801	  	 	7,743,551	  	 	1,726,103	 	
Interest expense	  	 	3,411,210	  	 	3,966,902	  	 	442,029	 	
Amortization of deferred financing costs	  	 	770,192	  	 	232,559	  	 	8,921	 	
Operating costs, net of reimbursements	  	 	4,128,883	  	 	888,091	  	 	(74,666	)	
Management and leasing fees	  	 	2,507,188	  	 	1,309,974	  	 	257,744	 	
General and administrative	  	 	973,785	  	 	438,953	  	 	135,144	 	
Legal and accounting	  	 	448,776	  	 	240,209	  	 	115,471	 	

	

	  	

	

	  	

	

	

	
 	  	 	27,584,835	  	 	14,820,239	  	 	2,610,746	 	

	

	  	

	

	  	

	

	

	
NET INCOME	  	$	21,723,967	  	$	8,552,967	  	$	3,884,649	 	

	

	  	

	

	  	

	

	

	
EARNINGS PER SHARE:	  	 	 	  	 	 	  	 	 	 	
Basic and diluted	  	$	0.43	  	$	0.40	  	$	0.50	 	

	

	  	

	

	  	

	

	

	
 
The accompanying notes are an integral part of these consolidated statements.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the years ended December 31, 2001, 2000, and 1999
 
 	  	Common Stock

	  	Additional
Paid-In
Capital

	 	 	Cumulative
Distributions
in Excess of
Earnings

	 	 	Retained
Earnings

	 	  	Treasury Stock

	 	  	Total
Shareholders’
Equity

	 	 	
 	  	Shares

	  	Amount

	  	 	 	 	 	 	 	 	 	  	Shares

	 	  	Amount

	 	  	 	 	 	 	 	 	 	 	 	 	
BALANCE, December 31, 1998	  	3,154,136	  	$	31,541	  	$	27,567,275	 	 	$	(511,163	)	 	$	334,034	 	  	0	 	  	$	0	 	  	$	27,421,687	 	 	 	 	 	 	 	 	 	
Issuance of common stock	  	10,316,949	  	 	103,169	  	 	103,066,321	 	 	 	0	 	 	 	0	 	  	0	 	  	 	0	 	  	 	103,169,490	 	 	 	 	 	 	 	 	 	
Net income	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	3,884,649	 	  	0	 	  	 	0	 	  	 	3,884,649	 	 	 	 	 	 	 	 	 	
Dividends ($.70 per share)	  	0	  	 	0	  	 	0	 	 	 	(1,346,240	)	 	 	(4,218,683	)	  	0	 	  	 	0	 	  	 	(5,564,923	)	 	 	 	 	 	 	 	 	
Sales commissions and discounts	  	0	  	 	0	  	 	(9,801,197	)	 	 	0	 	 	 	0	 	  	0	 	  	 	0	 	  	 	(9,801,197	)	 	 	 	 	 	 	 	 	
Other offering expenses	  	0	  	 	0	  	 	(3,094,111	)	 	 	0	 	 	 	0	 	  	0	 	  	 	0	 	  	 	(3,094,111	)	 	 	 	 	 	 	 	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	  	

	

	  	

	

	

	  	

	

	

	 	 	 	 	 	 	 	 	
BALANCE, December 31, 1999	  	13,471,085	  	 	134,710	  	 	117,738,288	 	 	 	(1,857,403	)	 	 	0	 	  	0	 	  	 	0	 	  	 	116,015,595	 	 	 	 	 	 	 	 	 	
Issuance of common stock	  	18,038,722	  	 	180,387	  	 	180,206,833	 	 	 	0	 	 	 	0	 	  	0	 	  	 	0	 	  	 	180,387,220	 	 	 	 	 	 	 	 	 	
Treasury stock purchased	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	0	 	  	(141,297	)	  	 	(1,412,969	)	  	 	(1,412,969	)	 	 	 	 	 	 	 	 	
Net income	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	8,552,967	 	  	0	 	  	 	0	 	  	 	8,552,967	 	 	 	 	 	 	 	 	 	
Dividends ($.73 per share)	  	0	  	 	0	  	 	0	 	 	 	(7,276,452	)	 	 	(8,552,967	)	  	0	 	  	 	0	 	  	 	(15,829,419	)	 	 	 	 	 	 	 	 	
Sales commissions and discounts	  	0	  	 	0	  	 	(17,002,554	)	 	 	0	 	 	 	0	 	  	0	 	  	 	0	 	  	 	(17,002,554	)	 	 	 	 	 	 	 	 	
Other offering expenses	  	0	  	 	0	  	 	(5,369,228	)	 	 	0	 	 	 	0	 	  	0	 	  	 	0	 	  	 	(5,369,228	)	 	 	 	 	 	 	 	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	  	

	

	  	

	

	

	  	

	

	

	 	 	 	 	 	 	 	 	
BALANCE, December 31, 2000	  	31,509,807	  	 	315,097	  	 	275,573,339	 	 	 	(9,133,855	)	 	 	0	 	  	(141,297	)	  	 	(1,412,969	)	  	 	265,341,612	 	 	 	 	 	 	 	 	 	
Issuance of common stock	  	52,251,662	  	 	522,517	  	 	521,994,103	 	 	 	0	 	 	 	0	 	  	0	 	  	 	0	 	  	 	522,516,620	 	 	 	 	 	 	 	 	 	
Treasury stock purchased	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	0	 	  	(413,743	)	  	 	(4,137,427	)	  	 	(4,137,427	)	 	 	 	 	 	 	 	 	
Net income	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	21,723,967	 	  	0	 	  	 	0	 	  	 	21,723,967	 	 	 	 	 	 	 	 	 	
Dvidends ($.76 per share)	  	0	  	 	0	  	 	0	 	 	 	(15,047,237	)	 	 	(21,723,967	)	  	0	 	  	 	0	 	  	 	(36,771,204	)	 	 	 	 	 	 	 	 	
Sales commissions and discounts	  	0	  	 	0	  	 	(49,246,118	)	 	 	0	 	 	 	0	 	  	0	 	  	 	0	 	  	 	(49,246,118	)	 	 	 	 	 	 	 	 	
Other offering expenses	  	0	  	 	0	  	 	(10,084,799	)	 	 	 	 	 	 	0	 	  	0	 	  	 	0	 	  	 	(10,084,799	)	 	 	 	 	 	 	 	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	  	

	

	  	

	

	

	  	

	

	

	 	 	 	 	 	 	 	 	
BALANCE, December 31, 2001	  	83,761,469	  	$	837,614	  	$	738,236,525	 	 	$	(24,181,092	)	 	$	0	 	  	(555,040	)	  	$	(5,550,396	)	  	$	709,342,651	 	 	 	 	 	 	 	 	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	  	

	

	  	

	

	

	  	

	

	

	 	 	 	 	 	 	 	 	
 
The accompanying notes are an integral part of these consolidated statements.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 2001, 2000, and 1999
 
 	  	2001

	 	 	2000

	 	 	1999

	 	
CASH FLOWS FROM OPERATING ACTIVITIES:	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	21,723,967	 	 	$	8,552,967	 	 	$	3,884,649	 	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	(3,720,959	)	 	 	(2,293,873	)	 	 	(1,243,969	)	
Depreciation	  	 	15,344,801	 	 	 	7,743,551	 	 	 	1,726,103	 	
Amortization of deferred financing costs	  	 	770,192	 	 	 	232,559	 	 	 	8,921	 	
Amortization of deferred leasing costs	  	 	303,347	 	 	 	350,991	 	 	 	0	 	
Write-off of deferred lease acquisition fees	  	 	61,786	 	 	 	0	 	 	 	0	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	 	 	 	 	
Accounts receivable	  	 	(2,222,145	)	 	 	(2,457,724	)	 	 	(898,704	)	
Due from affiliates	  	 	10,995	 	 	 	(435,600	)	 	 	0	 	
Prepaid expenses and other assets, net	  	 	3,246,002	 	 	 	(6,826,568	)	 	 	149,501	 	
Accounts payable and accrued expenses	  	 	6,561,086	 	 	 	1,941,666	 	 	 	36,894	 	
Deferred rental income	  	 	280,463	 	 	 	144,615	 	 	 	236,579	 	
Due to affiliates	  	 	(10,193	)	 	 	367,055	 	 	 	108,301	 	

	

	

	 	

	

	

	 	

	

	

	
Total adjustments	  	 	20,625,375	 	 	 	(1,233,328	)	 	 	123,626	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	42,349,342	 	 	 	7,319,639	 	 	 	4,008,275	 	

	

	

	 	

	

	

	 	

	

	

	
CASH FLOWS FROM INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	 	 	 	 	
Investment in real estate	  	 	(227,933,858	)	 	 	(231,518,138	)	 	 	(85,514,506	)	
Investment in joint ventures	  	 	(33,690,862	)	 	 	(15,063,625	)	 	 	(17,641,211	)	
Deferred project costs paid	  	 	(17,220,446	)	 	 	(6,264,098	)	 	 	(3,610,967	)	
Distributions received from joint ventures	  	 	4,239,431	 	 	 	3,529,401	 	 	 	1,371,728	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash used in investing activities	  	 	(274,605,735	)	 	 	(249,316,460	)	 	 	(105,394,956	)	

	

	

	 	

	

	

	 	

	

	

	
CASH FLOWS FROM FINANCING ACTIVITIES:	  	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from notes payable	  	 	110,243,145	 	 	 	187,633,130	 	 	 	40,594,463	 	
Repayments of notes payable	  	 	(229,781,888	)	 	 	(83,899,171	)	 	 	(30,725,165	)	
Dividends paid to shareholders	  	 	(36,737,188	)	 	 	(16,971,110	)	 	 	(3,806,398	)	
Issuance of common stock	  	 	522,516,620	 	 	 	180,387,220	 	 	 	103,169,490	 	
Treasury stock purchased	  	 	(4,137,427	)	 	 	(1,412,969	)	 	 	0	 	
Sales commissions paid	  	 	(49,246,118	)	 	 	(17,002,554	)	 	 	(9,801,197	)	
Offering costs paid	  	 	(9,312,884	)	 	 	(5,369,228	)	 	 	(3,094,111	)	

	

	

	 	

	

	

	 	

	

	

	
Net cash provided by financing activities	  	 	303,544,260	 	 	 	243,365,318	 	 	 	96,337,082	 	

	

	

	 	

	

	

	 	

	

	

	
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	  	 	71,287,867	 	 	 	1,368,497	 	 	 	(5,049,599	)	
CASH AND CASH EQUIVALENTS, beginning of year	  	 	4,298,301	 	 	 	2,929,804	 	 	 	7,979,403	 	

	

	

	 	

	

	

	 	

	

	

	
CASH AND CASH EQUIVALENTS, end of year	  	$	75,586,168	 	 	$	4,298,301	 	 	$	2,929,804	 	

	

	

	 	

	

	

	 	

	

	

	
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITI ES:	  	 	 	 	 	 	 	 	 	 	 	 	
Deferred project costs applied to real estate assets	  	$	14,321,416	 	 	$	5,114,279	 	 	$	3,183,239	 	

	

	

	 	

	

	

	 	

	

	

	
Deferred project costs contributed to joint ventures	  	$	1,395,035	 	 	$	627,656	 	 	$	735,056	 	

	

	

	 	

	

	

	 	

	

	

	
Deferred project costs due to affiliate	  	$	1,114,140	 	 	$	191,281	 	 	$	191,783	 	

	

	

	 	

	

	

	 	

	

	

	
Deferred offering costs due to affiliate	  	$	0	 	 	$	1,291,376	 	 	$	964,941	 	

	

	

	 	

	

	

	 	

	

	

	
Reversal of deferred offering costs due to affiliate	  	$	964,941	 	 	$	0	 	 	$	0	 	

	

	

	 	

	

	

	 	

	

	

	
Other offering expenses due to affiliate	  	$	943,107	 	 	$	0	 	 	$	0	 	

	

	

	 	

	

	

	 	

	

	

	
Assumption of obligation under capital lease	  	$	22,000,000	 	 	$	0	 	 	$	0	 	

	

	

	 	

	

	

	 	

	

	

	
Investment in bonds	  	$	22,000,000	 	 	$	0	 	 	$	0	 	

	

	

	 	

	

	

	 	

	

	

	
 
The accompanying notes are an integral part of these consolidated statements.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
 
1.    ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Wells Real Estate Investment Trust, Inc. (the “Company”) is a Maryland corporation that qualifies as a real estate investment trust (“REIT”). The Company is conducting an offering for the sale of a maximum of 125,000,000 (exclusive of 10,000,000 shares available pursuant to the Company’s dividend reinvestment program) shares of common stock, $.01 par value per share, at a price of $10 per share. The Company will seek to acquire and operate commercial properties, including, but not limited to, office buildings, shopping centers, business and industrial parks, and other commercial and industrial properties, including properties which are under construction, are newly constructed, or have been constructed and have operating histories. All such properties may be acquired, developed, and operated by the Company alone or jointly with another party. The Company is likely to enter into one or more joint ventures with affiliated entities for the acquisition of properties. In connection therewith, the Company may enter into joint ventures for the acquisition of properties with prior or future real estate limited partnership programs sponsored by Wells Capital, Inc. (the “Advisor”) or its affiliates.
 
Substantially all of the Company’s business is conducted through Wells Operating Partnership, L.P. (the “Operating Partnership”), a Delaware limited partnership. During 1997, the Operating Partnership issued 20,000 limited partner units to the Advisor in exchange for $200,000. The Company is the sole general partner in the Operating Partnership and possesses full legal control and authority over the operations of the Operating Partnership; consequently, the accompanying consolidated financial statements of the Company include the accounts of the Operating Partnership. All significant intercompany balances have been eliminated in consolidation.
 
The Company owns interests in the following properties directly through its ownership in the Operating Partnership: (i) the PricewaterhouseCoopers property (the “PwC Building”), a four-story office building located in Tampa, Florida; (ii) the AT&T Building, a four-story office building located in Harrisburg, Pennsylvania; (iii) the Marconi Data Systems property (the “Marconi Building”), a two-story office, assembly, and manufacturing building located in Wood Dale, Illinois; (iv) the Cinemark Property (the “Cinemark Building”), a five-story office building located in Plano, Texas; (v) the Matsushita Property (the “Matsushita Building”), a two-story office building located in Lake Forest, California; (vi) the ASML Property (the “ASML Building”), a two-story office and warehouse building located in Tempe, Arizona; (vii) the Motorola Property (the “Motorola Tempe Building”), a two-story office building located in Tempe, Arizona; (viii) the Dial Property (the “Dial Building”), a two-story office building located in Scottsdale, Arizona; (ix) the Delphi Building, a three-story office building located in Troy, Michigan; (x) the Avnet Property (the “Avnet Building”), a two-story office building located in Tempe, Arizona; (xi) the Metris Oklahoma Building, a three-story office building located in Tulsa, Oklahoma; (xii) the Alstom Power-Richmond Building, a four-story office building located in Richmond, Virginia; (xiii) the Motorola Plainfield Building, a three-story office building located in South Plainfield, New Jersey; (xiv) the Stone & Webster Building, a six-story office building located in Houston, Texas; (xv) the Metris Minnetonka Building, a nine-story office building located in Minnetonka, Minnesota; (xvi) the State Street Bank Building, a seven-story office building located in Quincy, Massachusetts; (xvii) the IKON Buildings, two one-story office buildings located in Houston, Texas; (xviii) the Ingram Micro Distribution Facility, a one-story office and warehouse building located in Millington, Tennessee; (xix) the Lucent Building, a four-story office building located in Cary, North Carolina; (xx) the Nissan land (the “Nissan Property”), a 14.873 acre tract of undeveloped land located in Irving, Texas; (xxi) the Convergys Building, a two-story office building located in Tamarac, Florida; and (xxii) the Windy Point Buildings, a seven-story office building and an eleven-story office building located in Schaumburg, Illinois.
 
The Company owns an interest in one property through a joint venture between the Operating Partnership, Wells Real Estate Fund VIII, L.P. (“Wells Fund VIII”), and Wells Real Estate Fund IX, L.P. (“Wells Fund IX”), which is referred
 
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to as the Fund VIII, IX, and REIT Joint Venture. The Company also owns interests in five properties through a joint venture between the Operating Partnership, Wells Fund IX, Wells Real Estate Fund X, L.P. (“Wells Fund X”), and Wells Real Estate Fund XI, L.P. (“Wells Fund XI”), which is referred to as the Fund IX, Fund X, Fund XI, and REIT Joint Venture. The Company owns an interest in one property through each of two unique joint ventures between the Operating Partnership and Fund X and XI Associates, a joint venture between Wells Fund X and Wells Fund XI. In addition, the Company owns interests in four properties through a joint venture between the Operating Partnership, Wells Fund XI, and Wells Real Estate Fund XII, L.P. (“Wells Fund XII”), which is referred to as the Fund XI, XII, and REIT Joint Venture. The Company owns interests in three properties through a joint venture between the Operating Partnership and Wells Fund XII, which is referred to as the Fund XII and REIT Joint Venture. The Company also owns interests in two properties through a joint venture between the Operating Partnership and Wells Fund XIII, which is referred to as the Fund XIII and REIT Joint Venture.
 
Through its investment in the Fund VIII, IX, and REIT Joint Venture, the Company owns an interest in a two-story office building in Irvine, California (the “Quest Building”).
 
The following properties are owned by the Company through its investment in the Fund IX, X, XI, and REIT Joint Venture: (i) a three-story office building in Knoxville, Tennessee (the “Alstom Power Building”), (ii) a two-story office building in Louisville, Colorado (the “Ohmeda Building”), (iii) a three-story office building in Broomfield, Colorado (the “360 Interlocken Building”), (iv) a one-story office and warehouse building in Ogden, Utah (the “Iomega Building”), and (v) a one-story office building in Oklahoma City, Oklahoma (the “Avaya Building”).
 
Through its investment in two joint ventures with Fund X and XI Associates, the Company owns interests in the following properties: (i) a one-story office and warehouse building in Fountain Valley, California (the “Cort Furniture Building”), owned by Wells/Orange County Associates and (ii) a two-story manufacturing and office building in Fremont, California (the “Fairchild Building”), owned by Wells/Fremont Associates.
 
The following properties are owned by the Company through its investment in the Fund XI, XII, and REIT Joint Venture: (i) a two-story manufacturing and office building in Fountain Inn, South Carolina (the “EYBL CarTex Building”), (ii) a three-story office building Leawood, Kansas (the “Sprint Building”), (iii) an office and warehouse building in Chester County, Pennsylvania (the “Johnson Matthey Building”), and (iv) a two-story office building in Ft. Myers, Florida (the “Gartner Building”).
 
Through its investment in the Fund XII and REIT Joint Venture, the Company owns interests in the following properties: (i) a three-story office building in Troy, Michigan (the “Siemens Building”), (ii) a one-story office building and a two-story office building in Oklahoma City, Oklahoma (collectively referred to as the “AT&T Call Center Buildings”), and (iii) a three-story office building in Brentwood, Tennessee (the “Comdata Building”).
 
The following properties are owned by the Company through its investment in the Fund XIII and REIT Joint Venture: (i) a one-story office building in Orange Park, Florida (the “AmeriCredit Building”), and (ii) two connected one-story office and assembly buildings in Parker, Colorado (the “ADIC Buildings”).
 
Use of Estimates and Factors Affecting the Company
 
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States 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.
 
The carrying values of real estate are based on management’s current intent to hold the real estate assets as long-term investments. The success of the Company’s future operations and the ability to realize the investment in its assets will be dependent on the Company’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 Company to realize its investment in its assets.
 
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Income Taxes
 
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to currently distribute at least 90% of the REIT’s ordinary taxable income to shareholders. It is management’s current intention to adhere to these requirements and maintain the Company’s REIT status. As a REIT, the Company generally will not be subject to federal income tax on distributed taxable income. Even if the Company qualifies as a REIT, it may be subject to certain state and local taxes on its income and real estate assets, and to federal income and excise taxes on its undistributed taxable income. No provision for federal income taxes has been made in the accompanying consolidated financial statements, as the Company made distributions equal to or in excess of its taxable income in each of the three years in the period ended December 31, 2001.
 
Real Estate Assets
 
Real estate assets held by the Company and 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 repair and maintenance expenditures are expensed as incurred.
 
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 amounts of real estate assets may not be recoverable, management assesses the recoverability of real estate assets 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 Company or the joint ventures as of December 31, 2001 and 2000.
 
Depreciation of building and improvements is calculated using the straight-line method over 25 years. 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 Company or the joint ventures are classified as operating leases, and the related rental income is recognized on a straight-ine basis over the terms of the respective leases.
 
Cash and Cash Equivalents
 
For the purposes of the statements of cash flows, the Company 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.
 
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.
 
Earnings Per Share
 
Earnings per share are calculated based on the weighted average number of common shares outstanding during each period. The weighted average number of common shares outstanding is identical for basic and fully diluted earnings per share, as there is no dilutive impact created from the Company’s stock option plan (Note 10) using the treasury stock method.
 
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Reclassifications
 
Certain prior year amounts have been reclassified to conform with the current year financial statement presentation.
 
Investment in Joint Ventures
 
Basis of Presentation
 
The Operating Partnership does not have control over the operations of the joint ventures; however, it does exercise significant influence. Accordingly, the Operating Partnership’s investments in joint ventures are recorded using the equity method of accounting.
 
Partners’ Distributions and Allocations of Profit and Loss
 
Cash available for distribution and allocations of profit and loss to the Operating 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 Operating Partnership on a quarterly basis.
 
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. Deferred lease acquisition costs are included in prepaid expenses and other assets, net, in the balance sheets presented in Note 5.
 
2.    DEFERRED PROJECT COSTS
 
The Company paid a percentage of shareholder contributions to the Advisor for acquisition and advisory services and acquisition expenses. These payments, as stipulated in the prospectus, can be up to 3.5% of shareholder contributions, subject to certain overall limitations contained in the prospectus. Aggregate fees paid through December 31, 2001 were $29,122,286 and amounted to 3.5% of shareholders’ 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 or real estate assets. Deferred project costs at December 31, 2001 and 2000 represent fees not yet applied to properties.
 
3.    DEFERRED OFFERING COSTS
 
Offering expenses, to the extent they exceed 3% of gross offering proceeds, will be paid by the Advisor and not by the Company. Offering expenses include such costs as legal and accounting fees, printing costs, and other offering expenses and specifically exclude sales costs and underwriting commissions.
 
As of December 31, 2001, the Advisor paid offering expenses on behalf of the Company in the aggregate amount of $20,459,289, of which the Advisor had been reimbursed $18,551,241, which did not exceed the 3% limitation.
 
4.    RELATED-PARTY TRANSACTIONS
 
Due from affiliates at December 31, 2001 and 2000 represents the Operating Partnership’s share of the cash to be distributed from its joint venture investments for the fourth quarter of 2001 and 2000 and advances due from the Advisor as of December 31, 2000:
 
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 	  	2001

	  	2000

	
Fund VIII, IX, and REIT Joint Venture	  	$	46,875	  	$	21,605	
Fund IX, X, XI, and REIT Joint Venture	  	 	36,073	  	 	12,781	
Wells/Orange County Associates	  	 	83,847	  	 	24,583	
Wells/Fremont Associates	  	 	164,196	  	 	53,974	
Fund XI, XII, and REIT Joint Venture	  	 	429,980	  	 	136,648	
Fund XII and REIT Joint Venture	  	 	680,542	  	 	49,094	
Fund XIII and REIT	  	 	251,214	  	 	0	
Advisor	  	 	0	  	 	10,995	

	

	  	

	

	
 	  	$	1,692,727	  	$	309,680	

	

	  	

	

	

The Operating Partnership entered into a property management and leasing agreement with Wells Management Company, Inc. (“Wells Management”), an affiliate of the Advisor. In consideration for supervising the management and leasing of the Operating Partnership’s properties, the Operating Partnership will pay management and leasing fees equal to the lesser of (a) 4.5% of the gross revenues generally paid over the life of the lease or (b) .6% of the net asset value of the properties (excluding vacant properties) owned by the Company to Wells Management. These management and leasing fees are calculated on an annual basis plus a separate competitive fee for the one-time initial lease-up of newly constructed properties generally paid in conjunction with the receipt of the first month’s rent.
 
The Operating Partnership’s portion of the management and leasing fees and lease acquisition costs paid to Wells Management, both directly and at the joint venture level, were $2,468,294, $1,111,748, and $336,517 for the years ended December 31, 2001, 2000, and 1999, respectively.
 
The Advisor performs certain administrative services for the Operating Partnership, such as accounting and other partnership administration, and incurs the related expenses. Such expenses are allocated among the Operating Partnership and 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 basis for allocating such expenses.
 
The Advisor is a general partner in various Wells Real Estate Funds. As such, there may exist conflicts of interest where the Advisor, while serving in the capacity as general partner for Wells Real Estate Funds, may be in competition with the Operating Partnership for tenants in similar geographic markets.
 
5.    INVESTMENT IN JOINT VENTURES
 
The Operating Partnership’s investment and percentage ownership in joint ventures at December 31, 2001 and 2000 are summarized as follows:
 
 	  	2001

	 	 	2000

	 	
 	  	Amount

	  	Percent

	 	 	Amount

	  	Percent

	 	
Fund VIII, IX, and REIT Joint Venture	  	$	1,189,067	  	16	%	 	$	1,276,551	  	16	%	
Fund IX, X, XI, and REIT Joint Venture	  	 	1,290,360	  	4	 	 	 	1,339,636	  	4	 	
Wells/Orange County Associates	  	 	2,740,000	  	44	 	 	 	2,827,607	  	44	 	
Wells/Fremont Associates	  	 	6,575,358	  	78	 	 	 	6,791,287	  	78	 	
Fund XI, XII, and REIT Joint Venture	  	 	17,187,985	  	57	 	 	 	17,688,615	  	57	 	
Fund XII and REIT Joint Venture	  	 	30,299,872	  	55	 	 	 	14,312,901	  	47	 	
Fund XIII and REIT Joint Venture	  	 	18,127,338	  	68	 	 	 	0	  	0	 	

	

	  	 	 	 	

	

	  	 	 	
 	  	$	77,409,980	  	 	 	 	$	44,236,597	  	 	 	

	

	  	 	 	 	

	

	  	 	 	
 
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The following is a roll forward of the Operating Partnership’s investment in joint ventures for the years ended December 31, 2001 and 2000:
 
 	  	2001

	 	 	2000

	 	
Investment in joint ventures, beginning of year	  	$	44,236,597	 	 	$	29,431,176	 	
Equity in income of joint ventures	  	 	3,720,959	 	 	 	2,293,873	 	
Contributions to joint ventures	  	 	35,085,897	 	 	 	15,691,281	 	
Distributions from joint ventures	  	 	(5,633,473	)	 	 	(3,179,733	)	

	

	

	 	

	

	

	
Investment in joint ventures, end of year	  	$	77,409,980	 	 	$	44,236,597	 	

	

	

	 	

	

	

	
 
Fund VIII, IX, and REIT Joint Venture
 
On June 15, 2000, Fund VIII and IX Associates, a joint venture between Wells Real Estate Fund VIII, L.P. (“Fund VIII”) and Wells Real Estate Fund IX, L.P. (“Fund IX”), entered into a joint venture with the Operating Partnership to form Fund VIII, IX, and REIT Joint Venture, for the purpose of acquiring, developing, operating, and selling real properties.
 
On July 1, 2000, Fund VIII and IX Associates contributed the Quest Building (formerly the Bake Parkway Building) to the joint venture. Fund VIII, IX, and REIT Joint Venture recorded the net assets of the Quest Building at an amount equal to the respective historical net book values. The Quest Building is a two-story office building containing approximately 65,006 rentable square feet on a 4.4-acre tract of land in Irvine, California. During 2000, the Operating Partnership contributed $1,282,111 to the Fund VIII, IX, and REIT Joint Venture. Ownership percentage interests were recomputed accordingly.
 
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Following are the financial statements for Fund VIII, IX, and REIT Joint Venture:
 
Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
 
Balance Sheets
December 31, 2001 and 2000
 
 	  	2001

	  	2000

	
Assets	
Real estate assets, at cost:	  	 	 	  	 	 	
Land	  	$	2,220,993	  	$	2,220,993	
Building and improvements, less accumulated depreciation of $649,436 in 2001 and $187,891 in 2000	  	 	4,952,724	  	 	5,408,892	

	

	  	

	

	
Total real estate assets	  	 	7,173,717	  	 	7,629,885	
Cash and cash equivalents	  	 	297,533	  	 	170,664	
Accounts receivable	  	 	164,835	  	 	197,802	
Prepaid expenses and other assets, net	  	 	191,799	  	 	283,864	

	

	  	

	

	
Total assets	  	$	7,827,884	  	$	8,282,215	

	

	  	

	

	
 	
Liabilities and Partners’ Capital	
Liabilities:	  	 	 	  	 	 	
Accounts payable	  	$	676	  	$	0	
Partership distributions payable	  	 	296,856	  	 	170,664	

	

	  	

	

	
Total liabilities	  	 	297,532	  	 	170,664	

	

	  	

	

	
Partners’ capital:	  	 	 	  	 	 	
Fund VIII and IX Associates	  	 	6,341,285	  	 	6,835,000	
Wells Operating Partnership, L.P.	  	 	1,189,067	  	 	1,276,551	

	

	  	

	

	
Total partners’ capital	  	 	7,530,352	  	 	8,111,551	

	

	  	

	

	
Total liabilities and partners’ capital	  	$	7,827,884	  	$	8,282,215	

	

	  	

	

	
 
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Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Income
for the Year Ended December 31, 2001 and
the Period from June 15, 2000 (Inception) Through
December 31, 2000
 
 	  	2001

	  	2000

	
Revenues:	  	 	 	  	 	 	
Rental income	  	$	1,207,995	  	$	563,049	
Interest income	  	 	729	  	 	0	

	

	  	

	

	
 	  	 	1,208,724	  	 	563,049	

	

	  	

	

	
Expenses:	  	 	 	  	 	 	
Depreciation	  	 	461,545	  	 	187,891	
Management and leasing fees	  	 	142,735	  	 	54,395	
Property administration expenses	  	 	22,278	  	 	5,692	
Operating costs, net of reimbursements	  	 	15,326	  	 	5,178	

	

	  	

	

	
 	  	 	641,884	  	 	253,156	

	

	  	

	

	
Net income	  	$	566,840	  	$	309,893	

	

	  	

	

	
 	 	 	
Net income allocated to Fund VIII and IX Associates	  	$	477,061	  	$	285,006	

	

	  	

	

	
 	 	 	
Net income allocated to Wells Operating Partnership, L.P.	  	$	89,779	  	$	24,887	

	

	  	

	

	
 
Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Partners’ Capital
for the Year Ended December 31, 2001 and
the Period from June 15, 2000 (Inception) Through
December 31, 2000
 
 	  	Fund VIII
and IX
Associates

	 	 	Wells Operating
Partnership, L.P.

	 	 	Total
Partners’
Capital

	 	
Balance, June 15, 2000 (inception)	  	$	0	 	 	$	0	 	 	$	0	 	
Net income	  	 	285,006	 	 	 	24,887	 	 	 	309,893	 	
Partnership contributions	  	 	6,857,889	 	 	 	1,282,111	 	 	 	8,140,000	 	
Partnership distributions	  	 	(307,895	)	 	 	(30,447	)	 	 	(338,342	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2000	  	 	6,835,000	 	 	 	1,276,551	 	 	 	8,111,551	 	
Net income	  	 	477,061	 	 	 	89,779	 	 	 	566,840	 	
Partnership contributions	  	 	0	 	 	 	5,377	 	 	 	5,377	 	
Partnership distributions	  	 	(970,776	)	 	 	(182,640	)	 	 	(1,153,416	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2001	  	$	6,341,285	 	 	$	1,189,067	 	 	$	7,530,352	 	

	

	

	 	

	

	

	 	

	

	

	
 
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Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Cash Flows
for the Year Ended December 31, 2001 and
the Period from June 15, 2000 (Inception) Through
December 31, 2000
 
 	  	2001

	 	 	2000

	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	
Net income	  	$	566,840	 	 	$	309,893	 	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Depreciation	  	 	461,545	 	 	 	187,891	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	
Accounts receivable	  	 	32,967	 	 	 	(197,802	)	
Prepaid expenses and other assets, net	  	 	92,065	 	 	 	(283,864	)	
Accounts payable	  	 	676	 	 	 	0	 	

	

	

	 	

	

	

	
Total adjustments	  	 	587,253	 	 	 	(293,775	)	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	1,154,093	 	 	 	16,118	 	

	

	

	 	

	

	

	
Cash flows from investing activities:	  	 	 	 	 	 	 	 	
Investment in real estate	  	 	(5,377	)	 	 	(959,887	)	

	

	

	 	

	

	

	
Cash flows from financing activities:	  	 	 	 	 	 	 	 	
Contributions from joint venture partners	  	 	5,377	 	 	 	1,282,111	 	
Distributions to joint venture partners	  	 	(1,027,224	)	 	 	(167,678	)	

	

	

	 	

	

	

	
Net cash (used in) provided by financing activities	  	 	(1,021,847	)	 	 	1,114,433	 	

	

	

	 	

	

	

	
Net increase in cash and cash equivalents	  	 	126,869	 	 	 	170,664	 	
Cash and cash equivalents, beginning of period	  	 	170,664	 	 	 	0	 	

	

	

	 	

	

	

	
Cash and cash equivalents, end of year	  	$	297,533	 	 	$	170,664	 	

	

	

	 	

	

	

	
Supplemental disclosure of noncash activities:	  	 	 	 	 	 	 	 	
Real estate contribution received from joint venture partner	  	$	0	 	 	$	6,857,889	 	

	

	

	 	

	

	

	
 
Fund IX, X, XI, and REIT Joint Venture
 
On March 20, 1997, Fund IX and Wells Real Estate Fund X, L.P. (“Fund X”) entered into a joint venture agreement. The joint venture, Fund IX and X Associates, was formed to acquire, develop, operate, and sell real properties. On March 20, 1997, Wells Fund IX contributed a 5.62-acre tract of real property in Knoxville, Tennessee, and improvements thereon, known as the Alstom Power Building, to the Fund IX and X Associates joint venture. An 84,404-square foot, three-story building was constructed and commenced operations at the end of 1997.
 
        On February 13, 1998, the joint venture purchased a two-story office building, known as the Ohmeda Building, in Louisville, Colorado. On March 20, 1998, the joint venture purchased a three-story office building, known as the 360 Interlocken Building, in Broomfield, Colorado. On June 11, 1998, Fund IX and X Associates was amended and restated to admit Wells Real Estate Fund XI, L.P. (“Fund XI”) and the Operating Partnership. The joint venture was renamed the Fund IX, X, XI, and REIT Joint Venture. On June 24, 1998, the new joint venture purchased a one-story office building, known as the Avaya Building, in Oklahoma City, Oklahoma. On April 1, 1998, Wells Fund X purchased a one-story warehouse facility, known as the Iomega Building, in Ogden, Utah. On July 1, 1998, Wells Fund X contributed the Iomega Building to the Fund IX, X, XI, and REIT Joint Venture.
 
During 1999, Fund IX and Fund XI made contributions to the Fund IX, X, XI, and REIT Joint Venture; during 2000, Fund IX and Fund X made contributions to the Fund IX, X, XI, and REIT Joint Venture.
 
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Table of Contents
Following are the financial statements for the Fund IX, X, XI, and REIT Joint Venture:
 
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
 
Balance Sheets
December 31, 2001 and 2000

 	  	2001

	  	2000

	
Assets	
Real estate assets, at cost:	  	 	 	  	 	 	
Land	  	$	6,698,020	  	$	6,698,020	
Building and improvements, less accumulated depreciation of $5,619,744 in 2001 and $4,203,502 in 2000	  	 	27,178,526	  	 	28,594,768	

	

	  	

	

	
Total real estate assets, net	  	 	33,876,546	  	 	35,292,788	
Cash and cash equivalents	  	 	1,555,917	  	 	1,500,044	
Accounts receivable	  	 	596,050	  	 	422,243	
Prepaid expenses and other assets, net	  	 	439,002	  	 	487,276	

	

	  	

	

	
Total assets	  	$	36,467,515	  	$	37,702,351	

	

	  	

	

	
 	
Liabilities and Partners’ Capital	
Liabilities:	  	 	 	  	 	 	
Accounts payable and accrued liabilities	  	$	620,907	  	$	568,517	
Refundable security deposits	  	 	100,336	  	 	99,279	
Due to affiliates	  	 	13,238	  	 	9,595	
Partnership distributions payable	  	 	966,912	  	 	931,151	

	

	  	

	

	
Total liabilities	  	 	1,701,393	  	 	1,608,542	

	

	  	

	

	
Partners’ capital:	  	 	 	  	 	 	
Wells Real Estate Fund IX	  	 	13,598,505	  	 	14,117,803	
Wells Real Estate Fund X	  	 	16,803,586	  	 	17,445,277	
Wells Real Estate Fund XI	  	 	3,073,671	  	 	3,191,093	
Wells Operating Partnership, L.P.	  	 	1,290,360	  	 	1,339,636	

	

	  	

	

	
Total partners’ capital	  	 	34,766,122	  	 	36,093,809	

	

	  	

	

	
Total liabilities and partners’ capital	  	$	36,467,515	  	$	37,702,351	

	

	  	

	

	
 
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Table of Contents
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	2001

	 	 	2000

	 	 	1999

	 	
Revenues:	  	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	4,174,379	 	 	$	4,198,388	 	 	$	3,932,962	 	
Other income	  	 	119,828	 	 	 	116,129	 	 	 	61,312	 	
Interest income	  	 	50,002	 	 	 	73,676	 	 	 	58,768	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	 	4,344,209	 	 	 	4,388,193	 	 	 	4,053,042	 	

	

	

	 	

	

	

	 	

	

	

	
Expenses:	  	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	1,416,242	 	 	 	1,411,434	 	 	 	1,538,912	 	
Management and leasing fees	  	 	357,761	 	 	 	362,774	 	 	 	286,139	 	
Operating costs, net of reimbursements	  	 	(232,601	)	 	 	(133,505	)	 	 	(34,684	)	
Property administration expense	  	 	91,747	 	 	 	57,924	 	 	 	59,886	 	
Legal and accounting	  	 	26,223	 	 	 	20,423	 	 	 	30,545	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	 	1,659,372	 	 	 	1,719,050	 	 	 	1,880,798	 	

	

	

	 	

	

	

	 	

	

	

	
Net income	  	$	2,684,837	 	 	$	2,669,143	 	 	$	2,172,244	 	

	

	

	 	

	

	

	 	

	

	

	
Net income allocated to Wells Real Estate Fund IX	  	$	1,050,156	 	 	$	1,045,094	 	 	$	850,072	 	

	

	

	 	

	

	

	 	

	

	

	
Net income allocated to Wells Real Estate Fund X	  	$	1,297,665	 	 	$	1,288,629	 	 	$	1,056,316	 	

	

	

	 	

	

	

	 	

	

	

	
Net income allocated to Wells Real Estate Fund XI	  	$	237,367	 	 	$	236,243	 	 	$	184,355	 	

	

	

	 	

	

	

	 	

	

	

	
Net income allocated to Wells Operating Partnership, L.P.	  	$	99,649	 	 	$	99,177	 	 	$	81,501	 	

	

	

	 	

	

	

	 	

	

	

	

The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Partners’ Capital
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	Wells Real
Estate Fund
IX

	 	 	Wells Real
Estate Fund X

	 	 	Wells Real
Estate Fund
XI

	 	 	Wells
Operating
Partnership,
L.P.

	 	 	Total
Partners’
Capital

	 	
Balance, December 31, 1998	  	$	14,960,100	 	 	$	18,707,139	 	 	$	2,521,003	 	 	$	1,443,378	 	 	$	37,631,620	 	
Net income	  	 	850,072	 	 	 	1,056,316	 	 	 	184,355	 	 	 	81,501	 	 	 	2,172,244	 	
Partnership contributions	  	 	198,989	 	 	 	0	 	 	 	911,027	 	 	 	0	 	 	 	1,110,016	 	
Partnership distributions	  	 	(1,418,535	)	 	 	(1,762,586	)	 	 	(307,982	)	 	 	(135,995	)	 	 	(3,625,098	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 1999	  	 	14,590,626	 	 	 	18,000,869	 	 	 	3,308,403	 	 	 	1,388,884	 	 	 	37,288,782	 	
Net income	  	 	1,045,094	 	 	 	1,288,629	 	 	 	236,243	 	 	 	99,177	 	 	 	2,669,143	 	
Partnership contributions	  	 	46,122	 	 	 	84,317	 	 	 	0	 	 	 	0	 	 	 	130,439	 	
Partnership distributions	  	 	(1,564,039	)	 	 	(1,928,538	)	 	 	(353,553	)	 	 	(148,425	)	 	 	(3,994,555	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2000	  	 	14,117,803	 	 	 	17,445,277	 	 	 	3,191,093	 	 	 	1,339,636	 	 	 	36,093,809	 	
Net income	  	 	1,050,156	 	 	 	1,297,665	 	 	 	237,367	 	 	 	99,649	 	 	 	2,684,837	 	
Partnership distributions	  	 	(1,569,454	)	 	 	(1,939,356	)	 	 	(354,789	)	 	 	(148,925	)	 	 	(4,012,524	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2001	  	$	13,598,505	 	 	$	16,803,586	 	 	$	3,073,671	 	 	$	1,290,360	 	 	$	34,766,122	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 
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The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	2001

	 	 	2000

	 	 	1999

	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	2,684,837	 	 	$	2,669,143	 	 	$	2,172,244	 	

	

	

	 	

	

	

	 	

	

	

	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	1,416,242	 	 	 	1,411,434	 	 	 	1,538,912	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	 	 	 	 	
Accounts receivable	  	 	(173,807	)	 	 	132,722	 	 	 	(421,708	)	
Prepaid expenses and other assets, net	  	 	48,274	 	 	 	39,133	 	 	 	(85,281	)	
Accounts payable and accrued liabilities, and refundable security deposits	  	 	53,447	 	 	 	(37,118	)	 	 	295,177	 	
Due to affiliates	  	 	3,643	 	 	 	3,216	 	 	 	1,973	 	

	

	

	 	

	

	

	 	

	

	

	
Total adjustments	  	 	1,347,799	 	 	 	1,549,387	 	 	 	1,329,073	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	4,032,636	 	 	 	4,218,530	 	 	 	3,501,317	 	

	

	

	 	

	

	

	 	

	

	

	
Cash flows from investing activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Investment in real estate	  	 	0	 	 	 	(127,661	)	 	 	(930,401	)	

	

	

	 	

	

	

	 	

	

	

	
Cash flows from financing activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Distributions to joint venture partners	  	 	(3,976,763	)	 	 	(3,868,138	)	 	 	(3,820,491	)	
Contributions received from partners	  	 	0	 	 	 	130,439	 	 	 	1,066,992	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash used in financing activities	  	 	(3,976,763	)	 	 	(3,737,699	)	 	 	(2,753,499	)	

	

	

	 	

	

	

	 	

	

	

	
Net increase (decrease) in cash and cash equivalents	  	 	55,873	 	 	 	353,170	 	 	 	(182,583	)	
Cash and cash equivalents, beginning of year	  	 	1,500,044	 	 	 	1,146,874	 	 	 	1,329,457	 	

	

	

	 	

	

	

	 	

	

	

	
Cash and cash equivalents, end of year	  	$	1,555,917	 	 	$	1,500,044	 	 	$	1,146,874	 	

	

	

	 	

	

	

	 	

	

	

	
Supplemental disclosure of noncash activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Deferred project costs contributed to joint venture	  	$	0	 	 	$	0	 	 	$	43,024	 	

	

	

	 	

	

	

	 	

	

	

	
 
Wells/Orange County Associates
 
On July 27, 1998, the Operating Partnership entered into a joint venture agreement with Wells Development Corporation, referred to as Wells/Orange County Associates. On July 31, 1998, Wells/Orange County Associates acquired a 52,000-square foot warehouse and office building located in Fountain Valley, California, known as the Cort Furniture Building.
 
On September 1, 1998, Fund X and XI Associates acquired Wells Development Corporation’s interest in Wells/Orange County Associates, which resulted in Fund X and XI Associates becoming a joint venture partner with the Operating Partnership in the ownership of the Cort Furniture Building.
 
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Table of Contents
Following are the financial statements for Wells/Orange County Associates:
 
Wells/Orange County Associates
(A Georgia Joint Venture)
 
Balance Sheets
December 31, 2001 and 2000
 
Assets
 	  	2001

	  	2000

	
Real estate assets, at cost:	  	 	 	  	 	 	
Land	  	$	2,187,501	  	$	2,187,501	
Building, less accumulated depreciation of $651,780 in 2001 and $465,216
in 2000	  	 	4,012,335	  	 	4,198,899	

	

	  	

	

	
Total real estate assets	  	 	6,199,836	  	 	6,386,400	
Cash and cash equivalents	  	 	188,407	  	 	119,038	
Accounts receivable	  	 	80,803	  	 	99,154	
Prepaid expenses and other assets	  	 	9,426	  	 	0	

	

	  	

	

	
Total assets	  	$	6,478,472	  	$	6,604,592	

	

	  	

	

	
 
Liabilities and Partners’ Capital
Liabilities:	  	 	 	  	 	 	
Accounts payable	  	$	11,792	  	$	1,000	
Partnership distributions payable	  	 	192,042	  	 	128,227	

	

	  	

	

	
Total liabilities	  	 	203,834	  	 	129,227	

	

	  	

	

	
Partners’ capital:	  	 	 	  	 	 	
Wells Operating Partnership, L.P.	  	 	2,740,000	  	 	2,827,607	
Fund X and XI Associates	  	 	3,534,638	  	 	3,647,758	

	

	  	

	

	
Total partners’ capital	  	 	6,274,638	  	 	6,475,365	

	

	  	

	

	
Total liabilities and partners’ capital	  	$	6,478,472	  	$	6,604,592	

	

	  	

	

	
 
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Wells/Orange County Associates
(A Georgia Joint Venture)
 
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	2001

	  	2000

	  	1999

	
Revenues:	  	 	 	  	 	 	  	 	 	
Rental income	  	$	795,528	  	$	795,545	  	$	795,545	
Interest income	  	 	2,409	  	 	0	  	 	0	

	

	  	

	

	  	

	

	
 	  	 	797,937	  	 	795,545	  	 	795,545	

	

	  	

	

	  	

	

	
Expenses:	  	 	 	  	 	 	  	 	 	
Depreciation	  	 	186,564	  	 	186,564	  	 	186,565	
Management and leasing fees	  	 	33,547	  	 	30,915	  	 	30,360	
Operating costs, net of reimbursements	  	 	21,855	  	 	5,005	  	 	22,229	
Legal and accounting	  	 	9,800	  	 	4,100	  	 	5,439	

	

	  	

	

	  	

	

	
 	  	 	251,766	  	 	226,584	  	 	244,593	

	

	  	

	

	  	

	

	
Net income	  	$	546,171	  	$	568,961	  	$	550,952	

	

	  	

	

	  	

	

	
Net income allocated to Wells Operating Partnership, L.P.	  	$	238,542	  	$	248,449	  	$	240,585	

	

	  	

	

	  	

	

	
Net income allocated to Fund X and XI Associates	  	$	307,629	  	$	320,512	  	$	310,367	

	

	  	

	

	  	

	

	
 
Wells/Orange County Associates
(A Georgia Joint Venture)
 
Statements of Partners’ Capital
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	Wells
Operating
Partnership,
L.P.

	 	 	Fund X and
XI
Associates

	 	 	Total
Partners’
Capital

	 	
Balance, December 31, 1998	  	$	2,958,617	 	 	$	3,816,766	 	 	$	6,775,383	 	
Net income	  	 	240,585	 	 	 	310,367	 	 	 	550,952	 	
Partnership distributions	  	 	(306,090	)	 	 	(394,871	)	 	 	(700,961	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 1999	  	 	2,893,112	 	 	 	3,732,262	 	 	 	6,625,374	 	
Net income	  	 	248,449	 	 	 	320,512	 	 	 	568,961	 	
Partnership distributions	  	 	(313,954	)	 	 	(405,016	)	 	 	(718,970	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2000	  	 	2,827,607	 	 	 	3,647,758	 	 	 	6,475,365	 	
Net income	  	 	238,542	 	 	 	307,629	 	 	 	546,171	 	
Partnership distributions	  	 	(326,149	)	 	 	(420,749	)	 	 	(746,898	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2001	  	$	2,740,000	 	 	$	3,534,638	 	 	$	6,274,638	 	

	

	

	 	

	

	

	 	

	

	

	

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Table of Contents
Wells/Orange County Associates
(A Georgia Joint Venture)
 
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	2001

	 	 	2000

	 	 	1999

	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	546,171	 	 	$	568,961	 	 	$	550,952	 	

	

	

	 	

	

	

	 	

	

	

	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	186,564	 	 	 	186,564	 	 	 	186,565	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	 	 	 	 	
Accounts receivable	  	 	18,351	 	 	 	(49,475	)	 	 	(36,556	)	
Accounts payable	  	 	10,792	 	 	 	1,000	 	 	 	(1,550	)	
Prepaid and other expenses	  	 	(9,426	)	 	 	0	 	 	 	0	 	

	

	

	 	

	

	

	 	

	

	

	
Total adjustments	  	 	206,281	 	 	 	138,089	 	 	 	148,459	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	752,452	 	 	 	707,050	 	 	 	699,411	 	
Cash flows from financing activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Distributions to partners	  	 	(683,083	)	 	 	(764,678	)	 	 	(703,640	)	

	

	

	 	

	

	

	 	

	

	

	
Net increase (decrease) in cash and cash equivalents	  	 	69,369	 	 	 	(57,628	)	 	 	(4,229	)	
Cash and cash equivalents, beginning of year	  	 	119,038	 	 	 	176,666	 	 	 	180,895	 	

	

	

	 	

	

	

	 	

	

	

	
Cash and cash equivalents, end of year	  	$	188,407	 	 	$	119,038	 	 	$	176,666	 	

	

	

	 	

	

	

	 	

	

	

	
 
Wells/Fremont Associates
 
On July 15, 1998, the Operating Partnership entered into a joint venture agreement with Wells Development Corporation, referred to as Wells/Fremont Associates. On July 21, 1998, Wells/Fremont Associates acquired a 58,424-square foot two-story manufacturing and office building located in Fremont, California, known as the Fairchild Building.
 
On October 8, 1998, Fund X and XI Associates acquired Wells Development Corporation’s interest in Wells/Fremont Associates, which resulted in Fund X and XI Associates becoming a joint venture partner with the Operating Partnership in the ownership of the Fairchild Building.
 
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Table of Contents
Following are the financial statements for Wells/Fremont Associates:
 
Wells/Fremont Associates
(A Georgia Joint Venture)
 
Balance Sheets
December 31, 2001 and 2000
 
Assets
 
 	  	2001

	  	2000

	
Real estate assets, at cost:	  	 	 	  	 	 	
Land	  	$	2,219,251	  	$	2,219,251	
Building, less accumulated depreciation of $999,301 in 2001 and $713,773 in 2000	  	 	6,138,857	  	 	6,424,385	

	

	  	

	

	
Total real estate assets	  	 	8,358,108	  	 	8,643,636	
Cash and cash equivalents	  	 	203,750	  	 	92,564	
Accounts receivable	  	 	133,801	  	 	126,433	

	

	  	

	

	
Total assets	  	$	8,695,659	  	$	8,862,633	

	

	  	

	

	
 
Liabilities and Partners’ Capital
 
Liabilities:	  	 	 	  	 	 	
Accounts payable	  	$	1,896	  	$	3,016	
Due to affiliate	  	 	8,030	  	 	7,586	
Partnership distributions payable	  	 	201,854	  	 	89,549	

	

	  	

	

	
Total liabilities	  	 	211,780	  	 	100,151	

	

	  	

	

	
Partners’ capital:	  	 	 	  	 	 	
Wells Operating Partnership, L.P.	  	 	6,575,358	  	 	6,791,287	
Fund X and XI Associates	  	 	1,908,521	  	 	1,971,195	

	

	  	

	

	
Total partners’ capital	  	 	8,483,879	  	 	8,762,482	

	

	  	

	

	
Total liabilities and partners’ capital	  	$	8,695,659	  	$	8,862,633	

	

	  	

	

	

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Table of Contents
Wells/Fremont Associates
(A Georgia Joint Venture)
 
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	2001

	  	2000

	  	1999

	
Revenues:	  	 	 	  	 	 	  	 	 	
Rental income	  	$	902,945	  	$	902,946	  	$	902,946	
Interest income	  	 	2,713	  	 	0	  	 	0	
Other income	  	 	2,015	  	 	0	  	 	0	

	

	  	

	

	  	

	

	
 	  	 	907,673	  	 	902,946	  	 	902,946	

	

	  	

	

	  	

	

	
Expenses:	  	 	 	  	 	 	  	 	 	
Depreciation	  	 	285,528	  	 	285,527	  	 	285,526	
Management and leasing fees	  	 	36,267	  	 	36,787	  	 	37,355	
Operating costs, net of reimbursements	  	 	16,585	  	 	13,199	  	 	16,006	
Legal and accounting	  	 	6,400	  	 	4,300	  	 	4,885	

	

	  	

	

	  	

	

	
 	  	 	344,780	  	 	339,813	  	 	343,772	

	

	  	

	

	  	

	

	
Net income	  	$	562,893	  	$	563,133	  	$	559,174	

	

	  	

	

	  	

	

	
Net income allocated to Wells Operating Partnership, L.P.	  	$	436,265	  	$	436,452	  	$	433,383	

	

	  	

	

	  	

	

	
Net income allocated to Fund X and XI Associates	  	$	126,628	  	$	126,681	  	$	125,791	

	

	  	

	

	  	

	

	
 
Wells/Fremont Associates
(A Georgia Joint Venture)
 
Statements of Partners’ Capital
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	Wells
Operating
Partnership,
L.P.

	 	 	Fund X and
XI
Associates

	 	 	Total
Partners’
Capital

	 	
Balance, December 31, 1998	  	$	7,166,682	 	 	$	2,080,155	 	 	$	9,246,837	 	
Net income	  	 	433,383	 	 	 	125,791	 	 	 	559,174	 	
Partnership distributions	  	 	(611,855	)	 	 	(177,593	)	 	 	(789,448	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 1999	  	 	6,988,210	 	 	 	2,028,353	 	 	 	9,016,563	 	
Net income	  	 	436,452	 	 	 	126,681	 	 	 	563,133	 	
Partnership distributions	  	 	(633,375	)	 	 	(183,839	)	 	 	(817,214	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2000	  	 	6,791,287	 	 	 	1,971,195	 	 	 	8,762,482	 	
Net income	  	 	436,265	 	 	 	126,628	 	 	 	562,893	 	
Partnership distributions	  	 	(652,194	)	 	 	(189,302	)	 	 	(841,496	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2001	  	$	6,575,358	 	 	$	1,908,521	 	 	$	8,483,879	 	

	

	

	 	

	

	

	 	

	

	

	

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Table of Contents
Wells/Fremont Associates
(A Georgia Joint Venture)
 
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	2001

	 	 	2000

	 	 	1999

	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	562,893	 	 	$	563,133	 	 	$	559,174	 	

	

	

	 	

	

	

	 	

	

	

	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	285,528	 	 	 	285,527	 	 	 	285,526	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	 	 	 	 	
Accounts receivable	  	 	(7,368	)	 	 	(33,454	)	 	 	(58,237	)	
Accounts payable	  	 	(1,120	)	 	 	1,001	 	 	 	(1,550	)	
Due to affiliate	  	 	444	 	 	 	2,007	 	 	 	3,527	 	

	

	

	 	

	

	

	 	

	

	

	
Total adjustments	  	 	277,484	 	 	 	255,081	 	 	 	229,266	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	840,377	 	 	 	818,214	 	 	 	788,440	 	
Cash flows from financing activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Distributions to partners	  	 	(729,191	)	 	 	(914,662	)	 	 	(791,940	)	

	

	

	 	

	

	

	 	

	

	

	
Net increase (decrease) in cash and cash equivalents	  	 	111,186	 	 	 	(96,448	)	 	 	(3,500	)	
Cash and cash equivalents, beginning of year	  	 	92,564	 	 	 	189,012	 	 	 	192,512	 	

	

	

	 	

	

	

	 	

	

	

	
Cash and cash equivalents, end of year	  	$	203,750	 	 	$	92,564	 	 	$	189,012	 	

	

	

	 	

	

	

	 	

	

	

	
 
Fund XI, XII, and REIT Joint Venture
 
On May 1, 1999, the Operating Partnership entered into a joint venture with Fund XI and Wells Real Estate Fund XII, L.P. (“Fund XII”). On May 18, 1999, the joint venture purchased a 169,510-square foot, two-story manufacturing and office building, known as EYBL CarTex Building, in Fountain Inn, South Carolina. On July 21, 1999, the joint venture purchased a 68,900-square foot, three-story-office building, known as the Sprint Building, in Leawood, Kansas. On August 17, 1999, the joint venture purchased a 130,000-square foot office and warehouse building, known as the Johnson Matthey Building, in Chester County, Pennsylvania. On September 20, 1999, the joint venture purchased a 62,400-square foot, two-story office building, known as the Gartner Building, in Fort Myers, Florida.
 
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Table of Contents
Following are the financial statements for the Fund XI, XII, and REIT Joint Venture:
 
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
 
Balance Sheets
December 31, 2001 and 2000

 	  	2001

	  	2000

	
Assets	  	 	 	  	 	 	
Real estate assets, at cost:	  	 	 	  	 	 	
Land	  	$	5,048,797	  	$	5,048,797	
Building and improvements, less accumulated depreciation of $2,692,116 in 2001 and $1,599,263 in 2000	  	 	24,626,336	  	 	25,719,189	

	

	  	

	

	
Total real estate assets	  	 	29,675,133	  	 	30,767,986	
Cash and cash equivalents	  	 	775,805	  	 	541,089	
Accounts receivable	  	 	675,022	  	 	394,314	
Prepaid assets and other expenses	  	 	26,486	  	 	26,486	

	

	  	

	

	
Total assets	  	$	31,152,446	  	$	31,729,875	

	

	  	

	

	

Liabilities and Partners’ Capital	  	 	 	  	 	 	
Liabilities:	  	 	 	  	 	 	
Accounts payable	  	$	114,612	  	$	114,180	
Partnership distributions payable	  	 	757,500	  	 	453,395	

	

	  	

	

	
Total liabilities	  	 	872,112	  	 	567,575	

	

	  	

	

	
Partners’ capital:	  	 	 	  	 	 	
Wells Real Estate Fund XI	  	 	7,917,646	  	 	8,148,261	
Wells Real Estate Fund XII	  	 	5,174,703	  	 	5,325,424	
Wells Operating Partnership, L.P.	  	 	17,187,985	  	 	17,688,615	

	

	  	

	

	
Total partners’ capital	  	 	30,280,334	  	 	31,162,300	

	

	  	

	

	
Total liabilities and partners’ capital	  	$	31,152,446	  	$	31,729,875	

	

	  	

	

	
 
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Table of Contents
 
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	2001

	 	 	2000

	 	 	1999

	
Revenues:	  	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	3,346,227	 	 	$	3,345,932	 	 	$	1,443,446	
Interest income	  	 	24,480	 	 	 	2,814	 	 	 	0	
Other income	  	 	360	 	 	 	440	 	 	 	57	

	

	

	 	

	

	

	 	

	

	
 	  	 	3,371,067	 	 	 	3,349,186	 	 	 	1,443,503	

	

	

	 	

	

	

	 	

	

	
Expenses:	  	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	1,092,853	 	 	 	1,092,680	 	 	 	506,582	
Management and leasing fees	  	 	156,987	 	 	 	157,236	 	 	 	59,230	
Operating costs, net of reimbursements	  	 	(27,449	)	 	 	(30,718	)	 	 	4,639	
Property administration	  	 	65,765	 	 	 	36,707	 	 	 	15,979	
Legal and accounting	  	 	18,000	 	 	 	14,725	 	 	 	4,000	

	

	

	 	

	

	

	 	

	

	
 	  	 	1,306,156	 	 	 	1,270,630	 	 	 	590,430	

	

	

	 	

	

	

	 	

	

	
Net income	  	$	2,064,911	 	 	$	2,078,556	 	 	$	853,073	

	

	

	 	

	

	

	 	

	

	
Net income allocated to Wells Real Estate Fund XI	  	$	539,930	 	 	$	543,497	 	 	$	240,031	

	

	

	 	

	

	

	 	

	

	
Net income allocated to Wells Real Estate Fund XII	  	$	352,878	 	 	$	355,211	 	 	$	124,542	

	

	

	 	

	

	

	 	

	

	
Net income allocated to Wells Operating Partnership, L.P.	  	$	1,172,103	 	 	$	1,179,848	 	 	$	488,500	

	

	

	 	

	

	

	 	

	

	
 
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Partners’ Capital
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	Wells Real
Estate
Fund XI

	 	 	Wells Real
Estate
Fund XII

	 	 	Wells
Operating
Partnership,
L.P.

	 	 	Total
Partners’
Capital

	 	
Balance, December 31, 1998	  	$	0	 	 	$	0	 	 	$	0	 	 	$	0	 	
Net income	  	 	240,031	 	 	 	124,542	 	 	 	488,500	 	 	 	853,073	 	
Partnership contributions	  	 	8,470,160	 	 	 	5,520,835	 	 	 	18,376,267	 	 	 	32,367,262	 	
Partnership distributions	  	 	(344,339	)	 	 	(177,743	)	 	 	(703,797	)	 	 	(1,225,879	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 1999	  	 	8,365,852	 	 	 	5,467,634	 	 	 	18,160,970	 	 	 	31,994,456	 	
Net income	  	 	543,497	 	 	 	355,211	 	 	 	1,179,848	 	 	 	2,078,556	 	
Partnership distributions	  	 	(761,088	)	 	 	(497,421	)	 	 	(1,652,203	)	 	 	(2,910,712	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2000	  	 	8,148,261	 	 	 	5,325,424	 	 	 	17,688,615	 	 	 	31,162,300	 	
Net income	  	 	539,930	 	 	 	352,878	 	 	 	1,172,103	 	 	 	2,064,911	 	
Partnership distributions	  	 	(770,545	)	 	 	(503,599	)	 	 	(1,672,733	)	 	 	(2,946,877	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2001	  	$	7,917,646	 	 	$	5,174,703	 	 	$	17,187,985	 	 	$	30,280,334	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	

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Table of Contents
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000, and 1999
 
 	  	2001

	 	 	2000

	 	 	1999

	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	2,064,911	 	 	$	2,078,556	 	 	$	853,073	 	

	

	

	 	

	

	

	 	

	

	

	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	1,092,853	 	 	 	1,092,680	 	 	 	506,582	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	 	 	 	 	
Accounts receivable	  	 	(280,708	)	 	 	(260,537	)	 	 	(133,777	)	
Prepaid expenses and other assets	  	 	0	 	 	 	0	 	 	 	(26,486	)	
Accounts payable	  	 	432	 	 	 	1,723	 	 	 	112,457	 	

	

	

	 	

	

	

	 	

	

	

	
Total adjustments	  	 	812,577	 	 	 	833,866	 	 	 	458,776	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	2,877,488	 	 	 	2,912,422	 	 	 	1,311,849	 	
Cash flows from financing activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Distributions to joint venture partners	  	 	(2,642,772	)	 	 	(3,137,611	)	 	 	(545,571	)	

	

	

	 	

	

	

	 	

	

	

	
Net increase (decrease) in cash and cash equivalents	  	 	234,716	 	 	 	(225,189	)	 	 	766,278	 	
Cash and cash equivalents, beginning of year	  	 	541,089	 	 	 	766,278	 	 	 	0	 	

	

	

	 	

	

	

	 	

	

	

	
Cash and cash equivalents, end of year	  	$	775,805	 	 	$	541,089	 	 	$	766,278	 	

	

	

	 	

	

	

	 	

	

	

	
Supplemental disclosure of noncash activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Deferred project costs contributed to joint venture	  	$	0	 	 	$	0	 	 	$	1,294,686	 	

	

	

	 	

	

	

	 	

	

	

	
Contribution of real estate assets to joint venture	  	$	0	 	 	$	0	 	 	$	31,072,562	 	

	

	

	 	

	

	

	 	

	

	

	

Fund XII and REIT Joint Venture
 
On May 10, 2000, the Operating Partnership entered into a joint venture with Fund XII. The joint venture, Fund XII and REIT Joint Venture, was formed to acquire, develop, operate, and sell real property. On May 20, 2000, the joint venture purchased a 77,054-square foot, three-story office building known as the Siemens Building in Troy, Oakland County, Michigan. On December 28, 2000, the joint venture purchased a 50,000-square foot, one-story office building and a 78,500-square foot two-story office building collectively known as the AT&T Call Center Buildings in Oklahoma City, Oklahoma County, Oklahoma. On May 15, 2001, the joint venture purchased a 201,237-square foot, three-story office building known as the Comdata Building located in Brentwood, Williamson County, Tennessee.
 
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Following are the financial statements for Fund XII and REIT Joint Venture:
 
Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
 
Balance Sheets
December 31, 2001 and 2000
 
 	  	2001

	  	2000

	
Assets	  	 	 	  	 	 	
Real estate assets, at cost:	  	 	 	  	 	 	
Land	  	$	8,899,574	  	$	4,420,405	
Building and improvements, less accumulated depreciation of $2,131,838 in 2001 and $324,732 in 2000	  	 	45,814,781	  	 	26,004,918	

	

	  	

	

	
Total real estate assets	  	 	54,714,355	  	 	30,425,323	
Cash and cash equivalents	  	 	1,345,562	  	 	207,475	
Accounts receivable	  	 	442,023	  	 	130,490	

	

	  	

	

	
Total assets	  	$	56,501,940	  	$	30,763,288	

	

	  	

	

	
 	 	 	
Liabilities and Partners’ Capital	  	 	 	  	 	 	
Liabilities:	  	 	 	  	 	 	
Accounts payable	  	$	134,969	  	$	0	
Partnership distributions payable	  	 	1,238,205	  	 	208,261	

	

	  	

	

	
Total liabilities	  	 	1,373,174	  	 	208,261	

	

	  	

	

	
Partners’ capital:	  	 	 	  	 	 	
Wells Real Estate Fund XII	  	 	24,828,894	  	 	16,242,127	
Wells Operating Partnership, L.P.	  	 	30,299,872	  	 	14,312,900	

	

	  	

	

	
Total partners’ capital	  	 	55,128,766	  	 	30,555,027	

	

	  	

	

	
Total liabilities and partners’ capital	  	$	56,501,940	  	$	30,763,288	

	

	  	

	

	
 
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Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Income
for the Year Ended December 31, 2001 and
the Period From May 10, 2000 (Inception) Through
December 31, 2000
 
 	  	2001

	  	2000

	
Revenues:	  	 	 	  	 	 	
Rental income	  	$	4,683,323	  	$	974,796	
Interest income	  	 	25,144	  	 	2,069	

	

	  	

	

	
 	  	 	4,708,467	  	 	976,865	

	

	  	

	

	
Expenses:	  	 	 	  	 	 	
Depreciation	  	 	1,807,106	  	 	324,732	
Management and leasing fees	  	 	224,033	  	 	32,756	
Partnership administration	  	 	38,928	  	 	3,917	
Legal and accounting	  	 	16,425	  	 	0	
Operating costs, net of reimbursements	  	 	10,453	  	 	1,210	

	

	  	

	

	
 	  	 	2,096,945	  	 	362,615	

	

	  	

	

	
Net income	  	$	2,611,522	  	$	614,250	

	

	  	

	

	
Net income allocated to Wells Real Estate Fund XII	  	$	1,224,645	  	$	309,190	

	

	  	

	

	
Net income allocated to Wells Operating Partnership, L.P.	  	$	1,386,877	  	$	305,060	

	

	  	

	

	
 
Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
 
Statements of Partners’ Capital
for the Year Ended December 31, 2001 and
the Period From May 10, 2000 (Inception) Through
December 31, 2000
 
 	  	Wells Real
Estate
Fund XII

	 	 	Wells
Operating
Partnership, L.P.

	 	 	Total
Partners’
Capital

	 	
Balance, May 10, 2000 (inception)	  	$	0	 	 	$	0	 	 	$	0	 	
Net income	  	 	309,190	 	 	 	305,060	 	 	 	614,250	 	
Partnership contributions	  	 	16,340,884	 	 	 	14,409,171	 	 	 	30,750,055	 	
Partnership distributions	  	 	(407,948	)	 	 	(401,330	)	 	 	(809,278	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2000	  	 	16,242,126	 	 	 	14,312,901	 	 	 	30,555,027	 	
Net income	  	 	1,224,645	 	 	 	1,386,877	 	 	 	2,611,522	 	
Partnership contributions	  	 	9,298,084	 	 	 	16,795,441	 	 	 	26,093,525	 	
Partnership distributions	  	 	(1,935,961	)	 	 	(2,195,347	)	 	 	(4,131,308	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2001	  	$	24,828,894	 	 	$	30,299,872	 	 	$	55,128,766	 	

	

	

	 	

	

	

	 	

	

	

	
 
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Fund XII and REIT Joint Venture
(A Georgia Joint Venture )
 
Statements of Cash Flows
for the Year Ended December 31, 2001 and
the Period From May 10, 2000 (Inception) Through
December 31, 2000
 
 	  	2001

	 	 	2000

	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	
Net income	  	$	2,611,522	 	 	$	614,250	 	

	

	

	 	

	

	

	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Depreciation	  	 	1,807,106	 	 	 	324,732	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	
Accounts receivable	  	 	(311,533	)	 	 	(130,490	)	
Accounts payable	  	 	134,969	 	 	 	0	 	

	

	

	 	

	

	

	
Total adjustments	  	 	1,630,542	 	 	 	194,242	 	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	4,242,064	 	 	 	808,492	 	

	

	

	 	

	

	

	
Cash flows from investing activities:	  	 	 	 	 	 	 	 	
Investment in real estate	  	 	(26,096,138	)	 	 	(29,520,043	)	

	

	

	 	

	

	

	
Cash flows from financing activities:	  	 	 	 	 	 	 	 	
Distributions to joint venture partners	  	 	(3,101,364	)	 	 	(601,017	)	
Contributions received from partners	  	 	26,093,525	 	 	 	29,520,043	 	

	

	

	 	

	

	

	
Net cash provided by financing activities	  	 	22,992,161	 	 	 	28,919,026	 	

	

	

	 	

	

	

	
Net increase in cash and cash equivalents	  	 	1,138,087	 	 	 	207,475	 	
Cash and cash equivalents, beginning of period	  	 	207,475	 	 	 	0	 	

	

	

	 	

	

	

	
Cash and cash equivalents, end of year	  	$	1,345,562	 	 	$	207,475	 	

	

	

	 	

	

	

	
Supplemental disclosure of noncash activities:	  	 	 	 	 	 	 	 	
Deferred project costs contributed to joint venture	  	$	0	 	 	$	1,230,012	 	

	

	

	 	

	

	

	
 
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Fund XIII and REIT Joint Venture
 
On June 27, 2001, Wells Real Estate Fund XIII, L.P. (“Fund XIII”) entered into a joint venture with the Operating Partnership to form the Fund XIII and REIT Joint Venture. On July 16, 2001, the Fund XIII and REIT Joint Venture purchased an 85,000-square foot, two-story office building known as the AmeriCredit Building in Clay County, Florida. On December 21, 2001, the Fund XIII and REIT Joint Venture purchased two connected one-story office and assembly buildings consisting of 148,200 square feet known as the ADIC Buildings in Douglas County, Colorado.
 
Following are the financial statements for the Fund XIII and REIT Joint Venture:
 
The Fund XIII and REIT Joint Venture
(A Georgia Joint Venture)
 
Balance Sheet
December 31, 2001
 
Assets	  	 	 	
Real estate assets, at cost:	  	 	 	
Land	  	$	3,724,819	
Building and improvements, less accumulated depreciation of $266,605 in 2001	  	 	22,783,948	

	

	
Total real estate assets	  	 	26,508,767	
Cash and cash equivalents	  	 	460,380	
Accounts receivable	  	 	71,236	
Prepaid assets and other expenses	  	 	773	

	

	
Total assets	  	$	27,041,156	

	

	

Liabilities and Partners’ Capital	  	 	 	
Liabilities:	  	 	 	
Accounts payable	  	$	145,331	
Partnership distributions payable	  	 	315,049	

	

	
Total liabilities	  	 	460,380	

	

	
Partners’ capital:	  	 	 	
Wells Real Estate Fund XIII	  	 	8,453,438	
Wells Operating Partnership, L.P.	  	 	18,127,338	

	

	
Total partners’ capital	  	 	26,580,776	

	

	
Total liabilities and partners’ capital	  	$	27,041,156	

	

	
 
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The Fund XIII and REIT Joint Venture
(A Georgia Joint Venture)
 
Statement of Income
for the Period From June 27, 2001 (Inception) Through
December 31, 2001
 
Revenues:	  	 	 	
Rental income	  	$	706,373	

	

	
Expenses:	  	 	 	
Depreciation	  	 	266,605	
Management and leasing fees	  	 	26,954	
Operating costs, net of reimbursements	  	 	53,659	
Legal and accounting	  	 	2,800	

	

	
 	  	 	350,018	

	

	
Net income	  	$	356,355	

	

	
Net income allocated to Wells Real Estate Fund XIII	  	$	58,610	

	

	
Net income allocated to Wells Operating Partnership, L.P.	  	$	297,745	

	

	
 
The Fund XIII and REIT Joint Venture
(A Georgia Joint Venture)
 
Statement of Partners’ Capital
for the Period From June 27, 2001 (Inception) Through
December 31, 2001
 
 	  	Wells Real
Estate
Fund XIII

	 	 	Wells
Operating
Partnership,
L.P.

	 	 	Total
Partners’
Capital

	 	
Balance, June 27, 2001 (inception)	  	$	0	 	 	$	0	 	 	$	0	 	
Net income	  	 	58,610	 	 	 	297,745	 	 	 	356,355	 	
Partnership contributions	  	 	8,491,069	 	 	 	18,285,076	 	 	 	26,776,145	 	
Partnership distributions	  	 	(96,241	)	 	 	(455,483	)	 	 	(551,724	)	

	

	

	 	

	

	

	 	

	

	

	
Balance, December 31, 2001	  	$	8,453,438	 	 	$	18,127,338	 	 	$	26,580,776	 	

	

	

	 	

	

	

	 	

	

	

	

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The Fund XIII and REIT Joint Venture
(A Georgia Joint Venture)
 
Statement of Cash Flows
for the Period From June 27, 2001 (Inception) Through
December 31, 2001
 
Cash flows from operating activities:	  	 	 	 	
Net income	  	$	356,355	 	

	

	

	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	
Depreciation	  	 	266,605	 	
Changes in assets and liabilities:	  	 	 	 	
Accounts receivable	  	 	(71,236	)	
Prepaid expenses and other assets	  	 	(773	)	
Accounts payable	  	 	145,331	 	

	

	

	
Total adjustments	  	 	339,927	 	

	

	

	
Net cash provided by operating activities	  	 	696,282	 	

	

	

	
Cash flows from investing activities:	  	 	 	 	
Investment in real estate	  	 	(25,779,337	)	

	

	

	
Cash flows from financing activities:	  	 	 	 	
Contributions from joint venture partners	  	 	25,780,110	 	
Distributions to joint venture partners	  	 	(236,675	)	

	

	

	
Net cash provided by financing activities	  	 	25,543,435	 	

	

	

	
Net increase in cash and cash equivalents	  	 	460,380	 	
Cash and cash equivalents, beginning of period	  	 	0	 	

	

	

	
Cash and cash equivalents, end of year	  	$	460,380	 	

	

	

	
Supplemental disclosure of noncash activities:	  	 	 	 	
Deferred project costs contributed to Joint Venture	  	$	996,035	 	

	

	

	
 
6.    INCOME TAX BASIS NET INCOME AND PARTNERS’ CAPITAL
 
The Operating Partnership’s income tax basis net income for the years ended December 31, 2001 and 2000 are calculated as follows:
 
 	  	2001

	 	 	2000

	 	
Financial statement net income	  	$	21,723,967	 	 	$	8,552,967	 	
Increase (decrease) in net income resulting from:	  	 	 	 	 	 	 	 	
Depreciation expense for financial reporting purposes in excess of amounts for income tax purposes	  	 	7,347,459	 	 	 	3,511,353	 	
Rental income accrued for financial reporting purposes in excess of amounts for income tax purposes	  	 	(2,735,237	)	 	 	(1,822,220	)	
Expenses deductible when paid for income tax purposes, accrued for financial reporting purposes	  	 	25,658	 	 	 	37,675	 	

	

	

	 	

	

	

	
Income tax basis net income	  	$	26,361,847	 	 	$	10,279,775	 	

	

	

	 	

	

	

	

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The Operating Partnership’s income tax basis partners’ capital at December 31, 2001 and 2000 is computed as follows:
 
 	  	2001

	 	 	2000

	 	
Financial statement partners’ capital	  	$	710,285,758	 	 	$	265,341,612	 	
Increase (decrease) in partners’ capital resulting from:	  	 	 	 	 	 	 	 	
Depreciation expense for financial reporting purposes in excess of amounts for income tax purposes	  	 	11,891,061	 	 	 	4,543,602	 	
Capitalization of syndication costs for income tax purposes, which are accounted for as cost of capital for financial reporting purposes	  	 	12,896,312	 	 	 	12,896,312	 	
Accumulated rental income accrued for financial reporting purposes in excess of amounts for income tax purposes	  	 	(5,382,483	)	 	 	(2,647,246	)	
Accumulated expenses deductible when paid for income tax purposes, accrued for financial reporting purposes	  	 	114,873	 	 	 	89,215	 	
Dividends payable	  	 	1,059,026	 	 	 	1,025,010	 	
Other	  	 	(222,378	)	 	 	(222,378	)	

	

	

	 	

	

	

	
Income tax basis partners’ capital	  	$	730,642,169	 	 	$	281,026,127	 	

	

	

	 	

	

	

	
 
7.    RENTAL INCOME
 
The future minimum rental income due from the Operating Partnership’s direct investment in real estate or its respective ownership interest in the joint ventures under noncancelable operating leases at December 31, 2001 is as follows:
 
Year ended December 31:	  	 	 	
2002	  	$	69,364,229	
2003	  	 	70,380,691	
2004	  	 	71,184,787	
2005	  	 	70,715,556	
2006	  	 	71,008,821	
Thereafter	  	 	270,840,299	

	

	
 	  	$	623,494,383	

	

	
 
One tenant contributed 10% of rental income for the year ended December 31, 2001. In addition, one tenant will contribute 12% of future minimum rental income.
 
Future minimum rental income due from Fund VIII, IX, and REIT Joint Venture under noncancelable operating leases at December 31, 2001 is as follows:
 
Year ended December 31:	  	 	 	
2002	  	$	1,287,119	
2003	  	 	1,287,119	
2004	  	 	107,260	
2005	  	 	0	
2006	  	 	0	
Thereafter	  	 	0	

	

	
 	  	$	2,681,498	

	

	
 
One tenant contributed 100% of rental income for the year ended December 31, 2001. In addition, one tenant will contribute 100% of future minimum rental income.
 
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The future minimum rental income due from Fund IX, X, XI, and REIT Joint Venture under noncancelable operating leases at December 31, 2001 is as follows:
 
Year ended December 31:	  	 	 	
2002	  	$	3,648,769	
2003	  	 	3,617,432	
2004	  	 	3,498,472	
2005	  	 	2,482,815	
2006	  	 	2,383,190	
Thereafter	  	 	3,053,321	

	

	
 	  	$	18,683,999	

	

	
 
Four tenants contributed 26%, 23%, 13%, and 13% of rental income for the year ended December 31, 2001. In addition, four tenants will contribute 38%, 21%, 20%, and 17% of future minimum rental income.
 
The future minimum rental income due Wells/Orange County Associates under noncancelable operating leases at December 31, 2001 is as follows:
 
Year ended December 31:	  	 	 	
2002	  	$	834,888	
2003	  	 	695,740	

	

	
 	  	$	1,530,628	

	

	
 
One tenant contributed 100% of rental income for the year ended December 31, 2001 and will contribute 100% of future minimum rental income.
 
The future minimum rental income due Wells/Fremont Associates under noncancelable operating leases at December 31, 2001 is as follows:
 
Year ended December 31:	  	 	 	
2002	  	$	922,444	
2003	  	 	950,118	
2004	  	 	894,832	

	

	
 	  	$	2,767,394	

	

	
 
One tenant contributed 100% of rental income for the year ended December 31, 2001 and will contribute 100% of future minimum rental income.
 
The future minimum rental income due from Fund XI, XII, and REIT Joint Venture under noncancelable operating leases at December 31, 2001 is as follows:
 
Year ended December 31:	  	 	 	
2002	  	$	3,277,512	
2003	  	 	3,367,510	
2004	  	 	3,445,193	
2005	  	 	3,495,155	
2006	  	 	3,552,724	
Thereafter	  	 	2,616,855	

	

	
 	  	$	19,754,949	

	

	
 
Four tenants contributed approximately 30%, 28%, 24%, and 18% of rental income for the year ended December 31, 2001. In addition, four tenants will contribute approximately 30%, 27%, 25%, and 18% of future minimum rental income.
 
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Table of Contents
The future minimum rental income due from Fund XII and REIT Joint Venture under noncancelable operating leases at December 31, 2001 is as follows:
 
Year ended December 31:	  	 	 	
2002	  	$	5,352,097	
2003	  	 	5,399,451	
2004	  	 	5,483,564	
2005	  	 	5,515,926	
2006	  	 	5,548,289	
Thereafter	  	 	34,677,467	

	

	
 	  	$	61,976,794	

	

	
 
Three tenants contributed approximately 31%, 29%, and 27% of rental income for the year ended December 31, 2001. In addition, three tenants will contribute approximately 58%, 21%, and 18% of future minimum rental income.
 
The future minimum rental income due Fund XIII and REIT Joint Venture under noncancelable operating leases at December 31, 2001 is as follows:
 
Year ended December 31:	  	 	 	
2002	  	$	2,545,038	
2003	  	 	2,602,641	
2004	  	 	2,661,228	
2005	  	 	2,721,105	
2006	  	 	2,782,957	
Thereafter	  	 	13,915,835	

	

	
 	  	$	27,228,804	

	

	
 
One tenant contributed approximately 95% of rental income for the year ended December 31, 2001. In addition, two tenants will contribute approximately 51% and 49% of future minimum rental income.
 
8.    INVESTMENT IN BONDS AND OBLIGATION UNDER CAPITAL LEASE
 
On September 27, 2001, the Operating Partnership acquired a ground leasehold interest in the Ingram Micro Distribution Facility pursuant to a Bond Real Property Lease dated December 20, 1995 (the “Bond Lease”). The ground leasehold interest under the Bond Lease, along with the Bond and Bond Deed of Trust described below, were purchased from Ingram Micro, L.P. (“Ingram”) in a sale lease-back transaction for a purchase price of $21,050,000. The Bond Lease expires on December 31, 2026. At closing, the Operating Partnership also entered into a new lease with Ingram pursuant to which Ingram agreed to lease the entire Ingram Micro Distribution Facility for a lease term of 10 years with two successive 10-year renewal options.
 
In connection with the original development of the Ingram Micro Distribution Facility, the Industrial Development Board of the City of Milington, Tennessee (the “Industrial Development Board”) issued an Industrial Development Revenue Note dated December 20, 1995 in the principal amount of $22,000,000 (the “Bond”) to Lease Plan North America, Inc. (the “Original Bond Holder”). The proceeds from the issuance of the Bond were utilized to finance the construction of the Ingram Micro Distribution Facility. The Bond is secured by a Fee Construction Mortgage Deed of Trust Assignment of Rents and Leases also dated December 20, 1995 (the “Bond Deed of Trust”) executed by the Industrial Development Board for the benefit of the Original Bond Holder. Beginning in 2006, the holder of the Bond Lease has the option to purchase the land underlying the Ingram Micro Distribution Facility for $100.00 plus satisfaction of the indebtedness evidenced by the Bond which, as set forth below, was acquired and is currently held by the Operating Partnership.
 
On December 20, 2000, Ingram purchased the Bond and the Bond Deed of Trust from the Original Bond Holder. On September 27, 2001, along with purchasing the Ingram Micro Distribution Facility through its acquisition of the ground leasehold interest under the Bond Lease, the Operating Partnership also acquired the Bond and the Bond Deed of Trust from Ingram. Because the Operating Partnership is technically subject to the obligation to pay the $22,000,000 indebtedness evidenced by the Bond, the obligation to pay the Bond is carried on the Company’s books as a liability;
 
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however, since Operating Partnership is also the owner of the Bond, the Bond is also carried on the Company’s books as an asset.
 
9.    NOTES PAYABLE
 
As of December 31, 2001, the Operating Partnership’s notes payable included the following:

Note payable to Bank of America, interest at 5.9%, interest payable monthly, due July 30, 2003, collateralized by the Nissan property	  	$	468,844	
Note payable to SouthTrust Bank, interest at LIBOR plus 175 basis points, principal and interest payable monthly, due June 10, 2002; collateralized by the Operating Partnership’s interests in the Cinemark Building, the Dial Building, the ASML Building, the Motorola Tempe Building, the Avnet Building, the Matsushita Building, and the PwC Building	  	 	7,655,600	

	

	
Total	  	$	8,124,444	

	

	
 
The contractual maturities of the Operating Partnership’s notes payable are as follows as of December 31, 2001:

2002	  	$	7,655,600	
2003	  	 	468,844	

	

	
Total	  	$	8,124,444	

	

	
 
10.    COMMITMENTS AND CONTINGENCIES
 
Take Out Purchase and Escrow Agreement
 
An affiliate of the Advisor (“Wells Exchange”) has developed a program (the “Wells Section 1031 Program”) involving the acquisition by Wells Exchange of income-producing commercial properties and the formation of a series of single member limited liability companies for the purpose of facilitating the resale of co-tenancy interests in such real estate properties to be owned in co-tenancy arrangements with persons (“1031 Participants”) who are looking to invest the proceeds from a sale of real estate held for investment in another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Code. Each of these properties will be financed by a combination of permanent first mortgage financing and interim loan financing obtained from institutional lenders.
 
Following the acquisition of each property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to pay off the interim financing. In consideration for the payment of a take out fee to the Company, and following approval of the potential property acquisition by the Company’s board of directors, it is anticipated that Wells OP will enter into a take out purchase and escrow agreement or similar contract providing that, in the event that Wells Exchange is unable to sell all of the co-tenancy interest in that particular property to 1031 Participants, the Operating Partnership will purchase, at Wells Exchange’s cost, any co-tenancy interests remaining unsold at the end of the offering period.
 
As a part of the initial transaction in the Wells Section 1031 Program, and in consideration for the payment of a take out fee in the amount of $137,500 to the Company, Wells OP entered into a take out purchase and escrow agreement dated April 16, 2001 providing that, among other things, Wells OP is obligated to acquire, at Wells Exchange’s cost ($839,694 in cash plus $832,060 of assumed debt for each 7.63358% interest of co-tenancy interest unsold), any co-tenancy interest in the building known as the Ford Motor Credit Complex which remains unsold at the expiration of the offering of Wells Exchange, which has been extended to April 15, 2002, which is also the maturity date of the interim loan relating to such property. The Ford Motor Credit Complex consists of two connecting office buildings containing 167,438 rentable square feet located in Colorado Springs, Colorado, currently under a triple-net lease with Ford Motor Credit Company, a wholly owned subsidiary of Ford Motor Company.
 
The obligations of Wells OP under the take out purchase and escrow agreement are secured by reserving against a portion of Wells OP’s existing line of credit with Bank of America, N.A. (the “Interim Lender”). If, for any reason, Wells OP fails to acquire any of the co-tenancy interest in the Ford Motor Credit Complex which remains unsold as of
 
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April 15, 2002, or there is otherwise an uncured default under the interim loan or the line of credit documents, the Interim Lender is authorized to draw down Wells OP’s line of credit in the amount necessary to pay the outstanding balance of the interim loan in full, in which event the appropriate amount of co-tenancy interest in the Ford Motor Credit Complex would be deeded to Wells OP. Wells OP’s maximum economic exposure in the transaction is $21,900,000, in which event Wells OP would acquire the Ford Motor Credit Complex for $11,000,000 in cash plus assumption of the first mortgage financing in the amount of $10,900,000. If some, but not all, of the co-tenancy interests are sold, Wells OP’s exposure would be less, and it would own an interest in the property in co-tenancy with the 1031 Participants who had previously acquired co-tenancy interests in the Ford Motor Credit Complex from Wells Exchange.
 
Development of the Nissan Property
 
The Operating Partnership has entered into an agreement with an independent third-party general contractor for the purpose of designing and constructing a three-story office building containing 268,290 rentable square feet on the Nissan Property. The construction agreement provides that the Operating Partnership will pay the contractor a maximum of $25,326,017 for the design and construction of the building. Construction commenced on January 25, 2002 and is scheduled to be completed within 20 months.
 
General
 
Management, after consultation with legal counsel, is not aware of any significant litigation or claims against the Company, the Operating Partnership, or the Advisor. In the normal course of business, the Company, the Operating Partnership, or the Advisor may become subject to such litigation or claims.
 
11.    SHAREHOLDERS’ EQUITY
 
Common Stock Option Plan
 
The Wells Real Estate Investment Trust, Inc. Independent Director Stock Option Plan (“the Plan”) provides for grants of stock to be made to independent nonemployee directors of the Company. Options to purchase 2,500 shares of common stock at $12 per share are granted upon initially becoming an independent director of the Company. Of these shares, 20% are exercisable immediately on the date of grant. An additional 20% of these shares become exercisable on each anniversary following the date of grant for a period of four years. Effective on the date of each annual meeting of shareholders of the Company, beginning in 2000, each independent director will be granted an option to purchase 1,000 additional shares of common stock. These options vest at the rate of 500 shares per full year of service thereafter. All options granted under the Plan expire no later than the date immediately following the tenth anniversary of the date of grant and may expire sooner in the event of the disability or death of the optionee or if the optionee ceases to serve as a director.
 
The Company has adopted the disclosure provisions in Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” As permitted by the provisions of SFAS No. 123, the Company applies Accounting Principles Board Opinion No. 25 and the related interpretations in accounting for its stock option plans and, accordingly, does not recognize compensation cost.
 
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A summary of the Company’s stock option activity during 2001 and 2000 is as follows:
 
 	  	Number

	  	Exercise
Price

	
Outstanding at December 31, 1999	  	17,500	  	$	12	
Granted	  	7,000	  	 	12	

	  	 	 	
Outstanding at December 31, 2000	  	24,500	  	 	12	
Granted	  	7,000	  	 	12	

	  	 	 	
Outstanding at December 31, 2001	  	31,500	  	 	12	

	  	 	 	
 	 	 	
Outstanding options exercisable as of December 31, 2001	  	10,500	  	 	12	

	  	 	 	
 
For SFAS No. 123 purposes, the fair value of each stock option for 2001 and 2000 has been estimated as of the date of the grant using the minimum value method. The weighted average risk-free interest rates assumed for 2001 and 2000 were 5.05% and 6.45%, respectively. Dividend yields of 7.8% and 7.3% were assumed for 2001 and 2000, respectively. The expected life of an option was assumed to be six years and four years for 2001 and 2000, respectively. Based on these assumptions, the fair value of the options granted during 2001 and 2000 is $0.
 
Treasury Stock
 
During 1999, the Company’s board of directors authorized a dividend reinvestment program (the “DRP”), through which common shareholders may elect to reinvest an amount equal to the dividends declared on their common shares into additional shares of the Company’s common stock in lieu of receiving cash dividends. During 2000, the Company’s board of directors authorized a common stock repurchase plan subject to the amount reinvested in the Company’s common shares through the DRP, less shares already redeemed, and a limitation in the amount of 3% of the average common shares outstanding during the preceding year. During 2001 and 2000, the Company repurchased 413,743 and 141,297 of its own common shares at an aggregate cost of $4,137,427 and $1,412,969, respectively. These transactions were funded with cash on hand and did not exceed either of the foregoing limitations.
 
12.    QUARTERLY RESULTS (UNAUDITED)
 
Presented below is a summary of the unaudited quarterly financial information for the years ended December 31, 2001 and 2000:
 
 	  	2001 Quarters Ended

	
 	  	March 31

	  	June 30

	  	September 30

	  	December 31

	
Revenues	  	$	10,669,713	  	$	10,891,240	  	$	12,507,904	  	$	15,239,945	
Net income	  	 	3,275,345	  	 	5,038,898	  	 	6,109,137	  	 	7,300,587	
Basic and diluted earnings per share(a)	  	$	0.10	  	$	0.12	  	$	0.11	  	$	0.10	
Dividends per share(a)	  	 	0.19	  	 	0.19	  	 	0.19	  	 	0.19	

(a)	 	The totals of the four quarterly amounts for the year ended December 31, 2001 do not equal the totals for the year. This difference results from rounding differences between quarters.	
 
192

Table of Contents
 	  	2000 Quarters Ended

	
 	  	March 31

	  	June 30

	  	September 30

	  	December 31

	
Revenues	  	$	3,710,409	  	$	5,537,618	  	$	6,586,611	  	$	7,538,568	
Net income	  	 	1,691,288	  	 	1,521,021	  	 	2,525,228	  	 	2,815,430	
Basic and diluted earnings per share	  	$	0.11	  	$	0.08	  	$	0.11	  	$	0.10	
Dividends per share	  	 	0.18	  	 	0.18	  	 	0.18	  	 	0.19	
 
13.    SUBSEQUENT EVENT
 
On January 11, 2002, the Operating Partnership purchased a three-story office building on a 9.8-acre tract of land located in Sarasota County, Florida known as the Arthur Andersen Building, from an unaffiliated third party for $21,400,000. The Operating Partnership incurred additional related acquisition expenses, including attorneys’ fees, recording fees, structural report and environmental report fees, and other closing costs, of approximately $30,000.
 
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Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
SCHEDULE III—REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 2001
(Unaudited)
 
 	  	Cost

	  	Accumulated
Depreciation

	
BALANCE AT DECEMBER 31, 1998	  	$	76,201,910	  	$	1,487,963	
1999 additions	  	 	103,916,288	  	 	4,243,688	

	

	  	

	

	
BALANCE AT DECEMBER 31, 1999	  	 	180,118,198	  	 	5,731,651	
2000 additions	  	 	293,450,036	  	 	11,232,378	

	

	  	

	

	
BALANCE AT DECEMBER 31, 2000	  	 	473,568,234	  	 	16,964,029	

	

	  	

	

	
2001 additions	  	 	294,740,403	  	 	20,821,037	

	

	  	

	

	
BALANCE AT DECEMBER 31, 2001	  	$	768,308,697	  	$	37,785,066	

	

	  	

	

	
 
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Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
(A Georgia Public Limited Partnership)
 
SCHEDULE III—REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 2001
(Unaudited)
 
 	 	Initial Cost

	 	 	 	Gross Amount at Which Carried at
December 31, 2001

	 	 	 	Date of
Construction

	 	Date
Acquired

	 	Life on
Which
Depreciation
is Computed
(dd)

	 	
Description

	 	Ownership
Percentage

	 	 	Encumbrances

	 	Land

	 	Buildings and
Improvements

	 	Costs of
Capitalized
Improvements

	 	Land

	 	Buildings and
Improvements

	 	Construction
in Progress

	 	Total

	 	Accumulated
Depreciation

	 	 	 	 	 	 	 	
ALSTOM	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
      POWER—
      KNOXVILLE       PROPERTY(a)	 	4	%	 	None	 	$	582,897	 	$	744,164	 	$	6,744,547	 	$	607,930	 	$	7,463,678	 	$	0	 	$	8,071,608	 	$	1,844,482	 	1997	 	12/10/96	 	20 to 25 years	 	
AVAYA BUILDING	 	4	 	 	None	 	 	1,002,723	 	 	4,386,374	 	 	242,241	 	 	1,051,138	 	 	4,580,200	 	 	0	 	 	5,631,338	 	 	656,495	 	1998	 	6/24/98	 	20 to 25 years	 	
360
INTERLOCKEN (c)	 	4	 	 	None	 	 	1,570,000	 	 	6,733,500	 	 	437,266	 	 	1,650,070	 	 	7,090,696	 	 	0	 	 	8,740,766	 	 	1,098,339	 	1996	 	3/20/98	 	20 to 25 years	 	
IOMEGA
PROPERT(d)	 	4	 	 	None	 	 	597,000	 	 	4,674,624	 	 	876,459	 	 	641,988	 	 	5,506,095	 	 	0	 	 	6,148,083	 	 	742,404	 	1998	 	7/01/98	 	20 to 25 years	 	
OHMEDA PROPERTY(e)	 	4	 	 	None	 	 	2,613,600	 	 	7,762,481	 	 	528,415	 	 	2,746,894	 	 	8,157,602	 	 	0	 	 	10,904,496	 	 	1,278,024	 	1998	 	2/13/98	 	20 to 25 years	 	
FAIRCHILD PROPERTY(f)	 	78	 	 	None	 	 	2,130,480	 	 	6,852,630	 	 	374,300	 	 	2,219,251	 	 	7,138,159	 	 	0	 	 	9,357,410	 	 	999,301	 	1998	 	7/21/98	 	20 to 25 years	 	
ORANGE COUNTY PROPERTY(g)	 	44	 	 	None	 	 	2,100,000	 	 	4,463,700	 	 	287,916	 	 	2,187,501	 	 	4,664,115	 	 	0	 	 	6,851,616	 	 	651,780	 	1988	 	7/31/98	 	20 to 25 years	 	
PRICEWATER- HOUSECOOPERS PROPERTY(h)	 	100	 	 	None	 	 	1,460,000	 	 	19,839,071	 	 	825,560	 	 	1,520,834	 	 	20,603,797	 	 	0	 	 	22,124,631	 	 	2,469,792	 	1998	 	12/31/98	 	20 to 25 years	 	
EYBL CARTEX PROPERTY(i)	 	57	 	 	None	 	 	330,000	 	 	4,791,828	 	 	213,411	 	 	343,750	 	 	4,991,489	 	 	0	 	 	5,335,239	 	 	532,416	 	1998	 	5/18/99	 	20 to 25 years	 	
SPRINT BUILDING (j)	 	57	 	 	None	 	 	1,696,000	 	 	7,850,726	 	 	397,783	 	 	1,766,667	 	 	8,177,842	 	 	0	 	 	9,944,509	 	 	817,785	 	1998	 	7/2/99	 	20 to 25 years	 	
JOHNSON MATTHEY(k)	 	57	 	 	None	 	 	1,925,000	 	 	6,131,392	 	 	335,685	 	 	2,005,209	 	 	6,386,868	 	 	0	 	 	8,392,077	 	 	617,438	 	1973	 	8/17/99	 	20 to 25 years	 	
GARTNER PROPERTY(l)	 	57	 	 	None	 	 	895,844	 	 	7,451,760	 	 	347,820	 	 	933,171	 	 	7,762,253	 	 	0	 	 	8,695,424	 	 	724,477	 	1998	 	9/20/99	 	20 to 25 years	 	
AT&T—PA PROPERTY(m)	 	100	 	 	None	 	 	662,000	 	 	11,836,368	 	 	265,740	 	 	689,583	 	 	12,074,525	 	 	0	 	 	12,764,108	 	 	1,408,686	 	1998	 	2/4/99	 	20 to 25 years	 	
MARCONI PROPERTY(n)	 	100	 	 	None	 	 	5,000,000	 	 	28,161,665	 	 	1,381,747	 	 	5,208,335	 	 	29,335,077	 	 	0	 	 	34,543,412	 	 	2,737,941	 	1991	 	9/10/99	 	20 to 25 years	 	
CINEMARK PROPERTY(o)	 	100	 	 	None	 	 	1,456,000	 	 	20,376,881	 	 	908,217	 	 	1,516,667	 	 	21,224,431	 	 	0	 	 	22,741,098	 	 	1,768,692	 	1999	 	12/21/99	 	20 to 25 years	 	
 
195

Table of Contents
 	 	Initial Cost

	 	 	 	Gross Amount at Which Carried at
December 31, 2001

	 	 	 	Date of
Construction

	 	Date
Acquired

	 	Life on
Which
Depreciation
is Computed
(dd)

	 	
Description

	 	Ownership
Percentage

	 	Encumbrances

	 	Land

	 	Buildings and
Improvements

	 	Costs of
Capitalized
Improvements

	 	Land

	 	Buildings and
Improvements

	 	Construction
in Progress

	 	Total

	 	Accumulated
Depreciation

	 	 	 	 	 	 	 	
MATSUSHITA PROPERTY (p)	 	100	 	 	None	 	4,577,485	 	0	 	13,860,142	 	4,768,215	 	13,773,660	 	0	 	18,541,875	 	2,032,803	 	1999	 	3/15/99	 	20 to
25
years	 	
ALSTOM POWER— RICHMOND PROPERTY (q)	 	100	 	 	None	 	948,401	 	0	 	9,938,308	 	987,918	 	9,923,454	 	0	 	10,911,372	 	921,980	 	1999	 	7/22/99	 	20 to
25
years	 	
METRIS—OK PROPERTY (r)	 	100	 	 	None	 	1,150,000	 	11,569,583	 	541,489	 	1,197,917	 	12,063,155	 	0	 	13,261,072	 	881,413	 	2000	 	2/11/00	 	20 to
25
years	 	
DIAL PROPERTY (s)	 	100	 	 	None	 	3,500,000	 	10,785,309	 	601,264	 	3,645,835	 	11,240,738	 	83,125	 	14,969,698	 	821,315	 	1997	 	3/29/00	 	20 to
25
years	 	
ASML PROPERTY (t)	 	100	 	 	None	 	0	 	17,392,633	 	731,685	 	0	 	18,124,318	 	0	 	18,124,318	 	1,314,573	 	1995	 	3/29/00	 	20 to
25
years	 	
MOTOROLA—AZ PROPERTY (u)	 	100	 	 	None	 	0	 	16,036,219	 	669,639	 	0	 	16,705,858	 	0	 	16,705,858	 	1,218,400	 	1998	 	3/29/00	 	20 to
25
years	 	
AVNET PROPERTY (v)	 	100	 	 	None	 	0	 	13,271,502	 	551,156	 	0	 	13,822,658	 	0	 	13,822,658	 	868,060	 	2000	 	6/12/00	 	20 to
25
years	 	
DELPHI
PROPERTY (w)	 	100	 	 	None	 	2,160,000	 	16,775,971	 	1,676,956	 	2,250,008	 	18,469,408	 	14,877	 	20,734,293	 	1,286,705	 	2000	 	6/29/00	 	20 to
25
years	 	
SIEMENS PROPERTY (x)	 	47	 	 	None	 	2,143,588	 	12,048,902	 	591,358	 	2,232,905	 	12,550,943	 	43,757	 	14,827,605	 	959,465	 	2000	 	5/10/00	 	20 to
25
years	 	
QUEST PROPERTY (y)	 	16	 	 	None	 	2,220,993	 	5,545,498	 	51,285	 	2,220,993	 	5,602,160	 	0	 	7,823,153	 	649,436	 	1997	 	9/10/97	 	20 to
25
years	 	
MOTOROLA—NJ PROPERTY (z)	 	100	 	 	None	 	9,652,500	 	20,495,243	 	0	 	10,054,720	 	25,540,919	 	392,104	 	35,987,743	 	1,541,768	 	2000	 	11/1/00	 	20 to
25
years	 	
METRIS—MN PROPERTY (aa)	 	100	 	 	None	 	7,700,000	 	45,151,969	 	2,181	 	8,020,859	 	47,042,309	 	0	 	55,063,168	 	2,000,737	 	2000	 	12/21/00	 	20 to
25
years	 	
STONE & WEBSTER PROPERTY (bb)	 	100	 	 	None	 	7,100,000	 	37,914,954	 	0	 	7,395,857	 	39,498,469	 	0	 	46,894,326	 	1,679,981	 	1994	 	12/21/00	 	20 to
25
years	 	
AT&T—OK PROPERTY (cc)	 	47	 	 	None	 	2,100,000	 	13,227,555	 	638,651	 	2,187,500	 	13,785,631	 	0	 	15,973,131	 	597,317	 	1999	 	12/28/00	 	20 to
25
years	 	
COMDATA PROPERTY	 	64	 	 	None	 	4,300,000	 	20,650,000	 	572,944	 	4,479,168	 	21,566,287	 	0	 	26,045,455	 	575,056	 	1986	 	5/15/2001	 	20 to
25
years	 	
AMERICREDIT PROPERTY	 	87	 	 	None	 	1,610,000	 	10,890,000	 	563,257	 	1,677,084	 	11,386,174	 	0	 	13,063,258	 	227,724	 	2001	 	7/16/2001	 	20 to
25
years	 	
STATE STREET PROPERTY	 	100	 	 	None	 	10,600,000	 	38,962,988	 	4,344,837	 	11,041,670	 	40,666,305	 	2,201,913	 	53,909,888	 	807,903	 	1998	 	7/30/2001	 	20 to
25
years	 	
IKON PROPERTY	 	100	 	 	None	 	2,735,000	 	17,915,000	 	985,856	 	2,847,300	 	18,792,672	 	0	 	21,639,972	 	250,689	 	2000	 	9/7/2001	 	20 to
25
years	 	
NISSAN PROPERTY	 	100	 	$	8,124,444	 	5,545,700	 	0	 	21,353	 	5,567,053	 	0	 	2,653,777	 	8,220,830	 	0	 	2002	 	9/19/2001	 	20 to
25
years	 	
INGRAM MICRO PROPERTY	 	100	 	$	22,000,000	 	333,049	 	20,666,951	 	922,657	 	333,049	 	21,590,010	 	0	 	21,923,059	 	292,307	 	1997	 	9/27/2001	 	20 to
25
years	 	
LUCENT PROPERTY	 	100	 	 	None	 	7,000,000	 	10,650,000	 	1,106,240	 	7,275,830	 	11,484,562	 	0	 	18,760,392	 	153,093	 	2000	 	9/28/2001	 	20 to
25
years	 	
 
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Table of Contents
 	  	Initial Cost

	  	 	  	Gross Amount at Which Carried at
December 31, 2001

	  	 	  	Date of
Construction

	  	Date
Acquired

	  	Life on
Which
Depreciation
is Computed
(dd)

	 	
Description

	  	Ownership
Percentage

	  	Encumbrances

	  	Land

	  	Buildings and
Improvements

	  	Costs of
Capitalized
Improvements

	  	Land

	  	Buildings and
Improvements

	  	Construction
in Progress

	  	Total

	  	Accumulated
Depreciation

	  	 	  	 	  	 	 	
CONVERGYS PROPERTY	  	100	  	 	None	  	 	3,500,000	  	 	9,755,000	  	 	791,672	  	 	3,642,442	  	 	10,404,230	  	 	0	  	 	14,046,672	  	 	34,681	  	2001	  	12/21/2001	  	20 to 25 years	 	
ADIC PROPERTY	  	51	  	 	None	  	 	1,954,213	  	 	11,000,000	  	 	757,902	  	 	2,047,735	  	 	11,664,380	  	 	0	  	 	13,712,115	  	 	38,881	  	2001	  	12/21/2001	  	20 to 25 years	 	
WINDY POINT I PROPERTY	  	100	  	 	None	  	 	4,360,000	  	 	29,298,642	  	 	1,440,568	  	 	4,536,862	  	 	30,562,349	  	 	0	  	 	35,099,211	  	 	101,875	  	1999	  	12/31/2001	  	20 to 25 years	 	
WINDY POINT II PROPERTY	  	100	  	 	None	  	 	3,600,000	  	 	52,016,358	  	 	2,385,402	  	 	3,746,033	  	 	54,255,727	  	 	0	  	 	58,001,760	  	 	180,852	  	2001	  	12/31/2001	  	20 to 25 years	 	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	 	  	 	  	 	 	
        Total	  	 	  	$	30,124,444	  	$	112,812,473	  	$	584,077,441	  	$	57,913,909	  	$	117,245,941	  	$	645,673,203	  	$	5,389,553	  	$	768,308,697	  	$	37,785,066	  	 	  	 	  	 	 	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	 	  	 	  	 	 	

  (a)	 	The Alstom Power Knoxville Property consists of a three-story office building located in Knoxville, Tennessee. It is owned by Fund IX-X-XI-REIT Joint Venture.	
  (b)	 	The Avaya Building consists of a one-story office building located in Oklahoma City, Oklahoma. It is owned by Fund IX-X-XI-REIT Joint Venture.	
  (c)	 	The 360 Interlocken Property consists of a three-story multi-tenant office building located in Broomfield, Colorado. It is owned by Fund IX-X-XI-REIT Joint Venture.	
  (d)	 	The Iomega Property consists of a one-story warehouse and office building located in Ogden, Utah. It is owned by Fund IX-X-XI-REIT Joint Venture.	
  (e)	 	The Ohmeda Property consists of a two-story office building located in Louisville, Colorado. It is owned by Fund IX-X-XI-REIT Joint Venture.	
  (f)	 	The Fairchild Property consists of a two-story warehouse and office building located in Fremont, California. It is owned by Wells/Freemont Associates.	
  (g)	 	The Orange County Property consists of a one-story warehouse and office building located in Fountain Valley, California. It is owned by Wells/Orange County Associates.	
  (h)	 	The PriceWaterhouseCoopers Property consists of a four-story office building located in Tampa, Florida. It is 100% owned by the Company.	
  (i)	 	The EYBL CarTex Property consists of a one-story manufacturing and office building located in Fountain Inn, South Carolina. It is owned by Fund XI-XII-REIT Joint Venture.	
  (j)	 	The Sprint Building consists of a three-story office building located in Leawood, Kansas. It is owned by Fund XI-XII-REIT Joint Venture.	
  (k)	 	The Johnson Matthey Property consists of a one-story research and development office and warehouse building located in Chester County, Pennsylvania. It is owned by Fund XI-XII-REIT Joint Venture.	
  (l)	 	The Gartner Property consists of a two-story office building located in Ft. Myers, Florida. It is owned by Fund XI-XII-REIT Joint Venture	
  (m)	 	The AT&T––PA Property consists of a four-story office building located in Harrisburg, Pennsylvania. It is 100% owned by the Company.	
  (n)	 	The Marconi Property consists of a two-story office building located in Wood Dale, Illinois. It is 100% owned by the Company.	
  (o)	 	The Cinemark Property consists of a five-story office building located in Plano, Texas. It is 100% owned by the Company.	
  (p)	 	The Matsushita Property consists of a two-story office building located in Lake Forest, California. It is 100% owned by the Company.	
  (q)	 	The Alstom Property consists of a four-story office building located in Midlothian, Chesterfield County, Virginia. It is 100% owned by the Company.	
  (r)	 	The Metris––OK Property consists of a three-story office building located in Tulsa, Oklahoma. It is 100% owned by the Company.	
  (s)	 	The Dial Property consists of a two-story office building located in Scottsdale, Arizona. It is 100% owned by the Company.	
  (t)	 	The ASML Property consists of a two-story office building located in Tempe, Arizona. It is 100% owned by the Company.	
  (u)	 	The Motorola––AZ Property consists of a two-story office building located in Tempe, Arizona. It is 100% owned by the Company.	
  (v)	 	The Avnet Property consists of a two-story office building located in Tempe, Arizona. It is 100% owned by the Company.	
  (w)	 	The Delphi Property consists of a three-story office building located in Troy, Michigan. It is 100% owned by the Company.	
  (x)	 	The Siemens Property consists of a three-story office building located in Troy, Michigan. It is owned by Fund XII-REIT Joint Venture.	
  (y)	 	The Quest Property consists of a two-story office building located in Orange County, California. It is owned by Fund VIII-IX-REIT Joint Venture.	
  (z)	 	The Motorola––NJ Property consists of a three-story office building located in South Plainfield, New Jersey. It is 100% owned by the Company.	
(aa)	 	The Metris––MN Property consists of a nine-story office building located in Minnetonka, Minnesota. It is 100% owned by the Company.	
(bb)	 	The Stone & Webster Property consists of a six-story office building located in Houston, Texas. It is 100% owned by the Company.	
(cc)	 	The AT&T––OK Property consists of a two-story office building located in Oklahoma City, Oklahoma. It is owned by the Fund XII-REIT Joint Venture.	
(dd)	 	Depreciation lives used for buildings are 25 years. Depreciation lives used for land improvements are 20 years.	
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
CONSOLIDATED BALANCE SHEETS
 
 	  	March 31,
2002

	  	December 31,
2001

	
 	  	(Unaudited)	  	 	
ASSETS	  	 	 	  	 	 	
REAL ESTATE ASSETS, at cost:	  	 	 	  	 	 	
Land	  	$	94,273,542	  	$	86,246,985	
Building and improvements, less accumulated depreciation of $30,558,906 in 2002 and $24,814,454 in 2001	  	 	563,639,005	  	 	472,383,102	
Construction in progress	  	 	8,827,823	  	 	5,738,573	

	

	  	

	

	
Total real estate assets	  	 	666,740,370	  	 	564,368,660	
INVESTMENT IN JOINT VENTURES	  	 	76,811,543	  	 	77,409,980	
CASH AND CASH EQUIVALENTS	  	 	187,022,573	  	 	75,586,168	
INVESTMENT IN BONDS	  	 	22,000,000	  	 	22,000,000	
ACCOUNTS RECEIVABLE	  	 	7,697,487	  	 	6,003,179	
DEFERRED PROJECT COSTS	  	 	7,739,896	  	 	2,977,110	
DEFERRED LEASE ACQUISITION COSTS, net	  	 	1,868,674	  	 	1,525,199	
DUE FROM AFFILIATES	  	 	1,820,241	  	 	1,692,727	
PREPAID EXPENSES AND OTHER ASSETS, net	  	 	1,584,942	  	 	718,389	
DEFERRED OFFERING COSTS	  	 	244,761	  	 	0	

	

	  	

	

	
Total assets	  	$	973,530,487	  	$	752,281,412	

	

	  	

	

	
 
LIABILITIES AND SHAREHOLDERS’ EQUITY	  	 	 	 	 	 	 	 	
LIABILITIES:	  	 	 	 	 	 	 	 	
Notes payable	  	$	11,071,586	 	 	$	8,124,444	 	
Obligation under capital lease	  	 	22,000,000	 	 	 	22,000,000	 	
Accounts payable and accrued expenses	  	 	8,570,735	 	 	 	8,727,473	 	
Dividends payable	  	 	3,657,498	 	 	 	1,059,026	 	
Due to affiliates	  	 	990,923	 	 	 	2,166,161	 	
Deferred rental income	  	 	1,567,241	 	 	 	661,657	 	

	

	

	 	

	

	

	
Total liabilities	  	 	47,857,983	 	 	 	42,738,761	 	

	

	

	 	

	

	

	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200,000	 	 	 	200,000	 	

	

	

	 	

	

	

	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	
Common shares, $.01 par value; 125,000,000 shares authorized, 109,331,764 shares issued and 108,472,526 shares outstanding at March 31, 2002, and 83,761,469 shares issued and 83,206,429 shares outstanding at December 31, 2001	  	 	1,093,317	 	 	 	837,614	 	
Additional paid-in capital	  	 	966,577,500	 	 	 	738,236,525	 	
Cumulative distributions in excess of earnings	  	 	(33,555,824	)	 	 	(24,181,092	)	
Treasury stock, at cost, 859,238 shares at March 31, 2002 and 555,040 shares at December 31, 2001	  	 	(8,592,377	)	 	 	(5,550,396	)	
Other comprehensive loss	  	 	(50,112	)	 	 	0	 	

	

	

	 	

	

	

	
Total shareholders’ equity	  	 	925,472,504	 	 	 	709,342,651	 	

	

	

	 	

	

	

	
Total liabilities and shareholders’ equity	  	$	973,530,487	 	 	$	752,281,412	 	

	

	

	 	

	

	

	
 
The accompanying condensed notes are an integral part of these consolidated financial statements.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 	  	Three Months Ended

	
 	  	March 31,
2002

	  	March 31,
2001

	
REVENUES:	  	 	 	  	 	 	
Rental income	  	$	16,738,163	  	$	9,860,085	
Equity in income of joint ventures	  	 	1,206,823	  	 	709,713	
Interest income	  	 	1,113,715	  	 	99,915	
Take out fee	  	 	134,102	  	 	0	

	

	  	

	

	
 	  	 	19,192,803	  	 	10,669,713	

	

	  	

	

	
EXPENSES:	  	 	 	  	 	 	
Depreciation	  	 	5,744,452	  	 	3,187,179	
Management and leasing fees	  	 	899,495	  	 	565,714	
Operating costs, net of reimbursements	  	 	624,698	  	 	1,091,185	
General and administrative	  	 	529,031	  	 	175,107	
Interest expense	  	 	440,001	  	 	2,160,426	
Amortization of deferred financing costs	  	 	175,462	  	 	214,757	

	

	  	

	

	
 	  	 	8,413,139	  	 	7,394,368	

	

	  	

	

	
NET INCOME	  	$	10,779,664	  	$	3,275,345	

	

	  	

	

	
 	 	 	
EARNINGS PER SHARE	  	 	 	  	 	 	
Basic and diluted	  	$	0.11	  	$	0.10	

	

	  	

	

	

The accompanying condensed notes are an integral part of these consolidated financial statements.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the year ended December 31, 2001
and for the three months ended March 31, 2002
 
 	  	Common
Stock
Shares

	  	Common
Stock
Amount

	  	Additional
Paid-In
Capital

	 	 	Cumulative
Distributions
in Excess of
Earnings

	 	 	Retained
Earnings

	 	 	Treasury
Stock
Shares

	 	 	Treasury
Stock
Amount

	 	  	Other
Comprehensive
Income

	 	  	Total
Shareholders’
Equity

	 	
BALANCE, December 31, 2000	  	31,509,807	  	$	315,097	  	$	275,573,339	 	 	$	(9,133,855	)	 	$	0	 	 	(141,297	)	 	$	(1,412,969	)	  	$	0	 	  	$	265,341,612	 	
Issuance of common stock	  	52,251,662	  	 	522,517	  	 	521,994,103	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	522,516,620	 	
Treasury stock purchased	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	0	 	 	(413,743	)	 	 	(4,137,427	)	  	 	0	 	  	 	(4,137,427	)	
Net income	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	21,723,967	 	 	0	 	 	 	0	 	  	 	0	 	  	 	21,723,967	 	
Dividends ($.76 per share)	  	0	  	 	0	  	 	0	 	 	 	(15,047,237	)	 	 	(21,723,967	)	 	0	 	 	 	0	 	  	 	0	 	  	 	(36,771,204	)	
Sales commissions and discounts	  	0	  	 	0	  	 	(49,246,118	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	(49,246,118	)	
Other offering expenses	  	0	  	 	0	  	 	(10,084,799	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	(10,084,799	)	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	
BALANCE, December 31, 2001	  	83,761,469	  	 	837,614	  	 	738,236,525	 	 	 	(24,181,092	)	 	 	0	 	 	(555,040	)	 	 	(5,550,396	)	  	 	0	 	  	 	709,342,651	 	
Issuance of common stock	  	25,570,295	  	 	255,703	  	 	255,447,240	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	255,702,943	 	
Treasury stock purchased	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	0	 	 	(304,198	)	 	 	(3,041,981	)	  	 	0	 	  	 	(3,041,981	)	
Net income	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	10,779,664	 	 	0	 	 	 	0	 	  	 	0	 	  	 	10,779,664	 	
Dividends ($.19 per share)	  	0	  	 	0	  	 	0	 	 	 	(9,374,732	)	 	 	(10,779,664	)	 	0	 	 	 	0	 	  	 	0	 	  	 	(20,154,396	)	
Sales commissions and discounts	  	0	  	 	0	  	 	(24,579,655	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	(24,579,655	)	
Other offering expenses	  	0	  	 	0	  	 	(2,526,610	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	(2,526,610	)	
Gain/(loss) on interest rate swap	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	(50,112	)	  	 	(50,112	)	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	
BALANCE, March 31, 2002 (UNAUDITED)	  	109,331,764	  	$	1,093,317	  	$	966,577,500	 	 	$	(33,555,824	)	 	$	0	 	 	(859,238	)	 	$	(8,592,377	)	  	$	(50,112	)	  	$	925,472,504	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	
 
The accompanying condensed notes are an integral part of these consolidated financial statements.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 	  	Three Months Ended

	 	
 	  	March 31,
2002

	 	 	March 31,
2001

	 	
CASH FLOWS FROM OPERATING ACTIVITIES:	  	 	 	 	 	 	 	 	
Net income	  	$	10,779,664	 	 	$	3,275,345	 	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	(1,206,823	)	 	 	(709,713	)	
Depreciation	  	 	5,744,452	 	 	 	3,187,179	 	
Amortization of deferred financing costs	  	 	175,462	 	 	 	214,757	 	
Amortization of deferred leasing costs	  	 	72,749	 	 	 	75,837	 	
Deferred lease acquisition costs paid	  	 	(400,000	)	 	 	0	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	
Accounts receivable	  	 	(1,694,308	)	 	 	(264,416	)	
Due from affiliates	  	 	(13,740	)	 	 	0	 	
Deferred rental income	  	 	905,584	 	 	 	(142,888	)	
Prepaid expenses and other assets, net	  	 	(1,092,127	)	 	 	2,481,643	 	
Accounts payable and accrued expenses	  	 	(156,738	)	 	 	96,828	 	
Due to affiliates	  	 	(626	)	 	 	20,742	 	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	13,113,549	 	 	 	8,235,314	 	

	

	

	 	

	

	

	
CASH FLOWS FROM INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	
Investments in real estate	  	 	(104,051,998	)	 	 	(2,703,858	)	
Investment in joint ventures	  	 	0	 	 	 	(5,749	)	
Deferred project costs paid	  	 	(9,461,180	)	 	 	(2,288,936	)	
Distributions received from joint ventures	  	 	1,691,486	 	 	 	734,286	 	

	

	

	 	

	

	

	
Net cash used in investing activities	  	 	(111,821,692	)	 	 	(4,264,257	)	

	

	

	 	

	

	

	
CASH FLOWS FROM FINANCING ACTIVITIES:	  	 	 	 	 	 	 	 	
Proceeds from notes payable	  	 	2,947,142	 	 	 	5,800,000	 	
Repayment of notes payable	  	 	0	 	 	 	(56,923,187	)	
Dividends paid to shareholders	  	 	(17,555,924	)	 	 	(6,213,236	)	
Issuance of common stock	  	 	255,702,943	 	 	 	66,174,705	 	
Sales commissions paid	  	 	(24,579,655	)	 	 	(6,212,824	)	
Offering costs paid	  	 	(3,327,977	)	 	 	(1,961,945	)	
Treasury stock purchased	  	 	(3,041,981	)	 	 	(776,555	)	

	

	

	 	

	

	

	
Net cash (used in) provided by financing activities	  	 	210,144,548	 	 	 	(113,042	)	

	

	

	 	

	

	

	
NET INCREASE IN CASH AND CASH EQUIVALENTS	  	 	111,436,405	 	 	 	3,858,015	 	
CASH AND CASH EQUIVALENTS, beginning of year	  	 	75,586,168	 	 	 	4,298,301	 	

	

	

	 	

	

	

	
CASH AND CASH EQUIVALENTS, end of period	  	$	187,022,573	 	 	$	8,156,316	 	

	

	

	 	

	

	

	
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	
Deferred project costs applied to real estate assets	  	$	4,080,388	 	 	$	1,430,111	 	

	

	

	 	

	

	

	
Deferred project costs due to affiliate	  	$	496,134	 	 	$	0	 	

	

	

	 	

	

	

	
Interest rate swap	  	$	(50,112	)	 	$	0	 	

	

	

	 	

	

	

	
Deferred offering costs due to affiliate	  	$	244,761	 	 	$	0	 	

	

	

	 	

	

	

	
Other offering costs due to affiliate	  	$	141,761	 	 	$	0	 	

	

	

	 	

	

	

	
Write-off of deferred offering costs due to affiliate	  	$	0	 	 	$	709,686	 	

	

	

	 	

	

	

	
 
The accompanying condensed notes are an integral part of these consolidated financial statements.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
 
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2002
(Unaudited)
 
1.    Summary of Significant Accounting Policies
 
(a)  General
 
Wells Real Estate Investment Trust, Inc. (the “Company”) is a Maryland corporation formed on July 3, 1997, which qualifies as a real estate investment trust (“REIT”). Substantially all of the Company’s business is conducted through Wells Operating Partnership, L.P. (“Wells OP”), a Delaware limited partnership organized for the purpose of acquiring, developing, owning, operating, improving, leasing, and otherwise managing income producing commercial properties for investment purposes on behalf of the Company. The Company is the sole general partner of Wells OP.
 
On January 30, 1998, the Company commenced its initial public offering of up to 16,500,000 shares of common stock at $10 per share pursuant to a Registration Statement on Form S-11 filed under the Securities Act of 1933. The Company commenced active operations on June 5, 1998, upon receiving and accepting subscriptions for 125,000 shares. The Company terminated its initial public offering on December 19, 1999 at which time gross proceeds of approximately $132,181,919 had been received from the sale of approximately 13,218,192 shares. The Company commenced its second public offering of shares of common stock on December 20, 1999, which was terminated on December 19, 2000 after receipt of gross proceeds of approximately $175,229,193 from the sale of approximately 17,522,919 shares from the second public offering. The Company commenced its third public offering of the shares of common stock on December 20, 2000. As of March 31, 2002, the Company has received gross proceeds of approximately $785,906,526 from the sale of approximately 78,590,653 shares from its third public offering. Accordingly, as of March 31, 2002, the Company has received aggregate gross offering proceeds of approximately $1,093,317,638 from the sale of 109,331,764 shares of its common stock to 27,900 investors. After payment of $37,965,419 in acquisition and advisory fees and acquisition expenses, payment of $125,647,820 in selling commissions and organization and offering expenses, capital contributions to joint ventures and acquisitions expenditures by Wells OP of $735,821,825 for property acquisitions, and common stock redemptions of $8,592,377 pursuant to the Company’s share redemption program, the Company was holding net offering proceeds of $185,290,197 available for investment in properties, as of March 31, 2002.
 
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Table of Contents
(b) Properties
 
As of March 31, 2002, the Company owned interests in 44 properties listed in the table below through its ownership in Wells OP. As of March 31, 2002, all of these properties were 100% leased.
 
Property Name	  	Tenant	  	Property Location	  	%
Owned	 	 	Purchase
Price	 	 	Square
Feet	  	Annual
Rent	 	

	
Dana Detroit Building	  	Dana Corporation	  	Detroit, MI	  	100	%	 	$	23,650,000	 	 	112,480	  	$	2,330,600	 	

	
Dana Kalamazoo Building	  	Dana Corporation	  	Kalamazoo, MI	  	100	%	 	$	18,300,000	 	 	147,004	  	$	1,842,800	 	

	
Novartis Building	  	Novartis Opthalmics, Inc.	  	Atlanta, GA	  	100	%	 	$	15,000,000	 	 	100,087	  	$	1,426,240	 	

	
Transocean Houston Building	  	Transocean Deepwater Offshore Drilling,
Inc.	  	Houston, TX	  	100	%	 	$	22,000,000	 	 	103,260	  	$	2,110,035	 	
 	  	Newpark Resources, Inc.	  	 	  	 	 	 	 	 	 	 	52,731	  	$	1,153,227	 	

	
Andersen Building	  	Arthur Andersen LLP	  	Sarasota, FL	  	100	%	 	$	21,400,000	 	 	157,704	  	$	1,988,454	 	

	
Windy Point Buildings	  	TCI Great Lakes, Inc.
The Apollo Group, Inc.
Global Knowledge Network
Zurich American Insurance
Various other tenants	  	Schaumburg, IL	  	100	%	 	$	89,275,000	 	 	129,157
28,322
22,028
300,000
8,884	  	$
$
$
$
$	1,940,404
242,948
358,094
4,718,285
129,947	 

 

	
Convergys Building	  	Convergys Customer Management Group,
Inc.	  	Tamarac, FL	  	100	%	 	$	13,255,000	 	 	100,000	  	$	1,144,176	 	

	
ADIC Buildings	  	Advanced Digital Information Corporation	  	Parker, CO	  	68.2	%	 	$	12,954,213	 	 	148,200	  	$	1,124,868	 	

	
Lucent Building	  	Lucent Technologies, Inc.	  	Cary, NC	  	100	%	 	$	17,650,000	 	 	120,000	  	$	1,813,500	 	

	
Ingram Micro Building	  	Ingram Micro, L.P.	  	Millington, TN	  	100	%	 	$	21,050,000	 	 	701,819	  	$	2,035,275	 	

	
Nissan Property	  	Nissan Motor Acceptance Corporation	  	Irving, TX	  	100	%	 	$	5,545,700	(1)	 	268,290	  	$	4,225,860	(2)	

	
IKON Buildings	  	IKON Office Solutions, Inc.	  	Houston, TX	  	100	%	 	$	20,650,000	 	 	157,790	  	$	2,015,767	 	

	
State Street Building	  	SSB Realty, LLC	  	Quincy, MA	  	100	%	 	$	49,563,000	 	 	234,668	  	$	6,922,706	 	

	
AmeriCredit Building	  	AmeriCredit Financial Services
Corporation	  	Orange Park, FL	  	68.2	%	 	$	12,500,000	 	 	85,000	  	$	1,322,388	 	

	
Comdata Building	  	Comdata Network, Inc.	  	Nashville, TN	  	55.0	%	 	$	24,950,000	 	 	201,237	  	$	2,443,647	 	

	
AT&T Oklahoma Buildings	  	AT&T Corp.
Jordan Associates, Inc.	  	Oklahoma City, OK	  	55.0	%	 	$	15,300,000	 	 	103,500
25,000	  	$
$	1,242,000
294,504	 

	
Metris Minnesota Building	  	Metris Direct, Inc.	  	Minnetonka, MN	  	100	%	 	$	52,800,000	 	 	300,633	  	$	4,960,445	 	

	
Stone & Webster Building	  	Stone & Webster, Inc.
SYSCO Corporation	  	Houston, TX	  	100	%	 	$	44,970,000	 	 	206,048
106,516	  	$
$	4,533,056
2,130,320	 

	
Motorola Plainfield Building	  	Motorola, Inc.	  	South Plainfield, NJ	  	100	%	 	$	33,648,156	 	 	236,710	  	$	3,324,427	 	

	
Quest Building	  	Quest Software, Inc.	  	Irvine, CA	  	15.8	%	 	$	7,193,000	 	 	65,006	  	$	1,287,119	 	

	
Delphi Building	  	Delphi Automotive Systems, LLC	  	Troy, MI	  	100	%	 	$	19,800,000	 	 	107,193	  	$	1,937,664	 	

	
Avnet Building	  	Avnet, Inc.	  	Tempe, AZ	  	100	%	 	$	13,250,000	 	 	132,070	  	$	1,516,164	 	

	
Siemens Building	  	Siemens Automotive Corp.	  	Troy, MI	  	56.8	%	 	$	14,265,000	 	 	77,054	  	$	1,371,946	 	

	
Motorola Tempe Building	  	Motorola, Inc.	  	Tempe, AZ	  	100	%	 	$	16,000,000	 	 	133,225	  	$	1,913,999	 	

	
ASML Building	  	ASM Lithography, Inc.	  	Tempe, AZ	  	100	%	 	$	17,355,000	 	 	95,133	  	$	1,927,788	 	

	
Dial Building	  	Dial Corporation	  	Scottsdale, AZ	  	100	%	 	$	14,250,000	 	 	129,689	  	$	1,387,672	 	

	
Metris Tulsa Building	  	Metris Direct, Inc.	  	Tulsa, OK	  	100	%	 	$	12,700,000	 	 	101,100	  	$	1,187,925	 	

	
Cinemark Building	  	Cinemark USA, Inc.
The Coca-Cola Co.	  	Plano, TX	  	100	%	 	$	21,800,000	 	 	65,521
52,587	  	$
$	1,366,491
1,354,524	 

	
Gartner Building	  	The Gartner Group, Inc.	  	Ft. Myers, FL	  	56.8	%	 	$	8,320,000	 	 	62,400	  	$	830,968	 	

	
Videojet Technologies Chicago
(formerly known as the “Marconi Building”)	  	Videojet Technologies, Inc.	  	Wood Dale, IL	  	100	%	 	$	32,630,940	 	 	250,354	  	$	3,376,743	 	

	
Johnson Matthey Building	  	Johnson Matthey, Inc.	  	Tredyffrin Township, PA	  	56.8	%	 	$	8,000,000	 	 	130,000	  	$	841,750	 	

	
Alstom Power Richmond Building	  	Alstom Power, Inc.	  	Midlothian, VA	  	100	%	 	$	11,400,000	 	 	99,057	  	$	1,225,963	 	

	
Sprint Building	  	Sprint Communications Company, L.P.	  	Leawood, KS	  	56.8	%	 	$	9,500,000	 	 	68,900	  	$	1,062,949	 	

	
EYBL CarTex Building	  	EYBL CarTex, Inc.	  	Greenville, SC	  	56.8	%	 	$	5,085,000	 	 	169,510	  	$	543,845	 	

	
Matsushita Building	  	Matsushita Avionics Systems Corporation	  	Lake Forest, CA	  	100	%	 	$	18,431,206	 	 	144,906	  	$	1,995,704	 	

	
AT&T Pennsylvania Building	  	Pennsylvania Cellular Telephone Corp.	  	Harrisburg, PA	  	100	%	 	$	12,291,200	 	 	81,859	  	$	1,442,116	 	

	
PwC Building	  	PricewaterhouseCoopers, LLP	  	Tampa, FL	  	100	%	 	$	21,127,854	 	 	130,091	  	$	2,093,382	 	

	
Fairchild Building	  	Fairchild Technologies U.S.A., Inc.	  	Fremont, CA	  	77.5	%	 	$	8,900,000	 	 	58,424	  	$	922,444	 	

	
Cort Furniture Building	  	Cort Furniture Rental Corporation	  	Fountain Valley, CA	  	44.0	%	 	$	6,400,000	 	 	52,000	  	$	834,888	 	

	
Iomega Building	  	Iomega Corporation	  	Ogden City, UT	  	3.7	%	 	$	5,025,000	 	 	108,250	  	$	539,958	 	

	
Interlocken Building	  	ODS Technologies, L.P. and GAIAM,
Inc.	  	Broomfield, CO	  	3.7	%	 	$	8,275,000	 	 	51,975	  	$	1,031,003	 	

	
Ohmeda Building	  	Ohmeda, Inc.	  	Louisville, CO	  	3.7	%	 	$	10,325,000	 	 	106,750	  	$	1,004,517	 	

	
Alstom Power Knoxville Building	  	Alstom Power, Inc.	  	Knoxville, TN	  	3.7	%	 	$	7,900,000	 	 	84,404	  	$	1,106,519	 	

	
Avaya Building	  	Avaya, Inc.	  	Oklahoma City, OK	  	3.7	%	 	$	5,504,276	 	 	57,186	  	$	536,977	 	

	
 
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(1)	 	This represents the costs incurred by Wells OP to purchase the land. Total costs to be incurred for development of the Nissan Property are currently estimated to be $42,259,000.	
(2)	 	Annual rent does not take effect until construction of the building is completed and the tenant is occupying the building.	
 
Wells OP owns interests in properties directly and through equity ownership in the following joint ventures:
 
Joint Venture	  	Joint Venture Partners	  	Properties Held by Joint Venture	

	
Fund XIII-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Wells Real Estate Fund XIII, L.P.	  	The AmeriCredit Building
The ADIC Buildings	

	
Fund XII-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Wells Real Estate Fund XII, L.P.	  	The Siemens Building
The AT&T Oklahoma Buildings
The Comdata Building	

	
Fund XI-XII-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Wells Real Estate Fund XI, L.P.
Wells Real Estate Fund XII, L.P.	  	The EYBL CarTex Building
The Sprint Building
The Johnson Matthey Building
The Gartner Building	

	
Fund IX-X-XI-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Wells Real Estate Fund IX, L.P.
Wells Real Estate Fund X, L.P.
Wells Real Estate Fund XI, L.P.	  	The Alstom Power Knoxville Building
The Ohmeda Building
The Interlocken Building
The Avaya Building
The Iomega Building	

	
Wells/Fremont Associates Joint Venture (the “Fremont Joint Venture”)	  	Wells Operating Partnership, L.P.
Fund X-XI Joint Venture	  	The Fairchild Building	

	
Wells/Orange County Associates Joint Venture (the “Orange County Joint Venture”)	  	Wells Operating Partnership, L.P.
Fund X-XI Joint Venture	  	The Cort Building	

	
Fund VIII-IX-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Fund VIII-IX Joint Venture	  	Quest Building	

	
 
(c) Critical Accounting Policies
 
The Company’s accounting policies have been established in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied; thus, resulting in a different presentation of our financial statements. Below is a discussion of the accounting policies that we consider to be critical in that they may require complex judgment in their application or require estimates about matters which are inherently uncertain.
 
Revenue Recognition
 
The Company recognizes rental income generated from all leases on real estate assets in which the Company has an ownership interest, either directly or through investments in joint ventures, on a straight–line basis over the terms of the respective leases. If a tenant was to encounter financial difficulties in future periods, the amount recorded as a receivable may not be realized.
 
Operating Cost Reimbursements
 
The Company generally bills tenants for operating cost reimbursements, either directly or through investments in joint ventures, on a monthly basis at amounts estimated largely based on actual prior period activity and the respective lease terms. Such billings are generally adjusted on an annual basis to reflect reimbursements owed to the landlord based on the actual costs incurred during the period and the respective lease terms. Financial difficulties encountered by tenants may result in receivables not being realized.

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Real Estate
 
Management continually monitors events and changes in circumstances indicating that the carrying amounts of the real estate assets in which the Company has an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When such events or changes in circumstances are present, management assesses the potential impairment by comparing the fair market value of the asset, estimated at an amount equal to the future undiscounted operating cash flows expected to be generated from tenants over the life of the asset and from its eventual disposition, to the carrying value of the asset. In the event that the carrying amount exceeds the estimated fair market value, the Company would recognize an impairment loss in the amount required to adjust the carrying amount of the asset to its estimated fair market value. Neither the Company nor its joint ventures have recognized impairment losses on real estate assets in 2002 or 2001.
 
Deferred Project Costs
 
Wells Capital, Inc. (the “Advisor”) expects to continue to fund 100% of the acquisition and advisory fees and acquisition expenses and recognize related expenses, to the extent that such costs exceed 3.5% of cumulative capital raised (subject to certain overall limitations described in the prospectus), on behalf of the Company. The Company records acquisition and advisory fees and acquisition expenses by capitalizing deferred project costs and reimbursing the Advisor in an amount equal to 3.5% of cumulative capital raised to date. As the Company invests its capital proceeds, deferred project costs are applied to real estate assets, either directly or through contributions to joint ventures, at an amount equal to 3.5% of each investment and depreciated over the useful lives of the respective real estate assets. Acquisition and advisory fees and acquisition expenses paid as of March 31, 2002, amounted to $37,965,419 and represented approximately 3.5% of shareholders’ capital contributions received. These fees are allocated to specific properties as they are purchased or developed and are included in capitalized assets of the joint venture, or real estate assets. Deferred project costs at March 31, 2002 and December 31, 2001, represent fees paid, but not yet applied to properties.
 
Deferred Offering Costs
 
The Advisor expects to continue to fund 100% of the organization and offering costs and recognize related expenses, to the extent that such costs exceed 3% of cumulative capital raised, on behalf of the Company. Organization and offering costs include items such as legal and accounting fees, marketing and promotional costs, and printing costs, and specifically exclude sales costs and underwriting commissions. The Company records offering costs by accruing deferred offering costs, with an offsetting liability included in due to affiliates, at an amount equal to the lesser of 3% of cumulative capital raised to date or actual costs incurred from third–parties less reimbursements paid to the Advisor. As the actual equity is raised, the Company reverses the deferred offering costs accrual and recognizes a charge to stockholders’ equity upon reimbursing the Advisor.            As of March 31, 2002, the Advisor had paid offering expenses on behalf of the Company in an aggregate amount of $23,230,560, of which the Advisor had been reimbursed $22,021,962, which did not exceed the 3% limitation. Deferred offering costs in the accompanying balance sheet represent costs incurred by the Advisor which will be reimbursed by the Company.
 
(d) Distribution Policy
 
The Company will make distributions each taxable year (not including a return of capital for federal income tax purposes) equal to at least 90% of its real estate investment trusts taxable income. The Company intends to make regular quarterly distributions to holders of the shares. Distributions will be made to those shareholders who are shareholders as of the record date selected by the Directors. The Company currently calculates quarterly dividends based on the daily record and dividend declaration dates; thus, shareholders are entitled to receive dividends immediately upon the purchase of shares.
 
Dividends to be distributed to the shareholders are determined by the Board of Directors and are dependent on a number of factors related to the Company, including funds available for payment of dividends, financial condition, capital expenditure requirements and annual distribution requirements in order to maintain the Company’s status as a REIT under the Code. Operating cash flows are expected to increase as additional properties are added to the Company’s investment portfolio.
 
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(e) Income Taxes
 
The Company has made an election under Section 856 (C) of the Internal Revenue Code of 1986, as amended (the “Code”), to be taxed as a Real Estate Investment Trust (“REIT”) under the Code beginning with its taxable year ended December 31, 1998. As a REIT for federal income tax purposes, the Company generally will not be subject to federal income tax on income that it distributes to its shareholders. If the Company fails to qualify as a REIT in any taxable year, it will then be subject to federal income tax on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost. Such an event could materially adversely affect the Company’s net income and net cash available to distribute to shareholders. However, the Company believes that it is organized and operates in such a manner as to qualify for treatment as a REIT and intends to continue to operate in the foreseeable future in such a manner so that the Company will remain qualified as a REIT for federal income tax purposes.
 
(f) Employees
 
The Company has no direct employees. The employees of the Advisor and Wells Management Company, Inc., perform a full range of real estate services including leasing and property management, accounting, asset management and investor relations for the Company.
 
(g) Insurance
 
Wells Management Company, Inc., an affiliate of the Company and the Advisor, carries comprehensive liability and extended coverage with respect to all the properties owned directly or indirectly by the Company. In the opinion of management, the properties are adequately insured.
 
(h) Competition
 
The Company will experience competition for tenants from owners and managers of competing projects, which may include its affiliates. As a result, the Company 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 Company elects to dispose of its properties, the Company will also be in competition with sellers of similar properties to locate suitable purchasers for its properties.
 
(i) Statement of Cash Flows
 
For the purpose of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents include cash and short-term investments.
 
(j) Basis of Presentation
 
Substantially all of the Company’s business is conducted through Wells OP. On December 31, 1997, Wells OP issued 20,000 limited partner units to the Advisor in exchange for a capital contribution of $200,000. The Company is the sole general partner in Wells OP; consequently, the accompanying consolidated balance sheet of the Company includes the amounts of the Company and Wells OP. The Advisor, a limited partner, is not currently receiving distributions from its investment in Wells OP.
 
The consolidated financial statements of the Company have been prepared in accordance with instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These quarterly statements have not been examined by independent accountants, but in the opinion of the Board of Directors, the statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary to present a fair presentation of the results for such periods. Results for interim periods are not necessarily indicative of full year results. For further information, refer to the financial statements and footnotes included in the Company’s Form 10-K for the year ended December 31, 2001.
 
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2.    INVESTMENT IN JOINT VENTURES
 
(a) Basis of Presentation
 
As of March 31, 2002, the Company owned interests in 17 properties in joint ventures with related entities through its ownership in Wells OP, which owns interests in seven such joint ventures. The Company does not have control over the operations of these joint ventures; however, it does exercise significant influence. Accordingly, investment in joint ventures is recorded using the equity method.
 
(b) Summary of Operations
 
The following information summarizes the operations of the unconsolidated joint ventures in which the Company, through Wells OP, had ownership interests as of March 31, 2002 and 2001, respectively. There were no additional investments in joint ventures made by the Company during the three months ended March 31, 2002.
 
 	  	Total Revenues

	  	Net Income

	  	Wells OP’s Share of Net
Income

	
 	  	Three Months Ended

	  	Three Months Ended

	  	Three Months Ended

	
 	  	March 31,
2002

	  	March 31,
2001

	  	March 31,
2002

	  	March 31,
2001

	  	March 31,
2002

	  	March 31,
2001

	
Fund IX-X-XI-REIT Joint Venture	  	$	1,379,059	  	$	1,449,856	  	$	554,268	  	$	638,435	  	$	20,572	  	$	23,696	
Cort Joint Venture	  	 	212,006	  	 	199,586	  	 	129,750	  	 	133,753	  	 	56,658	  	 	58,406	
Fremont Joint Venture	  	 	225,161	  	 	225,178	  	 	135,948	  	 	142,612	  	 	105,365	  	 	110,530	
Fund XI-XII-REIT Joint Venture	  	 	858,219	  	 	847,030	  	 	497,149	  	 	514,277	  	 	282,197	  	 	291,918	
Fund XII-REIT Joint Venture	  	 	1,670,863	  	 	947,943	  	 	805,513	  	 	445,321	  	 	442,726	  	 	208,634	
Fund VIII-IX-REIT Joint Venture	  	 	323,746	  	 	267,624	  	 	160,696	  	 	105,033	  	 	273,931	  	 	16,529	
Fund XIII-REIT Joint Venture	  	 	700,648	  	 	0	  	 	401,674	  	 	0	  	 	25,374	  	 	0	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 	  	$	5,369,702	  	$	3,937,217	  	$	2,684,998	  	$	1,979,431	  	$	1,206,823	  	$	709,713	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 
3.    INVESTMENTS IN REAL ESTATE
 
As of March 31, 2002, the Company, through its ownership in Wells OP, owns 27 properties directly. The following describes acquisitions made directly by Wells OP during the three months ended March 31, 2002.
 
The Andersen Building
 
On January 11, 2002, Wells OP purchased the Andersen Building, a three-story office building containing approximately 157,700 rentable square feet on a 9.8 acre tract of land located in Sarasota County, Florida for a purchase price of $21,400,000, excluding closing costs. The Andersen Building is leased to Arthur Andersen LLP (“Andersen”). The current term of the Andersen lease is 10 years, which commenced on November 11, 1998 and expires on October 31, 2009. Andersen has the right to extend the initial 10-year term of its lease for two additional five-year periods at 90% of the then-current market rental rate. The current annual base rent payable under the Andersen lease is $1,988,454. Andersen has the option to purchase the Andersen Building prior to the end of the fifth lease year for $23,250,000 and again at the expiration of the initial lease term for $25,148,000.
 
The Transocean Houston Building
 
On March 15, 2002, Wells OP purchased the Transocean Houston Building, a six story office building containing approximately 156,000 rentable square feet located in Houston, Harris County, Texas for a purchase price of
 
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$22,000,000, excluding closing costs. The Transocean Houston Building is 100% leased to Transocean Deepwater Offshore Drilling, Inc. (“Transocean”) and Newpark Drilling Fluids, Inc. (“Newpark”).
 
The Transocean lease is a triple net lease which covers approximately 103,260 square feet commencing in December 2001 and expiring in March 2011. The initial annual base rent payable under the Transocean lease is $2,110,035. Transocean has the option to extend the initial term of its lease for either (1) two additional five-year periods, or (2) one additional ten-year period, at the then-current market rental rate. In addition, Transocean has an expansion option and a right of first refusal for up to an additional 51,780 rentable square feet.
 
The Newpark lease covers approximately 52,731 rentable square feet and is a net lease that commenced in August 1999 and expires in August 2009. The current annual base rent payable under the Newpark lease is $1,153,227.
 
The Novartis Atlanta Building
 
On March 28, 2002, Wells OP purchased the Novartis Atlanta Building, a four-story office building containing approximately 100,000 rentable square feet located in Duluth, Fulton County, Georgia for a purchase price of $15,000,000, excluding closing costs. The Novartis Atlanta Building is 100% leased to Novartis Opthalmics, Inc. (“Novartis”). The Novartis lease is a net lease which commenced in August 2001 and expires in July 2011. Novartis Corporation, the parent of Novartis, has guaranteed the lease. The current annual base rent payable is $1,426,240. Novartis, at its option, may extend the initial term of its lease for three additional five-year periods at the then-current market rental rate. In addition, Novartis may terminate the lease at the end of the fifth lease year by paying a $1,500,000 termination fee.
 
The Dana Corporation Buildings
 
On March 29, 2002, Wells OP purchased all of the membership interests in Dana Farmington Hills, LLC and Dana Kalamazoo, LLC, which respectively owned a three-story office and research development building containing approximately 112,400 rentable square feet located in Farmington Hills, Oakland County, Michigan (the “Dana Detroit Building”) and a two-story office and industrial building containing approximately 147,000 rentable square feet located in Kalamazoo, Kalamazoo County, Michigan (the “Dana Kalamazoo Building”) for an aggregate purchase price of $41,950,000, excluding closing costs.
 
The Dana Detroit Building is 100% leased to the Dana Corporation (“Dana”) under a net lease that commenced in October 2001 and expires in October 2021. The current annual base rent payable under the Dana lease for Detroit is $2,330,600. Dana may, at its option, extend the initial term of its lease for six additional five-year periods at the then-current market rental rate. Additionally, Dana may terminate the lease after the eleventh year of its initial lease term subject to certain conditions.
 
The Dana Kalamazoo Building is also 100% leased to Dana. The Dana lease for Kalamazoo is a net lease which commenced in October 2001 and expires in October 2011. The current annual base rent payable is $1,842,800. Dana has the option to extend the initial term of the Dana lease in Kalamazoo for six additional five-year periods at the then-current market rental rate. Additionally, Dana may terminate the lease at any time after the sixth year of the initial lease term and before the end of the nineteenth lease year, subject to certain conditions.
 
4.    NOTES PAYABLE
 
Notes payable consists of (i) $7,655,600 of draws on a line of credit from SouthTrust Bank secured by a first mortgage against the Cinemark, ASML, Dial, PwC, Motorola Tempe and Avnet Buildings and (ii) $3,415,986 outstanding on the construction loan from Bank of America which is being used to fund the development of the Nissan Property.
 
5.    DUE TO AFFILIATES
 
Due to affiliates consists of amounts due to the Advisor for Acquisitions and Advisory Fees and Acquisition Expenses, deferred offering costs, and other operating expenses paid on behalf of the Company. Also included in due to affiliates is the amount due to the Fund VIII-IX Joint Venture related to the Matsushita lease guarantee, which is explained in detail in the financial statements and footnotes included in the Company’s Form 10-K for the
 
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year ended December 31, 2001. Payments of $601,963 have been made as of March 31, 2002 toward funding the obligation under the Matsushita agreement.
 
6.    COMMITMENTS AND CONTINGENCIES
 
Take Out Purchase and Escrow Agreement
 
An affiliate of the Advisor (“Wells Exchange”) has developed a program (the “Wells Section 1031 Program”) involving the acquisition by Wells Exchange of income-producing commercial properties and the formation of a series of single member limited liability companies for the purpose of facilitating the resale of co-tenancy interests in such real estate properties to be owned in co-tenancy arrangements with persons (“1031 Participants”) who are looking to invest the proceeds from a sale of real estate held for investment in another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Code. Each of these properties will be financed by a combination of permanent first mortgage financing and interim loan financing obtained from institutional lenders.
 
Following the acquisition of each property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to pay off the interim financing. In consideration for the payment of a Take Out Fee to the Company, and following approval of the potential property acquisition by the Company’s Board of Directors, it is anticipated that Wells OP will enter into a contractual relationship providing that, in the event that Wells Exchange is unable to sell all of the co-tenancy interests in that particular property to 1031 Participants, Wells OP will purchase, at Wells Exchange’s cost, any co-tenancy interests remaining unsold at the end of the offering period. As a part of the initial transaction in the Wells Section 1031 Program, and in consideration for the payment of a take out fee in the amount of $137,500 to the Company, Wells OP entered into a take out purchase and escrow agreement dated April 16, 2001 providing, among other things, that Wells OP would be obligated to acquire, at Wells Exchange’s cost, any unsold co-tenancy interests in the building known as the Ford Motor Credit Complex which remained unsold at the expiration of the offering of Wells Exchange on April 15, 2002. On April 12, 2002, Wells Exchange paid off the interim financing on the Ford Motor Credit Complex and, accordingly, Wells OP has been released from its prior obligations under the take out purchase and escrow agreement relating to such property.
 
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PRIOR PERFORMANCE TABLES
 
The following Prior Performance Tables (Tables) provide information relating to real estate investment programs sponsored by Wells Capital, Inc., our advisor, and its affiliates (Wells Public Programs) which have investment objectives similar to Wells Real Estate Investment Trust, Inc. (Wells REIT). (See “Investment Objectives and Criteria.”) Except for the Wells REIT, all of the Wells Public Programs have used capital, and no acquisition indebtedness, to acquire their properties.
 
Prospective investors should read these Tables carefully together with the summary information concerning the Wells Public Programs as set forth in the “Prior Performance Summary” section of this prospectus.
 
Investors in the Wells REIT will not own any interest in the other Wells Public Programs and should not assume that they will experience returns, if any, comparable to those experienced by investors in other Wells Public Programs.
 
The advisor is responsible for the acquisition, operation, maintenance and resale of the real estate properties. The financial results of the Wells Public Programs, thus, may provide some indication of the advisor’s performance of its obligations during the periods covered. However, general economic conditions affecting the real estate industry and other factors contribute significantly to financial results.
 
The following tables are included herein:
 
Table I—Experience in Raising and Investing Funds (As a Percentage of Investment)
 
Table II—Compensation to Sponsor (in Dollars)
 
Table III—Annual Operating Results of Wells Public Programs
 
Table IV (Results of completed programs) has been omitted since none of the Wells Public Programs have been liquidated.
 
Table V—Sales or Disposals of Property
 
Additional information relating to the acquisition of properties by the Wells Public Programs is contained in Table VI, which is included in Part II of the registration statement which the Wells REIT has filed with the Securities and Exchange Commission. Copies of any or all information will be provided to prospective investors at no charge upon request.
 
The following are definitions of certain terms used in the Tables:
 
“Acquisition Fees” shall mean fees and commissions paid by a Wells Public Program in connection with its purchase or development of a property, except development fees paid to a person not affiliated with the Wells Public Program or with a general partner or advisor of the Wells Public Program in connection with the actual development of a project after acquisition of the land by the Wells Public Program.
 
“Organization Expenses” shall include legal fees, accounting fees, securities filing fees, printing and reproduction expenses and fees paid to the sponsor in connection with the planning and formation of the Wells Public Program.
 
“Underwriting Fees” shall include selling commissions and wholesaling fees paid to broker-dealers for services provided by the broker-dealers during the offering.
 
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TABLE I
(UNAUDITED)
 
EXPERIENCE IN RAISING AND INVESTING FUNDS
 
This Table provides a summary of the experience of the sponsors of Wells Public Programs for which offerings have been completed since December 31, 1998. Information is provided with regard to the manner in which the proceeds of the offerings have been applied. Also set forth is information pertaining to the timing and length of these offerings and the time period over which the proceeds have been invested in the properties. All figures are as of December 31, 2001.
 
 	  	Wells Real
Estate Fund
XI, L.P.

	 	 	Wells Real
Estate Fund
XII, L.P.

	 	 	Wells Real
Estate
Investment
Trust, Inc.

	 	
Dollar Amount Raised	  	$	16,532,802	(3)	 	$	35,611,192	(4)	 	$	307,411,112	(5)	

	

	

	 	

	

	

	 	

	

	

	
Percentage Amount Raised	  	 	100	%(3)	 	 	100	%(4)	 	 	100	%(5)	
Less Offering Expenses	  	 	 	 	 	 	 	 	 	 	 	 	
Underwriting Fees	  	 	9.5	%	 	 	9.5	%	 	 	9.5	%	
Organizational Expenses	  	 	3.0	%	 	 	3.0	%	 	 	3.0	%	
Reserves(1)	  	 	0.0	%	 	 	0.0	%	 	 	0.0	%	

	

	

	 	

	

	

	 	

	

	

	
Percent Available for Investment	  	 	87.5	%	 	 	87.5	%	 	 	87.5	%	
Acquisition and Development Costs	  	 	 	 	 	 	 	 	 	 	 	 	
Prepaid Items and Fees related to Purchase of Property	  	 	0.0	%	 	 	0.0	 	 	 	0.5	%	
Cash Down Payment	  	 	84.0	%	 	 	84.0	%	 	 	73.8	%	
Acquisition Fees(2)	  	 	3.5	%	 	 	3.5	%	 	 	3.5	%	
Development and Construction Costs	  	 	0.0	%	 	 	0.0	%	 	 	9.7	%	
Reserve for Payment of Indebtedness	  	 	0.0	%	 	 	0.0	%	 	 	0.0	%	

	

	

	 	

	

	

	 	

	

	

	
Total Acquisition and Development Cost	  	 	87.5	%	 	 	87.5	%	 	 	87.5	%	
Percent Leveraged	  	 	0.0	%	 	 	0.0	%	 	 	30.9	%	

	

	

	 	

	

	

	 	

	

	

	
Date Offering Began	  	 	12/31/97	 	 	 	03/22/99	 	 	 	01/30/98	 	
Length of Offering	  	 	12 mo.	 	 	 	24 mo.	 	 	 	35 mo.	 	
Months to Invest 90% of Amount Available for Investment (Measured from Beginning of Offering)	  	 	20 mo.	 	 	 	26 mo.	 	 	 	21 mo.	 	
Number of Investors as of 12/31/01	  	 	1,338	 	 	 	1,337	 	 	 	7,422	 	

(1)	 	Does not include general partner contributions held as part of reserves.	
(2)	 	Includes acquisition fees, real estate commissions, general contractor fees and/or architectural fees paid to affiliates of the general partners.	
(3)	 	Total dollar amount registered and available to be offered was $35,000,000. Wells Real Estate Fund XI, L.P. closed its offering on December 30, 1998, and the total dollar amount raised was $16,532,802.	
(4)	 	Total dollar amount registered and available to be offered was $70,000,000. Wells Real Estate Fund XII, L.P. closed its offering on March 21, 2001, and the total dollar amount raised was $35,611,192.	
(5)	 	The total dollar amount registered and available to be offered in the first offering was $165,000,000. Wells Real Estate Investment Trust, Inc. closed its initial offering on December 19, 1999, and the total dollar amount raised in its initial offering was $132,181,919. The total dollar amount registered and available to be offered in the second offering was $222,000,000. Wells Real Estate Investment Trust, Inc. closed its second offering on December 19, 2000, and the total dollar amount raised in its second offering was $175,229,193.	
 
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TABLE II
(UNAUDITED)
 
COMPENSATION TO SPONSOR
 
The following sets forth the compensation received by Wells Capital, Inc., our advisor, and its affiliates, including compensation paid out of offering proceeds and compensation paid in connection with the ongoing operations of Wells Public Programs having similar or identical investment objectives the offerings of which have been completed since December 31, 1998. All figures are as of December 31, 2001.
 
 	  	Wells Real
Estate Fund
XI, L.P.

	  	Wells Real
Estate Fund
XII, L.P.

	  	Wells Real
Estate
Investment
Trust, Inc.(1)

	  	Other Public
Programs(2)

	
Date Offering Commenced	  	 	12/31/97	  	 	03/22/99	  	 	01/30/98	  	 	—  	
Dollar Amount Raised	  	$	16,532,802	  	$	35,611,192	  	$	307,411,112	  	$	268,370,007	
To Sponsor from Proceeds of Offering:	  	 	 	  	 	 	  	 	 	  	 	 	
Underwriting Fees(3)	  	$	151,911	  	$	362,416	  	$	3,076,844	  	$	1,494,470	
Acquisition Fees	  	 	 	  	 	 	  	 	 	  	 	 	
Real Estate Commissions	  	 	—  	  	 	—  	  	 	—  	  	 	—  	
Acquisition and Advisory Fees(4)	  	$	578,648	  	$	1,246,392	  	$	10,759,389	  	$	12,644,556	
Dollar Amount of Cash Generated from Operations Before Deducting Payments to Sponsor(5)	  	$	3,494,174	  	$	3,508,128	  	$	116,037,681	  	$	58,169,461	
Amount Paid to Sponsor from Operations:	  	 	 	  	 	 	  	 	 	  	 	 	
Property Management Fee(2)	  	$	90,731	  	$	113,238	  	$	1,899,140	  	$	2,257,424	
Partnership Management Fee	  	 	—  	  	 	—  	  	 	—  	  	 	—  	
Reimbursements	  	$	164,746	  	$	142,990	  	$	1,047,449	  	$	2,503,609	
Leasing	  	$	90,731	  	$	113,238	  	$	1,899,140	  	$	2,257,426	
Commissions General Partner Distributions	  	 	—  	  	 	—  	  	 	—  	  	 	—  	
Other	  	 	—  	  	 	—  	  	 	—  	  	 	—  	
Dollar Amount of Property Sales and Refinancing Payments to Sponsors:	  	 	 	  	 	 	  	 	 	  	 	 	
Cash	  	 	—  	  	 	—  	  	 	—  	  	 	—  	
Notes	  	 	—  	  	 	—  	  	 	—  	  	 	—  	
Amount Paid to Sponsor from Property Sales and Refinancing:	  	 	 	  	 	 	  	 	 	  	 	 	
Real Estate Commissions	  	 	—  	  	 	—  	  	 	—  	  	 	—  	
Incentive Fees	  	 	—  	  	 	—  	  	 	—  	  	 	—  	
Other	  	 	—  	  	 	—  	  	 	—  	  	 	—  	

(1)	 	The total dollar amount registered and available to be offered in the first offering was $165,000,000. Wells Real Estate Investment Trust, Inc. closed its initial offering on December 19, 1999, and the total dollar amount raised in its initial offering was $132,181,919. The total dollar amount registered and available to be offered in the second offering was $222,000,000. Wells Real Estate Investment Trust, Inc. closed its second offering on December 19, 2000, and the total dollar amount raised in its second offering was $175,229,193.	
(2)	 	Includes compensation paid to the general partners from Wells Real Estate Fund I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells Real Estate Fund III, L.P., Wells Real Estate Fund IV, L.P., Wells Real Estate Fund V, L.P., Wells Real Estate Fund VI, L.P., Wells Real Estate Fund VII, L.P., Wells Real Estate Fund VIII, L.P., Wells Real Estate Fund IX, L.P. and Wells Real Estate Fund X, L.P. during the past three years. In addition to the amounts shown, affiliates of the general partners of Wells Real Estate Fund I are entitled to certain property management and leasing fees but have elected to defer the payment of such fees until a later year on properties owned by Wells Real Estate Fund I. As of December 31, 2001, the amount of such deferred fees totaled $2,627,841.	
(3)	 	Includes net underwriting compensation and commissions paid to Wells Investment Securities, Inc. in connection with the offering which was not reallowed to participating broker-dealers.	

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(4)	 	Fees paid to the general partners or their affiliates for acquisition and advisory services in connection with the review and evaluation of potential real property acquisitions.	
(5)	 	Includes $(161,104) in net cash provided by operating activities, $3,308,970 in distributions to limited partners and $346,208 in payments to sponsor for Wells Real Estate Fund XI, L.P.; $167,620 in net cash used by operating activities, $2,971,042 in distributions to limited partners and $369,466 in payments to sponsor for Wells Real Estate Fund XII, L.P.; $53,677,256 in net cash provided by operating activities, $57,514,696 in dividends and $4,845,729 in payments to sponsor for Wells Real Estate Investment Trust, Inc.; and $956,542 in net cash provided by operating activities, $50,169,329 in distributions to limited partners and $7,018,457 in payments to sponsor for other public programs.	
 
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TABLE III
(UNAUDITED)
 
The following five tables set forth operating results of Wells Public Programs the offerings of which have been completed since December 30, 1996. The information relates only to public programs with investment objectives similar to those of the Wells REIT. All figures are as of December 31 of the year indicated.
 
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TABLE III (UNAUDITED)
 
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND IX, L.P.
 
 	  	2001

	 	 	2000

	 	 	1999

	 	 	1998

	 	 	1997

	 	
Gross Revenues(1)	  	$	1,874,290	 	 	$	1,836,768	 	 	$	1,593,734	 	 	$	1,561,456	 	 	$	1,199,300	 	
Profit on Sale of Properties	  	 	—  	 	 	 	—  	 	 	 	—	 	 	 	—  	 	 	 	—  	 	
Less:  Operating Expenses(2)	  	 	105,816	 	 	 	78,092	 	 	 	90,903	 	 	 	105,251	 	 	 	101,284	 	
Depreciation and Amortization(3)	  	 	0	 	 	 	0	 	 	 	12,500	 	 	 	6,250	 	 	 	6,250	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Net Income GAAP Basis(4)	  	$	1,768,474	 	 	$	1,758,676	 	 	$	1,490,331	 	 	$	1,449,955	 	 	$	1,091,766	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Taxable Income:Operations	  	$	2,251,474	 	 	$	2,147,094	 	 	$	1,924,542	 	 	$	1,906,011	 	 	$	1,083,824	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Used By):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operations	  	$	(101,573	)	 	$	(66,145	)	 	$	(94,403	)	 	$	80,147	 	 	$	501,390	 	
Joint Ventures	  	 	2,978,785	 	 	 	2,831,329	 	 	 	2,814,870	 	 	 	2,125,489	 	 	 	527,390	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	$	2,877,212	 	 	$	2,765,184	 	 	$	2,720,467	 	 	$	2,205,636	 	 	$	1,028,780	 	
Less Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Cash Flow	  	 	2,877,212	 	 	 	2,707,684	 	 	 	2,720,467	 	 	 	2,188,189	 	 	 	1,028,780	 	
Return of Capital	  	 	—  	 	 	 	—  	 	 	 	15,528	 	 	 	—  	 	 	 	41,834	 	
Undistributed Cash Flow From Prior Year Operations	  	 	20,074	 	 	 	—  	 	 	 	17,447	 	 	 	—  	 	 	 	1,725	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Deficiency) after Cash Distributions	  	$	(20,074	)	 	$	57,500	 	 	$	(32,975	)	 	$	17,447	 	 	$	(43,559	)	
Special Items (not including sales and financing):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Increase in Limited Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	$	(20,074	)	 	$	57,500	 	 	$	(32,975	)	 	$	17,447	 	 	$	(43,559	)	
Use of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales Commissions and Offering Expenses	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	323,039	 	
Return of Original Limited Partner’s Investment	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	100	 	
Property Acquisitions and Deferred Project Costs	  	 	—  	 	 	 	44,357	 	 	 	190,853	 	 	 	9,455,554	 	 	 	13,427,158	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Deficiency) after Cash Distributions and Special Items	  	   $	(20,074	)	 	$	13,143	 	 	$	(223,828	)	 	  $	(9,438,107	)	 	$	(13,793,856	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Net Income and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income on GAAP Basis:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	57	 	 	 	93	 	 	 	89	 	 	 	88	 	 	 	53	 	
—Operations Class B Units	  	 	(0	)	 	 	(267	)	 	 	(272	)	 	 	(218	)	 	 	(77	)	
Capital Gain (Loss)	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Tax and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Federal Income Tax Results:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	94	 	 	 	91	 	 	 	86	 	 	 	85	 	 	 	46	 	
—Operations Class B Units	  	 	(195	)	 	 	(175	)	 	 	(164	)	 	 	(123	)	 	 	(47	)	
Capital Gain (Loss)	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source (on GAAP Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Investment Income Class A Units	  	 	56	 	 	 	87	 	 	 	88	 	 	 	73	 	 	 	36	 	
—Return of Capital Class A Units	  	 	36	 	 	 	—  	 	 	 	2	 	 	 	—  	 	 	 	—  	 	
—Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on Cash Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	92	 	 	 	87	 	 	 	89	 	 	 	73	 	 	 	35	 	
—Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	1	 	 	 	—  	 	 	 	1	 	
—Operations Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on a Priority Distribution Basis)(5)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Investment Income Class A Units	  	 	81	 	 	 	76	 	 	 	77	 	 	 	61	 	 	 	29	 	
—Return of Capital Class A Units	  	 	11	 	 	 	11	 	 	 	13	 	 	 	12	 	 	 	7	 	
—Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Amount (in Percentage Terms) Remaining Invested in Program Properties at the end of the Last Year Reported in the Table	  	 	100	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

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(1)	 	Includes $593,914 in equity in earnings of joint ventures and $605,386 from investment of reserve funds in 1997; $1,481,869 in equity in earnings of joint ventures and $79,587 from investment of reserve funds in 1998; $1,593,734 in equity in earnings of joint ventures and $0 from investment of reserve funds in 1999; and $1,829,216 in equity in earnings of joint ventures and $7,552 from investment of reserve funds in 2000; and $1,870,378 in equity in earnings of joint ventures and $3,912 from investment of reserve funds in 2001. As of December 31, 2001, the leasing status was 100% including developed property in initial lease up.	
(2)	 	Includes partnership administrative expenses.	
(3)	 	Included in equity in earnings of joint ventures in gross revenues is depreciation of $469,126 for 1997; $1,143,407 for 1998; $1,210,939 for 1999; $1,100,915 for 2000; and $1,076,802 for 2001.	
(4)	 	In accordance with the partnership agreement, net income or loss, depreciation and amortization are allocated $1,564,778 to Class A Limited Partners, $(472,806) to Class B Limited Partners and $(206) to the General Partners for 1997; $2,597,938 to Class A Limited Partners, $(1,147,983) to Class B Limited Partners and $0 to the General Partners for 1998; $2,713,636 to Class A Limited Partners, $(1,223,305) to Class B Limited Partners and $0 to the General Partners for 1999; $2,858,806 to Class A Limited Partners, $(1,100,130) to Class B Limited Partners and $0 to the General Partners for 2000; and $1,768,474 to Class A Limited Partners, $(0) to Class B Limited Partners and $0 to the General Partners for 2001.	
(5)	 	Pursuant to the terms of the partnership agreement, an amount equal to the cash distributions paid to Class A Limited Partners is payable as priority distributions out of the first available net proceeds from the sale of partnership properties to Class B Limited Partners. The amount of cash distributions paid per unit to Class A Limited Partners is shown as a return of capital to the extent of such priority distributions payable to Class B Limited Partners. As of December 31, 2001, the aggregate amount of such priority distributions payable to Class B Limited Partners totaled $1,668,253.	
 
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Table of Contents
TABLE III (UNAUDITED)
 
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND X, L.P.
 
 	  	2001

	 	 	2000

	 	 	1999

	 	 	1998

	 	 	1997

	 	
Gross Revenues(1)	  	$	1,559,026	 	 	$	1,557,518	 	 	$	1,309,281	 	 	$	1,204,597	 	 	$	372,507	 	
Profit or Sale of Properties	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Less:  Operating Expenses (2)	  	 	109,177	 	 	 	81,338	 	 	 	98,213	 	 	 	99,034	 	 	 	88,232	 	
     Depreciation and Amortization (3)	  	 	0	 	 	 	0	 	 	 	18,750	 	 	 	55,234	 	 	 	6,250	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Net Income GAAP Basis (4)	  	$	1,449,849	 	 	$	1,476,180	 	 	$	1,192,318	 	 	$	1,050,329	 	 	$	278,025	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Taxable Income: Operations	  	$	1,688,775	 	 	$	1,692,792	 	 	$	1,449,771	 	 	$	1,277,016	 	 	$	382,543	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Used By):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operations	  	 	(100,983	)	 	 	(59,595	)	 	 	(99,862	)	 	 	300,019	 	 	 	200,668	 	
Joint Ventures	  	 	2,307,137	 	 	 	2,192,397	 	 	 	2,175,915	 	 	 	886,846	 	 	 	—  	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	$	2,206,154	 	 	$	2,132,802	 	 	$	2,076,053	 	 	$	1,186,865	 	 	$	200,668	 	
Less Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Cash Flow	  	 	2,206,154	 	 	 	2,103,260	 	 	 	2,067,801	 	 	 	1,186,865	 	 	 	—  	 	
Return of Capital	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	19,510	 	 	 	—  	 	
Undistributed Cash Flow From Prior Year Operations	  	 	25,647	 	 	 	—  	 	 	 	—  	 	 	 	200,668	 	 	 	—  	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Deficiency) after Cash Distributions	  	$	(25,647	)	 	$	29,542	 	 	$	8,252	 	 	$	(220,178	)	 	$	200,668	 	
Special Items (not including sales and financing):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Increase in Limited Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	27,128,912	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	$	(25,647	)	 	$	29,542	 	 	$	8,252	 	 	$	(220,178	)	 	$	27,329,580	 	
Use of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales Commissions and Offering Expenses	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	300,725	 	 	 	3,737,363	 	
Return of Original Limited Partner’s Investment	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	100	 	
Property Acquisitions and Deferred Project Costs	  	 	0	 	 	 	81,022	 	 	 	0	 	 	 	17,613,067	 	 	 	5,188,485	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Deficiency) after Cash Distributions and Special Items	  	$	(25,647	)	 	$	(51,480	)	 	$	8,252	 	 	$	(18,133,970	)	 	$	18,403,632	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Net Income and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income on GAAP Basis:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	99	 	 	 	104	 	 	 	97	 	 	 	85	 	 	 	28	 	
—Operations Class B Units	  	 	(188	)	 	 	(159	)	 	 	(160	)	 	 	(123	)	 	 	(9	)	
Capital Gain (Loss)	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Tax and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Federal Income Tax Results:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	95	 	 	 	98	 	 	 	92	 	 	 	78	 	 	 	35	 	
—Operations Class B Units	  	 	(130	)	 	 	(107	)	 	 	(100	)	 	 	(64	)	 	 	0	 	
Capital Gain (Loss)	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source (on GAAP Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Investment Income Class A Units	  	 	96	 	 	 	94	 	 	 	95	 	 	 	66	 	 	 	—  	 	
—Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
—Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on Cash Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	96	 	 	 	94	 	 	 	95	 	 	 	56	 	 	 	—  	 	
—Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	10	 	 	 	—  	 	
—Operations Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on a Priority Distribution Basis) (5)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Investment Income Class A Units	  	 	80	 	 	 	74	 	 	 	71	 	 	 	48	 	 	 	—  	 	
—Return of Capital Class A Units	  	 	16	 	 	 	20	 	 	 	24	 	 	 	18	 	 	 	—  	 	
—Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Amount (in Percentage Terms) Remaining Invested in Program Properties at the end of the Last Year Reported in the Table	  	 	100	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 
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Table of Contents

(1)	 	Includes $(10,035) in equity in earnings of joint ventures and $382,542 from investment of reserve funds in 1997; $869,555 in equity in earnings of joint ventures and $215,042 from investment of reserve funds in 1998; $1,309,281 in equity in earnings of joint ventures and $0 from investment of reserve funds in 1999; 1,547,664 in equity in earnings of joint ventures and $9,854 from investment of reserve funds in 2000; and $1,549,588 in equity in earnings of joint ventures and $9,438 from investment of reserve funds in 2001. As of December 31, 2001, the leasing status was 100% including developed property in initial lease up.	
(2)	 	Includes partnership administrative expenses.	
(3)	 	Included in equity in earnings of joint ventures in gross revenues is depreciation of $18,675 for 1997; $674,986 for 1998; $891,911 for 1999; $816,544 for 2000; and $814,502 for 2001.	
(4)	 	In accordance with the partnership agreement, net income or loss, depreciation and amortization are allocated $302,862 to Class A Limited Partners, $(24,675) to Class B Limited Partners and $(162) to the General Partners for 1997; $1,779,191 to Class A Limited Partners, $(728,524) to Class B Limited Partners and $(338) to General Partners for 1998; $2,084,229 to Class A Limited Partners, $(891,911) to Class B Limited Partners and $0 to the General Partners for 1999; $2,292,724 to Class A Limited Partners, $(816,544) to Class B Limited Partners and $0 to the General Partners for 2000; and $2,264,351 to Class A Limited Partners, $(814,502) to Class B Limited Partners and $0 to the General Partners for 2001.	
(5)	 	Pursuant to the terms of the partnership agreement, an amount equal to the cash distributions paid to Class A Limited Partners is payable as priority distributions out of the first available net proceeds from the sale of partnership properties to Class B Limited Partners. The amount of cash distributions paid per unit to Class A Limited Partners is shown as a return of capital to the extent of such priority distributions payable to Class B Limited Partners. As of December 31, 2001, the aggregate amount of such priority distributions payable to Class B Limited Partners totaled $1,735,882.	
 
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Table of Contents
TABLE III (UNAUDITED)
 
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND XI, L.P.
 
 	  	2001

	 	 	2000

	 	 	1999

	 	 	1998

	 	 	1997

	
Gross Revenues(1)	  	$	960,676	 	 	$	975,850	 	 	$	766,586	 	 	$	262,729	 	 	N/A	
Profit on Sale of Properties	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	
Less: Operating Expenses(2)	  	 	90,326	 	 	 	79,861	 	 	 	111,058	 	 	 	113,184	 	 	 	
Depreciation and Amortization(3)	  	 	0	 	 	 	—  	 	 	 	25,000	 	 	 	6,250	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	
Net Income GAAP Basis(4)	  	$	870,350	 	 	$	895,989	 	 	$	630,528	 	 	$	143,295	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	
Taxable Income: Operations	  	$	1,038,394	 	 	$	944,775	 	 	$	704,108	 	 	$	177,692	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	
Cash Generated (Used By):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operations	  	 	(128,985	)	 	 	(72,925	)	 	 	40,906	 	 	 	(50,858	)	 	 	
Joint Ventures	  	 	1,376,673	 	 	 	1,333,337	 	 	 	705,394	 	 	 	102,662	 	 	 	
 	  	$	1,247,688	 	 	$	1,260,412	 	 	$	746,300	 	 	$	51,804	 	 	 	
Less Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Cash Flow	  	 	1,247,688	 	 	 	1,205,303	 	 	 	746,300	 	 	 	51,804	 	 	 	
Return of Capital	  	 	4,809	 	 	 	—  	 	 	 	49,761S	 	 	 	48,070	 	 	 	
Undistributed Cash Flow From Prior Year Operations	  	 	55,109	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	
Cash Generated (Deficiency) after Cash Distributions	  	$	(59,918	)	 	$	55,109	 	 	$	(49,761	)	 	$	(48,070	)	 	 	
Special Items (not including sales and financing):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	
Increase in Limited Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	16,532,801	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	
 	  	$	(59,918	)	 	$	55,109	 	 	$	(49,761	)	 	$	16,484,731	 	 	 	
Use of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales Commissions and Offering Expenses	  	 	—  	 	 	 	—  	 	 	 	214,609	 	 	 	1,779,661	 	 	 	
Return of Original Limited Partner’s Investment	  	 	—  	 	 	 	—  	 	 	 	100	 	 	 	—  	 	 	 	
Property Acquisitions and Deferred Project Costs	  	 	—  	 	 	 	—  	 	 	 	9,005,979	 	 	 	5,412,870	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	
Cash Generated (Deficiency) after Cash Distributions and Special Items	  	$	(59,918	)	 	$	55,109	 	 	$	(9,270,449	)	 	$	9,292,200	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	
Net Income and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income on GAAP Basis:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	101	 	 	 	103	 	 	 	77	 	 	 	50	 	 	 	
—Operations Class B Units	  	 	(158	)	 	 	(155	)	 	 	(112	)	 	 	(77	)	 	 	
Capital Gain (Loss)	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	
Tax and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Federal Income Tax Results:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	100	 	 	 	97	 	 	 	71	 	 	 	18	 	 	 	
—Operations Class B Units	  	 	(100	)	 	 	(112	)	 	 	(73	)	 	 	(17	)	 	 	
Capital Gain (Loss)	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	
Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source (on GAAP Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Investment Income Class A Units	  	 	97	 	 	 	90	 	 	 	60	 	 	 	8	 	 	 	
—Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	
—Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	
Source (on Cash Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	97	 	 	 	90	 	 	 	56	 	 	 	4	 	 	 	
—Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	4	 	 	 	4	 	 	 	
—Operations Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	
Source (on a Priority Distribution Basis)(5)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—Investment Income Class A Units	  	 	75	 	 	 	69	 	 	 	46	 	 	 	6	 	 	 	
—Return of Capital Class A Units	  	 	22	 	 	 	21	 	 	 	14	 	 	 	2	 	 	 	
—Return of Capital Class B Units	  	 	      —  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	
Amount (in Percentage Terms) Remaining Invested in Program Properties at the end of the Last Year Reported in the Table	  	 	100	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 
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Table of Contents

(1)	 	Includes $142,163 in equity in earnings of joint ventures and $120,566 from investment of reserve funds in 1998; $607,579 in equity in earnings of joint ventures and $159,007 from investment of reserve funds in 1999; $967,900 in equity in earnings of joint ventures and $7,950 from investment of reserve funds in 2000; and $959,631 in equity in earnings of joint ventures and $1,045 from investment of reserve funds in 2001. As of December 31, 2001, the leasing status was 100% including developed property in initial lease up.	
(2)	 	Includes partnership administrative expenses.	
(3)	 	Included in equity in earnings of joint ventures in gross revenues is depreciation of $105,458 for 1998; $353,840 for 1999; $485,558 for 2000; and $491,478 for 2001.	
(4)	 	In accordance with the partnership agreement, net income or loss, depreciation and amortization are allocated $254,862 to Class A Limited Partners, $(111,067) to Class B Limited Partners and $(500) to General Partners for 1998; $1,009,368 to Class A Limited Partners, $(378,840) to Class B Limited Partners and $0 to the General Partners for 1999; $1,381,547 to Class A Limited Partners, $(485,558) to Class B Limited Partners and $0 to General Partners for 2000; and $1,361,828 to Class A Limited Partners, $(491,478) to Class B Limited Partners and $0 to the General Partners for 2001.	
(5)	 	Pursuant to the terms of the partnership agreement, an amount equal to the cash distributions paid to Class A Limited Partners is payable as priority distributions out of the first available net proceeds from the sale of partnership properties to Class B Limited Partners. The amount of cash distributions paid per unit to Class A Limited Partners is shown as a return of capital to the extent of such priority distributions payable to Class B Limited Partners. As of December 31, 2001, the aggregate amount of such priority distributions payable to Class B Limited Partners totaled $791,502.	

220

Table of Contents
TABLE III (UNAUDITED)
 
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND XII, L.P.
 
 	  	2001

	 	 	2000

	 	 	1999

	 	
GrossRevenues(1)	  	$	1,661,194	 	 	$	929,868	 	 	$	160,379	 	
Profit on Sale of Properties	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Less: Operating Expenses(2)	  	 	105,776	 	 	 	73,640	 	 	 	37,562	 	
Depreciation and Amortization(3)	  	 	0	 	 	 	0	 	 	 	0	 	

	

	

	 	

	

	

	 	

	

	

	
Net Income GAAP Basis(4)	  	$	1,555,418	 	 	$	856,228	 	 	$	122,817	 	

	

	

	 	

	

	

	 	

	

	

	
Taxable Income: Operations	  	$	1,850,674	 	 	$	863,490	 	 	$	130,108	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Used By):	  	 	 	 	 	 	 	 	 	 	 	 	
Operations	  	 	(83,406	)	 	 	247,244	 	 	 	3,783	 	
Joint Ventures	  	 	2,036,837	 	 	 	737,266	 	 	 	61,485	 	
 	  	$	1,953,431	 	 	$	984,510	 	 	$	65,268	 	
Less Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	
Operating Cash Flow	  	 	1,953,431	 	 	 	779,818	 	 	 	62,934	 	
Return of Capital	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Undistributed Cash Flow From Prior Year Operations	  	 	174,859	 	 	 	—  	 	 	 	—  	 	
Cash Generated (Deficiency) after Cash Distributions	  	$	(174,859	)	 	$	204,692	 	 	$	2,334	 	
Special Items (not including sales and financing):	  	 	 	 	 	 	 	 	 	 	 	 	
Source of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	
General Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Increase in Limited Partner Contributions	  	 	10,625,431	 	 	 	15,617,575	 	 	 	9,368,186	 	
 	  	$	10,450,572	 	 	$	15,822,267	 	 	$	9,370,520	 	
Use of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	
Sales Commissions and Offering Expenses	  	 	1,328,179	 	 	 	1,952,197	 	 	 	1,171,024	 	
Return of Original Limited Partner’s Investment	  	 	—  	 	 	 	—  	 	 	 	100	 	
Property Acquisitions and Deferred Project Costs	  	 	9,298,085	 	 	 	16,246,485	 	 	 	5,615,262	 	
Cash Generated (Deficiency) after Cash Distributions and Special Items	  	$	(175,692	)	 	$	(2,376,415	)	 	$	2,584,134	 	

	

	

	 	

	

	

	 	

	

	

	
Net Income and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	
Net Income on GAAP Basis:	  	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	98	 	 	 	89	 	 	 	50	 	
—Operations Class B Units	  	 	(131	)	 	 	(92	)	 	 	(56	)
	
Capital Gain (Loss)	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Tax and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	
Federal Income Tax Results:	  	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	84	 	 	 	58	 	 	 	23	 	
—Operations Class B Units	  	 	(74	)	 	 	(38	)	 	 	(25	)	
Capital Gain (Loss)	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	
Source (on GAAP Basis)	  	 	 	 	 	 	 	 	 	 	 	 	
—Investment Income Class A Units	  	 	77	 	 	 	41	 	 	 	8	 	
—Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	
—Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on Cash Basis)	  	 	 	 	 	 	 	 	 	 	 	 	
—Operations Class A Units	  	 	77	 	 	 	41	 	 	 	8	 	
—Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	
—Operations Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on a Priority Distribution Basis)(5)	  	 	 	 	 	 	 	 	 	 	 	 	
—Investment Income Class A Units	  	 	55	 	 	 	13	 	 	 	6	 	
—Return of Capital Class A Units	  	 	22	 	 	 	28	 	 	 	2	 	
—Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Amount (in Percentage Terms) Remaining Invested in Program Properties at the end of the Last Year Reported in the Table	  	 	100	%	 	 	 	 	 	 	 	 	
 
221

Table of Contents

(1)	 	Includes $124,542 in equity in earnings of joint ventures and $35,837 from investment of reserve funds in 1999; $664,401 in equity in earnings of joint ventures and $265,467 from investment of reserve funds in 2000; and $1,577,523 in equity in earnings of joint ventures and $83,671 from investment of reserve funds in 2001. As of December 31, 2001, the leasing status was 100% including developed property in initial lease up.	
(2)	 	Includes partnership administrative expenses.	
(3)	 	Included in equity in earnings of joint ventures in gross revenues is depreciation of $72,427 for 1999; $355,210 for 2000; and $1,035,609 for 2001.	
(4)	 	In accordance with the partnership agreement, net income or loss, depreciation and amortization are allocated $195,244 to Class A Limited Partners, $(71,927) to Class B Limited Partners and $(500) to the General Partners for 1999; $1,209,438 to Class A Limited Partners, $(353,210) to Class B Limited Partners and $0 to General Partners for 2000; and $2,591,027 to Class A Limited Partners, $(1,035,609) to Class B Limited Partners and $0 to the General Partners for 2001.	
(5)	 	Pursuant to the terms of the partnership agreement, an amount equal to the cash distributions paid to Class A Limited Partners is payable as priority distributions out of the first available net proceeds from the sale of partnership properties to Class B Limited Partners. The amount of cash distributions paid per unit to Class A Limited Partners is shown as a return of capital to the extent of such priority distributions payable to Class B Limited Partners. As of December 31, 2001, the aggregate amount of such priority distributions payable to Class B Limited Partners totaled $870,747.	
 
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Table of Contents
TABLE V (UNAUDITED)
 
SALES OR DISPOSALS OF PROPERTIES
 
The following Table sets forth sales or other disposals of properties by Wells Public Programs within the most recent three years. The information relates to only public programs with investment objectives similar to those of Wells Real Estate Investment Trust, Inc. All figures are as of December 31, 2001.
 
 	 	 	 	 	 	 	 	Selling Price, Net Of
Closing Costs And
GAAP Adjustments

	 	 	 	 	 	 	Cost Of Properties
Including Closing And
Soft Costs

	 	 	
Property

	 	Date
Acquired

	 	Date Of
Sale

	 	Cash
Received
Net Of
Closing
Costs

	 	Mortgage
Balance
At Time
Of Sale

	 	Purchase
Money
Mortgage
Taken
Back By
Program

	 	Adjustments
Resulting
From
Application
Of GAAP

	 	Total

	 	 	Original
Mortgage
Financing

	 	Total
Acquisition
Cost,
Capital
Improvement,
Closing And
Soft Costs(1)

	    	Total

	 	Excess
(Deficiency)
Of Property
Operating
Cash
Receipts
Over Cash
Expenditures

	
3875 Peachtree Place, Atlanta, Georgia	 	12/1/85	 	08/31/00	 	$	727,982	 	-0-	 	-0-	 	-0-	 	$	727,982	(2)	 	-0-	 	$	647,648	    	$	647,648	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Crowe’s Crossing Shopping Center, DeKalb Count, Georgia	 	12/31/86	 	01/11/01	 	$	6,487,000	 	-0-	 	-0-	 	-0-	 	$	6,487,000	(3)	 	-0-	 	$	9,388,869	    	$	9,368,869	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Cherokee Commons Shopping Center, Cherokee County, Georgia	 	10/30/87	 	10/01/01	 	$	8,434,089	 	-0-	 	-0-	 	-0-	 	$	8,434,089	(4)	 	-0-	 	$	10,650,750	    	$	10,650,750	 	 	

(1)	 	Amount shown does not include pro rata share of original offering costs.	
(2)	 	Includes Wells Real Estate Fund I's share of taxable gain from this sale in the amount of $205,019, of which $205,019 is allocated to capital gain and $0 is allocated to ordinary gain.	
(3)	 	Includes taxable gain from this sale in the amount of $11,496, of which $11,496 is allocated to capital gain and $0 is allocated to ordinary gain.	
(4)	 	Includes taxable gain from this sale in the amount of $207,613, of which $207,613 is allocated to capital gain and $0 is allocated to ordinary gain.	
 
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EXHIBIT A
 
SUBSCRIPTION AGREEMENT
 
To:    Wells Real Estate Investment Trust, Inc.
  Suite 250
  6200 The Corners Parkway
  Atlanta, Georgia 30092
 
Ladies and Gentlemen:
 
The undersigned, by signing and delivering a copy of the attached Subscription Agreement Signature Page, hereby tenders this subscription and applies for the purchase of the number of shares of common stock (“Shares”) of Wells Real Estate Investment Trust, Inc., a Maryland corporation (“Wells REIT”), set forth on such Subscription Agreement Signature Page. Payment for the Shares is hereby made by check payable to “Wells Real Estate Investment Trust, Inc.”
 
I hereby acknowledge receipt of the Prospectus of the Wells REIT dated July 26, 2002 (the “Prospectus”).
 
I agree that if this subscription is accepted, it will be held, together with the accompanying payment, on the terms described in the Prospectus. Subscriptions may be rejected in whole or in part by the Wells REIT in its sole and absolute discretion.
 
Prospective investors are hereby advised of the following:
 
(a)  The assignability and transferability of the Shares is restricted and will be governed by the Wells REIT’s Articles of Incorporation and Bylaws and all applicable laws as described in the Prospectus.
 
(b)  Prospective investors should not invest in Shares unless they have an adequate means of providing for their current needs and personal contingencies and have no need for liquidity in this investment.
 
(c)  There is no public market for the Shares and, accordingly, it may not be possible to readily the liquidate an investment in the Wells REIT.
 
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SPECIAL NOTICE FOR CALIFORNIA RESIDENTS ONLY
CONDITIONS RESTRICTING TRANSFER OF SHARES
 
260.141.11 Restrictions on Transfer.
 
(a)  The issuer of any security upon which a restriction on transfer has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 of the Rules (the “Rules”) adopted under the California Corporate Securities Law (the “Code”) shall cause a copy of this section to be delivered to each issuee or transferee of such security at the time the certificate evidencing the security is delivered to the issuee or transferee.
 
(b)  It is unlawful for the holder of any such security to consummate a sale or transfer of such security, or any interest therein, without the prior written consent of the Commissioner (until this condition is removed pursuant to Section 260.141.12 of the Rules), except:
 
(1)  to the issuer;
 
(2)  pursuant to the order or process of any court;
 
(3)  to any person described in subdivision (i) of Section 25102 of the Code or Section 260.105.14 of the Rules;
 
(4)  to the transferor’s ancestors, descendants or spouse, or any custodian or trustee for the account of the transferor or the transferor’s ancestors, descendants or spouse; or to a transferee by a trustee or custodian for the account of the transferee or the transferee’s ancestors, descendants or spouse;
 
(5)  to holders of securities of the same class of the same issuer;
 
(6)  by way of gift or donation inter vivos or on death;
 
(7)  by or through a broker-dealer licensed under the Code (either acting as such or as a finder) to a resident of a foreign state, territory or country who is neither domiciled in this state to the knowledge of the broker-dealer, nor actually present in this state if the sale of such securities is not in violation of any securities laws of the foreign state, territory or country concerned;
 
(8)  to a broker-dealer licensed under the Code in a principal transaction, or as an underwriter or member of an underwriting syndicate or selling group;
 
(9)  if the interest sold or transferred is a pledge or other lien given by the purchaser to the seller upon a sale of the security for which the Commissioner’s written consent is obtained or under this rule not required;
 
(10)  by way of a sale qualified under Sections 25111, 25112, 25113 or 25121 of the Code, of the securities to be transferred, provided that no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification;
 
(11)  by a corporation to a wholly owned subsidiary of such corporation, or by a wholly owned subsidiary of a corporation to such corporation;
 
(12)  by way of an exchange qualified under Section 25111, 25112 or 25113 of the Code provided that no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification;
 
(13)  between residents of foreign states, territories or countries who are neither domiciled or actually present in this state;
 
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(14)  to the State Controller pursuant to the Unclaimed Property Law or to the administrator of the unclaimed property law of another state;
 
(15)  by the State Controller pursuant to the Unclaimed Property Law or by the administrator of the unclaimed property law of another state if, in either such case, such person (i) discloses to potential purchasers at the sale that transfer of the securities is restricted under this rule, (ii) delivers to each purchaser a copy of this rule, and (iii) advises the Commissioner of the name of each purchaser;
 
(16)  by a trustee to a successor trustee when such transfer does not involve a change in the beneficial ownership of the securities;
 
(17)  by way of an offer and sale of outstanding securities in an issuer transaction that is subject to the qualification requirement of Section 25110 of the Code but exempt from that qualification requirement by subdivision (f) of Section 25102; provided that any such transfer is on the condition that any certificate evidencing the security issued to such transferee shall contain the legend required by this section.
 
(c)  The certificates representing all such securities subject to such a restriction on transfer, whether upon initial issuance or upon any transfer thereof, shall bear on their face a legend, prominently stamped or printed thereon in capital letters of not less than 10-point size, reading as follows:
 
“IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER’S RULES.”
 
[Last amended effective January 21, 1988.]
 
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SPECIAL NOTICE FOR MAINE, MASSACHUSETTS, MINNESOTA, MISSOURI
AND NEBRASKA RESIDENTS ONLY
 
In no event may a subscription for Shares be accepted until at least five business days after the date the subscriber receives the Prospectus. Residents of the States of Maine, Massachusetts, Minnesota, Missouri and Nebraska who first received the Prospectus only at the time of subscription may receive a refund of the subscription amount upon request to the Wells REIT within five days of the date of subscription.
 
STANDARD REGISTRATION REQUIREMENTS
 
The following requirements have been established for the various forms of registration. Accordingly, complete Subscription Agreements and such supporting material as may be necessary must be provided.
 
TYPE OF OWNERSHIP AND SIGNATURE(S) REQUIRED
 
1.  INDIVIDUAL:    One signature required.
 
2.  JOINT TENANTS WITH RIGHT OF SURVIVORSHIP:    All parties must sign.
 
3.  TENANTS IN COMMON:    All parties must sign.
 
4.  COMMUNITY PROPERTY:    Only one investor signature required.
 
5.  PENSION OR PROFIT SHARING PLANS:    The trustee signs the Signature Page.
 
6.  TRUST:    The trustee signs the Signature Page. Provide the name of the trust, the name of the trustee and the name of the beneficiary.
 
7.  PARTNERSHIP:    Identify whether the entity is a general or limited partnership. The general partners must be identified and their signatures obtained on the Signature Page. In the case of an investment by a general partnership, all partners must sign (unless a “managing partner” has been designated for the partnership, in which case he may sign on behalf of the partnership if a certified copy of the document granting him authority to invest on behalf of the partnership is submitted).
 
8.  CORPORATION:    The Subscription Agreement must be accompanied by (1) a certified copy of the resolution of the Board of Directors designating the officer(s) of the corporation authorized to sign on behalf of the corporation and (2) a certified copy of the Board’s resolution authorizing the investment.
 
9.  IRA AND IRA ROLLOVERS:    Requires signature of authorized signer (e.g., an officer) of the bank, trust company, or other fiduciary. The address of the trustee must be provided in order for the trustee to receive checks and other pertinent information regarding the investment.
 
10.  KEOGH (HR 10):    Same rules as those applicable to IRAs.
 
11.  UNIFORM GIFT TO MINORS ACT (UGMA) or UNIFORM TRANSFERS TO MINORS ACT (UTMA):    The required signature is that of the custodian, not of the parent (unless the parent has been designated as the custodian). Only one child is permitted in each investment under UGMA or UTMA. In addition, designate the state under which the gift is being made.
 
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INSTRUCTIONS TO SUBSCRIPTION AGREEMENT SIGNATURE PAGE
TO WELLS REAL ESTATE INVESTMENT TRUST, INC. SUBSCRIPTION AGREEMENT
 
INVESTOR
INSTRUCTIONS	  	Please follow these instructions carefully. Failure to do so may result in the
rejection of your subscription. All information on the Subscription Agreement
Signature Page should be completed as follows:
 	
1.	  	INVESTMENT	  	a.	  	GENERAL:    A minimum investment of $1,000 (100 Shares) is required, except for certain states which require a higher minimum investment.  A CHECK FOR THE FULL PURCHASE PRICE OF THE SHARES SUBSCRIBED FOR SHOULD BE MADE PAYABLE TO THE ORDER OF “WELLS REAL ESTATE INVESTMENT TRUST, INC.”  Investors who have satisfied the minimum purchase requirements in Wells Real Estate Fund I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells Real Estate Fund III, L.P., Wells Real Estate Fund IV, L.P., Wells Real Estate Fund V, L.P., Wells Real Estate Fund VI, L.P., Wells Real Estate Fund VII, L.P., Wells Real Estate Fund VIII, L.P., Wells Real Estate Fund IX, L.P., Wells Real Estate Fund X, L.P., Wells Real Estate Fund XI, L.P., Wells Real Estate Fund XII, L.P., or Wells Real Estate Fund XIII, L.P., or in any other public real estate program may invest as little as $25 (2.5 Shares) except for residents of Maine, Minnesota, Nebraska or Washington. Shares may be purchased only by persons meeting the standards set forth under the Section of the Prospectus entitled “Suitability Standards.” Please indicate the state in which the sale was made.  WE WILL NOT ACCEPT CASH, MONEY ORDERS OR TRAVELERS CHECKS FOR INITIAL INVESTMENTS.
 	
 	  	 	  	b.	  	DEFERRED COMMISSION OPTION:    Please check the box if you have agreed with your Broker-Dealer to elect the Deferred Commission Option, as described in the Prospectus, as supplemented to date. By electing the Deferred Commission Option, you are required to pay only $9.40 per Share purchased upon subscription. For the next six years following the year of subscription, you will have a 1% sales commission ($.10 per Share) per year deducted from and paid out of dividends or other cash distributions otherwise distributable to you. Election of the Deferred Commission Option shall authorize the Wells REIT to withhold such amounts from dividends or other cash distributions otherwise payable to you as is set forth in the “Plan of Distribution” section of the Prospectus.
 	
2.	  	ADDITIONAL
INVESTMENTS	  	Please check if you plan to make one or more additional investments in the Wells REIT.
All additional investments must be in increments of at least $25. Additional investments
by residents of Maine must be for the minimum amounts stated under “Suitability
Standards” in the Prospectus, and residents of Maine must execute a new Subscription
Agreement Signature Page to make additional investments in the Wells REIT. If
additional investments in the Wells REIT are made, the investor agrees to notify the
Wells REIT and the Broker-Dealer named on the Subscription Agreement Signature
Page in writing if at any time he fails to meet the applicable suitability standards or he is
unable to make any other representations or warranties set forth in the Prospectus or the
Subscription Agreement. The investor acknowledges that the Broker-Dealer named in
the Subscription Agreement Signature Page may receive commissions on such
additional investments as described in the Prospectus.
 	
3.	  	TYPE OF
OWNERSHIP	  	Please check the appropriate box to indicate the type of entity or type of individuals
subscribing.	
 
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4.	  	REGISTRATION
NAME AND
ADDRESS	  	Please enter the exact name in which the Shares are to be held. For joint tenants with
right of survivorship or tenants in common, include the names of both investors. In the
case of partnerships or corporations, include the name of an individual to whom
correspondence will be addressed. Trusts should include the name of the trustee. All
investors must complete the space provided for taxpayer identification number or
social security number. By signing in Section 6, the investor is certifying that this
number is correct. Enter the mailing address and telephone numbers of the registered
owner of this investment. In the case of a Qualified Plan or trust, this will be the
address of the trustee. Indicate the birthdate and occupation of the registered owner
unless the registered owner is a partnership, corporation or trust.
 	
5.	  	INVESTOR
NAME AND
ADDRESS	  	Complete this Section only if the investor’s name and address is different from the
registration name and address provided in Section 4. If the Shares are registered in the
name of a trust, enter the name, address, telephone number, social security number,
birthdate and occupation of the beneficial owner of the trust.
 	
6.	  	SUBSCRIBER
SIGNATURES	  	Please separately initial each representation made by the investor where indicated.
Except in the case of fiduciary accounts, the investor may not grant any person a power
of attorney to make such representations on his or her behalf. Each investor must sign
and date this Section. If title is to be held jointly, all parties must sign. If the registered
owner is a partnership, corporation or trust, a general partner, officer or trustee of the
entity must sign.  PLEASE NOTE THAT THESE SIGNATURES DO NOT HAVE
TO BE NOTARIZED.
 	
7.	  	DIVIDENDS	  	a.	  	DIVIDEND REINVESTMENT PLAN: By electing the Dividend Reinvestment Plan, the investor elects to reinvest the stated percentage of dividends otherwise payable to such investor in Shares of the Wells REIT. The investor agrees to notify the Wells REIT and the Broker-Dealer named on the Subscription Agreement Signature Page in writing if at any time he fails to meet the applicable suitability standards or he is unable to make any other representations and warranties as set forth in the Prospectus or Subscription Agreement or in the prospectus and subscription agreement of any future limited partnerships sponsored by the Advisor or its affiliates. The investor acknowledges that the Broker-Dealer named in the Subscription Agreement Signature Page may receive commissions not to exceed 7% of any reinvested dividends.
 	
 	  	 	  	b.	  	DIVIDEND ADDRESS : If cash dividends are to be sent to an address other than that provided in Section 4 (i.e., a bank, brokerage firm or savings and loan, etc.), please provide the name, account number and address.
 	
8.	  	BROKER-
DEALER	  	This Section is to be completed by the Registered Representative. Please complete all
BROKER-DEALER information contained in Section 8 including suitability
certification.  SIGNATURE PAGE MUST BE SIGNED BY AN AUTHORIZED
REPRESENTATIVE.	
 
The Subscription Agreement Signature Page, which has been delivered with this Prospectus, together with a check for the full purchase price, should be delivered or mailed to your Broker-Dealer. Only original, completed copies of Subscription Agreements can be accepted. Photocopied or otherwise duplicated Subscription Agreements cannot be accepted by the Wells REIT.
 
IF YOU NEED FURTHER ASSISTANCE IN COMPLETING THIS
SUBSCRIPTION AGREEMENT SIGNATURE PAGE,
PLEASE CALL 1-800-448-1010
 
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EXHIBIT B
 
AMENDED AND RESTATED
DIVIDEND REINVESTMENT PLAN
As of December 20, 1999
 
Wells Real Estate Investment Trust, Inc., a Maryland corporation (the “Company”), pursuant to its Amended and Restated Articles of Incorporation, adopted a Dividend Reinvestment Plan (the “DRP”), which is hereby amended and restated in its entirety as set forth below. Capitalized terms shall have the same meaning as set forth in the Articles unless otherwise defined herein.
 
1.  Dividend Reinvestment.    As agent for the shareholders (“Shareholders”) of the Company who (a) purchased shares of the Company’s common stock (the “Shares”) pursuant to the Company’s initial public offering (the “Initial Offering”), which commenced on January 30, 1998 and will terminate on or before January 30, 2000, (b) purchase Shares pursuant to the Company’s second public offering (the “Second Offering”), which will commence immediately upon the termination of the Initial Offering, or (c) purchase Shares pursuant to any future offering of the Company (“Future Offering”), and who elect to participate in the DRP (the “Participants”), the Company will apply all dividends and other distributions declared and paid in respect of the Shares held by each Participant (the “Dividends”), including Dividends paid with respect to any full or fractional Shares acquired under the DRP, to the purchase of the Shares for such Participants directly, if permitted under state securities laws and, if not, through the Dealer Manager or Soliciting Dealers registered in the Participant’s state of residence.
 
2.  Effective Date.    The effective date of this Amended and Restated Dividend Reinvestment Plan (the “DRP”) shall be the date that the Second Offering becomes effective with the Securities and Exchange Commission (the “Commission”).
 
3.  Procedure for Participation.    Any Shareholder who purchased Shares pursuant to the Initial Offering, the Second Offering or any Future Offering and who has received a prospectus, as contained in the Company’s registration statement filed with the Commission, may elect to become a Participant by completing and executing the Subscription Agreement, an enrollment form or any other appropriate authorization form as may be available from the Company, the Dealer Manager or Soliciting Dealer. Participation in the DRP will begin with the next Dividend payable after receipt of a Participant’s subscription, enrollment or authorization. Shares will be purchased under the DRP on the date that Dividends are paid by the Company. Dividends of the Company are currently paid quarterly. Each Participant agrees that if, at any time prior to the listing of the Shares on a national stock exchange or inclusion of the Shares for quotation on the National Association of Securities Dealers, Inc. Automated Quotation System (“Nasdaq”), he or she fails to meet the suitability requirements for making an investment in the Company or cannot make the other representations or warranties set forth in the Subscription Agreement, he or she will promptly so notify the Company in writing.
 
4.  Purchase of Shares.    Participants will acquire DRP Shares from the Company at a fixed price of $10 per Share until (i) all 2,200,000 of the DRP Shares registered in the Second Offering are issued or (ii) the Second Offering terminates and the Company elects to deregister with the Commission the unsold DRP Shares. Participants in the DRP may also purchase fractional Shares so that 100% of the Dividends will be used to acquire Shares. However, a Participant will not be able to acquire DRP Shares to the extent that any such purchase would cause such Participant to exceed the Ownership Limit as set forth in the Articles.
 
Shares to be distributed by the Company in connection with the DRP may (but are not required to) be supplied from: (a) the DRP Shares which will be registered with the Commission in connection with the Company’s Second Offering, (b) Shares to be registered with the Commission in a Future Offering for use in the DRP (a “Future Registration”), or (c) Shares of the Company’s common stock purchased by the Company for the DRP in a secondary market (if available) or on a stock exchange or Nasdaq (if listed) (collectively, the “Secondary Market”).
 
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Shares purchased on the Secondary Market as set forth in (c) above will be purchased at the then-prevailing market price, which price will be utilized for purposes of purchases of Shares in the DRP. Shares acquired by the Company on the Secondary Market or registered in a Future Registration for use in the DRP may be at prices lower or higher than the $10 per Share price which will be paid for the DRP Shares pursuant to the Initial Offering and the Second Offering.
 
If the Company acquires Shares in the Secondary Market for use in the DRP, the Company shall use reasonable efforts to acquire Shares for use in the DRP at the lowest price then reasonably available. However, the Company does not in any respect guarantee or warrant that the Shares so acquired and purchased by the Participant in the DRP will be at the lowest possible price. Further, irrespective of the Company’s ability to acquire Shares in the Secondary Market or to complete a Future Registration for shares to be used in the DRP, the Company is in no way obligated to do either, in its sole discretion.
 
It is understood that reinvestment of Dividends does not relieve a Participant of any income tax liability which may be payable on the Dividends.
 
5.  Share Certificates.    The ownership of the Shares purchased through the DRP will be in book-entry form only until the Company begins to issue certificates for its outstanding common stock.
 
6.  Reports.    Within 90 days after the end of the Company’s fiscal year, the Company shall provide each Shareholder with an individualized report on his or her investment, including the purchase date(s), purchase price and number of Shares owned, as well as the dates of Dividend distributions and amounts of Dividends paid during the prior fiscal year. In addition, the Company shall provide to each Participant an individualized quarterly report at the time of each Dividend payment showing the number of Shares owned prior to the current Dividend, the amount of the current Dividend and the number of Shares owned after the current Dividend.
 
7.  Commissions and Other Charges.    In connection with Shares sold pursuant to the DRP, the Company will pay selling commissions of 7%; a dealer manager fee of 2.5%; and, in the event that proceeds from the sale of DRP Shares are used to acquire properties, acquisition and advisory fees and expenses of 3.5%, of the purchase price of the DRP Shares.
 
8.  Termination by Participant.    A Participant may terminate participation in the DRP at any time, without penalty by delivering to the Company a written notice. Prior to listing of the Shares on a national stock exchange or Nasdaq, any transfer of Shares by a Participant to a non-Participant will terminate participation in the DRP with respect to the transferred Shares. If a Participant terminates DRP participation, the Company will ensure that the terminating Participant’s account will reflect the whole number of shares in his or her account and provide a check for the cash value of any fractional share in such account. Upon termination of DRP participation, Dividends will be distributed to the Shareholder in cash.
 
9.  Amendment or Termination of DRP by the Company.    The Board of Directors of the Company may by majority vote (including a majority of the Independent Directors) amend or terminate the DRP for any reason upon 10 days’ written notice to the Participants.
 
10.  Liability of the Company.    The Company shall not be liable for any act done in good faith, or for any good faith omission to act, including, without limitation, any claims or liability; (a) arising out of failure to terminate a Participant’s account upon such Participant’s death prior to receipt of notice in writing of such death; and (b) with respect to the time and the prices at which Shares are purchased or sold for a Participant’s account. To the extent that indemnification may apply to liabilities arising under the Securities Act of 1933, as amended, or the securities act of a sate, the Company has been advised that, in the opinion of the Commission and certain state securities commissioners, such indemnification is contrary to public policy and, therefore, unenforceable.
 
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Until October 24, 2002 (90 days after the date of this prospectus), all dealers that affect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as soliciting dealers.
 
We have not authorized any dealer, salesperson or other individual to give any information or to make any representations that are not contained in this prospectus. If any such information or statements are given or made, you should not rely upon such information or representation. This prospectus does not constitute an offer to sell any securities other than those to which this prospectus relates, or an offer to sell, or a solicitation of an offer to buy, to any person in any jurisdiction where such an offer or solicitation would be unlawful. This prospectus speaks as of the date set forth below. You should not assume that the delivery of this prospectus or that any sale made pursuant to this prospectus implies that the information contained in this prospectus will remain fully accurate and correct as of any time subsequent to the date of this prospectus.

	
 
ALPHABETICAL INDEX
 
 	  	Page

	
Additional Information	  	153	
Conflicts of Interest	  	54	
Description of Real Estate Investments	  	67	
Description of Shares	  	137	
ERISA Considerations	  	132	
Estimated Use of Proceeds	  	30	
Experts	  	152	
Federal Income Tax Considerations	  	117	
Financial Statements	  	154	
Glossary	  	153	
Investment Objectives and Criteria	  	58	
Legal Opinions	  	152	
Management	  	31	
Management Compensation	  	49	
Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	101	
Plan of Distribution	  	146	
Prior Performance Summary	  	108	
Prior Performance Tables	  	210	
Prospectus Summary	  	10	
Questions and Answers About This Offering	  	1	
Risk Factors	  	17	
Selected Financial Data	  	101	
Suitability Standards	  	28	
Supplemental Sales Material	  	151	
The Operating Partnership Agreement	  	143	

 
Shares of the Wells REIT are not FDIC insured, may lose value and are not bank guaranteed. Investments in real estate and REITs may be affected by adverse economic and regulatory changes. Properties that incur vacancies may be difficult to sell or re-lease. Non-traded REITs have certain risks, including illiquidity of the investment, and should be considered a long-term investment. Past performance does not guarantee future performance. When you sell your shares, they could be worth less than what you paid for them.

 
 
WELLS REAL ESTATE
INVESTMENT TRUST, INC.
 
Up to 300,000,000 Shares
of Common Stock
Offered to the Public

	
 
PROSPECTUS

	
 
WELLS INVESTMENT
SECURITIES, INC.
 
July 26, 2002

 

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 1 DATED AUGUST 14, 2002 TO THE PROSPECTUS
DATED JULY 26, 2002
 
This document supplements, and should be read in conjunction with, the prospectus of Wells Real Estate Investment Trust, Inc. dated July 26, 2002. When we refer to the “prospectus” in this supplement, we are also referring to any and all supplements to the prospectus. Unless otherwise defined in this supplement, capitalized terms used in this supplement shall have the same meanings as set forth in the prospectus.
 
The purpose of this supplement is to describe the following:
 
 	(1)	 	Status of the offering of shares in Wells Real Estate Investment Trust, Inc. (Wells REIT);	
 
 	(2)	 	Revisions to the “Description of Properties” section of the prospectus to describe the following real property acquisitions:	
 
 	(A)	 	Acquisition of a two-story office building in San Antonio, Texas (PacifiCare San Antonio Building);	
 
 	(B)	 	Acquisition of a 4.2 acre tract of land in Houston, Texas (Kerr-McGee Property);	
 
 	(C)	 	Acquisition of two adjacent one-story distribution facility buildings in Duncan, South Carolina (BMG Greenville Buildings); and	
 
 	(D)	 	Acquisition of a one-story office building in Suwanee, Georgia (Kraft Atlanta Building);	
 
 	(3)	 	Revisions to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the prospectus;	
 
 	(4)	 	Unaudited Financial Statements of the Wells REIT for the quarter ended June 30, 2002; and	
 
 	(5)	 	Unaudited pro forma financial statements of the Wells REIT reflecting the acquisitions of the PacifiCare San Antonio Building, the Kerr-McGee Property, the BMG Greenville Buildings and the Kraft Atlanta Building.	
 
Status of the Offering
 
We commenced our initial public offering of common stock on January 30, 1998. Our initial public offering was terminated on December 19, 1999. We received approximately $132,181,919 in gross offering proceeds from the sale of 13,218,192 shares in our initial public offering. We commenced our second offering of common stock on December 20, 1999. Our second public offering was terminated on December 19, 2000. We received approximately $175,229,193 in gross offering proceeds from the sale of 17,522,919 shares in our second public offering. We commenced our third public offering of common stock on December 20, 2000. Our third public offering was terminated on July 26, 2002. We received approximately $1,292,032,232 in gross offering proceeds from the sale of 129,203,223 shares in our third public offering.
 
Pursuant to the prospectus, we commenced our fourth public offering of common stock on July 26, 2002. As of August 10, 2002, we had received gross proceeds of approximately $46,430,189 from the sale of approximately 4,643,019 shares in our fourth public

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offering. Accordingly, as of August 10, 2002, we had received aggregate gross offering proceeds of approximately $1,645,873,533 from the sale of approximately 164,587,353 shares in all of our public offerings. After payment of $57,110,749 in acquisition and advisory fees and acquisition expenses, payment of $183,457,253 in selling commissions and organization and offering expenses, and common stock redemptions of $14,137,852 pursuant to our share redemption program, as of August 10, 2002, we had raised aggregate net offering proceeds available for investment in properties of $1,391,167,679, out of which $968,778,340 had been invested in real estate properties, and $422,389,339 remained available for investment in real estate properties.
 
Description of Properties
 
As of August 10, 2002, we had purchased interests in 57 real estate properties located in 19 states, each of which was 100% leased to tenants. Below are the descriptions of our recent real property acquisitions through August 10, 2002.
 
The PacifiCare San Antonio Building
 
On July 12, 2002, Wells Operating Partnership, L.P. (Wells OP), a Delaware limited partnership formed to acquire, own, lease and operate real properties on behalf of the Wells REIT, purchased a two-story office building containing 142,500 rentable square feet located in San Antonio, Texas (PacifiCare San Antonio Building) for a purchase price of $14,650,000, plus closing costs. The PacifiCare San Antonio Building was built in 2000 and is located at 6200 Northwest Parkway, San Antonio, Texas.
 
The PacifiCare San Antonio Building is leased entirely to PacifiCare Health Systems, Inc. (PacifiCare), a corporation whose shares are traded on NASDAQ. PacifiCare is one of the leading health and consumer service companies in the United States. The services PacifiCare provides include health insurance products, pharmacy and medical management, behavioral health services, and dental and vision services. PacifiCare reported a net worth, as of December 31, 2001, of approximately $2 billion.
 
The PacifiCare lease commenced in November 2000 and expires in November 2010. The current annual base rent payable under the PacifiCare lease is $1,471,700. PacifiCare, at its option, has the right to extend the initial term of its lease for one additional five-year period at an annual base rent of $1,967,925, and two subsequent five-year terms at the then-current market rental rate. In addition, PacifiCare has an expansion option for between approximately 20,000 and 45,000 rentable square feet, which it may exercise prior to the end of the 42 nd  month of the initial term of the PacifiCare lease.
 
Kerr-McGee Property
 
Purchase of the Kerr-McGee Property. On July 29, 2002 Wells OP purchased the Kerr-McGee Property, which is a build-to-suit property located in Houston, Texas, for a purchase price of $1,738,044, plus closing costs. We commenced construction on a four-story office building containing approximately 100,000 rentable square feet (Kerr-McGee Project) on August 1, 2002. Wells OP obtained a construction loan in the amount of $13,700,000 from Bank of America, N.A. (BOA) to fund the construction of the Kerr-McGee Project. The loan requires monthly payments of interest only and matures on January 29, 2004. The interest rate on the loan, as of August 6, 2002, was 3.80%. The BOA loan is secured by a first priority mortgage on the Kerr-McGee Property.
 
Wells OP entered into a development agreement, an architect agreement and a construction agreement to construct the Kerr-McGee Project on the Kerr-McGee Property.
 
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Development Agreement.    Wells OP entered into a development agreement (Development Agreement) with Means-Knaus, LLC, a Texas limited liability company (Developer), as the exclusive development manager to supervise, manage and coordinate the planning, design, construction and completion of the Kerr-McGee Project. As compensation for the services to be rendered by the Developer under the Development Agreement, Wells OP is paying a development fee of $699,740. The fee is due and payable ratably as the construction and development of the Kerr-McGee Project is completed.
 
We anticipate that the aggregate of all costs and expenses to be incurred by Wells OP with respect to the acquisition of the Kerr-McGee Property and the planning, design, development, construction and completion of the Kerr-McGee Project will total approximately $15,760,000.
 
Construction Agreement.    Wells OP entered into a design and build construction agreement (Construction Agreement) with Hoar Construction, LLC (Contractor) for the construction of the Kerr-McGee Project. The Construction Agreement provides that Wells OP will pay the Contractor a maximum of $6,391,255 for the construction of the Kerr-McGee Project that includes all estimated fees and costs. The Contractor will be responsible for all costs of labor, materials, construction equipment and machinery necessary for completion of the Kerr-McGee Project. In addition, the Contractor will be required to secure and pay for any additional building permits which may be necessary for construction of the Kerr-McGee Project.
 
Kerr-McGee Lease.    The Kerr-McGee Property is leased to Kerr-McGee Oil & Gas Corporation, a wholly owned subsidiary of Kerr-McGee Corporation (Kerr-McGee), a Delaware corporation whose shares are publicly traded on the New York Stock Exchange (NYSE). Kerr-McGee, which has guaranteed the Kerr-McGee lease, operates a worldwide business in oil and gas exploration and production, and titanium dioxide pigment production and marketing. It has oil fields in the Gulf of Mexico, the North Sea, the South China Sea, and onshore in the United States, Ecuador, Indonesia and Kazakhstan. Kerr-McGee reported a net worth, as of December 31, 2001, of approximately $3.1 billion.
 
The Kerr-McGee lease will commence shortly after completion of the Kerr-McGee Project, which we expect to occur in approximately July 2003. The Kerr-McGee lease will expire 11 years and one month after commencement, or approximately July 31, 2014. Kerr-McGee has the right to extend the initial term of this lease for (1) one additional 20-year period or (2) a combination of five-year terms or ten-year terms totaling not more than 20 years at 95% of the then-current market rental rate. The annual base rent payable for the Kerr-McGee lease beginning on the rent commencement date is expected to be approximately $1,655,000.
 
BMG Greenville Buildings
 
On July 31, 2002, Wells OP purchased two adjacent one-story distribution facility buildings containing 473,398 rentable square feet and 313,380 rentable square feet, respectively, located at 110 & 112 Hidden Lake Circle in Duncan, South Carolina (BMG Greenville Buildings) for a purchase price of $26,900,000, plus closing costs. The BMG Greenville Buildings were originally built in 1987.
 
The BMG Greenville Buildings are leased to BMG Direct Marketing, Inc. (BMG Marketing) and BMG Music, respectively. BMG Marketing and BMG Music are wholly owned subsidiaries of Bertelsmann AG (Bertelsmann), a German corporation with its international headquarters in Gütersloh, Germany and its U.S. headquarters in New York, New York. Bertlesmann, a guarantor on both the BMG Marketing lease and the BMG Music lease, operates in the media industry, specializing in a wide range of markets including: television and radio; book publishing; magazines and newspapers; music labels; professional information; print and media services; book and music clubs; and media e-commerce.
 
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Bertelsmann has operations in approximately 51 countries. Bertelsmann reported a net worth, as of June 30, 2001, of approximately $8.15 billion.
 
The BMG Marketing lease commenced in March 1988 and expires in March 2011. The current annual base rent payable under the BMG Marketing lease is $1,394,156. BMG Marketing, at its option, has the right to extend the initial term of its lease for two additional ten-year periods at 95% of the then-current market rental rate.
 
The BMG Music lease commenced in December 1987 and expires in March 2011. The current annual base rent payable under the BMG Music lease is $763,600. BMG Music, at its option, has the right to extend the initial term of its lease for two additional ten-year periods at 95% of the then-current market rental rate.
 
Kraft Atlanta Building
 
On August 1, 2002, Wells OP purchased a one-story building containing an aggregate of 87,219 rentable square feet located at 4000 Johns Creek Court in Suwanee, Georgia (Kraft Atlanta Building) for a purchase price of $11,625,000. The Kraft Atlanta Building was built in 2001.
 
Kraft Foods North America, Inc. (Kraft) leases 73,264 rentable square feet (84%) of the Kraft Atlanta Building. Kraft, a wholly owned subsidiary of Kraft Foods, Inc., a Virginia corporation whose shares are publicly traded on the NYSE, is one of the largest food and beverage companies in the world with operations in 145 countries.
 
The Kraft lease commenced in February 2002 and expires in January 2012. The annual base rent payable under the Kraft lease beginning on September 1, 2002 will be $1,263,804. Kraft, at its option, has the right to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. In addition, Kraft may terminate the Kraft lease (1) at the end of the third lease year, by paying a $7,000,000 termination fee, or (2) at the end of the seventh lease year, by paying a $1,845,296 termination fee.
 
PerkinElmer Instruments, LLC (PerkinElmer) leases the remaining 13,955 rentable square feet (16%) of the Kraft Atlanta Building. PerkinElmer provides analytical solutions for the pharmaceutical, food and beverage, environmental, chemical, and semiconductor industries. PerkinElmer is a wholly owned subsidiary of PerkinElmer, Inc., a Massachusetts corporation whose shares are publicly traded on the NYSE. PerkinElmer, Inc. is a global technology company focusing on life sciences, optoelectronics and analytical instruments. PerkinElmer, Inc. operates in more than 125 countries.
 
The PerkinElmer lease commenced in December 2001 and expires in November 2016. The current annual base rent payable under the PerkinElmer lease is $194,672. PerkinElmer, at its option, has the right to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. In addition, PerkinElmer may terminate the PerkinElmer lease at the end of the 10th lease year by paying a $325,000 termination fee.
 
Property Management Fees
 
Wells Management Company, Inc. (Wells Management), an affiliate of the Wells REIT and our advisor, will be paid management and leasing fees in the amount of 4.5% of gross revenues from the PacifiCare San Antonio Building, the Kerr-McGee Property, the BMG Greenville Buildings, and the Kraft Atlanta Building subject to certain limitations. In addition, Wells Management will receive a one-time initial lease-up fee relating to the leasing of the Kerr-McGee Property equal to the first month’s rent estimated to be approximately $140,000.
 
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Management’s Discussion and Analysis of Financial Condition and Results of Operation
 
The following information should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section beginning on page 101 of the prospectus.
 
Forward Looking Statements
 
This section and other sections of the prospectus supplement contain 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 Wells REIT, anticipated capital expenditures required to complete certain projects, amounts of anticipated cash distributions to stockholders in the future and certain other matters. Readers of this supplement should be aware that there are various factors that could cause actual results to differ materially from any forward-looking statements made in the supplement, which include changes in general economic conditions, changes in real estate conditions, construction costs which may exceed estimates, construction delays, increases in interest rates, lease-up risks, inability to obtain new tenants upon the expiration of existing leases, inability to invest in properties that will provide targeted rates of return and the potential need to fund tenant improvements or other capital expenditures out of operating cash flow.
 
Liquidity and Capital Resources
 
During the six months ended June 30, 2002, we received aggregate gross offering proceeds of $618,275,931 from the sale of 61,827,594 shares of our common stock. After payment of $21,406,085 in acquisition and advisory fees and acquisition expenses, payment of $65,035,665 in selling commissions and organization and offering expenses, and common stock redemptions of $6,673,412 pursuant to the our share redemption program, we raised net offering proceeds of $525,160,769 during the first two quarters of 2002, of which $344,269,118 remained available for investment in properties at quarter end.
 
During the six months ended June 30, 2001, we received aggregate gross offering proceeds of $162,606,610 from the sale of 16,260,661 shares of our common stock. After payment of $5,642,317 in acquisition and advisory fees and acquisition expenses, payment of $20,151,132 in selling commissions and organizational and offering expenses, and common stock redemptions of $1,397,561 pursuant to the our share redemption program, we raised net offering proceeds of $135,415,600 during the first two quarters of 2001, of which $3,906,869 was available for investment in properties at quarter end.
 
The significant increase in our available capital resources is due to significantly increased sales of our common stock during the first half of 2002.
 
As of June 30, 2002, we owned interests in 52 real estate properties either directly or through its interests in joint ventures. These properties are generating operating cash flow sufficient to cover our operating expenses and pay dividends to stockholders. Dividends declared for the first half of 2002 and the first half of 2001 were approximately $0.39 and $0.38 per share, respectively. In June 2002, our Board of Directors declared dividends for the third quarter of 2002 in the amount of approximately $0.19 per share.
 
Due primarily to the pace of our property acquisitions, as explained in more detail in the following paragraph, dividends paid in the first half of 2002 in the aggregate amount of $40,867,110 exceeded our Adjusted Funds From Operations for this period by $4,813,633.

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We acquire properties that meet our standards of quality both in terms of the real estate and the creditworthiness of the tenants. Creditworthy tenants of the type we target are becoming more and more highly valued in the marketplace and, accordingly, there is increased competition in acquiring properties with these creditworthy tenants. As a result, the purchase prices for such properties have increased with corresponding reductions in cap rates and returns on investment. In addition, changes in market conditions have caused us to add to our internal procedures for ensuring the creditworthiness of our tenants before any commitment to buy a property is made. We continue to remain steadfast in our commitment to invest in quality properties that will produce quality income for our stockholders. Accordingly, because the marketplace is now placing a higher value on our type of properties and because of the additional time it now takes in the acquisition process for us to assess tenant credit—plus our commitment to adhere to purchasing properties with tenants that meet our investment criteria—it appears likely that, in the future, we will be required to lower our dividends.
 
Cash Flows From Operating Activities
 
Our net cash provided by operating activities was $33,138,287 and $16,288,309 for the six months ended June 30, 2002 and 2001, respectively. The increase in net cash provided by operating activities was due primarily to the net income generated by additional properties acquired during 2002 and 2001.
 
Cash Flows Used In Investing Activities
 
Our net cash used in investing activities was $278,447,051 and $23,768,731 for the six months ended June 30, 2002 and 2001, respectively. The increase in net cash used in investing activities was due primarily to investments in properties and the payment of related deferred project costs, partially offset by distributions received from joint ventures.
 
Cash Flows From Financing Activities
 
Our net cash provided by financing activities was $511,632,371 and $9,257,047 for the six months ended June 30, 2002 and 2001, respectively. The increase in net cash provided by financing activities was due primarily to the raising of additional capital and the lack of debt payments which were $138.7 million in the prior year. We raised $618,275,931 in offering proceeds for the six months ended June 30, 2002, as compared to $162,606,610 for the same period in 2001. Additionally, we paid dividends totaling $40.9 million in the first half of 2002 compared to $13.8 million in the first half of 2001.
 
Results of Operations
 
As of June 30, 2002, our real estate properties were 100% leased to tenants. Gross revenues were $43,832,954 and $21,560,953 for the six months ended June 30, 2002 and 2001, respectively. Gross revenues for the six months ended June 30, 2002 and 2001 were attributable to rental income, interest income earned on funds held by the Wells REIT prior to the investment in properties, and income earned from joint ventures. The increase in revenues in 2002 was primarily attributable to the purchase of $259,535,578 in additional properties during 2002 and the purchase of $227,933,858 in additional properties during the second half of 2001 which were not owned for the full first half of 2001. The purchase of additional properties also resulted in an increase in expenses which totaled $19,296,812 for the six months ended June 30, 2002, as compared to $13,246,710 for the six months ended June 30, 2001. Expenses in 2002 and 2001 consisted primarily of depreciation, operating costs, interest expense, management and leasing fees and general and administrative costs. As a result, our net income also
 
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increased from $8,314,243 for the six months ended June 30, 2001 to $24,536,142 for the six months ended June 30, 2002.
 
While earnings of $0.22 per share remained stable for the six months ended June 30, 2002, compared to the six months ended June 30, 2001, earnings per share for the second quarter decreased from $0.12 per share for the three months ended June 30, 2001 to $0.11 per share for the three months ended June 30, 2002, primarily due to a substantial increase in the number of shares outstanding which was not completely matched by a corresponding increase in net income from new property investments.
 
Funds From Operations
 
Funds From Operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), generally means net income, computed in accordance with GAAP excluding extraordinary items (as defined by GAAP) and gains (or losses) from sales of property, plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures and subsidiaries. We believe that FFO is helpful to investors as a measure of the performance of an equity REIT. However, our calculation of FFO, while consistent with NAREIT’s definition, may not be comparable to similarly titled measures presented by other REITs. Adjusted Funds From Operations (“AFFO”) is defined as FFO adjusted to exclude the effects of straight-line rent adjustments, deferred loan cost amortization and other non-cash and/or unusual items. Neither FFO nor AFFO represent cash generated from operating activities in accordance with GAAP and should not be considered as alternatives to net income as an indication of our performance or to cash flows as a measure of liquidity or ability to make distributions. The following table reflects the calculation of FFO and AFFO for the three and six months ended June 30, 2002 and 2001, respectively:
 
 	  	Three Months Ended

	 	 	Six Months Ended

	 	
 	  	June 30,
2002

	 	 	June 30,
2001

	 	 	June 30,
2002

	 	 	June 30,
2001

	 	
FUNDS FROM OPERATIONS:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	13,756,478	 	 	$	5,038,898	 	 	$	24,536,142	 	 	$	8,314,243	 	
Add:
Depreciation	  	 	7,158,830	 	 	 	3,206,638	 	 	 	12,903,282	 	 	 	6,393,817	 	
Amortization of deferred leasing costs	  	 	78,066	 	 	 	75,837	 	 	 	150,815	 	 	 	151,673	 	
Depreciation and amortization—  unconsolidated partnerships	  	 	700,689	 	 	 	504,711	 	 	 	1,406,865	 	 	 	913,674	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Funds from operations (FFO)	  	 	21,694,063	 	 	 	8,826,084	 	 	 	38,997,104	 	 	 	15,773,407	 	
Adjustments:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan cost amortization	  	 	249,530	 	 	 	77,142	 	 	 	424,992	 	 	 	291,899	 	
Straight line rent	  	 	(2,127,906	)	 	 	(613,155	)	 	 	(3,166,284	)	 	 	(1,222,716	)	
Straight line rent—unconsolidated Partnerships	  	 	(103,020	)	 	 	(71,768	)	 	 	(202,335	)	 	 	(132,246	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Adjusted funds from operations	  	$	19,712,667	 	 	$	8,218,303	 	 	$	36,053,477	 	 	$	14,710,344	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
BASIC AND DILUTED WEIGHTED AVERAGE SHARES	  	 	126,037,819	 	 	 	42,192,347	 	 	 	110,885,641	 	 	 	38,328,405	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 
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Inflation
 
The real estate market has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. However, there are provisions in the majority of tenant leases which are intended to protect us from the impact of inflation. These provisions include reimbursement billings for common area maintenance 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.
 
Critical Accounting Policies
 
Our reported results of operations are impacted by management judgments related to application of accounting policies. A discussion of the accounting policies that management considers to be critical, in that they may require complex judgment in their application or require estimates about matters which are inherently uncertain, is included in Footnote 1 to the financial statements of the Wells REIT contained in this supplement.
 
Financial Statements
 
Unaudited Financial Statements
 
The financial statements of the Wells REIT, as of June 30, 2002, and for the six month periods ended June 30, 2002 and June 30, 2001, which are included in this supplement, have not been audited.
 
The Pro Forma Balance Sheet of the Wells REIT, as of June 30, 2002, the Pro Forma Statement of Income for the year ended December 31, 2001, and the Pro Forma Statement of Income for the six months ended June 30, 2002, which are included in this supplement, have not been audited.
 
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INDEX TO FINANCIAL STATEMENTS
 
Wells Real Estate Investment Trust, Inc. and Subsidiary	  	Page

	
 	 	
Unaudited Financial Statements	  	 	
 	 	
Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001	  	10	
 	 	
Consolidated Statements of Income for the three months ended June 30, 2002 and June 30, 2001 (unaudited), and for the six months ended June 30, 2002 and June 30, 2001 (unaudited)	  	11	
 	 	
Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2001 and for the six months ended June 30, 2002 (unaudited)	  	12	
 	 	
Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and June 30, 2001 (unaudited)	  	13	
 	 	
Condensed Notes to Consolidated Financial Statements June 30, 2002 (unaudited)	  	14	
 	 	
Wells Real Estate Investment Trust, Inc. and Subsidiary	  	 	
 	 	
Unaudited Pro Forma Financial Statements	  	 	
 	 	
Summary of Unaudited Pro Forma Financial Statements	  	26	
 	 	
Pro Forma Balance Sheet as of June 30, 2002 (unaudited)	  	27	
 	 	
Pro Forma Statement of Income for the year ended December 31, 2001 (unaudited)	  	29	
 	 	
Pro Forma Statement of Income for the six months ended June 30, 2002 (unaudited)	  	30	
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
 
 	  	June 30,
2002

	 	 	December 31,
2001

	 	
 	  	(unaudited)	 	 	 	 	
ASSETS	  	 	 	 	 	 	 	 	
REAL ESTATE, at cost:	  	 	 	 	 	 	 	 	
Land	  	$	110,330,449	 	 	$	86,246,985	 	
Building and improvements, less accumulated depreciation of $37,717,737 in 2002 and $24,814,454 in 2001	  	 	689,490,969	 	 	 	472,383,102	 	
Construction in progress	  	 	16,081,841	 	 	 	5,738,573	 	

	

	

	 	

	

	

	
Total real estate	  	 	815,903,259	 	 	 	564,368,660	 	
INVESTMENT IN JOINT VENTURES	  	 	76,217,870	 	 	 	77,409,980	 	
CASH AND CASH EQUIVALENTS	  	 	341,909,775	 	 	 	75,586,168	 	
INVESTMENT IN BONDS	  	 	22,000,000	 	 	 	22,000,000	 	
ACCOUNTS RECEIVABLE	  	 	10,709,104	 	 	 	6,003,179	 	
NOTES RECEIVABLE	  	 	5,149,792	 	 	 	0	 	
DEFERRED LEASE ACQUISITION COSTS, net	  	 	1,790,608	 	 	 	1,525,199	 	
DEFERRED PROJECT COSTS	  	 	14,314,914	 	 	 	2,977,110	 	
DUE FROM AFFILIATES	  	 	1,897,309	 	 	 	1,692,727	 	
DEFERRED OFFERING COSTS	  	 	1,392,934	 	 	 	0	 	
PREPAID EXPENSES AND OTHER ASSETS, net	  	 	1,881,308	 	 	 	718,389	 	

	

	

	 	

	

	

	
Total assets	  	$	1,293,166,873	 	 	$	752,281,412	 	

	

	

	 	

	

	

	
LIABILITIES AND SHAREHOLDERS’ EQUITY	  	 	 	 	 	 	 	 	
LIABILITIES:	  	 	 	 	 	 	 	 	
Notes payable	  	$	15,658,141	 	 	$	8,124,444	 	
Obligation under capital lease	  	 	22,000,000	 	 	 	22,000,000	 	
Accounts payable and accrued expenses	  	 	11,840,214	 	 	 	8,727,473	 	
Dividends payable	  	 	4,538,635	 	 	 	1,059,026	 	
Deferred rental income	  	 	1,013,544	 	 	 	661,657	 	
Due to affiliates	  	 	2,106,790	 	 	 	2,166,161	 	

	

	

	 	

	

	

	
Total liabilities	  	 	57,157,324	 	 	 	42,738,761	 	

	

	

	 	

	

	

	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200,000	 	 	 	200,000	 	

	

	

	 	

	

	

	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	
Common shares, $.01 par value; 125,000,000 shares authorized, 145,589,053 shares issued and 144,366,772 outstanding at June 30, 2002, and 83,761,469 shares issued and 83,206,429 shares outstanding at December 31, 2001	  	 	1,455,890	 	 	 	837,614	 	
Additional paid-in capital	  	 	1,290,858,515	 	 	 	738,236,525	 	
Cumulative distributions in excess of earnings	  	 	(43,991,669	)	 	 	(24,181,092	)	
Treasury stock, at cost, 1,222,381 shares at June 30, 2002 and 555,040 shares at December 31, 2001	  	 	(12,223,808	)	 	 	(5,550,396	)	
Other comprehensive loss	  	 	(289,379	)	 	 	0	 	

	

	

	 	

	

	

	
Total shareholders’ equity	  	 	1,235,809,549	 	 	 	709,342,651	 	

	

	

	 	

	

	

	
Total liabilities and shareholders’ equity	  	$	1,293,166,873	 	 	$	752,281,412	 	

	

	

	 	

	

	

	
 
See accompanying condensed notes to financial statements.

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 
 	  	Three Months Ended

	  	Six Months Ended

	
 	  	June 30,
2002

	  	June 30,
2001

	  	June 30,
2002

	  	June 30,
2001

	
REVENUES:	  	 	 	  	 	 	  	 	 	  	 	 	
Rental income	  	$	21,833,652	  	$	9,851,167	  	$	38,571,815	  	$	19,711,252	
Equity in income of joint ventures	  	 	1,271,863	  	 	809,481	  	 	2,478,686	  	 	1,519,194	
Interest income	  	 	1,534,636	  	 	93,092	  	 	2,648,351	  	 	193,007	
Take out fee	  	 	0	  	 	137,500	  	 	134,102	  	 	137,500	

	

	  	

	

	  	

	

	  	

	

	
 	  	 	24,640,151	  	 	10,891,240	  	 	43,832,954	  	 	21,560,953	

	

	  	

	

	  	

	

	  	

	

	
EXPENSES:	  	 	 	  	 	 	  	 	 	  	 	 	
Depreciation	  	 	7,158,830	  	 	3,206,638	  	 	12,903,282	  	 	6,393,817	
Operating costs, net of reimbursements	  	 	1,439,299	  	 	783,244	  	 	2,063,997	  	 	1,874,428	
Management and leasing fees	  	 	1,003,587	  	 	552,188	  	 	1,903,082	  	 	1,117,902	
Administrative costs	  	 	592,426	  	 	584,184	  	 	1,121,457	  	 	759,291	
Interest expense	  	 	440,001	  	 	648,946	  	 	880,002	  	 	2,809,373	
Amortization of deferred financing costs	  	 	249,530	  	 	77,142	  	 	424,992	  	 	291,899	

	

	  	

	

	  	

	

	  	

	

	
 	  	 	10,883,673	  	 	5,852,342	  	 	19,296,812	  	 	13,246,710	

	

	  	

	

	  	

	

	  	

	

	
NET INCOME	  	$	13,756,478	  	$	5,038,898	  	$	24,536,142	  	$	8,314,243	

	

	  	

	

	  	

	

	  	

	

	
BASIC AND DILUTED EARNINGS PER SHARE	  	$	0.11	  	$	0.12	  	$	0.22	  	$	0.22	

	

	  	

	

	  	

	

	  	

	

	
BASIC AND DILUTED WEIGHTED AVERAGE SHARES	  	 	126,037,819	  	 	42,192,347	  	 	110,885,641	  	 	38,328,405	

	

	  	

	

	  	

	

	  	

	

	
 
See accompanying condensed notes to financial statements.

11

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2001
AND FOR THE SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED)
 
 	  	Common
Stock Shares

	  	Common
Stock
Amount

	 	Additional
Paid-In
Capital

	 	 	Cumulative
Distributions
in Excess of
Earnings

	 	 	Retained
Earnings

	 	 	Treasury
Stock
Shares

	 	 	Treasury
Stock
Amount

	 	 	Other
Comprehensive
Income

	 	 	Total
Shareholders’
Equity

	 	
BALANCE, December 31, 2000	  	31,509,807	  	$	315,097	 	$	275,573,339	 	 	$	(9,133,855	)	 	$	0	 	 	(141,297	)	 	$	(1,412,969	)	 	$	0	 	 	$	265,341,612	 	
Issuance of common stock	  	52,251,662	  	 	522,517	 	 	521,994,103	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	 	522,516,620	 	
Treasury stock purchased	  	0	  	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	(413,743	)	 	 	(4,137,427	)	 	 	0	 	 	 	(4,137,427	)	
Net income	  	0	  	 	0	 	 	0	 	 	 	0	 	 	 	21,723,967	 	 	0	 	 	 	0	 	 	 	0	 	 	 	21,723,967	 	
Dividends ($.76 per share)	  	0	  	 	0	 	 	0	 	 	 	(15,047,237	)	 	 	(21,723,967	)	 	0	 	 	 	0	 	 	 	0	 	 	 	(36,771,204	)	
Sales commissions and discounts	  	0	  	 	0	 	 	(49,246,118	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	 	(49,246,118	)	
Other offering expenses	  	0	  	 	0	 	 	(10,084,799	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	 	(10,084,799	)	

	  	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
BALANCE, December 31, 2001	  	83,761,469	  	 	837,614	 	 	738,236,525	 	 	 	(24,181,092	)	 	 	0	 	 	(555,040	)	 	 	(5,550,396	)	 	 	0	 	 	 	709,342,651	 	
Issuance of common stock	  	61,827,594	  	 	618,276	 	 	617,657,655	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	 	618,275,931	 	
Treasury stock purchased	  	0	  	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	(667,341	)	 	 	(6,673,412	)	 	 	0	 	 	 	(6,673,412	)	
Net income	  	0	  	 	0	 	 	0	 	 	 	0	 	 	 	24,536,142	 	 	0	 	 	 	0	 	 	 	0	 	 	 	24,536,142	 	
Dividends ($.39 per share)	  	0	  	 	0	 	 	0	 	 	 	(19,810,577	)	 	 	(24,536,142	)	 	0	 	 	 	0	 	 	 	0	 	 	 	(44,346,719	)	
Sales commissions and discounts	  	0	  	 	0	 	 	(58,958,984	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	 	(58,958,984	)	
Other offering expenses	  	0	  	 	0	 	 	(6,076,681	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	 	(6,076,681	)	
Gain/(loss) on interest rate swap	  	0	  	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	(289,379	)	 	 	(289,379	)	

	  	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
BALANCE, June 30, 2002 (unaudited)	  	145,589,063	  	$	1,455,890	 	$	1,290,858,515	 	 	$	(43,991,669	)	 	$	0	 	 	(1,222,381	)	 	$	(12,223,808	)	 	$	(289,379	)	 	$	1,235,809,549	 	

	  	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 
See accompanying condensed notes to financial statements.

12

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(UNAUDITED)
 
 	  	Six Months Ended

	 	

	June 30,
2002

	 

	 	 

	June 30,
2001

	 

	
CASH FLOWS FROM OPERATING ACTIVITIES:	  	 	 	 	 	 	 	 	
Net income	  	$	24,536,142	 	 	$	8,314,243	 	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Equity in income of joint venture	  	 	(2,478,686	)	 	 	(1,519,194	)	
Depreciation	  	 	12,903,282	 	 	 	6,393,817	 	
Amortization of deferred financing costs	  	 	424,992	 	 	 	291,899	 	
Amortization of deferred leasing costs	  	 	150,815	 	 	 	151,674	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	
Accounts receivable	  	 	(4,705,925	)	 	 	(1,304,851	)	
Due from affiliates	  	 	(30,532	)	 	 	 	 	
Deferred rental income	  	 	351,887	 	 	 	(285,776	)	
Accounts payable and accrued expenses	  	 	3,112,741	 	 	 	425,824	 	
Prepaid expenses and other assets, net	  	 	(1,017,517	)	 	 	3,525,288	 	
Due to affiliates	  	 	(108,912	)	 	 	295,385	 	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	33,138,287	 	 	 	16,288,309	 	

	

	

	 	

	

	

	
CASH FLOWS FROM INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	
Investments in real estate	  	 	(259,535,578	)	 	 	(3,784,088	)	
Investment in joint venture	  	 	0	 	 	 	(16,126,925	)	
Deferred project costs paid	  	 	(22,008,219	)	 	 	(5,642,317	)	
Distributions received from joint ventures	  	 	3,496,746	 	 	 	1,784,599	 	
Deferred lease acquisition costs paid	  	 	(400,000	)	 	 	0	 	

	

	

	 	

	

	

	
Net cash used in investing activities	  	 	(278,447,051	)	 	 	(23,768,731	)	

	

	

	 	

	

	

	
CASH FLOWS FROM FINANCING ACTIVITIES:	  	 	 	 	 	 	 	 	
Proceeds from note payable	  	 	7,533,697	 	 	 	21,398,850	 	
Repayment of note payable	  	 	0	 	 	 	(138,763,187	)	
Dividends paid	  	 	(40,867,110	)	 	 	(13,795,534	)	
Issuance of common stock	  	 	618,275,931	 	 	 	162,606,610	 	
Sales commissions paid	  	 	(58,958,984	)	 	 	(15,314,860	)	
Offering costs paid	  	 	(6,817,978	)	 	 	(4,836,272	)	
Treasury stock purchased	  	 	(6,673,412	)	 	 	(1,397,561	)	
Deferred financing costs paid	  	 	(859,773	)	 	 	(640,999	)	

	

	

	 	

	

	

	
Net cash provided by financing activities	  	 	511,632,371	 	 	 	9,257,047	 	

	

	

	 	

	

	

	
NET INCREASE IN CASH AND CASH EQUIVALENTS	  	 	266,323,607	 	 	 	1,776,625	 	
CASH AND CASH EQUIVALENTS, beginning of year	  	 	75,586,168	 	 	 	4,298,301	 	

	

	

	 	

	

	

	
CASH AND CASH EQUIVALENTS, end of period	  	$	341,909,775	 	 	$	6,074,926	 	

	

	

	 	

	

	

	
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	
Deferred project costs applied to real estate assets	  	$	10,068,319	 	 	$	5,516,763	 	

	

	

	 	

	

	

	
Deferred project costs applied to joint ventures	  	$	0	 	 	$	671,961	 	

	

	

	 	

	

	

	
Deferred project costs due to affiliate	  	$	512,044	 	 	$	335,667	 	

	

	

	 	

	

	

	
Interest rate swap	  	$	(289,379	)	 	$	0	 	

	

	

	 	

	

	

	
Deferred offering costs due to affiliate	  	$	1,392,934	 	 	$	731,573	 	

	

	

	 	

	

	

	
Other offering costs due to affiliate	  	$	201,811	 	 	$	287,715	 	

	

	

	 	

	

	

	
 
See accompanying condensed notes to financial statements.

 
13

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
 
1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
(a)	 	General	
 
Wells Real Estate Investment Trust, Inc. (the “Company”) is a Maryland corporation formed on July 3, 1997, which qualifies as a real estate investment trust (“REIT”). Substantially all of the Company’s business is conducted through Wells Operating Partnership, L.P. (“Wells OP”), a Delaware limited partnership organized for the purpose of acquiring, developing, owning, operating, improving, leasing, and otherwise managing income producing commercial properties for investment purposes on behalf of the Company. The Company is the sole general partner of Wells OP.
 
On January 30, 1998, the Company commenced its initial public offering of up to 16,500,000 shares of common stock at $10 per share pursuant to a Registration Statement on Form S-11 filed under the Securities Act of 1933. The Company commenced active operations on June 5, 1998, upon receiving and accepting subscriptions for 125,000 shares. The Company terminated its initial public offering on December 19, 1999 at which time gross proceeds of approximately $132,181,919 had been received from the sale of approximately 13,218,192 shares. The Company commenced its second public offering of shares of common stock on December 20, 1999, which was terminated on December 19, 2000 after receipt of gross proceeds of approximately $175,229,193 from the sale of approximately 17,522,919 shares from the second public offering. The Company commenced its third public offering of the shares of common stock on December 20, 2000. As of June 30, 2002, the Company has received gross proceeds of approximately $1,148,480,413 from the sale of approximately 114,848,041 shares from its third public offering. Accordingly, as of June 30, 2002, the Company has received aggregate gross offering proceeds of approximately $1,455,891,526 from the sale of 145,589,153 shares of its common stock to investors. After payment of $50,528,371 in acquisition and advisory fees and acquisition expenses, payment of $163,576,134 in selling commissions and organization and offering expenses, capital contributions to joint ventures and acquisitions expenditures by Wells OP of $885,294,095 for property acquisitions, and common stock redemptions of $12,223,808 pursuant to the Company’s share redemption program, the Company was holding net offering proceeds of $344,269,118 available for investment in properties, as of June 30, 2002.
 
(b)	 	Properties	
 
As of June 30, 2002, the Company owned interests in 52 properties listed in the table below through its ownership in Wells OP. As of June 30, 2002, all of these properties were 100% leased.
 
14

Table of Contents
Property
Name

	  	Tenant

	  	Property
Location

	  	%
Owned

	 	 	Purchase
Price

	 	 	Square
Feet

	  	Annual
Rent

	 	
MFS Phoenix	  	Massachusetts Financial Services Company	  	Phoenix, AZ	  	100%	 	 	$	25,800,000	 	 	148,605	  	$	2,347,959	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
TRW Denver	  	TRW, Inc.	  	Aurora, CO	  	100%	 	 	$	21,060,000	 	 	108,240	  	$	2,870,709	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Agilent Boston	  	Agilent Technologies, Inc.	  	Boxborough, MA	  	100%	 	 	$	31,742,274	 	 	174,585	  	$	3,578,993	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Experian/TRW	  	Experian Information Solutions, Inc.	  	Allen, TX	  	100%	 	 	$	35,150,000	 	 	292,700	  	$	3,438,277	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
BellSouth Ft. Lauderdale	  	BellSouth Advertising and Publishing Corporation	  	Ft. Lauderdale, FL	  	100%	 	 	$	6,850,000	 	 	47,400	  	$	747,033	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Agilent Atlanta	  	Agilent Technologies, Inc.
Koninklijke Philips Electronics N.V.	  	Alpharetta, GA	  	100%	 	 	$	15,100,000	 	 	66,811
34,396	  	$
$	1,344,905
692,391	 

Travelers Express Denver	  	Travelers Express Company, Inc.	  	Lakewood, CO	  	100%	 	 	$	10,395,845	 	 	68,165	  	$	1,012,250	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Dana Kalamazoo	  	Dana Corporation	  	Kalamazoo, MI	  	100%	 	 	$	41,950,000	(1)	 	147,004	  	$	1,842,800	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Dana Detroit	  	Dana Corporation	  	Farmington Hills, MI	  	100%	 	 	 	(see above) 	(1)	 	112,480	  	$	2,330,600	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Novartis Atlanta	  	Novartis Opthalmics, Inc.	  	Duluth, GA	  	100%	 	 	$	15,000,000	 	 	100,087	  	$	1,426,240	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Transocean Houston	  	Transocean Deepwater Offshore Drilling, Inc.
Newpark Drilling Fluids, Inc.	  	Houston, TX	  	100%	 	 	$	22,000,000	 	 	103,260
52,731	  	$
$	2,110,035
1,153,227	 

Arthur Andersen	  	Arthur Andersen LLP	  	Sarasota, FL	  	100%	 	 	$	21,400,000	 	 	157,700	  	$	1,988,454	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Windy Point I	  	TCI Great Lakes, Inc.
The Apollo Group, Inc.
Global Knowledge Network

Various other tenants	  	Schaumburg, IL	  	100%	 	 	$	32,225,000	(2)	 	129,157
28,322
22,028
8,884	  	$
$
$
$	2,067,204
477,226
393,776
160,000	 

 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Windy Point II	  	Zurich American Insurance	  	Schaumburg, IL	  	100%	 	 	$	57,050,000	(2)	 	300,034	  	$	5,091,577	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Convergys	  	Convergys Customer Management Group, Inc.	  	Tamarac, FL	  	100%	 	 	$	13,255,000	 	 	100,000	  	$	1,248,192	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
ADIC	  	Advanced Digital Information Corporation	  	Parker, CO	  	68.2%	 	 	$	12,954,213	 	 	148,204	  	$	1,222,683	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Lucent	  	Lucent Technologies, Inc.	  	Cary, NC	  	100%	 	 	$	17,650,000	 	 	120,000	  	$	1,800,000	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Ingram Micro	  	Ingram Micro, L.P.	  	Millington, TN	  	100%	 	 	$	21,050,000	 	 	701,819	  	$	2,035,275	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Nissan (3)	  	Nissan Motor Acceptance Corporation	  	Irving, TX	  	100%	 	 	$	42,259,000	(4)	 	268,290	  	$	4,225,860	(5)	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
IKON	  	IKON Office Solutions, Inc.	  	Houston, TX	  	100%	 	 	$	20,650,000	 	 	157,790	  	$	2,015,767	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
State Street	  	SSB Realty, LLC	  	Quincy, MA	  	100%	 	 	$	49,563,000	 	 	234,668	  	$	6,922,706	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
AmeriCredit	  	AmeriCredit Financial Services Corporation	  	Orange Park, FL	  	68.2%	 	 	$	12,500,000	 	 	85,000	  	$	1,336,200	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Comdata	  	Comdata Network, Inc.	  	Brentwood, TN	  	55.0%	 	 	$	24,950,000	 	 	201,237	  	$	2,458,638	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
AT&T Oklahoma	  	AT&T Corp.
Jordan Associates, Inc.	  	Oklahoma City, OK	  	55.0%	 	 	$	15,300,000	 	 	103,500
25,000	  	$
$	1,242,000
294,500	 

Metris Minnesota	  	Metris Direct, Inc.	  	Minnetonka, MN	  	100%	 	 	$	52,800,000	 	 	300,633	  	$	4,960,445	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Stone & Webster	  	Stone & Webster, Inc.
SYSCO Corporation	  	Houston, TX	  	100%	 	 	$	44,970,000	 	 	206,048
106,516	  	$
$	4,533,056
2,130,320	 

Motorola Plainfield	  	Motorola, Inc.	  	S. Plainfield, NJ	  	100%	 	 	$	33,648,156	 	 	236,710	  	$	3,324,428	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Quest	  	Quest Software, Inc.	  	Irvine, CA	  	15.8%	 	 	$	7,193,000	 	 	65,006	  	$	1,287,119	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Delphi	  	Delphi Automotive Systems, LLC	  	Troy, MI	  	100%	 	 	$	19,800,000	 	 	107,193	  	$	1,955,524	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Avnet	  	Avnet, Inc.	  	Tempe, AZ	  	100%	 	 	$	13,250,000	 	 	132,070	  	$	1,516,164	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Siemens	  	Siemens Automotive Corp.	  	Troy, MI	  	56.8%	 	 	$	14,265,000	 	 	77,054	  	$	1,374,643	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Motorola Tempe	  	Motorola, Inc.	  	Tempe, AZ	  	100%	 	 	$	16,000,000	 	 	133,225	  	$	1,843,834	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
ASML	  	ASM Lithography, Inc.	  	Tempe, AZ	  	100%	 	 	$	17,355,000	 	 	95,133	  	$	1,927,788	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Dial	  	Dial Corporation	  	Scottsdale, AZ	  	100%	 	 	$	14,250,000	 	 	129,689	  	$	1,387,672	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Metris Tulsa	  	Metris Direct, Inc.	  	Tulsa, OK	  	100%	 	 	$	12,700,000	 	 	101,100	  	$	1,187,925	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Cinemark	  	Cinemark USA, Inc.
The Coca-Cola Company	  	Plano, TX	  	100%	 	 	$	21,800,000	 	 	65,521
52,587	  	$
$	1,366,491
1,354,184	 

Gartner	  	The Gartner Group, Inc.	  	Ft. Myers, FL	  	56.8%	 	 	$	8,320,000	 	 	62,400	  	$	830,656	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Videojet Technologies Chicago	  	Videojet Technologies, Inc.	  	Wood Dale, IL	  	100%	 	 	$	32,630,940	 	 	250,354	  	$	3,376,746	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Johnson Matthey	  	Johnson Matthey, Inc.	  	Wayne, PA	  	56.8%	 	 	$	8,000,000	 	 	130,000	  	$	854,748	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Alstom Power Richmond (3)	  	Alstom Power, Inc.	  	Midlothian, VA	  	100%	 	 	$	11,400,000	 	 	99,057	  	$	1,213,324	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Sprint	  	Sprint Communications Company, L.P.	  	Leawood, KS	  	56.8%	 	 	$	9,500,000	 	 	68,900	  	$	1,102,404	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
EYBL CarTex	  	EYBL CarTex, Inc.	  	Fountain Inn, SC	  	56.8%	 	 	$	5,085,000	 	 	169,510	  	$	550,908	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Matsushita (3)	  	Matsushita Avionics Systems Corporation	  	Lake Forest, CA	  	100	%	 	$	18,431,206	 	 	144,906	  	$	2,005,464	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
AT&T Pennsylvania	  	Pennsylvania Cellular Telephone Corp.	  	Harrisburg, PA	  	100	%	 	$	12,291,200	 	 	81,859	  	$	1,442,116	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
PwC	  	PricewaterhouseCoopers, LLP	  	Tampa, FL	  	100	%	 	$	21,127,854	 	 	130,091	  	$	2,093,382	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Cort Furniture	  	Cort Furniture Rental Corporation	  	Fountain Valley, CA	  	44.0	%	 	$	6,400,000	 	 	52,000	  	$	834,888	 	
 	  	 	  	 	  	 	 	 	 	 	 	 	 	  	 	 	 	
Fairchild	  	Fairchild Technologies U.S.A., Inc.	  	Fremont, CA	  	77.5	%	 	$	8,900,000	 	 	58,424	  	$	920,144	 	
 
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Property
Name

	  	Tenant

	  	Property
Location

	  	%
Owned

	 	 	Purchase
Price

	  	Square
Feet

	  	Annual
Rent

	
Avaya	  	Avaya, Inc.	  	Oklahoma
City, OK	  	3.7	%	 	$	5,504,276	  	57,186	  	$	536,977	
 	  	 	  	 	  	 	 	 	 	 	  	 	  	 	 	
Iomega	  	Iomega Corporation	  	Ogden, UT	  	3.7	%	 	$	5,025,000	  	108,250	  	$	659,868	
 	  	 	  	 	  	 	 	 	 	 	  	 	  	 	 	
Interlocken	  	ODS
Technologies, L.P. and GAIAM, Inc.	  	Broomfield,
CO	  	3.7	%	 	$	8,275,000	  	51,975	  	$	1,070,515	
 	  	 	  	 	  	 	 	 	 	 	  	 	  	 	 	
Ohmeda	  	Ohmeda, Inc.	  	Louisville,
CO	  	3.7	%	 	$	10,325,000	  	106,750	  	$	1,004,520	
 	  	 	  	 	  	 	 	 	 	 	  	 	  	 	 	
Alstom Power Knoxville	  	Alstom Power, Inc.	  	Knoxville,
TN	  	3.7	%	 	$	7,900,000	  	84,404	  	$	1,106,520	
 	  	 	  	 	  	 	 	 	 	 	  	 	  	 	 	
(1)	 	Dana Kalamazoo and Dana Detroit were purchased for an aggregate purchase price of $41,950,000.	
 
(2)	 	Windy Point I and Windy Point II were purchased for an aggregate purchase price of $89,275,000.	
 
(3)	 	Includes the actual costs incurred or estimated to be incurred by Wells OP to develop and construct the building in addition to the purchase price of the land.	
 
(4)	 	Includes estimated costs for the planning, design, development, construction and completion of the Nissan Property.	
 
(5)	 	Annual rent for Nissan Property does not take effect until construction of the building is completed and the tenant is occupying the building.	
 
Wells OP owns interests in properties directly and through equity ownership in the following joint ventures:
 
Joint Venture	 	Joint Venture Partners	 	Properties Held by Joint Venture	

	
Fund XIII-REIT Joint Venture	 	Wells Operating Partnership, L.P.
Wells Real Estate Fund XIII, L.P.	 	AmeriCredit
ADIC	

	
Fund XII-REIT Joint Venture	 	Wells Operating Partnership, L.P.
Wells Real Estate Fund XII, L.P.	 	Siemens
AT&T Oklahoma
Comdata	

	
Fund XI-XII-REIT Joint Venture	 	Wells Operating Partnership, L.P.
Wells Real Estate Fund XI, L.P.
Wells Real Estate Fund XII, L.P.	 	EYBL CarTex
Sprint
Johnson Matthey
Gartner	

	
Fund IX-X-XI-REIT Joint Venture	 	Wells Operating Partnership, L.P.
Wells Real Estate Fund IX, L.P.
Wells Real Estate Fund X, L.P.
Wells Real Estate Fund XI, L.P.	 	Alstom Power Knoxville
Ohmeda
Interlocken
Avaya
Iomega	

	
Wells/Fremont Associates Joint Venture (the “Fremont Joint Venture”)	 	Wells Operating Partnership, L.P.
Fund X-XI Joint Venture	 	Fairchild	

	
Wells/Orange County Associates Joint Venture (the “Orange County Joint Venture”)	 	Wells Operating Partnership, L.P.
Fund X-XI Joint Venture	 	Cort Furniture	

	
Fund VIII-IX-REIT Joint Venture	 	Wells Operating Partnership, L.P.
Fund VIII-IX Joint Venture	 	Quest	

	
 
(c)	 	Critical Accounting Policies	
 
The Company’s accounting policies have been established in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions.
 
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These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied; thus, resulting in a different presentation of our financial statements. Below is a discussion of the accounting policies that we consider to be critical in that they may require complex judgment in their application or require estimates about matters which are inherently uncertain.
 
Revenue Recognition
 
The Company recognizes rental income generated from all leases on real estate assets in which the Company has an ownership interest, either directly or through investments in joint ventures, on a straight-line basis over the terms of the respective leases. If a tenant was to encounter financial difficulties in future periods, the amount recorded as a receivable may not be realized.
 
Operating Cost Reimbursements
 
The Company generally bills tenants for operating cost reimbursements, either directly or through investments in joint ventures, on a monthly basis at amounts estimated largely based on actual prior period activity, the current year budget and the respective lease terms. Such billings are generally adjusted on an annual basis to reflect reimbursements owed to the landlord based on the actual costs incurred during the period and the respective lease terms. Financial difficulties encountered by tenants may result in receivables not being realized.
 
Real Estate
 
Management continually monitors events and changes in circumstances indicating that the carrying amounts of the real estate assets in which the Company has an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When such events or changes in circumstances are present, management assesses the potential impairment by comparing the fair market value of the asset, estimated at an amount equal to the future undiscounted operating cash flows expected to be generated from tenants over the life of the asset and from its eventual disposition, to the carrying value of the asset. In the event that the carrying amount exceeds the estimated fair market value, the Company would recognize an impairment loss in the amount required to adjust the carrying amount of the asset to its estimated fair market value. Neither the Company nor its joint ventures have recognized impairment losses on real estate assets in 2002 or 2001.
 
Deferred Project Costs
 
The Company records acquisition and advisory fees and acquisition expenses payable to Wells Capital, Inc. (the “Advisor”) by capitalizing deferred project costs and reimbursing the Advisor in an amount equal to 3.5% of cumulative capital raised to date. As the Company invests its capital proceeds, deferred project costs are applied to real estate assets, either directly or through contributions to joint ventures, and depreciated over the useful lives of the respective real estate assets. Acquisition and advisory fees and acquisition expenses paid as of June 30, 2002, amounted to $50,528,371 and represented approximately 3.5% of capital contributions received. These fees are allocated to specific properties as they are purchased or developed and are included in capitalized assets of the joint venture, or real estate assets. Deferred project costs at June 30, 2002 and December 31, 2001, represent fees paid, but not yet applied to properties.
 
Deferred Offering Costs
 
The Advisor expects to continue to fund 100% of the organization and offering costs and recognize related expenses, to the extent that such costs exceed 3% of cumulative capital raised, on behalf of the Company. Organization and offering costs include items such as legal and accounting fees, marketing and promotional costs, and printing costs, and specifically exclude sales costs and underwriting commissions. The Company records offering costs by accruing deferred offering costs, with an offsetting liability included in due to affiliates, at an amount equal to the lesser of 3% of cumulative capital raised to date or actual costs incurred from third-parties less reimbursements paid to the Advisor. As the actual equity is raised, the Company reverses the deferred offering costs accrual and recognizes a charge to stockholders’ equity upon reimbursing the Advisor. As of June 30, 2002, the
 
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Table of Contents
Advisor had paid organization and offering expenses on behalf of the Company in an aggregate amount of $27,886,146, of which the Advisor had been reimbursed $25,572,034, which did not exceed the 3% limitation. Deferred offering costs in the accompanying balance sheet represent costs incurred by the Advisor which will be reimbursed by the Company.
 
(d)	 	Distribution Policy	
 
The Company will make distributions each taxable year (not including a return of capital for federal income tax purposes) equal to at least 90% of its real estate investment trusts’ taxable income. The Company intends to make regular quarterly distributions to stockholders. Distributions will be made to those stockholders who are stockholders as of the record date selected by the Directors. The Company currently calculates quarterly dividends based on the daily record and dividend declaration dates; thus, stockholders are entitled to receive dividends immediately upon the purchase of shares.
 
Dividends to be distributed to the stockholders are determined by the Board of Directors and are dependent on a number of factors related to the Company, including funds available for payment of dividends, financial condition, capital expenditure requirements and annual distribution requirements in order to maintain the Company’s status as a REIT under the Code. Operating cash flows are expected to increase as additional properties are added to the Company’s investment portfolio.
 
(e)	 	Income Taxes	
 
The Company has made an election under Section 856 (C) of the Internal Revenue Code of 1986, as amended (the “Code”), to be taxed as a Real Estate Investment Trust (“REIT”) under the Code beginning with its taxable year ended December 31, 1998. As a REIT for federal income tax purposes, the Company generally will not be subject to federal income tax on income that it distributes to its shareholders. If the Company fails to qualify as a REIT in any taxable year, it will then be subject to federal income tax on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost. Such an event could materially adversely affect the Company’s net income and net cash available to distribute to shareholders. However, the Company believes that it is organized and operates in such a manner as to qualify for treatment as a REIT and intends to continue to operate in the foreseeable future in such a manner so that the Company will remain qualified as a REIT for federal income tax purposes.
 
(f)	 	Employees	
 
The Company has no direct employees. The employees of the Advisor and Wells Management Company, Inc. (Wells Management), an affiliate of the Company and the Advisor, perform a full range of real estate services including leasing and property management, accounting, asset management and investor relations for the Company. The Company has reimbursed the Advisor and Wells Management for allocated salaries, wages and other payroll related costs totaling $683,535 and $254,000 for the six months ended June 30, 2002 and 2001, respectively and $366,380 and $163,725 for the three months ended June 30, 2002 and 2001, respectively.
 
(g)	 	Insurance	
 
Wells Management Company, Inc., an affiliate of the Company and the Advisor, carries comprehensive liability and extended coverage with respect to all the properties owned directly or indirectly by the Company. In the opinion of management, the properties are adequately insured.
 
(h)	 	Competition	
 
The Company will experience competition for tenants from owners and managers of competing projects, which may include its affiliates. As a result, the Company 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 Company elects to dispose of its properties, the Company will also be in competition with sellers of similar properties to locate suitable purchasers for its properties.
 
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Table of Contents
(i)	 	Statement of Cash Flows	
 
For the purpose of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents include cash and short-term investments.
 
(j)	 	Basis of Presentation	
 
Substantially all of the Company’s business is conducted through Wells OP. On December 31, 1997, Wells OP issued 20,000 limited partner units to the Advisor in exchange for a capital contribution of $200,000. The Company is the sole general partner in Wells OP; consequently, the accompanying consolidated balance sheet of the Company includes the amounts of the Company and Wells OP. The Advisor, a limited partner, is not currently receiving distributions from its investment in Wells OP.
 
The consolidated financial statements of the Company have been prepared in accordance with instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These quarterly statements have not been examined by independent accountants, but in the opinion of the Board of Directors, the statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary to present a fair presentation of the results for such periods. Results for interim periods are not necessarily indicative of full year results. For further information, refer to the financial statements and footnotes included in the Company’s Form 10-K for the year ended December 31, 2001.
 
2    INVESTMENT IN JOINT VENTURES
 
(a)	 	Basis of Presentation	
 
As of June 30, 2002, the Company owned interests in 17 properties in joint ventures with related entities through its ownership in Wells OP, which owns interests in seven such joint ventures. The Company does not have control over the operations of these joint ventures; however, it does exercise significant influence. Accordingly, investment in joint ventures is recorded using the equity method.
 
(b)	 	Summary of Operations	
 
The following information summarizes the operations of the unconsolidated joint ventures in which the Company, through Wells OP, had ownership interests as of June 30, 2002 and 2001, respectively. There were no additional investments in joint ventures made by the Company during the three months and six months ended June 30, 2002.
 
 	  	Total Revenues

	  	Net Income

	  	Wells OP’s Share of Net
Income

	
 	  	Three Months Ended

	  	Three Months Ended

	  	Three Months Ended

	
 	  	June 30,
2002

	  	June 30,
2001

	  	June 30,
2002

	  	June 30,
2001

	  	June 30,
2002

	  	June 30,
2001

	
Fund IX-X-XI-REIT Joint Venture	  	$	1,436,601	  	$	1,087,746	  	$	619,173	  	$	734,418	  	$	22,982	  	$	27,258	
Cort Joint Venture	  	 	208,707	  	 	198,881	  	 	140,206	  	 	131,374	  	 	61,224	  	 	57,367	
Fremont Joint Venture	  	 	227,023	  	 	225,178	  	 	140,944	  	 	135,990	  	 	109,237	  	 	105,398	
Fund XI-XII-REIT Joint Venture	  	 	859,027	  	 	847,767	  	 	545,009	  	 	499,960	  	 	309,363	  	 	283,792	
Fund XII-REIT Joint Venture	  	 	1,483,224	  	 	1,102,873	  	 	852,672	  	 	587,864	  	 	468,646	  	 	310,812	
Fund VIII-IX-REIT Joint Venture	  	 	309,605	  	 	313,539	  	 	147,998	  	 	155,320	  	 	23,370	  	 	24,854	
Fund XIII-REIT Joint Venture	  	 	707,919	  	 	0	  	 	406,236	  	 	0	  	 	277,041	  	 	0	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 	  	 	$5,232,106	  	 	$3,775,984	  	 	$2,852,238	  	 	$2,244,926	  	 	$1,271,863	  	$	809,481	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 
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Table of Contents
 	  	Total Revenues

	  	Net Income

	  	Wells OP’s Share of Net
Income

	
 	  	Six Months Ended

	  	Six Months Ended

	  	Six Months Ended

	
 	  	June 30,
2002

	  	June 30,
2001

	  	June 30,
2002

	  	June 30,
2001

	  	June 30,
2002

	  	June 30,
2001

	
Fund IX-X-XI-REIT Joint Venture	  	$	2,815,660	  	$	2,181,096	  	$	1,173,441	  	$	1,372,853	  	$	43,554	  	$	50,954	
Cort Joint Venture	  	 	420,713	  	 	398,468	  	 	269,956	  	 	265,127	  	 	117,882	  	 	115,773	
Fremont Joint Venture	  	 	452,184	  	 	450,356	  	 	276,892	  	 	278,602	  	 	214,602	  	 	215,928	
Fund XI-XII-REIT Joint Venture	  	 	1,717,246	  	 	1,689,191	  	 	1,042,158	  	 	1,014,237	  	 	591,560	  	 	575,710	
Fund XII-REIT Joint Venture	  	 	3,154,087	  	 	1,896,195	  	 	1,658,185	  	 	1,033,184	  	 	911,372	  	 	519,445	
Fund VIII-IX-REIT Joint Venture	  	 	633,351	  	 	580,923	  	 	308,694	  	 	260,352	  	 	48,744	  	 	41,384	
Fund XIII-REIT Joint Venture	  	 	1,408,567	  	 	0	  	 	807,910	  	 	0	  	 	550,972	  	 	0	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 	  	$	10,601,808	  	$	7,196,229	  	$	5,537,236	  	$	4,224,355	  	$	2,478,686	  	$	1,519,194	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 
3.    INVESTMENTS IN REAL ESTATE
 
As of June 30, 2002, the Company, through its ownership in Wells OP, owns 35 properties directly. The following describes acquisitions made directly by Wells OP during the three months ended June 30, 2002.
 
The Travelers Express Denver Building
 
On April 10, 2002, Wells OP purchased the Travelers Express Denver Building, a one-story office building containing 68,165 rentable square feet located in Lakewood, Jefferson County, Colorado for a purchase price of $10,395,845, excluding closing costs. Travelers Express Building is 100% leased to Travelers Express Company, Inc. (“Travelers Express”). The Travelers Express lease is a net lease that commenced in April 2002 and expires in March 2012. The current annual base rent payable under the Travelers Express lease is $1,012,250. Travelers Express, at its option, has the right to extend the initial term of its lease for two additional five-year terms. Base rent for the first renewal term shall be $19.00 per square foot for years 1-3 and $20.50 per square foot for years 4-5. The base rent for the second renewal term shall be at the then-current market rental rate.
 
The Agilent Atlanta Building
 
On April 18, 2002, Wells OP purchased the Agilent Atlanta Building, a two-story office building containing 101,207 rentable square feet located in Alpharetta, Fulton County, Georgia for a purchase price of $15,100,000, excluding closing costs. The Agilent Atlanta Building is leased to Agilent Technologies, Inc. (“Agilent”) and Koninklijke Philips Electronics N.V. (“Philips”).
 
The Agilent lease is a net lease that covers approximately 66,811 square feet commencing in September 2001 and expiring in September 2011. The initial annual base rent payable under the Agilent lease is $1,344,905. Agilent, at its option, has the right to extend the initial term of its lease for either (1) one additional three-year period, or (2) one additional five-year period, at the then-current market rental rate. In addition, Agilent may terminate the lease at the end of the seventh lease year by paying a $763,650 termination fee.
 
The Philips lease is a net lease that covers approximately 34,396 rentable square feet commencing in September 2001 and expiring in September 2011. The current annual base rent payable under the Philips lease is $692,391. Philips, at its option, has the right to extend the initial term of its lease for either (1) one additional three-year period, or (2) one additional five-year period, at the then-current market rental rate. In addition, Philips may terminate the lease at the end of the seventh lease year by paying a $393,146 termination fee.
 
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Table of Contents
The BellSouth Ft. Lauderdale Building
 
On April 18, 2002, Wells OP purchased the BellSouth Ft. Lauderdale Building, a one-story office building containing 47,400 rentable square feet located in Ft. Lauderdale, Broward County, Florida for a purchase price of $6,850,000, excluding closing costs. The BellSouth Ft. Lauderdale Building is 100% leased to BellSouth Advertising and Publishing Corporation (“BellSouth”). The BellSouth lease is a net lease that commenced in July 2001 and expires in July 2008. The current annual base rent payable under the BellSouth lease is $747,033. BellSouth, at its option, has the right to extend the initial term of its lease for three additional five-year periods at 95% of the then-current market rental rate.
 
The Experian/TRW Buildings
 
On May 1, 2002, Wells OP purchased the Experian/TRW Buildings, two two-story office buildings containing 292,700 rentable square feet located in Allen, Collin County, Texas for a purchase price of $35,150,000, excluding closing costs. The Experian/TRW Buildings are both 100% leased to Experian, Inc. (“Experian”). The Experian lease is a net lease that commenced in April 1993 and expires in October 2010. The current annual base rent payable under the Experian lease is $3,438,277. Experian, at its option, has the right to extend the initial term of its lease for four additional five-year periods at 95% of the then-current market rental rate. TRW, Inc., the original tenant on the Experian lease, assigned its interest in the Experian lease to Experian in 1996 but remains as an obligor of the Experian lease.
 
The Agilent Boston Building
 
On May 3, 2002, Wells OP purchased the Agilent Boston Building, a three-story office building containing 174,585 rentable square feet located in Boxborough, Middlesex County, Massachusetts for a purchase price of $31,742,274, excluding closing costs. In addition, Wells OP has assumed the obligation, as the landlord, to provide Agilent $3,407,496 for tenant improvements. The Agilent Boston Building is 100% leased to Agilent Technologies, Inc. (“Agilent”). The Agilent Boston lease is a net lease that commenced in September 2001 and expires in September 2011. The current annual base rent payable under the Agilent Boston lease is $3,578,993. Agilent, at its option, has the right to extend the initial term of its lease for one additional five-year period at a rate equal to the greater of (1) the then-current market rental rate, or (2) 75% of the annual base rent in the final year of the initial term of the Agilent Boston lease. In addition, Agilent may terminate the lease at the end of the seventh lease year by paying a $4,190,000 termination fee.
 
The TRW Denver Building
 
On May 29, 2002, Wells OP purchased the TRW Denver Building, a three-story office building containing 108,240 rentable square feet located in Aurora, Arapahoe County, Colorado for a purchase price of $21,060,000, excluding closing costs. The TRW Denver Building is 100% leased to TRW, Inc. (“TRW”). The TRW lease is a net lease that commenced in October 1997 and expires in September 2007. The current annual base rent payable under the TRW lease is $2,870,709. TRW, at its option, has the right to extend the initial term of its lease for two additional five-year periods at 95% of the then-current market rental rate.
 
The MFS Phoenix Building
 
On June 5, 2002, Wells OP purchased the MFS Phoenix Building, a three-story office building containing 148,605 rentable square feet located in Phoenix, Maricopa County, Arizona for a purchase price of $25,800,000, excluding closing costs. The MFS Phoenix Building is 100% leased to Massachusetts Financial Services Company (“MFS”). The MFS lease is a net lease that commenced in April 2001 and expires in July 2011. The current annual base rent payable under the MFS lease is $2,347,959. MFS, at its option, has the right to extend the initial term of its lease for two additional five-year periods at 95% of the then-current market rental rate.
 
4.    NOTE RECEIVABLE
 
In connection with the purchase of the TRW Denver Building, Wells OP acquired a note receivable from the building’s sole tenant, TRW, Inc., in the amount of $5,210,000. The loan was made to fund above-standard tenant
 
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improvement costs to the building. The note receivable will be fully amortized over the remaining lease term, which expires September 2007, at 11% interest with TRW making monthly loan payments of $107,966.
 
5.    NOTES PAYABLE
 
Wells OP has established four secured lines of credit with SouthTrust Bank totaling $72,140,000 which are secured by first priority mortgages against the Cinemark, ASML, Dial, PwC, Motorola Tempe, Alstom Power Richmond and Avnet Buildings. Notes payable at June 30, 2002 consists of (i) $7,655,600 of draws on a $7,900,000 line of credit from SouthTrust Bank secured by a first mortgage on the Alstom Power Richmond Building and (ii) $8,002,541 outstanding on the construction loan from Bank of America, N.A.(Bank of America) which is being used to fund the development of the Nissan Property.
 
6.    INTEREST RATE SWAP
 
Wells OP entered into an interest rate swap agreement with Bank of America in an attempt to hedge its interest rate exposure on the Bank of America construction loan for the Nissan Property. The interest rate swap became effective January 15, 2002 and terminates on June 15, 2003, the maturity date of the construction loan. The notional amount of the interest rate swap is the balance outstanding on the construction loan on the payment date, which is the fifteenth of each month. The interest rate swap agreement involves the exchange of amounts based on a fixed interest rate for amounts based on a variable interest rate over the life of the loan agreement without an exchange of the notional amount upon which the payments are based. Wells OP, as the fixed rate payer, has an interest rate of 5.9%. Bank of America, the variable rate payer, pays at a rate equal to U.S. dollar LIBOR on the payment date. During the six months ended June 30, 2002, Wells OP made interest payments totaling approximately $23,100 under the terms of the interest rate swap. At June 30, 2002, the estimated fair value of the interest rate swap was ($289,379).
 
On January 1, 2001, the Company adopted SFAS No. 133, as amended by SFAS No. 137 and No. 138 Accounting for Derivative Instruments and Hedging Activities. The effect of adopting the SFAS No. 133 did not have a material effect on the Company’s consolidated financial statements.
 
7.    DUE TO AFFILIATES
 
Due to affiliates consists of amounts due to the Advisor for acquisitions and advisory fees and acquisition expenses, deferred offering costs, and other operating expenses paid on behalf of the Company. Also included in due to affiliates is the amount due to the Fund VIII-IX Joint Venture related to the Matsushita lease guarantee, which is explained in greater detail in the financial statements and footnotes included in the Company’s Form 10-K for the year ended December 31, 2001. Payments of $601,963 have been made as of June 30, 2002 toward funding the obligation under the Matsushita agreement.
 
8.    COMMITMENTS AND CONTINGENCIES
 
Take Out Purchase and Escrow Agreement
 
An affiliate of the Advisor (“Wells Exchange”) has developed a program (the “Wells Section 1031 Program”) involving the acquisition by Wells Exchange of income-producing commercial properties and the formation of a series of single member limited liability companies for the purpose of facilitating the resale of co-tenancy interests in such real estate properties to be owned in co-tenancy arrangements with persons (“1031 Participants”) who are looking to invest the proceeds from a sale of real estate held for investment in another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Code. Each of these properties will be financed by a combination of permanent first mortgage financing and interim loan financing obtained from institutional lenders.
 
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Following the acquisition of each property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to pay off the interim financing. In consideration for the payment of a take out fee to the Company, and following approval of the potential property acquisition by the Company’s Board of Directors, it is anticipated that Wells OP will enter into a contractual relationship providing that, in the event that Wells Exchange is unable to sell all of the co-tenancy interests in that particular property to 1031 Participants, Wells OP will purchase, at Wells Exchange’s cost, any co-tenancy interests remaining unsold at the end of the offering period. As a part of the initial transaction in the Wells Section 1031 Program, Wells OP entered into a take out purchase and escrow agreement dated April 16, 2001 providing, among other things, that Wells OP would be obligated to acquire, at Wells Exchange’s cost, any unsold co-tenancy interests in the building known as the Ford Motor Credit Complex which remained unsold at the expiration of the offering of Wells Exchange, which was extended to April 15, 2002. Wells OP was compensated for its takeout commitment in the amount of $137,500 in 2001 and $134,102 in 2002. On April 12, 2002, Wells Exchange paid off the interim financing on the Ford Motor Credit Complex. Pay off of the loan triggered the release of Wells OP from its prior obligations under the take out purchase and escrow agreement relating to such property.
 
9.    SUBSEQUENT EVENTS
 
The ISS Atlanta Buildings
 
On July 1, 2002, Wells OP purchased two five-story buildings containing a total of 238,600 rentable square feet located in Atlanta, Georgia for a purchase price of $40,500,000, excluding closing costs. The ISS Atlanta Buildings were acquired by assigning to Wells OP an existing ground lease with the Development Authority of Fulton County (“Development Authority”). Fee simple title to the land upon which the ISS Atlanta Buildings are located is held by the Development Authority, which issued Development Authority of Fulton County Taxable Revenue Bonds (“Bonds”) totaling $32,500,000 in connection with the construction of these buildings. The Bonds, which entitle Wells OP to certain real property tax abatement benefits, were also assigned to Wells OP at the closing. Fee title interest to the land will be transferred to Wells OP upon payment of the outstanding balance on the Bonds, either by prepayment by Wells OP or at the expiration of the ground lease on December 1, 2015.
 
The entire rentable area of the ISS Atlanta Buildings is leased to Internet Security Systems, Inc., a Georgia corporation (“ISS”). The ISS Atlanta lease is a net lease that commenced in November 2000 and expires in May 2013. The current annual base rent payable under the ISS Atlanta lease is $4,623,445. ISS, at its option, has the right to extend the initial term of its lease for three additional five-year periods at 95% of the then-current market rental rate.
 
The PacifiCare San Antonio Building
 
On July 12, 2002, Wells OP purchased the PacifiCare San Antonio Building, a two-story office building containing 142,500 rentable square feet located in San Antonio, Texas for a purchase price of $14,650,000, excluding closing costs. The PacifiCare San Antonio Building is 100% leased to PacifiCare Health Systems, Inc. (“PacifiCare”). The PacifiCare lease is a net lease that commenced on November 20, 2000 and expires on November 30, 2010. The current annual base rent payable under the PacifiCare lease is $1,471,700. PacifiCare, at its option, has the right to extend the initial term of its lease for three additional five-year periods. Monthly base rent for the first renewal term will be $163,994 and monthly base rent for the second and third renewal terms will be the then-current market rental rate.
 
The Kerr McGee Property
 
On July 29, 2002, Wells OP purchased the Kerr McGee Property, a 4.2-acre tract of land located in Houston, Harris County, Texas for a purchase price of $1,738,044, excluding closing costs. Wells OP has entered into agreements to construct a four-story office building containing approximately 100,000 rentable square feet (the “Kerr McGee Project”) on the Kerr McGee Property. It is currently anticipated that the aggregate of all costs and expenses to be incurred by Wells OP with respect to the acquisition of the Kerr McGee Property and the planning, design, development, construction and completion of the Kerr McGee Project will total approximately $15,760,000.
 
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The entire 100,000 rentable square feet of the Kerr McGee Project will be leased to Kerr McGee Oil & Gas Corporation (“Kerr McGee”), a wholly owned subsidiary of Kerr McGee Corporation. The initial term of the Kerr McGee lease will extend 11 years and 1 month beyond the rent commencement date. Construction on the building is scheduled to be completed by July 2003. The rent commencement date will occur no later than July 1, 2003. Kerr McGee has the right to extend the initial term of this lease for one additional period of twenty years or the option to extend the initial term for any combination of additional periods of ten years or five years for a total additional period of not more than twenty years. The base rental rate will be 95% of the existing market rate. The initial annual base rent payable under the Kerr McGee lease will be calculated as 10.5% of project costs.
 
Wells OP obtained a construction loan in the amount of $13,700,000 from Bank of America to fund the construction of a building on the Kerr McGee Property. The loan requires monthly payments of interest only and matures on January 29, 2004. The interest rate on the loan as of August 6, 2002 was 3.80%. The Bank of America loan is secured by a first priority mortgage on the Kerr McGee Property.
 
The BMG Greenville Building
 
On July 31, 2002, Wells OP purchased the BMG Greenville Buildings, two one-story office buildings containing 786,778 rentable square feet located in Duncan, Spartanburg County, South Carolina for a purchase price of $26,900,000, excluding closing costs. The BMG Greenville Buildings are leased to BMG Direct Marketing, Inc. (“BMG Marketing”) and BMG Music (“BMG Music”).
 
The BMG Marketing lease is a net lease that covers approximately 473,398 square feet commencing in March 1988 and expiring in March 2011. The initial annual base rent payable under the BMG Marketing lease is $1,394,156. BMG Marketing, at its option, has the right to extend the initial term of its lease for two consecutive ten-year periods at 95% of the then-current market rental rate.
 
The BMG Music lease is a net lease that covers approximately 313,380 rentable square feet commencing in December 1987 and expiring in March 2011. The current annual base rent payable under the BMG Music lease is $763,600. BMG Music, at its option, has the right to extend the initial term of its lease for two consecutive ten-year periods at 95% of the then-current market rental rate.
 
The Kraft Atlanta Building
 
On August 1, 2002, Wells OP purchased the Kraft Atlanta Building, a one-story office building containing 87,219 rentable square feet located in Suwanee, Forsyth County, Georgia for a purchase price of $11,625,000, excluding closing costs. The Kraft Atlanta Building is leased to Kraft Foods North America, Inc. (“Kraft”) and PerkinElmer Instruments, LLC (“PerkinElmer”).
 
The Kraft lease is a net lease that covers approximately 73,264 square feet commencing in February 2002 and expiring in January 2012. The initial annual base rent payable under the Kraft lease is $1,263,804. Kraft, at its option, has the right to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. In addition, Kraft may terminate the lease (1) at the end of the third year by paying a $7,000,000 termination fee, or (2) at the end of the seventh lease year by paying a $1,845,296 termination fee.
 
The PerkinElmer lease is a net lease that covers approximately 13,955 rentable square feet commencing in December 2001 and expiring in November 2016. The current annual base rent payable under the PerkinElmer lease is $194,672. PerkinElmer, at its option, has the right to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. In addition, PerkinElmer may terminate the lease at the end of the tenth lease year by paying a $325,000 termination fee.
 
Issuance of Common Stock
 
From July 1, 2002 through August 7, 2002, the Company raised $170,921,990 through the issuance of 17,092,199 shares of common stock in the Company.
 
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The Fourth Offering of Common Stock
 
The Company terminated it third public offering and commenced its fourth public offering of common stock on July 26, 2002, the effective date of the Registration Statement initially filed with the Securities and Exchange Commission on April 8, 2002. The Company is offering up to an aggregate of $3,300,000,000 (330,000,000 shares) of which $3,000,000,000 (300,000,000 shares) are being offered to the public and $300,000,000 (30,000,000 shares) are being offered pursuant to the dividend reinvestment plan.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUMMARY OF UNAUDITED PRO FORMA FINANCIAL STATEMENTS
 
This pro forma information should be read in conjunction with the financial statements and notes of Wells Real Estate Investment Trust, Inc. included in its annual report on Form 10-K for the year ended December 31, 2001 and quarterly report on Form 10-Q for the period ended June 30, 2002. In addition, this pro forma information should be read in conjunction with the financial statements and notes of certain acquired properties included in various Form 8-Ks filed in the previous two years.
 
The following unaudited pro forma balance sheet as of June 30, 2002 has been prepared to give effect to the third quarter 2002 acquisitions of the PacifiCare San Antonio Building, the Kerr McGee Property, the BMG Greenville Buildings and the Kraft Atlanta Building (collectively, the “Recent Acquisitions”) by Wells OP as if the acquisitions occurred on June 30, 2002.
 
The following unaudited pro forma statement of income for the six months ended June 30, 2002 has been prepared to give effect to the first and second quarter 2002 acquisitions of the Arthur Andersen Building, the Transocean Houston Building, Novartis Atlanta Building, the Dana Corporation Buildings, the Travelers Express Denver Buildings, the Agilent Atlanta Building, the BellSouth Ft. Lauderdale Building, the Experian/TRW Buildings, the Agilent Boston Building, the TRW Denver Building, the MFS Phoenix Building (collectively, the “2002 Acquisitions”) and the Recent Acquisitions as if the acquisitions occurred on January 1, 2001. The Kerr McGee Property had no operations during the six months ended June 30, 2002.
 
The following unaudited pro forma statement of income for the year ended December 31, 2001 has been prepared to give effect to the 2001 acquisitions of the Comdata Building, the AmeriCredit Building, the State Street Bank Building, the IKON Buildings, the Ingram Micro Building, the Lucent Building, the ADIC Buildings, the Convergys Building, the Windy Point Buildings (collectively, the “2001 Acquisitions”), the 2002 Acquisitions and the Recent Acquisitions as if the acquisitions occurred on January 1, 2001. The Nissan Property, the Travelers Express Denver Buildings and the Kerr McGee Property had no operations during 2001.
 
Wells OP is a Delaware limited partnership that was organized to own and operate properties on behalf of the Wells Real Estate Investment Trust, Inc., a Maryland corporation. As the sole general partner of Wells OP, Wells Real Estate Investment Trust, Inc. possesses full legal control and authority over the operations of Wells OP. Accordingly, the accounts of Wells OP are consolidated with the accompanying pro forma financial statements of Wells Real Estate Investment Trust, Inc.
 
These unaudited pro forma financial statements are prepared for informational purposes only and are not necessarily indicative of future results or of actual results that would have been achieved had the acquisitions of the 2001 Acquisitions, 2002 Acquisitions and the Recent Acquisitions been consummated as of January 1, 2001.

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA BALANCE SHEET
 
JUNE 30, 2002
 
(Unaudited)
 
ASSETS
 
 	  	 	  	Pro Forma Adjustments

	 	 	 	
 	  	 	  	Recent Acquisitions

	 	 	 	
 	  	Wells Real
Estate
Investment
Trust, Inc (e)

	  	Other

	 	 	PacifiCare
San
Antonio

	 	 	Kerr
McGee

	 	 	BMG
Greenville

	 	 	Kraft
Atlanta

	 	 	Pro Forma
Total

	
REAL ESTATE ASSETS, at cost:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Land	  	$	110,330,449	  	$	0	 	 	$	2,450,000	(a)	 	$	1,738,044	(a)	 	$	1,600,000	(a)	 	$	2,700,000	(a)	 	$	119,163,936	
 	  	 	 	  	 	0	 	 	 	99,709	(b)	 	 	70,734	(b)	 	 	65,116	(b)	 	 	109,884	(b)	 	 	 	
Buildings, less accumulated depreciation of $37,717,737	  	 	689,490,969	  	 	0	 	 	 	12,239,827	(a)	 	 	0	 	 	 	25,087,017	(a)	 	 	8,975,771	(a)	 	 	737,677,992	
 	  	 	 	  	 	0	 	 	 	498,132	(b)	 	 	0	 	 	 	1,020,983	(b)	 	 	365,293	(b)	 	 	 	
Construction in progress	  	 	16,081,841	  	 	0	 	 	 	0	 	 	 	379,901	(a)	 	 	0	 	 	 	0	 	 	 	16,461,742	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
Total real estate assets	  	 	815,903,259	  	 	0	 	 	 	15,287,668	 	 	 	2,188,679	 	 	 	27,773,116	 	 	 	12,150,948	 	 	 	873,303,670	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
CASH AND CASH EQUIVALENTS	  	 	341,909,775	  	 	145,053,219	(c)	 	 	(14,689,827	)(a)	 	 	(2,103,115	)(a)	 	 	(14,984,256	)(a)	 	 	(11,675,771	)(a)	 	 	438,433,162	
 	  	 	 	  	 	(5,076,863	)(d)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INVESTMENT IN JOINT VENTURES	  	 	76,217,870	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	76,217,870	
INVESTMENT IN BONDS	  	 	22,000,000	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	22,000,000	
ACCOUNTS RECEIVABLE	  	 	10,709,104	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	10,709,104	
DEFERRED LEASE ACQUISITION COSTS, net	  	 	1,790,608	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,790,608	
DEFERRED PROJECT COSTS	  	 	14,314,914	  	 	5,076,863	(d)	 	 	(597,841	)(b)	 	 	(70,734	)(b)	 	 	(1,086,099	)(b)	 	 	(475,177	)(b)	 	 	17,161,926	
DEFERRED OFFERING COSTS	  	 	1,392,934	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,392,934	
DUE FROM AFFILIATES	  	 	1,897,309	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,897,309	
NOTE RECEIVABLE	  	 	5,149,792	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	5,149,792	
PREPAID EXPENSES AND OTHER ASSETS, net	  	 	1,881,308	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,881,308	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
Total assets	  	$	1,293,166,873	  	$	145,053,219	 	 	$	0	 	 	$	14,830	 	 	$	11,702,761	 	 	$	0	 	 	$	1,449,937,683	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

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LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 	  	 	 	 	Pro Forma Adjustments

	  	 	 	
 	  	 	 	 	Recent Acquisitions

	  	 	 	
 	  	Wells Real
Estate
Investment
Trust, Inc (e)

	 	 	Other

	 	 	PacifiCare
San Antonio

	  	Kerr
McGee

	 	 	BMG
Greenville

	 	 	Kraft
Atlanta

	  	Pro Forma
Total

	 	
LIABILITIES:	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Accounts payable and accrued expenses	  	$	11,840,214	 	 	$	0	 	 	$	0	  	$	14,830	(a)	 	$	0	 	 	$	0	  	$	11,855,044	 	
Notes payable	  	 	15,658,141	 	 	 	0	 	 	 	0	  	 	0	 	 	 	11,702,761	(a)	 	 	0	  	 	27,360,902	 	
Obligations under capital lease	  	 	22,000,000	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	 	 	 	0	  	 	22,000,000	 	
Dividends payable	  	 	4,538,635	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	 	 	 	0	  	 	4,538,635	 	
Due to affiliates	  	 	2,106,790	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	 	 	 	0	  	 	2,106,790	 	
Deferred rental income	  	 	1,013,544	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	 	 	 	0	  	 	1,013,544	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	

	 	

	

	  	

	

	

	
Total liabilities	  	 	57,157,324	 	 	 	0	 	 	 	0	  	 	14,830	 	 	 	11,702,761	 	 	 	0	  	 	68,874,915	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	

	 	

	

	  	

	

	

	
COMMITMENTS AND CONTINGENCIES	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200,000	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	 	 	 	0	  	 	200,000	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	

	 	

	

	  	

	

	

	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Common shares, $.01 par value; 125,000,000 shares authorized, 145,589,053 shares issued and 144,366,772 outstanding at June 30, 2002	  	 	1,455,890	 	 	 	145,053	(c)	 	 	0	  	 	0	 	 	 	0	 	 	 	0	  	 	1,600,943	 	
Additional paid-in capital	  	 	1,290,858,515	 	 	 	144,908,166	(c)	 	 	0	  	 	0	 	 	 	0	 	 	 	0	  	 	1,435,766,681	 	
Cumulative distributions in excess of earnings	  	 	(43,991,669	)	 	 	0	 	 	 	0	  	 	0	 	 	 	0	 	 	 	0	  	 	(43,991,669	)	
Treasury stock, at cost, 1,222,381 shares	  	 	(12,223,808	)	 	 	0	 	 	 	0	  	 	0	 	 	 	0	 	 	 	0	  	 	(12,223,808	)	
Other comprehensive loss	  	 	(289,379	)	 	 	0	 	 	 	0	  	 	0	 	 	 	0	 	 	 	0	  	 	(289,379	)	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	

	 	

	

	  	

	

	

	
Total shareholders’ equity	  	 	1,235,809,549	 	 	 	145,053,219	 	 	 	0	  	 	0	 	 	 	0	 	 	 	0	  	 	1,380,862,768	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	

	 	

	

	  	

	

	

	
Total liabilities and shareholders’ equity	  	$	1,293,166,873	 	 	$	145,053,219	 	 	$	0	  	$	14,830	 	 	$	11,702,761	 	 	$	0	  	$	1,449,937,683	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	

	 	

	

	  	

	

	

	
 
(a)	 	Reflects Wells Real Estate Investment Trust, Inc.’s purchase price for the land, building and liabilities assumed.	
 
(b)	 	Reflects deferred project costs applied to the land and building at approximately 4.07% of the purchase price.	
 
(c)	 	Reflects capital raised through issuance of additional shares subsequent to June 30, 2002 through Kraft Atlanta acquisition date.	
 
(d)	 	Reflects deferred project costs capitalized as a result of additional capital raised described in note (c) above.	
 
(e)	 	Historical financial information derived from quarterly report on Form 10-Q	
 
The accompanying notes are an integral part of this statement.

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE YEAR ENDED DECEMBER 31, 2001
 
(Unaudited)
 
 	  	 	  	Pro Forma Adjustments

	 	 	 	
 	  	Wells Real
Estate	  	 	 	 	 	 	 	Recent Acquisitions

	 	 	 	
 	  	Investment	  	2001	 	 	2002	 	 	PacifiCare	 	 	BMG	 	 	Kraft	 	 	 	
 	  	Trust, Inc. (f)

	  	Acquisitions

	 	 	Acquisitions

	 	 	San Antonio

	 	 	Greenville

	 	 	Atlanta

	 	 	Pro Forma
Total

	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	44,204,279	  	$	11,349,076	(a)	 	$	14,846,431	(a)	 	$	1,556,473	(a)	 	$	2,445,210	(a)	 	$	18,429	(a)	 	$	74,419,898	
Equity in income of joint ventures	  	 	3,720,959	  	 	1,111,850	(b)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	4,832,809	
Interest income	  	 	1,246,064	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,246,064	
Take out fee	  	 	137,500	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	137,500	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
 	  	 	49,308,802	  	 	12,460,926	 	 	 	14,846,431	 	 	 	1,556,473	 	 	 	2,445,210	 	 	 	18,429	 	 	 	80,636,271	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation and amortization	  	 	15,344,801	  	 	5,772,761	(c)	 	 	5,356,374	(c)	 	 	509,518	(c)	 	 	1,044,320	(c)	 	 	31,137	(c)	 	 	28,058,911	
Interest	  	 	3,411,210	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	3,411,210	
Operating costs, net of reimbursements	  	 	4,128,883	  	 	2,854,275	(d)	 	 	1,505,269	(d)	 	 	0	 	 	 	0	 	 	 	5,452	(d)	 	 	8,493,879	
Management and leasing fees	  	 	2,507,188	  	 	510,708	(e)	 	 	668,090	(e)	 	 	70,041	(e)	 	 	110,034	(e)	 	 	829	(e)	 	 	3,866,890	
General and administrative	  	 	973,785	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	973,785	
Amortization of deferred financing costs	  	 	770,192	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	770,192	
Legal and accounting	  	 	448,776	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	448,776	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
 	  	 	27,584,835	  	 	9,137,744	 	 	 	7,529,733	 	 	 	579,559	 	 	 	1,154,354	 	 	 	37,418	 	 	 	46,023,643	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
NET INCOME	  	$	21,723,967	  	$	3,323,182	 	 	$	7,316,698	 	 	$	976,914	 	 	$	1,290,856	 	 	$	(18,989	)	 	$	34,612,628	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
EARNINGS PER SHARE, basic and diluted	  	$	0.43	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.22	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	50,520,853	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	158,872,092	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	
 
(a)	 	Rental income is recognized on a straight-line basis.	
 
(b)	 	Reflects Wells Real Estate Investment Trust, Inc.’s equity in income of Wells XII-REIT Joint Venture related to the acquisition of the Comdata Building and equity in income of Wells XIII-REIT Joint Venture related to the acquisition of the AmeriCredit Building and the ADIC Building.	
 
(c)	 	Depreciation expense on the buildings is recognized using the straight-line method and a 25-year life.	
 
(d)	 	Consists of nonreimbursable operating expenses.	
 
(e)	 	Management and leasing fees are calculated at 4.5% of rental income.	
 
(f)	 	Historical financial information derived from annual report on Form 10-K	
 
The accompanying notes are an integral part of this statement.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE SIX MONTHS ENDED JUNE 30, 2002
 
(Unaudited)
 
 	  	 	  	Pro Forma Adjustments

	 	 	 	
 	  	Wells Real
Estate	  	 	 	 	Recent Acquisitions

	 	 	 	
 	  	Investment	  	2002	 	 	PacifiCare	 	 	BMG	 	 	Kraft	 	 	Pro Forma	
 	  	Trust, Inc. (e)

	  	Acquisitions

	 	 	San Antonio

	 	 	Greenville

	 	 	Atlanta

	 	 	Total

	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	38,571,815	  	$	7,307,774	(a)	 	$	778,237	(a)	 	$	1,222,605	(a)	 	$	651,493	(a)	 	$	48,531,924	
Equity in income of joint ventures	  	 	2,478,686	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,478,686	
Interest income	  	 	2,648,351	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,648,351	
Take out fee	  	 	134,102	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	134,102	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
 	  	 	43,832,954	  	 	7,307,774	 	 	 	778,237	 	 	 	1,222,605	 	 	 	651,493	 	 	 	53,793,063	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation and amortization	  	 	12,903,282	  	 	2,588,546	(b)	 	 	254,759	(b)	 	 	522,160	(b)	 	 	186,821	(b)	 	 	16,455,568	
Interest	  	 	880,002	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	880,002	
Operating costs, net of reimbursements	  	 	2,063,997	  	 	300,018	(c)	 	 	0	 	 	 	0	 	 	 	79,067	(c)	 	 	2,443,082	
Management and leasing fees	  	 	1,903,082	  	 	328,850	(d)	 	 	35,021	(d)	 	 	55,017	(d)	 	 	29,317	(d)	 	 	2,351,287	
General and administrative	  	 	1,121,457	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,121,457	
Amortization of deferred financing costs	  	 	424,992	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	424,992	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
 	  	 	19,296,812	  	 	3,217,414	 	 	 	289,780	 	 	 	577,177	 	 	 	295,205	 	 	 	23,676,388	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
NET INCOME	  	$	24,536,142	  	$	4,090,360	 	 	$	488,457	 	 	$	645,428	 	 	$	356,288	 	 	$	30,116,675	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
EARNINGS PER SHARE, basic and diluted	  	$	0.22	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.19	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	110,885,641	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	158,872,092	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	
 
(a)	 	Rental income is recognized on a straight-line basis.	
 
(b)	 	Depreciation expense on the buildings is recognized using the straight-line method and a 25-year life.	
 
(c)	 	Consists of nonreimbursable operating expenses.	
 
(d)	 	Management and leasing fees are calculated at 4.5% of rental income.	
 
(e)	 	Historical financial information derived from quarterly report on Form 10-Q	
 
The accompanying notes are an integral part of this statement.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 2 DATED AUGUST 29, 2002 TO THE PROSPECTUS
DATED JULY 26, 2002
 
This document supplements, and should be read in conjunction with, the prospectus of Wells Real Estate Investment Trust, Inc. dated July 26, 2002, as supplemented and amended by Supplement No. 1 dated August 14, 2002. When we refer to the “prospectus” in this supplement, we are also referring to any and all supplements to the prospectus. Unless otherwise defined in this supplement, capitalized terms used in this supplement shall have the same meanings as set forth in the prospectus.
 
The purpose of this supplement is to describe the following:
 
 	(1)	 	Status of the offering of shares in Wells Real Estate Investment Trust, Inc. (Wells REIT);	
 
 	(2)	 	The declaration of dividends for the fourth quarter of 2002;	
 
 	(3)	 	Revisions to the “Description of Real Estate Investments” section of the prospectus to describe the following real property matters:	
 
 	(A)	 	Acquisition of three office buildings in Irving, Texas (Nokia Dallas Buildings);	
 
 	(B)	 	Acquisition of a seven-story office building in Austin, Texas (Harcourt Austin Building); and	
 
 	(C)	 	Execution of a lease with AmeriCredit Financial Services in connection with a build-to-suit three-story office building in Chandler, Arizona (AmeriCredit Arizona Building);	
 
 	(4)	 	Revisions to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the prospectus; and	
 
 	(5)	 	Unaudited pro forma financial statements of the Wells REIT reflecting the acquisition of the Nokia Dallas Buildings.	
 
Status of the Offering
 
We commenced our initial public offering of common stock on January 30, 1998. Our initial public offering was terminated on December 19, 1999. We received approximately $132,181,919 in gross offering proceeds from the sale of 13,218,192 shares in our initial public offering. We commenced our second offering of common stock on December 20, 1999. Our second public offering was terminated on December 19, 2000. We received approximately $175,229,193 in gross offering proceeds from the sale of 17,522,919 shares in our second public offering. We commenced our third public offering of common stock on December 20, 2000. Our third public offering was terminated on July 26, 2002. We received approximately $1,292,032,232 in gross offering proceeds from the sale of 129,203,223 shares in our third public offering.
 
Pursuant to the prospectus, we commenced our fourth public offering of common stock on July 26, 2002. As of August 25, 2002, we had received additional gross proceeds of approximately $84,871,857 from the sale of approximately 8,487,186 shares in our fourth public offering.

Table of Contents
Dividends
 
As we described in Supplement No. 1 to the prospectus, we acquire properties that meet our standards of quality both in terms of the real estate and the creditworthiness of the tenants. Creditworthy tenants of the type we target are becoming more and more highly valued in the marketplace and, accordingly, there is increased competition in acquiring properties with these creditworthy tenants. As a result, the purchase prices for such properties have increased with corresponding reductions in cap rates and returns on investment. In addition, changes in market conditions have caused us to add to our internal procedures for ensuring the creditworthiness of our tenants before any commitment to buy a property is made. We continue to remain steadfast in our commitment to invest in quality properties that will produce quality income for our stockholders. Accordingly, because the marketplace is now placing a higher value on our type of properties and because of the additional time it now takes in the acquisition process for us to assess tenant credit – plus our commitment to adhere to purchasing properties with tenants that meet our investment criteria – we were required to lower our dividend yield to investors.
 
As a result of the factors described in the preceding paragraph, on August 29, 2002, our board of directors declared dividends for the fourth quarter of 2002 in an amount equal to a 7.0% annualized percentage rate return on an investment of $10 per share to be paid in December 2002. Our fourth quarter dividends are calculated on a daily record basis of $0.001923 (0.1923 cents) per day per share on the outstanding shares of common stock payable to stockholders of record of such shares as shown on the books of the Wells REIT at the close of business on each day during the period, commencing on September 16, 2002, and continuing on each day thereafter through and including December 15, 2002.
 
Description of Properties
 
As of August 25, 2002, we had purchased interests in 59 real estate properties located in 19 states, each of which was 100% leased to tenants. Below are the descriptions of our recent real property acquisitions through August 25, 2002.
 
Nokia Dallas Buildings
 
On August 15, 2002, Wells Operating Partnership, L.P. (Wells OP), a Delaware limited partnership formed to acquire, own, lease and operate real properties on behalf of the Wells REIT, purchased three adjacent office buildings containing an aggregate of 604,234 rentable square feet located in Irving, Texas for an aggregate purchase price of $119,550,000, plus closing costs (Nokia Dallas Buildings). The Nokia Dallas Buildings consist of (1) a nine-story office building located at 6031 Connection Drive (Nokia I Building), (2) a seven-story office building located at 6021 Connection Drive (Nokia II Building), and (3) a six-story office building located at 6011 Connection Drive (Nokia III Building). The Nokia I Building and Nokia III Building were built in 1999, and the Nokia II Building was built in 2000.
 
The Nokia Dallas Buildings are all leased entirely to Nokia, Inc., the U.S. operating subsidiary of Nokia Corporation (Nokia), under long-term net leases (i.e., operating costs and maintenance costs are paid by the tenant) for periods of 10 years, with approximately seven to eight years remaining on such leases. Nokia, the guarantor of the Nokia, Inc. leases, is a Finnish corporation whose shares are traded on the New York Stock Exchange. Nokia is a mobile communications company that supplies mobile phones and mobile, fixed broadband, and Internet protocol networks. Nokia sells its products in over 130 countries worldwide. Nokia reported a net worth, as of December 31, 2001, of approximately $12 billion Euros.
 
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Since the Dallas Nokia Buildings are leased to a single tenant on a long-term basis under net leases that transfer substantially all of the operating costs to the tenant, we believe that financial information about the guarantor of the leases, Nokia, is more relevant to investors than financial statements of the property acquired. Nokia is a public company which currently files its financial statements in reports filed with the Securities and Exchange Commission, and following is summary financial data regarding Nokia taken from its previously filed public reports:
 
Consolidated Profit and Loss Accounts
 	  	For the Fiscal Year Ended

	
 	  	December 31,
2001

	  	December 31,
2000

	  	December 31,
1999

	
 	  	(In millions of Euros)	
Net Sales	  	31,191	  	30,376	  	19,772	
Operating Profit	  	3,362	  	5,776	  	3,908	
Net Profit	  	2,200	  	3,938	  	2,577	

Consolidated Balance Sheet Data
 	  	December 31,
2001

	  	December 31,
2000

	
 	  	(In millions of Euros)	
Total Assets	  	22,427	  	19,890	
Long-term liabilities	  	460	  	311	
Shareholders’ Equity	  	12,205	  	10,808	
 
If you would like to review more detailed financial information regarding Nokia, please refer to the financial statements of Nokia, which are publicly available with the Securities and Exchange Commission at http://www.sec.gov.
 
The Nokia I Building is a nine-story building containing 228,678 rentable square feet. The Nokia I Building lease fully commenced in July 1999 and expires in July 2009. The current annual base rent payable under the Nokia I Building lease is $4,413,485.
 
The Nokia II Building is a seven-story building containing 223,470 rentable square feet. The Nokia II Building lease commenced in December 2000 and expires in December 2010. The current annual base rent payable under the Nokia II Building lease is $4,547,614.
 
The Nokia III Building is a six-story building containing 152,086 rentable square feet. The Nokia III Building lease commenced in June 1999 and expires in July 2009. The current annual base rent payable under the Nokia III Building lease is $3,024,990.
 
Nokia, Inc. has a right of first offer on the future sale of each of the Nokia Dallas Buildings.
 
Harcourt Austin Building
 
On August 15, 2002, Wells OP purchased a seven-story office building containing 195,230 rentable square feet located in Austin, Texas (Harcourt Austin Building) for a purchase price of $39,000,000, plus closing costs. The Harcourt Austin Building was built in 2001 and is located at 10801 North Mopac Expressway, Austin, Texas.
 
The Harcourt Austin Building is leased entirely to Harcourt, Inc., a wholly owned subsidiary of Harcourt General, Inc. (Harcourt General), the guarantor of the Harcourt lease. Harcourt General is a Delaware corporation having its corporate headquarters in Newton, Massachusetts. Harcourt General is a worldwide education company that provides books, print, and electronic learning materials, assessments, and professional development programs to students and teachers in pre-kindergarten through 12 th  grade. Harcourt General was acquired in July 2001, by, and became a wholly owned subsidiary of, Reed Elsevier PLC, a privately held company.
 
The Harcourt lease commenced in July 2001 and expires in June 2016. The current annual base rent payable under the Harcourt lease is $3,353,040.
 
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Lease of AmeriCredit Arizona Building
 
On August 9, 2002, Wells OP entered into a 10-year lease with AmeriCredit Financial Services, Inc. (AmeriCredit) for a build-to-suit property on a 14-acre tract of land located in Chandler, Arizona (AmeriCredit Arizona Property). Wells OP expects to enter into a definitive agreement to acquire the AmeriCredit Arizona Property in the near future.
 
AmeriCredit is wholly-owned by, and serves as the primary operating subsidiary for, AmeriCredit Corp., a Texas corporation whose common stock is publicly traded on the NYSE. AmeriCredit Corp. is the guarantor of the lease. AmeriCredit is the world’s largest independent middle-market automobile finance company. AmeriCredit purchases loans made by franchised and select independent dealers to consumers buying late model used and, to a lesser extent, new automobiles. AmeriCredit Corp. reported a net worth, as of December 31, 2001, of approximately $1.2 billion.
 
The AmeriCredit Arizona lease will commence shortly after completion of construction of a three-story office building containing approximately 153,494 rentable square feet on the AmeriCredit Arizona Property, which we expect to occur in approximately March 2003 at a total estimated cost of $24,700,000. The AmeriCredit Arizona lease expires 10 years and four months after lease commencement. AmeriCredit has the right to extend the initial term of this lease for two additional five-year terms at 95% of the then-current market rental rate. In addition, AmeriCredit may terminate the AmeriCredit Arizona lease at the end of the 88 th  month by paying a $2,512,697 termination fee.
 
As an inducement for Wells OP to enter into the AmeriCredit Arizona lease, AmeriCredit has prepaid to Wells OP the first three years of base rent on the AmeriCredit Arizona Building at a discounted amount equal to $4,827,945 rather than the amount of base rent that would otherwise have been payable ratably over the first three years of the lease term. Wells OP will be required to repay this prepaid rent or some portion thereof under certain circumstances described in the AmeriCredit Arizona lease such as failure of Wells OP to substantially complete construction of the building in accordance with specifications by August 1, 2003, damage or destruction of the building, eminent domain taking of the property and failure of Wells OP to make required repairs to the building. Wells OP has obtained and delivered an irrevocable stand-by letter of credit from Bank of America, N.A. to AmeriCredit in the amount of the prepaid rent to secure Wells OP’s obligation to repay the prepaid rent under these conditions.
 
Property Management Fees
 
Wells Management Company, Inc. (Wells Management), an affiliate of the Wells REIT and our advisor, will be paid management and leasing fees in the amount of 4.5% of gross revenues from the Nokia Dallas Buildings, the Harcourt Austin Building and the AmeriCredit Arizona Building, subject to certain limitations. In addition, Wells Management will receive a one-time initial lease-up fee relating to the leasing of the AmeriCredit Arizona Building equal to one month’s rent estimated to be approximately $207,000.
 
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following information should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section beginning on page 101 of the prospectus, as supplemented by Supplement No. 1 dated August 14, 2002.
 
We commenced our initial public offering of common stock on January 30, 1998. Our initial public offering was terminated on December 19, 1999. We received approximately $132,181,919 in gross offering proceeds from the sale of 13,218,192 shares in our initial public offering. We commenced our second offering of common stock on December 20, 1999. Our second public offering was terminated on December 19, 2000. We received approximately $175,229,193 in gross offering proceeds from the sale of 17,522,919 shares in our second public offering. We commenced our third public offering of common stock on December 20, 2000. Our third public offering was terminated on July 26, 2002. We received approximately $1,292,032,232 in gross offering proceeds from the sale of 129,203,223 shares in our third public offering.
 
Pursuant to the prospectus, we commenced our fourth public offering of common stock on July 26, 2002. As of August 25, 2002, we had received additional gross proceeds of approximately $84,871,857 from the sale of approximately 8,487,186 shares in our fourth public offering. Accordingly, as of August 25, 2002, we had received aggregate gross offering proceeds of approximately $1,684,315,201 from the sale of approximately 168,431,520 shares in all of our public offerings. After payment of $58,452,949 in acquisition and advisory fees and acquisition expenses, payment of $187,490,370 in selling commissions and organization and offering expenses, and common stock redemptions of $14,230,931 pursuant to our share redemption program, as of August 25, 2002, we had raised aggregate net offering proceeds available for investment in properties of $1,424,140,951, out of which $1,128,348,590 had been invested in real estate properties, and $295,792,361 remained available for investment in real estate properties.
 
Financial Statements
 
The pro forma balance sheet of the Wells REIT, as of June 30, 2002, the pro forma statement of income for the year ended December 31, 2001, and the pro forma statement of income for the six months ended June 30, 2002, which are included in this supplement, have not been audited.
 
5

Table of Contents
INDEX TO FINANCIAL STATEMENTS

Wells Real Estate Investment Trust, Inc. and Subsidiary	  	Page

	
 	 	
Unaudited Pro Forma Financial Statements	  	 	
 	 	
Summary of Unaudited Pro Forma Financial Statements	  	7	
 	 	
Pro Forma Balance Sheet as of June 30, 2002 (unaudited)	  	8	
 	 	
Pro Forma Statement of Income for the year ended December 31, 2001 (unaudited)	  	10	
 	 	
Pro Forma Statement of Income for the six months ended June 30, 2002 (unaudited)	  	11	
 
6

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
Summary of Unaudited Pro Forma Financial Statements
 
This pro forma information should be read in conjunction with the financial statements and notes of Wells Real Estate Investment Trust, Inc. included in its annual report on Form 10-K for the year ended December 31, 2001 and quarterly report on Form 10-Q for the period ended June 30, 2002. In addition, this pro forma information should be read in conjunction with the financial statements and notes of certain acquired properties included in various Form 8-Ks previously filed.
 
The following unaudited pro forma balance sheet as of June 30, 2002 has been prepared to give effect to the third quarter 2002 acquisitions of the PacifiCare San Antonio Building, the Kerr McGee Property, the BMG Greenville Buildings, the Kraft Atlanta Building (the “Other Recent Acquisitions”) and the Nokia Dallas Buildings (collectively, the “Recent Acquisitions”) by Wells OP as if the acquisitions occurred on June 30, 2002.
 
The following unaudited pro forma statement of income for the six months ended June 30, 2002 has been prepared to give effect to the first and second quarter 2002 acquisitions of the Arthur Andersen Building, the Transocean Houston Building, Novartis Atlanta Building, the Dana Corporation Buildings, the Travelers Express Denver Buildings, the Agilent Atlanta Building, the BellSouth Ft. Lauderdale Building, the Experian/TRW Buildings, the Agilent Boston Building, the TRW Denver Building, the MFS Phoenix Building (collectively, the “2002 Acquisitions”) and the Recent Acquisitions as if the acquisitions occurred on January 1, 2001. The Kerr McGee Property had no operations during the six months ended June 30, 2002.
 
The following unaudited pro forma statement of income for the year ended December 31, 2001 has been prepared to give effect to the 2001 acquisitions of the Comdata Building, the AmeriCredit Building, the State Street Bank Building, the IKON Buildings, the Ingram Micro Building, the Lucent Building, the ADIC Buildings, the Convergys Building, the Windy Point Buildings (collectively, the “2001 Acquisitions”), the 2002 Acquisitions and the Recent Acquisitions as if the acquisitions occurred on January 1, 2001. The Nissan Property, the Travelers Express Denver Buildings and the Kerr McGee Property had no operations during 2001.
 
Wells OP is a Delaware limited partnership that was organized to own and operate properties on behalf of the Wells Real Estate Investment Trust, Inc., a Maryland corporation. As the sole general partner of Wells OP, Wells Real Estate Investment Trust, Inc. possesses full legal control and authority over the operations of Wells OP. Accordingly, the accounts of Wells OP are consolidated with the accompanying pro forma financial statements of Wells Real Estate Investment Trust, Inc.
 
These unaudited pro forma financial statements are prepared for informational purposes only and are not necessarily indicative of future results or of actual results that would have been achieved had the acquisitions of the 2001 Acquisitions, 2002 Acquisitions and the Recent Acquisitions been consummated as of January 1, 2001.

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Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA BALANCE SHEET
 
JUNE 30, 2002
 
(Unaudited)
 
ASSETS
 
 	  	 	  	Pro Forma Adjustments

	 	 	 	
 	  	Wells Real
Estate	  	Recent Acquisitions

	 	 	 	
 	  	Investment
Trust, Inc. (e)

	  	Other

	 	 	Nokia
Dallas

	 	 	Pro Forma
Total

	
REAL ESTATE ASSETS, at cost:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	
Land	  	$	110,330,449	  	$	8,488,044	 (a)	 	$	9,100,000	 (a)	 	$	128,634,284	
 	  	 	 	  	 	345,443	 (b)	 	 	370,348	 (b)	 	 	 	
Buildings, less accumulated depreciation of $37,717,737	  	 	689,490,969	  	 	46,302,615	 (a)	 	 	110,831,069	 (a)	 	 	853,019,628	
 	  	 	 	  	 	1,884,408	 (b)	 	 	4,510,567	 (b)	 	 	 	
Construction in progress	  	 	16,081,841	  	 	379,901	 (a)	 	 	0	 	 	 	16,461,742	

	

	  	

	

	

	 	

	

	

	 	

	

	
Total real estate assets	  	 	815,903,259	  	 	57,400,411	 	 	 	124,811,984	 	 	 	998,115,654	

	

	  	

	

	

	 	

	

	

	 	

	

	
CASH AND CASH EQUIVALENTS	  	 	341,909,775	  	 	(43,452,969	)(a)	 	 	(119,931,069	)(a)	 	 	372,072,298	
 	  	 	 	  	 	200,566,384	 (c)	 	 	 	 	 	 	 	
 	  	 	 	  	 	(7,019,823	)(d)	 	 	 	 	 	 	 	
INVESTMENT IN JOINT VENTURES	  	 	76,217,870	  	 	0	 	 	 	0	 	 	 	76,217,870	
INVESTMENT IN BONDS	  	 	22,000,000	  	 	0	 	 	 	0	 	 	 	22,000,000	
ACCOUNTS RECEIVABLE	  	 	10,709,104	  	 	0	 	 	 	0	 	 	 	10,709,104	
DEFERRED LEASE ACQUISITION COSTS, net	  	 	1,790,608	  	 	0	 	 	 	0	 	 	 	1,790,608	
DEFERRED PROJECT COSTS	  	 	14,314,914	  	 	(2,229,851	)(b)	 	 	(4,880,915	)(b)	 	 	14,223,971	
 	  	 	 	  	 	7,019,823	 (d)	 	 	 	 	 	 	 	
DEFERRED OFFERING COSTS	  	 	1,392,934	  	 	0	 	 	 	0	 	 	 	1,392,934	
DUE FROM AFFILIATES	  	 	1,897,309	  	 	0	 	 	 	0	 	 	 	1,897,309	
NOTE RECEIVABLE	  	 	5,149,792	  	 	0	 	 	 	0	 	 	 	5,149,792	
PREPAID EXPENSES AND OTHER ASSETS, net	  	 	1,881,308	  	 	0	 	 	 	0	 	 	 	1,881,308	

	

	  	

	

	

	 	

	

	

	 	

	

	
Total assets	  	$	1,293,166,873	  	$	212,283,975	 	 	$	0	 	 	$	1,505,450,848	

	

	  	

	

	

	 	

	

	

	 	

	

	

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LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 	  	 	 	  	Pro Forma Adjustments

	  	 	 	
 	  	Wells Real
Estate	 	  	Recent Acquisitions

	  	 	 	
 	  	Investment
Trust, Inc. (e)

	 	  	Other

	 	 	Nokia
Dallas

	  	Pro Forma
Total

	 	
LIABILITIES:	  	 	 	 	  	 	 	 	 	 	 	  	 	 	 	
Accounts payable and accrued expenses	  	$	11,840,214	 	  	$	14,830	(a)	 	$	0	  	$	11,855,044	 	
Notes payable	  	 	15,658,141	 	  	 	11,702,761	(a)	 	 	0	  	 	27,360,902	 	
Obligations under capital lease	  	 	22,000,000	 	  	 	0	 	 	 	0	  	 	22,000,000	 	
Dividends payable	  	 	4,538,635	 	  	 	0	 	 	 	0	  	 	4,538,635	 	
Due to affiliates	  	 	2,106,790	 	  	 	0	 	 	 	0	  	 	2,106,790	 	
Deferred rental income	  	 	1,013,544	 	  	 	0	 	 	 	0	  	 	1,013,544	 	

	

	

	  	

	

	

	 	

	

	  	

	

	

	
Total liabilities	  	 	57,157,324	 	  	 	11,717,591	 	 	 	0	  	 	68,874,915	 	

	

	

	  	

	

	

	 	

	

	  	

	

	

	
COMMITMENTS AND CONTINGENCIES	  	 	 	 	  	 	 	 	 	 	 	  	 	 	 	
 	 	 	 	 	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200,000	 	  	 	0	 	 	 	0	  	 	200,000	 	

	

	

	  	

	

	

	 	

	

	  	

	

	

	
SHAREHOLDERS’ EQUITY:	  	 	 	 	  	 	 	 	 	 	 	  	 	 	 	
Common shares, $.01 par value; 125,000,000 shares authorized, 145,589,053 shares issued and 144,366,772 outstanding at June 30, 2002	  	 	1,455,890	 	  	 	200,566	(c)	 	 	0	  	 	1,656,456	 	
Additional paid-in capital	  	 	1,290,858,515	 	  	 	200,365,818	(c)	 	 	0	  	 	1,491,224,333	 	
Cumulative distributions in excess of earnings	  	 	(43,991,669	)	  	 	0	 	 	 	0	  	 	(43,991,669	)	
Treasury stock, at cost, 1,222,381 shares	  	 	(12,223,808	)	  	 	0	 	 	 	0	  	 	(12,223,808	)	
Other comprehensive loss	  	 	(289,379	)	  	 	0	 	 	 	0	  	 	(289,379	)	

	

	

	  	

	

	

	 	

	

	  	

	

	

	
Total shareholders’ equity	  	 	1,235,809,549	 	  	 	200,566,384	 	 	 	0	  	 	1,436,375,933	 	

	

	

	  	

	

	

	 	

	

	  	

	

	

	
Total liabilities and shareholders’ equity	  	$	1,293,166,873	 	  	$	212,283,975	 	 	$	0	  	$	1,505,450,848	 	

	

	

	  	

	

	

	 	

	

	  	

	

	

	
 
(a)	 	Reflects Wells Real Estate Investment Trust, Inc.’s purchase price for the land, building and liabilities assumed.	
 
(b)	 	Reflects deferred project costs applied to the land and building at approximately 4.07% of the purchase price.	
 
(c)	 	Reflects capital raised through issuance of additional shares subsequent to June 30, 2002 through Nokia Dallas acquisition date.	
 
(d)	 	Reflects deferred project costs capitalized as a result of additional capital raised described in note (c) above.	
 
(e)	 	Historical financial information derived from quarterly report on Form 10-Q.	
 
The accompanying notes are an integral part of this statement.

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE YEAR ENDED DECEMBER 31, 2001
 
(Unaudited)
 
 	  	 	  	Pro Forma Adjustments

	 	 	 	
 	  	Wells Real
Estate	  	 	 	 	 	 	 	Recent Acquisitions

	 	 	 	
 	  	Investment
Trust, Inc.(f)

	  	2001
Acquisitions

	 	 	2002
Acquisitions

	 	 	Other

	 	 	Nokia
Dallas

	 	 	Pro Forma
Total

	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	44,204,279	  	$	11,349,076	(a)	 	$	14,846,431	(a)	 	$	4,020,112	(a)	 	$	12,518,628	(a)	 	$	86,938,526	
Equity in income of joint ventures	  	 	3,720,959	  	 	1,111,850	(b)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	4,832,809	
Interest income	  	 	1,246,064	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,246,064	
Take out fee	  	 	137,500	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	137,500	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
 	  	 	49,308,802	  	 	12,460,926	 	 	 	14,846,431	 	 	 	4,020,112	 	 	 	12,518,628	 	 	 	93,154,899	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	15,344,801	  	 	5,772,761	(c)	 	 	5,356,374	(c)	 	 	1,584,975	(c)	 	 	4,613,665	(c)	 	 	32,672,576	
Interest	  	 	3,411,210	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	3,411,210	
Operating costs, net of reimbursements	  	 	4,128,883	  	 	2,854,275	(d)	 	 	1,505,269	(d)	 	 	5,452	(d)	 	 	0	 	 	 	8,493,879	
Management and leasing fees	  	 	2,507,188	  	 	510,708	(e)	 	 	668,090	(e)	 	 	180,904	(e)	 	 	563,338	(e)	 	 	4,430,228	
General and administrative	  	 	973,785	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	973,785	
Amortization of deferred financing costs	  	 	770,192	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	770,192	
Legal and accounting	  	 	448,776	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	448,776	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
 	  	 	27,584,835	  	 	9,137,744	 	 	 	7,529,733	 	 	 	1,771,331	 	 	 	5,177,003	 	 	 	51,200,646	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
NET INCOME	  	$	21,723,967	  	$	3,323,182	 	 	$	7,316,698	 	 	$	2,248,781	 	 	$	7,341,625	 	 	$	41,954,253	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
EARNINGS PER SHARE, basic and diluted	  	$	0.43	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.26	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	50,520,853	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	164,423,411	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	
 
 	(a)	 	Rental income is recognized on a straight-line basis.	
 
 	(b)	 	Reflects Wells Real Estate Investment Trust, Inc.’s equity in income of Wells XII-REIT Joint Venture related to the acquisition of the Comdata Building and equity in income of Wells XIII-REIT Joint Venture related to the acquisition of the AmeriCredit Building and the ADIC Building.	
 
 	(c)	 	Depreciation expense on the buildings is recognized using the straight-line method and a 25-year life.	
 
 	(d)	 	Consists of nonreimbursable operating expenses.	
 
 	(e)	 	Management and leasing fees are calculated at 4.5% of rental income.	
 
 	(f)	 	Historical financial information derived from annual report on Form 10-K.	
 
The accompanying notes are an integral part of this statement.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE SIX MONTHS ENDED JUNE 30, 2002
 
(Unaudited)
 
 	  	 	  	Pro Forma Adjustments

	 	 	 	
 	  	Wells Real
Estate	  	 	 	 	Recent Acquisitions

	 	 	 	
 	  	Investment
Trust, Inc.(e)

	  	2002
Acquisitions

	 	 	Other

	 	 	Nokia
Dallas

	 	 	Pro Forma
Total

	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	38,571,815	  	$	7,307,774	(a)	 	$	2,652,335	(a)	 	$	6,259,314	(a)	 	$	54,791,238	
Equity in income of joint ventures	  	 	2,478,686	  	 	0	 	 	 	0	 	 	 	0	 	 	 	2,478,686	
Interest income	  	 	2,648,351	  	 	0	 	 	 	0	 	 	 	0	 	 	 	2,648,351	
Take out fee	  	 	134,102	  	 	0	 	 	 	0	 	 	 	0	 	 	 	134,102	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
 	  	 	43,832,954	  	 	7,307,774	 	 	 	2,652,335	 	 	 	6,259,314	 	 	 	60,052,377	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	12,903,282	  	 	2,588,546	(b)	 	 	963,740	(b)	 	 	2,306,833	(b)	 	 	18,762,401	
Interest	  	 	880,002	  	 	0	 	 	 	0	 	 	 	0	 	 	 	880,002	
Operating costs, net of reimbursements	  	 	2,063,997	  	 	300,018	(c)	 	 	79,067	(c)	 	 	0	 	 	 	2,443,082	
Management and leasing fees	  	 	1,903,082	  	 	328,850	(d)	 	 	119,355	(d)	 	 	281,669	(d)	 	 	2,632,956	
General and administrative	  	 	1,121,457	  	 	0	 	 	 	0	 	 	 	0	 	 	 	1,121,457	
Amortization of deferred financing costs	  	 	424,992	  	 	0	 	 	 	0	 	 	 	0	 	 	 	424,992	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
 	  	 	19,296,812	  	 	3,217,414	 	 	 	1,162,162	 	 	 	2,588,502	 	 	 	26,264,890	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
NET INCOME	  	$	24,536,142	  	$	4,090,360	 	 	$	1,490,173	 	 	$	3,670,812	 	 	$	33,787,487	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	
EARNINGS PER SHARE, basic and diluted	  	$	0.22	  	 	 	 	 	 	 	 	 	 	 	 	 	$	0.21	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	

	

	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	110,885,641	  	 	 	 	 	 	 	 	 	 	 	 	 	 	164,423,411	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	

	

	
 
 	(a)	 	Rental income is recognized on a straight-line basis.	
 
 	(b)	 	Depreciation expense on the buildings is recognized using the straight-line method and a 25-year life.	
 
 	(c)	 	Consists of nonreimbursable operating expenses.	
 
 	(d)	 	Management and leasing fees are calculated at 4.5% of rental income.	
 
 	(e)	 	Historical financial information derived from quarterly report on Form 10-Q.	
 
The accompanying notes are an integral part of this statement.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 3 DATED OCTOBER 15, 2002 TO THE PROSPECTUS
DATED JULY 26, 2002
 
This document supplements, and should be read in conjunction with, the prospectus of Wells Real Estate Investment Trust, Inc. dated July 26, 2002, as supplemented and amended by Supplement No. 1 dated August 14, 2002 and Supplement No. 2 dated August 29, 2002. When we refer to the “prospectus” in this supplement, we are also referring to any and all supplements to the prospectus. Unless otherwise defined in this supplement, capitalized terms used in this supplement shall have the same meanings as set forth in the prospectus.
 
The purpose of this supplement is to describe the following:
 
 	(1)	 	Status of the offering of shares in Wells Real Estate Investment Trust, Inc. (Wells REIT);	
 
 	(2)	 	Revisions to the “Description of Real Estate Investments” section of the prospectus to describe the following real property acquisitions:	
 
 	(A)	 	Acquisition of a two-story office building and a one-story daycare facility in Holtsville, New York (IRS Long Island Buildings);	
 
 	(B)	 	Acquisition of a 14.74 acre tract of land and the build-to-suit construction of a three-story office building in Chandler, Arizona (AmeriCredit Phoenix Building);	
 
 	(C)	 	Acquisition of a four-story office building in Parsippany, New Jersey (KeyBank Parsippany Building);	
 
 	(D)	 	Acquisition of a one-story office building located in Indianapolis, Indiana (Allstate Indianapolis Building);	
 
 	(E)	 	Acquisition of a three-story office building located in Colorado Springs, Colorado (Federal Express Colorado Springs Building);	
 
 	(F)	 	Acquisition of a one-story office and distribution building in Des Moines, Iowa (EDS Des Moines Building);	
 
 	(G)	 	Acquisition of a two-story office building with a three-story wing located in Plano, Texas (Intuit Dallas Building); and	
 
 	(H)	 	Acquisition of a two-story office building in Westlake, Texas (Daimler Chrysler Dallas Building);	
 
 	(3)	 	Revisions to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the prospectus;	
 
 	(4)	 	Status of the development of the Nissan Project;	
 
 	(5)	 	Audited financial statements relating to the Harcourt Austin Building, which acquisition was described in Supplement No. 2 dated August 29, 2002, the IRS Long Island Buildings and the KeyBank Parsippany Building; and	
 
 	(6)	 	Unaudited pro forma financial statements of the Wells REIT reflecting the acquisition of the Harcourt Austin Building, IRS Long Island Buildings, AmeriCredit Phoenix Property, KeyBank Parsippany Building, Allstate Indianapolis Building, Federal Express Colorado Springs Building, EDS Des Moines Building, Intuit Dallas Building and Daimler Chrysler Dallas Building.	
 
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Status of the Offering
 
We commenced our initial public offering of common stock on January 30, 1998. Our initial public offering was terminated on December 19, 1999. We received approximately $132,181,919 in gross offering proceeds from the sale of 13,218,192 shares in our initial public offering. We commenced our second offering of common stock on December 20, 1999. Our second public offering was terminated on December 19, 2000. We received approximately $175,229,193 in gross offering proceeds from the sale of 17,522,919 shares in our second public offering. We commenced our third public offering of common stock on December 20, 2000. Our third public offering was terminated on July 26, 2002. We received approximately $1,282,976,865 in gross offering proceeds from the sale of 128,297,687 shares in our third public offering.
 
Pursuant to the prospectus, we commenced our fourth public offering of common stock on July 26, 2002. As of October 15, 2002, we had received additional gross proceeds of approximately $276,782,914 from the sale of approximately 27,678,291 shares in our fourth public offering.
 
Description of Properties
 
As of October 15, 2002, we had purchased interests in 67 real estate properties located in 22 states. Below are the descriptions of our recent real property acquisitions.
 
IRS Long Island Buildings
 
On September 16, 2002, Wells REIT-Holtsville, NY, LLC (REIT-Holtsville), a Georgia limited liability company wholly-owned by Wells Operating Partnership, L.P. (Wells OP), a Delaware limited partnership formed to acquire, own, lease and operate real properties on behalf of the Wells REIT, purchased a two-story office building (IRS Office Building) and a one-story daycare facility (IRS Daycare Facility) containing an aggregate 259,700 rentable square feet located in Holtsville, New York for a purchase price of $50,975,000, plus closing costs from HIRS Associates LLC (HIRS). HIRS is not in any way affiliated with the Wells REIT, Wells OP, REIT-Holtsville, or our advisor, Wells Capital, Inc.
 
The IRS Office Building was built in 2000 and is located at 5000 Corporate Court in Holtsville, New York on a 36.25-acre tract of land. The IRS Daycare Facility was built in 1999 and is located on a 1.87-acre tract of land located at 2 Corporate Drive in Holtsville, New York. The IRS Office Building is located in central Long Island in a campus setting. The property was developed as a flagship campus for the Internal Revenue Service (IRS) and is one of only eight processing and collection facilities in the country.
 
Approximately 191,050 of the aggregate rentable square feet of the IRS Long Island Buildings (74%) is currently leased to the United States of America (U.S.A.) through the U.S. General Services Administration (GSA) for occupancy by the IRS under three separate lease agreements for the processing & collection division of the IRS (IRS Collection), the compliance division of the IRS (IRS Compliance), and the IRS Daycare Facility. The GSA is a centralized federal procurement and property management agency which acquires office space, equipment, telecommunications, information technology, supplies and services for federal agencies such as the IRS.
 
REIT-Holtsville is negotiating for the remaining 26% of the IRS Long Island Buildings to be leased by the U.S.A. on behalf of the IRS or to another suitable tenant. If REIT-Holtsville should lease this space to the U.S.A. or another suitable tenant within 18 months, REIT-Holtsville would owe the seller an additional amount of up to $14,500,000 as additional purchase price for the IRS Long Island Buildings pursuant to the terms of an earnout agreement entered into between REIT-Holtsville and the seller at the closing.
 
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All three of the IRS leases are net leases (i.e., operating costs and maintenance costs are paid by the tenant) which include provisions that require the landlord and the property manager to comply with various employment related practices and other various laws typically required by government entities. Although we believe that the Wells REIT, Wells OP and REIT-Holtsville should be deemed exempt from these requirements, if a determination were made that these or other affiliated entities violated these lease provisions, the tenant has the right under each of the IRS leases to terminate the lease or to require compliance by the appropriate entities. REIT-Holtsville, as the landlord, is responsible for maintaining and repairing the roof, structural elements and mechanical systems of the IRS Long Island Buildings.
 
The IRS Collection lease, which encompasses 128,000 rentable square feet of the IRS Office Building, commenced in August 2000 and expires in August 2005. The current annual base rent payable under the IRS Collection lease is $5,029,380. The annual base rent payable under the IRS Collection lease for the remaining two years of the initial lease term will be $2,814,900. The U.S.A., at its option, has the right to extend the initial term of its lease for two additional five-year periods at annual rental rates of $4,209,869 and $4,999,219, respectively.
 
The IRS Compliance lease, which encompasses 50,949 rentable square feet of the IRS Office Building, commenced in December 2001 and expires in December 2011. The annual base rent payable under the IRS Compliance lease for the initial term of the lease is $1,663,200. The U.S.A., at its option, has the right to extend the initial term of its lease for one additional ten-year period at an annual rental rate of $2,217,600.
 
The IRS Daycare Facility lease, which encompasses the entire 12,100 rentable square feet of the IRS Daycare Facility, commenced in October 1999 and expires in September 2004. The annual base rent payable under the IRS Daycare Facility lease for the initial term of the lease is $486,799. The U.S.A., at its option, has the right to extend the initial term of its lease for two additional five-year periods at an annual rental rate of $435,600.
 
AmCap Management Corporation, an affiliate of HIRS, the seller of the property, will serve as the initial property manager of the IRS Long Island Buildings for a period of up to 18 months. AmCap Management Corporation is not in any way affiliated with the Wells REIT, Wells OP, REIT-Holtsville or our advisor. Prior to the expiration of the 18-month term of the property management agreement, REIT-Holtsville will be required to locate and hire a new property manager for the IRS Long Island Buildings.
 
The AmeriCredit Phoenix Property
 
On September 12, 2002, Wells OP purchased a 14.74 acre tract of land located in Chandler, Maricopa County, Arizona (AmeriCredit Phoenix Property (formerly referred to as AmeriCredit Arizona Property)) for $2,632,298, plus closing costs from Price & Germann Roads, L.L.C., an Arizona limited liability company (Price). Price is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
Wells OP has entered into a development agreement and an owner-contractor agreement to construct a three-story office building containing 153,494 rentable square feet (AmeriCredit Phoenix Project) on the AmeriCredit Phoenix Property. Wells OP anticipates that the aggregate of all costs and expenses to be incurred with respect to the acquisition of the AmeriCredit Phoenix Property, and the planning, design, development, construction and completion of the AmeriCredit Phoenix Project will total approximately $24,700,000.
 
Development Agreement.    Wells OP entered into a Development Agreement (Development Agreement) with ADEVCO Corporation, a Georgia corporation (Developer), as the exclusive development manager to supervise, manage and coordinate the planning, design, construction and completion of the AmeriCredit Phoenix Project. As compensation for the services to be rendered by the Developer under the Development Agreement, Wells OP will pay a development fee payable ratably (on
 
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the basis of the percentage of construction completed) as the construction and development of the AmeriCredit Phoenix Project is completed.
 
Owner-Contractor Agreement.    Wells OP entered into an Owner-Contractor Agreement (Construction Agreement) with Bovis Lend Lease, Inc. (Contractor) for the construction of the AmeriCredit Phoenix Project. The Contractor is a worldwide construction company with U.S. headquarters in New York. The Contractor provides services in a variety of sectors in the construction industry, including commercial, residential, industrial, pharmaceutical, sports and leisure, and retail and entertainment. The Contractor began construction in September 2002 of a three-story office building containing approximately 153,494 rentable square feet (AmeriCredit Phoenix Building).
 
The Construction Agreement provides that Wells OP will pay the Contractor a maximum of $10,398,274 for the construction of the AmeriCredit Phoenix Project which includes all estimated fees and costs, including the architect fees. The Contractor will be responsible for all costs of labor, materials, construction equipment and machinery necessary for completion of the AmeriCredit Phoenix Project. In addition, the Contractor will be required to secure and pay for any additional business licenses, tap fees and building permits which may be necessary for construction of the AmeriCredit Phoenix Project.
 
AmeriCredit Phoenix Lease.    The AmeriCredit Phoenix Building will be leased entirely to AmeriCredit Financial Services, Inc. (AmeriCredit). AmeriCredit is wholly-owned by, and serves as the primary operating subsidiary for, AmeriCredit Corp., a Texas corporation whose common stock is publicly traded on the New York Stock Exchange (NYSE). AmeriCredit Corp. is the guarantor of the lease. AmeriCredit is the world’s largest independent middle-market automobile finance company. AmeriCredit purchases loans made by franchised and select independent dealers to consumers buying late model used and, to a lesser extent, new automobiles. AmeriCredit Corp. reported a net worth, as of December 31, 2001, of approximately $1.2 billion.
 
The AmeriCredit Phoenix lease is a net lease (i.e., operating costs and maintenance costs to be paid by the tenant) and will commence shortly after completion of construction of the AmeriCredit Phoenix Building, which we currently expect to occur in approximately March 2003. The AmeriCredit Phoenix lease expires 10 years and four months after lease commencement. AmeriCredit has the right to extend the initial term of this lease for two additional five-year terms at 95% of the then-current market rental rate. In addition, AmeriCredit may terminate the AmeriCredit Phoenix lease at the end of the 88 th  month by paying a $2,512,697 termination fee. Wells OP, as the landlord, will be responsible for maintaining the roof, foundation, structural walls, exterior windows, parking lot, driveways, and light poles.
 
As an inducement for Wells OP to enter into the AmeriCredit Phoenix lease, AmeriCredit has prepaid to Wells OP the first three years of base rent on the AmeriCredit Phoenix Building at a discounted amount equal to $4,827,945 rather than the amount of base rent that would otherwise have been payable ratably over the first three years of the lease term. Wells OP will be required to repay this prepaid rent or some portion thereof under certain circumstances described in the AmeriCredit Phoenix lease such as failure of Wells OP to substantially complete construction of the building in accordance with specifications by August 1, 2003, damage or destruction of the building, eminent domain taking of the property and failure of Wells OP to make required repairs to the building. Wells OP has obtained and delivered an irrevocable stand-by letter of credit from Bank of America, N.A. to AmeriCredit in the amount of the prepaid rent to secure Wells OP’s obligation to repay the prepaid rent under these conditions.
 
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KeyBank Parsippany Building
 
On September 27, 2002, Wells OP purchased a four-story office building containing 404,515 rentable square feet located on a 19.06 acre tract of land in Parsippany, New Jersey (KeyBank Parsippany Building) for a purchase price of $101,350,000, plus closing costs from Two Gatehall Associates, L.L.C. (Gatehall) and Asset Preservation, Inc. (Asset). Neither Gatehall nor Asset are in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
The Key Bank Parsippany Building was completed in 1985 and is located at Two Gatehall Drive in Parsippany, Morris County, New Jersey. The KeyBank Parsippany Building is leased to Key Bank U.S.A., N.A. (KeyBank) and Gemini Technology Services (Gemini).
 
KeyBank is a national banking association and a wholly-owned subsidiary of KeyCorp, the guarantor on the lease. KeyCorp, whose shares are traded on the NYSE, is a bank-based financial services company that provides investment management, retail and commercial banking, retirement, consumer finance, and investment banking products and services to individuals and companies throughout the United States and internationally. KeyCorp operates approximately 2,300 ATMs across the United States. KeyCorp reported a net worth, as of June 30, 2002, of approximately $6.6 billion.
 
The KeyBank lease covers 200,000 rentable square feet (49%) and is a net lease (i.e., operating costs and maintenance costs are paid by the tenant) which commenced in March 2001 and expires in February 2016. The current annual base rent payable under the KeyBank lease is $3,800,000. KeyBank, at its option, has the right to extend the initial term of its lease for three additional five-year periods at the then-current market rental rate.
 
Gemini Technology Services is an information technology subsidiary of Deutsch Bank AG (Deutsch Bank). Deutsch Bank provides financial services around the world to individuals and institutional clients and serves more than 12 million customers in 75 countries worldwide.
 
The Gemini lease covers 204,515 rentable square feet (51%) and is a gross lease (i.e., operating costs and maintenance costs are the responsibility of the landlord) that commenced in December 2000 and expires in December 2013. The current annual base rent payable under the Gemini lease is $5,726,420. Gemini secured its obligations under the Gemini lease with a $35,000,000 irrevocable letter of credit, which amount decreases over time during the initial term of the Gemini lease. Gemini, at its option, has the right to extend the initial term of its lease for three additional five-year periods at a rate equal to the greater of (1) the annual rent during the final year of the initial lease term, or (2) 95% of the then-current market rental rate.
 
Allstate Indianapolis Building
 
On September 27, 2002, Wells OP purchased a one-story office building containing 89,956 rentable square feet located on a 12.71 acre tract of land in Indianapolis, Indiana (Allstate Indianapolis Building) for a purchase price of $10,900,000, plus closing costs from Hartsfield Building, LLC (Hartsfield). In addition, at closing, Hartsfield assigned to Wells OP a purchase option agreement for the right to purchase an additional adjacent 2.38 acre tract of land for $249,000 on or before January 2007. Hartsfield is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
The Allstate Indianapolis Building was completed in 2002 and is located at 5757 Decatur Blvd. in Indianapolis, Marion County, Indiana. The Allstate Indianapolis Building is leased to Allstate Insurance Company (Allstate) and Holladay Property Services Midwest, Inc. (Holladay).
 
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Allstate Corporation, the holding company for Allstate whose shares are traded on the NYSE, provides automobile, homeowner’s, and life insurance throughout the United States, as well as numerous investment products, including retirement planning, annuities and mutual funds. Allstate Corporation reported a net worth, as of June 30, 2002, of approximately $17.2 billion.
 
The Allstate lease, a gross lease (i.e., operating costs and maintenance costs are paid by the landlord) which covers 84,200 rentable square feet (94%), commenced in March 2002 and expires in August 2012. The current annual base rent payable under the Allstate lease is $1,246,164. Allstate at its option has the right to (1) terminate the initial term of the Allstate lease at the end of the fifth lease year (August 2007) upon payment of a $385,000 fee, or (2) reduce its area of occupancy to not less than 20,256 rentable square feet, by providing written notice on or before August 2006. Allstate, at its option, has the right to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. In addition, Allstate has a right of first refusal for the leasing of additional space in the Allstate Indianapolis Building. Wells OP, as the landlord, will be responsible for maintaining the exterior of the building, parking lots, driveways, roof and all structural parts of the building.
 
Holladay is a property management company that manages the Allstate Indianapolis Building from the site. The Holladay lease, a gross lease (i.e., operating costs and maintenance costs are paid by the landlord) which covers 5,756 rentable square feet (6%), commenced in October 2001 and expires in September 2006. The current annual base rent payable under the Holladay lease is $74,832.
 
Federal Express Colorado Springs Building
 
On September 27, 2002, Wells OP purchased a three-story office building containing 155,808 rentable square feet located on a 28.01 acre tract of land in Colorado Springs, Colorado (Federal Express Colorado Springs Building) for a purchase price of $26,000,000, plus closing costs from KDC-CO I Investment Limited Partnership (KDC). KDC is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
The Federal Express Colorado Springs Building was completed in 2001 and is located at 350 Spectrum Loop in Colorado Springs, El Paso County, Colorado. The Federal Express Colorado Springs Building is leased entirely to Federal Express Corporation (Federal Express). The Federal Express lease is a net lease (i.e., operating costs and maintenance costs are paid by the tenant) which commenced in July 2001 and expires in October 2016. Federal Express, whose shares are traded on the NYSE, provides transportation, e-commerce and supply chain management services in over 210 countries through its numerous subsidiaries.
 
Since the Federal Express Colorado Springs Building is leased to a single tenant on a long-term basis under a net lease that transfers substantially all of the operating costs to the tenant, we believe that financial information about Federal Express is more relevant to investors than financial statements of the property acquired.
 
Federal Express currently files its financial statements in reports filed with the Securities and Exchange Commission (SEC), and the following summary financial data regarding Federal Express is taken from its previously filed public reports:
 
 	  	FOR THE FISCAL YEAR ENDED

	
 	  	MAY 31, 2002

	  	MAY 31, 2001

	  	MAY 31, 2000

	
 	  	(IN MILLIONS)	
CONSOLIDATED STATEMENTS OF OPERATIONS:	  	 	 	  	 	 	  	 	 	
Revenues	  	$	15,327	  	$	15,534	  	$	15,068	
Operating Income	  	$	811	  	$	847	  	$	900	
Net Income	  	$	443	  	$	499	  	$	510	
 
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 	  	MAY 31, 2002

	  	MAY 31, 2001

	
 	  	(IN MILLIONS)	
CONSOLIDATED BALANCE SHEET DATA:	  	 	 	  	 	 	
Total Assets	  	$	9,949	  	$	9,623	
Long-Term Debt	  	$	851	  	$	852	
Stockholders’ Equity	  	$	4,673	  	$	4,248	
 
For more detailed financial information regarding Federal Express, please refer to the financial statements of Federal Express Corporation, which are publicly available with the SEC at http://www.sec.gov.
 
The current annual base rent payable under the Federal Express lease is $2,248,309. Federal Express, at its option, has the right to extend the initial term of its lease for four additional five-year periods at 90% of the then-current market rental rate. In addition, Federal Express has an expansion option under its lease pursuant to which Wells OP would be required to construct an additional office building. Wells OP has agreed to allow Koll Development Company, LLC (Koll Development), an affiliate of the seller of the property, to develop such expansion provided that Wells OP shall have the right of first refusal to purchase such expansion property within three years after completion. Koll Development is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
Wells OP, as the landlord, will be responsible for maintaining the roof, foundation, exterior walls, structural components of the parking areas, drives and sidewalks and the underground utilities of the Federal Express Colorado Springs Building. In addition, Wells OP is responsible for the capital replacements of the mechanical and electrical systems for the Federal Express Colorado Springs Building.
 
EDS Des Moines Building
 
On September 27, 2002, Wells OP purchased from KDC-EDS Des Moines Investments, LLC (KDC-EDS), Koll Development and Koll Corporate Development I-Iowa, L.P. (Koll Corporate) all of the partnership interests in KDC-EDS Des Moines Investment Limited Partnership, a Texas limited partnership, which owns a one-story office and distribution building containing 115,000 rentable square feet of office space and 290,000 rentable square feet of warehouse space located on a 27.97 acre tract of land in Des Moines, Iowa (EDS Des Moines Building) for a purchase price of $26,500,000, plus closing costs. Neither KDC-EDS, Koll Development nor Koll Corporate are in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
The EDS Des Moines Building was completed in 2002 and is located at 3600 Army Post Road in Des Moines, Polk County, Iowa. The EDS Des Moines Building is leased entirely to EDS Information Services L.L.C. (EDS), a wholly-owned subsidiary of Electronic Data Systems Corporation (EDS Corp). EDS Corp is the guarantor of the EDS lease. The EDS lease is a net lease (i.e., operating costs and maintenance costs are paid by the tenant) which commenced in May 2002 and expires in April 2012. EDS Corp, whose shares are traded on the NYSE, is a global information technology services company with services ranging from computer support to server management to web hosting. EDS Corp operates in 60 countries worldwide.
 
Since the EDS Des Moines Building is leased to a single tenant on a long-term basis under a net lease that transfers substantially all of the operating costs to the tenant, we believe that financial information about EDS Corp, the guarantor of the EDS lease, is more relevant to investors than financial statements of the property acquired.
 
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        EDS Corp currently files its financial statements in reports filed with the SEC, and the following summary financial data regarding EDS Corp is taken from its previously filed public reports:
 
 	  	FOR THE FISCAL YEAR ENDED

	
 	  	DECEMBER 31, 2001

	  	DECEMBER 31, 2000

	  	DECEMBER 31, 1999

	
 	  	(IN MILLIONS)	
CONSOLIDATED STATEMENTS OF OPERATIONS:	  	 	 	  	 	 	  	 	 	
Revenues	  	$	21,543	  	$	19,227	  	$	18,732	
Operating Income	  	$	2,096	  	$	1,818	  	$	473	
Net Income	  	$	1,363	  	$	1,143	  	$	421	

DECEMBER 31, 2001

	  	 
DECEMBER 31, 2000

	
 	  	 	  	(IN MILLIONS)	
CONSOLIDATED BALANCE SHEET DATA:	  	 	 	  	 	 	  	 	 	
Total Assets	  	 	 	  	$	16,353	  	$	12,692	
Long-Term Debt	  	 	 	  	$	4,692	  	$	2,585	
Stockholders’ Equity	  	 	 	  	$	6,446	  	$	5,139	
 
For more detailed financial information regarding EDS Corp, please refer to the financial statements of Electronic Data Systems Corporation, which are publicly available with the SEC at http://www.sec.gov.
 
The current annual base rent payable under the EDS lease is $2,389,500. EDS, at its option, has the right to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. In addition, EDS has an expansion option under its lease for up to an additional 100,000 rentable square feet. Wells OP, as the landlord, is responsible for maintaining the roof, foundation, exterior walls, plumbing and electrical lines for the EDS Des Moines Building.
 
Intuit Dallas Building
 
On September 27, 2002, Wells OP purchased a two-story office building with a three-story wing containing 166,238 rentable square feet located on a 10.7 acre tract of land in Plano, Texas (Intuit Dallas Building) for a purchase price of $26,500,000, plus closing costs from KDC-TX I Investment Limited Partnership (KDC-TX). KDC-TX is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
The Intuit Dallas Building was completed in 2001 and is located at 5601 Headquarters Drive in Plano, Collin County, Texas. The Intuit Dallas Building is leased entirely to Lacerte Software Corporation (Lacerte), a wholly-owned subsidiary of Intuit, Inc. (Intuit). Intuit is the guarantor of the Lacerte lease. The Lacerte lease is a net lease (i.e., operating costs and maintenance costs are paid by the tenant) which commenced in July 2001 and expires in June 2011.
 
Lacerte is a tax software development company that offers a variety of tax software products and customer support services. Intuit, whose shares are traded on the NASDAQ, provides small business, tax preparation and personal finance software products and Web-based services that simplify complex financial tasks for consumers, small businesses and accounting professionals.
 
Since the Intuit Dallas Building is leased to a single tenant on a long-term basis under a net lease that transfers substantially all of the operating costs to the tenant, we believe that financial information about the guarantor of the lease, Intuit, is more relevant to investors than financial statements of the property acquired.
 
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        Intuit currently files its financial statements in reports filed with the SEC, and the following summary financial data regarding Intuit is taken from its previously filed public reports:
 
 	  	FOR THE FISCAL YEAR ENDED

	
 	  	JULY 31, 2002

	  	JULY 31, 2001

	 	 	JULY 31, 2000

	
 	  	(IN MILLIONS)	
CONSOLIDATED STATEMENTS OF OPERATIONS:	  	 	 	  	 	 	 	 	 	 	
Revenues	  	$	1,358	  	$	1,148	 	 	$	1,037	
Income (Loss) from Continuing Operations	  	$	59	  	$	(74	)	 	$	9	
Net Income (Loss)	  	$	140	  	$	(83	)	 	$	306	

 	  	JULY 31, 2002

	  	JULY 31, 2001

	
 	  	(IN MILLIONS)	
CONSOLIDATED BALANCE SHEET DATA:	  	 	 	  	 	 	
Total Assets	  	$	2,963	  	$	2,862	
Long-Term Debt	  	$	15	  	$	12	
Stockholders’ Equity	  	$	2,216	  	$	2,161	
 
For more detailed financial information regarding Intuit, please refer to the financial statements of Intuit, Inc., which are publicly available with the SEC at http://www.sec.gov.
 
The current annual base rent payable under the Lacerte lease is $2,461,985. Lacerte, at its option, has the right to extend the initial term of its lease for two additional five-year periods at rental rates of $17.92 per square foot and $19.71 per square foot, respectively. In addition, Lacerte has an expansion option through November 2004 pursuant to which Wells OP would be required to purchase an additional 19-acre tract of land and to construct up to an approximately 600,000 rentable square foot building thereon. Wells OP has agreed to allow Koll Development, an affiliate of KDC-TX, the seller of the property, to develop any such expansion. Wells OP, as the landlord, is responsible for maintaining the structural elements of the building, including the parking deck, roof, building facade, foundation, load bearing walls and building and utility systems for the Intuit Dallas Building.
 
Daimler Chrysler Dallas Building
 
On September 30, 2002, Wells OP purchased from Hillwood Operating, L.P. (Hillwood) and ABI Commercial L.P. (ABI) all of the partnership interests in CT Corporate Center No. 1, L.P. (CT), a Texas limited partnership, which owns a two-story office building containing 130,290 rentable square feet located in Westlake, Texas (Daimler Chrysler Dallas Building) for a purchase price of $25,100,000, plus closing costs. Neither Hillwood nor ABI are in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
The Daimler Chrysler Dallas Building was completed in 2001 and is located at 2050 Roanoke Road in Westlake, Tarrant County, Texas. The Daimler Chrysler Dallas Building is leased entirely to Daimler Chrysler Services North America LLC (Daimler Chrysler NA). Daimler Chrysler NA is a wholly owned subsidiary of DaimlerChrysler AG (DaimlerChrysler). DaimlerChrysler is one of the world’s leading automotive, transportation and services companies and has over 50 operating plants worldwide.
 
The Daimler Chrysler NA lease is a gross lease (i.e., operating costs and maintenance costs are paid by the landlord) which commenced in January 2002 and expires in December 2011. The current annual base rent payable under the Daimler Chrysler NA lease is $3,189,499. Daimler Chrysler NA, at its option, has the right to extend the initial term of its lease for three additional five-year periods at 98% of the then-current market rental rate. In addition, Daimler Chrysler NA has an expansion option for up to an additional 70,000 rentable square feet and a right of first offer if Wells OP desires to sell the Daimler Chrysler Dallas Building during the term of the lease. Wells OP, as the landlord, is responsible for maintaining the roof, foundation, and structural members of the exterior walls of the building, trash
 
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removal, janitorial and window-washing services, pest control, landscaping maintenance, water, lighting and passenger elevator service for the Daimler Chrysler Dallas Building.
 
Property Management Fees
 
Wells Management Company, Inc. (Wells Management), an affiliate of the Wells REIT and our advisor, will be paid management and leasing fees in the amount of up to 4.5% of gross revenues from the AmeriCredit Phoenix Building, the KeyBank Parsippany Building, the Allstate Indianapolis Building, the Federal Express Colorado Springs Building, the EDS Des Moines Building, the Intuit Dallas Building and the Daimler Chrysler Dallas Building subject to certain limitations. In addition, Wells Management will receive a one-time initial lease-up fee relating to the leasing of the AmeriCredit Phoenix Building equal to one month’s rent estimated to be approximately $207,000.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following information should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section beginning on page 101 of the prospectus, as supplemented by Supplement No. 1 dated August 14, 2002 and Supplement No. 2 dated August 29, 2002.
 
We commenced our initial public offering of common stock on January 30, 1998. Our initial public offering was terminated on December 19, 1999. We received approximately $132,181,919 in gross offering proceeds from the sale of 13,218,192 shares in our initial public offering. We commenced our second offering of common stock on December 20, 1999. Our second public offering was terminated on December 19, 2000. We received approximately $175,229,193 in gross offering proceeds from the sale of 17,522,919 shares in our second public offering. We commenced our third public offering of common stock on December 20, 2000. Our third public offering was terminated on July 26, 2002. We received approximately $1,282,976,865 in gross offering proceeds from the sale of 128,297,687 shares in our third public offering.
 
Pursuant to the prospectus, we commenced our fourth public offering of common stock on July 26, 2002. As of October 15, 2002, we had received additional gross proceeds of approximately $276,782,914 from the sale of approximately 27,678,291 shares in our fourth public offering. Accordingly, as of October 15, 2002, we had received aggregate gross offering proceeds of approximately $1,876,226,258 from the sale of approximately 187,622,626 shares in all of our public offerings. After payment of $65,068,579 in acquisition and advisory fees and acquisition expenses, payment of $208,356,782 in selling commissions and organization and offering expenses, and common stock redemptions of $17,123,992 pursuant to our share redemption program, as of October 15, 2002, we had raised aggregate net offering proceeds available for investment in properties of $1,585,676,905, out of which $1,400,791,370 had been invested in real estate properties, and $184,885,535 remained available for investment in real estate properties.
 
Status of the Nissan Project
 
As of September 30, 2002, Wells OP had expended $24,226,880 towards the construction of the three-story approximately 268,290 rentable square foot office building in Irving, Texas. The Nissan Project is approximately 47% complete and is currently expected to be completed in February 2003. We estimate that the aggregate cost and expenses to be incurred by Wells OP with respect to the acquisition and construction of the Nissan Project will total approximately $41,855,600, which is within the budgeted amount for the property.
 
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Financial Statements
 
Audited Financial Statements
 
The statements of revenues over certain operating expenses of the Harcourt Austin Building, the IRS Long Island Buildings and the KeyBank Parsippany Building for the year ended December 31, 2001, which are included in this supplement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.
 
Unaudited Financial Statements
 
The statements of revenues over certain operating expenses of the Harcourt Austin Building, the IRS Long Island Buildings and the KeyBank Parsippany Building for the six months ended June 30, 2002, which are included in this supplement, have not been audited.
 
The pro forma balance sheet of the Wells REIT, as of June 30, 2002, the pro forma statement of income for the year ended December 31, 2001, and the pro forma statement of income for the six months ended June 30, 2002, which are included in this supplement, have not been audited.
 
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INDEX TO FINANCIAL STATEMENTS
 
 	  	Page

	
Harcourt Austin Building	  	 	
 	 	
Report of Independent Auditors	  	13	
 	 	
Statements of Revenues Over Certain Operating Expenses
for the year ended December 31, 2001 (audited) and for the
six months ended June 30, 2002 (unaudited)	  	14	
 	 	
Notes to Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 2001 (audited) and
for the six months ended June 30, 2002 (unaudited)	  	15	
 	 	
IRS Long Island Buildings	  	 	
 	 	
Report of Independent Auditors	  	17	
 	 	
Statements of Revenues Over Certain Operating Expenses
for the year ended December 31, 2001 (audited) and for the
six months ended June 30, 2002 (unaudited)	  	18	
 	 	
Notes to Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 2001 (audited) and
for the six months ended June 30, 2002 (unaudited)	  	19	
 	 	
KeyBank Parsippany Building	  	 	
 	 	
Report of Independent Auditors	  	21	
 	 	
Statements of Revenues Over Certain Operating Expenses
for the year ended December 31, 2001 (audited) and for the
six months ended June 30, 2002 (unaudited)	  	22	
 	 	
Notes to Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 2001 (audited) and
for the six months ended June 30, 2002 (unaudited)	  	23	
 	 	
Wells Real Estate Investment Trust, Inc. and Subsidiary	  	 	
 	 	
Unaudited Pro Forma Financial Statements	  	 	
 	 	
Summary of Unaudited Pro Forma Financial Statements	  	25	
 	 	
Pro Forma Balance Sheet as of June 30, 2002 (unaudited)	  	26	
 	 	
Pro Forma Statement of Income for the year ended
December 31, 2001 (unaudited)	  	28	
 	 	
Pro Forma Statement of Income for the six months ended
June 30, 2002 (unaudited)	  	29	
 
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Report of Independent Auditors
 
Shareholders and Board of Directors
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying statement of revenues over certain operating expenses of the Harcourt Austin Building (the “Building”) for the year ended December 31, 2001. This statement is the responsibility of the Building’s management. Our responsibility is to express an opinion on this statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
 
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of the Building’s revenues and expenses.
 
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the Harcourt Austin Building for the year ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP
 
Atlanta, Georgia
October 21, 2002
 
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Harcourt Austin Building
 
Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2001 and the six months ended June 30, 2002 (unaudited)
 
 	  	2002

	  	2001

	
 	  	(Unaudited)	  	 	
Rental revenues	  	$	1,770,085	  	$	1,770,085	
Operating expenses, net of reimbursements	  	 	64,780	  	 	67,131	

	

	  	

	

	
Revenues over certain operating expenses	  	$	1,705,305	  	$	1,702,954	

	

	  	

	

	
 
See accompanying notes.
 
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Harcourt Austin Building
 
Notes to Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2001 and the six months ended June 30, 2002 (unaudited)
 
1.    ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Description of Real Estate Property Acquired
 
On August 15, 2002, the Wells Operating Partnership, L.P. (“Wells OP’) acquired the Harcourt Austin Building from Carr Development & Construction, LP (“Carr”). Wells OP is a Delaware limited partnership formed to acquire, own, lease, operate, and manage real properties on behalf of Wells Real Estate Investment Trust, Inc., a Maryland corporation. As the sole general partner of Wells OP, Wells Real Estate Investment Trust, Inc. possesses full legal control and authority over the operations of Wells OP.
 
Harcourt, Inc. (“Harcourt”) currently occupies the entire 195,230 rentable square feet of the seven-story office building under a lease agreement (the “Harcourt Lease”). Harcourt is a Delaware corporation owned equally by Reed Elsevier PLC and Reed Elsevier NV whose shares are traded on the New York Stock Exchange. Carr’s interest in the Harcourt Lease was assigned to Wells OP upon acquisition of the building. The initial term of the Harcourt Lease commenced in July 2001 and expires in June 2016. Under the Harcourt Lease, Harcourt is required to pay, as additional rent, all operating costs, including but not limited to electricity, water, sewer, insurance, taxes and a management fee not to exceed 3.5% of rent. Furthermore, Harcourt will be required to reimburse the landlord for costs of capital improvements that are intended to reduce operating costs or improve safety and any replacement or capital repairs to the Building’s HVAC systems. Wells OP will be responsible for maintaining and repairing the Building’s roof, structural elements and mechanical systems.
 
Rental Revenues
 
Rental income is recognized on a straight-line basis over the term of the lease. The accompanying statements of revenues over certain operating expenses include rental revenues from the date of commencement of the Harcourt Lease in July 2001.
 
2.    BASIS OF ACCOUNTING
 
The accompanying statements of revenues over certain operating expenses are presented in conformity with accounting principles generally accepted in the United States and in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired. Accordingly, these statements exclude certain historical expenses that are not comparable to the proposed future operations of the property such as depreciation and interest. Therefore, these statements are not comparable to the statement of operations of the Harcourt Austin Building after its acquisition by Wells OP.
 
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Notes to Statements of Revenues Over Certain Operating Expenses
(Continued)
 
3.    FUTURE MINIMUM RENTAL COMMITMENTS
 
Future minimum rental commitments for the years ended December 31 are as follows:
 
2002	  	$	3,104,157	
2003	  	 	3,104,157	
2004	  	 	3,104,157	
2005	  	 	3,104,157	
2006	  	 	3,314,029	
Thereafter	  	 	35,819,824	

	

	
 	  	$	51,550,481	

	

	
 
4.    INTERIM UNAUDITED FINANCIAL INFORMATION
 
The financial statement for the six months ended June 30, 2002 is unaudited, however in the the opinion of management, all adjustments (consisting solely of normal, recurring adjustments) necessary for the fair presentation of the financial statement for the interim period have been included. The results of the interim period are not necessarily indicative of the results to be obtained for a full fiscal year.

 
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Report of Independent Auditors
 
Shareholders and Board of Directors
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying statement of revenues over certain operating expenses of the IRS Long Island Buildings (the “Buildings”) for the year ended December 31, 2001. This statement is the responsibility of the Buildings’ management. Our responsibility is to express an opinion on this statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
 
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of the Buildings’ revenues and expenses.
 
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the IRS Long Island Buildings for the year ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP
 
Atlanta, Georgia
September 26, 2002
 
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IRS Long Island Buildings
 
Statements of Revenues Over Certain Operating Expenses
 
Year ended December 31, 2001 and the six months ended June 30, 2002 (unaudited)
 
 	  	2002

	  	2001

	
 	  	(Unaudited)	  	 	
Rental revenues	  	$	3,106,658	  	$	4,665,840	
Operating expenses, net of reimbursements	  	 	641,803	  	 	745,258	

	

	  	

	

	
Revenues over certain operating expenses	  	$	2,464,855	  	$	3,920,582	

	

	  	

	

	
 
See accompanying notes.
 
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IRS Long Island Buildings
 
Notes to Statements of Revenues Over Certain Operating Expenses
 
Year ended December 31, 2001 and the six months ended June 30, 2002 (unaudited)
 
1.    ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Description of Real Estate Property Acquired
 
On September 13, 2002, Wells REIT—Holtsville, NY, LLC (the “Company”) acquired the IRS Long Island Buildings (the “Buildings”) from HIRS Associates, LLC (“HIRS”). The Company, a Georgia limited liability company, was created on September 10, 2002 by the Wells Operating Partnership, L.P. (“Wells OP’) as the sole member of the Company. Wells OP is a Delaware limited partnership formed to acquire, own, lease, operate, and manage real properties on behalf of Wells Real Estate Investment Trust, Inc., a Maryland corporation. As the sole general partner of Wells OP, Wells Real Estate Investment Trust, Inc. possesses full legal control and authority over the operations of Wells OP.
 
The United States of America, through the U.S. General Services Administration (“GSA”), currently leases 191,049 of the total 259,700 rentable square feet on behalf of the Internal Revenue Service under three leases (the “IRS Collection Lease”, the “IRS Compliance Lease” and the “IRS Daycare Facility Lease”, collectively, the “IRS Leases”). The GSA is a centralized federal procurement and property management agency created by Congress to improve government efficiency and effectiveness. GSA acquires on the government’s behalf, the office space, equipment, telecommunications, information technology, supplies and services they need to achieve their agency’s mission of services to the public. HIRS’s interests in the GSA Leases were assigned to Wells OP upon acquisition of the Buildings. The IRS Collection Lease commenced in August 2000 and expires in August 2005. The IRS Compliance Lease commenced in December 2001 and expires in December 2011. The IRS Daycare Facility Lease commenced in October 1999 and expires in September 2004. Under the IRS Leases, beginning in the second lease year and each year after, the tenant will pay, as adjusted rent, changes in costs from the first lease year for cleaning services, supplies, materials, maintenance, trash removal, landscaping, sewer charges and certain administrative expenses attributable to occupancy. The amount of the adjustment will be computed using the Cost of Living Index. Wells OP will be responsible for maintaining and repairing the Buildings’ roof, structural elements and mechanical systems.
 
If the Company secures an additional lease with the IRS or another suitable tenant for the remaining 68,651 square feet of vacant space in the Buildings within 18 months, the Company would owe an additional amount of up to $14,500,000 as additional purchase price for the Buildings pursuant to the terms of an earnout agreement entered into between the Company and HIRS at closing.
 
Rental Revenues
 
Rental income is recognized on a straight-line basis over the term of the lease.
 
2.    BASIS OF ACCOUNTING
 
The accompanying statements of revenues over certain operating expenses are presented in conformity with accounting principles generally accepted in the United States and in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired.
 
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Notes to Statements of Revenues Over Certain Operating Expenses
(Continued)
 
Accordingly, these statements exclude certain historical expenses that are not comparable to the proposed future operations of the property such as depreciation, interest, and management fees. Therefore, these statements are not comparable to the statement of operations of the Buildings after its acquisition by Wells OP.
 
3.    FUTURE MINIMUM RENTAL COMMITMENTS
 
Future minimum rental commitments for the years ended December 31 are as follows:
 
2002	  	$	6,761,367	
2003	  	 	6,256,896	
2004	  	 	4,843,722	
2005	  	 	3,305,530	
2006	  	 	1,663,200	
Thereafter	  	 	8,316,000	

	

	
 	  	$	31,146,715	

	

	
 
4.    INTERIM UNAUDITED FINANCIAL INFORMATION
 
The financial statement for the six months ended June 30, 2002 is unaudited, however in the the opinion of management, all adjustments (consisting solely of normal, recurring adjustments) necessary for the fair presentation of the financial statement for the interim period have been included. The results of the interim period are not necessarily indicative of the results to be obtained for a full fiscal year.

 
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Report of Independent Auditors
 
Board of Directors and Stockholders
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying statement of revenues over certain operating expenses of the KeyBank Parsippany Building (the “Building”) for the year ended December 31, 2001. This statement is the responsibility of the Building’s management. Our responsibility is to express an opinion on this statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
 
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of the Building’s revenues and expenses.
 
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the KeyBank Parsippany Building for the year ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.
 
/S/    ERNST & YOUNG LLP
 
New York, New York
January 31, 2002
 
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KeyBank Parsippany
 
Statements of Revenues Over Certain Operating Expenses
(Amounts in thousands)
 
 	  	Six Months
Ended June 30,
2002

	  	Year Ended
December 31,
2001

	
 	  	(Unaudited)	  	 	
Revenues:	  	 	 	  	 	 	
Base rent	  	$	5,089	  	$	9,421	
Tenant reimbursements	  	 	1,117	  	 	1,833	

	

	  	

	

	
Total revenues	  	 	6,206	  	 	11,254	
Operating expenses	  	 	1,522	  	 	3,159	

	

	  	

	

	
Revenues over certain operating expenses	  	$	4,684	  	$	8,095	

	

	  	

	

	
 
See accompanying notes.
 
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KeyBank Parsippany
 
Notes to Statements of Revenues Over Certain Operating Expenses
For the year ended December 31, 2001 and the six months ended
June 30, 2002 (Unaudited)
(Amounts in thousands)
 
1.    ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Description of Real Estate Property Acquired
 
On September 27, 2002, the Wells Operating Partnership acquired the KeyBank Parsippany Building (the “Building”), a 404,515 square foot office building in Parsippany, New Jersey, from Two Gatehall Acquisition, L.L.C. and Asset Preservation, Inc. (collectively the “Seller”).
 
At December 31, 2001, the Building was 100% leased to two tenants, Exodus Communications, Inc. (“Exodus”) and KeyBank USA National Association, under operating leases that were both executed in 2000. Both operating leases expire over the next 15 years.
 
Exodus filed bankruptcy in 2001. On January 17, 2002, the Exodus lease was assigned to Gemini Technology Services, Inc., an affiliate of Deutsche Bank, AG. Deutsche Bank, AG assumed all of the obligations of Exodus under the lease.
 
The lease agreements provide for certain reimbursements of real estate taxes, insurance and certain common area maintenance costs.
 
Revenue Recognition
 
Rental revenue is recognized on a straight-line basis over the initial term of the lease. The excess of rents so recognized over amounts contractually due pursuant to the underlying leases for the six months ended June 30, 2002 and the year ended December 31, 2001 was $326 (unaudited) and $3,279, respectively. Such amounts are included in rental and reimbursement revenues in the accompanying financial statements.
 
Use of Estimates
 
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
 
2.    BASIS OF ACCOUNTING
 
The accompanying statements of revenues over certain operating expenses are presented in conformity with accounting principles generally accepted in the United States and in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired. Accordingly, these statements exclude certain historical expenses that are not comparable to the proposed future operations of the Building such as depreciation and interest.
 
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3.    LEASE AGREEMENTS
 
The minimum rental receipts due on the noncancelable operating leases as of December 31, 2001 are as follows:
 
2002	  	$	9,526	
2003	  	 	9,526	
2004	  	 	9,526	
2005	  	 	9,526	
2006	  	 	10,464	
Thereafter	  	 	88,139	

	

	
 	  	$	136,707	

	

	
 
Reimbursement revenue was $1,117 (unaudited) and $1,833 for the six months ended June 30, 2002 and the year ended December 31, 2001, respectively.
 
4.    RELATED PARTY TRANSACTIONS
 
Pursuant to a management agreement, an affiliate of the Seller has responsibilities of property management and leasing of the Building.
 
5.    INTERIM UNAUDITED FINANCIAL INFORMATION
 
The financial statement for the six months ended June 30, 2002 is unaudited, however, in the opinion of management, all adjustments (consisting solely of normal, recurring adjustments) necessary for the fair presentation of the financial statement for the interim period have been included. The results of the interim period are not necessarily indicative of the results to be obtained for a full fiscal year.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
SUMMARY OF UNAUDITED PRO FORMA FINANCIAL STATEMENTS
 
This pro forma information should be read in conjunction with the financial statements and notes of Wells Real Estate Investment Trust, Inc. included in its annual report on Form 10-K for the year ended December 31, 2001 and quarterly report on Form 10-Q for the period ended June 30, 2002. In addition, this pro forma information should be read in conjunction with the financial statements and notes of certain acquired properties included in various Form 8-Ks previously filed.
 
The following unaudited pro forma balance sheet as of June 30, 2002 has been prepared to give effect to the third quarter 2002 acquisitions of the ISS Atlanta Buildings, the PacifiCare San Antonio Building, the Kerr McGee Property, the BMG Greenville Buildings, the Kraft Atlanta Building, the Nokia Dallas Buildings (the “Other Recent Acquisitions”), the Harcourt Austin Building, the AmeriCredit Phoenix Property, the IRS Long Island Buildings, the KeyBank Parsippany Building, the Allstate Indianapolis Building, the Federal Express Colorado Springs Building, the EDS Des Moines Building, the Intuit Dallas Building and the Daimler Chrysler Dallas Building (collectively, the “Recent Acquisitions”) by Wells OP as if the acquisitions occurred on June 30, 2002.
 
The following unaudited pro forma statement of income for the six months ended June 30, 2002 has been prepared to give effect to the first and second quarter 2002 acquisitions of the Arthur Andersen Building, the Transocean Houston Building, Novartis Atlanta Building, the Dana Corporation Buildings, the Travelers Express Denver Buildings, the Agilent Atlanta Building, the BellSouth Ft. Lauderdale Building, the Experian/TRW Buildings, the Agilent Boston Building, the TRW Denver Building, the MFS Phoenix Building (collectively, the “2002 Acquisitions”) and the Recent Acquisitions as if the acquisitions occurred on January 1, 2001. The Kerr McGee Property and the AmeriCredit Phoenix Property had no operations during the six months ended June 30, 2002.
 
The following unaudited pro forma statement of income for the year ended December 31, 2001 has been prepared to give effect to the 2001 acquisitions of the Comdata Building, the AmeriCredit Building, the State Street Bank Building, the IKON Buildings, the Ingram Micro Building, the Lucent Building, the ADIC Buildings, the Convergys Building, the Windy Point Buildings (collectively, the “2001 Acquisitions”), the 2002 Acquisitions and the Recent Acquisitions as if the acquisitions occurred on January 1, 2001. The Nissan Property, the Travelers Express Denver Buildings, the Kerr McGee Property, the AmeriCredit Phoenix Property and the EDS Des Moines Building had no operations during 2001.
 
Wells OP is a Delaware limited partnership that was organized to own and operate properties on behalf of the Wells Real Estate Investment Trust, Inc., a Maryland corporation. As the sole general partner of Wells OP, Wells Real Estate Investment Trust, Inc. possesses full legal control and authority over the operations of Wells OP. Accordingly, the accounts of Wells OP are consolidated with the accompanying pro forma financial statements of Wells Real Estate Investment Trust, Inc.
 
These unaudited pro forma financial statements are prepared for informational purposes only and are not necessarily indicative of future results or of actual results that would have been achieved had the acquisitions of the 2001 Acquisitions, 2002 Acquisitions and the Recent Acquisitions been consummated as of January 1, 2001.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA BALANCE SHEET
 
JUNE 30, 2002
 
(Unaudited)
 
ASSETS
 
 	  	Wells Real
Estate
Investment
Trust, Inc.(i)

	  	Pro Forma Adjustments

	 	 	Pro Forma
        Total        

	 	
 	  	 	  	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	Other

	 	 	Harcourt
Austin

	 	 	AmeriCredit
Phoenix

	 	 	IRS Long
Island

	 	 	KeyBank
Parsippany

	 	 	Allstate
Indianapolis

	 	 	Federal
Express
Colorado
Springs

	 	 	EDS Des
Moines

	 	 	Intuit
Dallas

	 	 	Daimler
Chrysler
Dallas

	 	 	 	 	 	 	 	
REAL ESTATE ASSETS, at cost:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Land	  	$	110,330,449	  	$	20,288,044	(a)	 	$	5,860,000	(a)	 	$	2,671,324	(a)	 	$	4,200,000	(a)	 	$	8,700,000	(a)	 	$	1,275,000	(a)	 	$	2,100,000	(a)	 	$	850,000	(a)	 	$	3,030,000	(a)	 	$	2,585,000	(a)	 	$	163,989,961	 	 	 	 	
 	  	 	 	  	 	825,675	(b)	 	 	238,488	(b)	 	 	108,717	(b)	 	 	174,724	(b)	 	 	353,694	(b)	 	 	51,753	(b)	 	 	85,465	(b)	 	 	34,593	(b)	 	 	123,314	(b)	 	 	103,721	(b)	 	 	 	 	 	 	 	
Buildings, less accumulated depreciation of $37,717,737	  	 	689,490,969	  	 	195,198,843	(a)	 	 	33,143,323	(a)	 	 	0	 	 	 	46,287,120	(a)	 	 	92,943,893	(a)	 	 	9,679,933	(a)	 	 	23,987,714	(a)	 	 	25,727,376	(a)	 	 	23,639,654	(a)	 	 	22,587,753	(a)	 	 	1,181,968,343	 	 	 	 	
 	  	 	 	  	 	7,944,138	(b)	 	 	1,348,856	(b)	 	 	0	 	 	 	1,925,583	(b)	 	 	3,778,591	(b)	 	 	392,914	(b)	 	 	976,244	(b)	 	 	1,047,044	(b)	 	 	962,079	(b)	 	 	906,316	(b)	 	 	 	 	 	 	 	
Construction in progress	  	 	16,081,841	  	 	379,901	(a)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	16,461,742	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
Total real estate assets	  	 	815,903,259	  	 	224,636,601	 	 	 	40,590,667	 	 	 	2,780,041	 	 	 	52,587,427	 	 	 	105,776,178	 	 	 	11,399,600	 	 	 	27,149,423	 	 	 	27,659,013	 	 	 	27,755,047	 	 	 	26,182,790	 	 	 	1,362,420,046	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
CASH AND CASH EQUIVALENTS	  	 	341,909,775	  	 	(203,990,460	)(a)	 	 	(39,003,323	)(a)	 	 	(2,671,324	)(a)	 	 	(51,454,530	)(a)	 	 	(101,643,893	)(a)	 	 	(10,954,933	)(a)	 	 	(26,087,714	)(a)	 	 	(26,577,376	)(a)	 	 	(26,669,654	)(a)	 	 	25,128,513	)(a)	 	 	185,098,497	 	 	 	 	
 	  	 	 	  	 	365,329,012	(c)	 	 	 	 	 	 	4,827,945	(h)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	  	 	(12,786,515	)(e)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INVESTMENT IN JOINT VENTURES	  	 	76,217,870	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	76,217,870	 	 	 	 	
INVESTMENT IN BONDS	  	 	22,000,000	  	 	32,500,000	(e)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	54,500,000	 	 	 	 	
ACCOUNTS RECEIVABLE	  	 	10,709,104	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	10,709,104	 	 	 	 	
DEFERRED LEASE ACQUISITION COSTS, NET	  	 	1,790,608	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,790,608	 	 	 	 	
DEFERRED PROJECT COSTS	  	 	14,314,914	  	 	(8,769,813	)(b)	 	 	(1,587,344	)(b)	 	 	(108,717	)(b)	 	 	(2,100,307	)(b)	 	 	(4,132,285	)(b)	 	 	(444,667	)(b)	 	 	(1,061,709	)(b)	 	 	(1,081,637	)(b)	 	 	(1,085,393	)(b)	 	 	(1,010,037	)(b)	 	 	5,719,520	 	 	 	 	
 	  	 	 	  	 	12,786,515	(e)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DEFERRED OFFERING COSTS	  	 	1,392,934	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,392,934	 	 	 	 	
DUE FROM AFFILIATES	  	 	1,897,309	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,897,309	 	 	 	 	
NOTE RECEIVABLE	  	 	5,149,792	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	5,149,792	 	 	 	 	
PREPAID EXPENSES AND OTHER ASSETS, NET	  	 	1,881,308	  	 	0	 	 	 	0	 	 	 	0	 	 	 	967,410	(g)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,848,718	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
Total assets	  	$	1,293,166,873	  	$	409,705,340	 	 	$	0	 	 	$	4,827,945	 	 	$	0	 	 	$	0	 	 	$	0	 	 	$	0	 	 	$	0	 	 	$	0	 	 	$	44,240	 	 	$	1,707,744,398	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
 
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Table of Contents
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (i)

	 	 	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	 	
 	  	 	 	 	Recent Acquisitions

	 	 	 	 	 	 	 	 	
 	  	 	 	 	Other

	 	 	Harcourt
Austin

	  	AmeriCredit
Phoenix

	 	 	IRS
Long Island

	  	KeyBank
Parsippany

	  	Allstate
Indianapolis

	  	Federal Express
Colorado Springs

	  	EDS
Des Moines

	  	Intuit
Dallas

	  	Daimler
Chrysler Dallas

	 	 	 	 	 	 	 	 	 	 	
LIABILITIES:	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts payable and accrued expenses	  	$	11,840,214	 	 	$	173,567	(a)	 	$	0	  	$	0	 	 	$	0	  	$	0	  	$	0	  	$	0	  	$	0	  	$	0	  	$	44,240	(a)	 	$	12,058,021	 	 	 	 	 	 	 	
Notes payable	  	 	15,658,141	 	 	 	11,702,761	(a)	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	27,360,902	 	 	 	 	 	 	 	
Obligations under capital lease	  	 	22,000,000	 	 	 	32,500,000	(f)	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	54,500,000	 	 	 	 	 	 	 	
Dividends payable	  	 	4,538,635	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	4,538,635	 	 	 	 	 	 	 	
Due to affiliates	  	 	2,106,790	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	2,106,790	 	 	 	 	 	 	 	
Deferred rental income	  	 	1,013,544	 	 	 	0	 	 	 	0	  	 	4,827,945	(h)	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	5,841,489	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	

	 	

	

	

	 	 	 	 	 	 	
Total liabilities	  	 	57,157,324	 	 	 	44,376,328	 	 	 	0	  	 	4,827,945	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	44,240	 	 	 	106,405,837	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	

	 	

	

	

	 	 	 	 	 	 	
COMMITMENTS AND CONTINGENCIES	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200,000	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	200,000	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	

	 	

	

	

	 	 	 	 	 	 	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
Common shares, $.01 par value; 125,000,000 shares authorized, 145,589,053 shares issued and 144,366,772 outstanding at June 30, 2002	  	 	1,455,890	 	 	 	365,329	(c)	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	1,821,219	 	 	 	 	 	 	 	
Additional paid-in capital	  	 	1,290,858,515	 	 	 	364,963,683	(c)	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	1,655,822,198	 	 	 	 	 	 	 	
Cumulative distributions in excess of earnings	  	 	(43,991,669	)	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	(43,991,669	)	 	 	 	 	 	 	
Treasury stock, at cost, 1,222,381 shares	  	 	(12,223,808	)	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	(12,223,808	)	 	 	 	 	 	 	
Other comprehensive loss	  	 	(289,379	)	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	(289,379	)	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	

	 	

	

	

	 	 	 	 	 	 	
Total shareholders’ equity	  	 	1,235,809,549	 	 	 	365,329,012	 	 	 	0	  	 	0	 	 	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	  	 	0	 	 	 	1,601,138,561	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	

	 	

	

	

	 	 	 	 	 	 	
Total liabilities and shareholders’ equity	  	$	1,293,166,873	 	 	$	409,705,340	 	 	$	0	  	$	4,827,945	 	 	$	0	  	$	0	  	$	0	  	$	0	  	$	0	  	$	0	  	$	44,240	 	 	$	1,707,744,398	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	

	 	

	

	

	 	 	 	 	 	 	
 
 	(a)	 	Reflects Wells Real Estate Investment Trust, Inc.’s purchase price for the land, building and liabilities assumed.	
 
 	(b)	 	Reflects deferred project costs applied to the land and building at approximately 4.07% of the cash paid for purchase.	
 
 	(c)	 	Reflects capital raised through issuance of additional shares subsequent to June 30, 2002 through Daimler Chrysler acquisition date.	
 
 	(d)	 	Reflects deferred project costs capitalized as a result of additional capital raised described in note (c) above.	
 
 	(e)	 	Reflects investment in bonds for which 100% of the principal balance becomes payable on December 1, 2015.	
 
 	(f)	 	Reflects mortgage note secured by the Deed of Trust to the ISS Atlanta Buildings for which 100% of the principal balance becomes payable on December 1, 2015.	
 
 	(g)	 	Reflects portion of purchase price placed in escrow to ensure completion of seller repairs.	
 
 	(h)	 	Reflects prepaid rent received for the three years of the AmeriCredit lease agreement.	
 
 	(i)	 	Historical financial information derived from quarterly report on Form 10-Q.	
 
The accompanying notes are an integral part of this statement.
 
27

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE YEAR ENDED DECEMBER 31, 2001
 
(Unaudited)
 
 	 	Wells Real
Estate
Investment
Trust, Inc. (f)

	  	Pro Forma Adjustments

	 	 	 	 	
 	 	 	  	2001
Acquisitions

	 	 	2002
Acquisitions

	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	 	 	  	 	 	 	 	 	 	Other

	 	 	Harcourt
Austin

	 	 	IRS Long
Island

	 	 	KeyBank
Parsippany

	 	 	Allstate
Indianapolis

	 	 	Federal Express
Colorado Springs

	 	 	Intuit
Dallas

	 	 	Daimler
Chrysler Dallas

	 	 	Pro Forma
Totals

	 	 	 	 	 	 	 	 	 	 	
REVENUES:	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	 	$	44,204,279	  	$	11,349,076	(a)	 	$	14,846,431	(a)	 	$	20,937,018	(a)	 	$	1,770,085	(a)	 	$	4,605,406	(a)	 	$	9,650,085	(a)	 	$	18,708	(a)	 	$	1,210,670	(a)	 	$	1,292,500	(a)	 	$	284,617	(a)	 	$	110,168,875	 	 	 	 	 	 	 	 	 	 	
Equity in income of joint ventures	 	 	3,720,959	  	 	1,111,850	(b)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	4,832,809	 	 	 	 	 	 	 	 	 	 	
Interest income	 	 	1,246,064	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,246,064	 	 	 	 	 	 	 	 	 	 	
Take out fee	 	 	137,500	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	137,500	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
 	 	 	49,308,802	  	 	12,460,926	 	 	 	14,846,431	 	 	 	20,937,018	 	 	 	1,770,085	 	 	 	4,605,406	 	 	 	9,650,085	 	 	 	18,708	 	 	 	1,210,670	 	 	 	1,292,500	 	 	 	284,617	 	 	 	116,385,248	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
EXPENSES:	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	 	 	15,344,801	  	 	5,772,761	(c)	 	 	5,356,374	(c)	 	 	7,783,213	(c)	 	 	689,844	(c)	 	 	1,928,508	(c)	 	 	3,868,899	(c)	 	 	100,728	(c)	 	 	499,279	(c)	 	 	492,035	(c)	 	 	78,314	(c)	 	 	41,914,756	 	 	 	 	 	 	 	 	 	 	
Interest	 	 	3,411,210	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	3,411,210	 	 	 	 	 	 	 	 	 	 	
Operating costs, net of reimbursements	 	 	4,128,883	  	 	2,854,275	(d)	 	 	1,505,269	(d)	 	 	5,452	(d)	 	 	0	 	 	 	814,339	(d)	 	 	1,326,000	(d)	 	 	2,962	(d)	 	 	0	 	 	 	0	 	 	 	14,321	(d)	 	 	10,651,501	 	 	 	 	 	 	 	 	 	 	
Management and leasing fees	 	 	2,507,188	  	 	510,708	(e)	 	 	668,090	(e)	 	 	942,165	(e)	 	 	79,654	(e)	 	 	0	 	 	 	434,254	(e)	 	 	842	(e)	 	 	54,480	(e)	 	 	58,163	(e)	 	 	12,808	(e)	 	 	5,268,352	 	 	 	 	 	 	 	 	 	 	
General and administrative	 	 	973,785	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	973,785	 	 	 	 	 	 	 	 	 	 	
Amortization of deferred
financing costs	 	 	770,192	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	770,192	 	 	 	 	 	 	 	 	 	 	
Legal and accounting	 	 	448,776	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	448,776	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
 	 	 	27,584,835	  	 	9,137,744	 	 	 	7,529,733	 	 	 	8,730,830	 	 	 	769,498	 	 	 	2,742,847	 	 	 	5,629,153	 	 	 	104,532	 	 	 	553,759	 	 	 	550,198	 	 	 	105,443	 	 	 	63,438,572	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
NET INCOME	 	$	21,723,967	  	$	3,323,182	 	 	$	7,316,698	 	 	$	12,206,188	 	 	$	1,000,587	 	 	$	1,862,559	 	 	$	4,020,932	 	 	$	(85,824	)	 	$	656,911	 	 	$	742,302	 	 	$	179,174	 	 	$	52,946,676	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
EARNINGS PER SHARE, basic
and diluted	 	$	0.43	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.29	 	 	 	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	 	 	50,520,853	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	180,899,673	 	 	 	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	
 
 	(a)	 	Rental income is recognized on a straight-line basis.	
 
 	(b)	 	Reflects Wells Real Estate Investment Trust, Inc.’s equity in income of Wells XII-REIT Joint Venture related to the acquisition of the Comdata Building and equity in income of Wells XIII-REIT Joint Venture related to the acquisition of the AmeriCredit Building and the ADIC Building.	
 
 	(c)	 	Depreciation expense on the buildings is recognized using the straight-line method and a 25-year life.	
 
 	(d)	 	Consists of operating expenses, net of reimbursements.	
 
 	(e)	 	Management and leasing fees are calculated at 4.5% of rental income.	
 
 	(f)	 	Historical financial information derived from annual report on Form 10-K.	
 
The accompanying notes are an integral part of this statement.
 
28

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE SIX MONTHS ENDED JUNE 30, 2002
 
(Unaudited)
 
 	 	Wells Real
Estate
Investment
Trust, Inc. (e)	 	Pro Forma Adjustments

	 	 	 	 	
 	 	 	 	 	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	 	 	 	2002
Acquisitions

	 	 	Other

	 	 	Harcourt
Austin

	 	 	IRS
Long Island

	 	 	KeyBank
Parsippany

	 	 	Allstate
Indianapolis

	 	 	Federal Express
Colorado Springs

	 	 	EDS
Des Moines

	 	 	Intuit
Dallas

	 	 	Daimler
Chrysler Dallas

	 	 	Pro Forma
Total

	 	 	 	 	
REVENUES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	 	$	38,571,815	 	$	7,307,774	(a)	 	$	11,110,788	(a)	 	$	1,770,085	(a)	 	$	3,076,351	(a)	 	$	5,172,857	(a)	 	$	463,071	(a)	 	$	1,210,670	(a)	 	$	456,549	(a)	 	$	1,292,500	(a)	 	$	1,707,699	(a)	 	$	72,140,159	 	 	 	 	
Equity in income of joint ventures	 	 	2,478,686	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,478,686	 	 	 	 	
Interest income	 	 	2,648,351	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,648,351	 	 	 	 	
Take out fee	 	 	134,102	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	134,102	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
 	 	 	43,832,954	 	 	7,307,774	 	 	 	11,110,788	 	 	 	1,770,085	 	 	 	3,076,351	 	 	 	5,172,857	 	 	 	463,071	 	 	 	1,210,670	 	 	 	456,549	 	 	 	1,292,500	 	 	 	1,707,699	 	 	 	77,401,298	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
EXPENSES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	 	 	12,903,282	 	 	2,588,546	(b)	 	 	4,062,859	(b)	 	 	689,844	(b)	 	 	964,254	(b)	 	 	1,934,450	(b)	 	 	201,457	(b)	 	 	499,279	(b)	 	 	178,496	(b)	 	 	492,035	(b)	 	 	469,881	(b)	 	 	24,984,383	 	 	 	 	
Interest	 	 	880,002	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	880,002	 	 	 	 	
Operating costs, net of reimbursements	 	 	2,063,997	 	 	300,018	(c)	 	 	79,067	(c)	 	 	0	 	 	 	687,948	(c)	 	 	405,000	(c)	 	 	34,940	(c)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	317,939	(c)	 	 	3,888,909	 	 	 	 	
Management and leasing fees	 	 	1,903,082	 	 	328,850	(d)	 	 	499,985	(d)	 	 	79,654	(d)	 	 	0	 	 	 	232,779	(d)	 	 	20,838	(d)	 	 	54,480	(d)	 	 	20,545	(d)	 	 	58,163	(d)	 	 	76,846	(d)	 	 	3,275,222	 	 	 	 	
General and administrative	 	 	1,121,457	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,121,457	 	 	 	 	
Amortization of deferred financing costs	 	 	424,992	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	424,992	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
 	 	 	19,296,812	 	 	3,217,414	 	 	 	4,641,911	 	 	 	769,498	 	 	 	1,652,202	 	 	 	2,572,229	 	 	 	257,235	 	 	 	553,759	 	 	 	199,041	 	 	 	550,198	 	 	 	864,666	 	 	 	34,574,965	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
NET INCOME	 	$	24,536,142	 	$	4,090,360	 	 	$	6,468,877	 	 	$	1,000,587	 	 	$	1,424,149	 	 	$	2,600,628	 	 	$	205,836	 	 	$	656,911	 	 	$	257,508	 	 	$	742,302	 	 	$	843,033	 	 	$	42,826,333	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	 	$	0.22	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.24	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	 	 	110,885,641	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	180,899,673	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	
 
 	(a)	 	Rental income is recognized on a straight-line basis.	
 
 	(b)	 	Depreciation expense on the buildings is recognized using the straight-line method and a 25-year life.	
 
 	(c)	 	Consists of operating expenses, net of reimbursements.	
 
 	(d)	 	Management and leasing fees are calculated at 4.5% of rental income.	
 
 	(e)	 	Historical financial information derived from quarterly report on Form 10-Q.	
 
The accompanying notes are an integral part of this statement.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 4 DATED DECEMBER 10, 2002 TO THE PROSPECTUS
DATED JULY 26, 2002
 
This document supplements, and should be read in conjunction with, the prospectus of Wells Real Estate Investment Trust, Inc. dated July 26, 2002, as supplemented and amended by Supplement No. 1 dated August 14, 2002, Supplement No. 2 dated August 29, 2002, and Supplement No. 3 dated October 25, 2002. When we refer to the “prospectus” in this supplement, we are also referring to any and all supplements to the prospectus. Unless otherwise defined in this supplement, capitalized terms used in this supplement shall have the same meanings as set forth in the prospectus.
 
The purpose of this supplement is to describe the following:
 
 	(1)	 	Status of the offering of shares in Wells Real Estate Investment Trust, Inc. (Wells REIT);	
 
 	(2)	 	The declaration of dividends for the first quarter of 2003;	
 
 	(3)	 	Revisions to the “Management – Executive Officers and Directors” section of the prospectus to describe the appointment of Randall D. Fretz as a Vice President of the Wells REIT;	
 
 	(4)	 	Revisions to the “Description of Real Estate Investments” section of the prospectus to describe the following real property acquisitions;	
 
 	(A)	 	Acquisition of two nine-story office buildings in Washington, DC (NASA Buildings);	
 
 	(B)	 	Acquisition of three three-story office buildings in Glen Allen, Virginia (Capital One Richmond Buildings); and	
 
 	(C)	 	Acquisition of an 11-story office building in Nashville, Tennessee (Caterpillar Nashville Building);	
 
 	(5)	 	Status of Real Estate Loans;	
 
 	(6)	 	Revisions to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the prospectus;	
 
 	(7)	 	Status of the leasing of the Vertex Sarasota Building (formerly known as the Arthur Andersen Building);	
 
 	(8)	 	Unaudited financial statements of the Wells REIT for the period ended September 30, 2002;	
 
 	(9)	 	Audited financial statements relating to the recently acquired NASA Buildings and the Caterpillar Nashville Building; and	
 
 	(10)	 	Unaudited pro forma financial statements of the Wells REIT reflecting the acquisition of the NASA Buildings, the Caterpillar Nashville Building and the Capital One Richmond Buildings.	
 
Status of the Offering
 
We commenced our initial public offering of common stock on January 30, 1998. Our initial public offering was terminated on December 19, 1999. We received approximately $132,181,919 in gross offering proceeds from the sale of 13,218,192 shares in our initial public offering. We commenced our second offering of common stock on December 20, 1999. Our second public offering was terminated on December 19, 2000. We received approximately $175,229,193 in gross offering proceeds from the

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sale of 17,522,919 shares in our second public offering. We commenced our third public offering of common stock on December 20, 2000. Our third public offering was terminated on July 26, 2002. We received approximately $1,282,976,865 in gross offering proceeds from the sale of 128,297,687 shares in our third public offering.
 
Pursuant to the prospectus, we commenced our fourth public offering of common stock on July 26, 2002. As of November 30, 2002, we had received additional gross proceeds of approximately $448,615,344 from the sale of approximately 44,861,534 shares in our fourth public offering. Accordingly, as of November 30, 2002, we had received aggregate gross offering proceeds of approximately $2,039,003,318 from the sale of approximately 203,900,332 shares in all of our public offerings. After payment of $70,676,832 in acquisition and advisory fees and acquisition expenses, payment of $226,160,588 in selling commissions and organization and offering expenses, and common stock redemptions of $19,665,247 pursuant to our share redemption program, as of November 30, 2002, we had raised aggregate net offering proceeds available for investment in properties of $1,722,500,651, out of which $1,668,713,333 had been invested in real estate properties, and $53,787,318 remained available for investment in real estate properties.
 
Dividends
 
On December 4, 2002, our board of directors declared dividends for the first quarter of 2003 in the amount of a 7.0% annualized percentage rate return on an investment of $10.00 per share to be paid in March 2003. Our first quarter dividends are calculated on a daily record basis of $0.00 1944 (0. 1944 cents) per day per share on the outstanding shares of common stock payable to stockholders of record of such shares as shown on the books of the Wells REIT at the close of business on each day during the period, commencing on December 16, 2002, and continuing on each day thereafter through and including March 15, 2003.
 
Management
 
The following information should be read in conjunction with the “Management – Executive Officers and Directors” section beginning on page 31 of the prospectus to include background information on Randall D. Fretz. On December 4, 2002, our board of directors appointed Randall D. Fretz as a Vice President of the Wells REIT.
 
Randall D. Fretz is also a Vice President of Wells Capital, Inc. (Wells Capital), our advisor, and the Chief of Staff and a Senior Vice President of Wells Real Estate Funds, Inc. Mr. Fretz is primarily responsible for corporate strategy and planning and advising and coordinating the executive officers of Wells Capital on corporate matters and special projects. Prior to joining Wells Capital in 2002, Mr. Fretz served as President of US & Canada operations for Larson-Juhl, a world leader in custom art and picture-framing home decor. Mr. Fretz was previously the Division Director at Bausch & Lomb and also held various senior positions at Tandem International and Lever Brothers. Mr. Fretz holds a bachelor degree in each of Sociology and Physical Education from McMaster University in Hamilton, Ontario. He also earned an MBA from the Ivy School of Business in London, Ontario.

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Description of Properties
 
As of December 10, 2002, we had purchased interests in 70 real estate properties located in 23 states. Below are the descriptions of our recent real property acquisitions.
 
NASA Buildings
 
On November 22, 2002, Wells REIT-Independence Square, LLC (REIT-Independence), a single member Georgia limited liability company wholly-owned by the Wells REIT, purchased two nine-story office buildings containing an aggregate of approximately 948,800 rentable square feet located in Washington, D.C. (NASA Buildings) for a purchase price of $345,000,000, plus closing costs from Southwest Market Limited Partnership (Southwest). In order to finance the acquisition of the NASA Buildings, the Wells REIT obtained $85,000,000 in loan proceeds by having Wells OP draw down on its existing line of credit with Bank of America (BOA). Southwest is not in any way affiliated with the Wells REIT, REIT-Independence, or our advisor, Wells Capital.
 
The NASA Buildings, consisting of a nine-story office building containing approximately 347,796 rentable square feet (One Independence Square) and a nine-story office building containing approximately 601,017 rentable square feet (Two Independence Square), were built in 1991 and 1992 and are located on a 3.58-acre tract of land at One & Two Independence Square on E. Street in Washington, D.C.
 
The primary tenant in One Independence Square is the Office of the Comptroller of the Currency, an agency of the United States Government (OCC). Approximately 341,520 of the rentable square feet in the NASA Buildings (36.0%) is currently leased to the OCC. The OCC charters and regulates all national banks. It also supervises the federal branches and agencies of foreign banks. The OCC’s nationwide staff of examiners conducts on-site reviews of national banks and provides sustained supervision of bank operations. The OCC issues rules, legal interpretations, and corporate decisions concerning banking, bank investments, bank community development activities, and other aspects of bank operations.
 
The OCC lease, which encompasses 341,520 rentable square feet (98.2%) in One Independence Square, commenced in May 1991 and expires in May 2006. Under the OCC Lease, operating and maintenance costs are the responsibility of the landlord, but the tenant is required to pay, as additional rent, its share of increases in real estate taxes and changes in costs from the first lease year for various operating expenses including cleaning services, electricity, heating, water, air conditioning and landscaping. The current annual base rent payable under the OCC lease is $12,159,948, which includes approximately $1,000,000 per year for the parking facility. The OCC, at its option, has the right to extend the initial term of its lease for two additional five-year periods. The annual rental rate for the first five-year period is 95% of the then-current market rental rate. The annual rental rate for the second five-year period is 90% of the then-current market rental rate.
 
The primary tenant in Two Independence Square is the National Aeronautics and Space Administration (NASA). Approximately 590,689 of the rentable square feet in the NASA Buildings (62.3%) is currently leased to the United States of America (U.S.A.) through the U.S. General Services Administration (GSA) for occupancy by NASA. The GSA is a centralized federal procurement and property management agency which acquires office space, equipment, telecommunications, information technology, supplies and services for federal agencies such as NASA. NASA, which was created in 1958, is the federal agency which runs the United States government’s space program, including the space shuttle program and the launching of unmanned satellites and probes to explore the solar system.
 
The NASA lease, which encompasses 590,689 rentable square feet (98.3%) in Two Independence Square, commenced in July 1992 and expires in July 2012. Under the terms of the NASA lease, operating and maintenance costs are the responsibility of the landlord but, in order to compensate the landlord for the tenant’s share of increases in the operating and maintenance costs of the building, the tenant is required to pay annual rental increases computed by increasing the base year’s operating costs of Two Independence Square by the percentage change in the Cost of Living Index each year.
 
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The current annual base rent payable under the NASA lease is $21,534,124. The U.S.A., at its option, has the right to extend the initial term of its lease for one additional ten-year period at an annual rental rate of $31,255,936.
 
Approximately 14,920 of the remaining aggregate rentable square feet in the NASA Buildings (1.6%) is currently leased to four additional tenants, which account for current annual base rents payable of $121,686, and 1,684 rentable square feet of the NASA Buildings (0.1%) is currently vacant. REIT-Independence will be responsible for maintaining and repairing the NASA Buildings’ roof, foundations, common areas, electrical systems and mechanical systems.
 
Both the OCC lease and the NASA lease include provisions that require the landlord and the property manager to comply with various employment related practices and various other laws typically required in leases with government entities. Although we believe that the Wells REIT and REIT-Independence should be deemed exempt from these requirements, if a determination were made that these or other affiliated entities violated these lease provisions, the tenants have the right under the OCC lease and the NASA lease to terminate the lease or to require compliance by the appropriate entities.
 
Boston Properties, Inc., an affiliate of the seller, is serving as the property manager of the NASA Buildings. Boston Properties, Inc. is not in any way affiliated with the Wells REIT, REIT-Independence or our advisor.
 
Capital One Richmond Buildings
 
On November 26, 2002, Wells Operating Partnership, L.P. (Wells OP), a Delaware limited partnership formed to acquire, own, lease and operate real properties on behalf of the Wells REIT, purchased two three-story office buildings from Highwoods Realty Limited Partnership (Highwoods Realty) and one three-story office building from Highwoods/Florida Holdings, L.P. (Highwoods Florida) located on a 15.25 acre tract of land in Glen Allen, Virginia (Capital One Richmond Buildings) for an aggregate purchase price of $28,509,000, plus closing costs. In order to finance the acquisition of the Capital One Richmond Buildings, Wells OP obtained approximately $28,670,000 in loan proceeds by drawing down on an existing line of credit with SouthTrust Bank (SouthTrust). Neither Highwoods Realty nor Highwoods Florida is in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
The Capital One Richmond Buildings contain an aggregate of 225,220 rentable square feet and were completed in 1999. The Capital One Richmond Buildings are located at 100, 120 & 140 Eastshore Drive in Glen Allen, Henrico County, Virginia. Each of the Capital One Richmond Buildings is leased entirely to Capital One Services, Inc. (Capital One), under separate net lease agreements (i.e., operating costs and maintenance costs are paid by the tenant).
 
Capital One, a wholly-owned subsidiary of Capital One Financial Corporation (Capital One Financial), provides various operating, administrative and other services to Capital One Financial. Capital One Financial’s primary focus is on credit card lending, but it also engages in unsecured installment lending and automobile financing.
 
The Capital One Richmond I Building contains 68,500 rentable square feet. The Capital One Richmond I lease commenced in March 2000 and expires in March 2010. The current annual base rent payable for the Capital One Richmond I lease is $786,573. The annual base rent increases each lease year by two percent. Capital One, at its option, has the right to extend the initial term of its lease for three additional five-year periods. The annual rent for each year of each extended term will continue to increase by two percent as described for the initial term.
 
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The Capital One Richmond II Building contains 77,045 rentable square feet. The Capital One Richmond II lease commenced in June 1999 and expires in May 2004. The current annual base rent payable for the Capital One Richmond II lease is $940,249. The annual base rent increases each lease year by two percent. Capital One, at its option, has the right to extend the initial term of its lease for two additional five-year periods. The annual rent for each year of each extended term will continue to increase by two percent as described for the initial term.
 
The Capital One Richmond III Building contains 79,675 rentable square feet. The Capital One Richmond III lease commenced in February 2000 and expires in February 2010. The current annual base rent payable for the Capital One Richmond III lease is $912,822. The annual base rent increases each lease year by two percent. Capital One, at its option, has the right to extend the initial term of its lease for three additional five-year periods. The annual rent for each year of each extended term will continue to increase by two percent as described for the initial term.
 
Wells OP, as the landlord, will be responsible for maintaining the roof, foundation, exterior walls, and mechanical and electrical systems of the Capital One Richmond Buildings. In addition, Capital One has a right of first refusal to purchase one or all of the Capital One Richmond Buildings upon Wells OP receiving an offer from any third party.
 
Highwoods Properties, Inc. (Highwoods), an affiliate of Highwoods Realty, Highwoods Florida and the seller of the Caterpillar Nashville Building (described below), has provided a guarantee of each of the leases for the Capital One Richmond Buildings. Highwoods has guaranteed the leases for the Capital One Richmond I Building and the Capital One Richmond III Building for the first five years of ownership by Wells OP. Highwoods has also guaranteed the lease for the Capital One Richmond II Building for the remainder of the current lease term and for any shortfall in rental income from May 2004 until November 2007 following the expiration of the current lease for the Capital One Richmond II Building. In addition, if the Capital One Richmond II lease expires or is terminated at any time prior to November 2007 and Highwoods provides Wells OP with a suitable replacement tenant which Wells OP declines, Highwoods has the right to repurchase the Capital One Richmond II Building at a purchase price of $10,126,590. This repurchase right expires if Highwoods fails to exercise such right within 30 days of Wells OP declining a suitable tenant. Further, in the event that Highwoods exercises its right to repurchase, Wells OP, at its option, may rescind the Highwoods right to repurchase within ten days of such exercise, provided that the act of rescinding the repurchase right will release Highwoods from its rental income guaranty with respect to the Capital One Richmond II Building. Highwoods, a public company traded on the New York Stock Exchange, is a self-administered real estate investment trust that provides leasing, management, development, construction and other tenant-related services for its properties and for third parties. Highwoods reported a net worth, as of September 30, 2002, of approximately $1.57 billion. Highwoods is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
Wells Management Company, Inc. (Wells Management), an affiliate of the Wells REIT and our advisor, will be paid management and leasing fees in the amount of up to 4.5% of gross revenues from the Capital One Richmond Buildings, subject to certain limitations. Wells OP has entered into five-year management agreements with Highwoods Realty, an affiliate of the sellers, to serve as the on-site property manager for each of the Capital One Richmond Buildings, which property management fees will be paid out of or credited against the 4.5% fee payable to Wells Management.
 
Caterpillar Nashville Building
 
On November 26, 2002, Wells OP purchased all of the membership interests in 2120 West End Avenue, LLC, a Delaware limited liability company, which owned an 11-story office building located in Nashville, Tennessee (Caterpillar Nashville Building) for a purchase price of $61,525,000, plus closing costs, from Highwoods/Tennessee Holdings, L.P. (Highwoods Tennessee). In order to finance the acquisition of the Caterpillar Nashville Building, Wells OP obtained $25,000,000 in loan proceeds by drawing down on an existing line of credit with BOA and approximately $33,560,000 in loan proceeds by drawing down on an existing line of credit with SouthTrust. Subsequent to this acquisition, Wells OP dissolved 2120 West End Avenue, LLC and became the direct owner of the Caterpillar Nashville Building. Highwoods Tennessee is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
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The Caterpillar Nashville Building, which is leased to Caterpillar Financial Services Corporation (Caterpillar), Thoughtworks, LLC (Thoughtworks) and Highwoods, contains 312,297 rentable square feet and was completed in 2000. The Caterpillar Nashville Building is located at 2120 West End Avenue in Nashville, Davidson County, Tennessee.
 
Caterpillar, as the primary tenant, occupies 300,901 rentable square feet (96.4%) of the Caterpillar Nashville Building. Caterpillar is a wholly owned subsidiary of Caterpillar, Inc. Caterpillar offers financing alternatives for various products manufactured by Caterpillar, Inc. and provides loans to customers and dealers of Caterpillar, Inc. products around the world. Caterpillar, Inc. is the one of the world’s largest manufacturers of construction and mining equipment, natural gas and diesel engines, and industrial gas turbines. Caterpillar, which offers a wide variety of financial alternatives for purchasers of Caterpillar, Inc.’s equipment, has locations in over 26 countries worldwide.
 
The Caterpillar lease commenced in March 2000 and expires in February 2015. The current annual base rent payable under the Caterpillar lease is $7,384,110. Caterpillar may terminate the Caterpillar lease after the 10th lease year (2010) by paying a termination fee to Wells OP of $7,644,682.
 
Caterpillar has a right of first refusal to lease the space currently occupied by Thoughtworks and Highwoods if either terminates its lease. In addition, Caterpillar has expansion rights which it may exercise prior to the fourth and eighth lease years. Caterpillar, at its option, has the right to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. Under the Caterpillar lease, operating and maintenance costs are the responsibility of the landlord, but Caterpillar is responsible for increases in operating costs, provided that its obligation to pay increases in expenses other than insurance, taxes and utilities is capped at 4.5% annually. Further, under its lease Caterpillar is required to reimburse the landlord management fees up to 4% of annual gross rental receipts. Wells OP, as the landlord, will be responsible for maintaining the roof, foundation, exterior walls, interior structural walls, parking facilities and mechanical and electrical systems of the Caterpillar Nashville Building.
 
Thoughtworks is a privately held company that provides custom application development and advanced system integration services in the e-commerce industry. The Thoughtworks lease covers 6,400 rentable square feet (2.0%) and commenced in May 2000 and expires in May 2005. The current annual base rent payable under the Thoughtworks lease is $162,944.
 
The Highwoods lease covers 4,996 rentable square feet (1.6%) and commenced in October 2000 and expires in September 2005. The current annual base rent payable under the Highwoods lease is $129,946.
 
Wells Management, an affiliate of Wells REIT and our advisor, will be paid management and leasing fees in the amount of up to 4.5% of gross revenues from the Caterpillar Nashville Building, subject to certain limitations. Wells OP has entered into a 10-year management agreement with Highwoods Realty, an affiliate of the sellers of the Capital One Richmond Buildings and the Caterpillar Nashville Building, to serve as the property manager of the Caterpillar Nashville Building which property management fees will be paid out of or credited against the 4.5% fee payable to Wells Management.
 
Real Estate Loans
 
In November, 2002, Wells OP increased its existing line of credit with BOA to $110 million. In addition, Wells OP is currently in the process of increasing its existing line of credit with SouthTrust to approximately $98 million. As described above, Wells OP drew down on existing lines of credit with BOA and SouthTrust an aggregate approximately $172,230,000 to finance the acquisitions of the NASA Buildings, the Capital One Richmond Buildings and the Caterpillar Nashville Building. As of November 30, 2002, the outstanding principal balance due under the BOA line of credit was approximately $110,000,000, the outstanding principal balance due under the SouthTrust line of credit was approximately $72,000,000, and the Wells REIT had a debt leverage ratio of approximately 11.5% to the value of its properties.
 
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following information should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section beginning on page 101 of the prospectus, as supplemented by Supplement No. 1 dated August 14, 2002, Supplement No. 2 dated August 29, 2002 and Supplement No. 3 dated October 25, 2002.
 
Forward Looking Statements
 
This supplement 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 our financial condition, anticipated capital expenditures required to complete certain projects, amounts of anticipated cash distributions to shareholders in the future and certain other matters. Readers of this supplement should be aware that there are various factors that could cause actual results to differ materially from any forward-looking statements made in this supplement, which include changes in general economic conditions, changes in real estate conditions, construction costs which may exceed estimates, construction delays, increases in interest rates, lease-up risks, inability to obtain new tenants upon the expiration of existing leases, inability to invest in properties on a timely basis or in properties that will provide targeted rates of return and the potential need to fund tenant improvements or other capital expenditures out of operating cash flow.
 
We have made an election under Section 856 (c) of the Internal Revenue Code (Internal Revenue Code) to be taxed as a REIT under the Internal Revenue Code beginning with its taxable year ended December 31, 1999. As a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is lost. Such an event could materially adversely affect our net income. However, management believes that we are organized and operate in a manner which will enable us to qualify for treatment as a REIT for federal income tax purposes during this fiscal year. In addition, management intends to continue to operate the Wells REIT so as to remain qualified as a REIT for federal income tax purposes.
 
Liquidity and Capital Resources
 
During the nine months ended September 30, 2002, we received aggregate gross offering proceeds of $988.5 million from the sale of 98.8 million shares of our common stock. After payment of $34.8 million in acquisition and advisory fees and acquisition expenses, payment of $104.3 million in selling commissions and organization and offering expenses, and common stock redemptions of $11.6 million pursuant to our share redemption program, we raised net offering proceeds of $837.8 million during the first three quarters of 2002, of which $144.5 million remained available for investment in properties at quarter end. In October, we reached our limit on stock redemptions for the year and, accordingly, there will be no further stock redemptions under our stock redemption program for the remainder of 2002.
 
During the nine months ended September 30, 2001, we received aggregate gross offering proceeds of $297.8 million from the sale of 29.8 million shares of its common stock. After payment of $10.3 million in acquisition and advisory fees and acquisition expenses, payment of $35.6 million in selling commissions and organizational and offering expenses, and common stock redemptions of $2.1 million pursuant to our share redemption program, we raised net offering proceeds of $249.8 million during the first three quarters of 2001, of which $8.7 million remained available for investment in properties at quarter end.
 
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The significant increase in capital resources we have available is due to significantly increased sales of our common stock during the first three quarters of 2002.
 
As of September 30, 2002, we owned interests in 67 real estate properties either directly or through interests in joint ventures. Dividends declared for the third quarter of 2002 and 2001 were approximately $0.1938 and $0.1875 per share, respectively. In August 2002, our board of directors declared dividends for the fourth quarter of 2002 in the amount of approximately $0.175 per share.
 
Due primarily to the pace of our property acquisitions, as explained in more detail in the following paragraphs, dividends paid in the first three quarters of 2002 in the aggregate amount of approximately $71.4 million exceeded our Adjusted Funds From Operations for this period by approximately $11 million.
 
We continue to acquire properties that meet our standards of quality both in terms of the real estate and the creditworthiness of the tenants. Creditworthy tenants of the type we target are becoming more and more highly valued in the marketplace and, accordingly, there is increased competition in acquiring properties with these creditworthy tenants. As a result, the purchase prices for such properties have increased with corresponding reductions in cap rates and returns on investment. In addition, changes in market conditions have caused us to add to our internal procedures for ensuring the creditworthiness of our tenants before any commitment to buy a property is made. We continue to remain steadfast in our commitment to invest in quality properties that will produce quality income for our shareholders. Accordingly, because the marketplace is now placing a higher value on our type of properties and because of the additional time it now takes in the acquisition process for us to assess tenant credit – plus our commitment to adhere to purchasing properties with tenants that meet our investment criteria – we were required to lower our dividend yield to investors.
 
As a result of the factors described in the preceding paragraph, on August 29, 2002, our board of directors declared dividends for the fourth quarter of 2002 in an amount equal to a 7.0% annualized percentage rate return on an investment of $10 per share to be paid in December 2002. Our fourth quarter dividends are calculated on a daily record basis of $0.001923 (0.1923 cents) per day per share on the outstanding shares of common stock payable to shareholders of record of such shares as shown on our books at the close of business on each day during the period, commencing on September 16, 2002, and continuing on each day thereafter through and including December 15, 2002.
 
Cash Flows From Operating Activities
 
Our net cash provided by operating activities was $68.2 million and $26.5 million for the nine months ended September 30, 2002 and 2001, respectively. The increase in net cash provided by operating activities was due primarily to the net income generated by additional properties acquired during 2002 and 2001.
 
Cash Flows Used In Investing Activities
 
Our net cash used in investing activities was $826.9 million and $155.7 million for the nine months ended September 30, 2002 and 2001, respectively. The increase in net cash used in investing activities was due primarily to investments in properties and the payment of related deferred project costs, partially offset by distributions received from joint ventures.
 
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Cash Flows From Financing Activities
 
Our net cash provided by financing activities was $827.1 million and $136.1 million for the nine months ended September 30, 2002 and 2001, respectively. The increase in net cash provided by financing activities was due primarily to the raising of additional capital and the lack of debt payments, which were $208.1 million in the prior year. We raised $988.5 million in offering proceeds for the nine months ended September 30, 2002, as compared to $297.8 million for the same period in 2001. Additionally, we paid dividends totaling $23.5 million in the first three quarters of 2001 compared to $71.4 million in the same period of 2002.
 
Results of Operations
 
Gross revenues were $74.5 million and $34.1 million for the nine months ended September 30, 2002 and 2001, respectively. Gross revenues for the nine months ended September 30, 2002 and 2001 were attributable to rental income, interest income earned on funds we held prior to the investment in properties, and income earned from joint ventures. The increase in revenues in 2002 was primarily attributable to the purchase of $805.5 million in additional properties during 2002 and the purchase of $114.1 million in additional properties during the fourth quarter of 2001 which were not owned for the first three quarters of 2001. The purchase of additional properties also resulted in an increase in expenses, which totaled $34.7 million for the nine months ended September 30, 2002, as compared to $19.6 million for the nine months ended September 30, 2001. Expenses in 2002 and 2001 consisted primarily of depreciation, operating costs, interest expense, management and leasing fees and general and administrative costs. As a result, our net income also increased from $14.4 million for the nine months ended September 30, 2001 to $39.8 million for the nine months ended September 30, 2002.
 
Earnings per share for the nine months ended September 30, 2002 decreased from $0.33 per share for the nine months ended September 30, 2001 to $0.31 per share for the nine months ended September 30, 2002. Earnings per share for the third quarter decreased from $0.11 per share for the three months ended September 30, 2001 to $0.09 per share for the three months ended September 30, 2002. These decreases were primarily due to the substantial increase in the number of shares outstanding as a result of capital raised in 2002 which was not completely matched by a corresponding increase in net income because such capital proceeds were not fully invested in properties.
 
Funds From Operations
 
Funds From Operations (FFO), as defined by the National Association of Real Estate Investment Trusts (NAREIT), generally means net income, computed in accordance with GAAP excluding extraordinary items (as defined by GAAP) and gains (or losses) from sales of property, plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures and subsidiaries. We believe that FFO is helpful to investors as a measure of the performance of an equity REIT. However, our calculation of FFO, while consistent with NAREIT’s definition, may not be comparable to similarly titled measures presented by other REITs. Adjusted Funds From Operations (AFFO) is defined as FFO adjusted to exclude the effects of straight-line rent adjustments, deferred loan cost amortization and other non-cash and/or unusual items. Neither FFO nor AFFO represent cash generated from operating activities in accordance with GAAP and should not be considered as alternatives to net income as an indication of our performance or to cash flows as a measure of liquidity or ability to make distributions. The following table reflects the calculation of FFO and AFFO for the three and nine months ended September 30, 2002 and 2001, respectively:
 
9

Table of Contents
 	  	Three Months Ended
(in thousands)

	 	 	Nine Months Ended
(in thousands)

	 	
 	  	September 30,
2002

	 	 	September 30,
2001

	 	 	September 30,
2002

	 	 	September 30,
2001

	 	
FUNDS FROM OPERATIONS:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	15,285	 	 	$	6,109	 	 	$	39,821	 	 	$	14,423	 	
Add:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	10,282	 	 	 	3,947	 	 	 	23,185	 	 	 	10,341	 	
Amortization of deferred leasing costs	  	 	78	 	 	 	76	 	 	 	229	 	 	 	228	 	
Depreciation and amortization—unconsolidated partnerships	  	 	708	 	 	 	647	 	 	 	2,115	 	 	 	1,561	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Funds from operations (FFO)	  	 	26,353	 	 	 	10,779	 	 	 	65,350	 	 	 	26,553	 	
Adjustments:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan cost amortization	  	 	162	 	 	 	237	 	 	 	587	 	 	 	529	 	
Straight line rent	  	 	(2,146	)	 	 	(708	)	 	 	(5,312	)	 	 	(1,930	)	
Straight line rent—unconsolidated Partnerships	  	 	(27	)	 	 	(100	)	 	 	(229	)	 	 	(233	)	
Lease acquisitions fees paid—unconsolidated partnerships	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(8	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Adjusted funds from operations	  	$	24,342	 	 	$	10,208	 	 	$	60,396	 	 	$	24,911	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
BASIC AND DILUTED WEIGHTED AVERAGE SHARES	  	 	163,395	 	 	 	54,112	 	 	 	128,541	 	 	 	43,726	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 
Inflation
 
The real estate market has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. However, there are provisions in the majority of tenant leases that are intended to protect us from the impact of inflation. These provisions include reimbursement billings for common area maintenance 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.
 
Critical Accounting Policies
 
We reported results of operations are impacted by management judgments related to application of accounting policies. A discussion of the accounting policies that management considers to be critical, in that they may require complex judgment in their application or require estimates about matters which are inherently uncertain, is included in Footnote 1 to the financial statements.
 
Subsequent Events
 
Effective October 31, 2002, Arthur Andersen LLP (Andersen) and Wells OP entered into a termination agreement with respect to the lease for the three-story office building containing 157,700 rentable square feet located in Sarasota, Florida formerly known as the Arthur Andersen Building. In consideration for releasing Andersen from its obligation to pay rent under the lease, Andersen paid Wells OP a termination fee of $979,760 and conveyed to Wells OP an approximately 1.3 acre tract of land adjacent to the property which was used for parking.
 
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Table of Contents
Status of the leasing of the Vertex Sarasota Building (formerly the Arthur Andersen Building)
 
As set forth in the “Subsequent Events” subsection of the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this supplement, effective October 31, 2002, Andersen and Wells OP entered into a termination agreement with respect to the lease for the three-story office building containing 157,700 rentable square feet located in Sarasota, Florida, formerly known as the Arthur Andersen Building (Vertex Sarasota Building). On November 1, 2002, Wells OP entered into a net lease agreement with Vertex Tax Technology Enterprises, LLC (Vertex) for a portion of the Vertex Sarasota Building.
 
Approximately 47,388 rentable square feet of the Vertex Sarasota Building is currently under a net lease agreement with Vertex. The current term of the lease is seven years, which commenced on November 1, 2002 and expires on October 31, 2009. The current annual base rent payable under the Vertex lease is $621,257. Pursuant to the Vertex lease, Vertex has a right of first refusal to lease an additional 5,695 square feet of rentable space in the third floor of the building. Wells OP, as the landlord, will be responsible for maintaining the building’s exterior walls, HVAC system, plumbing, elevators, fire protection, other mechanical systems, public areas, including parking lot, building structure, foundation and roof.
 
Vertex, a wholly owned subsidiary of Vertex, Inc., is a successor company of Andersen’s corporate income tax technology solutions division. The Vertex lease is guaranteed by Vertex, Inc, which is a privately held company providing corporate customers with tax compliance software and research services for sales and use tax, property tax, payroll tax, telecommunications tax, and income tax.
 
Financial Statements
 
Audited Financial Statements
 
The statements of revenues over certain operating expenses of the NASA Buildings and the Caterpillar Nashville Building for the year ended December 31, 2001, which are included in this supplement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.
 
Unaudited Financial Statements
 
The financial statements of the Wells REIT, as of September 30, 2002, and for the three and nine month periods ended September 30, 2002 and September 30, 2001, which are included in this supplement, have not been audited.
 
The statements of revenues over certain operating expenses of the NASA Buildings and the Caterpillar Nashville Building for the nine months ended September 30, 2002, which are included in this supplement, have not been audited.
 
The pro forma balance sheet of the Wells REIT, as of September 30, 2002, the pro forma statement of income for the year ended December 31, 2001, and the pro forma statement of income for the nine months ended September 30, 2002, which are included in this supplement, have not been audited.
 
11

Table of Contents
INDEX TO FINANCIAL STATEMENTS
 
Wells Real Estate Investment Trust, Inc. and Subsidiary	  	Page	
 	 	 	
 	 	Unaudited Financial Statements	  	 	
 	 	 	
 	 	Consolidated Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001	  	13	
 	 	 	
 	 	Consolidated Statements of Income for the three months ended September 30, 2002 and September 30, 2001(unaudited), and for the nine months ended September 30, 2002 and September 30, 2001 (unaudited)	  	14	
 	 	 	
 	 	Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2001 and for the nine months ended September 30, 2002 (unaudited)	  	15	
 	 	 	
 	 	Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and September 30, 2001 (unaudited)	  	16	
 	 	 	
 	 	Condensed Notes to Consolidated Financial Statements September 30, 2002 (unaudited)	  	17	
 	 	
NASA Buildings	  	 	
 	 	 	
 	 	Report of Independent Auditors	  	34	
 	 	 	
 	 	Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2001 (audited) and for the nine months ended September 30, 2002 (unaudited)	  	35	
 	 	 	
 	 	Notes to Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2001 (audited) and for the nine months ended September 30, 2002 (unaudited)	  	36	
 	 	
Caterpillar Nashville Building	  	 	
 	 	 	
 	 	Report of Independent Auditors	  	38	
 	 	 	
 	 	Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2001 (audited) and for the nine months ended September 30, 2002 (unaudited)	  	39	
 	 	 	
 	 	Notes to Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2001 (audited) and for the nine months ended September 30, 2002 (unaudited)	  	40	
 	 	
Wells Real Estate Investment Trust, Inc. and Subsidiary	  	 	
 	 	 	
 	 	Unaudited Pro Forma Financial Statements	  	 	
 	 	 	
 	 	Summary of Unaudited Pro Forma Financial Statements	  	42	
 	 	 	
 	 	Pro Forma Balance Sheet as of September 30, 2002 (unaudited)	  	43	
 	 	 	
 	 	Pro Forma Statement of Income for the year ended December 31, 2001 (unaudited)	  	45	
 	 	 	
 	 	Pro Forma Statement of Income for the nine months ended September 30, 2002 (unaudited)	  	46	

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Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
AND SUBSIDIARY
 
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
 
 	  	September 30,
2002

	 	 	December 31,
2001

	 	
 	  	(unaudited)	 	 	 	 	
ASSETS	  	 	 	 	 	 	 	 	
REAL ESTATE, at cost:	  	 	 	 	 	 	 	 	
Land	  	$	164,191	 	 	$	86,247	 	
Building and improvements, less accumulated depreciation of $48,000 in 2002 and $24,814 in 2001	  	 	1,171,793	 	 	 	472,383	 	
Construction in progress	  	 	28,500	 	 	 	5,739	 	

	

	

	 	

	

	

	
Total real estate	  	 	1,364,484	 	 	 	564,369	 	
INVESTMENT IN JOINT VENTURES	  	 	75,388	 	 	 	77,410	 	
CASH AND CASH EQUIVALENTS	  	 	143,912	 	 	 	75,586	 	
INVESTMENT IN BONDS	  	 	54,500	 	 	 	22,000	 	
STRAIGHT-LINE RENT RECEIVABLE	  	 	10,632	 	 	 	5,362	 	
ACCOUNTS RECEIVABLE	  	 	1,387	 	 	 	641	 	
NOTE RECEIVABLE	  	 	4,966	 	 	 	0	 	
DEFERRED LEASE ACQUISITION COSTS, net	  	 	1,713	 	 	 	1,525	 	
DEFERRED PROJECT COSTS	  	 	5,963	 	 	 	2,977	 	
DUE FROM AFFILIATES	  	 	2,185	 	 	 	1,693	 	
DEFERRED OFFERING COSTS	  	 	3,537	 	 	 	0	 	
PREPAID EXPENSES AND OTHER ASSETS, net	  	 	2,597	 	 	 	718	 	

	

	

	 	

	

	

	
Total assets	  	$	1,671,264	 	 	$	752,281	 	

	

	

	 	

	

	

	
LIABILITIES AND SHAREHOLDERS’ EQUITY	  	 	 	 	 	 	 	 	
LIABILITIES:	  	 	 	 	 	 	 	 	
Notes payable	  	$	35,829	 	 	$	8,124	 	
Obligations under capital leases	  	 	54,500	 	 	 	22,000	 	
Accounts payable and accrued expenses	  	 	17,539	 	 	 	8,727	 	
Dividends payable	  	 	10,209	 	 	 	1,059	 	
Deferred rental income	  	 	7,894	 	 	 	662	 	
Due to affiliates	  	 	4,380	 	 	 	2,166	 	

	

	

	 	

	

	

	
Total liabilities	  	 	130,351	 	 	 	42,738	 	

	

	

	 	

	

	

	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200	 	 	 	200	 	

	

	

	 	

	

	

	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	
Common shares, $.01 par value; 750,000 shares authorized, 182,609 shares issued and 180,892 outstanding at September 30, 2002, and 350,000 shares authorized, 83,761 shares issued and 83,206 shares outstanding at December 31, 2001	  	 	1,826	 	 	 	838	 	
Additional paid-in capital	  	 	1,621,376	 	 	 	738,236	 	
Cumulative distributions in excess of earnings	  	 	(64,907	)	 	 	(24,181	)	
Treasury stock, at cost, 1,717 shares at September 30, 2002 and
555 shares at December 31, 2001	  	 	(17,167	)	 	 	(5,550	)	
Other comprehensive loss	  	 	(415	)	 	 	0	 	

	

	

	 	

	

	

	
Total shareholders’ equity	  	 	1,540,713	 	 	 	709,343	 	

	

	

	 	

	

	

	
Total liabilities and shareholders’ equity	  	$	1,671,264	 	 	$	752,281	 	

	

	

	 	

	

	

	
 
See accompanying condensed notes to financial statements.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF INCOME
 
(unaudited and in thousands except per share amounts)
 
 	  	Three Months Ended

	  	Nine Months Ended

	
 	  	September 30,
2002

	  	September 30,
2001

	  	September 30
2002

	  	September 30
2001

	
REVENUES:	  	 	 	  	 	 	  	 	 	  	 	 	
Rental income	  	$	27,549	  	$	11,317	  	$	66,121	  	$	31,028	
Equity in income of joint ventures	  	 	1,259	  	 	1,102	  	 	3,738	  	 	2,622	
Interest income	  	 	1,899	  	 	89	  	 	4,547	  	 	281	
Take out fee	  	 	1	  	 	0	  	 	135	  	 	138	

	

	  	

	

	  	

	

	  	

	

	
 	  	 	30,708	  	 	12,508	  	 	74,541	  	 	34,069	

	

	  	

	

	  	

	

	  	

	

	
EXPENSES:	  	 	 	  	 	 	  	 	 	  	 	 	
Depreciation	  	 	10,282	  	 	3,947	  	 	23,185	  	 	10,341	
Operating costs, net of reimbursements	  	 	2,191	  	 	1,294	  	 	4,255	  	 	3,168	
Management and leasing fees	  	 	1,445	  	 	632	  	 	3,348	  	 	1,750	
Administrative costs	  	 	745	  	 	141	  	 	1,867	  	 	901	
Interest expense	  	 	598	  	 	148	  	 	1,478	  	 	2,957	
Amortization of deferred financing costs	  	 	162	  	 	237	  	 	587	  	 	529	

	

	  	

	

	  	

	

	  	

	

	
 	  	 	15,423	  	 	6,399	  	 	34,720	  	 	19,646	

	

	  	

	

	  	

	

	  	

	

	
NET INCOME	  	$	15,285	  	$	6,109	  	$	39,821	  	$	14,423	

	

	  	

	

	  	

	

	  	

	

	
BASIC AND DILUTED EARNINGS PER SHARE	  	$	0.09	  	$	0.11	  	$	0.31	  	$	0.33	

	

	  	

	

	  	

	

	  	

	

	
BASIC AND DILUTED WEIGHTED AVERAGE SHARES	  	 	163,395	  	 	54,112	  	 	128,541	  	 	43,726	

	

	  	

	

	  	

	

	  	

	

	
 
See accompanying condensed notes to financial statements.

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
 
FOR THE YEAR ENDED DECEMBER 31, 2001
 
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)
 
(in thousands except per share amounts)
 
 	 	Common
Stock
Shares

	 	Common
Stock
Amount

	 	Additional
Paid-In
Capital

	 	 	Cumulative
Distributions
in Excess of
Earnings

	 	 	Retained
Earnings

	 	 	Treasury
Stock
Shares

	 	 	Treasury
Stock
Amount

	 	 	Other
Comprehensive
Income

	 	 	Total
Shareholders’
Equity

	 	
BALANCE, December 31, 2000	 	31,510	 	$	315	 	$	275,573	 	 	$	(9,134	)	 	$	0	 	 	(141	)	 	$	(1,413	)	 	$	0	 	 	$	265,341	 	
Issuance of common stock	 	52,251	 	 	523	 	 	521,994	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	 	522,517	 	
Treasury stock purchased	 	0	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	(414	)	 	 	(4,137	)	 	 	0	 	 	 	(4,137	)	
Net income	 	0	 	 	0	 	 	0	 	 	 	0	 	 	 	21,724	 	 	0	 	 	 	0	 	 	 	0	 	 	 	21,724	 	
Dividends ($.76 per share)	 	0	 	 	0	 	 	0	 	 	 	(15,047	)	 	 	(21,724	)	 	0	 	 	 	0	 	 	 	0	 	 	 	(36,771	)	
Sales commissions and discounts	 	0	 	 	0	 	 	(49,246	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	 	(49,246	)	
Other offering expenses	 	0	 	 	0	 	 	(10,085	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	 	(10,085	)	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
BALANCE, December 31, 2001	 	83,761	 	 	838	 	 	738,236	 	 	 	(24,181	)	 	 	0	 	 	(555	)	 	 	(5,550	)	 	 	0	 	 	 	709,343	 	
Issuance of common stock	 	98,848	 	 	988	 	 	987,482	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	 	988,470	 	
Treasury stock purchased	 	0	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	(1,162	)	 	 	(11,617	)	 	 	0	 	 	 	(11,617	)	
Dividends ($.58 per share)	 	0	 	 	0	 	 	0	 	 	 	(40,726	)	 	 	(39,821	)	 	0	 	 	 	0	 	 	 	0	 	 	 	(80,547	)	
Sales commissions and discounts	 	0	 	 	0	 	 	(94,097	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	 	(94,097	)	
Other offering expenses	 	0	 	 	0	 	 	(10,245	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	 	(10,245	)	
Components of comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	0	 	 	0	 	 	0	 	 	 	0	 	 	 	39,821	 	 	0	 	 	 	0	 	 	 	0	 	 	 	39,821	 	
Gain/(loss) on interest rate swap	 	0	 	 	0	 	 	0	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	 	 	(415	)	 	 	(415	)	

	

	

	
Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	39,406	 	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
BALANCE, September 30, 2002 (unaudited)	 	182,609	 	$	1,826	 	$	1,621,376	 	 	$	(64,907	)	 	$	0	 	 	(1,717	)	 	$	(17,167	)	 	$	(415	)	 	$	1,540,713	 	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 
See accompanying condensed notes to financial statements.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(unaudited and in thousands)
 
 	  	Nine Months Ended

	 	
 	  	September 30,
2002

	 	 	September 30,
2001

	 	
CASH FLOWS FROM OPERATING ACTIVITIES:	  	 	 	 	 	 	 	 	
Net income	  	$	39,821	 	 	$	14,423	 	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	(3,738	)	 	 	(2,622	)	
Depreciation	  	 	23,185	 	 	 	10,341	 	
Amortization of deferred financing costs	  	 	587	 	 	 	529	 	
Amortization of deferred leasing costs	  	 	229	 	 	 	228	 	
Bad debt expense	  	 	113	 	 	 	0	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	
Accounts receivable	  	 	(746	)	 	 	(370	)	
Straight-line rent receivable	  	 	(5,382	)	 	 	(1,949	)	
Due from affiliates	  	 	(35	)	 	 	0	 	
Deferred rental income	  	 	7,232	 	 	 	(381	)	
Accounts payable and accrued expenses	  	 	8,811	 	 	 	3,309	 	
Prepaid expenses and other assets, net	  	 	(1,813	)	 	 	3,211	 	
Due to affiliates	  	 	(105	)	 	 	(235	)	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	68,159	 	 	 	26,484	 	

	

	

	 	

	

	

	
CASH FLOWS FROM INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	
Investments in real estate	  	 	(797,011	)	 	 	(121,366	)	
Investment in joint ventures	  	 	0	 	 	 	(27,018	)	
Deferred project costs paid	  	 	(34,784	)	 	 	(10,347	)	
Distributions received from joint ventures	  	 	5,301	 	 	 	3,027	 	
Deferred lease acquisition costs paid	  	 	(400	)	 	 	0	 	

	

	

	 	

	

	

	
Net cash used in investing activities	  	 	(826,894	)	 	 	(155,704	)	

	

	

	 	

	

	

	
CASH FLOWS FROM FINANCING ACTIVITIES:	  	 	 	 	 	 	 	 	
Proceeds from note payable	  	 	27,742	 	 	 	107,587	 	
Repayment of note payable	  	 	(37	)	 	 	(208,102	)	
Dividends paid	  	 	(71,397	)	 	 	(23,502	)	
Issuance of common stock	  	 	988,470	 	 	 	297,775	 	
Sales commissions paid	  	 	(94,097	)	 	 	(28,086	)	
Offering costs paid	  	 	(10,937	)	 	 	(7,481	)	
Treasury stock purchased	  	 	(11,617	)	 	 	(2,137	)	
Deferred financing costs paid	  	 	(1,066	)	 	 	0	 	

	

	

	 	

	

	

	
Net cash provided by financing activities	  	 	827,061	 	 	 	136,054	 	

	

	

	 	

	

	

	
NET INCREASE IN CASH AND CASH EQUIVALENTS	  	 	68,326	 	 	 	6,834	 	
CASH AND CASH EQUIVALENTS, beginning of year	  	 	75,586	 	 	 	4,298	 	

	

	

	 	

	

	

	
CASH AND CASH EQUIVALENTS, end of period	  	$	143,912	 	 	$	11,132	 	

	

	

	 	

	

	

	
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	
Deferred project costs applied to real estate assets	  	$	31,271	 	 	$	1,127	 	

	

	

	 	

	

	

	
Deferred project costs applied to joint ventures	  	$	0	 	 	$	9,295	 	

	

	

	 	

	

	

	
Deferred project costs due to affiliate	  	$	587	 	 	$	(498	)	

	

	

	 	

	

	

	
Interest rate swap	  	$	(415	)	 	$	0	 	

	

	

	 	

	

	

	
Increase (decrease) in deferred offering cost accrual	  	$	3,537	 	 	$	(1,291	)	

	

	

	 	

	

	

	
Assumption of obligations under capital lease	  	$	32,500	 	 	$	22,000	 	

	

	

	 	

	

	

	
Investment in bonds	  	$	32,500	 	 	$	22,000	 	

	

	

	 	

	

	

	
 
See accompanying condensed notes to financial statements.
 
16

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
AND SUBSIDIARY
 
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
SEPTEMBER 30, 2002
(UNAUDITED)
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
(a) General
 
Wells Real Estate Investment Trust, Inc. (the “Company”) is a Maryland corporation formed on July 3, 1997, which qualifies as a real estate investment trust (“REIT”). Substantially all of the Company’s business is conducted through Wells Operating Partnership, L.P. (“Wells OP”), a Delaware limited partnership organized for the purpose of acquiring, developing, owning, operating, improving, leasing, and otherwise managing income producing commercial properties for investment purposes on behalf of the Company. The Company is the sole general partner of Wells OP.
 
On January 30, 1998, the Company commenced its initial public offering of up to 16.5 million shares of common stock at $10 per share pursuant to a Registration Statement on Form S-11 filed under the Securities Act of 1933. The Company commenced active operations on June 5, 1998. The Company terminated its initial public offering on December 19, 1999 at which time gross proceeds of approximately $132.2 million had been received from the sale of approximately 13.2 million shares. The Company commenced its second public offering of shares of common stock on December 20, 1999, which was terminated on December 19, 2000 after receipt of gross proceeds of approximately $175.2 million from the sale of approximately 17.5 million shares. The Company commenced its third public offering of shares of common stock on December 20, 2000, which terminated on July 26, 2002 after receipt of gross proceeds of approximately $1.3 billion from the sale of approximately 128.3 million shares. As of September 30, 2002, the Company has received gross proceeds of approximately $235.7 million from the sale of approximately 23.6 million shares from its fourth public offering. Accordingly, as of September 30, 2002, the Company has received aggregate gross offering proceeds of approximately $1.8 billion from the sale of 182.6 million shares of its common stock to investors. After payment of $63.3 million in acquisition and advisory fees and acquisition expenses, payment of $202.9 million in selling commissions and organization and offering expenses, capital contributions to joint ventures and acquisitions expenditures by Wells OP of $1.4 billion for property acquisitions, and common stock redemptions of $17.2 million pursuant to the Company’s share redemption program, the Company was holding net offering proceeds of $144.5 million available for investment in properties, as of September 30, 2002.
 
17

Table of Contents
(b) Properties
 
As of September 30, 2002, the Company owned interests in 67 properties listed in the table below through its ownership in Wells OP.
 
Property
Name

	  	Tenant

	  	Property
Location

	  	%
Owned

	 	 	Purchase
Price

	 	 	Square
Feet

	  	Annual
Rent

	 	
Daimler Chrysler Dallas	  	Daimler Chrysler Services North America LLC	  	Westlake, TX	  	100	%	 	$	25,100,000	 	 	130,290	  	$	3,189,499	 	
 	 	 	 	 	 	 	
Allstate Indianapolis	  	Allstate Insurance Company
Holladay Property Services Midwest, Inc.	  	Indianapolis, IN	  	100	%	 	$	10,900,000	 	 	84,200
5,756	  	$
$	1,246,164
74,832	 

Intuit Dallas	  	Lacerte Software Corporation	  	Plano, TX	  	100	%	 	$	26,500,000	 	 	166,238	  	$	2,461,985	 	
 	 	 	 	 	 	 	
EDS Des Moines	  	EDS Information Services LLC	  	Des Moines, IA	  	100	%	 	$	26,500,000	 	 	405,000	  	$	2,389,500	 	
 	 	 	 	 	 	 	
Federal Express Colorado Springs	  	Federal Express Corporation	  	Colorado Springs, CO	  	100	%	 	$	26,000,000	 	 	155,808	  	$	2,248,309	 	
 	 	 	 	 	 	 	
KeyBank Parsippany	  	KeyBank U.S.A., N.A.
Gemini Technology Services	  	Parsippany, NJ	  	100	%	 	$	101,350,000	 	 	200,000
204,515	  	$
$	3,800,000
5,726,420	 

IRS Long Island	  	IRS Collection
IRS Compliance
IRS Daycare Facility	  	Holtsville, NY	  	100	%	 	$	50,975,000	 	 	128,000
50,949
12,100	  	$
$
$	5,029,380
1,663,200
486,799	(1)

 	 	 	 	 	 	 	
AmeriCredit Phoenix	  	AmeriCredit Financial Services, Inc.	  	Chandler, AZ	  	100	%	 	$	24,700,000	(2)	 	153,494	  	$	1,609,315	(3)	
 	 	 	 	 	 	 	
Harcourt Austin	  	Harcourt, Inc.	  	Austin, TX	  	100	%	 	$	39,000,000	 	 	195,230	  	$	3,353,040	 	
 	 	 	 	 	 	 	
Nokia Dallas	  	Nokia, Inc.
Nokia, Inc.
Nokia, Inc.	  	Irving, TX	  	100	%	 	$	119,550,000	 	 	228,678
223,470
152,086	  	$
$
$	4,413,485
4,547,614
3,024,990	 

 	 	 	 	 	 	 	
Kraft Atlanta	  	Kraft Foods North America, Inc.
Perkin Elmer Instruments, LLC	  	Suwanee, GA	  	100	%	 	$	11,625,000	 	 	73,264
13,955	  	$
$	1,263,804
194,672	 

BMG Greenville	  	BMG Direct Marketing, Inc.
BMG Music	  	Duncan, SC	  	100	%	 	$	26,900,000	 	 	473,398
313,380	  	$
$	1,394,156
763,600	 

Kerr-McGee	  	Kerr-McGee Oil & Gas Corporation	  	Houston, TX	  	100	%	 	$	15,760,000	(2)	 	100,000	  	$	1,655,000	(3)	
 	 	 	 	 	 	 	
PacifiCare San Antonio	  	PacifiCare Health Systems, Inc.	  	San Antonio, TX	  	100	%	 	$	14,650,000	 	 	142,500	  	$	1,471,700	 	
 	 	 	 	 	 	 	
ISS Atlanta	  	Internet Security Systems, Inc.	  	Atlanta, GA	  	100	%	 	$	40,500,000	 	 	238,600	  	$	4,623,445	 	
 	 	 	 	 	 	 	
MFS Phoenix	  	Massachusetts Financial Services Company	  	Phoenix, AZ	  	100	%	 	$	25,800,000	 	 	148,605	  	$	2,347,959	 	
 	 	 	 	 	 	 	
TRW Denver	  	TRW, Inc.	  	Aurora, CO	  	100	%	 	$	21,060,000	 	 	108,240	  	$	2,870,709	 	
 	 	 	 	 	 	 	
Agilent Boston	  	Agilent Technologies, Inc.	  	Boxborough, MA	  	100	%	 	$	31,742,274	 	 	174,585	  	$	3,578,993	 	
 	 	 	 	 	 	 	
Experian/TRW	  	Experian Information Solutions, Inc.	  	Allen, TX	  	100	%	 	$	35,150,000	 	 	292,700	  	$	3,438,277	 	
 	 	 	 	 	 	 	
BellSouth Ft. Lauderdale	  	BellSouth Advertising and Publishing Corporation	  	Ft. Lauderdale, FL	  	100	%	 	$	6,850,000	 	 	47,400	  	$	747,033	 	
 	 	 	 	 	 	 	
Agilent Atlanta	  	Agilent Technologies, Inc.
Koninklijke Philips Electronics N.V.	  	Alpharetta, GA	  	100	%	 	$	15,100,000	 	 	66,811
34,396	  	$
$	1,344,905
704,430	 

Travelers Express Denver	  	Travelers Express Company, Inc.	  	Lakewood, CO	  	100	%	 	$	10,395,845	 	 	68,165	  	$	1,012,250	 	
 	 	 	 	 	 	 	
Dana Kalamazoo	  	Dana Corporation	  	Kalamazoo, MI	  	100	%	 	$	41,950,000	(4)	 	147,004	  	$	1,842,800	 	
 	 	 	 	 	 	 	
Dana Detroit	  	Dana Corporation	  	Farmington Hills, MI	  	100	%	 	 	(see above	)(4)	 	112,480	  	$	2,330,600	 	
 	 	 	 	 	 	 	
Novartis Atlanta	  	Novartis Opthalmics, Inc.	  	Duluth, GA	  	100	%	 	$	15,000,000	 	 	100,087	  	$	1,426,240	 	
 	 	 	 	 	 	 	
Transocean Houston	  	Transocean Deepwater Offshore Drilling, Inc.
Newpark Drilling Fluids, Inc.	  	Houston, TX	  	100	%	 	$	22,000,000	 	 	103,260
52,731	  	$
$	2,110,035
1,153,227	 

Arthur Andersen (5)	  	Arthur Andersen LLP	  	Sarasota, FL	  	100	%	 	$	21,400,000	 	 	157,700	  	$	1,988,454	 	
 	 	 	 	 	 	 	
Windy Point I	  	TCI Great Lakes, Inc.
The Apollo Group, Inc.
Global Knowledge Network
Various other tenants	  	Schaumburg, IL	  	100	%	 	$	32,225,000	(6)	 	129,157
28,322
22,028
8,884	  	$
$
$
$	2,067,204
477,226
393,776
160,000	 

 	
 	 	 	 	 	 	 	
Windy Point II	  	Zurich American Insurance	  	Schaumburg, IL	  	100	%	 	$	57,050,000	(6)	 	300,034	  	$	5,244,594	 	
 	 	 	 	 	 	 	
Convergys	  	Convergys Customer Management Group, Inc.	  	Tamarac, FL	  	100	%	 	$	13,255,000	 	 	100,000	  	$	1,248,192	 	
 	 	 	 	 	 	 	
ADIC	  	Advanced Digital Information Corporation	  	Parker, CO	  	68.2	%	 	$	12,954,213	 	 	148,204	  	$	1,222,683	 	
 	 	 	 	 	 	 	
Lucent	  	Lucent Technologies, Inc.	  	Cary, NC	  	100	%	 	$	17,650,000	 	 	120,000	  	$	1,800,000	 	
 	 	 	 	 	 	 	
Ingram Micro	  	Ingram Micro, L.P.	  	Millington, TN	  	100	%	 	$	21,050,000	 	 	701,819	  	$	2,035,275	 	
 	 	 	 	 	 	 	
Nissan	  	Nissan Motor Acceptance Corporation	  	Irving, TX	  	100	%	 	$	42,259,000	(2)	 	268,290	  	$	4,225,860	(3)	
 	 	 	 	 	 	 	
IKON	  	IKON Office Solutions, Inc.	  	Houston, TX	  	100	%	 	$	20,650,000	 	 	157,790	  	$	2,015,767	 	
 	 	 	 	 	 	 	
State Street	  	SSB Realty, LLC	  	Quincy, MA	  	100	%	 	$	49,563,000	 	 	234,668	  	$	6,922,706	 	
 	 	 	 	 	 	 	
AmeriCredit	  	AmeriCredit Financial Services Corporation	  	Orange Park, FL	  	68.2	%	 	$	12,500,000	 	 	85,000	  	$	1,336,200	 	
 	 	 	 	 	 	 	
Comdata	  	Comdata Network, Inc.	  	Brentwood, TN	  	55.0	%	 	$	24,950,000	 	 	201,237	  	$	2,458,638	 	
 
18

Table of Contents
Property
Name

	  	Tenant

	  	Property
Location

	  	%
Owned

	 	 	Purchase
Price

	  	Square
Feet

	  	Annual
Rent

	
AT&T Oklahoma	  	AT&T Corp.
Jordan Associates, Inc.	  	Oklahoma City, OK	  	55.0	%	 	$	15,300,000	  	103,500
25,000	  	$
$	1,242,000
294,500	
 	 	 	 	 	 	 	
Metris Minnesota	  	Metris Direct, Inc.	  	Minnetonka, MN	  	100	%	 	$	52,800,000	  	300,633	  	$	4,960,445	
 	 	 	 	 	 	 	
Stone & Webster	  	Stone & Webster, Inc.
SYSCO Corporation	  	Houston, TX	  	100	%	 	$	44,970,000	  	206,048
106,516	  	$
$	4,533,056
2,130,320	
 	 	 	 	 	 	 	
Motorola Plainfield	  	Motorola, Inc.	  	S. Plainfield, NJ	  	100	%	 	$	33,648,156	  	236,710	  	$	3,324,428	
 	 	 	 	 	 	 	
Quest	  	Quest Software, Inc.	  	Irvine, CA	  	15.8	%	 	$	7,193,000	  	65,006	  	$	1,287,119	
 	 	 	 	 	 	 	
Delphi	  	Delphi Automotive Systems, LLC	  	Troy, MI	  	100	%	 	$	19,800,000	  	107,193	  	$	1,955,524	
 	 	 	 	 	 	 	
Avnet	  	Avnet, Inc.	  	Tempe, AZ	  	100	%	 	$	13,250,000	  	132,070	  	$	1,516,164	
 	 	 	 	 	 	 	
Siemens	  	Siemens Automotive Corp.	  	Troy, MI	  	56.8	%	 	$	14,265,000	  	77,054	  	$	1,374,643	
 	 	 	 	 	 	 	
Motorola Tempe	  	Motorola, Inc.	  	Tempe, AZ	  	100	%	 	$	16,000,000	  	133,225	  	$	2,054,329	
 	 	 	 	 	 	 	
ASML	  	ASM Lithography, Inc.	  	Tempe, AZ	  	100	%	 	$	17,355,000	  	95,133	  	$	1,927,788	
 	 	 	 	 	 	 	
Dial	  	Dial Corporation	  	Scottsdale, AZ	  	100	%	 	$	14,250,000	  	129,689	  	$	1,387,672	
 	 	 	 	 	 	 	
Metris Tulsa	  	Metris Direct, Inc.	  	Tulsa, OK	  	100	%	 	$	12,700,000	  	101,100	  	$	1,187,925	
 	 	 	 	 	 	 	
Cinemark	  	Cinemark USA, Inc.
The Coca-Cola Company	  	Plano, TX	  	100	%	 	$	21,800,000	  	65,521
52,587	  	$
$	1,366,491
1,354,184	
 	 	 	 	 	 	 	
Gartner	  	The Gartner Group, Inc.	  	Ft. Myers, FL	  	56.8	%	 	$	8,320,000	  	62,400	  	$	830,656	
 	 	 	 	 	 	 	
Videojet Technologies Chicago	  	Videojet Technologies, Inc.	  	Wood Dale, IL	  	100	%	 	$	32,630,940	  	250,354	  	$	3,376,746	
 	 	 	 	 	 	 	
Johnson Matthey	  	Johnson Matthey, Inc.	  	Wayne, PA	  	56.8	%	 	$	8,000,000	  	130,000	  	$	854,748	
 	 	 	 	 	 	 	
Alstom Power Richmond (2)	  	Alstom Power, Inc.	  	Midlothian, VA	  	100	%	 	$	11,400,000	  	99,057	  	$	1,244,501	
 	 	 	 	 	 	 	
Sprint	  	Sprint Communications Company, L.P.	  	Leawood, KS	  	56.8	%	 	$	9,500,000	  	68,900	  	$	1,102,404	
 	 	 	 	 	 	 	
EYBL CarTex	  	EYBL CarTex, Inc.	  	Fountain Inn, SC	  	56.8	%	 	$	5,085,000	  	169,510	  	$	550,908	
 	 	 	 	 	 	 	
Matsushita (2)	  	Matsushita Avionics Systems Corporation	  	Lake Forest, CA	  	100	%	 	$	18,431,206	  	144,906	  	$	2,005,464	
 	 	 	 	 	 	 	
AT&T Pennsylvania	  	Pennsylvania Cellular Telephone Corp.	  	Harrisburg, PA	  	100	%	 	$	12,291,200	  	81,859	  	$	1,442,116	
 	 	 	 	 	 	 	
PwC	  	PricewaterhouseCoopers, LLP	  	Tampa, FL	  	100	%	 	$	21,127,854	  	130,091	  	$	2,093,382	
 	 	 	 	 	 	 	
Cort Furniture	  	Cort Furniture Rental Corporation	  	Fountain Valley, CA	  	44.0	%	 	$	6,400,000	  	52,000	  	$	834,888	
 	 	 	 	 	 	 	
Fairchild	  	Fairchild Technologies U.S.A., Inc.	  	Fremont, CA	  	77.5	%	 	$	8,900,000	  	58,424	  	$	920,144	
 	 	 	 	 	 	 	
Avaya	  	Avaya, Inc.	  	Oklahoma City, OK	  	3.7	%	 	$	5,504,276	  	57,186	  	$	536,977	
 	 	 	 	 	 	 	
Iomega	  	Iomega Corporation	  	Ogden, UT	  	3.7	%	 	$	5,025,000	  	108,250	  	$	659,868	
 	 	 	 	 	 	 	
Interlocken	  	ODS Technologies, L.P. and
GAIAM, Inc.	  	Broomfield, CO	  	3.7	%	 	$	8,275,000	  	51,975	  	$	1,070,515	
 	 	 	 	 	 	 	
Ohmeda	  	Ohmeda, Inc.	  	Louisville, CO	  	3.7	%	 	$	10,325,000	  	106,750	  	$	1,004,520	
 	 	 	 	 	 	 	
Alstom Power Knoxville	  	Alstom Power, Inc.	  	Knoxville, TN	  	3.7	%	 	$	7,900,000	  	84,404	  	$	1,106,520	
 
(1)	 	Includes only the leased portion of this property.	
(2)	 	Includes the actual costs incurred or estimated to be incurred by Wells OP to develop and construct the building in addition to the purchase price of the land.	
(3)	 	Annual rent for AmeriCredit Phoenix, Kerr McGee and Nissan Property does not take effect until construction of the building is completed and the tenant is occupying the building.	
(4)	 	Dana Kalamazoo and Dana Detroit were purchased for an aggregate purchase price of $41,950,000.	
(5)	 	Subsequent to September 30, 2002, this building has been vacated by the tenant. See Footnote 10 and “Subsequent Events” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this supplement.	
(6)	 	Windy Point I and Windy Point II were purchased for an aggregate purchase price of $89,275,000.	
 
19

Table of Contents
Wells	 	OP owns interests in properties directly and through equity ownership in the following joint ventures:	
 
Joint Venture

	  	Joint Venture Partners

	  	Properties Held by Joint Venture

	
Fund XIII-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Wells Real Estate Fund XIII, L.P.	  	AmeriCredit
ADIC	
 	 	 	
Fund XII-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Wells Real Estate Fund XII, L.P.	  	Siemens
AT&T Oklahoma
Comdata	
 	 	 	
Fund XI-XII-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Wells Real Estate Fund XI, L.P.
Wells Real Estate Fund XII, L.P.	  	EYBL CarTex
Sprint
Johnson Matthey
Gartner	
 	 	 	
Fund IX-X-XI-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Wells Real Estate Fund IX, L.P.
Wells Real Estate Fund X, L.P.
Wells Real Estate Fund XI, L.P.	  	Alstom Power Knoxville
Ohmeda
Interlocken
Avaya
Iomega	
 	 	 	
Wells/Fremont Associates Joint Venture (the “Fremont Joint Venture”)	  	Wells Operating Partnership, L.P.
Fund X-XI Joint Venture	  	Fairchild	
 	 	 	
Wells/Orange County Associates
Joint Venture
(the “Orange County Joint Venture”)	  	Wells Operating Partnership, L.P.
Fund X-XI Joint Venture	  	Cort Furniture	
 	 	 	
Fund VIII-IX-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Fund VIII-IX Joint Venture	  	Quest	
 
(c) Critical Accounting Policies
 
The Company’s accounting policies have been established in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied; thus, resulting in a different presentation of our financial statements. Below is a discussion of the accounting policies that we consider to be critical in that they may require complex judgment in their application or require estimates about matters which are inherently uncertain.
 
Revenue Recognition
 
The Company recognizes rental income generated from all leases on real estate assets in which the Company has an ownership interest, either directly or through investments in joint ventures, on a straight-line basis over the terms of the respective leases. If a tenant was to encounter financial difficulties in future periods, the amount recorded as a receivable may not be realized.
 
Operating Cost Reimbursements
 
The Company generally bills tenants for operating cost reimbursements, either directly or through investments in joint ventures, on a monthly basis at amounts estimated largely based on actual prior period activity, the current year budget and the respective lease terms. Such billings are generally adjusted on an annual basis to reflect reimbursements owed to the landlord based on the actual costs incurred during the period and the respective lease terms. Financial difficulties encountered by tenants may result in receivables not being realized.
 
20

Table of Contents
Real Estate
 
Management continually monitors events and changes in circumstances indicating that the carrying amounts of the real estate assets in which the Company has an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When such events or changes in circumstances are present, management assesses the potential impairment by comparing the fair market value of the asset, estimated at an amount equal to the future undiscounted operating cash flows expected to be generated from tenants over the life of the asset and from its eventual disposition, to the carrying value of the asset. In the event that the carrying amount exceeds the estimated fair market value, the Company would recognize an impairment loss in the amount required to adjust the carrying amount of the asset to its estimated fair market value. Neither the Company nor its joint ventures have recognized impairment losses on real estate assets to date.
 
Deferred Project Costs
 
The Company records acquisition and advisory fees and acquisition expenses payable to Wells Capital, Inc. (the “Advisor”) by capitalizing deferred project costs and reimbursing the Advisor in an amount equal to 3.5% of cumulative capital raised to date. As the Company invests its capital proceeds, deferred project costs are applied to real estate assets, either directly or through contributions to joint ventures, and depreciated over the useful lives of the respective real estate assets. Acquisition and advisory fees and acquisition expenses paid as of September 30, 2002, amounted to $63.3 million and represented approximately 3.5% of capital contributions received. These fees are allocated to specific properties as they are purchased or developed and are included in capitalized assets of the joint venture, or real estate assets. Deferred project costs at September 30, 2002 and December 31, 2001, represent fees paid, but not yet applied to properties.
 
Deferred Offering Costs
 
The Advisor expects to continue to fund 100% of the organization and offering costs and recognize related expenses, to the extent that such costs exceed 3% of cumulative capital raised, on behalf of the Company. Organization and offering costs include items such as legal and accounting fees, marketing and promotional costs, and printing costs, and specifically exclude sales costs and underwriting commissions. The Company records offering costs by accruing deferred offering costs, with an offsetting liability included in due to affiliates, at an amount equal to the lesser of 3% of cumulative capital raised to date or actual costs incurred from third-parties less reimbursements paid to the Advisor. As equity is raised, the Company reverses the deferred offering costs accrual and recognizes a charge to stockholders’ equity upon reimbursing the Advisor. As of September 30, 2002, the Advisor had paid organization and offering expenses on behalf of the Company in an aggregate amount of $34.2 million, of which the Advisor had been reimbursed $29.7 million, which did not exceed the 3% limitation. Deferred offering costs in the accompanying balance sheet represent costs incurred by the Advisor which will be reimbursed by the Company.
 
(d) Distribution Policy
 
The Company will make distributions each taxable year (not including a return of capital for federal income tax purposes) equal to at least 90% of its real estate investment trusts’ taxable income. The Company intends to make regular quarterly distributions to stockholders. Distributions will be made to those stockholders who are stockholders as of the record date selected by the Directors. The Company currently calculates quarterly dividends based on the daily record and dividend declaration dates; thus, stockholders are entitled to receive dividends immediately upon the purchase of shares.
 
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Dividends to be distributed to the stockholders are determined by the Board of Directors and are dependent on a number of factors related to the Company, including funds available for payment of dividends, financial condition, capital expenditure requirements and annual distribution requirements in order to maintain the Company’s status as a REIT under the Code. Operating cash flows are expected to increase as additional properties are added to the Company’s investment portfolio.
 
(e) Income Taxes
 
The Company has made an election under Section 856 (C) of the Internal Revenue Code of 1986, as amended (the “Code”), to be taxed as a Real Estate Investment Trust (“REIT”) under the Code beginning with its taxable year ended December 31, 1998. As a REIT for federal income tax purposes, the Company generally will not be subject to federal income tax on income that it distributes to its shareholders. If the Company fails to qualify as a REIT in any taxable year, it will then be subject to federal income tax on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost. Such an event could materially adversely affect the Company’s net income and net cash available to distribute to shareholders. However, the Company believes that it is organized and operates in such a manner as to qualify for treatment as a REIT and intends to continue to operate in the foreseeable future in such a manner so that the Company will remain qualified as a REIT for federal income tax purposes.
 
(f) Employees
 
The Company has no direct employees. The employees of the Advisor and Wells Management Company, Inc. (Wells Management), an affiliate of the Company and the Advisor, perform a full range of real estate services including leasing and property management, accounting, asset management and investor relations for the Company. The Company has reimbursed the Advisor and Wells Management for allocated salaries, wages and other payroll related costs totaling $1.1 million and $0.4 million for the nine months ended September 30, 2002 and 2001, respectively, and $0.5 million and $0.1 million for the three months ended September 30, 2002 and 2001, respectively.
 
(g) Insurance
 
Wells Management Company, Inc., an affiliate of the Company and the Advisor, carries comprehensive liability and extended coverage with respect to all the properties owned directly or indirectly by the Company. In the opinion of management, the properties are adequately insured.
 
(h) Competition
 
The Company will experience competition for tenants from owners and managers of competing projects, which may include its affiliates. As a result, the Company 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 Company elects to dispose of its properties, the Company will also be in competition with sellers of similar properties to locate suitable purchasers for its properties.
 
(i) Statement of Cash Flows
 
For the purpose of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents include cash and short-term investments.
 
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(j) Basis of Presentation
 
Substantially all of the Company’s business is conducted through Wells OP. On December 31, 1997, Wells OP issued 20,000 limited partner units to the Advisor in exchange for a capital contribution of $200,000. The Company is the sole general partner in Wells OP; consequently, the accompanying consolidated balance sheet of the Company includes the amounts of the Company and Wells OP. The Advisor, a limited partner, is not currently receiving distributions from its investment in Wells OP.
 
The consolidated financial statements of the Company have been prepared in accordance with instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These quarterly statements have not been examined by independent accountants, but in the opinion of management of the Company, the statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary to present a fair presentation of the results for such periods. Results for interim periods are not necessarily indicative of full year results. For further information, refer to the financial statements and footnotes included in the Company’s Form 10-K for the year ended December 31, 2001.
 
2. INVESTMENT IN JOINT VENTURES
 
(a) Basis of Presentation
 
As of September 30, 2002, the Company owned interests in 17 properties in joint ventures with related entities through its ownership in Wells OP, which owns interests in seven such joint ventures. The Company does not have control over the operations of these joint ventures; however, it does exercise significant influence. Accordingly, investment in joint ventures is recorded using the equity method.
 
(b) Summary of Operations
 
The following information summarizes the operations of the unconsolidated joint ventures in which the Company, through Wells OP, had ownership interests as of September 30, 2002 and 2001, respectively. There were no additional investments in joint ventures made by the Company during the three months and nine months ended September 30, 2002.
 
 	  	Total Revenues

	  	Net Income

	  	Wells OP’s Share of Net
Income

	
 	  	Three Months Ended
(in thousands)

	  	Three Months Ended
(in thousands)

	  	Three Months Ended
(in thousands)

	
 	  	September 30,
2002

	  	September 30,
2001

	  	September 30,
2002

	  	September 30,
2001

	  	September 30,
2002

	  	September 30,
2001

	
Fund IX-X-XI-REIT
Joint Venture	  	$	1,083	  	$	1,083	  	$	574	  	$	670	  	$	21	  	$	25	
Cort Joint Venture	  	 	199	  	 	204	  	 	135	  	 	149	  	 	59	  	 	65	
Fremont Joint
Venture	  	 	226	  	 	227	  	 	142	  	 	142	  	 	110	  	 	110	
Fund XI-XII-REIT
Joint Venture	  	 	836	  	 	844	  	 	484	  	 	520	  	 	275	  	 	295	
Fund XII-REIT
Joint Venture	  	 	1,330	  	 	1,410	  	 	727	  	 	815	  	 	400	  	 	448	
Fund VIII-IX-REIT
Joint Venture	  	 	302	  	 	314	  	 	153	  	 	156	  	 	24	  	 	24	
Fund XIII-REIT
Joint Venture	  	 	704	  	 	306	  	 	408	  	 	155	  	 	370	  	 	135	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 	  	$	4,680	  	$	4,388	  	$	2,623	  	$	2,607	  	$	1,259	  	$	1,102	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 
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 	  	Total Revenues

	  	Net Income

	  	Wells OP’s
Share of Net Income

	
 	  	Nine Months Ended (in thousands)

	  	Nine Months Ended (in thousands)

	  	Nine Months Ended (in thousands)

	
 	  	September 30,
2002

	  	September 30,
2001

	  	September 30,
2002

	  	September 30,
2001

	  	September 30,
2002

	  	September 30,
2001

	
Fund IX-X-XI-REIT
    Joint Venture	  	$	3,310	  	$	3,264	  	$	1,747	  	$	2,043	  	$	65	  	$	76	
 	 	 	 	 	 	 	
Cort Joint Venture	  	 	597	  	 	602	  	 	405	  	 	415	  	 	177	  	 	181	
Fremont Joint
    Venture	  	 	678	  	 	677	  	 	419	  	 	421	  	 	325	  	 	326	
Fund XI-XII-REIT
    Joint Venture	  	 	2,525	  	 	2,533	  	 	1,526	  	 	1,534	  	 	866	  	 	871	
Fund XII-REIT
    Joint Venture	  	 	4,143	  	 	3,306	  	 	2,385	  	 	1,848	  	 	1,311	  	 	967	
Fund VIII-IX-REIT
    Joint Venture	  	 	906	  	 	894	  	 	461	  	 	416	  	 	73	  	 	66	
 	 	 	 	 	 	 	
Fund XIII-REIT
    Joint Venture	  	 	2,108	  	 	306	  	 	1,215	  	 	155	  	 	921	  	 	135	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 	  	$	14,267	  	$	11,582	  	$	8,158	  	$	6,832	  	$	3,738	  	$	2,622	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 
3. INVESTMENTS IN REAL ESTATE
 
As of September 30, 2002, the Company, through its ownership in Wells OP, owns 50 properties directly. The following describes acquisitions made directly by Wells OP during the three months ended September 30, 2002.
 
The ISS Atlanta Buildings
 
On July 1, 2002, Wells OP purchased two five-story buildings containing a total of 238,600 rentable square feet located in Atlanta, Georgia for a purchase price of $40.5 million, excluding closing costs. The ISS Atlanta Buildings were acquired by assigning to Wells OP an existing ground lease with the Development Authority of Fulton County (“Development Authority”). Fee simple title to the land upon which the ISS Atlanta Buildings are located is held by the Development Authority, which issued Development Authority of Fulton County Taxable Revenue Bonds (“Bonds”) totaling $32.5 million in connection with the construction of these buildings. The Bonds, which entitle Wells OP to certain real property tax abatement benefits, were also assigned to Wells OP at the closing. Fee title interest to the land will be transferred to Wells OP upon payment of the outstanding balance on the Bonds, either by prepayment by Wells OP or at the expiration of the ground lease on December 1, 2015.
 
The entire rentable area of the ISS Atlanta Buildings is leased to Internet Security Systems, Inc., a Georgia corporation (“ISS”). The ISS Atlanta lease is a net lease that commenced in November 2000 and expires in May 2013. The current annual base rent payable under the ISS Atlanta lease is approximately $4.6 million. ISS, at its option, has the right to extend the initial term of its lease for three additional five-year periods at 95% of the then-current market rental rate.
 
The PacifiCare San Antonio Building
 
On July 12, 2002, Wells OP purchased the PacifiCare San Antonio Building, a two-story office building containing 142,500 rentable square feet located in San Antonio, Texas for a purchase price of $14.7 million, excluding closing costs. The PacifiCare San Antonio Building is 100% leased to PacifiCare Health Systems, Inc. (“PacifiCare”). The PacifiCare lease is a net lease that commenced in November 2000 and expires in November 2010. The current annual base rent payable under the PacifiCare lease is approximately $1.5 million. PacifiCare, at its option, has the right to extend the initial term of its lease for three additional five-year periods. Monthly base rent for the first renewal term will be approximately $0.2
 
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million and monthly base rent for the second and third renewal terms will be the then-current market rental rate.
 
The Kerr-McGee Property
 
On July 29, 2002, Wells OP purchased the Kerr-McGee Property, a 4.2-acre tract of land located in Houston, Harris County, Texas for a purchase price of approximately $1.7, excluding closing costs. Wells OP has entered into agreements to construct a four-story office building containing approximately 100,000 rentable square feet (the “Kerr-McGee Project”) on the Kerr-McGee Property. It is currently anticipated that the aggregate of all costs and expenses to be incurred by Wells OP with respect to the acquisition of the Kerr-McGee Property and the planning, design, development, construction and completion of the Kerr McGee Project will total approximately $15.8 million.
 
The entire 100,000 rentable square feet of the Kerr-McGee Project will be leased to Kerr-McGee Oil & Gas Corporation (“Kerr-McGee”), a wholly owned subsidiary of Kerr-McGee Corporation. The initial term of the Kerr-McGee lease will extend 11 years and 1 month beyond the rent commencement date. Construction on the building is scheduled to be completed by July 2003. The rent commencement date will occur no later than July 1, 2003. Kerr-McGee has the right to extend the initial term of this lease for one additional period of twenty years or the option to extend the initial term for any combination of additional periods of ten years or five years for a total additional period of not more than twenty years. The base rental rate will be 95% of the existing market rate. The initial annual base rent payable under the Kerr-McGee lease will be calculated as 10.5% of project costs.
 
Wells OP obtained a construction loan in the amount of $13.7 million from Bank of America, to fund the construction of a building on the Kerr-McGee Property. The loan requires monthly payments of interest only and matures on January 29, 2004. The interest rate on the loan as of August 6, 2002 was 3.80%. The Bank of America loan is secured by a first priority mortgage on the Kerr-McGee Property.
 
The BMG Greenville Buildings
 
On July 31, 2002, Wells OP purchased the BMG Greenville Buildings, two one-story office buildings containing 786,778 rentable square feet located in Duncan, Spartanburg County, South Carolina for a purchase price of $26.9 million, excluding closing costs. The BMG Greenville Buildings are leased to BMG Direct Marketing, Inc. (“BMG Marketing”) and BMG Music (“BMG Music”).
 
The BMG Marketing lease is a net lease that covers approximately 473,398 square feet that commenced in March 1988 and expires in March 2011. The current annual base rent payable under the BMG Marketing lease is approximately $1.4 million. BMG Marketing, at its option, has the right to extend the initial term of its lease for two consecutive ten-year periods at 95% of the then-current market rental rate.
 
The BMG Music lease is a net lease that covers approximately 313,380 rentable square feet that commenced in December 1987 and expires in March 2011. The current annual base rent payable under the BMG Music lease is approximately $0.8 million. BMG Music, at its option, has the right to extend the initial term of its lease for two consecutive ten-year periods at 95% of the then-current market rental rate.
 
The Kraft Atlanta Building
 
On August 1, 2002, Wells OP purchased the Kraft Atlanta Building, a one-story office building containing 87,219 rentable square feet located in Suwanee, Forsyth County, Georgia for a purchase price of approximately $11.6 million, excluding closing costs. The Kraft Atlanta Building is leased to Kraft Foods North America, Inc. (“Kraft”) and PerkinElmer Instruments, LLC (“PerkinElmer”).
 
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The Kraft lease is a net lease that covers approximately 73,264 square feet that commenced in February 2002 and expires in January 2012. The current annual base rent payable under the Kraft lease is approximately $1.3 million. Kraft, at its option, has the right to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. In addition, Kraft may terminate the lease (1) at the end of the third year by paying a $7.0 million termination fee, or (2) at the end of the seventh lease year by paying an approximately $1.8 million termination fee.
 
The PerkinElmer lease is a net lease that covers approximately 13,955 rentable square feet that commenced in December 2001 and expires in November 2016. The current annual base rent payable under the PerkinElmer lease is approximately $0.2 million. PerkinElmer, at its option, has the right to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. In addition, PerkinElmer may terminate the lease at the end of the tenth lease year by paying a $0.3 million termination fee.
 
The Nokia Dallas Buildings
 
On August 15, 2002, Wells OP purchased the Nokia Dallas Buildings, three adjacent office buildings containing an aggregate of 604,234 rentable square feet located in Irving, Texas for an aggregate purchase price of approximately $119.6 million, excluding closing costs. The Nokia Dallas Buildings are all leased entirely to Nokia, Inc (“Nokia”) under three long-term net leases for periods of 10 years, with approximately seven to eight years remaining on such leases.
 
The Nokia I Building is a nine-story building containing 228,678 rentable square feet. The Nokia I Building lease fully commenced in July 1999 and expires in July 2009. The current annual base rent payable under the Nokia I Building lease is approximately $4.4 million. The Nokia II Building is a seven-story building containing 223,470 rentable square feet. The Nokia II Building lease commenced in December 2000 and expires in December 2010. The current annual base rent payable under the Nokia II Building lease is approximately $4.5 million. The Nokia III Building is a six-story building containing 152,086 rentable square feet. The Nokia III Building lease commenced in June 1999 and expires in July 2009. The current annual base rent payable under the Nokia III Building lease is approximately $3.0 million.
 
The Harcourt Austin Building
 
On August 15, 2002, Wells OP purchased the Harcourt Austin Building, a seven-story office building containing 195,230 rentable square feet located in Austin, Texas for a purchase price of $39.0 million, excluding closing costs. The Harcourt Austin Building is leased entirely to Harcourt, Inc. (“Harcout”), a wholly owned subsidiary of Harcourt General, Inc., the guarantor of the Harcourt lease. The Harcourt lease commenced in July 2001 and expires in June 2016. The current annual base rent payable under the Harcourt lease is approximately $3.4 million.
 
The AmeriCredit Phoenix Property
 
On September 12, 2002, Wells OP purchased the AmeriCredit Phoenix Property, a 14.74-acre tract of land located in Chandler, Maricopa County, Arizona for a purchase price of approximately $2.6 million, excluding closing costs. Wells OP has entered into agreements to construct a three-story office building containing approximately 153,494 rentable square feet (the “AmeriCredit Phoenix Project”) on the AmeriCredit Phoenix Property. It is currently anticipated that the aggregate of all costs and expenses to be incurred by Wells OP with respect to the acquisition of the AmeriCredit Phoenix Project and the planning, design, development, construction and completion of the AmeriCredit Phoenix Project will total approximately $24.7 million.
 
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The entire 153,494 rentable square feet of the AmeriCredit Phoenix Project will be leased to AmeriCredit Financial Services, Inc. (“AmeriCredit”), a wholly owned subsidiary of AmeriCredit Corporation. The initial term of the AmeriCredit lease will extend 10 years and 4 month beyond the rent commencement date. Construction on the building is scheduled to be completed by August 2003. AmeriCredit has the right to extend the initial term of this lease for two additional periods of five years at 95% of the then-market rate. As an inducement for Wells OP to enter into the AmeriCredit Phoenix lease, AmeriCredit has prepaid to Wells OP the first three years of base rent at a discounted amount equal to approximately $4.8 million.
 
The IRS Long Island Buildings
 
On September 16, 2002, Wells REIT-Holtsville, NY, LLC (“REIT-Holtsville”), a Georgia limited liability company wholly-owned by Wells OP purchased the IRS Long Island Buildings, a two-story office building and a one-story daycare facility containing an aggregate 259,700 rentable square feet located in Holtsville, New York for a purchase price of approximately $51.0 million, excluding closing costs. Approximately 191,050 of the aggregate rentable square feet of the IRS Long Island Buildings (74%) is currently leased to the United States of America through the U.S. General Services Administration (“U.S.A.”) for occupancy by the IRS under three separate lease agreements for the processing & collection division of the IRS (“IRS Collection”), the compliance division of the IRS (“IRS Compliance”), and the IRS Daycare Facility. REIT-Holtsville is negotiating for the remaining 26% of the IRS Long Island Buildings to be leased by the U.S.A. on behalf of the IRS or to another suitable tenant. If REIT-Holtsville should lease this space to the U.S.A. or another suitable tenant within 18 months, REIT-Holtsville would owe the seller an additional amount of up to $14.5 million as additional purchase price for the IRS Long Island Buildings pursuant to the terms of an earnout agreement entered into between REIT-Holtsville and the seller at the closing.
 
The IRS Collection lease, which encompasses 128,000 rentable square feet of the IRS Office Building, commenced in August 2000 and expires in August 2005. The current annual base rent payable under the IRS Collection lease is approximately $5.0 million. The annual base rent payable under the IRS Collection lease for the remaining two years of the initial lease term will be approximately $2.8 million. The U.S.A., at its option, has the right to extend the initial term of its lease for two additional five-year periods at annual rental rates of approximately $4.2 million and $5.0 million, respectively.
 
The IRS Compliance lease, which encompasses 50,949 rentable square feet of the IRS Office Building, commenced in December 2001 and expires in December 2011. The annual base rent payable under the IRS Compliance lease for the initial term of the lease is approximately $1.7 million. The U.S.A., at its option, has the right to extend the initial term of its lease for one additional ten-year period at an annual rental rate of approximately $2.2 million.
 
The IRS Daycare Facility lease, which encompasses the entire 12,100 rentable square feet of the IRS Daycare Facility, commenced in October 1999 and expires in September 2004. The annual base rent payable under the IRS Daycare Facility lease for the initial term of the lease is approximately $0.5 million. The U.S.A., at its option, has the right to extend the initial term of its lease for two additional five-year periods at an annual rental rate of approximately $0.4 million.
 
The KeyBank Parsippany Building
 
On September 27, 2002, Wells OP purchased the KeyBank Parsippany Building, a four-story office building containing 404,515 rentable square feet located in Parsippany, New Jersey for a purchase price of approximately $101.4 million, excluding closing costs. The KeyBank Parsippany Building is leased to Key Bank U.S.A., N.A. (“KeyBank”) and Gemini Technology Services (“Gemini”).

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The KeyBank lease covers 200,000 rentable square feet (49%) under a net lease that commenced in March 2001 and expires in February 2016. The current annual base rent payable under the KeyBank lease is $3.8 million. KeyBank, at its option, has the right to extend the initial term of its lease for three additional five-year periods at the then-current market rental rate.
 
The Gemini lease covers 204,515 rentable square feet (51%) under a gross lease that commenced in December 2000 and expires in December 2013. The current annual base rent payable under the Gemini lease is approximately $5.7 million. Gemini, at its option, has the right to extend the initial term of its lease for three additional five-year periods at a rate equal to the greater of (1) the annual rent during the final year of the initial lease term, or (2) 95% of the then-current market rental rate.
 
The Federal Express Colorado Springs Building
 
On September 27, 2002, Wells OP purchased the Federal Express Colorado Springs Building, a three-story office building containing 155,808 rentable square feet located in Colorado Springs, Colorado for a purchase price of $26.0 million, excluding closing costs. The Federal Express Colorado Springs Building is leased entirely to Federal Express Corporation (“Federal Express”). The Federal Express lease commenced in July 2001 and expires in October 2016. The current annual base rent payable under the Federal Express lease is approximately $2.2 million. Federal Express, at its option, has the right to extend the initial term of its lease for four additional five-year periods at 90% of the then-current market rental rate. In addition, Federal Express has an expansion option under its lease pursuant to which Wells OP would be required to construct an additional office building.
 
The EDS Des Moines Building
 
On September 27, 2002, Wells OP purchased the EDS Des Moines Building, a one-story office and distribution building containing 115,000 rentable square feet of office space and 290,000 rentable square feet of warehouse space located in Des Moines, Iowa for a purchase price of $26.5 million, excluding closing costs. The EDS Des Moines Building is leased entirely to EDS Information Services L.L.C. (“EDS”), a wholly-owned subsidiary of Electronic Data Systems Corporation ( “ EDS Corp .” ). EDS Corp. is the guarantor of the EDS lease. The EDS lease commenced in May 2002 and expires in April 2012. The current annual base rent payable under the EDS lease is approximately $2.4 million. EDS, at its option, has the right to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. In addition, EDS has an expansion option under its lease for up to an additional 100,000 rentable square feet.
 
The Intuit Dallas Building
 
On September 27, 2002, Wells OP purchased the Intuit Dallas Building, a two-story office building with a three-story wing containing 166,238 rentable square feet located in Plano, Texas for a purchase price of $26.5 million, excluding closing costs. The Intuit Dallas Building is leased entirely to Lacerte Software Corporation (“Lacerte”), a wholly-owned subsidiary of Intuit, Inc. (“Intuit”). Intuit is the guarantor of the Lacerte lease. The Lacerte lease commenced in July 2001 and expires in June 2011. The current annual base rent payable under the Lacerte lease is approximately $2.5 million. Lacerte, at its option, has the right to extend the initial term of its lease for two additional five-year periods at rental rates of $17.92 per square foot and $19.71 per square foot, respectively. In addition, Lacerte has an expansion option through November 2004 pursuant to which Wells OP would be required to purchase an additional 19 acre tract of land and to construct up to an approximately 600,000 rentable square foot building thereon.
 
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The Allstate Indianapolis Building
 
On September 27, 2002, Wells OP purchased the Allstate Indianapolis Building, a one-story office building containing 89,956 rentable square feet located in Indianapolis, Indiana for a purchase price of $10.9 million, excluding closing costs. The Allstate Indianapolis Building is leased to Allstate Insurance Company (“Allstate”) and Holladay Property Services Midwest, Inc. (“Holladay”).
 
The Allstate lease, which covers 84,200 rentable square feet (94%), commenced in March 2002 and expires in August 2012. The current annual base rent payable under the Allstate lease is approximately $1.2 million. Allstate at its option has the right to (1) terminate the initial term of the Allstate lease at the end of the fifth lease year (August 2007) upon payment of an approximately $0.4 million fee, or (2) reduce its area of occupancy to not less than 20,256 rentable square feet, by providing written notice on or before August 2006. Allstate, at its option, has the right to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. In addition, Allstate has a right of first refusal for the leasing of additional space in the Allstate Indianapolis Building.
 
Holladay is a property management company that manages the Allstate Indianapolis Building from the site. The Holladay lease, which covers 5,756 rentable square feet (6%), commenced in October 2001 and expires in September 2006. The current annual base rent payable under the Holladay lease is approximately $.07 million.
 
The Daimler Chrysler Dallas Building
 
On September 30, 2002, Wells OP purchased the Daimler Chrysler Dallas Building, a two-story office building containing 130,290 rentable square feet located in Westlake, Texas for a purchase price of $25.1 million, excluding closing costs. The Daimler Chrysler Dallas Building is leased entirely to Daimler Chrysler Services North America LLC (“Daimler Chrysler NA”). The Daimler Chrysler NA lease commenced in January 2002 and expires in December 2011. The current annual base rent payable under the Daimler Chrysler NA lease is approximately $3.2 million. Daimler Chrysler NA, at its option, has the right to extend the initial term of its lease for three additional five-year periods at 98% of the then-current market rental rate. In addition, Daimler Chrysler NA has an expansion option for up to an additional 70,000 rentable square feet and a right of first offer if Wells OP desires to sell the Daimler Chrysler Dallas Building during the term of the lease.
 
4. NOTE RECEIVABLE
 
In connection with the purchase of the TRW Denver Building on May 29, 2002, Wells OP acquired a note receivable from the building’s sole tenant, TRW, Inc., in the amount of $5.2 million. The loan was made to fund above-standard tenant improvement costs to the building. The note receivable is structured to be fully amortized over the remaining lease term, which expires September 2007, at 11% interest with TRW making monthly loan payments of $.1 million. At September 30, 2002, the principal balance of this note receivable was $5.0 million.
 
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5. NOTES PAYABLE
 
At September 30, 2002, Wells OP had the following debt:
 
Lender

	 	Collateral

	 	Type of Debt

	 	Maturity Date

	 	Balance
Outstanding
(in millions)

	
SouthTrust	 	The Alstom Power Richmond Building	 	$7.9 million line of credit, interest at 30 day LIBOR plus 175 basis points	 	December 10, 2002	 	$7.7	
 	 	 	 	 	
SouthTrust	 	The PwC Building	 	$12.8 million line of credit, interest at 30 day LIBOR plus 175 basis points	 	December 10, 2002	 	2.1	
 	 	 	 	 	
SouthTrust	 	The Avnet Building and the Motorola Tempe Building	 	$19.0 million line of credit, interest at 30 day LIBOR plus 175 basis points	 	December 10, 2002	 	0	
 	 	 	 	 	
SouthTrust	 	The Cinemark Building, the Dial Building and the ASML Building	 	$32.4 million line of credit, interest at 30 day LIBOR plus 175 basis points	 	December 10, 2002	 	0	
 	 	 	 	 	
Bank of America	 	The Nissan Property	 	$34.2 million construction loan, interest at LIBOR plus 200 basis points	 	July 30, 2003	 	13.3	
 	 	 	 	 	
Bank of America	 	The Kerr McGee Property	 	$13.7 million construction loan, interest at LIBOR plus 200 basis points	 	January 29, 2004	 	1.0	
 	 	 	 	 	
Bank of America	 	The Videojet Technologies Chicago Building, the AT&T Pennsylvania Building, the Matsushita Building, the Metris Tulsa Building, the Motorola Plainfield Building and the Delphi Building	 	$85 million line of credit, interest at 30 day LIBOR plus 180 basis points	 	May 11, 2004	 	0	
 	 	 	 	 	
Prudential	 	The BMG Buildings	 	$8.8 million note payable, interest at 8%, principal and interest payable monthly	 	December 15, 2003	 	8.8	
 	 	 	 	 	
Prudential	 	The BMG Buildings	 	$2.9 million note payable, interest at 8.5%, interest payable monthly, principal payable upon maturity	 	December 15, 2003	 	2.9	

	
Total	 	 	 	 	 	 	 	$35.8	

	
 
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6. INTEREST RATE SWAPS
 
Wells OP has entered into interest rate swap agreements with Bank of America in order to hedge its interest rate exposure on the Bank of America construction loans for the Nissan Property (the Nissan Loan) and the Kerr McGee Property (the Kerr McGee Loan). The interest rate swap agreements involve the exchange of amounts based on a fixed interest rate for amounts based on a variable interest rate over the life of the loan agreement without an exchange of the notional amount upon which the payments are based. The notional amount of both interest rate swaps is the balance outstanding on the construction loan on the payment date.
 
The interest rate swap for the Nissan Loan became effective January 15, 2002 and terminates on June 15, 2003. Wells OP, as the fixed rate payer, has an interest rate of 3.9%. Bank of America, the variable rate payer, pays at a rate equal to U.S. dollar LIBOR on the payment date. The result is an effective interest rate of 5.9% on the Nissan Loan.
 
The interest rate swap for the Kerr McGee Loan became effective September 15, 2002 and terminates on July 15, 2003. Wells OP as fixed rate payer has an interest rate of 2.27%. Bank of America, the variable rate payer, pays at a rate equal to U.S. dollar LIBOR on the payment date. The result is an effective interest rate of 4.27% on the Kerr McGee Loan.
 
During the nine months ended September 30, 2002, Wells OP made interest payments totaling approximately $45,221 under the terms of the interest rate swap agreements. At September 30, 2002, the estimated fair value of the interest rate swap for the Nissan Loan and the Kerr McGee Loan was $(384,855) and $(30,180), respectively. The interest rate swaps are accounted for by mark-to-market accounting on a monthly basis and are included in prepaid and other assets on the accompanying consolidated balance sheet.
 
On January 1, 2001, the Company adopted SFAS No. 133, as amended by SFAS No. 137 and No. 138 Accounting for Derivative Instruments and Hedging Activities. The effect of adopting the SFAS No. 133 did not have a material effect on the Company’s consolidated financial statements.
 
7. INVESTMENT IN BONDS AND OBLIGATIONS UNDER CAPITAL LEASES
 
In connection with the purchase of a ground leasehold interest in the Ingram Micro Distribution Facility pursuant to a Bond Real Property Lease dated December 20, 1995 (the Bond Lease), Wells OP acquired an Industrial Development Revenue Note (the Bond) dated December 20, 1995 in the principal amount of $22 million. As part of the same transaction, Wells OP also acquired a Fee Construction Mortgage Deed of Trust Assignment of Rents and Leases (the Bond Deed of Trust), also dated December 20, 1995, which was executed by the Industrial Development Board in order to secure the Bond. Beginning in 2006, the holder of the Bond Lease has the option to purchase the land underlying the Ingram Micro Distribution Facility for $100 plus satisfaction of the indebtedness evidenced by the Bond. Because Wells OP is technically subject to the obligation to pay the $22 million indebtedness evidenced by the Bond, the obligation to pay the Bond is carried on the Company’s books as a liability. However, since Wells OP is also the owner of the Bond, the Bond is also carried on the Company’s books as an asset.
 
As part of the transaction to acquire a ground leasehold interest in the ISS Atlanta Buildings, Wells OP was assigned Development Authority of Fulton County Taxable Revenue Bonds totaling $32.5 million, which were originally issued in connection with the development of the ISS Atlanta Buildings (the Bonds). The Bonds entitle Wells OP to certain property tax abatement benefits. Upon payment of the outstanding balance on the Bonds, on or before the expiration of the ground lease on December 1, 2015, fee title interest to the underlying land will be transferred to Wells OP. Because Wells OP is technically subject to the obligation to pay the $32.5 million indebtedness evidenced by the Bond, the
 
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obligation to pay the Bonds is carried on the Company’s books as a liability. However, since Wells OP is also the owner of the Bonds, the Bonds are also carried on the Company’s books as an asset.
 
8. Due to affiliates
 
Due to affiliates consists of amounts due to the Advisor for acquisitions and advisory fees and acquisition expenses, deferred offering costs, and other operating expenses paid on behalf of the Company. Also included in due to affiliates is the amount due to the Fund VIII-IX Joint Venture related to the Matsushita lease guarantee, which is explained in greater detail in the financial statements and footnotes included in the Company’s Form 10-K for the year ended December 31, 2001. Payments of $.6 million have been made as of September 30, 2002 toward funding the obligation under the Matsushita agreement.
 
9. COMMITMENTS AND CONTINGENCIES
 
Take Out Purchase and Escrow Agreement
 
An affiliate of the Advisor (“Wells Exchange”) has developed a program (the “Wells Section 1031 Program”) involving the acquisition by Wells Exchange of income-producing commercial properties and the formation of a series of single member limited liability companies for the purpose of facilitating the resale of co-tenancy interests in such real estate properties to be owned in co-tenancy arrangements with persons (“1031 Participants”) who are looking to invest the proceeds from a sale of real estate held for investment in another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Code. Each of these properties will be financed by a combination of permanent first mortgage financing and interim loan financing obtained from institutional lenders.
 
Following the acquisition of each property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to pay off the interim financing. In consideration for the payment of a take out fee to the Company, and following approval of the potential property acquisition by the Company’s Board of Directors, it is anticipated that Wells OP will enter into a contractual relationship providing that, in the event that Wells Exchange is unable to sell all of the co-tenancy interests in that particular property to 1031 Participants, Wells OP will purchase, at Wells Exchange’s cost, any co-tenancy interests remaining unsold at the end of the offering period. As a part of the initial transaction in the Wells Section 1031 Program, Wells OP entered into a take out purchase and escrow agreement dated April 16, 2001 providing, among other things, that Wells OP would be obligated to acquire, at Wells Exchange’s cost, any unsold co-tenancy interests in the building known as the Ford Motor Credit Complex which remained unsold at the expiration of the offering of Wells Exchange, which was extended to April 15, 2002. Wells OP was compensated for its takeout commitment in the amount of $.1 million in each of 2001 and 2002 by payment of a take out fee to Wells OP in an amount equal to 1.25% of its maximum financial obligation under the Ford Motor Credit take out purchase and escrow agreement. On April 12, 2002, Wells Exchange paid off the interim financing on the Ford Motor Credit Complex. This pay off of the loan triggered the release of Wells OP from its prior obligations under the take out purchase and escrow agreement relating to such property.
 
Letters of Credit
 
At September 30, 2002, Wells OP had three letters of credit totaling $19.2 million outstanding from financial institutions, which were not recorded in the accompanying consolidated balance sheet. These letters of credit were required by three of the Company’s tenants to ensure completion of the Company’s contractual obligations. The Company’s management does not anticipate a need to draw on these letters of credit.
 
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Properties under Contract
 
At September 30, 2002, the Company had three executed contracts for the acquisition of properties totaling $82.0 million. Escrows of $1.3 million have been paid out for these properties and are included in prepaid and other assets on the accompanying consolidated balance sheet.
 
10. SUBSEQUENT EVENTS
 
Issuance of Common Stock
 
From October 1, 2002 through October 25, 2002, the Company has raised approximately $91.5 million through the issuance of 9.1 million shares of common stock in the Company.
 
Termination Agreement
 
Effective October 31, 2002, Arthur Andersen LLP (Andersen) and Wells OP entered into a termination agreement with respect to the lease for the three-story office building containing 157,700 rentable square feet located in Sarasota, Florida known as the Arthur Andersen Building. In consideration for releasing Andersen from its obligation to pay rent under the lease, Andersen paid Wells OP a termination fee of $979,760 and conveyed to Wells OP an approximately 1.3 acre tract of land adjacent to the property which was used for parking.
 
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Report of Independent Auditors
 
Shareholders and Board of Directors
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying statement of revenues over certain operating expenses of the NASA Buildings for the year ended December 31, 2001. This statement is the responsibility of the NASA Buildings’ management. Our responsibility is to express an opinion on this statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
 
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of the NASA Buildings’ revenues and expenses.
 
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the NASA Buildings for the year ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.
 
Ernst & Young LLP
 
Atlanta, Georgia
November 26, 2002
 
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NASA Buildings
 
Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2001 and the nine months ended September 30, 2002
 
 	  	2002

	  	2001

	
 	  	(Unaudited)	  	 	
Revenues:	  	 	 	  	 	 	
Base rent	  	$	25,179,213	  	$	33,637,808	
Tenant reimbursements	  	 	1,703,365	  	 	2,586,032	

	

	  	

	

	
Total revenues	  	 	26,882,578	  	 	36,223,840	
Operating expenses	  	 	7,761,014	  	 	10,200,082	

	

	  	

	

	
Revenues over certain operating expenses	  	$	19,121,564	  	$	26,023,758	

	

	  	

	

	
 
See accompanying notes.
 
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NASA Buildings
 
Notes to Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2001 and the nine months ended September 30, 2002
 
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Description of Real Estate Property Acquired
 
On November 22, 2002, Wells REIT-Independence Square, LLC (“the Company”) acquired the NASA Buildings from Southwest Market Limited Partnership (“Southwest Market”). The Company, a Georgia limited liability company, was created on November 22, 2002 by Wells Real Estate Investment Trust, Inc., a Maryland corporation, the sole member of the Company.
 
The two nine-story buildings contain 948,813 square feet of net rentable area and are leased to six tenants, including the National Aeronautics and Space Administration (“NASA”) and The Office of the Comptroller of the Currency (“OCC”), which occupy a total of 932,209 square feet. The remaining square footage is leased to several retail tenants under lease agreements that expire over the next eight years. NASA occupies 590,689 square feet under a gross lease (“NASA Lease”) that commenced in July 1992 and expires in July 2012. OCC occupies 341,520 square feet under a lease (“OCC Lease”) that commenced in May 1991 and expires in May 2006. Southwest Market’s interests in the NASA Lease, the OCC Lease and other retail lease agreements were assigned to the Company upon the acquisition of the NASA Buildings.
 
Under the NASA Lease, the tenant is required to pay, as adjusted rent, its share of increases in real estate taxes and changes in costs from the first lease year for cleaning services, supplies, materials, maintenance, trash removal, landscaping, sewer charges and certain administrative expenses attributable to occupancy. The amount of the adjustment will be computed using the Cost of Living Index. Under the OCC Lease, the tenant is required to pay, as additional rent, its share of increases in real estate taxes and changes in costs from the first lease year for, including but not limited to, cleaning services, electricity, heating, water, air conditioning and landscaping. The Company will be responsible for maintaining and repairing the NASA Buildings’ roof, foundations, common areas, electrical systems and mechanical systems.
 
Rental Revenues
 
Rental income is recognized on a straight-line basis over the terms of the leases.
 
2. BASIS OF ACCOUNTING
 
The accompanying statements of revenues over certain operating expenses are presented in conformity with accounting principles generally accepted in the United States and in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired. Accordingly, these statements exclude certain historical expenses that are not comparable to the proposed future operations of the property such as depreciation and interest. Therefore, these statements are not comparable to the statement of operations of the NASA Buildings after their acquisition by the Company.
 
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NASA Buildings
 
Notes to Statements of Revenues Over Certain Operating Expenses
(continued)
 
3. FUTURE MINIMUM RENTAL COMMITMENTS
 
Future minimum rental commitments for the years ended December 31 are as follows:
 	  	 	 	
2002	  	$	32,856,309	
2003	  	 	32,875,773	
2004	  	 	32,987,740	
2005	  	 	33,104,624	
2006	  	 	26,008,009	
Thereafter	  	 	117,928,136	

	

	
 	  	$	275,760,591	

	

	
 
4. INTERIM UNAUDITED FINANCIAL INFORMATION
 
The statement of revenues over certain operating expenses for the nine months ended September 30, 2002 is unaudited, however, in the opinion of management, all adjustments (consisting solely of normal, recurring adjustments) necessary for the fair presentation of the statement for the interim period have been included. The results of the interim period are not necessarily indicative of the results to be obtained for a full fiscal year.
 
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Report of Independent Auditors
 
Shareholders and Board of Directors
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying statement of revenues over certain operating expenses of the Caterpillar Nashville Building for the year ended December 31, 2001. This statement is the responsibility of the Caterpillar Nashville Building’s management. Our responsibility is to express an opinion on this statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
 
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of the Caterpillar Nashville Building’s revenues and expenses.
 
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the Caterpillar Nashville Building for the year ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.
 
Ernst & Young LLP            
 
Atlanta, Georgia
November 26, 2002
 
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Caterpillar Nashville Building
 
Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2001 and the nine months ended September 30, 2002
 
 	  	2002

	  	2001

	
 	  	(Unaudited)	  	 	
Revenues:	  	 	 	  	 	 	
Base rent	  	$	5,922,277	  	$	7,896,370	
Tenant reimbursements	  	 	357,722	  	 	379,662	

	

	  	

	

	
Total revenues	  	 	6,279,999	  	 	8,276,032	
 	 	 	
Operating expenses	  	 	1,910,316	  	 	2,565,309	

	

	  	

	

	
Revenues over certain operating expenses	  	$	4,369,683	  	$	5,710,723	

	

	  	

	

	
 
See accompanying notes.	  	 	 	  	 	 	

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Caterpillar Nashville Building
 
Notes to Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2001 and the nine months ended September 30, 2002
 
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Description of Real Estate Property Acquired
 
On November 26, 2002, the Wells Operating Partnership, L.P. (“Wells OP”) acquired the Caterpillar Nashville Building from Highwoods/Tennessee Holdings, LP. (“Highwoods/Tennessee”). Wells OP is a Delaware limited partnership formed to acquire, own, lease, operate, and manage real properties on behalf of Wells Real Estate Investment Trust, Inc., a Maryland corporation. As the sole general partner of Wells OP, Wells Real Estate Investment Trust, Inc. possesses full legal control and authority over the operations of Wells OP.
 
The 312,297 square foot 11-story Caterpillar Nashville Building is 100% leased to three tenants, Caterpillar Financial Services Corporation (“Caterpillar”), Thoughtworks, LLC (“Thoughtworks”) and Highwoods Properties, Inc. (“Highwoods”). Caterpillar currently occupies 300,901 square feet under a gross lease (“Caterpillar Lease”) that commenced in March 2000 and expires in February 2015. Thoughtworks currently occupies 6,400 square feet under a gross lease (“Thoughtworks Lease”) that commenced in May 2000 and expires in May 2005. Highwoods currently occupies 4,996 square feet under a gross lease (“Highwoods Lease”) that commenced in October 2000 and expires in September 2005. Highwoods/Tennessee’s interests in the Caterpillar Lease, Thoughtworks Lease and Highwoods Lease were assigned to Wells OP upon acquisition of the Caterpillar Nashville Building.
 
Under the Caterpillar Lease, the Thoughtworks Lease and the Highwoods Lease, the tenants are required to pay, as additional rent, all operating costs in excess of a $6.50 per square foot expense stop. Under the Caterpillar Lease, Caterpillar’s responsibility for increases in expenses other than insurance, taxes and utilities is capped at 4.5% annually. Furthermore, Caterpillar will reimburse the landlord a management fee equal to 4% of gross rental receipts. Wells OP will be responsible for the maintenance and repair of the structural elements of the building and the capital repairs and replacement of the roof.
 
Rental Revenues
 
Rental income is recognized on a straight-line basis over the terms of the leases.
 
2. BASIS OF ACCOUNTING
 
The accompanying statements of revenues over certain operating expenses are presented in conformity with accounting principles generally accepted in the United States and in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired. Accordingly, these statements exclude certain historical expenses that are not comparable to the proposed future operations of the property such as depreciation and interest. Therefore, these statements are not comparable to the statement of operations of the Caterpillar Nashville Building after its acquisition by Wells OP.
 
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Caterpillar Nashville Building
 
Notes to Statements of Revenues Over Certain Operating Expenses
(continued)
 
3. FUTURE MINIMUM RENTAL COMMITMENTS
 
Future minimum rental commitments for the years ended December 31 are as follows:
 	  	 	 	
2002	  	$	7,673,511	
2003	  	 	7,680,935	
2004	  	 	7,688,516	
2005	  	 	7,808,282	
2006	  	 	7,685,012	
Thereafter	  	 	64,265,433	

	

	
 	  	$	102,801,689	

	

	
 
4. INTERIM UNAUDITED FINANCIAL INFORMATION
 
The statement of revenues over certain operating expenses for the nine months ended September 30, 2002 is unaudited, however, in the opinion of management, all adjustments (consisting solely of normal, recurring adjustments) necessary for the fair presentation of the statement for the interim period have been included. The results of the interim period are not necessarily indicative of the results to be obtained for a full fiscal year.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
SUMMARY OF UNAUDITED PRO FORMA FINANCIAL STATEMENTS
 
This pro forma information should be read in conjunction with the financial statements and notes of Wells Real Estate Investment Trust, Inc., a Maryland corporation (the “Wells REIT”), included in its annual report on Form 10-K for the year ended December 31, 2001 and quarterly report on Form 10-Q for the period ended September 30, 2002. In addition, this pro forma information should be read in conjunction with the financial statements and notes of certain acquired properties included in various Form 8-Ks previously filed.
 
The following unaudited pro forma balance sheet as of September 30, 2002 has been prepared to give effect to the fourth quarter 2002 acquisitions of the NASA Buildings by the Wells REIT and the Caterpillar Nashville Building and the Capital One Richmond Buildings by Wells OP (collectively, the “Recent Acquisitions”) as if the acquisitions occurred on September 30, 2002.
 
The following unaudited pro forma statement of income for the nine months ended September 30, 2002 has been prepared to give effect to the first, second and third quarter 2002 acquisitions of the Vertex Sarasota Building (formerly the Arthur Andersen Building), the Transocean Houston Building, the Novartis Atlanta Building, the Dana Corporation Buildings, the Travelers Express Denver Buildings, the Agilent Atlanta Building, the BellSouth Ft. Lauderdale Building, the Experian/TRW Buildings, the Agilent Boston Building, the TRW Denver Building, the MFS Phoenix Building, the ISS Atlanta Buildings, the PacifiCare San Antonio Building, the BMG Greenville Buildings, the Kraft Atlanta Building, the Nokia Dallas Buildings, the IRS Long Island Buildings, the KeyBank Parsippany Building, the Allstate Indianapolis Building, the Federal Express Colorado Springs Building, the EDS Des Moines Building, the Intuit Dallas Building, the Daimler Chrysler Dallas Building (collectively, the “2002 Acquisitions”) and the Recent Acquisitions as if the acquisitions occurred on January 1, 2001. The Kerr McGee Property and the AmeriCredit Phoenix Property had no operations during the nine months ended September 30, 2002.
 
The following unaudited pro forma statement of income for the year ended December 31, 2001 has been prepared to give effect to the 2001 acquisitions of the Comdata Building, the AmeriCredit Building, the State Street Bank Building, the IKON Buildings, the Ingram Micro Building, the Lucent Building, the ADIC Buildings, the Convergys Building, the Windy Point Buildings (collectively, the “2001 Acquisitions”), the 2002 Acquisitions and the Recent Acquisitions as if the acquisitions occurred on January 1, 2001. The Nissan Property, the Travelers Express Denver Buildings, the Kerr McGee Property, the AmeriCredit Phoenix Property and the EDS Des Moines Building had no operations during 2001.
 
Wells OP is a Delaware limited partnership that was organized to own and operate properties on behalf of the Wells REIT. As the sole general partner of Wells OP, the Wells REIT possesses full legal control and authority over the operations of Wells OP. Accordingly, the accounts of Wells OP are consolidated with the accompanying pro forma financial statements of Wells REIT.
 
These unaudited pro forma financial statements are prepared for informational purposes only and are not necessarily indicative of future results or of actual results that would have been achieved had the acquisitions of the 2001 Acquisitions, 2002 Acquisitions and the Recent Acquisitions been consummated as of January 1, 2001.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA BALANCE SHEET
 
September 30, 2002
 
(Unaudited)
 
ASSETS
 
 	 	Wells Real
Estate
Investment
Trust, Inc. (f)

	 	Pro Forma Adjustments

	 	 	 	 	
 	 	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	 	 	 	Other

	 	 	NASA

	 	 	Caterpillar
Nashville

	 	 	Capital
One
Richmond

	 	 	Pro Forma
Total

	 	 	 	 	
REAL ESTATE ASSETS, at cost:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Land	 	$	164,190,412	 	$	0	 	 	$	34,500,000	(c)	 	$	4,900,000	(c)	 	$	2,855,000	(c)	 	$	207,520,392	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	1,067,468	(d)	 	 	7,512	(d)	 	 	0	 	 	 	 	 	 	 	 	
Buildings, less accumulated depreciation of $47,999,655	 	 	1,171,793,037	 	 	0	 	 	 	314,665,776	(c)	 	 	56,861,000	(c)	 	 	25,779,345	(c)	 	 	1,578,922,438	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	820,631	(d)	 	 	87,172	(e)	 	 	0	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	8,915,477	(e)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Construction in progress	 	 	28,500,195	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	28,500,195	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
Total real estate assets	 	 	1,364,483,644	 	 	0	 	 	 	359,969,352	 	 	 	61,855,684	 	 	 	28,634,345	 	 	 	1,814,943,025	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
CASH AND CASH EQUIVALENTS	 	 	143,911,852	 	 	206,602,229	(a)	 	 	(264,165,776	)(c)	 	 	(2,312,755	)(c)	 	 	0	 	 	 	76,804,472	 	 	 	 	
 	 	 	 	 	 	(7,231,078	)(b)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INVESTMENT IN JOINT VENTURES	 	 	75,388,348	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	75,388,348	 	 	 	 	
INVESTMENT IN BONDS	 	 	54,500,000	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	54,500,000	 	 	 	 	
ACCOUNTS RECEIVABLE	 	 	12,018,601	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	12,018,601	 	 	 	 	
DEFERRED LEASE ACQUISITION COSTS, NET	 	 	1,712,541	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,712,541	 	 	 	 	
DEFERRED PROJECT COSTS	 	 	5,963,370	 	 	7,231,078	(b)	 	 	(10,803,576	)(d)	 	 	(94,684	) (d)	 	 	0	 	 	 	2,296,188	 	 	 	 	
DEFERRED OFFERING COSTS	 	 	3,537,361	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	3,537,361	 	 	 	 	
DUE FROM AFFILIATES	 	 	2,185,436	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,185,436	 	 	 	 	
NOTE RECEIVABLE	 	 	4,965,838	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	4,965,838	 	 	 	 	
PREPAID EXPENSES AND OTHER ASSETS, NET	 	 	2,597,110	 	 	0	 	 	 	0	 	 	 	0	 	 	 	37,764	(c)	 	 	2,634,874	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
Total assets	 	$	1,671,264,101	 	$	206,602,229	 	 	$	85,000,000	 	 	$	59,448,245	 	 	$	28,672,109	 	 	$	2,050,986,684	 	 	 	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	

43

Table of Contents
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 	 	Wells Real
Estate
Investment
Trust, Inc. (f)

	 	 	Pro Forma Adjustments

	 	 	 	 	 	
 	 	 	 	 	Recent Acquisitions

	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	Caterpillar
Nashville

	 	 	Capital One
Richmond

	 	 	Pro Forma
Total

	 	 	 	 	 	 	 	 	
 	 	 	 	 	Other

	 	 	NASA

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
LIABILITIES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts payable and accrued expenses	 	$	17,538,820	 	 	$	0	 	 	$	0	 	 	$	881,644	(c)	 	$	0	 	 	$	18,420,464	 	 	 	 	 	 	 	 	 	 	
Notes payable	 	 	35,829,293	 	 	 	0	 	 	 	85,000,000	(c)	 	 	58,566,601	(c)	 	 	28,672,109	(c)	 	 	208,068,003	 	 	 	 	 	 	 	 	 	 	
Obligations under capital lease	 	 	54,500,000	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	54,500,000	 	 	 	 	 	 	 	 	 	 	
Dividends payable	 	 	10,209,306	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	10,209,306	 	 	 	 	 	 	 	 	 	 	
Due to affiliates	 	 	4,379,745	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	4,379,745	 	 	 	 	 	 	 	 	 	 	
Deferred rental income	 	 	7,893,930	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	7,893,930	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
Total liabilities	 	 	130,351,094	 	 	 	0	 	 	 	85,000,000	 	 	 	59,448,245	 	 	 	28,672,109	 	 	 	303,471,448	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
COMMITMENTS AND CONTINGENCIES	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	 	 	200,000	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	200,000	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
SHAREHOLDERS’ EQUITY:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Common shares, $.01 par value; 750,000,000 shares authorized, 182,608,517 shares issued and 180,891,792 outstanding at September 30, 2002	 	 	1,826,086	 	 	 	206,602	(a)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,032,688	 	 	 	 	 	 	 	 	 	 	
Additional paid-in capital	 	 	1,621,376,451	 	 	 	206,395,627	(a)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,827,772,078	 	 	 	 	 	 	 	 	 	 	
Cumulative distributions in excess of earnings	 	 	(64,907,241	)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	(64,907,241	)	 	 	 	 	 	 	 	 	 	
Treasury stock, at cost, 1,716,725 shares	 	 	(17,167,254	)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	(17,167,254	)	 	 	 	 	 	 	 	 	 	
Other comprehensive loss	 	 	(415,035	)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	(415,035	)	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
Total shareholders’ equity	 	 	1,540,713,007	 	 	 	206,602,229	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,747,315,236	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
Total liabilities and shareholders’ equity	 	$	1,671,264,101	 	 	$	206,602,229	 	 	$	85,000,000	 	 	$	59,448,245	 	 	$	28,672,109	 	 	$	2,050,986,684	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
 
(a)	 	Reflects capital raised through issuance of additional shares subsequent to September 30, 2002 through Capital One Richmond acquisition date.	
 
(b)	 	Reflects deferred project costs capitalized as a result of additional capital raised described in note (a) above.	
 
(c)	 	Reflects Wells Real Estate Investment Trust, Inc.’s purchase price for the land, building and liabilities assumed.	
 
(d)	 	Reflects deferred project costs applied to the land and building at approximately 4.07% of the cash paid for purchase.	
 
(e)	 	Reflects deferred project costs applied to the land and building at approximately 4.094% of the cash paid for purchase.	
 
(f)	 	Historical financial information derived from quarterly report on Form 10-Q.	

The accompanying notes are an integral part of this statement.

44

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
for the year ended December 31, 2001
 
(Unaudited)
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (g)

	  	Pro Forma Adjustments

	 	 	 	 	
 	  	 	  	 	 	 	 	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	2001
Acquisitions

	 	 	2002
Acquisitions

	 	 	NASA

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	  	 	 	 	 	 	 	 	 	 	Caterpillar
Nashville

	 	 	Capital One
Richmond

	 	 	Pro Forma
Total

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	44,204,279	  	$	11,349,076	(a)	 	$	54,615,521	(a)	 	$	34,603,317	(a)	 	$	7,970,097	(a)	 	$	2,744,112	(a)	 	$	155,486,402	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	3,720,959	  	 	1,111,850	(b)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	4,832,809	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income	  	 	1,246,064	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,246,064	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Take out fee	  	 	137,500	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	137,500	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	49,308,802	  	 	12,460,926	 	 	 	54,615,521	 	 	 	34,603,317	 	 	 	7,970,097	 	 	 	2,744,112	 	 	 	161,702,775	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	15,344,801	  	 	5,772,761	(c)	 	 	22,487,278	(c)	 	 	12,976,075	(c)	 	 	2,277,927	(c)	 	 	1,031,174	(c)	 	 	59,890,016	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest	  	 	3,411,210	  	 	0	 	 	 	0	 	 	 	4,664,800	(f)	 	 	3,214,135	(f)	 	 	1,573,525	(f)	 	 	12,863,670	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating costs, net of reimbursements	  	 	4,128,883	  	 	2,854,275	(d)	 	 	3,668,343	(d)	 	 	7,614,050	(d)	 	 	2,014,828	(d)	 	 	0	 	 	 	20,280,379	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Management and leasing fees	  	 	2,507,188	  	 	510,708	(e)	 	 	2,250,455	(e)	 	 	0	 	 	 	358,654	(e)	 	 	123,485	(e)	 	 	5,750,490	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General and administrative	  	 	973,785	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	973,785	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Amortization of deferred financing costs	  	 	770,192	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	770,192	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Legal and accounting	  	 	448,776	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	448,776	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	27,584,835	  	 	9,137,744	 	 	 	28,406,076	 	 	 	25,254,925	 	 	 	7,865,544	 	 	 	2,728,184	 	 	 	100,977,308	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NET INCOME	  	$	21,723,967	  	$	3,323,182	 	 	$	26,209,445	 	 	$	9,348,392	 	 	$	104,553	 	 	$	15,928	 	 	$	60,725,467	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	  	$	0.43	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.30	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	50,520,853	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	201,302,216	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 
(a)	 	Rental income is recognized on a straight-line basis.	
 
(b)	 	Reflects Wells Real Estate Investment Trust, Inc.’s equity in income of Wells XII-REIT Joint Venture related to the acquisition of the Comdata Building and equity in income of Wells XIII-REIT Joint Venture related to the acquisition of the AmeriCredit Building and the ADIC Buildings.	
 
(c)	 	Depreciation expense on the buildings is recognized using the straight-line method and a 25-year life.	
 
(d)	 	Consists of operating expenses, net of reimbursements.	
 
(e)	 	Management and leasing fees are calculated at 4.5% of rental income.	
 
(f)	 	Represents interest expense on lines of credit used to acquire the properties, which bear interest at approximately 5.488% for the year ended December 31, 2001.	
 
(g)	 	Historical financial information derived from annual report on Form 10-K.	
 
The accompanying notes are an integral part of this statement.
 
45

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
for the nine months ended September 30, 2002
 
(Unaudited)
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (f)

	  	Pro Forma Adjustments

	 	 	 	 	
 	  	 	  	 	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	2002
Acquisitions

	 	 	NASA

	 	 	Caterpillar
Nashville

	 	 	Capital One
Richmond

	 	 	Pro Forma
Total

	 	 	 	 	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	66,120,992	  	$	42,103,180	(a)	 	$	25,903,344	(a)	 	$	5,977,573	(a)	 	$	2,058,084	(a)	 	$	142,163,173	 	 	 	 	
Equity in income of joint ventures	  	 	3,738,045	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	3,738,045	 	 	 	 	
Interest income	  	 	4,547,040	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	4,547,040	 	 	 	 	
Take out fee	  	 	134,666	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	134,666	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
 	  	 	74,540,743	  	 	42,103,180	 	 	 	25,903,344	 	 	 	5,977,573	 	 	 	2,058,084	 	 	 	150,582,924	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	23,185,201	  	 	15,039,449	(b)	 	 	9,732,057	(b)	 	 	1,708,445	(b)	 	 	773,380	(b)	 	 	50,438,532	 	 	 	 	
Interest	  	 	1,478,333	  	 	0	 	 	 	2,620,763	(e)	 	 	1,805,755	(e)	 	 	884,033	(e)	 	 	6,788,884	 	 	 	 	
Operating costs, net of reimbursements	  	 	4,254,882	  	 	3,410,341	(c)	 	 	6,057,649	(c)	 	 	1,412,091	(c)	 	 	0	 	 	 	15,134,963	 	 	 	 	
Management and leasing fees	  	 	3,348,210	  	 	1,697,775	(d)	 	 	0	 	 	 	268,991	(d)	 	 	92,614	(d)	 	 	5,407,590	 	 	 	 	
General and administrative	  	 	1,866,042	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,866,042	 	 	 	 	
Amortization of deferred financing costs	  	 	586,822	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	586,822	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
 	  	 	34,719,490	  	 	20,147,565	 	 	 	18,410,469	 	 	 	5,195,282	 	 	 	1,750,027	 	 	 	80,222,833	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
NET INCOME	  	$	39,821,253	  	$	21,955,615	 	 	$	7,492,875	 	 	$	782,291	 	 	$	308,057	 	 	$	70,360,091	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	  	$	0.31	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.35	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	128,541,432	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	201,302,216	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	
 
(a)	 	Rental income is recognized on a straight-line basis.	
 
(b)	 	Depreciation expense on the buildings is recognized using the straight-line method and a 25-year life.	
 
(c)	 	Consists of operating expenses, net of reimbursements.	
 
(d)	 	Management and leasing fees are calculated at 4.5% of rental income.	
 
(e)	 	Represents interest expense on lines of credit used to acquire the properties, which bear interest at approximately 4.111% for the nine months ended September 30, 2002.	
 
(f)	 	Historical financial information derived from quarterly report on Form 10-Q.	
 
The accompanying notes are an integral part of this statement.
 
46

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 5 DATED JANUARY 15, 2003 TO THE PROSPECTUS
DATED JULY 26, 2002
 
This document supplements, and should be read in conjunction with, the prospectus of Wells Real Estate Investment Trust, Inc. dated July 26, 2002, as supplemented and amended by Supplement No. 1 dated August 14, 2002, Supplement No. 2 dated August 29, 2002, Supplement No. 3 dated October 25, 2002, and Supplement No. 4 dated December 10, 2002. When we refer to the “prospectus” in this supplement, we are also referring to any and all supplements to the prospectus. Unless otherwise defined in this supplement, capitalized terms used in this supplement shall have the same meanings as set forth in the prospectus.
 
The purpose of this supplement is to describe the following:
 
 	(1)	 	Status of the offering of shares in Wells Real Estate Investment Trust, Inc. (Wells REIT);	
 
 	(2)	 	Revisions to the “Description of Real Estate Investments” section of the prospectus to describe the following real property acquisitions;	
 
 	(A)	 	Acquisition of an interest in a four-story office building in Fishers, Indiana (John Wiley Indianapolis Building);	
 
 	(B)	 	Acquisition of a 20-story office building in Glendale, California (Nestle Building); and	
 
 	(C)	 	Acquisition of two three-story office buildings in Mayfield Heights, Ohio (East Point Buildings);	
 
 	(3)	 	The second transaction under the Section 1031 Exchange Program;	
 
 	(4)	 	Revisions to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the prospectus;	
 
 	(5)	 	Amended and restated unaudited financial statements of the Wells REIT for the period ended September 30, 2002 to incorporate changes resulting from a change in accounting presentation;	
 
 	(6)	 	Financial statements relating to the recently acquired Nestle Building; and	
 
 	(7)	 	Unaudited pro forma financial statements of the Wells REIT reflecting the acquisition of the Nestle Building and the East Point Buildings, and an interest in the John Wiley Indianapolis Building.	
 
Status of the Offering
 
We commenced our initial public offering of common stock on January 30, 1998. Our initial public offering was terminated on December 19, 1999. We received approximately $132,181,919 in gross offering proceeds from the sale of 13,218,192 shares in our initial public offering. We commenced our second offering of common stock on December 20, 1999. Our second public offering was terminated on December 19, 2000. We received approximately $175,229,193 in gross offering proceeds from the sale of 17,522,919 shares in our second public offering. We commenced our third public offering of common stock on December 20, 2000. Our third public offering was terminated on July 26, 2002. We received approximately $1,282,976,865 in gross offering proceeds from the sale of 128,297,687 shares in our third public offering.
 
Pursuant to the prospectus, we commenced our fourth public offering of common stock on July 26, 2002. As of January 15, 2003, we had received additional gross proceeds of approximately
 
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$638,970,439 from the sale of approximately 63,897,044 shares in our fourth public offering. Accordingly, as of January 15, 2003, we had received aggregate gross offering proceeds of approximately $2,229,358,416 from the sale of approximately 222,935,842 shares in all of our public offerings. After payment of $77,283,698 in acquisition and advisory fees and acquisition expenses, payment of $247,036,149 in selling commissions and organization and offering expenses, and common stock redemptions of $21,252,750 pursuant to our share redemption program, as of January 15, 2003, we had raised aggregate net offering proceeds available for investment in properties of $1,883,785,819, out of which $1,853,694,118 had been invested in real estate properties, and $30,091,701 remained available for investment in real estate properties.
 
Description of Properties
 
As of January 15, 2003, we had purchased interests in 73 real estate properties located in 23 states. Below are the descriptions of our recent real property acquisitions.
 
John Wiley Indianapolis Building
 
On December 12, 2002, Wells Fund XIII – REIT Joint Venture Partnership (XIII-REIT Joint Venture), a joint venture partnership between Wells Real Estate Fund XIII, L.P. (Wells Fund XIII) and Wells Operating Partnership, L.P. (Wells OP), a Delaware limited partnership formed to acquire, own, lease and operate real properties on behalf of the Wells REIT, purchased a four-story office building on a 10.28 acre tract of land located at 10475 Crosspoint Boulevard in Fishers, Hamilton County, Indiana (John Wiley Indianapolis Building) from Crosspoint Seven, LLC for a purchase price of $17,450,000, plus closing costs. Crosspoint Seven, LLC is not in any way affiliated with the XIII-REIT Joint Venture, Wells REIT, Wells OP, or our advisor, Wells Capital, Inc.
 
Wells OP contributed $8,928,915 and Wells Fund XIII contributed $8,577,787 to the Wells Fund XIII – REIT Joint Venture to fund their respective shares of the acquisition costs for the John Wiley Indianapolis Building. As of December 31, 2002, Wells OP held an equity percentage interest in the XIII – REIT Joint Venture of approximately 61.28% and Wells Fund XIII held an equity percentage interest in the Wells Fund XIII – REIT Joint Venture of approximately 38.72%.
 
The John Wiley Indianapolis Building, which was completed in 1999, contains approximately 141,047 rentable square feet and is leased to John Wiley & Sons, Inc. (John Wiley), United Student Aid Funds, Inc. (USA Funds) and Robert Half International, Inc. (Robert Half).
 
John Wiley, as the primary tenant, occupies 123,674 rentable square feet (87.7%) of the John Wiley Indianapolis Building. John Wiley, a New York corporation publicly traded on the New York Stock Exchange (NYSE), publishes books and journals in print and electronic media specializing in scientific, technical, medical, professional, and educational materials. John Wiley has operations in the United States, Europe, Canada, Asia, and Australia. John Wiley reported a net worth, as of April 30, 2002, of approximately $276 million.
 
The John Wiley lease commenced in November 1999 and expires in October 2009. The current annual base rent payable under the John Wiley lease is $1,940,892. John Wiley is obligated to lease the remaining 17,373 rentable square feet of the John Wiley Indianapolis Building upon the expiration of the USA Funds lease and the Robert Half lease described below. John Wiley has the right, at its option, to extend the initial term of its lease for two additional five-year periods at 95% of the then-current market rental rate. The XIII-REIT Joint Venture, as the landlord, is responsible for paying the operating and maintenance costs; however, under the John Wiley lease, John Wiley is responsible for its share of operating and maintenance costs in excess of $3.55 per rentable square foot, along with its share of real estate taxes.
 
USA Funds is a wholly owned subsidiary of SLM Corporation, which is a leading source of funding and servicing support for education loans. USA Funds is a nonprofit corporation that supports access to education by providing financial and other services to those who pursue, provide or promote education. The USA Funds lease covers 14,413 rentable square feet (10.2%) and commenced in February
 
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2001 and expires in July 2005. The current annual base rent payable under the USA Funds lease is $223,401. Under the USA Funds lease, USA Funds is responsible for its share of operating and maintenance costs in excess of $4.00 per rentable square foot, along with its share of real estate taxes.
 
Robert Half is a staffing services agency publicly traded on the NYSE. Robert Half specializes in the staffing of accountants, attorneys, finance professionals, administrative support technicians, information technology professionals, and web design professionals. Robert Half has more than 325 locations in North America, Europe, Australia and New Zealand. The Robert Half lease covers 2,960 rentable square feet (2.1%) and commenced in April 2000 and expires in April 2005. The current annual base rent payable under the Robert Half lease is $55,256. Under the Robert Half lease, Robert Half is responsible for operating and maintenance costs and real estate taxes in excess of $4.01 per rentable square foot.
 
The XIII-REIT Joint Venture, as landlord, is responsible for the maintenance and repair of the elevators, plumbing, heating, and air conditioning, exterior walls, doors, windows, corridors and other common areas of the John Wiley Indianapolis Building.
 
Wells Management Company, Inc. (Wells Management), an affiliate of the Wells REIT and our advisor, will manage the John Wiley Indianapolis Building on behalf of the XIII-REIT Joint Venture and will be paid management and leasing fees in the amount of 4.5% of the gross revenues from the John Wiley Indianapolis Building.
 
Nestle Building
 
On December 20, 2002, Wells REIT Glendale, CA, LLC (REIT Glendale), a Georgia limited liability company wholly-owned by Wells OP, purchased a 20-story office building containing approximately 505,115 rentable square feet located in Glendale, California (Nestle Building) for a purchase price of $157,000,000, plus closing costs, from Douglas Emmett Joint Venture (Douglas Emmett). Douglas Emmett is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
In connection with the acquisition of the Nestle Building, REIT Glendale assumed an existing $90,000,000 loan in favor of Landesbank Schleswig-Holstein Girozentrale, Kiel (Landesbank Loan), a German chartered bank, secured by the property. The interest rate on the Landesbank Loan is equal to LIBOR plus 1.15%, and the current interest rate on the Landesbank Loan is fixed for the next six months at 2.53% per annum. The Landesbank Loan requires monthly payments of interest only and matures on December 27, 2006. REIT Glendale may prepay the Landesbank Loan any time after December 28, 2003 without incurring any penalty. REIT Glendale paid a $450,000 loan assumption fee at closing in connection with the assumption of the Landesbank Loan.
 
The Nestle Building was built in 1990 and is located on a 4.02-acre tract of land at 800 N. Brand Boulevard in Glendale, California. Approximately 502,994 rentable square feet of the Nestle Building (99.6%) is leased to Nestle USA, Inc. (Nestle USA), a wholly-owned subsidiary of Nestle S.A., a Swiss company. Nestle USA operates manufacturing centers which produce various foods and beverages, including chocolate, prepared foods, juices and milk products. Some of Nestle USA’s famous brands include Stouffer’s, Carnation, Libby’s, Taster’s Choice and Nestle.
 
The Nestle USA lease commenced in August 1990 and expires in August 2010. The current annual base rent payable under the Nestle USA lease is $14,839,519. Nestle has the right, at its option, to extend the initial term of its lease for four additional five-year periods at the then-current market rental rate. Nestle also has a right of first refusal to lease any additional available space in the Nestle Building. REIT Glendale, as the landlord, is responsible for paying the operating and maintenance costs under the Nestle USA lease; however, Nestle USA is responsible for its share of operating and maintenance costs in excess of the base year operating allowance established in the first lease year. REIT Glendale, as the landlord, is also responsible for
 
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maintaining and repairing the structural portions and mechanical systems of the Nestle Building, including plumbing, heating, air conditioning, and electrical systems.
 
Wells Management will manage the Nestle Building on behalf of REIT Glendale and will be paid management and leasing fees in the amount of 4.5% of the gross revenues from the Nestle Building, subject to certain limitations.
 
East Point Buildings
 
On January 9, 2003, Wells OP purchased two three-story office buildings containing approximately 187,735 aggregate rentable square feet located in Mayfield Heights, Ohio (East Point Buildings) for a purchase price of $21,968,000, plus closing costs, from Best Property Fund, L.P. (Best Property). Best Property is not in any way affiliated with the Wells REIT, Wells OP, or our advisor.
 
The East Point Buildings, which were built in 2000, are located at 6085 Parkland Boulevard (East Point I) and 6095 Parkland Boulevard (East Point II) in Mayfield Heights, Cuyahoga County, Ohio. The entire 102,484 rentable square feet of East Point I is leased to Progressive Casualty Insurance Company (Progressive Casualty). Progressive Casualty is the principal operating subsidiary of Progressive Corporation (Progressive Corp.), the fourth largest auto insurance company in the United States. Progressive Corp., a public company traded on the NYSE, provides various insurance products, including personal automobile insurance, D&O insurance and employee misconduct insurance.
 
The Progressive Casualty lease is a net lease (i.e., operating costs and maintenance costs are paid by the tenant) which commenced in January 2003 and expires in December 2012. The current annual base rent payable under the Progressive Casualty lease is $947,977. Progressive Casualty has the right, at its option, to extend the initial term of its lease for one additional five-year period for an annual base rent of $1,332,292 and a second additional five-year period at 95% of the then-current market rental rate. If Progressive Casualty does not exercise the first five-year extension option described above, it has the right to exercise a six-month extension option for a monthly base rent of $111,024. Progressive Casualty has a right of first offer to lease additional space in the East Point Buildings upon space becoming available, which is subordinate to the rights of the tenants of East Point II described below. In addition, Progressive Casualty has a right of first offer to purchase the East Point Buildings, which right is also subordinate to the right of The Austin Company (Austin) described below. If Wells OP subdivides East Point I and East Point II, Progressive Casualty’s right of first offer will then apply only to East Point I.
 
East Point II contains approximately 85,251 rentable square feet, of which 70,585 is currently leased to Austin, Danaher Power Solutions LLC (Danaher) and Moreland Management Co. (Moreland). Approximately 14,666 rentable square feet (17.2%) of East Point II is vacant.
 
Austin leases 40,900 rentable square feet (48.0%) of East Point II. Austin is a private company with corporate headquarters in Cleveland, Ohio. Austin offers a wide range of in-house architectural, engineering, design-build and construction management services. Austin has offices in many major U.S. cities, London and Puerto Rico. The Austin lease is a net lease which commenced in June 2000 and expires in June 2010. The current annual base rent payable under the Austin lease is $1,002,050. Austin has the right, at its option, to extend the initial term of its lease for one additional five-year period for an annual base rent of $1,042,950. Austin has a right of first refusal to lease additional space on the second floor in East Point II upon space becoming available. In addition, Austin has a right of first offer to purchase the East Point Buildings upon the landlord’s receipt of a third-party offer.
 
Danaher leases 15,553 rentable square feet (18.2%) of East Point II. Danaher is a wholly owned subsidiary of Danaher Corporation (Danaher Corp.). Danaher designs, manufactures and provides power quality and reliability products and services. Danaher Corp., a public company traded on the NYSE, is located in 30 countries worldwide and conducts business in the process and environmental controls industry and the tools and components industry. The Danaher lease commenced in July 2002 and expires in November 2007. The current annual base rent payable under the Danaher lease is $324,348. Wells OP, as the landlord, is responsible for paying the operating and maintenance costs under the Danaher lease; however, Danaher is responsible for its share of (1) operating
 
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and maintenance costs in excess of $1.85 per rentable square foot, and (2) real estate taxes in excess of $4.65 per rentable square foot.
 
Moreland leases 14,132 rentable square feet (16.6%) of East Point II. The Moreland lease commenced in August 2001 and expires in October 2011. The current annual base rent payable under the Moreland lease is $325,036. Moreland has the right, at its option, to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate .  Moreland has a right of first refusal to lease additional space on the floor Moreland currently occupies in East Point II upon space becoming available.
 
Wells OP, as the landlord, is responsible for maintaining all common areas, building mechanical systems, exterior doors and walls, and the roof of the East Point Buildings.
 
Wells Management will be paid management and leasing fees in the amount of up to 4.5% of gross revenues from the East Point Buildings, subject to certain limitations. Wells OP has entered into a management agreement with CB Richard Ellis to serve as the on-site property manager for the East Point Buildings, which property management fees will be paid out of or credited against the fees payable to Wells Management. CB Richard Ellis is not in any way affiliated with the Wells REIT, Wells OP, or our advisor.
 
Second Transaction under the Section 1031 Exchange Program
 
As described in the “Investment Objectives and Criteria – Section 1031 Exchange Program” section of our prospectus, an affiliate of our advisor has developed a program (Section 1031 Exchange Program) involving the acquisition of income-producing commercial properties and the formation of a series of single member limited liabilities companies (Wells Exchange) for the purpose of facilitating the resale of co-tenancy interests in such real estate properties to persons (1031 Participants) who are looking to invest the proceeds from a sale of real estate held for investment into another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Internal Revenue Code. The initial transaction in the Section 1031 Exchange Program involved the acquisition by Wells Exchange and resale of co-tenancy interests in the Ford Motor Credit Complex located in Colorado Springs, Colorado. Since all of the co-tenancy interests in the Ford Motor Credit Complex were sold to 1031 Participants, Wells OP neither acquired any unsold co-tenancy interests in the Ford Motor Credit Complex, nor has any additional exposure under the Take Out Purchase and Escrow Agreement entered into in connection with the acquisition of the Ford Motor Credit Complex.
 
The second transaction in the Section 1031 Exchange Program involves the acquisition by Wells Exchange and resale of co-tenancy interests in two single tenant office buildings each containing approximately 98,216 rentable square feet located in Birmingham, Alabama (Meadow Brook Corporate Park) currently under lease agreements with Allstate Insurance Company (Allstate) and Computer Sciences Corporation (Computer Sciences). Allstate is a wholly owned subsidiary of Allstate Corporation, a Fortune 100 company. Allstate sells private passenger auto and homeowners insurance in the United States and Canada, as well as other lines of personal property and casualty insurance, including landlords, personal umbrella, renters, condominium, residential fire, manufactured housing, boat owners and selected commercial property and casualty. Computer Sciences, a public company traded on the NYSE, is in the technology services business and provides broad-based technology services that include management consulting, systems integration, and systems outsourcing to commercial markets and the federal government. Wells Exchange is currently engaged in the offer and sale of co-tenancy interests in the Meadow Brook Corporate Park to 1031 Participants.
 
In consideration for the payment of a Take Out Fee in the amount of $175,000, and following approval of the potential property acquisition by our board of directors, Wells OP entered into a Take Out Purchase and Escrow Agreement relating to the Meadow Brook Corporate Park. Pursuant to the terms of
 
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the Take Out Purchase and Escrow Agreement, Wells OP is obligated to acquire, at Wells Exchange’s cost ($419,916 in cash for each 2.9994% co-tenancy interest), any co-tenancy interests in the Meadow Brook Corporate Park which remain unsold on September 30, 2003.
 
The obligations of Wells OP under the Take Out Purchase and Escrow Agreement are secured by a line of credit with Bank of America, N.A. (BOA). If, for any reason, Wells OP fails to acquire any of the co-tenancy interests in the Meadow Brook Corporate Park which remain unsold as of September 30, 2003, or if there is otherwise an uncured default under the interim loan between Wells Exchange and BOA or Well OP’s loan documents, BOA is authorized to draw down on Wells OP’s line of credit in the amount necessary to pay the outstanding balance of the interim loan in full, in which event the appropriate amount of unsold co-tenancy interests in the Meadow Brook Corporate Park would be deeded to Wells OP. Wells OP’s maximum economic exposure in the transaction is $14,000,000, in which event Wells OP would acquire the Meadow Brook Corporate Park for $14,000,000 in cash plus assumption of the first mortgage financing in the amount of $13,900,000. If Wells Exchange successfully sells 100% of the co-tenancy interests to 1031 Particpants, Wells OP will not acquire any interest in the Meadow Brook Corporate Park. If some, but not all, of the co-tenancy interests are sold by Wells Exchange, Wells OP’s exposure would be less, and it would end up owning an interest in the property in co-tenancy with 1031 Participants who had previously acquired co-tenancy interests in the Meadow Brook Corporate Park from Wells Exchange.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following information amends and restates the information contained in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of Supplement No. 4 dated December 10, 2002, and should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section beginning on page 101 of the prospectus, as supplemented by Supplement No. 1 dated August 14, 2002, Supplement No. 2 dated August 29, 2002 and Supplement No. 3 dated October 25, 2002. We amended our previously filed third quarter Form 10-Q by amending the Consolidated Statements of Income for the three and nine months ended September 30, 2002 and Notes 1(k) and 2 to the Condensed Notes to Financial Statements and the “Results of Operations” subsection of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in order to restate the presentation of certain of our operating costs reimbursed by tenants as revenue and the gross property operating costs as expenses pursuant to a FASB Emerging Issues Task Force release issued in November 2001. In addition, interest income and interest expense related to certain bonds held by the Wells REIT have been restated to reflect such amounts on a gross basis consistent with this revised presentation. The comparative financial information for prior periods was also reclassified to conform the presentation. Since this presentation does not impact the amount of reimbursements we received or the property operating costs incurred and requires equal adjustments to revenues and expenses, the adoption of this guidance will have no impact on our financial position, net income, earnings per share or cash flows.
 
Forward Looking Statements
 
This supplement 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 our financial condition, anticipated capital expenditures required to complete certain projects, amounts of anticipated cash distributions to shareholders in the future and certain other matters. Readers of this supplement should be aware that there are various factors that could cause actual results to differ materially from any forward-looking statements made in this supplement, which include changes in general economic conditions, changes in real estate conditions, construction costs which may exceed estimates, construction delays, increases in interest rates, lease-up risks, inability to obtain new tenants upon the expiration of existing leases, inability to invest in properties on a timely basis or in properties
 
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that will provide targeted rates of return and the potential need to fund tenant improvements or other capital expenditures out of operating cash flow.
 
We have made an election under Section 856 (c) of the Internal Revenue Code (Internal Revenue Code) to be taxed as a REIT under the Internal Revenue Code beginning with its taxable year ended December 31, 1999. As a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is lost. Such an event could materially adversely affect our net income. However, management believes that we are organized and operate in a manner which will enable us to qualify for treatment as a REIT for federal income tax purposes during this fiscal year. In addition, management intends to continue to operate the Wells REIT so as to remain qualified as a REIT for federal income tax purposes.
 
Liquidity and Capital Resources
 
During the nine months ended September 30, 2002, we received aggregate gross offering proceeds of $988.5 million from the sale of 98.8 million shares of our common stock. After payment of $34.8 million in acquisition and advisory fees and acquisition expenses, payment of $104.3 million in selling commissions and organization and offering expenses, and common stock redemptions of $11.6 million pursuant to our share redemption program, we raised net offering proceeds of $837.8 million during the first three quarters of 2002, of which $144.5 million remained available for investment in properties at quarter end. In October, we reached our limit on stock redemptions for the year and, accordingly, there will be no further stock redemptions under our stock redemption program for the remainder of 2002.
 
During the nine months ended September 30, 2001, we received aggregate gross offering proceeds of $297.8 million from the sale of 29.8 million shares of its common stock. After payment of $10.3 million in acquisition and advisory fees and acquisition expenses, payment of $35.6 million in selling commissions and organizational and offering expenses, and common stock redemptions of $2.1 million pursuant to our share redemption program, we raised net offering proceeds of $249.8 million during the first three quarters of 2001, of which $8.7 million remained available for investment in properties at quarter end.
 
The significant increase in capital resources we have available is due to significantly increased sales of our common stock during the first three quarters of 2002.
 
As of September 30, 2002, we owned interests in 67 real estate properties either directly or through interests in joint ventures. Dividends declared for the third quarter of 2002 and 2001 were approximately $0.1938 and $0.1875 per share, respectively. In August 2002, our board of directors declared dividends for the fourth quarter of 2002 in the amount of approximately $0.175 per share.
 
Due primarily to the pace of our property acquisitions, as explained in more detail in the following paragraphs, dividends paid in the first three quarters of 2002 in the aggregate amount of approximately $71.4 million exceeded our Adjusted Funds From Operations for this period by approximately $11 million.
 
We continue to acquire properties that meet our standards of quality both in terms of the real estate and the creditworthiness of the tenants. Creditworthy tenants of the type we target are becoming more and more highly valued in the marketplace and, accordingly, there is increased competition in acquiring properties with these creditworthy tenants. As a result, the purchase prices for such properties have increased with corresponding reductions in cap rates and returns on investment. In addition, changes in market conditions have caused us to add to our internal procedures for ensuring the
 
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creditworthiness of our tenants before any commitment to buy a property is made. We continue to remain steadfast in our commitment to invest in quality properties that will produce quality income for our shareholders. Accordingly, because the marketplace is now placing a higher value on our type of properties and because of the additional time it now takes in the acquisition process for us to assess tenant credit – plus our commitment to adhere to purchasing properties with tenants that meet our investment criteria – we were required to lower our dividend yield to investors.
 
As a result of the factors described in the preceding paragraph, on August 29, 2002, our board of directors declared dividends for the fourth quarter of 2002 in an amount equal to a 7.0% annualized percentage rate return on an investment of $10 per share to be paid in December 2002. Our fourth quarter dividends are calculated on a daily record basis of $0.001923 (0.1923 cents) per day per share on the outstanding shares of common stock payable to shareholders of record of such shares as shown on our books at the close of business on each day during the period, commencing on September 16, 2002, and continuing on each day thereafter through and including December 15, 2002.
 
For information relating to the dividends declared for the first quarter of 2003, see the “Subsequent Events” section below.
 
Cash Flows From Operating Activities
 
Our net cash provided by operating activities was $68.2 million and $26.5 million for the nine months ended September 30, 2002 and 2001, respectively. The increase in net cash provided by operating activities was due primarily to the net income generated by additional properties acquired during 2002 and 2001.
 
Cash Flows Used In Investing Activities
 
Our net cash used in investing activities was $826.9 million and $155.7 million for the nine months ended September 30, 2002 and 2001, respectively. The increase in net cash used in investing activities was due primarily to investments in properties and the payment of related deferred project costs, partially offset by distributions received from joint ventures.
 
Cash Flows From Financing Activities
 
Our net cash provided by financing activities was $827.1 million and $136.1 million for the nine months ended September 30, 2002 and 2001, respectively. The increase in net cash provided by financing activities was due primarily to the raising of additional capital and the lack of debt payments, which were $208.1 million in the prior year. We raised $988.5 million in offering proceeds for the nine months ended September 30, 2002, as compared to $297.8 million for the same period in 2001. Additionally, we paid dividends totaling $23.5 million in the first three quarters of 2001 compared to $71.4 million in the same period of 2002.
 
Results of Operations
 
Gross revenues were $87.9 million and $38.5 million for the nine months ended September 30, 2002 and 2001, respectively. Gross revenues for the nine months ended September 30, 2002 and 2001 were attributable to rental income, operating cost reimbursements, interest income earned on funds held by the Company prior to the investment in properties, and income earned from joint ventures. The increase in revenues in 2002 was primarily attributable to the purchase of $805.5 million in additional properties during 2002 and the purchase of $114.1 million in additional properties during the fourth quarter of 2001 which were not owned for the first three quarters of 2001. The purchase of additional properties also resulted in an increase in expenses, which totaled $48.1 million for the nine months ended September 30, 2002, as compared to $24.1 million for the nine months ended September 30, 2001. Expenses in 2002 and 2001 consisted primarily of depreciation, operating costs, interest expense, management and leasing fees and general and administrative costs. As a result, our net income also increased from $14.4 million for the nine months ended September 30, 2001 to $39.8 million for the nine months ended September 30, 2002.
 
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Earnings per share for the nine months ended September 30, 2002 decreased from $0.33 per share for the nine months ended September 30, 2001 to $0.31 per share for the nine months ended September 30, 2002. Earnings per share for the third quarter decreased from $0.11 per share for the three months ended September 30, 2001 to $0.09 per share for the three months ended September 30, 2002. These decreases were primarily due to the substantial increase in the number of shares outstanding as a result of capital raised in 2002 which was not completely matched by a corresponding increase in net income because such capital proceeds were not fully invested in properties.
 
Funds From Operations
 
Funds From Operations (FFO), as defined by the National Association of Real Estate Investment Trusts (NAREIT), generally means net income, computed in accordance with GAAP excluding extraordinary items (as defined by GAAP) and gains (or losses) from sales of property, plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures and subsidiaries. We believe that FFO is helpful to investors as a measure of the performance of an equity REIT. However, our calculation of FFO, while consistent with NAREIT’s definition, may not be comparable to similarly titled measures presented by other REITs. Adjusted Funds From Operations (AFFO) is defined as FFO adjusted to exclude the effects of straight-line rent adjustments, deferred loan cost amortization and other non-cash and/or unusual items. Neither FFO nor AFFO represent cash generated from operating activities in accordance with GAAP and should not be considered as alternatives to net income as an indication of our performance or to cash flows as a measure of liquidity or ability to make distributions. The following table reflects the calculation of FFO and AFFO for the three and nine months ended September 30, 2002 and 2001, respectively:
 
 	  	Three Months Ended
(in thousands)

	 	 	Nine Months Ended
(in thousands)

	 	
 	  	September 30,
2002

	 	 	September 30,
2001

	 	 	September 30,
2002

	 	 	September 30,
2001

	 	
FUNDS FROM OPERATIONS:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	
Net income	  	$	15,285	 	 	$	6,109	 	 	$	39,821	 	 	$	14,423	 	
Add:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	10,282	 	 	 	3,947	 	 	 	23,185	 	 	 	10,341	 	
Amortization of deferred leasing costs	  	 	78	 	 	 	76	 	 	 	229	 	 	 	228	 	
Depreciation and amortization—unconsolidated partnerships	  	 	708	 	 	 	647	 	 	 	2,115	 	 	 	1,561	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Funds from operations (FFO)	  	 	26,353	 	 	 	10,779	 	 	 	65,350	 	 	 	26,553	 	
 	 	 	 	 	
Adjustments:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan cost amortization	  	 	162	 	 	 	237	 	 	 	587	 	 	 	529	 	
Straight line rent	  	 	(2,146	)	 	 	(708	)	 	 	(5,312	)	 	 	(1,930	)	
Straight line rent—unconsolidated partnerships	  	 	(27	)	 	 	(100	)	 	 	(229	)	 	 	(233	)	
Lease acquisitions fees paid—unconsolidated partnerships	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(8	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Adjusted funds from operations	  	$	24,342	 	 	$	10,208	 	 	$	60,396	 	 	$	24,911	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	 	 	 	 	
BASIC AND DILUTED WEIGHTED AVERAGE SHARES	  	 	163,395	 	 	 	54,112	 	 	 	128,541	 	 	 	43,726	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 
Inflation
 
The real estate market has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. However, there are provisions in the majority of tenant leases that are intended to protect us from the impact of inflation. These provisions include reimbursement billings for common area maintenance charges, real estate tax and insurance reimbursements on a per square foot
 
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basis, or in some cases, annual reimbursement of operating expenses above a certain per square foot allowance.
 
Critical Accounting Policies
 
Our reported results of operations are impacted by management judgments related to application of accounting policies. A discussion of the accounting policies that management considers to be critical, in that they may require complex judgment in their application or require estimates about matters which are inherently uncertain, is included in Footnote 1 to the financial statements.
 
Subsequent Events
 
Effective October 31, 2002, Arthur Andersen LLP (Andersen) and Wells OP entered into a termination agreement with respect to the lease for the three-story office building containing 157,700 rentable square feet located in Sarasota, Florida formerly known as the Arthur Andersen Building. In consideration for releasing Andersen from its obligation to pay rent under the lease, Andersen paid Wells OP a termination fee of $979,760 and conveyed to Wells OP an approximately 1.3 acre tract of land adjacent to the property which was used for parking. On November 1, 2002, Wells OP entered into a net lease agreement with Vertex Tax Technology Enterprises, LLC (Vertex) for approximately 47,388 rentable square feet of the building. The current term of the lease is seven years, which commenced on November 1, 2002 and expires on October 31, 2009. The current annual base rent payable under the Vertex lease is $621,257.
 
In November 2002, Shoreview Associates LLC (Shoreview), the owner of an office building located in Ramsey County, Minnesota that Wells OP had contracted to purchase, filed a lawsuit against Wells OP in state court in Minnesota alleging that it was entitled to the $750,000 in earnest money that Wells OP had deposited under the contract. Wells OP has filed a counterclaim in the case asserting that it is entitled to the $750,000 earnest money deposit. Procedurally, Wells OP had the case transferred to U.S. District Court in Minnesota and Shoreview has moved to transfer the case back to the state court. The dispute currently remains in litigation.
 
On December 4, 2002, our board of directors declared dividends for the first quarter of 2003 in the amount of a 7.0% annualized percentage rate return on an investment of $10.00 per share to be paid in March 2003. Our first quarter dividends are calculated on a daily record basis of $0.001944 (0.1944 cents) per day per share on the outstanding shares of common stock payable to stockholders of record of such shares as shown on the books of the Wells REIT at the close of business on each day during the period, commencing on December 16, 2002, and continuing on each day thereafter through and including March 15, 2003.
 
Financial Statements
 
Audited Financial Statements
 
The statement of revenues over certain operating expenses of the Nestle Building for the year ended December 31, 2001, which is included in this supplement, has been audited by Ernst & Young LLP, independent auditors, as set forth in their report appearing elsewhere herein, and is included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
 
Unaudited Financial Statements
 
The amended and restated financial statements of the Wells REIT, as of September 30, 2002, and for the three and nine month periods ended September 30, 2002 and September 30, 2001, which are included in this supplement, have not been audited.
 
The statements of revenues over certain operating expenses of the Nestle Building for the nine months ended September 30, 2002, which are included in this supplement, have not been audited.
 
The pro forma balance sheet of the Wells REIT, as of September 30, 2002, the pro forma statement of income for the year ended December 31, 2001, and the pro forma statement of income for the nine months ended September 30, 2002, which are included in this supplement, have not been audited.
 
10

Table of Contents
INDEX TO FINANCIAL STATEMENTS
 
Wells Real Estate Investment Trust, Inc. and Subsidiary	  	Page

	
 	 	
Unaudited Financial Statements	  	 	
 	 	
Consolidated Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001	  	12	
 	 	
Consolidated Statements of Income for the three months ended September 30, 2002 and September 30, 2001(unaudited), and for the nine months ended September 30, 2002 and September 30, 2001 (unaudited)	  	13	
 	 	
Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2001 and for the nine months ended September 30, 2002 (unaudited)	  	14	
 	 	
Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and September 30, 2001 (unaudited)	  	15	
 	 	
Condensed Notes to Consolidated Financial Statements September 30, 2002 (unaudited)	  	16	
 	 	
Nestle Building	  	 	
 	 	
Report of Independent Auditors	  	33	
 	 	
Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2001 (audited) and for the nine months ended September 30, 2002 (unaudited)	  	34	
 	 	
Notes to Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2001 (audited) and for the nine months ended September 30, 2002 (unaudited)	  	35	
 	 	
Wells Real Estate Investment Trust, Inc. and Subsidiary	  	 	
 	 	
Unaudited Pro Forma Financial Statements	  	 	
 	 	
Summary of Unaudited Pro Forma Financial Statements	  	37	
 	 	
Pro Forma Balance Sheet as of September 30, 2002 (unaudited)	  	38	
 	 	
Pro Forma Statement of Income for the year ended December 31, 2001 (unaudited)	  	40	
 	 	
Pro Forma Statement of Income for the nine months ended September 30, 2002 (unaudited)	  	41	

11

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
 
 	  	September 30,
2002

	 	 	December 31,
2001

	 	
ASSETS	  	(unaudited)	 	 	 	 	
REAL ESTATE, at cost:	  	 	 	 	 	 	 	 	
Land	  	$	164,191	 	 	$	86,247	 	
Building and improvements, less accumulated depreciation of $48,000 in 2002 and $24,814 in 2001	  	 	1,171,793	 	 	 	472,383	 	
Construction in progress	  	 	28,500	 	 	 	5,739	 	

	

	

	 	

	

	

	
Total real estate	  	 	1,364,484	 	 	 	564,369	 	
INVESTMENT IN JOINT VENTURES	  	 	75,388	 	 	 	77,410	 	
CASH AND CASH EQUIVALENTS	  	 	143,912	 	 	 	75,586	 	
INVESTMENT IN BONDS	  	 	54,500	 	 	 	22,000	 	
STRAIGHT-LINE RENT RECEIVABLE	  	 	10,632	 	 	 	5,362	 	
ACCOUNTS RECEIVABLE	  	 	1,387	 	 	 	641	 	
NOTE RECEIVABLE	  	 	4,966	 	 	 	0	 	
DEFERRED LEASE ACQUISITION COSTS, net	  	 	1,713	 	 	 	1,525	 	
DEFERRED PROJECT COSTS	  	 	5,963	 	 	 	2,977	 	
DUE FROM AFFILIATES	  	 	2,185	 	 	 	1,693	 	
DEFERRED OFFERING COSTS	  	 	3,537	 	 	 	0	 	
PREPAID EXPENSES AND OTHER ASSETS, net	  	 	2,597	 	 	 	718	 	

	

	

	 	

	

	

	
Total assets	  	$	1,671,264	 	 	$	752,281	 	

	

	

	 	

	

	

	
LIABILITIES AND SHAREHOLDERS’ EQUITY	  	 	 	 	 	 	 	 	
LIABILITIES:	  	 	 	 	 	 	 	 	
Notes payable	  	$	35,829	 	 	$	8,124	 	
Obligations under capital leases	  	 	54,500	 	 	 	22,000	 	
Accounts payable and accrued expenses	  	 	17,539	 	 	 	8,727	 	
Dividends payable	  	 	10,209	 	 	 	1,059	 	
Deferred rental income	  	 	7,894	 	 	 	662	 	
Due to affiliates	  	 	4,380	 	 	 	2,166	 	

	

	

	 	

	

	

	
Total liabilities	  	 	130,351	 	 	 	42,738	 	

	

	

	 	

	

	

	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200	 	 	 	200	 	

	

	

	 	

	

	

	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	
Common shares, $.01 par value; 750,000 shares authorized, 182,609 shares issued and 180,892 outstanding at September 30, 2002, and 350,000 shares authorized, 83,761 shares issued and 83,206 shares outstanding at December 31, 2001	  	 	1,826	 	 	 	838	 	
Additional paid-in capital	  	 	1,621,376	 	 	 	738,236	 	
Cumulative distributions in excess of earnings	  	 	(64,907	)	 	 	(24,181	)	
Treasury stock, at cost, 1,717 shares at September 30, 2002 and
555 shares at December 31, 2001	  	 	(17,167	)	 	 	(5,550	)	
Other comprehensive loss	  	 	(415	)	 	 	0	 	

	

	

	 	

	

	

	
Total shareholders’ equity	  	 	1,540,713	 	 	 	709,343	 	

	

	

	 	

	

	

	
Total liabilities and shareholders’ equity	  	$	1,671,264	 	 	$	752,281	 	

	

	

	 	

	

	

	
 
See accompanying condensed notes to financial statements.

12

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF INCOME
 
(unaudited and in thousands except per share amounts)
 
 	  	Three Months Ended

	  	Nine Months Ended

	
 	  	September 30,
2002

	  	September 30,
2001

	  	September 30
2002

	  	September 30
2001

	
REVENUES:	  	 	 	  	 	 	  	 	 	  	 	 	
Rental income	  	$	27,549	  	$	11,317	  	$	66,121	  	$	31,028	
Operating cost reimbursements*	  	 	3,677	  	 	1,331	  	 	12,854	  	 	4,470	
Equity in income of joint ventures	  	 	1,259	  	 	1,102	  	 	3,738	  	 	2,622	
Interest income*	  	 	2,427	  	 	89	  	 	5,075	  	 	281	
Take out fee	  	 	1	  	 	0	  	 	135	  	 	138	

	

	  	

	

	  	

	

	  	

	

	
 	  	 	34,913	  	 	13,839	  	 	87,923	  	 	38,539	

	

	  	

	

	  	

	

	  	

	

	
EXPENSES:	  	 	 	  	 	 	  	 	 	  	 	 	
Depreciation	  	 	10,282	  	 	3,947	  	 	23,185	  	 	10,341	
Operating costs*	  	 	5,868	  	 	2,625	  	 	17,109	  	 	7,638	
Management and leasing fees	  	 	1,445	  	 	632	  	 	3,348	  	 	1,750	
Administrative costs	  	 	745	  	 	141	  	 	1,867	  	 	901	
Interest expense*	  	 	1,126	  	 	148	  	 	2,006	  	 	2,957	
Amortization of deferred financing costs	  	 	162	  	 	237	  	 	587	  	 	529	

	

	  	

	

	  	

	

	  	

	

	
 	  	 	19,628	  	 	7,730	  	 	48,102	  	 	24,116	

	

	  	

	

	  	

	

	  	

	

	
NET INCOME	  	$	15,285	  	$	6,109	  	$	39,821	  	$	14,423	

	

	  	

	

	  	

	

	  	

	

	
 	 	 	 	 	
BASIC AND DILUTED EARNINGS PER SHARE	  	$	0.09	  	$	0.11	  	$	0.31	  	$	0.33	

	

	  	

	

	  	

	

	  	

	

	
 	 	 	 	 	
BASIC AND DILUTED WEIGHTED AVERAGE SHARES	  	 	163,395	  	 	54,112	  	 	128,541	  	 	43,726	

	

	  	

	

	  	

	

	  	

	

	
 
See accompanying condensed notes to financial statements.
 
* These financial statement line items have been amended and restated as described in the accompanying Note 1(k).
 
13

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
 
FOR THE YEAR ENDED DECEMBER 31, 2001
 
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)
 
(in thousands except per share amounts)
 
 	  	Common
Stock
Shares

	  	Common
Stock
Amount

	  	Additional
Paid-In
Capital

	 	 	Cumulative
Distributions
in Excess of
Earnings

	 	 	Retained
Earnings

	 	 	Treasury
Stock
Shares

	 	 	Treasury
Stock
Amount

	 	  	Other
Comprehensive
Income

	 	  	Total
Shareholders’
Equity

	 	
BALANCE, December 31, 2000	  	31,510	  	$	315	  	$	275,573	 	 	$	(9,134	)	 	$	0	 	 	(141	)	 	$	(1,413	)	  	$	0	 	  	$	265,341	 	
Issuance of common stock	  	52,251	  	 	523	  	 	521,994	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	522,517	 	
Treasury stock purchased	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	0	 	 	(414	)	 	 	(4,137	)	  	 	0	 	  	 	(4,137	)	
Net income	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	21,724	 	 	0	 	 	 	0	 	  	 	0	 	  	 	21,724	 	
Dividends ($.76 per share)	  	0	  	 	0	  	 	0	 	 	 	(15,047	)	 	 	(21,724	)	 	0	 	 	 	0	 	  	 	0	 	  	 	(36,771	)	
Sales commissions and discounts	  	0	  	 	0	  	 	(49,246	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	(49,246	)	
Other offering expenses	  	0	  	 	0	  	 	(10,085	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	(10,085	)	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	
 	 	 	 	 	 	 	 	 	 	
BALANCE, December 31, 2001	  	83,761	  	 	838	  	 	738,236	 	 	 	(24,181	)	 	 	0	 	 	(555	)	 	 	(5,550	)	  	 	0	 	  	 	709,343	 	
Issuance of common stock	  	98,848	  	 	988	  	 	987,482	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	988,470	 	
Treasury stock purchased	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	0	 	 	(1,162	)	 	 	(11,617	)	  	 	0	 	  	 	(11,617	)	
Dividends ($.58 per share)	  	0	  	 	0	  	 	0	 	 	 	(40,726	)	 	 	(39,821	)	 	0	 	 	 	0	 	  	 	0	 	  	 	(80,547	)	
Sales commissions and discounts	  	0	  	 	0	  	 	(94,097	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	(94,097	)	
Other offering expenses	  	0	  	 	0	  	 	(10,245	)	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	0	 	  	 	(10,245	)	
Components of comprehensive income:	  	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	
Net income	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	39,821	 	 	0	 	 	 	0	 	  	 	0	 	  	 	39,821	 	
Gain/(loss) on interest rate swap	  	0	  	 	0	  	 	0	 	 	 	0	 	 	 	0	 	 	0	 	 	 	0	 	  	 	(415	)	  	 	(415	)	

	

	

	
Comprehensive income	  	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	39,406	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	
BALANCE, September 30, 2002 (unaudited)	  	182,609	  	$	1,826	  	$	1,621,376	 	 	$	(64,907	)	 	$	0	 	 	(1,717	)	 	$	(17,167	)	  	$	(415	)	  	$	1,540,713	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	
 
See accompanying condensed notes to financial statements.

14

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
 
 	  	Nine Months Ended

	 	
 	  	September 30,
2002

	 	 	September 30,
2001

	 	
CASH FLOWS FROM OPERATING ACTIVITIES:	  	 	 	 	 	 	 	 	
Net income	  	$	39,821	 	 	$	14,423	 	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	(3,738	)	 	 	(2,622	)	
Depreciation	  	 	23,185	 	 	 	10,341	 	
Amortization of deferred financing costs	  	 	587	 	 	 	529	 	
Amortization of deferred leasing costs	  	 	229	 	 	 	228	 	
Bad debt expense	  	 	113	 	 	 	0	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	
Accounts receivable	  	 	(746	)	 	 	(370	)	
Straight-line rent receivable	  	 	(5,382	)	 	 	(1,949	)	
Due from affiliates	  	 	(35	)	 	 	0	 	
Deferred rental income	  	 	7,232	 	 	 	(381	)	
Accounts payable and accrued expenses	  	 	8,811	 	 	 	3,309	 	
Prepaid expenses and other assets, net	  	 	(1,813	)	 	 	3,211	 	
Due to affiliates	  	 	(105	)	 	 	(235	)	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	68,159	 	 	 	26,484	 	

	

	

	 	

	

	

	
CASH FLOWS FROM INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	
Investments in real estate	  	 	(797,011	)	 	 	(121,366	)	
Investment in joint ventures	  	 	0	 	 	 	(27,018	)	
Deferred project costs paid	  	 	(34,784	)	 	 	(10,347	)	
Distributions received from joint ventures	  	 	5,301	 	 	 	3,027	 	
Deferred lease acquisition costs paid	  	 	(400	)	 	 	0	 	

	

	

	 	

	

	

	
Net cash used in investing activities	  	 	(826,894	)	 	 	(155,704	)	

	

	

	 	

	

	

	
CASH FLOWS FROM FINANCING ACTIVITIES:	  	 	 	 	 	 	 	 	
Proceeds from note payable	  	 	27,742	 	 	 	107,587	 	
Repayment of note payable	  	 	(37	)	 	 	(208,102	)	
Dividends paid	  	 	(71,397	)	 	 	(23,502	)	
Issuance of common stock	  	 	988,470	 	 	 	297,775	 	
Sales commissions paid	  	 	(94,097	)	 	 	(28,086	)	
Offering costs paid	  	 	(10,937	)	 	 	(7,481	)	
Treasury stock purchased	  	 	(11,617	)	 	 	(2,137	)	
Deferred financing costs paid	  	 	(1,066	)	 	 	0	 	

	

	

	 	

	

	

	
Net cash provided by financing activities	  	 	827,061	 	 	 	136,054	 	

	

	

	 	

	

	

	
NET INCREASE IN CASH AND CASH EQUIVALENTS	  	 	68,326	 	 	 	6,834	 	
 	 	 	
CASH AND CASH EQUIVALENTS, beginning of year	  	 	75,586	 	 	 	4,298	 	

	

	

	 	

	

	

	
CASH AND CASH EQUIVALENTS, end of period	  	$	143,912	 	 	$	11,132	 	

	

	

	 	

	

	

	
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	
 	 	 	
Deferred project costs applied to real estate assets	  	$	31,271	 	 	$	1,127	 	

	

	

	 	

	

	

	
Deferred project costs applied to joint ventures	  	$	0	 	 	$	9,295	 	

	

	

	 	

	

	

	
Deferred project costs due to affiliate	  	$	587	 	 	$	(498	)	

	

	

	 	

	

	

	
Interest rate swap	  	$	(415	)	 	$	0	 	

	

	

	 	

	

	

	
Increase (decrease) in deferred offering cost accrual	  	$	3,537	 	 	$	(1,291	)	

	

	

	 	

	

	

	
Assumption of obligations under capital lease	  	$	32,500	 	 	$	22,000	 	

	

	

	 	

	

	

	
Investment in bonds	  	$	32,500	 	 	$	22,000	 	

	

	

	 	

	

	

	
 
See accompanying condensed notes to financial statements.
 
15

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
 
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
SEPTEMBER 30, 2002
(UNAUDITED)
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
(a) General
 
Wells Real Estate Investment Trust, Inc. (the “Company”) is a Maryland corporation formed on July 3, 1997, which qualifies as a real estate investment trust (“REIT”). Substantially all of the Company’s business is conducted through Wells Operating Partnership, L.P. (“Wells OP”), a Delaware limited partnership organized for the purpose of acquiring, developing, owning, operating, improving, leasing, and otherwise managing income producing commercial properties for investment purposes on behalf of the Company. The Company is the sole general partner of Wells OP.
 
On January 30, 1998, the Company commenced its initial public offering of up to 16.5 million shares of common stock at $10 per share pursuant to a Registration Statement on Form S-11 filed under the Securities Act of 1933. The Company commenced active operations on June 5, 1998. The Company terminated its initial public offering on December 19, 1999 at which time gross proceeds of approximately $132.2 million had been received from the sale of approximately 13.2 million shares. The Company commenced its second public offering of shares of common stock on December 20, 1999, which was terminated on December 19, 2000 after receipt of gross proceeds of approximately $175.2 million from the sale of approximately 17.5 million shares. The Company commenced its third public offering of shares of common stock on December 20, 2000, which terminated on July 26, 2002 after receipt of gross proceeds of approximately $1.3 billion from the sale of approximately 128.3 million shares. As of September 30, 2002, the Company has received gross proceeds of approximately $235.7 million from the sale of approximately 23.6 million shares from its fourth public offering. Accordingly, as of September 30, 2002, the Company has received aggregate gross offering proceeds of approximately $1.8 billion from the sale of 182.6 million shares of its common stock to investors. After payment of $63.3 million in acquisition and advisory fees and acquisition expenses, payment of $202.9 million in selling commissions and organization and offering expenses, capital contributions to joint ventures and acquisitions expenditures by Wells OP of $1.4 billion for property acquisitions, and common stock redemptions of $17.2 million pursuant to the Company’s share redemption program, the Company was holding net offering proceeds of $144.5 million available for investment in properties, as of September 30, 2002.
 
16

Table of Contents
(b) Properties
 
As of September 30, 2002, the Company owned interests in 67 properties listed in the table below through its ownership in Wells OP.
 
Property
Name

	  	Tenant

	  	Property
Location

	  	%
Owned

	 	 	Purchase
Price

	 	 	Square
Feet

	  	Annual
Rent

	 	
Daimler Chrysler Dallas	  	Daimler Chrysler Services North America
LLC	  	Westlake, TX	  	100	%	 	$	25,100,000	 	 	130,290	  	$	3,189,499	 	
Allstate Indianapolis	  	Allstate Insurance Company
Holladay Property Services Midwest, Inc.	  	Indianapolis, IN	  	100	%	 	$	10,900,000	 	 	84,200
5,756	  	$
$	1,246,164
74,832	 
 	
Intuit Dallas	  	Lacerte Software Corporation	  	Plano, TX	  	100	%	 	$	26,500,000	 	 	166,238	  	$	2,461,985	 	
EDS Des Moines	  	EDS Information Services LLC	  	Des Moines, IA	  	100	%	 	$	26,500,000	 	 	405,000	  	$	2,389,500	 	
Federal Express Colorado Springs	  	Federal Express Corporation	  	Colorado Springs, CO	  	100	%	 	$	26,000,000	 	 	155,808	  	$	2,248,309	 	
KeyBank Parsippany	  	KeyBank U.S.A., N.A.
Gemini Technology Services	  	Parsippany, NJ	  	100	%	 	$	101,350,000	 	 	200,000
204,515	  	$
$	3,800,000
5,726,420	 
 	
IRS Long Island	  	IRS Collection
IRS Compliance
IRS Daycare Facility	  	Holtsville, NY	  	100	%	 	$	50,975,000	 	 	128,000
50,949
12,100	  	$
$
$	5,029,380
1,663,200
486,799	(1)

AmeriCredit Phoenix	  	AmeriCredit Financial Services, Inc.	  	Chandler, AZ	  	100	%	 	$	24,700,000	(2)	 	153,494	  	$	1,609,315	(3)	
Harcourt Austin	  	Harcourt, Inc.	  	Austin, TX	  	100	%	 	$	39,000,000	 	 	195,230	  	$	3,353,040	 	
Nokia Dallas	  	Nokia, Inc.
Nokia, Inc.
Nokia, Inc.	  	Irving, TX	  	100	%	 	$	119,550,000	 	 	228,678
223,470
152,086	  	$
$
$	4,413,485
4,547,614
3,024,990	 

Kraft Atlanta	  	Kraft Foods North America, Inc.
Perkin Elmer Instruments, LLC	  	Suwanee, GA	  	100	%	 	$	11,625,000	 	 	73,264
13,955	  	$
$	1,263,804
194,672	 
 	
BMG Greenville	  	BMG Direct Marketing, Inc.
BMG Music	  	Duncan, SC	  	100	%	 	$	26,900,000	 	 	473,398
313,380	  	$
$	1,394,156
763,600	 
 	
Kerr-McGee	  	Kerr-McGee Oil & Gas Corporation	  	Houston, TX	  	100	%	 	$	15,760,000	(2)	 	100,000	  	$	1,655,000	(3)	
PacifiCare San Antonio	  	PacifiCare Health Systems, Inc.	  	San Antonio, TX	  	100	%	 	$	14,650,000	 	 	142,500	  	$	1,471,700	 	
ISS Atlanta	  	Internet Security Systems, Inc.	  	Atlanta, GA	  	100	%	 	$	40,500,000	 	 	238,600	  	$	4,623,445	 	
MFS Phoenix	  	Massachusetts Financial Services Company	  	Phoenix, AZ	  	100	%	 	$	25,800,000	 	 	148,605	  	$	2,347,959	 	
TRW Denver	  	TRW, Inc.	  	Aurora, CO	  	100	%	 	$	21,060,000	 	 	108,240	  	$	2,870,709	 	
Agilent Boston	  	Agilent Technologies, Inc.	  	Boxborough, MA	  	100	%	 	$	31,742,274	 	 	174,585	  	$	3,578,993	 	
Experian/TRW	  	Experian Information Solutions, Inc.	  	Allen, TX	  	100	%	 	$	35,150,000	 	 	292,700	  	$	3,438,277	 	
BellSouth Ft. Lauderdale	  	BellSouth Advertising and Publishing
Corporation	  	Ft. Lauderdale, FL	  	100	%	 	$	6,850,000	 	 	47,400	  	$	747,033	 	
Agilent Atlanta	  	Agilent Technologies, Inc. Koninklijke Philips
Electronics N.V.	  	Alpharetta, GA	  	100	%	 	$	15,100,000	 	 	66,811
34,396	  	$
$	1,344,905
704,430	 
 	
Travelers Express Denver	  	Travelers Express Company, Inc.	  	Lakewood, CO	  	100	%	 	$	10,395,845	 	 	68,165	  	$	1,012,250	 	
Dana Kalamazoo	  	Dana Corporation	  	Kalamazoo, MI	  	100	%	 	$	41,950,000	(4)	 	147,004	  	$	1,842,800	 	
Dana Detroit	  	Dana Corporation	  	Farmington Hills, MI	  	100	%	 	 
 	(see
above	 
)(4)	 	112,480	  	$	2,330,600	 	
Novartis Atlanta	  	Novartis Opthalmics, Inc.	  	Duluth, GA	  	100	%	 	$	15,000,000	 	 	100,087	  	$	1,426,240	 	
Transocean Houston	  	Transocean Deepwater Offshore Drilling, Inc.
Newpark Drilling Fluids, Inc.	  	Houston, TX	  	100	%	 	$	22,000,000	 	 	103,260
52,731	  	$
$	2,110,035
1,153,227	 
 	
Arthur Andersen (5)	  	Arthur Andersen LLP	  	Sarasota, FL	  	100	%	 	$	21,400,000	 	 	157,700	  	$	1,988,454	 	
Windy Point I	  	TCI Great Lakes, Inc. The Apollo Group, Inc.
Global Knowledge Network Various other
tenants	  	Schaumburg, IL	  	100	%	 	$	32,225,000	(6)	 	129,157
28,322
22,028
8,884	  	$
$
$
$	2,067,204
477,226
393,776
160,000	 

 	
Windy Point II	  	Zurich American Insurance	  	Schaumburg, IL	  	100	%	 	$	57,050,000	(6)	 	300,034	  	$	5,244,594	 	
Convergys	  	Convergys Customer Management Group, Inc.	  	Tamarac, FL	  	100	%	 	$	13,255,000	 	 	100,000	  	$	1,248,192	 	
ADIC	  	Advanced Digital Information Corporation	  	Parker, CO	  	68.2	%	 	$	12,954,213	 	 	148,204	  	$	1,222,683	 	
Lucent	  	Lucent Technologies, Inc.	  	Cary, NC	  	100	%	 	$	17,650,000	 	 	120,000	  	$	1,800,000	 	
Ingram Micro	  	Ingram Micro, L.P.	  	Millington, TN	  	100	%	 	$	21,050,000	 	 	701,819	  	$	2,035,275	 	
Nissan	  	Nissan Motor Acceptance Corporation	  	Irving, TX	  	100	%	 	$	42,259,000	(2)	 	268,290	  	$	4,225,860	(3)	
IKON	  	IKON Office Solutions, Inc.	  	Houston, TX	  	100	%	 	$	20,650,000	 	 	157,790	  	$	2,015,767	 	
State Street	  	SSB Realty, LLC	  	Quincy, MA	  	100	%	 	$	49,563,000	 	 	234,668	  	$	6,922,706	 	
AmeriCredit	  	AmeriCredit Financial Services Corporation	  	Orange Park, FL	  	68.2	%	 	$	12,500,000	 	 	85,000	  	$	1,336,200	 	
Comdata	  	Comdata Network, Inc.	  	Brentwood, TN	  	55.0	%	 	$	24,950,000	 	 	201,237	  	$	2,458,638	 	
 
17

Table of Contents
Property
Name

	  	Tenant

	  	Property
Location

	  	%
Owned

	 	 	Purchase
Price

	  	Square
Feet

	  	Annual
Rent

	
AT&T Oklahoma	  	AT&T Corp.
Jordan Associates, Inc.	  	Oklahoma City, OK	  	55.0	%	 	$	15,300,000	  	103,500
25,000	  	$
$	1,242,000
294,500	
Metris Minnesota	  	Metris Direct, Inc.	  	Minnetonka, MN	  	100	%	 	$	52,800,000	  	300,633	  	$	4,960,445	
Stone & Webster	  	Stone & Webster, Inc.
SYSCO Corporation	  	Houston, TX	  	100	%	 	$	44,970,000	  	206,048
106,516	  	$
$	4,533,056
2,130,320	
Motorola Plainfield	  	Motorola, Inc.	  	S. Plainfield, NJ	  	100	%	 	$	33,648,156	  	236,710	  	$	3,324,428	
Quest	  	Quest Software, Inc.	  	Irvine, CA	  	15.8	%	 	$	7,193,000	  	65,006	  	$	1,287,119	
Delphi	  	Delphi Automotive Systems, LLC	  	Troy, MI	  	100	%	 	$	19,800,000	  	107,193	  	$	1,955,524	
Avnet	  	Avnet, Inc.	  	Tempe, AZ	  	100	%	 	$	13,250,000	  	132,070	  	$	1,516,164	
Siemens	  	Siemens Automotive Corp.	  	Troy, MI	  	56.8	%	 	$	14,265,000	  	77,054	  	$	1,374,643	
Motorola Tempe	  	Motorola, Inc.	  	Tempe, AZ	  	100	%	 	$	16,000,000	  	133,225	  	$	2,054,329	
ASML	  	ASM Lithography, Inc.	  	Tempe, AZ	  	100	%	 	$	17,355,000	  	95,133	  	$	1,927,788	
Dial	  	Dial Corporation	  	Scottsdale, AZ	  	100	%	 	$	14,250,000	  	129,689	  	$	1,387,672	
Metris Tulsa	  	Metris Direct, Inc.	  	Tulsa, OK	  	100	%	 	$	12,700,000	  	101,100	  	$	1,187,925	
Cinemark	  	Cinemark USA, Inc.
The Coca-Cola Company	  	Plano, TX	  	100	%	 	$	21,800,000	  	65,521
52,587	  	$
$	1,366,491
1,354,184	
Gartner	  	The Gartner Group, Inc.	  	Ft. Myers, FL	  	56.8	%	 	$	8,320,000	  	62,400	  	$	830,656	
Videojet Technologies Chicago	  	Videojet Technologies, Inc.	  	Wood Dale, IL	  	100	%	 	$	32,630,940	  	250,354	  	$	3,376,746	
Johnson Matthey	  	Johnson Matthey, Inc.	  	Wayne, PA	  	56.8	%	 	$	8,000,000	  	130,000	  	$	854,748	
Alstom Power Richmond (2)	  	Alstom Power, Inc.	  	Midlothian, VA	  	100	%	 	$	11,400,000	  	99,057	  	$	1,244,501	
Sprint	  	Sprint Communications Company, L.P.	  	Leawood, KS	  	56.8	%	 	$	9,500,000	  	68,900	  	$	1,102,404	
EYBL CarTex	  	EYBL CarTex, Inc.	  	Fountain Inn, SC	  	56.8	%	 	$	5,085,000	  	169,510	  	$	550,908	
Matsushita (2)	  	Matsushita Avionics Systems Corporation	  	Lake Forest, CA	  	100	%	 	$	18,431,206	  	144,906	  	$	2,005,464	
AT&T Pennsylvania	  	Pennsylvania Cellular Telephone Corp.	  	Harrisburg, PA	  	100	%	 	$	12,291,200	  	81,859	  	$	1,442,116	
PwC	  	PricewaterhouseCoopers, LLP	  	Tampa, FL	  	100	%	 	$	21,127,854	  	130,091	  	$	2,093,382	
Cort Furniture	  	Cort Furniture Rental Corporation	  	Fountain Valley, CA	  	44.0	%	 	$	6,400,000	  	52,000	  	$	834,888	
Fairchild	  	Fairchild Technologies U.S.A., Inc.	  	Fremont, CA	  	77.5	%	 	$	8,900,000	  	58,424	  	$	920,144	
Avaya	  	Avaya, Inc.	  	Oklahoma City, OK	  	3.7	%	 	$	5,504,276	  	57,186	  	$	536,977	
Iomega	  	Iomega Corporation	  	Ogden, UT	  	3.7	%	 	$	5,025,000	  	108,250	  	$	659,868	
Interlocken	  	ODS Technologies, L.P. and GAIAM, Inc.	  	Broomfield, CO	  	3.7	%	 	$	8,275,000	  	51,975	  	$	1,070,515	
Ohmeda	  	Ohmeda, Inc.	  	Louisville, CO	  	3.7	%	 	$	10,325,000	  	106,750	  	$	1,004,520	
Alstom Power Knoxville	  	Alstom Power, Inc.	  	Knoxville, TN	  	3.7	%	 	$	7,900,000	  	84,404	  	$	1,106,520	
 
(1)	 	Includes only the leased portion of this property.	
 
(2)	 	Includes the actual costs incurred or estimated to be incurred by Wells OP to develop and construct the building in addition to the purchase price of the land.	
 
(3)	 	Annual rent for AmeriCredit Phoenix, Kerr McGee and Nissan Property does not take effect until construction of the building is completed and the tenant is occupying the building.	
 
(4)	 	Dana Kalamazoo and Dana Detroit were purchased for an aggregate purchase price of $41,950,000.	
 
(5)	 	Subsequent to September 30, 2002, this building has been vacated by the tenant. See Footnote 10 and “Subsequent Events” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this supplement.	
 
(6)	 	Windy Point I and Windy Point II were purchased for an aggregate purchase price of $89,275,000.	
 
18

Table of Contents
Wells OP owns interests in properties directly and through equity ownership in the following joint ventures:
 
Joint Venture

	  	Joint Venture Partners

	  	Properties Held by Joint Venture

	
Fund XIII-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Wells Real Estate Fund XIII, L.P.	  	AmeriCredit
ADIC	
Fund XII-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Wells Real Estate Fund XII, L.P.	  	Siemens
AT&T Oklahoma
Comdata	
Fund XI-XII-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Wells Real Estate Fund XI, L.P.
Wells Real Estate Fund XII, L.P.	  	EYBL CarTex
Sprint
Johnson Matthey
Gartner	
Fund IX-X-XI-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Wells Real Estate Fund IX, L.P.
Wells Real Estate Fund X, L.P.
Wells Real Estate Fund XI, L.P.	  	Alstom Power Knoxville
Ohmeda
Interlocken
Avaya
Iomega	
Wells/Fremont Associates Joint Venture (the “Fremont Joint Venture”)	  	Wells Operating Partnership, L.P.
Fund X-XI Joint Venture	  	Fairchild	
Wells/Orange County Associates Joint Venture
(the “Orange County Joint Venture”)	  	Wells Operating Partnership, L.P.
Fund X-XI Joint Venture	  	Cort Furniture	
Fund VIII-IX-REIT Joint Venture	  	Wells Operating Partnership, L.P.
Fund VIII-IX Joint Venture	  	Quest	
 
(c) Critical Accounting Policies
 
The Company’s accounting policies have been established in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied; thus, resulting in a different presentation of our financial statements. Below is a discussion of the accounting policies that we consider to be critical in that they may require complex judgment in their application or require estimates about matters which are inherently uncertain.
 
Revenue Recognition
 
The Company recognizes rental income generated from all leases on real estate assets in which the Company has an ownership interest, either directly or through investments in joint ventures, on a straight-line basis over the terms of the respective leases. If a tenant was to encounter financial difficulties in future periods, the amount recorded as a receivable may not be realized.
 
Operating Cost Reimbursements
 
The Company generally bills tenants for operating cost reimbursements, either directly or through investments in joint ventures, on a monthly basis at amounts estimated largely based on actual prior period activity, the current year budget and the respective lease terms. Such billings are generally adjusted on an annual basis to reflect reimbursements owed to the landlord based on the actual costs incurred during the period and the respective lease terms. Financial difficulties encountered by tenants may result in receivables not being realized.
 
19

Table of Contents
Real Estate
 
Management continually monitors events and changes in circumstances indicating that the carrying amounts of the real estate assets in which the Company has an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When such events or changes in circumstances are present, management assesses the potential impairment by comparing the fair market value of the asset, estimated at an amount equal to the future undiscounted operating cash flows expected to be generated from tenants over the life of the asset and from its eventual disposition, to the carrying value of the asset. In the event that the carrying amount exceeds the estimated fair market value, the Company would recognize an impairment loss in the amount required to adjust the carrying amount of the asset to its estimated fair market value. Neither the Company nor its joint ventures have recognized impairment losses on real estate assets to date.
 
Deferred Project Costs
 
The Company records acquisition and advisory fees and acquisition expenses payable to Wells Capital, Inc. (the “Advisor”) by capitalizing deferred project costs and reimbursing the Advisor in an amount equal to 3.5% of cumulative capital raised to date. As the Company invests its capital proceeds, deferred project costs are applied to real estate assets, either directly or through contributions to joint ventures, and depreciated over the useful lives of the respective real estate assets. Acquisition and advisory fees and acquisition expenses paid as of September 30, 2002, amounted to $63.3 million and represented approximately 3.5% of capital contributions received. These fees are allocated to specific properties as they are purchased or developed and are included in capitalized assets of the joint venture, or real estate assets. Deferred project costs at September 30, 2002 and December 31, 2001, represent fees paid, but not yet applied to properties.
 
Deferred Offering Costs
 
The Advisor expects to continue to fund 100% of the organization and offering costs and recognize related expenses, to the extent that such costs exceed 3% of cumulative capital raised, on behalf of the Company. Organization and offering costs include items such as legal and accounting fees, marketing and promotional costs, and printing costs, and specifically exclude sales costs and underwriting commissions. The Company records offering costs by accruing deferred offering costs, with an offsetting liability included in due to affiliates, at an amount equal to the lesser of 3% of cumulative capital raised to date or actual costs incurred from third-parties less reimbursements paid to the Advisor. As equity is raised, the Company reverses the deferred offering costs accrual and recognizes a charge to stockholders’ equity upon reimbursing the Advisor. As of September 30, 2002, the Advisor had paid organization and offering expenses on behalf of the Company in an aggregate amount of $34.2 million, of which the Advisor had been reimbursed $29.7 million, which did not exceed the 3% limitation. Deferred offering costs in the accompanying balance sheet represent costs incurred by the Advisor which will be reimbursed by the Company.
 
(d) Distribution Policy
 
The Company will make distributions each taxable year (not including a return of capital for federal income tax purposes) equal to at least 90% of its real estate investment trusts’ taxable income. The Company intends to make regular quarterly distributions to stockholders. Distributions will be made to those stockholders who are stockholders as of the record date selected by the Directors. The Company currently calculates quarterly dividends based on the daily record and dividend declaration dates; thus, stockholders are entitled to receive dividends immediately upon the purchase of shares.
 
20

Table of Contents
Dividends to be distributed to the stockholders are determined by the Board of Directors and are dependent on a number of factors related to the Company, including funds available for payment of dividends, financial condition, capital expenditure requirements and annual distribution requirements in order to maintain the Company’s status as a REIT under the Code. Operating cash flows are expected to increase as additional properties are added to the Company’s investment portfolio.
 
(e) Income Taxes
 
The Company has made an election under Section 856 (C) of the Internal Revenue Code of 1986, as amended (the “Code”), to be taxed as a Real Estate Investment Trust (“REIT”) under the Code beginning with its taxable year ended December 31, 1998. As a REIT for federal income tax purposes, the Company generally will not be subject to federal income tax on income that it distributes to its shareholders. If the Company fails to qualify as a REIT in any taxable year, it will then be subject to federal income tax on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost. Such an event could materially adversely affect the Company’s net income and net cash available to distribute to shareholders. However, the Company believes that it is organized and operates in such a manner as to qualify for treatment as a REIT and intends to continue to operate in the foreseeable future in such a manner so that the Company will remain qualified as a REIT for federal income tax purposes.
 
(f) Employees
 
The Company has no direct employees. The employees of the Advisor and Wells Management Company, Inc. (Wells Management), an affiliate of the Company and the Advisor, perform a full range of real estate services including leasing and property management, accounting, asset management and investor relations for the Company. The Company has reimbursed the Advisor and Wells Management for allocated salaries, wages and other payroll related costs totaling $1.1 million and $0.4 million for the nine months ended September 30, 2002 and 2001, respectively, and $0.5 million and $0.1 million for the three months ended September 30, 2002 and 2001, respectively.
 
(g) Insurance
 
Wells Management Company, Inc., an affiliate of the Company and the Advisor, carries comprehensive liability and extended coverage with respect to all the properties owned directly or indirectly by the Company. In the opinion of management, the properties are adequately insured.
 
(h) Competition
 
The Company will experience competition for tenants from owners and managers of competing projects, which may include its affiliates. As a result, the Company 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 Company elects to dispose of its properties, the Company will also be in competition with sellers of similar properties to locate suitable purchasers for its properties.
 
(i) Statement of Cash Flows
 
For the purpose of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents include cash and short-term investments.
 
21

Table of Contents
(j) Basis of Presentation
 
Substantially all of the Company’s business is conducted through Wells OP. On December 31, 1997, Wells OP issued 20,000 limited partner units to the Advisor in exchange for a capital contribution of $200,000. The Company is the sole general partner in Wells OP; consequently, the accompanying consolidated balance sheet of the Company includes the amounts of the Company and Wells OP. The Advisor, a limited partner, is not currently receiving distributions from its investment in Wells OP.
 
The consolidated financial statements of the Company have been prepared in accordance with instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These quarterly statements have not been examined by independent accountants, but in the opinion of management of the Company, the statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary to present a fair presentation of the results for such periods. Results for interim periods are not necessarily indicative of full year results. For further information, refer to the financial statements and footnotes included in the Company’s Form 10-K for the year ended December 31, 2001.
 
(k) Reclassifications and Change in Presentation
 
The Company has historically reported property operating costs net of reimbursements from tenants as an expense in its Consolidated Statements of Income. These costs include property taxes, property insurance, utilities, repairs and maintenance, management fees and other expenses related to the ownership and operation of the Company’s properties that are required to be reimbursed by the properties’ tenants in accordance with the terms of their leases. In response to a FASB Emerging Issues Task Force release issued in November 2001, the Company will now present the reimbursements received from tenants as revenue and the gross property operating costs as expenses commencing in the first quarter of 2002. Consequently, the accompanying Consolidated Statements of Income for the three and nine months ended September 30, 2002 have been amended and restated to reflect the effects of this revised presentation. In addition, the comparative financial information for prior periods has been reclassified to conform to the presentation in the 2002 financial statements.
 
Since this presentation does not impact the amount of reimbursements received or property operating costs incurred and requires equal adjustments to revenues and expenses, the adoption of this guidance will have no impact on the financial position, net income, earnings per share or cash flows of the Company.
 
2. INVESTMENT IN JOINT VENTURES
 
(a) Basis of Presentation
 
As of September 30, 2002, the Company owned interests in 17 properties in joint ventures with related entities through its ownership in Wells OP, which owns interests in seven such joint ventures. The Company does not have control over the operations of these joint ventures; however, it does exercise significant influence. Accordingly, investment in joint ventures is recorded using the equity method.
 
(b) Summary of Operations
 
The following information summarizes the results of operations of the unconsolidated joint ventures in which the Company, through Wells OP, had ownership interests as of September 30, 2002 and 2001, respectively. There were no additional investments in joint ventures made by the Company during the three and nine months ended September 30, 2002.
 
22

Table of Contents
 	  	Total Revenues

	  	Net Income

	  	Wells OP’s
Share of Net Income

	
 	  	Three Months Ended (in thousands)

	  	Three Months Ended (in thousands)

	  	Three Months Ended (in thousands)

	
 	  	September 30,
2002

	  	September 30,
2001

	  	September 30,
2002

	  	September 30,
2001

	  	September 30,
2002

	  	September 30,
2001

	
Fund IX-X-XI-REIT Joint Venture	  	$	1,346	  	$	1,458	  	$	574	  	$	670	  	$	21	  	$	25	
Cort Joint Venture	  	 	209	  	 	213	  	 	135	  	 	149	  	 	59	  	 	65	
Fremont Joint Venture	  	 	226	  	 	227	  	 	142	  	 	142	  	 	110	  	 	110	
Fund XI-XII-REIT Joint Venture	  	 	855	  	 	856	  	 	484	  	 	520	  	 	275	  	 	295	
Fund XII-REIT Joint Venture	  	 	1,481	  	 	1,525	  	 	727	  	 	815	  	 	400	  	 	448	
Fund VIII-IX-REIT Joint Venture	  	 	310	  	 	314	  	 	153	  	 	156	  	 	24	  	 	24	
Fund XIII-REIT Joint Venture	  	 	707	  	 	306	  	 	408	  	 	155	  	 	370	  	 	135	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 	  	$	5,134	  	$	4,899	  	$	2,623	  	$	2,607	  	$	1,259	  	$	1,102	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 	 	 	 	
 	  	Total Revenues

	  	Net Income

	  	Wells OP’s
Share of Net Income

	
 	  	Nine Months Ended (in thousands)

	  	Nine Months Ended (in thousands)

	  	Nine Months Ended (in thousands)

	
 	  	September 30,
2002

	  	September 30,
2001

	  	September 30,
2002

	  	September 30,
2001

	  	September 30,
2002

	  	September 30,
2001

	
Fund IX-X-XI-REIT Joint Venture	  	$	4,170	  	$	4,472	  	$	1,747	  	$	2,043	  	$	65	  	$	76	
Cort Joint Venture	  	 	631	  	 	611	  	 	405	  	 	415	  	 	177	  	 	181	
Fremont Joint Venture	  	 	679	  	 	677	  	 	419	  	 	421	  	 	325	  	 	326	
Fund XI-XII-REIT Joint Venture	  	 	2,601	  	 	2,571	  	 	1,526	  	 	1,534	  	 	866	  	 	871	
Fund XII-REIT Joint Venture	  	 	4,643	  	 	3,729	  	 	2,385	  	 	1,848	  	 	1,311	  	 	967	
Fund VIII-IX-REIT Joint Venture	  	 	945	  	 	902	  	 	461	  	 	416	  	 	73	  	 	66	
Fund XIII-REIT Joint Venture	  	 	2,115	  	 	306	  	 	1,215	  	 	155	  	 	921	  	 	135	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 	  	$	15,784	  	$	13,268	  	$	8,158	  	$	6,832	  	$	3,738	  	$	2,622	

	

	  	

	

	  	

	

	  	

	

	  	

	

	  	

	

	
 
Total revenues for the three and nine months ended September 30, 2002 presented above have been amended and restated to include operating cost reimbursements from tenants as revenue, consistent with the presentation described in Note 1(k).
 
3. INVESTMENTS IN REAL ESTATE
 
As of September 30, 2002, the Company, through its ownership in Wells OP, owns 50 properties directly. The following describes acquisitions made directly by Wells OP during the three months ended September 30, 2002.
 
The ISS Atlanta Buildings
 
On July 1, 2002, Wells OP purchased two five-story buildings containing a total of 238,600 rentable square feet located in Atlanta, Georgia for a purchase price of $40.5 million, excluding closing costs. The ISS Atlanta Buildings were acquired by assigning to Wells OP an existing ground lease with
 
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the Development Authority of Fulton County (“Development Authority”). Fee simple title to the land upon which the ISS Atlanta Buildings are located is held by the Development Authority, which issued Development Authority of Fulton County Taxable Revenue Bonds (“Bonds”) totaling $32.5 million in connection with the construction of these buildings. The Bonds, which entitle Wells OP to certain real property tax abatement benefits, were also assigned to Wells OP at the closing. Fee title interest to the land will be transferred to Wells OP upon payment of the outstanding balance on the Bonds, either by prepayment by Wells OP or at the expiration of the ground lease on December 1, 2015.
 
The entire rentable area of the ISS Atlanta Buildings is leased to Internet Security Systems, Inc., a Georgia corporation (“ISS”). The ISS Atlanta lease is a net lease that commenced in November 2000 and expires in May 2013. The current annual base rent payable under the ISS Atlanta lease is approximately $4.6 million. ISS, at its option, has the right to extend the initial term of its lease for three additional five-year periods at 95% of the then-current market rental rate.
 
The PacifiCare San Antonio Building
 
On July 12, 2002, Wells OP purchased the PacifiCare San Antonio Building, a two-story office building containing 142,500 rentable square feet located in San Antonio, Texas for a purchase price of $14.7 million, excluding closing costs. The PacifiCare San Antonio Building is 100% leased to PacifiCare Health Systems, Inc. (“PacifiCare”). The PacifiCare lease is a net lease that commenced in November 2000 and expires in November 2010. The current annual base rent payable under the PacifiCare lease is approximately $1.5 million. PacifiCare, at its option, has the right to extend the initial term of its lease for three additional five-year periods. Monthly base rent for the first renewal term will be approximately $0.2 million and monthly base rent for the second and third renewal terms will be the then-current market rental rate.
 
The Kerr-McGee Property
 
On July 29, 2002, Wells OP purchased the Kerr-McGee Property, a 4.2-acre tract of land located in Houston, Harris County, Texas for a purchase price of approximately $1.7, excluding closing costs. Wells OP has entered into agreements to construct a four-story office building containing approximately 100,000 rentable square feet (the “Kerr-McGee Project”) on the Kerr-McGee Property. It is currently anticipated that the aggregate of all costs and expenses to be incurred by Wells OP with respect to the acquisition of the Kerr-McGee Property and the planning, design, development, construction and completion of the Kerr McGee Project will total approximately $15.8 million.
 
The entire 100,000 rentable square feet of the Kerr-McGee Project will be leased to Kerr-McGee Oil & Gas Corporation (“Kerr-McGee”), a wholly owned subsidiary of Kerr-McGee Corporation. The initial term of the Kerr-McGee lease will extend 11 years and 1 month beyond the rent commencement date. Construction on the building is scheduled to be completed by July 2003. The rent commencement date will occur no later than July 1, 2003. Kerr-McGee has the right to extend the initial term of this lease for one additional period of twenty years or the option to extend the initial term for any combination of additional periods of ten years or five years for a total additional period of not more than twenty years. The base rental rate will be 95% of the existing market rate. The initial annual base rent payable under the Kerr-McGee lease will be calculated as 10.5% of project costs.
 
Wells OP obtained a construction loan in the amount of $13.7 million from Bank of America, to fund the construction of a building on the Kerr-McGee Property. The loan requires monthly payments of interest only and matures on January 29, 2004. The interest rate on the loan as of August 6, 2002 was 3.80%. The Bank of America loan is secured by a first priority mortgage on the Kerr-McGee Property.
 
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The BMG Greenville Buildings
 
On July 31, 2002, Wells OP purchased the BMG Greenville Buildings, two one-story office buildings containing 786,778 rentable square feet located in Duncan, Spartanburg County, South Carolina for a purchase price of $26.9 million, excluding closing costs. The BMG Greenville Buildings are leased to BMG Direct Marketing, Inc. (“BMG Marketing”) and BMG Music (“BMG Music”).
 
The BMG Marketing lease is a net lease that covers approximately 473,398 square feet that commenced in March 1988 and expires in March 2011. The current annual base rent payable under the BMG Marketing lease is approximately $1.4 million. BMG Marketing, at its option, has the right to extend the initial term of its lease for two consecutive ten-year periods at 95% of the then-current market rental rate.
 
The BMG Music lease is a net lease that covers approximately 313,380 rentable square feet that commenced in December 1987 and expires in March 2011. The current annual base rent payable under the BMG Music lease is approximately $0.8 million. BMG Music, at its option, has the right to extend the initial term of its lease for two consecutive ten-year periods at 95% of the then-current market rental rate.
 
The Kraft Atlanta Building
 
On August 1, 2002, Wells OP purchased the Kraft Atlanta Building, a one-story office building containing 87,219 rentable square feet located in Suwanee, Forsyth County, Georgia for a purchase price of approximately $11.6 million, excluding closing costs. The Kraft Atlanta Building is leased to Kraft Foods North America, Inc. (“Kraft”) and PerkinElmer Instruments, LLC (“PerkinElmer”).
 
The Kraft lease is a net lease that covers approximately 73,264 square feet that commenced in February 2002 and expires in January 2012. The current annual base rent payable under the Kraft lease is approximately $1.3 million. Kraft, at its option, has the right to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. In addition, Kraft may terminate the lease (1) at the end of the third year by paying a $7.0 million termination fee, or (2) at the end of the seventh lease year by paying an approximately $1.8 million termination fee.
 
The PerkinElmer lease is a net lease that covers approximately 13,955 rentable square feet that commenced in December 2001 and expires in November 2016. The current annual base rent payable under the PerkinElmer lease is approximately $0.2 million. PerkinElmer, at its option, has the right to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. In addition, PerkinElmer may terminate the lease at the end of the tenth lease year by paying a $0.3 million termination fee.
 
The Nokia Dallas Buildings
 
On August 15, 2002, Wells OP purchased the Nokia Dallas Buildings, three adjacent office buildings containing an aggregate of 604,234 rentable square feet located in Irving, Texas for an aggregate purchase price of approximately $119.6 million, excluding closing costs. The Nokia Dallas Buildings are all leased entirely to Nokia, Inc (“Nokia”) under three long-term net leases for periods of 10 years, with approximately seven to eight years remaining on such leases.
 
The Nokia I Building is a nine-story building containing 228,678 rentable square feet. The Nokia I Building lease fully commenced in July 1999 and expires in July 2009. The current annual base rent payable under the Nokia I Building lease is approximately $4.4 million. The Nokia II Building is a seven-story building containing 223,470 rentable square feet. The Nokia II Building lease commenced in December 2000 and expires in December 2010. The current annual base rent payable under the Nokia II Building lease is approximately $4.5 million. The Nokia III Building is a six-story building containing
 
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152,086 rentable square feet. The Nokia III Building lease commenced in June 1999 and expires in July 2009. The current annual base rent payable under the Nokia III Building lease is approximately $3.0 million.
 
The Harcourt Austin Building
 
On August 15, 2002, Wells OP purchased the Harcourt Austin Building, a seven-story office building containing 195,230 rentable square feet located in Austin, Texas for a purchase price of $39.0 million, excluding closing costs. The Harcourt Austin Building is leased entirely to Harcourt, Inc. (“Harcourt”), a wholly owned subsidiary of Harcourt General, Inc., the guarantor of the Harcourt lease. The Harcourt lease commenced in July 2001 and expires in June 2016. The current annual base rent payable under the Harcourt lease is approximately $3.4 million.
 
The AmeriCredit Phoenix Property
 
On September 12, 2002, Wells OP purchased the AmeriCredit Phoenix Property, a 14.74-acre tract of land located in Chandler, Maricopa County, Arizona for a purchase price of approximately $2.6 million, excluding closing costs. Wells OP has entered into agreements to construct a three-story office building containing approximately 153,494 rentable square feet (the “AmeriCredit Phoenix Project”) on the AmeriCredit Phoenix Property. It is currently anticipated that the aggregate of all costs and expenses to be incurred by Wells OP with respect to the acquisition of the AmeriCredit Phoenix Project and the planning, design, development, construction and completion of the AmeriCredit Phoenix Project will total approximately $24.7 million.
 
The entire 153,494 rentable square feet of the AmeriCredit Phoenix Project will be leased to AmeriCredit Financial Services, Inc. (“AmeriCredit”), a wholly owned subsidiary of AmeriCredit Corporation. The initial term of the AmeriCredit lease will extend 10 years and 4 month beyond the rent commencement date. Construction on the building is scheduled to be completed by August 2003. AmeriCredit has the right to extend the initial term of this lease for two additional periods of five years at 95% of the then-market rate. As an inducement for Wells OP to enter into the AmeriCredit Phoenix lease, AmeriCredit has prepaid to Wells OP the first three years of base rent at a discounted amount equal to approximately $4.8 million.
 
The IRS Long Island Buildings
 
On September 16, 2002, Wells REIT-Holtsville, NY, LLC (“REIT-Holtsville”), a Georgia limited liability company wholly-owned by Wells OP purchased the IRS Long Island Buildings, a two-story office building and a one-story daycare facility containing an aggregate 259,700 rentable square feet located in Holtsville, New York for a purchase price of approximately $51.0 million, excluding closing costs. Approximately 191,050 of the aggregate rentable square feet of the IRS Long Island Buildings (74%) is currently leased to the United States of America through the U.S. General Services Administration (“U.S.A.”) for occupancy by the IRS under three separate lease agreements for the processing & collection division of the IRS (“IRS Collection”), the compliance division of the IRS (“IRS Compliance”), and the IRS Daycare Facility. REIT-Holtsville is negotiating for the remaining 26% of the IRS Long Island Buildings to be leased by the U.S.A. on behalf of the IRS or to another suitable tenant. If REIT-Holtsville should lease this space to the U.S.A. or another suitable tenant within 18 months, REIT-Holtsville would owe the seller an additional amount of up to $14.5 million as additional purchase price for the IRS Long Island Buildings pursuant to the terms of an earnout agreement entered into between REIT-Holtsville and the seller at the closing.
 
The IRS Collection lease, which encompasses 128,000 rentable square feet of the IRS Office Building, commenced in August 2000 and expires in August 2005. The current annual base rent payable under the IRS Collection lease is approximately $5.0 million. The annual base rent payable under the
 
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IRS Collection lease for the remaining two years of the initial lease term will be approximately $2.8 million. The U.S.A., at its option, has the right to extend the initial term of its lease for two additional five-year periods at annual rental rates of approximately $4.2 million and $5.0 million, respectively.
 
The IRS Compliance lease, which encompasses 50,949 rentable square feet of the IRS Office Building, commenced in December 2001 and expires in December 2011. The annual base rent payable under the IRS Compliance lease for the initial term of the lease is approximately $1.7 million. The U.S.A., at its option, has the right to extend the initial term of its lease for one additional ten-year period at an annual rental rate of approximately $2.2 million.
 
The IRS Daycare Facility lease, which encompasses the entire 12,100 rentable square feet of the IRS Daycare Facility, commenced in October 1999 and expires in September 2004. The annual base rent payable under the IRS Daycare Facility lease for the initial term of the lease is approximately $0.5 million. The U.S.A., at its option, has the right to extend the initial term of its lease for two additional five-year periods at an annual rental rate of approximately $0.4 million.
 
The KeyBank Parsippany Building
 
On September 27, 2002, Wells OP purchased the KeyBank Parsippany Building, a four-story office building containing 404,515 rentable square feet located in Parsippany, New Jersey for a purchase price of approximately $101.4 million, excluding closing costs. The KeyBank Parsippany Building is leased to Key Bank U.S.A., N.A. (“KeyBank”) and Gemini Technology Services (“Gemini”).
 
The KeyBank lease covers 200,000 rentable square feet (49%) under a net lease that commenced in March 2001 and expires in February 2016. The current annual base rent payable under the KeyBank lease is $3.8 million. KeyBank, at its option, has the right to extend the initial term of its lease for three additional five-year periods at the then-current market rental rate.
 
The Gemini lease covers 204,515 rentable square feet (51%) under a gross lease that commenced in December 2000 and expires in December 2013. The current annual base rent payable under the Gemini lease is approximately $5.7 million. Gemini, at its option, has the right to extend the initial term of its lease for three additional five-year periods at a rate equal to the greater of (1) the annual rent during the final year of the initial lease term, or (2) 95% of the then-current market rental rate.
 
The Federal Express Colorado Springs Building
 
On September 27, 2002, Wells OP purchased the Federal Express Colorado Springs Building, a three-story office building containing 155,808 rentable square feet located in Colorado Springs, Colorado for a purchase price of $26.0 million, excluding closing costs. The Federal Express Colorado Springs Building is leased entirely to Federal Express Corporation (“Federal Express”). The Federal Express lease commenced in July 2001 and expires in October 2016. The current annual base rent payable under the Federal Express lease is approximately $2.2 million. Federal Express, at its option, has the right to extend the initial term of its lease for four additional five-year periods at 90% of the then-current market rental rate. In addition, Federal Express has an expansion option under its lease pursuant to which Wells OP would be required to construct an additional office building.
 
The EDS Des Moines Building
 
On September 27, 2002, Wells OP purchased the EDS Des Moines Building, a one-story office and distribution building containing 115,000 rentable square feet of office space and 290,000 rentable square feet of warehouse space located in Des Moines, Iowa for a purchase price of $26.5 million, excluding closing costs. The EDS Des Moines Building is leased entirely to EDS Information Services
 
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L.L.C. (“EDS”), a wholly-owned subsidiary of Electronic Data Systems Corporation (“EDS Corp.”). EDS Corp. is the guarantor of the EDS lease. The EDS lease commenced in May 2002 and expires in April 2012. The current annual base rent payable under the EDS lease is approximately $2.4 million. EDS, at its option, has the right to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. In addition, EDS has an expansion option under its lease for up to an additional 100,000 rentable square feet.
 
The Intuit Dallas Building
 
On September 27, 2002, Wells OP purchased the Intuit Dallas Building, a two-story office building with a three-story wing containing 166,238 rentable square feet located in Plano, Texas for a purchase price of $26.5 million, excluding closing costs. The Intuit Dallas Building is leased entirely to Lacerte Software Corporation (“Lacerte”), a wholly-owned subsidiary of Intuit, Inc. (“Intuit”). Intuit is the guarantor of the Lacerte lease. The Lacerte lease commenced in July 2001 and expires in June 2011. The current annual base rent payable under the Lacerte lease is approximately $2.5 million. Lacerte, at its option, has the right to extend the initial term of its lease for two additional five-year periods at rental rates of $17.92 per square foot and $19.71 per square foot, respectively. In addition, Lacerte has an expansion option through November 2004 pursuant to which Wells OP would be required to purchase an additional 19 acre tract of land and to construct up to an approximately 600,000 rentable square foot building thereon.
 
The Allstate Indianapolis Building
 
On September 27, 2002, Wells OP purchased the Allstate Indianapolis Building, a one-story office building containing 89,956 rentable square feet located in Indianapolis, Indiana for a purchase price of $10.9 million, excluding closing costs. The Allstate Indianapolis Building is leased to Allstate Insurance Company (“Allstate”) and Holladay Property Services Midwest, Inc. (“Holladay”).
 
The Allstate lease, which covers 84,200 rentable square feet (94%), commenced in March 2002 and expires in August 2012. The current annual base rent payable under the Allstate lease is approximately $1.2 million. Allstate at its option has the right to (1) terminate the initial term of the Allstate lease at the end of the fifth lease year (August 2007) upon payment of an approximately $0.4 million fee, or (2) reduce its area of occupancy to not less than 20,256 rentable square feet, by providing written notice on or before August 2006. Allstate, at its option, has the right to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. In addition, Allstate has a right of first refusal for the leasing of additional space in the Allstate Indianapolis Building.
 
Holladay is a property management company that manages the Allstate Indianapolis Building from the site. The Holladay lease, which covers 5,756 rentable square feet (6%), commenced in October 2001 and expires in September 2006. The current annual base rent payable under the Holladay lease is approximately $.07 million.
 
The Daimler Chrysler Dallas Building
 
On September 30, 2002, Wells OP purchased the Daimler Chrysler Dallas Building, a two-story office building containing 130,290 rentable square feet located in Westlake, Texas for a purchase price of $25.1 million, excluding closing costs. The Daimler Chrysler Dallas Building is leased entirely to Daimler Chrysler Services North America LLC (“Daimler Chrysler NA”). The Daimler Chrysler NA lease commenced in January 2002 and expires in December 2011. The current annual base rent payable under the Daimler Chrysler NA lease is approximately $3.2 million. Daimler Chrysler NA, at its option, has the right to extend the initial term of its lease for three additional five-year periods at 98% of the then-current market rental rate. In addition, Daimler Chrysler NA has an expansion option for up to an
 
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additional 70,000 rentable square feet and a right of first offer if Wells OP desires to sell the Daimler Chrysler Dallas Building during the term of the lease.
 
4. NOTE RECEIVABLE
 
In connection with the purchase of the TRW Denver Building on May 29, 2002, Wells OP acquired a note receivable from the building’s sole tenant, TRW, Inc., in the amount of $5.2 million. The loan was made to fund above-standard tenant improvement costs to the building. The note receivable is structured to be fully amortized over the remaining lease term, which expires September 2007, at 11% interest with TRW making monthly loan payments of $.1 million. At September 30, 2002, the principal balance of this note receivable was $5.0 million.
 
5. NOTES PAYABLE
 
At September 30, 2002, Wells OP had the following debt:
 
Lender

	  	Collateral

	  	Type of Debt

	 	Maturity Date

	  	Balance
Outstanding
(in millions)

	
 	 	 	 	 	
SouthTrust	  	The Alstom Power Richmond Building	  	$7.9 million line of credit, interest
at 30 day LIBOR plus 175 basis
points	 	December 10, 2002	  	$	7.7	
 	 	 	 	 	
SouthTrust	  	The PwC Building	  	$12.8 million line of credit,
interest at 30 day LIBOR plus
175 basis points	 	December 10, 2002	  	 	2.1	
 	 	 	 	 	
SouthTrust	  	The Avnet Building and the Motorola
Tempe Building	  	$19.0 million line of credit,
interest at 30 day LIBOR plus
175 basis points	 	December 10, 2002	  	 	0	
 	 	 	 	 	
SouthTrust	  	The Cinemark Building, the Dial
Building and the ASML Building	  	$32.4 million line of credit,
interest at 30 day LIBOR plus
175 basis points	 	December 10, 2002	  	 	0	
 	 	 	 	 	
Bank of America	  	The Nissan Property	  	$34.2 million construction loan,
interest at LIBOR plus 200 basis
points	 	July 30, 2003	  	 	13.3	
 	 	 	 	 	
Bank of America	  	The Kerr McGee Property	  	$13.7 million construction loan,
interest at LIBOR plus 200 basis
points	 	January 29, 2004	  	 	1.0	
 	 	 	 	 	
Bank of America	  	The Videojet Technologies Chicago
Building, the AT&T Pennsylvania
Building, the Matsushita Building, the
Metris Tulsa Building, the Motorola
Plainfield Building and the Delphi
Building	  	$85 million line of credit,
interest at 30 day LIBOR plus
180 basis points	 	May 11, 2004	  	 	0	
 	 	 	 	 	
Prudential	  	The BMG Buildings	  	$8.8 million note payable,
interest at 8%, principal and
interest payable monthly	 	December 15, 2003	  	 	8.8	
 	 	 	 	 	
Prudential	  	The BMG Buildings	  	$2.9 million note payable,
interest at 8.5%, interest payable
monthly, principal payable upon
maturity	 	December 15, 2003	  	 	2.9	

	

	
Total	  	 	  	 	 	 	  	$	35.8	

	

	
 
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6. INTEREST RATE SWAPS
 
Wells OP has entered into interest rate swap agreements with Bank of America in order to hedge its interest rate exposure on the Bank of America construction loans for the Nissan Property (the Nissan Loan) and the Kerr McGee Property (the Kerr McGee Loan). The interest rate swap agreements involve the exchange of amounts based on a fixed interest rate for amounts based on a variable interest rate over the life of the loan agreement without an exchange of the notional amount upon which the payments are based. The notional amount of both interest rate swaps is the balance outstanding on the construction loan on the payment date.
 
The interest rate swap for the Nissan Loan became effective January 15, 2002 and terminates on June 15, 2003. Wells OP, as the fixed rate payer, has an interest rate of 3.9%. Bank of America, the variable rate payer, pays at a rate equal to U.S. dollar LIBOR on the payment date. The result is an effective interest rate of 5.9% on the Nissan Loan.
 
The interest rate swap for the Kerr McGee Loan became effective September 15, 2002 and terminates on July 15, 2003. Wells OP as fixed rate payer has an interest rate of 2.27%. Bank of America, the variable rate payer, pays at a rate equal to U.S. dollar LIBOR on the payment date. The result is an effective interest rate of 4.27% on the Kerr McGee Loan.
 
During the nine months ended September 30, 2002, Wells OP made interest payments totaling approximately $45,221 under the terms of the interest rate swap agreements. At September 30, 2002, the estimated fair value of the interest rate swap for the Nissan Loan and the Kerr McGee Loan was $(384,855) and $(30,180), respectively. The interest rate swaps are accounted for by mark-to-market accounting on a monthly basis and are included in prepaid and other assets on the accompanying consolidated balance sheet.
 
On January 1, 2001, the Company adopted SFAS No. 133, as amended by SFAS No. 137 and No. 138 Accounting for Derivative Instruments and Hedging Activities. The effect of adopting the SFAS No. 133 did not have a material effect on the Company’s consolidated financial statements.
 
7. INVESTMENT IN BONDS AND OBLIGATIONS UNDER CAPITAL LEASES
 
In connection with the purchase of a ground leasehold interest in the Ingram Micro Distribution Facility pursuant to a Bond Real Property Lease dated December 20, 1995 (the Bond Lease), Wells OP acquired an Industrial Development Revenue Note (the Bond) dated December 20, 1995 in the principal amount of $22 million. As part of the same transaction, Wells OP also acquired a Fee Construction Mortgage Deed of Trust Assignment of Rents and Leases (the Bond Deed of Trust), also dated December 20, 1995, which was executed by the Industrial Development Board in order to secure the Bond. Beginning in 2006, the holder of the Bond Lease has the option to purchase the land underlying the Ingram Micro Distribution Facility for $100 plus satisfaction of the indebtedness evidenced by the Bond. Because Wells OP is technically subject to the obligation to pay the $22 million indebtedness evidenced by the Bond, the obligation to pay the Bond is carried on the Company’s books as a liability. However, since Wells OP is also the owner of the Bond, the Bond is also carried on the Company’s books as an asset.
 
As part of the transaction to acquire a ground leasehold interest in the ISS Atlanta Buildings, Wells OP was assigned Development Authority of Fulton County Taxable Revenue Bonds totaling $32.5 million, which were originally issued in connection with the development of the ISS Atlanta Buildings (the Bonds). The Bonds entitle Wells OP to certain property tax abatement benefits. Upon payment of the outstanding balance on the Bonds, on or before the expiration of the ground lease on December 1, 2015, fee title interest to the underlying land will be transferred to Wells OP. Because Wells OP is technically subject to the obligation to pay the $32.5 million indebtedness evidenced by the Bond, the
 
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obligation to pay the Bonds is carried on the Company’s books as a liability. However, since Wells OP is also the owner of the Bonds, the Bonds are also carried on the Company’s books as an asset.
 
8. DUE TO AFFILIATES
 
Due to affiliates consists of amounts due to the Advisor for acquisitions and advisory fees and acquisition expenses, deferred offering costs, and other operating expenses paid on behalf of the Company. Also included in due to affiliates is the amount due to the Fund VIII-IX Joint Venture related to the Matsushita lease guarantee, which is explained in greater detail in the financial statements and footnotes included in the Company’s Form 10-K for the year ended December 31, 2001. Payments of $.6 million have been made as of September 30, 2002 toward funding the obligation under the Matsushita agreement.
 
9. COMMITMENTS AND CONTINGENCIES
 
Take Out Purchase and Escrow Agreement
 
An affiliate of the Advisor (“Wells Exchange”) has developed a program (the “Wells Section 1031 Program”) involving the acquisition by Wells Exchange of income-producing commercial properties and the formation of a series of single member limited liability companies for the purpose of facilitating the resale of co-tenancy interests in such real estate properties to be owned in co-tenancy arrangements with persons (“1031 Participants”) who are looking to invest the proceeds from a sale of real estate held for investment in another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Code. Each of these properties will be financed by a combination of permanent first mortgage financing and interim loan financing obtained from institutional lenders.
 
Following the acquisition of each property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to pay off the interim financing. In consideration for the payment of a take out fee to the Company, and following approval of the potential property acquisition by the Company’s Board of Directors, it is anticipated that Wells OP will enter into a contractual relationship providing that, in the event that Wells Exchange is unable to sell all of the co-tenancy interests in that particular property to 1031 Participants, Wells OP will purchase, at Wells Exchange’s cost, any co-tenancy interests remaining unsold at the end of the offering period. As a part of the initial transaction in the Wells Section 1031 Program, Wells OP entered into a take out purchase and escrow agreement dated April 16, 2001 providing, among other things, that Wells OP would be obligated to acquire, at Wells Exchange’s cost, any unsold co-tenancy interests in the building known as the Ford Motor Credit Complex which remained unsold at the expiration of the offering of Wells Exchange, which was extended to April 15, 2002. Wells OP was compensated for its takeout commitment in the amount of $.1 million in each of 2001 and 2002 by payment of a take out fee to Wells OP in an amount equal to 1.25% of its maximum financial obligation under the Ford Motor Credit take out purchase and escrow agreement. On April 12, 2002, Wells Exchange paid off the interim financing on the Ford Motor Credit Complex. This pay off of the loan triggered the release of Wells OP from its prior obligations under the take out purchase and escrow agreement relating to such property.
 
Letters of Credit
 
At September 30, 2002, Wells OP had three letters of credit totaling $19.2 million outstanding from financial institutions, which were not recorded in the accompanying consolidated balance sheet. These letters of credit were required by three of the Company’s tenants to ensure completion of the Company’s contractual obligations. The Company’s management does not anticipate a need to draw on these letters of credit.
 
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Properties under Contract
 
At September 30, 2002, the Company had three executed contracts for the acquisition of properties totaling $82.0 million. Escrows of $1.3 million have been paid out for these properties and are included in prepaid and other assets on the accompanying consolidated balance sheet.
 
10. SUBSEQUENT EVENTS
 
Issuance of Common Stock
 
From October 1, 2002 through October 25, 2002, the Company has raised approximately $91.5 million through the issuance of 9.1 million shares of common stock in the Company.
 
Termination Agreement
 
Effective October 31, 2002, Arthur Andersen LLP (Andersen) and Wells OP entered into a termination agreement with respect to the lease for the three-story office building containing 157,700 rentable square feet located in Sarasota, Florida known as the Arthur Andersen Building. In consideration for releasing Andersen from its obligation to pay rent under the lease, Andersen paid Wells OP a termination fee of $979,760 and conveyed to Wells OP an approximately 1.3 acre tract of land adjacent to the property which was used for parking.
 
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Report of Independent Auditors
 
Shareholders and Board of Directors
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying statement of revenues over certain operating expenses of the Nestle Building for the year ended December 31, 2001. This statement is the responsibility of the Nestle Building’s management. Our responsibility is to express an opinion on this statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
 
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of the Nestle Building’s revenues and expenses.
 
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the Nestle Building for the year ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.
 
Ernst & Young LLP
 
Atlanta, Georgia
January 21, 2003
 
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Nestle Building
 
Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2001 and the nine months ended September 30, 2002
 
 	  	2002

	  	2001

	
 	  	(Unaudited)	  	 	
Revenues:	  	 	 	  	 	 	
Base rent	  	$	10,995,810	  	$	14,660,259	
Parking	  	 	617,318	  	 	848,917	
Tenant reimbursements	  	 	698,210	  	 	853,872	

	

	  	

	

	
Total revenues	  	 	12,311,338	  	 	16,363,048	
 	 	 	
Operating expenses	  	 	3,914,726	  	 	4,968,193	

	

	  	

	

	
Revenues over certain operating expenses	  	$	8,396,612	  	$	11,394,855	

	

	  	

	

	

See accompanying notes.
 
34

Table of Contents
Nestle Building
 
Notes to Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2001 and the nine months ended September 30, 2002
 
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Description of Real Estate Property Acquired
 
On December 20, 2002, Wells REIT-Glendale, CA, LLC (“the Company”) acquired the Nestle Building from Douglas Emmett Joint Venture (“Douglas Emmett”). The Company, a Georgia limited liability company, was created on December 20, 2002. Wells Operating Partnership, L.P. (“Wells OP’) is the sole member of the Company. Wells OP is a Delaware limited partnership formed to acquire, own, lease, operate, and manage real properties on behalf of Wells Real Estate Investment Trust, Inc., a Maryland corporation. As the sole general partner of Wells OP, Wells Real Estate Investment Trust, Inc. possesses full legal control and authority over the operations of Wells OP.
 
The twenty-story building contains 505,115 square feet of net rentable area and is 100% leased to several tenants, including Nestle USA, Inc. (“Nestle”). Nestle occupies a total of 502,994 square feet, or 99.6%, under a lease (“Nestle Lease”) that commenced in August 1990 and expires in August 2010. The remaining square footage is leased to several retail tenants under lease agreements that expire over the next seven years. Douglas Emmett’s interests in the Nestle Lease and other retail lease agreements were assigned to the Company upon acquisition of the Nestle Building. Under the Nestle Lease, the tenant is required to pay, as additional rent, its pro rata share of operating expenses over the base year operating allowance established in the first lease year. Operating expenses shall consist of all direct costs of operation and maintenance of the building including, but not limited to, real estate taxes, water and sewer charges, utilities, janitorial services, security and labor. Additionally, the Nestle Lease entitles Nestle to a specified number of parking spaces, and Nestle is required to pay monthly rental payments for the spaces which the Company records as parking revenues. The Company will be responsible for maintaining and repairing the Nestle Building’s roof, foundation, common areas, electrical and mechanical systems.
 
Rental Revenues
 
Rental income is recognized on a straight-line basis over the terms of the leases.
 
2. BASIS OF ACCOUNTING
 
The accompanying statements of revenues over certain operating expenses are presented in conformity with accounting principles generally accepted in the United States and in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired. Accordingly, these statements exclude certain historical expenses that are not comparable to the proposed future operations of the property such as depreciation and interest. Therefore, these statements are not comparable to the statement of operations of the Nestle Building after its acquisition by the Company.
 
35

Table of Contents
Notes to Statements of Revenues Over Certain Operating Expenses
(Continued)
 
3. FUTURE MINIMUM RENTAL COMMITMENTS
 
Future minimum rental commitments for the years ended December 31 are as follows:
 
2002	  	$	14,939,680	
2003	  	 	14,950,502	
2004	  	 	14,963,154	
2005	  	 	15,508,547	
2006	  	 	16,591,633	
Thereafter	  	 	60,926,465	

	

	
 	  	$	137,879,981	

	

	
 
4. INTERIM UNAUDITED FINANCIAL INFORMATION
 
The statement of revenues over certain operating expenses for the nine months ended September 30, 2002 is unaudited, however, in the opinion of management, all adjustments (consisting solely of normal, recurring adjustments) necessary for the fair presentation of the statement for the interim period have been included. The results of the interim period are not necessarily indicative of the results to be obtained for a full fiscal year.
 
36

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
SUMMARY OF UNAUDITED PRO FORMA FINANCIAL STATEMENTS
 
This pro forma information should be read in conjunction with the financial statements and notes of Wells Real Estate Investment Trust, Inc., a Maryland Corporation (the “Wells REIT”), included in its annual report on Form 10-K for the year ended December 31, 2001 and quarterly report on Form 10-Q/A for the period ended September 30, 2002. In addition, this pro forma information should be read in conjunction with the financial statements and notes of certain acquired properties included in various Form 8-Ks previously filed.
 
The following unaudited pro forma balance sheet as of September 30, 2002 has been prepared to give effect to the fourth quarter 2002 acquisitions of the NASA Buildings by Wells REIT-Independence Square, LLC, of which Wells REIT is the sole member, the Caterpillar Nashville Building, the Capital One Richmond Buildings (the “Other Recent Acquisitions”) by Wells Operating Partnership, L.P. (“Wells OP”), the Nestle Building by Wells REIT Glendale, CA, LLC, of which Wells OP is the sole member, and the John Wiley Indianapolis Building by Wells XIII-REIT Joint Venture (“Wells XIII-REIT), a joint venture partnership between Wells Real Estate Fund XIII, L.P. and Wells OP, and the first quarter 2003 acquisition of the East Point Buildings (collectively, the “Recent Acquisitions”) by Wells OP as if the acquisitions occurred on September 30, 2002.
 
Wells OP is a Delaware limited partnership that was organized to own and operate properties on behalf of Wells REIT. As the sole general partner of Wells OP, Wells REIT possesses full legal control and authority over the operations of Wells OP. Accordingly, the accounts of Wells OP are consolidated with the accompanying pro forma financial statements of Wells REIT.
 
The following unaudited pro forma statement of income for the nine months ended September 30, 2002 has been prepared to give effect to the first, second and third quarter 2002 acquisitions of the Vertex Sarasota Building (formerly, the Arthur Andersen Building), the Transocean Houston Building, the Novartis Atlanta Building, the Dana Corporation Buildings, the Travelers Express Denver Buildings, the Agilent Atlanta Building, the BellSouth Ft. Lauderdale Building, the Experian/TRW Buildings, the Agilent Boston Building, the TRW Denver Building, the MFS Phoenix Building, the ISS Atlanta Buildings, the PacifiCare San Antonio Building, the BMG Greenville Buildings, the Kraft Atlanta Building, the Nokia Dallas Buildings, the Harcourt Austin Building, the IRS Long Island Buildings, the KeyBank Parsippany Building, the Allstate Indianapolis Building, the Federal Express Colorado Springs Building, the EDS Des Moines Building, the Intuit Dallas Building, the Daimler Chrysler Dallas Building (collectively, the “2002 Acquisitions”) and the Recent Acquisitions as if the acquisitions occurred on January 1, 2001. The Kerr McGee Property and the AmeriCredit Phoenix Property had no operations during the nine months ended September 30, 2002.
 
The following unaudited pro forma statement of income for the year ended December 31, 2001 has been prepared to give effect to the 2001 acquisitions of the Comdata Building, the AmeriCredit Building, the State Street Bank Building, the IKON Buildings, the Ingram Micro Building, the Lucent Building, the ADIC Buildings, the Convergys Building, the Windy Point Buildings (collectively, the “2001 Acquisitions”), the 2002 Acquisitions and the Recent Acquisitions as if the acquisitions occurred on January 1, 2001. The Nissan Property, the Travelers Express Denver Buildings, the Kerr McGee Property, the AmeriCredit Phoenix Property and the EDS Des Moines Building had no operations during 2001.
 
These unaudited pro forma financial statements are prepared for informational purposes only and are not necessarily indicative of future results or of actual results that would have been achieved had the acquisitions of the 2001 Acquisitions, 2002 Acquisitions and the Recent Acquisitions been consummated as of January 1, 2001. In addition, the pro forma balance sheet includes allocations of the purchase price for certain acquisitions based upon preliminary estimates of the fair value of the assets and liabilities acquired. Therefore, these allocations may be adjusted in the future upon finalization of these preliminary estimates.

37

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA BALANCE SHEET
 
SEPTEMBER 30, 2002
 
(Unaudited)
 
ASSETS
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (i)

	  	Pro Forma Adjustments

	 	
 	  	 	  	Recent Acquisitions

	 	 	 	
 	  	 	  	 	 	 	John Wiley
Indianapolis

	 	 	Nestle

	 	 	East Point

	 	 	Pro Forma
Total

	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
REAL ESTATE ASSETS, at cost:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Land	  	$	164,190,412	  	$
 	 
87,755,000 	 
(c)	 	$	0	 	 	$	23,200,000	(c)	 	$	2,163,000	(c)	 	$	280,284,706	 	 	 	 	
 	  	 	 	  	 	1,888,098	(d)	 	 	 	 	 	 	404,941	(e)	 	 	88,553	(e)	 	 	 	 	 	 	 	
 	  	 	 	  	 	594,702	(e)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Buildings, less accumulated depreciation of $47,999,655	  	 	1,171,793,037	  	 	351,806,121 	(c)	 	 	0	 	 	 	134,446,731	(c)	 	 	19,916,138	(c)	 	 	1,689,539,532	 	 	 	 	
 	  	 	 	  	 	8,415,460	(e)	 	 	 	 	 	 	2,346,678	(e)	 	 	815,367	(e)	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Construction in progress	  	 	28,500,195	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	28,500,195	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Total real estate assets	  	 	1,364,483,644	  	 	450,459,381	 	 	 	0	 	 	 	160,398,350	 	 	 	22,983,058	 	 	 	1,998,324,433	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
CASH AND CASH EQUIVALENTS	  	 	143,911,852	  	 	(266,478,531	)(c)	 	 	(8,928,915	)(f)	 	 	(67,646,731	)(c)	 	 	(22,079,138	)(c)	 	 	144,624,892	 	 	 	 	
 	  	 	 	  	 	379,115,394	(a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	  	 	(13,269,039	)(b)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
INVESTMENT IN JOINT VENTURES	  	 	75,388,348	  	 	0	 	 	 	9,294,465	(g)	 	 	0	 	 	 	0	 	 	 	84,682,813	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
INVESTMENT IN BONDS	  	 	54,500,000	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	54,500,000	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
ACCOUNTS RECEIVABLE	  	 	12,018,601	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	12,018,601	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
DEFERRED LEASE ACQUISITION COSTS, NET	  	 	1,712,541	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,712,541	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
DEFERRED PROJECT COSTS	  	 	5,963,370	  	 	(1,895,611	)(d)	 	 	(365,550	)(h)	 	 	(2,751,619	)(e)	 	 	(903,920	)(e)	 	 	4,313,060	 	 	 	 	
 	  	 	 	  	 	(9,002,649	)(e)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	  	 	13,269,039	(b)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
DEFERRED OFFERING COSTS	  	 	3,537,361	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	3,537,361	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
DUE FROM AFFILIATES	  	 	2,185,436	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,185,436	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
NOTE RECEIVABLE	  	 	4,965,838	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	4,965,838	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
PREPAID EXPENSES AND OTHER ASSETS, NET	  	 	2,597,110	  	 	37,764	(c)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,634,874	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
Total assets	  	$	1,671,264,101	  	$	552,235,748	 	 	$	0	 	 	$	90,000,000	 	 	$	0	 	 	$	2,313,499,849	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	

38

Table of Contents
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (i)

	 	 	Pro Forma Adjustments

	 	 	
 	  	 	 	 	Recent Acquisitions

	 	 	 	 	 	
 	  	 	 	 	Other

	 	 	John Wiley
Indianapolis

	  	Nestle

	 	 	East Point

	  	Pro Forma
Total

	 	 	 	 	 	 	 	
LIABILITIES:	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	
Accounts payable and accrued expenses	  	$	17,538,820	 	 	$	881,644	(c)	 	$	0	  	$	0	 	 	$	0	  	$	18,420,464	 	 	 	 	 	 	 	
Notes payable	  	 	35,829,293	 	 	 	172,238,710	(c)	 	 	0	  	 	90,000,000	(c)	 	 	0	  	 	298,068,003	 	 	 	 	 	 	 	
Obligations under capital lease	  	 	54,500,000	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	54,500,000	 	 	 	 	 	 	 	
Dividends payable	  	 	10,209,306	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	10,209,306	 	 	 	 	 	 	 	
Due to affiliates	  	 	4,379,745	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	4,379,745	 	 	 	 	 	 	 	
Deferred rental income	  	 	7,893,930	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	7,893,930	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	
Total liabilities	  	 	130,351,094	 	 	 	173,120,354	 	 	 	0	  	 	90,000,000	 	 	 	0	  	 	393,471,448	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	
COMMITMENTS AND CONTINGENCIES	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200,000	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	200,000	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	
Common shares, $.01 par value; 750,000,000 shares authorized, 182,608,517 shares issued and 180,891,792 outstanding at September 30, 2002	  	 	1,826,086	 	 	 	379,115	(a)	 	 	0	  	 	0	 	 	 	0	  	 	2,205,201	 	 	 	 	 	 	 	
Additional paid-in capital	  	 	1,621,376,451	 	 	 	378,736,279	(a)	 	 	0	  	 	0	 	 	 	0	  	 	2,000,112,730	 	 	 	 	 	 	 	
Cumulative distributions in excess of earnings	  	 	(64,907,241	)	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	(64,907,241	)	 	 	 	 	 	 	
Treasury stock, at cost, 1,716,725 shares	  	 	(17,167,254	)	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	(17,167,254	)	 	 	 	 	 	 	
Other comprehensive loss	  	 	(415,035	)	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	(415,035	)	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	
Total shareholders’ equity	  	 	1,540,713,007	 	 	 	379,115,394	 	 	 	0	  	 	0	 	 	 	0	  	 	1,919,828,401	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	
Total liabilities and shareholders’ equity	  	$	1,671,264,101	 	 	$	552,235,748	 	 	$	0	  	$	90,000,000	 	 	$	0	  	$	2,313,499,849	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	
 
(a)	 	Reflects capital raised through issuance of additional shares subsequent to September 30, 2002 through East Point acquisition date.	
 
(b)	 	Reflects deferred project costs capitalized as a result of additional capital raised described in note (a) above.	
 
(c)	 	Reflects Wells Real Estate Investment Trust, Inc.’s purchase price for the land, building and liabilities assumed.	
 
(d)	 	Reflects deferred project costs applied to the land and building at approximately 4.07% of the cash paid for purchase.	
 
(e)	 	Reflects deferred project costs applied to the land and building at approximately 4.094% of the cash paid for purchase.	
 
(f)	 	Reflects Wells Real Estate Investment Trust, Inc.’s proportionate share of the cost to acquire the John Wiley Indianapolis Building.	
 
(g)	 	Reflects Wells Real Estate Investment Trust, Inc.’s contribution to the Wells XIII-REIT Joint Venture, which decreased its interest in the joint venture from 68.29% to 61.28%.	
 
(h)	 	Reflects deferred project costs contributed to the Wells Fund XIII-REIT Joint Venture at approximately 4.094% of purchase price.	
 
(i)	 	Historical financial information derived from quarterly report on Form 10-Q.	
 
The accompanying notes are an integral part of this statement.
 
39

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE YEAR ENDED DECEMBER 31, 2001
 
(Unaudited)
 
 	  	Wells Real Estate
Investment
Trust, Inc. (h)

	  	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	
 	  	 	  	2001
Acquisitions

	 	 	2002
Acquisitions

	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	 	 	 	 	 	 	Other

	 	 	John Wiley
Indianapolis

	 	 	Nestle

	 	 	East Point

	 	 	 	 	 	 	 	 	 	 	 	 	 	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	44,204,279	  	$	11,349,076	(a)	 	$	54,615,521	(a)	 	$	45,317,526	(a)	 	$	0	 	 	$	16,657,346	(a)	 	$	1,059,426	(a)	 	$	173,203,174	 	 	 	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	3,720,959	  	 	1,111,850	(b)	 	 	0	 	 	 	0	 	 	 	638,552	(b)	 	 	0	 	 	 	0	 	 	 	5,471,361	 	 	 	 	 	 	 	 	 	 	
Interest income	  	 	1,246,064	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,246,064	 	 	 	 	 	 	 	 	 	 	
Take out fee	  	 	137,500	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	137,500	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
 	  	 	49,308,802	  	 	12,460,926	 	 	 	54,615,521	 	 	 	45,317,526	 	 	 	638,552	 	 	 	16,657,346	 	 	 	1,059,426	 	 	 	180,058,099	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	15,344,801	  	 	5,772,761	(c)	 	 	22,487,278	(c)	 	 	14,408,864	(c)	 	 	0	 	 	 	5,471,736	(c)	 	 	829,260	(c)	 	 	64,314,700	 	 	 	 	 	 	 	 	 	 	
Interest	  	 	3,411,210	  	 	0	 	 	 	0	 	 	 	9,452,460	(f)	 	 	0	 	 	 	4,399,200	(g)	 	 	0	 	 	 	17,262,870	 	 	 	 	 	 	 	 	 	 	
Operating costs, net of reimbursements	  	 	4,128,883	  	 	2,854,275	(d)	 	 	3,668,343	(d)	 	 	9,628,878	(d)	 	 	0	 	 	 	4,114,321	(d)	 	 	926,011	(d)	 	 	25,320,711	 	 	 	 	 	 	 	 	 	 	
Management and leasing fees	  	 	2,507,188	  	 	510,708	(e)	 	 	2,250,455	(e)	 	 	482,139	(e)	 	 	0	 	 	 	711,379	(e)	 	 	47,674	(e)	 	 	6,509,543	 	 	 	 	 	 	 	 	 	 	
General and administrative	  	 	973,785	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	973,785	 	 	 	 	 	 	 	 	 	 	
Amortization of deferred financing costs	  	 	770,192	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	770,192	 	 	 	 	 	 	 	 	 	 	
Legal and accounting	  	 	448,776	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	448,776	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
 	  	 	27,584,835	  	 	9,137,744	 	 	 	28,406,076	 	 	 	33,972,341	 	 	 	0	 	 	 	14,696,636	 	 	 	1,802,945	 	 	 	115,600,577	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
NET INCOME	  	$	21,723,967	  	$	3,323,182	 	 	$	26,209,445	 	 	$	11,345,185	 	 	$	638,552	 	 	$	1,960,710	 	 	$	(743,519	)	 	$	64,457,522	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	  	$	0.43	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.21	 	 	 	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and
    diluted	  	 	50,520,853	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	303,171,546	 	 	 	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	
 
(a)	 	Rental income is recognized on a straight-line basis.	
 
(b)	 	Reflects Wells Real Estate Investment Trust, Inc.’s equity in income of Wells XII-REIT Joint Venture related to the acquisition of the Comdata Building and equity in income of Wells XIII-REIT Joint Venture related to the acquisition of the AmeriCredit Building, the ADIC Buildings and the John Wiley Indianapolis Building.	
 
(c)	 	Depreciation expense on the buildings is recognized using the straight-line method and a 25-year life.	
 
(d)	 	Consists of operating expenses, net of reimbursements.	
 
(e)	 	Management and leasing fees are calculated at 4.5% of rental income.	
 
(f)	 	Represents interest expense on lines of credit used to acquire assets, which bear interest at approximately 5.488% for the year ended December 31, 2001.	
 
(g)	 	Represents interest expense on mortgage assumed as part of the Nestle Building acquisition, which bears interest at approximately 4.888% for the year ended December 31, 2001.	
 
(h)	 	Historical financial information derived from annual report on Form 10-K.	
 
The accompanying notes are an integral part of this statement.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
 
(Unaudited)
 
 	  	Wells Real Estate
Investment
Trust, Inc. (i)

	  	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	
 	  	 	  	2002
Acquisitions

	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	 	 	 	Other

	 	 	John Wiley
Indianapolis

	 	 	Nestle

	 	 	East Point

	 	 	 	 	 	 	 	 	 	 	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	66,120,992	  	$	42,103,180	(a)	 	$	33,939,001	(a)	 	$	0	 	 	$	12,473,951	(a)	 	$	1,112,123	(a)	 	$	155,749,247	 	 	 	 	 	 	 	
Operating cost reimbursements	  	 	12,853,717	  	 	5,976,734	(h)	 	 	3,062,835	(h)	 	 	0	 	 	 	698,210	(h)	 	 	47,499	(h)	 	 	22,638,995	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	3,738,046	  	 	0	 	 	 	0	 	 	 	487,970	(f)	 	 	0	 	 	 	0	 	 	 	4,226,016	 	 	 	 	 	 	 	
Interest income	  	 	5,075,165	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	5,075,165	 	 	 	 	 	 	 	
Take out fee	  	 	134,666	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	134,666	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
 	  	 	87,922,586	  	 	48,079,914	 	 	 	37,001,836	 	 	 	487,970	 	 	 	13,172,161	 	 	 	1,159,622	 	 	 	187,824,089	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	23,185,201	  	 	15,039,449	(b)	 	 	10,806,647	(b)	 	 	0	 	 	 	4,103,802	(b)	 	 	621,945	(b)	 	 	53,757,044	 	 	 	 	 	 	 	
Operating costs	  	 	17,108,599	  	 	10,179,532	 	 	 	10,532,575	(c)	 	 	0	 	 	 	3,914,726	(c)	 	 	742,490	(c)	 	 	42,477,922	 	 	 	 	 	 	 	
Interest	  	 	2,006,458	  	 	0	 	 	 	5,310,551	(e)	 	 	0	 	 	 	2,369,925	(g)	 	 	0	 	 	 	9,686,934	 	 	 	 	 	 	 	
Management and leasing fees	  	 	3,348,210	  	 	1,697,775	(d)	 	 	361,605	(d)	 	 	0	 	 	 	533,548	(d)	 	 	50,046	(d)	 	 	5,991,184	 	 	 	 	 	 	 	
General and administrative	  	 	1,866,042	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,866,042	 	 	 	 	 	 	 	
Amortization of deferred financing costs	  	 	586,715	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	586,715	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
 	  	 	48,101,225	  	 	26,916,756	 	 	 	27,011,378	 	 	 	0	 	 	 	10,922,001	 	 	 	1,414,481	 	 	 	114,365,841	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
NET INCOME	  	$	39,821,361	  	$	21,163,158	 	 	$	9,990,458	 	 	$	487,970	 	 	$	2,250,160	 	 	$	(254,859	)	 	$	73,458,248	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	  	$	0.31	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.24	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	128,541,432	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	303,171,546	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	
 
(a)	 	Rental income is recognized on a straight-line basis.	
 
(b)	 	Depreciation expense on the buildings is recognized using the straight-line method and a 25-year life.	
 
(c)	 	Consists of operating expenses.	
 
(d)	 	Management and leasing fees are calculated at 4.5% of rental income.	
 
(e)	 	Represents interest expense on lines of credits used to acquire assets, which bear interest at approximately 4.111% for the nine months ended September 30, 2002.	
 
(f)	 	Reflects Wells Real Estate Investment Trust, Inc.’s equity in income of the Wells Fund XIII-REIT Joint Venture related to the John Wiley Indianapolis Building. The pro forma adjustment results from rental revenues less operating expenses, management fees and depreciation.	
 
(g)	 	Represents interest expense on mortgage assumed as part of the Nestle Building acquisition, which bears interest at approximately 3.511% for the nine months ended September 30, 2002.	
 
(h)	 	Consists of operating costs reimbursements.	
 
(i)	 	Historical financial information derived from quarterly report on Form 10-Q/A.	
 
The accompanying notes are an integral part of this statement.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 6 DATED APRIL 14, 2003 TO THE PROSPECTUS
DATED JULY 26, 2002
 
This document supplements, and should be read in conjunction with, the prospectus of Wells Real Estate Investment Trust, Inc. dated July 26, 2002, as supplemented and amended by Supplement No. 1 dated August 14, 2002, Supplement No. 2 dated August 29, 2002, Supplement No. 3 dated October 25, 2002, Supplement No. 4 dated December 10, 2002, and Supplement No. 5 dated January 15, 2003. When we refer to the “prospectus” in this supplement, we are also referring to any and all supplements to the prospectus. Unless otherwise defined in this supplement, capitalized terms used in this supplement shall have the same meanings as set forth in the prospectus.
 
The purpose of this supplement is to describe the following:
 
 	(1)	 	Status of the offering of shares in Wells Real Estate Investment Trust, Inc. (Wells REIT);	
 
 	(2)	 	The declaration of dividends for the second quarter of 2003;	
 
 	(3)	 	Revisions to the “ERISA Considerations – Annual Valuation” section of the prospectus;	
 
 	(4)	 	Revisions to the “Description of Real Estate Investments” section of the prospectus to describe the acquisition of a 25-story office building in Detroit, Michigan (150 West Jefferson Detroit Building);	
 
 	(5)	 	Revisions to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the prospectus;	
 
 	(6)	 	Updated audited financial statements of the Wells REIT;	
 
 	(7)	 	Updated unaudited prior performance tables; and	
 
 	(8)	 	Unaudited pro forma financial statements of the Wells REIT reflecting the acquisition of the 150 West Jefferson Detroit Building.	
 
Status of the Offering
 
We commenced our initial public offering of common stock on January 30, 1998. Our initial public offering was terminated on December 19, 1999. We received approximately $132,181,919 in gross offering proceeds from the sale of 13,218,192 shares in our initial public offering. We commenced our second offering of common stock on December 20, 1999. Our second public offering was terminated on December 19, 2000. We received approximately $175,229,193 in gross offering proceeds from the sale of 17,522,919 shares in our second public offering. We commenced our third public offering of common stock on December 20, 2000. Our third public offering was terminated on July 26, 2002. We received approximately $1,282,976,865 in gross offering proceeds from the sale of 128,297,687 shares in our third public offering.
 
Pursuant to the prospectus, we commenced our fourth public offering of common stock on July 26, 2002. As of March 31, 2003, we had received additional gross proceeds of approximately $1.0 billion from the sale of approximately 101.4 million shares in our fourth public offering. Accordingly, as of March 31, 2003, we had received aggregate gross offering proceeds of approximately $2.6 billion from the sale of approximately 260.5 million shares in all of our public offerings. After payment of approximately $90.0 million in acquisition and advisory fees and acquisition expenses, payment of $291.4 million in selling commissions and organization and offering expenses, and common stock redemptions of approximately $33.9 million pursuant to our share redemption program, as of March 31, 2003, we had raised aggregate net offering proceeds available for investment in properties of
 
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approximately $2.2 billion, out of which approximately $2.1 billion had been invested in real estate properties, and approximately $108.6 million remained available for investment in real estate properties.
 
Dividends
 
On March 12, 2003, our board of directors declared dividends for the second quarter of 2003 in the amount of a 7.0% annualized percentage rate return on an investment of $10.00 per share to be paid in June 2003. Our second quarter dividends are calculated on a daily record basis of $0.001922 (0.1922 cents) per day per share on the outstanding shares of common stock payable to stockholders of record of such shares as shown on the books of the Wells REIT at the close of business on each day during the period, commencing on March 16, 2003, and continuing on each day thereafter through and including June 15, 2003.
 
ERISA Considerations—Annual Valuation
 
The information contained on page 136 in the “ERISA Considerations—Annual Valuation” section of the prospectus is revised as of the date of this supplement by the deletion of that section in its entirety and the insertion of the following paragraphs in lieu thereof:
 
Annual Valuation
 
A fiduciary of an employee benefit plan subject to ERISA is required to determine annually the fair market value of each asset of the plan as of the end of the plan’s fiscal year and to file a report reflecting that value with the Department of Labor. When the fair market value of any particular asset is not available, the fiduciary is required to make a good faith determination of that asset’s fair market value assuming an orderly liquidation at the time the determination is made. In addition, a trustee or custodian of an IRA must provide an IRA participant with a statement of the value of the IRA each year. In discharging its obligation to value assets of a plan, a fiduciary subject to ERISA must act consistently with the relevant provisions of the plan and the general fiduciary standards of ERISA.
 
Unless and until our shares are listed on a national securities exchange or are included for quotation on NASDAQ, it is not expected that a public market for the shares will develop. To date, neither the Internal Revenue Service nor the Department of Labor has promulgated regulations specifying how a plan fiduciary should determine the fair market value of common stock in a corporation in circumstances where the fair market value of the shares is not determined in the marketplace.
 
We have included in the past and intend to continue to include in the future estimated share values in our annual reports on Form 10-K each year. Currently, we have estimated the value of the shares to be $10 per share, which represents the price per share at which we are currently offering our shares to the public. However, please note that there is no public trading market for the shares at this time, and it is unlikely that you would be able to receive $10 per share if such a market did exist and you sold your shares. In addition, we have not performed an evaluation of our properties and, therefore, this valuation is not based upon the value of our properties, nor does it represent the amount you would receive if our properties were sold and the proceeds distributed to you in a liquidation of the Wells REIT. Such amount would most likely be less than $10 per share as a result of the fact that, at the time we purchase our properties, the amount of funds available for investment in properties is reduced by the approximately 15% to 16% of offering proceeds we raise which is used to pay selling commissions and dealer manager fees, organization and offering expenses and acquisition and advisory fees and expenses.
 
We previously indicated that we would implement a process by the end of year 2003 to produce estimated valuations of our shares based upon estimating the fair market values of our properties at the end of each year. When we initially determined to implement such a process by the end of 2003, we did not expect we would be continuing to raise substantial new funds through the public offering of our
 
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shares in 2003. As noted herein, after the costs associated with raising funds and acquiring properties are taken into account, only approximately 84% to 85% of offering proceeds are available for investment in properties. As a result, so long as we are still in the process of raising significant new funds and acquiring new properties with those funds, it would be expected that, in the absence of other factors affecting property values, our aggregate net asset value would be significantly less than the proceeds of our offerings and may not be the best indicator of the value of shares purchased as a long term income producing investment. Instead, we believe that, during periods in which significant amounts of shares are still being offered and sold to investors, the price paid by such investors may better reflect the estimated value of the shares. Accordingly, as long as we continue to publicly offer our shares, we expect to continue to use the current offering price of our shares as estimated per share value reported in our annual reports on Form 10-K.
 
Beginning three full fiscal years after we have ceased to sell significant amounts of shares, we will reevaluate the best method to value our shares. Currently, we intend, at that time, to have our advisor begin preparing estimated valuations utilizing the methodology described below and intend to continue to provide reports to plan fiduciaries and IRA trustees and custodians who identify themselves to us and request this information using these valuations. The methodology to be utilized for determining such estimated share values will be for our advisor to estimate the amount a stockholder would receive if our properties were sold at their estimated fair market values at the end of the fiscal year and the proceeds from such sales (without reductions for selling expenses and other costs) were distributed to the stockholders in liquidation. While, in connection with the advisor’s estimated valuations, the advisor will be obtaining a third party opinion that its estimates of value are reasonable, due to the expense involved in obtaining annual appraisals for all of our properties, we do not anticipate that actual appraisals will be obtained. These estimated values for our shares will also be reported in our annual reports on Form 10-K.
 
You should be cautioned that such valuations will be estimates only and will be based upon a number of assumptions that may not be accurate or complete. As set forth above, we do not anticipate obtaining appraisals for our properties and, accordingly, the advisor’s estimates should not be viewed as an accurate reflection of the fair market value of our properties, nor will they represent the amount of net proceeds that would result from an immediate sale of our properties. In addition, property values are subject to change and can always decline in the future. For these reasons, our estimated valuations should not be utilized for any purpose other than to assist plan fiduciaries in fulfilling their valuation and annual reporting responsibilities. Further, we cannot assure you:
 
 	•	 	that the estimated values our advisor prepares could or will actually be realized by us or by our stockholders upon liquidation (in part because estimated values do not necessarily indicate the price at which assets could be sold and because no attempt will be made to estimate the expenses of selling any of our assets);	
 
 	•	 	that you would be able to realize estimated net asset values if you were to attempt to sell your shares; or	
 
 	•	 	that the estimated values, or the method used to establish such values, would comply with the ERISA or IRA requirements described above.	
 
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Description of Properties
 
As of March 31, 2003, we had purchased interests in 74 real estate properties located in 23 states. Below is a description of our recent real property acquisition.
 
150 West Jefferson Detroit Building
 
On March 31, 2003, Wells Operating Partnership, L.P. (Wells OP), a Delaware limited partnership formed to acquire, own, lease and operate real properties on behalf of the Wells REIT, purchased a 25-story office building containing approximately 505,417 rentable square feet located at 150 West Jefferson Avenue, downtown Detroit, Michigan (150 West Jefferson Detroit Building) for a purchase price of $93,750,000, from 150 West Jefferson Partners LLC (Seller). Seller is not in any way affiliated with the Wells REIT, Wells OP or Wells Capital, Inc., our advisor.
 
The 150 West Jefferson Detroit Building was built in 1989 and is located on a 1.527-acre tract of land at 150 West Jefferson Avenue in downtown Detroit, Michigan. The 150 West Jefferson Detroit Building is leased to 17 different tenants. Miller, Canfield, Paddock & Stone (Miller Canfield), Butzel Long PC (Butzel Long) and MCN Energy Group, Inc., formerly known as MCN Corporation (MCN) lease, in the aggregate, approximately 311,285 rentable square feet (61.6%) of the 150 West Jefferson Detroit Building. The other 14 tenants lease approximately 190,863 rentable square feet (37.8%) of the 150 West Jefferson Detroit Building for an aggregate annual base rent payable of approximately $3,900,000. Approximately 3,269 rentable square feet (0.6%) of the 150 West Jefferson Detroit Building is vacant.
 
Approximately 129,902 rentable square feet of the 150 West Jefferson Detroit Building (25.7%) is leased to Miller Canfield, a law firm with eight offices in the state of Michigan, as well as offices in New York, Florida, Washington, D.C., Canada, and Poland. Miller Canfield, which engages in a variety of practice areas such as litigation, employment, real estate, business and bankruptcy, has approximately 350 attorneys.
 
The Miller Canfield lease commenced in June 1989 and expires in June 2009, except for the lease of the 14th and 20th floors, which expires in June 2004. The current annual base rent payable under the Miller Canfield lease is $2,335,994. In addition, Miller Canfield leases storage space in the 150 West Jefferson Detroit Building at an annual rate of $38,619. Miller Canfield has the right, at its option, to extend the initial term of its lease for three additional five-year periods at rental rates specified in the Miller Canfield lease, except that Miller Canfield has the right to extend the lease of the 14 th and 20 th  floors for four additional five-year periods. Miller Canfield also has a right of first refusal to lease any additional available space in the 150 West Jefferson Detroit Building. Under the Miller Canfield lease, Miller Canfield is generally responsible for its pro rata share of operating and maintenance costs, including real estate taxes. Wells OP, as the landlord, is also responsible for maintaining and repairing the structural portions and mechanical systems of the 150 West Jefferson Detroit Building.
 
Approximately 101,147 rentable square feet of the 150 West Jefferson Detroit Building (20.0%) is leased to Butzel Long, a Michigan-based law firm with five offices in Michigan and two offices in Florida. Butzel Long has approximately 200 attorneys and provides services in a wide variety of legal practice areas. Butzel Long serves clients from numerous business sectors, including automotive, manufacturing, banking and financial services, retail and wholesale distribution, insurance, professional services, health care, advertising, media, publishing, technology and computers, marine, transportation, construction, utilities and real estate.
 
The Butzel Long lease commenced in February 1990 and expires in July 2013. The current annual base rent payable under the Butzel Long lease is $1,770,073. In addition, Butzel Long leases storage space in the 150 West Jefferson Detroit Building at an annual rate of $71,857. Butzel Long has the right, at its option, to extend the initial term of its lease for two additional five-year periods at 95%
 
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of the then-current market rental rate. Butzel Long also has a right of first refusal to lease any additional available space accessible by the low rise bank of elevators in the 150 West Jefferson Detroit Building. Under the Butzel Long lease, Butzel Long is responsible for its pro rata share of operating and maintenance costs. Wells OP, as the landlord, is also responsible for maintaining and repairing the structural portions and mechanical systems of the 150 West Jefferson Detroit Building.
 
Approximately 80,236 rentable square feet of the 150 West Jefferson-Detroit Building (15.9%) is leased to MCN, a wholly-owned subsidiary of DTE Energy Company (DTE), as a result of the acquisition by DTE of all of MCN’s stock in May 2001. DTE is a Michigan corporation with corporate headquarters in Detroit, Michigan, and is a leader in the gas and energy service industry. DTE provides approximately 2.1 million customers with electric service and approximately 1.2 million customers with gas service in Michigan. DTE’s three main operating units include energy resources, energy distribution, and gas. MCN, through its primary subsidiary, Michigan Consolidated Gas Company, specializes in the natural gas distribution industry.
 
The MCN lease commenced in February 1994 and expires in January 2006. The current annual base rent payable under the MCN lease is $1,816,027. MCN has the right, at its option, to extend the initial term of its lease for two additional five-year periods at rental rates specified in the MCN lease. Under the MCN lease, MCN is required to pay for its share of real estate taxes and operating expenses relating to its lease of space on the 10 th  floor of the 150 West Jefferson Detroit Building. Wells OP, as the landlord, is also responsible for maintaining and repairing the structural portions and mechanical systems of the 150 West Jefferson Detroit Building.
 
Wells Management will manage the 150 West Jefferson Detroit Building on behalf of Wells OP and will be paid management and leasing fees in the amount of 4.5% of the gross revenues from the 150 West Jefferson Detroit Building, subject to certain limitations.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The information contained on page 101 in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the prospectus is revised as of the date of this supplement by the deletion of that entire section and the insertion of the information below. The following discussion and analysis should also be read in conjunction with our accompanying financial statements and notes thereto.
 
Forward Looking Statements
 
This supplement 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 our financial condition, anticipated capital expenditures required to complete certain projects, amounts of anticipated cash distributions to stockholders in the future and certain other matters. Readers of this supplement should be aware that there are various factors that could cause actual results to differ materially from any forward-looking statements made in this supplement, which include changes in general economic conditions, changes in real estate conditions, construction costs which may exceed estimates, construction delays, increases in interest rates, lease-up risks, inability to obtain new tenants upon the expiration of existing leases, inability to invest in properties on a timely basis or in properties that will provide targeted rates of return and the potential need to fund tenant improvements or other capital expenditures out of operating cash flow. (See generally “Risk Factors.”)
 
REIT Qualification
 
We have made an election under Section 856 (c) of the Internal Revenue Code of 1986 (Internal Revenue Code) to be taxed as a REIT under the Internal Revenue Code beginning with our taxable year ended December 31, 1998. As a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in
 
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any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is lost. Such an event could materially adversely affect our financial position and results of operations. However, management believes that we are organized and operate in a manner which will enable us to qualify for treatment as a REIT for federal income tax purposes during this fiscal year. In addition, management intends to continue to operate the Wells REIT so as to remain qualified as a REIT for federal income tax purposes.
 
Liquidity and Capital Resources
 
General
 
During the fiscal year ended December 31, 2002, we received aggregate gross offering proceeds of $1,340.3 million from the sale of 134.0 million shares of our common stock. After payment of $46.4 million in acquisition and advisory fees and acquisition expenses, payment of $127.3 million in selling commissions, and payment of $20.5 million in organization and offering expenses, and common stock redemptions of $15.4 million pursuant to our share redemption program, we raised net offering proceeds available for investment in properties of $1,130.7 million during the year ended December 31, 2002.
 
During the fiscal year ended December 31, 2001, we received aggregate gross offering proceeds of $522.5 million from the sale of 52.3 million shares of our common stock. After payment of $18.1 million in acquisition and advisory fees and acquisition expenses, payment of $58.4 million in selling commissions and organization and offering expenses, and common stock redemptions of $4.1 million pursuant to our share redemption program, we raised net offering proceeds available for investment in properties of $441.8 million during the year ended December 31, 2001.
 
As of December 31, 2002, we had received aggregate gross offering proceeds from all of our offerings of approximately $2,177.9 million from the sale of 217.8 million shares of our common stock to approximately 58,000 investors. After our payment of $75.5 million in acquisition and advisory fees and acquisition expenses, payment of $206.4 million in selling commissions, payment of $40.0 million in organization and offering expenses, capital contributions to joint ventures and property acquisitions expenditures of $1,808.5 million, and common stock redemptions of $20.9 million pursuant to our share redemption program, we were holding net offering proceeds of $26.6 million available for investment in properties, as of December 31, 2002.
 
The net decrease in cash and cash equivalents of approximately $30.1 million during the year ended December 31, 2002 is primarily the result of the higher level of investment in real estate as compared to the level of fund raising and borrowing during the period. The increase in cash and cash equivalents of $71.3 million during 2001 is primarily the result of higher levels of fund raising and borrowings as compared to the levels of investment in real estate during those periods.
 
As of December 31, 2002, we owned interests in 72 real estate properties either directly or through interests in joint ventures. These properties are currently generating operating cash flow sufficient to cover our operating expenses and pay dividends to shareholders. We pay dividends on a quarterly basis. Dividends will be paid to investors who are stockholders as of the record dates selected by our board of directors. We currently calculate quarterly dividends based on the daily record and dividend declaration dates; thus, stockholders are entitled to receive dividends immediately upon the purchase of shares. Dividends declared during 2002 and 2001 totaled $0.76 per share in each year. Dividends declared for the fourth quarter of 2002 and the first and second quarters of 2003 were at an annualized rate of $0.70 per share.
 
Due primarily to the pace of our property acquisitions from late 2001 through 2002, as explained in more detail in the following paragraphs, dividends paid during 2002 in the aggregate amount of
 
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approximately $105.0 million exceeded Funds From Operations for the year by approximately $3.2 million. Dividends paid during 2002 also exceeded taxable income of $80.5 million and, accordingly, the company exceeded the minimum distribution requirement to be taxed as a REIT for federal income tax purposes.
 
We continue to acquire properties that meet our standards and quality both in terms of the real estate and the creditworthiness of the tenants. Creditworthy tenants of the type we target are becoming more and more highly valued in the marketplace and, accordingly, there is increased competition in acquiring properties with these creditworthy tenants. As a result, the purchase prices for such properties have increased with corresponding reductions in cap rates and returns on investment. In addition, changes in market conditions have caused our advisor to add to its internal procedures for ensuring the creditworthiness of our tenants before any commitment to buy a property is made. We continue to remain steadfast in our commitment to invest in quality properties that will produce quality income for our stockholders. Accordingly, because of the additional time it now takes in the acquisition process for our advisor to assess tenant credit – plus our commitment to adhere to purchasing properties with tenants that meet our investment criteria – we have been required to lower the dividend yield to our stockholders.
 
As a result of the factors described in the preceding paragraph, our board of directors declared dividends for the fourth quarter of 2002 and the first and second quarters of 2003 in an amount equal to a 7.0% annualized percentage rate return on an investment of $10 per share.
 
Dividends to be distributed to our stockholders are determined by our board of directors and are dependent on a number of factors related to the Wells REIT, including funds available for payment of dividends, financial condition, amounts paid for properties, the timing of property acquisitions, capital expenditure requirements and annual distribution requirements in order to maintain our status as a REIT under the Internal Revenue Code.
 
Cash Flows From Operating Activities
 
Our net cash provided by operating activities was $104.6 million, $42.3 million, and $7.3 million for the years ended December 31, 2002, 2001, and 2000, respectively. The increase in net cash provided by operating activities was due primarily to the additional net income generated by 32, 11, and 12 properties acquired during the years ended December 31, 2002, 2001, and 2000, respectively. We do not recognize in operations the full annual effect from the properties during the year of acquisition, as the operations of the properties are only included in operations from the date of acquisition. Operating cash flows are expected to increase as we acquire additional properties in future periods and as we obtain the benefit of a full year of operations for properties acquired during the year ended December 31, 2002.
 
Cash Flows Used In Investing Activities
 
Comparison of 2002 vs 2001
 
Our net cash used in investing activities was $1,362.5 million for the year ended December 31, 2002 compared to $274.6 million for the year ended December 31, 2001. The increase in net cash used in investing activities was due primarily to investments in properties, directly and through contributions to joint ventures, and the payment of related deferred project costs. Investments and related deferred project costs totaled $1,369.5 million and $278.8 million for the years ended December 31, 2002 and 2001, respectively. The increase in investments during the year ended December 31, 2002 was due to our ability to increase investor proceeds and identify property investments meeting our objectives. The investment in real estate assets and joint venture cash outflows were partially offset by distributions from joint ventures of $7.4 million and $4.2 million for the years ended December 31, 2002 and 2001, respectively. The increase in distributions from joint ventures is due to the additional investments in joint
 
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ventures during the year ended December 31, 2001 in which we recognized a full year’s benefit during the year ended December 31, 2002.
 
Comparison of 2001 vs 2000
 
Our net cash used in investing activities was $274.6 million and $249.3 million for the years ended December 31, 2001 and 2000, respectively. The increase in net cash used in investing activities was due primarily to investments in properties directly or through contributions to joint ventures, and the payment of related deferred project costs. Investments and related deferred project costs totaled $278.8 million and $252.8 million for the years ended December 31, 2001 and 2000, respectively. Investments in real estate assets and joint venture cash outflows were partially offset by distributions from joint ventures of $4.2 million and $3.5 million for the years ended December 31, 2001 and 2000, respectively.
 
Cash flows used in investment in real estate assets and joint ventures in future periods will be dependent upon the availability of funds either through capital contributions raised from the sale of stock or debt facilities and the availability of real estate assets or joint venture investments that meet our investment objectives.
 
The cash flows provided by joint ventures are expected to increase in 2003, when we recognize a full year of benefit for the 2002 joint venture investments. Increases to cash flows provided by joint venture distributions will be dependent upon whether we invest in additional properties through joint ventures in the future as expected cash flows from existing joint ventures are expected to provide nominal increases based on scheduled rent increases.
 
Cash Flows From Financing Activities
 
Comparison of 2002 vs 2001
 
Our net cash provided by financing activities was $1,227.8 million and $303.5 million for the years ended December 31, 2002 and 2001, respectively. The increase in net cash provided by financing activities was due primarily to the raising of additional capital of $1,340.3 million during the year ended December 31, 2002 compared to $522.5 million during the year ended December 31, 2001. The amounts raised were partially offset by the payment of commissions and offering costs totaling $140.5 million and $58.6 million for the years ended December 31, 2002 and 2001, respectively and redemptions of our stock of $15.4 million and $4.1 million for the years ended December 31, 2002, and 2001, respectively.
 
Additionally, we obtained funds from financing arrangements totaling $212.9 million and $110.2 million and made debt repayments of $62.8 million and $229.8 million for the years ended December 31, 2002 and 2001, respectively. As a result of our increased operations and activities during the years ended December 31, 2002 and 2001, we paid dividends of $105.0 million and $36.7 million, respectively.
 
Comparison of 2001 vs 2000
 
Our net cash provided by financing activities was $303.5 million and $243.4 million for the years ended December 31, 2001 and 2000, respectively. The increase in net cash provided by financing activities was due primarily to the raising of additional capital of $522.5 million during the year ended December 31, 2001 compared to $180.4 million for the year ended December 31, 2000. The amounts raised were partially offset by the payment of commissions and offering costs totaling $58.6 million and $22.4 million for the years ended December 31, 2001 and 2000, respectively, and redemptions of our stock of $4.1 million and $1.4 million for the years ended December 31, 2001 and 2000, respectively.

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Additionally, we obtained funds from financing arrangements totaling $110.2 million and $187.6 million and made debt repayments of $229.8 million and $83.9 million for the years ended December 31, 2001 and 2000, respectively. As a result of our increased operations and activities during the years ended December 31, 2001 and 2000, we paid dividends of $36.7 million and $17.0 million, respectively.
 
The amounts of cash provided by and used in financing activities in the future will be dependent upon our ability to raise additional funds from investors and from the ability to secure debt facilities for the acquisition of real estate assets in future periods, and may not be comparable to the amounts of cash provided in past periods.
 
Results of Operations
 
As of December 31, 2002, our 72 real estate properties were 98.3% leased. Our results of operations have changed significantly for the years ended December 31, 2002, 2001, and 2000, generally as a result of the 32, 11, and 12 property acquisitions during the years ended December 31, 2002, 2001, and 2000, respectively. We expect that rental income, equity income of joint ventures, tenant reimbursements, operating expenses, management and leasing fees, and net income will each increase in future periods as a result of owning real estate assets acquired in 2002 for a full year and as a result of future acquisitions of real estate assets. Due to the average remaining terms of the long-term leases currently in place at our properties, management does not anticipate significant changes in near-term rental revenues from properties currently owned.
 
Comparison of 2002 vs 2001
 
Rental income was $107.5 million and $44.2 million for the years ended December 31, 2002 and 2001, respectively. Tenant reimbursements were $19.0 million and $6.8 million for the years ended December 31, 2002 and 2001, respectively. Tenant reimbursements were equivalent to 70% and 63% of the property operating costs for these respective years. The variance in the costs is dependent upon the terms of the lease agreements for the real estate assets in each year.
 
Equity in income of joint ventures was $4.7 million and $3.7 million for the years ended December 31, 2002 and 2001, respectively. The increase is primarily a result of recognizing a full year of operations in 2002 for the investments in joint ventures made during 2001. Equity in income of joint ventures is expected to increase in future periods as additional investments in joint ventures are made; however, returns from existing joint venture investments are not expected to change materially from the historical results.
 
Lease termination income was $1.4 million for the year ended December 31, 2002 compared to $0 for the year ended December 31, 2001. The 2002 activity relates to a single lease termination at the Vertex-Sarasota Building (formerly the Andersen Building), in which, in consideration for releasing Arthur Andersen from its obligations to pay rent under the lease, Arthur Andersen paid Wells OP a termination fee of approximately $1.0 million and conveyed to Wells OP an adjacent parcel of land which we valued at $0.4 million.
 
Interest and other income was $7.0 million and $1.5 million for the years ended December 31, 2002 and 2001, respectively. Of this amount $2.8 million and $0.5 million was attributable to interest on the bonds related to the Ingram Micro and ISS Buildings, which is offset by the related interest expense associated with the bonds. We invest any funds received from stockholders in short-term investments until the funds are invested in real estate asset investments. At certain times during the years ended December 31, 2002 and 2001, we held a significant amount of cash on hand resulting in the relatively high interest income. The level of interest income is dependent upon our ability to find suitable real estate asset investments on a pace consistent with investor proceeds, therefore interest income amounts
 
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for the years ended December 31, 2002 and 2001, may or may not be indicative of interest income for future periods.
 
Depreciation expense was $38.8 million and $15.3 million for the years ended December 31, 2002 and 2001, representing 36% and 35%, of rental income for the respective year. The change between periods is generally due to a change in applicable cost of the real estate assets compared to the straight-line revenues generated by the real estate assets. Operating costs were $26.9 million and $10.9 million for the years ended December 31, 2002 and 2001, representing 21% of the sum of the rental income and tenant reimbursements revenue amounts for each year. Management and leasing fees were $5.2 million, and $2.5 million for the years ended December 31, 2002, and 2001, respectively.
 
General and administrative costs were $3.2 million and $1.2 million for the years ended December 31, 2002 and 2001, respectively, and legal and accounting expenses were $1.0 million and $0.4 million, for the years ended December 31, 2002 and 2001, respectively. The increase in the expenses are attributable to our increased size over the years, but represent 3% of total revenues for each year ended December 31, 2002 and 2001. In the future, such costs as a percentage of total revenues are expected to be materially consistent with the historical periods, but may change as we continue to grow.
 
Interest expense and amortization of deferred financing costs was $4.6 million and $4.2 million for the years ended December 31, 2002 and 2001, respectively. Of this amount $2.8 million and $0.5 million was attributable to interest on the bonds related to the Ingram Micro and ISS Buildings for the years ended December 31, 2002 and 2001, respectively, which is offset by the related interest income associated with the bonds as noted above. Interest expense is dependent upon the amount of borrowings outstanding during the period as well as the interest rate. Interest expense payable to third parties (excluding the interest on the bonds) for the year ended December 31, 2002 decreased as compared to the year ended December 31, 2001 due to lower average amounts of borrowings outstanding during the periods as well as lower interest rates.
 
Comparison of 2001 vs 2000
 
Rental income revenues were $44.2 million and $20.5 million for the years ended December 31, 2001 and 2000, respectively. Tenant reimbursements were $6.8 million and $2.3 million for the years ended December 31, 2001 and 2000, respectively. Tenant reimbursements were equivalent to 63% and 71% of the property operating costs for the respective years. The variance in the cost is dependent upon the terms of the lease agreements for the real estate assets in each year.
 
Equity in income of joint ventures was $3.7 million and $2.3 million for the years ended December 31, 2001 and 2000, respectively. The increase is due to the investments in joint ventures during 2001 and recognizing a full year of operations for investments in joint ventures during 2000.
 
Interest and other income was $1.5 million and $0.6 million for the years ended December 31, 2001 and 2000, respectively. Of this amount $0.5 million and $0 during the years ended December 31, 2001 and 2000, respectively was attributable to interest on the bonds related to the Ingram Micro Building, which is offset by the related interest expense associated with the bonds. We invest any funds received from our stockholders in short-term investments until the funds are placed in real estate asset investments. At certain times during the years ended December 31, 2001 and 2000, we held varying amounts of cash on hand resulting in the increases in interest income between years.
 
Depreciation expense was $15.3 million and $7.7 million for the years ended December 31, 2001 and 2000, representing 35% and 38% of rental income for the respective year. The change between years is generally due to a change in applicable cost of the real estate assets compared to the straight-line revenues generated by the real estate assets. Operating costs were $10.9 million and $3.2 million for the
 
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years ended December 31, 2001 and 2000, respectively, representing 21% and 14%, respectively, of the sum of the rental income and tenant reimbursements revenue amounts. Management and leasing fees were $2.5 million and $1.3 million for the years ended December 31, 2001 and 2000, respectively.
 
General and administrative costs were $1.2 million and $0.4 million for the years ended December 31, 2001 and 2000, respectively, and legal and accounting expenses were $0.4 million and $0.2 million for the years ended December 31, 2001 and 2000, respectively. The increase in the expenses are attributable to our increased size, but represent 3% of total revenues for each year ended December 31, 2001 and 2000.
 
Interest expense and amortization of deferred financing costs was $4.2 million for each of the years ended December 31, 2001 and 2000. Of this amount $0.5 million and $0.0 million was attributable to interest on the bonds related to the Ingram Micro Building for the years ended December 31, 2001 and 2000, respectively, which is offset by the related interest income associated with the bonds as noted above. Interest expense is dependent upon the amount of borrowings outstanding during the period as well as the interest rate. Interest expense payable to third parties (excluding the interest on the bonds) for the years ended December 31, 2001 compared to the year ended December 31, 2000 decreased due to a lower average amount of borrowings outstanding during the year as well as lower interest rates.
 
Subsequent Events
 
Sale of shares of our common stock
 
From January 1, 2003 through March 31, 2003, we had raised approximately $426.8 million through the issuance of 42.7 million shares of our common stock.
 
Redemptions of our common stock
 
From January 1, 2003 through March 31, 2003, we redeemed approximately 1.3 million shares of our common stock at an aggregate cost of approximately $12.9 million pursuant to its share redemption program. Our current share redemption plan will allow for redemptions totaling $40 million for the year ending December 31, 2003.
 
Property Acquisitions
 
On January 9, 2003, Wells OP purchased two three-story office buildings containing approximately 187,735 aggregate rentable square feet located in Mayfield Heights, Ohio, (the “East Point Buildings”) for a purchase price of $22.0 million, excluding closing costs and acquisition and advisory fees paid to the Advisor. The East Point Buildings, which were built in 2000, are located at 6085 Parkland Boulevard (“East Point I”) and 6095 Parkland Boulevard (“East Point II”) in Mayfield Heights, Cuyahoga County, Ohio. The entire 102,484 rentable square feet of East Point I is leased to Progressive Casualty Insurance Company. East Point II contains approximately 85,251 rentable square feet, of which 70,585 rentable square feet (83%) is currently leased to Austin, Danaher Power Solutions LLC and Moreland Management Co. Approximately 14,666 rentable square feet (17%) of East Point II is vacant.
 
In connection with the acquisition of the East Point Buildings, we entered into an earn-out agreement, whereby we are required to pay the seller for each new lease fully executed after the date of acquisition of the property but on or before March 31, 2004, or on or before July 31, 2004 if the tenant thereunder is a leasing prospect as defined by the agreement. Payments shall be in the amounts of the anticipated first year’s annual rent less operating expenses with the sum divided by 0.105 and the result reduced by tenant improvement costs related to the space.
 
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On March 31, 2003, Wells OP purchased a 25-story office building containing approximately 505,417 rentable square feet located in Detroit, Michigan, (the “150 West Jefferson Detroit Building”) for a purchase price of $93.75 million, excluding closing costs and acquisition and advisory fees paid to the Advisor. The 150 West Jefferson Detroit Building, which was built in 1989, is located at 150 West Jefferson Avenue in Detroit, Michigan. Miller, Canfield, Paddock & Stone, Butzel Long PC and MCN Energy Group, Inc., formerly known as MCN Corporation aggregately lease approximately 311,285 rentable square feet of the 150 West Jefferson Detroit Building (61.6%). Approximately 190,863 rentable square feet (37.8%) is leased to an additional 14 tenants. Approximatley 3,269 rentable square feet (0.6%) of the 150 West Jefferson Detroit Building is vacant.
 
Dividend Declaration
 
On March 12, 2003, our board of directors declared dividends for the second quarter of 2003 in the amount of a 7.0% annualized percentage return on an investment of $10 per share, payable our shareholders on a daily record basis.
 
Commitments and Contingencies
 
Take Out Purchase and Escrow Agreement
 
We entered into a take out purchase and escrow agreement with an affiliate of our advisor whereby we earn a fee in return for agreeing to purchase any unsold co-tenancy interests related to the Section 1031 exchange program established by an affiliate of our advisor. See Note 8 to our consolidated financial statements included in this supplement for discussion of this potential obligation.
 
Letters of Credit
 
We have three unused letters of credit as required by other parties to ensure completion of the our obligations under certain contracts. See Note 8 to our consolidated financial statements included in this supplement for further discussion of the letters of credit.
 
Property Under Contract
 
We entered into an agreement to purchase a third building at the ISS Atlanta Buildings development upon completion of construction for $10 million. See Note 8 to our consolidated financial statements included in this supplement for further discussion of the property under contract and related obligations.
 
Properties Under Construction
 
We entered into three agreements for the construction and development of certain properties. See Note 8 to our consolidated financial statements included in this supplement for a more detailed discussion of the properties under construction and the related obligation.
 
Commitments Under Existing Lease Agreements
 
We entered into lease agreements with tenants that may include provisions that, at the option of the tenants, may require us to incur certain capital costs. See Note 8 to our consolidated financial statements included in this supplement for further discussion of these potential obligations.

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Earn-out Agreements
 
We entered into a purchase agreement containing an earn-out clause that may result in us being obligated to pay $14.5 million to the seller of a property. See Note 8 to our consolidated financial statements included in this supplement for a more detailed discussion of this potential obligation.
 
Leasehold Property Obligations
 
We own certain properties that are subject to ground leases and require us to pay rent in future years. See Note 8 to our consolidated financial statements included in this supplement for further discussion of the lease terms and required payments.
 
Pending Litigation
 
We have certain pending litigation related to a dispute over the right to a $750,000 escrow money deposit for a property that was not acquired. See Note 8 to our consolidated financial statements included in this supplement for further discussion of the litigation.
 
Funds from Operations
 
Funds from Operations (FFO), as defined by the National Association of Real Estate Investment Trusts (NAREIT), generally means net income, computed in accordance with accounting principles generally accepted in the United States (GAAP) excluding extraordinary items (as defined by GAAP) and gains (or losses) from sales of property, plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures and subsidiaries. Management believes that FFO is helpful to investors as a measure of the performance of an equity REIT. However, our calculation of FFO, while consistent with NAREIT’s definition, may not be comparable to similarly titled measures presented by other REITs. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income as an indication of our performance or to cash flows as a measure of liquidity or ability to make distributions.
 
The following table reflects the calculation of FFO for the three years ended December 31, 2002, 2001, and 2000, respectively:
 
 	  	December 31,
2002

	  	December 31,
2001

	  	December 31,
2000

	
FUNDS FROM OPERATIONS:	  	 	 	  	 	 	  	 	 	
Net income	  	$	59,854	  	$	21,724	  	$	8,553	
Add:	  	 	 	  	 	 	  	 	 	
Depreciation of real assets	  	 	38,780	  	 	15,345	  	 	7,743	
Amortization of deferred leasing costs	  	 	303	  	 	303	  	 	351	
Depreciation and amortization—unconsolidated partnerships	  	 	2,861	  	 	3,212	  	 	853	

	

	  	

	

	  	

	

	
Funds from operations (FFO)	  	$	101,798	  	$	40,584	  	$	17,500	

	

	  	

	

	  	

	

	
 	 	 	 	
WEIGHTED AVERAGE SHARES:	  	 	 	  	 	 	  	 	 	
BASIC AND DILUTED	  	 	145,633	  	 	51,082	  	 	21,616	

	

	  	

	

	  	

	

	

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In order to recognize revenues on a straight line basis over the terms of the respective leases, we recognized straight line revenue of $7.6 million, $2.8 million, and $1.7 million during the years ended December 31, 2002, 2001, and 2000 respectively.
 
Inflation
 
The real estate market has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. However, there are provisions in the majority of tenant leases, which would protect us from the impact of inflation. These provisions include reimbursement billings for operating expense pass-through 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. However, due to the long-term nature of the leases, the leases may not re-set frequently enough to cover inflation.
 
Application of Critical Accounting Policies
 
Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If management’s judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied; thus, resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses.
 
The critical accounting policies outlined below have been discussed with members of our audit committee. There have been no significant changes in the critical accounting policies, methodology, or assumptions in the current period.
 
Below is a discussion of the accounting policies that management considers to be critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain. Additional discussion of accounting policies that management considers to be significant, including further discussion of the critical accounting policies described below, is presented in Note 2 to our consolidated financial statements included in this supplement.
 
Investment in Real Estate Assets
 
We are required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives. These assessments have a direct impact on net income. The estimated useful lives of our assets by class are as follows:
 
Building	  	25 years	
Building improvements	  	10-25 years	
Land improvements	  	20-25 years	
Tenant Improvements	  	Lease term	
 
In the event that management uses inappropriate useful lives or methods for depreciation, our net income would be misstated.
 
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Valuation of Real Estate Assets
 
We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate assets, both operating properties and properties under construction, in which we have an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When indicators of potential impairment are present which indicate that the carrying amounts of real estate assets may not be recoverable, management assesses the recoverability of the real estate assets by determining whether the carrying value of the real estate assets will be recovered through the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, management adjusts the real estate assets to the fair value and recognizes an impairment loss. We have determined that there has been no impairment in the carrying value of real estate assets we held and any unconsolidated joint ventures at December 31, 2002 and 2001.
 
Projections of expected future cash flows requires management to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the number of months it takes to re-lease the property, and the number of years the property is held for investment. The use of inappropriate assumptions in the future cash flow analysis would result in an incorrect assessment of the property’s future cash flows and fair value, and could result in the overstatement of our carrying value of real estate assets and net income.
 
Intangible Lease Asset/Liability
 
As part of the acquisition of real estate assets, we determine whether an intangible asset or liability related to above or below market leases was acquired as part of the acquisition of the real estate. As a result of adopting the standards, amounts totaling $12.1 million have been recorded as intangible lease assets and $32.7 million have been recorded as intangible lease liabilities, relating to above and below market lease arrangements for properties acquired in 2002. The intangible assets and liabilities are recorded at their estimated fair market values at the date of acquisition, and are amortized over the remaining term of the respective lease to rental income.
 
The determination of the estimated fair values of the intangible lease asset or liability requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, discount rates and other variables. If inappropriate estimates with regard to these variables are used, misclassification of assets or liabilities and incorrect calculation of depreciation amounts would occur, which would misstate our net income.
 
Related Party Transactions and Agreements
 
We have entered into agreements with our advisor and other affiliates, whereby we pay certain fees or reimbursements to our advisor or such affiliates for acquisition and advisory fees, organization and offering costs, sales commissions, dealer manager fees, property management and leasing fees, and reimbursement of operating costs. See Note 12 to our consolidated financial statements included in this supplement for a discussion of the various related party transactions, agreements, and fees.
 
Conflicts of Interest
 
Our advisor is also a general partner in and advisor to various Wells Real Estate Funds. As such, there are conflicts of interest in which the advisor, while serving in the capacity as general partner for Wells Real Estate Funds, may be in competition with us in connection with property acquisitions or for tenants in similar geographic markets.

15

Table of Contents
Financial Statements
 
Ernst & Young LLP
 
The consolidated financial statements of the Wells REIT, as of and for the year ended December 31, 2002, and Schedule III—Real Estate Assets and Accumulated Depreciation as of December 31, 2002, included in this supplement and elsewhere in the registration statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
 
Arthur Andersen LLP
 
The consolidated financial statements of the Wells REIT, as of December 31, 2001 and 2000, and for each of the two years in the period ended December 31, 2001, and Schedule III—Real Estate Investments and Accumulated Depreciation as of December 31, 2001, included in this supplement and elsewhere in the registration statement, were audited by Arthur Andersen LLP (Andersen), independent public accountants, as indicated in their report with respect thereto, and are included in this supplement in reliance upon the authority of said firm as experts in giving said report.
 
Andersen ceased operations during 2002 and, accordingly, has not reissued their report related to previously audited financial statements. Additionally, Andersen has not consented to the use of their report related to previously audited financial statements. Events arising out of the ceased operations of Andersen may adversely affect the ability of Andersen to satisfy any potential claims that may arise out of Andersen’s audits of the financial statements contained in this supplement. In addition, our inability to obtain a consent from Andersen may also adversely affect your ability to pursue potential claims against Andersen.
 
Prior Performance Tables
 
The prior performance tables dated as of December 31, 2002, which are included in this supplement and elsewhere in the registration statement, have not been audited.
 
Unaudited Financial Statements
 
The pro forma balance sheet of the Wells REIT, as of December 31, 2002 and the pro forma statement of income for the year ended December 31, 2001, which are included in this supplement, have not been audited.
 
16

Table of Contents
INDEX TO FINANCIAL STATEMENTS
 
Wells Real Estate Investment Trust, Inc. and Subsidiary	  	Page

	
 	 	
Audited Financial Statements	  	 	
 	 	
Report of Independent Auditors—Ernst & Young LLP	  	18	
 	 	
Report of Independent Accountants—Arthur Andersen	  	19	
 	 	
Consolidated Balance Sheets as of December 31, 2002 and 2001	  	20	
 	 	
Consolidated Statements of Income for the years ended December 31, 2002, 2001 and 2000	  	22	
 	 	
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2002, 2001 and 2000	  	23	
 	 	
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000	  	24	
 	 	
Notes to Consolidated Financial Statements	  	25	
 	 	
Schedule III—Real Estate Assets and Accumulated Depreciation as of December 31, 2002	  	55	
 	 	
Prior Performance Tables (Unaudited)	  	59	
 	 	
Wells Real Estate Investment Trust, Inc. and Subsidiary	  	 	
 	 	
Unaudited Pro Forma Financial Statements	  	 	
 	 	
Summary of Unaudited Pro Forma Financial Statements	  	69	
 	 	
Pro Forma Balance Sheet as of December 31, 2002 (unaudited)	  	70	
 	 	
Pro Forma Statement of Income for the year ended December 31, 2002 (unaudited)	  	72	

17

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REPORT OF INDEPENDENT AUDITORS
 
Board of Directors and Shareholders
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying consolidated balance sheet of Wells Real Estate Investment Trust, Inc. and subsidiaries as of December 31, 2002 and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended. Our audit also included financial statement Schedule III—Real Estate Assets and Accumulated Depreciation as of December 31, 2002. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. The financial statements and schedule of Wells Real Estate Investment Trust, Inc. and subsidiary as of December 31, 2001, and for the years ended December 31, 2001 and 2000 were audited by other auditors who have ceased operations, and whose report dated January 25, 2002 expressed an unqualified opinion on those financial statements and schedule before the restatement adjustments and disclosures described in Note 2.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the 2002 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wells Real Estate Investment Trust, Inc. and subsidiaries at December 31, 2002 and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related 2002 financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
 
As discussed above, the financial statements of Wells Real Estate Investment Trust, Inc. and subsidiary as of December 31, 2001 and for the years ended December 31, 2001 and 2000 were audited by other auditors who have ceased operations. As described in Note 2, these financial statements have been restated. We audited the adjustments described in Note 2 that were applied to restate the 2001 and 2000 financial statements. Our procedures included (a) agreeing the amounts in the restatement adjustments columns to the corresponding accounts maintained in the underlying records of the Company, and (b) testing the application of the adjustments to the historical amounts. In our opinion, such adjustments are appropriate and have been properly applied. Additionally, as described in Note 2, these financial statements have been revised to include disclosure of the number of weighted average shares outstanding for the years ended December 31, 2001 and 2000 on the consolidated statements of income. Our audit procedures with respect to this disclosure included recalculating the number of weighted average shares outstanding for the years ended December 31, 2001 and 2000 by dividing the net income amount previously reported on the consolidated statements of income in 2001 and 2000 by the earnings per share amount previously reported on the consolidated statements of income in 2001 and 2000. In our opinion, the disclosure of the number of weighted average shares outstanding on the consolidated statements of income for the years ended December 31, 2001 and 2000 is appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 and 2000 financial statements of Wells Real Estate Investment Trust, Inc. and subsidiary other than with respect to such restatement adjustments and disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 and 2000 financial statements taken as a whole.
 
As discussed in Note 2, in 2002 the Company adopted Statement of Financial Accounting Standards No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets”.
 
/s/    Ernst & Young LLP
 
Atlanta, Georgia
January 24, 2003
 
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(The following is a copy of the audit report previously issued by Arthur Andersen LLP in connection with the consolidated financial statements of Wells Real Estate Investment Trust, Inc. (Wells REIT) included in the previous year’s Form 10-K for the fiscal year ended December 31, 2001. This audit report has not been reissued by Arthur Andersen in connection with the filing of the Wells REIT Form 10-K for the fiscal year ended December 31, 2002.)
 
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Wells Real Estate Investment Trust, Inc.:
 
We have audited the accompanying consolidated balance sheets of WELLS REAL ESTATE INVESTMENT TRUST, INC. (a Maryland corporation) AND SUBSIDIARY  as of December 31, 2001 and 2000 and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements and the schedule referred to below are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
 
We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 Investment Trust, Inc. and subsidiary as of December 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.
 
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule III—Real Estate Investments and Accumulated Depreciation as of December 31, 2001 is presented for purposes of complying with the Securities and Exchange Commission’s rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
 
/s/    ARTHUR ANDERSEN LLP
 
Atlanta, Georgia
January 25, 2002
 
19

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
DECEMBER 31, 2002 and 2001
 
(in thousands, except share amounts)
 
ASSETS
 
 	  	2002

	  	2001

	
REAL ESTATE ASSETS, at cost:	  	 	 	  	 	 	
Land	  	$	279,185	  	$	86,247	
Buildings and improvements, less accumulated depreciation of $63,594 and $24,814 at December 31, 2002 and 2001, respectively	  	 	1,683,036	  	 	472,383	
Construction in progress	  	 	42,746	  	 	5,739	

	

	  	

	

	
Total real estate assets	  	 	2,004,967	  	 	564,369	
 	 	 	
INVESTMENTS IN JOINT VENTURES	  	 	83,915	  	 	77,410	
 	 	 	
CASH AND CASH EQUIVALENTS	  	 	45,464	  	 	75,586	
 	 	 	
RENT RECEIVABLE	  	 	19,321	  	 	6,003	
 	 	 	
DEFERRED PROJECT COSTS	  	 	1,494	  	 	2,977	
 	 	 	
DUE FROM AFFILIATES	  	 	1,961	  	 	1,693	
 	 	 	
PREPAID EXPENSES AND OTHER ASSETS, net	  	 	4,407	  	 	718	
 	 	 	
DEFERRED LEASE ACQUISITION COSTS, net	  	 	1,638	  	 	1,525	
 	 	 	
INTANGIBLE LEASE ASSET	  	 	12,060	  	 	—  	
 	 	 	
INVESTMENTS IN BONDS	  	 	54,500	  	 	22,000	

	

	  	

	

	
Total assets	  	$	2,229,727	  	$	752,281	

	

	  	

	

	
 
20

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LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 	  	2002

	 	 	2001

	 	
LIABILITIES:	  	 	 	 	 	 	 	 	
Notes payable	  	$	248,195	 	 	$	8,124	 	
Obligations under capital leases	  	 	54,500	 	 	 	22,000	 	
Intangible lease liability	  	 	32,697	 	 	 	—  	 	
Accounts payable and accrued expenses	  	 	24,580	 	 	 	8,727	 	
Due to affiliate	  	 	15,975	 	 	 	2,166	 	
Dividends payable	  	 	6,046	 	 	 	1,059	 	
Deferred rental income	  	 	11,584	 	 	 	662	 	

	

	

	 	

	

	

	
Total liabilities	  	 	393,577	 	 	 	42,738	 	

	

	

	 	

	

	

	
 	 	 	
COMMITMENTS AND CONTINGENCIES	  	 	 	 	 	 	 	 	
 	 	 	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200	 	 	 	200	 	

	

	

	 	

	

	

	
 	 	 	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	
Common shares, $.01 par value; 750,000,000 shares authorized, 217,790,874 shares issued, and 215,699,717 shares outstanding at December 31, 2002 and 125,000,000 shares authorized, 83,761,469 shares issued and 83,206,429 shares outstanding at December 31, 2001	  	 	2,178	 	 	 	838	 	
Additional paid-in capital	  	 	1,929,381	 	 	 	738,236	 	
Cumulative distributions in excess of earnings	  	 	(74,310	)	 	 	(24,181	)	
Treasury stock, at cost, 2,091,157 shares at December 31, 2002 and 555,040 shares at December 31, 2001	  	 	(20,912	)	 	 	(5,550	)	
Other comprehensive loss	  	 	(387	)	 	 	—  	 	

	

	

	 	

	

	

	
Total shareholders’ equity	  	 	1,835,950	 	 	 	709,343	 	

	

	

	 	

	

	

	
Total liabilities and shareholders’ equity	  	$	2,229,727	 	 	$	752,281	 	

	

	

	 	

	

	

	
 
See accompanying notes.

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME
 
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
 
(in thousands, except per share amounts)
 
 	  	2002

	  	2001

	  	2000

	
REVENUES:	  	 	 	  	 	 	  	 	 	
Rental income	  	$	107,526	  	$	44,204	  	$	20,505	
Tenant reimbursements	  	 	18,992	  	 	6,830	  	 	2,318	
Equity in income of joint ventures	  	 	4,700	  	 	3,721	  	 	2,294	
Lease termination income	  	 	1,409	  	 	—  	  	 	—  	
Interest and other income	  	 	7,001	  	 	1,521	  	 	574	

	

	  	

	

	  	

	

	
 	  	 	139,628	  	 	56,276	  	 	25,691	

	

	  	

	

	  	

	

	
EXPENSES:	  	 	 	  	 	 	  	 	 	
Depreciation	  	 	38,780	  	 	15,345	  	 	7,743	
Interest expense	  	 	4,638	  	 	4,181	  	 	4,200	
Property operating costs	  	 	26,949	  	 	10,901	  	 	3,206	
Management and leasing fees	  	 	5,155	  	 	2,507	  	 	1,310	
General and administrative	  	 	3,244	  	 	1,169	  	 	439	
Legal and accounting	  	 	1,008	  	 	449	  	 	240	

	

	  	

	

	  	

	

	
 	  	 	79,774	  	 	34,552	  	 	17,138	

	

	  	

	

	  	

	

	
NET INCOME	  	$	59,854	  	$	21,724	  	$	8,553	

	

	  	

	

	  	

	

	
 	 	 	 	
EARNINGS PER SHARE:	  	 	 	  	 	 	  	 	 	
Basic and diluted	  	$	0.41	  	$	0.43	  	$	0.40	

	

	  	

	

	  	

	

	
 	 	 	 	
WEIGHTED AVERAGE SHARES OUTSTANDING:	  	 	 	  	 	 	  	 	 	
Basic and diluted	  	 	145,633	  	 	51,082	  	 	21,616	

	

	  	

	

	  	

	

	
 
See accompanying notes.

22

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
 
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
 
(in thousands, except per share amounts)
 
 	 	Common Stock

	 	Additional
Paid-In
Capital

	 	 	Cumulative
Distributions
in Excess
of Earnings

	 	 	Retained
Earnings

	 	 	Treasury Stock

	 	 	Other
Comprehensive
Income

	 	 	Total
Shareholders’
Equity

	 	 	
 	 	Shares

	 	Amount

	 	 	 	 	 	 	 	 	 	 	Shares

	 	 	Amount

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
BALANCE, December 31, 1999	 	13,471	 	$	135	 	$	117,738	 	 	$	(1,857	)	 	$	—  	 	 	—  	 	 	$	—  	 	 	$	—  	 	 	$	116,016	 	 	 	 	 	 	 	 	 	 	
Issuance of common stock	 	18,039	 	 	180	 	 	180,207	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	180,387	 	 	 	 	 	 	 	 	 	 	
Treasury stock purchased	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	(141	)	 	 	(1,413	)	 	 	—  	 	 	 	(1,413	)	 	 	 	 	 	 	 	 	 	
Dividends ($0.73 per share)	 	—  	 	 	—  	 	 	—  	 	 	 	(7,276	)	 	 	(8,553	)	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(15,829	)	 	 	 	 	 	 	 	 	 	
Sales commissions and dealer manager fees	 	—  	 	 	—  	 	 	(17,003	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(17,003	)	 	 	 	 	 	 	 	 	 	
Other offering costs	 	—  	 	 	—  	 	 	(5,369	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(5,369	)	 	 	 	 	 	 	 	 	 	
Net income	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	8,553	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	8,553	 	 	 	 	 	 	 	 	 	 	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
BALANCE, December 31, 2000	 	31,510	 	 	315	 	 	275,573	 	 	 	(9,133	)	 	 	—  	 	 	(141	)	 	 	(1,413	)	 	 	—  	 	 	 	265,342	 	 	 	 	 	 	 	 	 	 	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
Issuance of common stock	 	52,251	 	 	523	 	 	521,994	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	522,517	 	 	 	 	 	 	 	 	 	 	
Treasury stock purchased	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	(414	)	 	 	(4,137	)	 	 	—  	 	 	 	(4,137	)	 	 	 	 	 	 	 	 	 	
Dividends ($0.76 per share)	 	—  	 	 	—  	 	 	—  	 	 	 	(15,048	)	 	 	(21,724	)	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(36,772	)	 	 	 	 	 	 	 	 	 	
Sales commissions and dealer manager fees	 	—  	 	 	—  	 	 	(49,246	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(49,246	)	 	 	 	 	 	 	 	 	 	
Other offering costs	 	—  	 	 	—  	 	 	(10,085	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(10,085	)	 	 	 	 	 	 	 	 	 	
Net income	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	21,724	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	21,724	 	 	 	 	 	 	 	 	 	 	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
BALANCE, December 31, 2001	 	83,761	 	 	838	 	 	738,236	 	 	 	(24,181	)	 	 	—  	 	 	(555	)	 	 	(5,550	)	 	 	—  	 	 	 	709,343	 	 	 	 	 	 	 	 	 	 	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
Issuance of common stock	 	134,030	 	 	1,340	 	 	1,338,953	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	1,340,293	 	 	 	 	 	 	 	 	 	 	
Treasury stock purchased	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	(1,536	)	 	 	(15,362	)	 	 	—  	 	 	 	(15,362	)	 	 	 	 	 	 	 	 	 	
Dividends ($0.76 per share)	 	—  	 	 	—  	 	 	—  	 	 	 	(50,129	)	 	 	(59,854	)	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(109,983	)	 	 	 	 	 	 	 	 	 	
Sales commissions and dealer manager fees	 	—  	 	 	—  	 	 	(127,332	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(127,332	)	 	 	 	 	 	 	 	 	 	
Other offering costs	 	—  	 	 	—  	 	 	(20,476	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(20,476	)	 	 	 	 	 	 	 	 	 	
Components of comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	59,854	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	59,854	 	 	 	 	 	 	 	 	 	 	
Loss on interest rate swap	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	(387	)	 	 	(387	)	 	 	 	 	 	 	 	 	 	
Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	59,467	 	 	 	 	 	 	 	 	 	 	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
BALANCE, December 31, 2002	 	217,791	 	$	2,178	 	$	1,929,381	 	 	$	(74,310	)	 	$	—  	 	 	(2,091	)	 	$	(20,912	)	 	$	(387	)	 	$	1,835,950	 	 	 	 	 	 	 	 	 	 	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	 	 	 	 	 	 	 	 	

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
 
(in thousands)
 
 	  	2002

	 	 	2001

	 	 	2000

	 	
CASH FLOWS FROM OPERATING ACTIVITIES:	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	59,854	 	 	$	21,724	 	 	$	8,553	 	

	

	

	 	

	

	

	 	

	

	

	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	(4,700	)	 	 	(3,721	)	 	 	(2,294	)	
Depreciation	  	 	38,780	 	 	 	15,345	 	 	 	7,743	 	
Amortization of deferred financing costs	  	 	845	 	 	 	770	 	 	 	233	 	
Amortization of deferred lease acquisition costs	  	 	303	 	 	 	303	 	 	 	351	 	
Land received in lease termination	  	 	(430	)	 	 	—  	 	 	 	—  	 	
Write-off of deferred lease acquisition costs	  	 	—  	 	 	 	62	 	 	 	—  	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	 	 	 	 	
Rent receivable	  	 	(13,318	)	 	 	(2,222	)	 	 	(2,458	)	
Due from affiliates	  	 	(185	)	 	 	11	 	 	 	(436	)	
Prepaid expenses and other assets, net	  	 	(3,248	)	 	 	3,246	 	 	 	(6,827	)	
Accounts payable and accrued expenses	  	 	15,853	 	 	 	6,561	 	 	 	1,942	 	
Deferred rental income	  	 	10,922	 	 	 	280	 	 	 	146	 	
Due to affiliates	  	 	(104	)	 	 	(10	)	 	 	367	 	

	

	

	 	

	

	

	 	

	

	

	
Total adjustments	  	 	44,718	 	 	 	20,625	 	 	 	(1,233	)	

	

	

	 	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	104,572	 	 	 	42,349	 	 	 	7,320	 	

	

	

	 	

	

	

	 	

	

	

	
CASH FLOWS FROM INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	 	 	 	 	
Investment in real estate assets	  	 	(1,308,759	)	 	 	(227,934	)	 	 	(231,518	)	
Contributions to joint ventures	  	 	(8,910	)	 	 	(33,691	)	 	 	(15,064	)	
Investment in intangible lease asset	  	 	(12,060	)	 	 	—  	 	 	 	—  	 	
Deferred project costs paid	  	 	(39,797	)	 	 	(17,220	)	 	 	(6,264	)	
Deferred lease acquisition costs paid	  	 	(400	)	 	 	—  	 	 	 	—  	 	
Distributions received from joint ventures	  	 	7,388	 	 	 	4,239	 	 	 	3,529	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash used in investing activities	  	 	(1,362,538	)	 	 	(274,606	)	 	 	(249,317	)	

	

	

	 	

	

	

	 	

	

	

	
CASH FLOWS FROM FINANCING ACTIVITIES:	  	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from notes payable	  	 	212,906	 	 	 	110,243	 	 	 	187,633	 	
Repayments of notes payable	  	 	(62,835	)	 	 	(229,782	)	 	 	(83,899	)	
Dividends paid to shareholders	  	 	(104,996	)	 	 	(36,737	)	 	 	(16,971	)	
Issuance of common stock	  	 	1,340,293	 	 	 	522,517	 	 	 	180,387	 	
Treasury stock purchased	  	 	(15,362	)	 	 	(4,137	)	 	 	(1,413	)	
Sales commissions and dealer manager fees paid	  	 	(127,332	)	 	 	(49,246	)	 	 	(17,003	)	
Other offering costs paid	  	 	(13,156	)	 	 	(9,313	)	 	 	(5,369	)	
Deferred financing costs paid	  	 	(1,674	)	 	 	—  	 	 	 	—  	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash provided by financing activities	  	 	1,227,844	 	 	 	303,545	 	 	 	243,365	 	

	

	

	 	

	

	

	 	

	

	

	
 	 	 	 	
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	  	 	(30,122	)	 	 	71,288	 	 	 	1,368	 	
 	 	 	 	
CASH AND CASH EQUIVALENTS, beginning of year	  	 	75,586	 	 	 	4,298	 	 	 	2,930	 	

	

	

	 	

	

	

	 	

	

	

	
 	 	 	 	
CASH AND CASH EQUIVALENTS, end of year	  	$	45,464	 	 	$	75,586	 	 	$	4,298	 	

	

	

	 	

	

	

	 	

	

	

	
 
See accompanying notes.

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
DECEMBER 31, 2002, 2001 AND 2000
 
1.    Organization
 
Wells Real Estate Investment Trust, Inc. (the “Company”) is a Maryland corporation that qualifies as a real estate investment trust (“REIT”). The Company was incorporated in 1997 and commenced operations on June 5, 1998.
 
The Company engages in the acquisition and ownership of commercial real estate properties, throughout the United States, including properties which are under construction, are newly constructed or have operating histories. At December 31, 2002, the Company has invested in commercial and industrial real estate assets, either directly or through joint ventures with real estate limited partnership programs sponsored by Wells Capital, Inc. (the “Advisor”) or its affiliates.
 
Substantially all of the Company’s business is conducted through Wells Operating Partnership, L.P., (“Wells OP”), a Delaware limited partnership, and its subsidiaries. Wells OP was formed to acquire, develop, own, lease, and operate real properties on behalf of the Company, either directly, through wholly-owned subsidiaries, or through joint ventures. The Company is the sole general partner in Wells OP and possesses full legal control and authority over the operations of Wells OP. In addition, the Company owns Wells REIT-Independence Square, LLC (“Wells REIT-Independence”), a single member Georgia limited liability company. Wells REIT-Independence was formed for the purpose of acquiring two office buildings located in Washington, D.C. (the “NASA Buildings”). Wells OP, and its subsidiaries, and Wells REIT-Independence comprise the Company’s subsidiaries.
 
The Company has initiated four offerings of the Company’s stock as follows:
 
Offering #

	 	Date Commenced

	  	Termination Date

	  	Gross Proceeds

	  	Shares Issued

	 	
1	 	January 30, 1998	  	December 19, 1999	  	$    132.2 million	  	13.2 million	 	
2	 	December 20, 1999	  	December 19, 2000	  	$    175.2 million	  	17.5 million	 	
3	 	December 20, 2000	  	July 26, 2002	  	$ 1,283.0 million	  	128.3 million	 	
4	 	July 26, 2002	  	Offering will terminate
on or before July 25,
2004	  	$    587.5 million
(through December 31,
2002)	  	58.8 million
(through December 31,
2002	 
 
)	

	  	

	  	

	  	

	

	
Total as of December 31, 2002	 	 	  	 	  	$ 2,177.9 million	  	217.8 million	 	

	  	

	

	
 
After payment of $75.5 million in acquisition and advisory fees and acquisition expenses to the Advisor, payment of $206.4 million in selling commissions, payment of $40.0 million in organization and offering expenses to the Advisor, investment in real estate assets and joint ventures of $1,808.5 million, and common stock redemptions of $20.9 million pursuant to the Company’s share redemption program, the Company was holding net offering proceeds of approximately $26.6 million available for investment in properties at December 31, 2002.
 
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The Company’s stock is not listed on a national exchange. However, the Company’s Articles of Incorporation currently require that, in the event that the Company’s stock is not listed on a national exchange by January 30, 2008, the Company must begin liquidating its investments and distributing the resulting proceeds to the shareholders.
 
2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Principles of Consolidation and Basis of Presentation
 
The consolidated financial statements include the accounts of the Company, Wells OP and its subsidiaries, and Wells REIT-Independence. The financial statements of the Company’s subsidiaries are prepared using accounting policies consistent with the Company. All significant inter-company balances and transactions have been eliminated in consolidation.
 
Use of Estimates
 
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
 
Investments in Joint Ventures
 
The Company and its subsidiaries do not consolidate investments in ventures in which the Company or a subsidiary does not control the venture, including joint ventures requiring consent of both partners for all major decisions, regardless of whether the Company or a subsidiary owns a majority interest in the venture. These investments are accounted for using the equity method of accounting, whereby original investments are recorded at cost, and subsequently adjusted for contributions, distributions, and the investor’s share of income or losses of the joint ventures. Allocations of income and loss and distributions 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, which approximates economic ownership. Generally, cash distributions are made from the joint ventures to the investor on a quarterly basis.
 
Real Estate Assets
 
Real estate assets are stated at cost, less accumulated depreciation. Amounts capitalized to real estate assets consist of the cost of acquisition or construction, and any tenant improvements or major improvements and betterments which extend the useful life of the related asset. All repairs and maintenance are expensed as incurred. Additionally, the Company capitalizes interest when development of a real estate asset is in progress. Approximately $0.8 million, $0.1 million, and $0.2 million of interest was capitalized for the years ended December 31, 2002, 2001, and 2000, respectively.
 
The estimated useful lives of the Company’s real estate assets by class are as follows:
 
Building	  	25 years	
Building improvements	  	10-25 years	
Land improvements	  	20-25 years	
Tenant Improvements	  	Lease term	
 
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Management continually monitors events and changes in circumstances that could indicate that carrying amounts of real estate assets may not be recoverable. When indicators of potential impairment are present, management assesses the recoverability of the assets by determining whether the carrying value of the real estate assets will be recovered through the undiscounted future cash flows expected from the use and eventual disposition of the asset. In the event the expected undiscounted future cash flows do not exceed the carrying value, management adjusts the real estate assets to the fair value and recognizes an impairment loss. Management has determined that there has been no impairment in the carrying value of real estate assets held by the Company, its subsidiaries, and any unconsolidated joint ventures to date.
 
Effective January 1, 2002, the Company adopted the Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long Lived Assets”  (“SFAS 144”), which supersedes Statement of Financial Accounting Standards No. 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”  (“SFAS 121”) and Accounting Principles Board No. 30  “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual or Infrequently Occurring Events or Transactions,”  with regard to impairment assessment and discontinued operations respectively. In the current year, adoption of this standard did not have a significant impact on the Company, as SFAS 144 did not significantly change the measurement criteria for impairment under SFAS 121 and no properties were disposed of in the current year resulting in discontinued operations.
 
Cash and Cash Equivalents
 
The Company 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 consists of investments in money market accounts. At December 31, 2002 and 2001, there are no restrictions on the use of the Company’s cash.
 
Rent Receivable
 
Receivables are recognized and carried at original amount earned less a provision for any uncollectible amounts, which approximates fair value. An allowance for uncollectible amounts is made when collection of the full amount is no longer probable. Bad debt expense was $0.1 million, $0.0 million, and $0.0 million for the years ended December 31, 2002, 2001, and 2000, respectively.
 
Deferred Project Costs
 
The Company pays certain fees to the Advisor with regard to the acquisition of properties which are capitalized to the cost of the properties and depreciated on the same basis and over the respective useful life of the related asset. Deferred project costs represent costs incurred for properties to be acquired.
 
Prepaid Expenses and Other Assets, net
 
Prepaid expenses and other assets include deferred financing costs, prepaid property operating expenses, earnest money amounts, and purchase price escrows. Deferred financing costs are capitalized and amortized to interest expense on a straight-line basis over the terms of the related financing arrangement. Accumulated amortization of deferred financing costs totaled $1.2 million and $1.0 million at December 31, 2002 and 2001, respectively.
 
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 lease. Accumulated amortization of deferred lease acquisition costs totaled $0.8 million and $0.5 million at December 31, 2002 and 2001, respectively. The related amortization expense for
 
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deferred lease acquisition costs was $0.3 million, $0.3 million and $0.4 million for the years ended December 31, 2002, 2001, and 2000, respectively, which is included in management and leasing fees in the consolidated statements of income.
 
Intangible Lease Asset/Liability
 
On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 141 “Business Combinations,” and Statement of Financial Accounting Standards No. 142  “Goodwill and Intangibles” . These standards govern business combinations and asset acquisitions, and the accounting for acquired intangibles. As part of the acquisition of real estate assets, the Company determines whether an intangible asset or liability related to above or below market leases was acquired as part of the acquisition of the real estate. As a result of adopting the standards, amounts totaling $12.1 million have been recorded as intangible lease assets and $32.7 million have been recorded as intangible lease liabilities, relating to above and below market lease arrangements for properties acquired in 2002. The intangible assets and liabilities are recorded at their estimated fair market values at the date of acquisition, and are amortized over the remaining term of the respective lease to rental income. The weighted average amortization period for the intangible lease assets and liabilities was approximately 10 years and 9 years, respectively. These intangibles will be amortized as follows:
 
For the year ending December 31:

	  	Intangible
Lease
Asset
(000s)

	  	Intangible
Lease
Liability
(000s)

	
2003	  	$	1,909	  	$	4,144	
2004	  	 	1,909	  	 	4,144	
2005	  	 	1,807	  	 	4,144	
2006	  	 	677	  	 	3,602	
2007	  	 	677	  	 	2,842	
Thereafter	  	 	5,081	  	 	13,821	

	

	  	

	

	
 	  	$	12,060	  	$	32,697	

	

	  	

	

	
 
Investments in Bonds and Obligations Under Capital Leases
 
As a result of certain purchase transactions, the Company has acquired investments in bonds and certain obligations under capital leases. The Company records the bonds and obligations under capital leases at the amounts the Company expects to pay and receive. Because the Company is obligated to pay the indebtedness evidenced by the bonds, the Company has recorded these obligations as liabilities; however, since the Company is also the owner of the bonds, the bonds are carried on the Company’s books as assets. The related offsetting interest amounts are recorded as interest income and interest expense in the period that the amounts accrue. See Note 5 for a more detailed discussion of the bonds and obligations under capital leases.
 
Notes Payable
 
All loans are measured at the stated principal amount, which approximates fair value. Interest is charged to interest expense as it accrues, except for interest qualifying for capitalization relating to properties under development.
 
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Dividends Payable and Distribution Policy
 
The Company will make distributions each taxable year (not including a return of capital for federal income tax purposes) equal to at least 90% of the Company’s taxable income. The Company intends to make regular quarterly distributions to shareholders. Currently, dividends are declared in advance of the quarter to which they relate based on a daily rate for the upcoming quarter. Thus, shareholders are entitled to receive dividends immediately upon purchase of shares.
 
Dividends to be distributed to the shareholders are determined by the board of directors of the Company and are dependent upon a number of factors relating to the Company, including funds available for payment of dividends, financial condition, the timing of property acquisitions, capital expenditure requirements and annual distribution requirements in order to maintain the Company’s status as a REIT under the Internal Revenue Code.
 
Offering and Related Costs
 
Offering costs are charged by the Advisor for costs incurred by the Advisor for raising capital for the Company. Such costs include legal and accounting fees, printing costs, sales, promotional, and other offering costs. Such costs, as well as sales commissions and dealer manager fees associated with the offering of shares, which are currently 7% and 2.5%, respectively, of gross offering proceeds, are accounted for as a reduction of equity.
 
Treasury Stock
 
The Company currently has a share redemption plan in place whereby the Company acquires shares from shareholders, subject to certain limitations. The Company accounts for these share repurchases using the treasury stock method.
 
Revenue Recognition
 
All leases on real estate assets held by the Company or its subsidiaries are classified as operating leases, and the related rental income is recognized on a straight-line basis over the terms of the respective leases. Tenant reimbursements are recognized as revenue in the period that the related operating cost is incurred and therefore contractually earned and billable pursuant to the terms of the underlying lease. Rents paid in advance, which do not qualify for revenue recognition, are deferred to future periods.
 
Revenues earned relating to lease termination agreements are recognized at the time the tenant loses the right to lease the space and when the Company has earned the right to receive such payments.
 
Stock-Based Compensation
 
The Company has adopted the disclosure provisions in Statement of Financial Accounting Standards No. 123 “Accounting and Disclosure for Stock-Based Compensation”  (“SFAS 123”). As permitted by the provisions of SFAS 123, the Company applies Accounting Principles Board Opinion No.  25 “Accounting for Stock Issued to Employees”  (“APB 25”) and the related interpretations in accounting for its stock option grants to members of the board of directors, and accordingly, does not recognize compensation cost in the consolidated statements of income but instead provides pro forma disclosure in the notes to the consolidated financial statements. For the years ended December 31, 2002, 2001, and 2000, stock option grants did not have any impact on the consolidated statements of income as the fair value at the date of issue for each grant is estimated at $0.
 
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Earnings Per Share
 
Earnings per share are calculated based on the weighted average number of common shares outstanding during each period. The weighted average number of common shares outstanding is identical for basic and fully diluted earnings per share. Outstanding stock options and warrants have been excluded from the diluted earnings per share calculation as their impact would be anti-dilutive using the treasury stock method, as the exercise price of the options and warrants exceed the stock offering price.
 
Financial Instruments
 
The Company considers its cash, accounts receivable, accounts payable, bonds, obligations under capital leases, notes payable, and interest rate swaps to meet the definition of financial instruments. At December 31, 2002 and 2001, the carrying value of the Company’s financial instruments approximated their fair value. Notes payable bear interest based on variable interest rates that periodically adjust to market or are fixed rate debt that is due within twelve months.
 
Interest Rate Swap Agreements
 
On January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging Activities”  (“SFAS 133”) as amended by Statement of Financial Accounting Standards No. 137  “Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of SFAS 133”  and Statement of Financial Accounting Standards No. 138  “Accounting for Certain Derivative Instruments and Certain Hedging Activities.”  SFAS 133 requires recording all derivative instruments as assets or liabilities, measured at fair value in the consolidated balance sheet. The effect of adopting SFAS 133 did not have a material effect on the Company’s consolidated financial statements.
 
The Company has entered into certain interest rate swap agreements to minimize the Company’s exposure to increases in interest rates on certain variable interest rate agreements. At the time of entering into the agreement and on an ongoing basis, the Company considers effectiveness of the interest rate swap at hedging the Company’s exposure to interest rate fluctuations. The Company recognizes interest rate swap agreements at fair value at each balance sheet date. If the agreement is deemed to effectively hedge the risk, the corresponding change in value is recorded as an adjustment to other comprehensive income. In the event that the swap is not effective, the corresponding change in fair value of the swap is recorded in the consolidated statements of income. Currently, each interest rate swap agreement entered into by the Company has been deemed effective and therefore reflected as a component of other comprehensive income, with no impact on the consolidated statements of income. The fair value of the swap agreements are included in prepaid and other assets or accounts payable and accrued expenses in the consolidated balance sheets. Net receipts and payments are recognized as adjustments to interest expense.
 
Income Taxes
 
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), and has operated as such beginning with its taxable year ended December 31, 1998. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90% (95% in 2000) of the REIT’s ordinary taxable income to shareholders. As a REIT, the Company generally will not be subject to federal income tax on taxable income that it distributes to its shareholders. If the Company fails to qualify as a REIT in any taxable year, it will then be subject to federal income taxes on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service granted the Company relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash
 
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available for distribution to shareholders. However, the Company believes that it is organized and operates in such a manner as to qualify for treatment as a REIT and intends to continue to operate in the foreseeable future in such a manner so that the Company will remain qualified as a REIT for federal income tax purposes. No provision for federal income taxes has been made in the accompanying consolidated financial statements, as the Company made distributions in excess of its taxable income in the years ended December 31, 2002, 2001, and 2000.
 
Restatement Adjustments and Disclosures
 
The Company and its joint ventures have historically reported property operating costs net of reimbursements from tenants as an expense in its consolidated statements of income. These costs include property taxes, property insurance, utilities, repairs and maintenance, management fees and other expenses related to the ownership and operation of the Company’s properties that are required to be reimbursed by the properties’ tenants in accordance with the terms of their leases. In response to FASB Emerging Issues Task Force consensus reached in November 2001, the Company and its joint ventures will now present these reimbursements as revenue and the gross property operating costs as expenses. Consequently, the accompanying consolidated statements of income of the Company for the years ended December 31, 2001 and 2000 have been restated to reflect the effects of this revised presentation.
 
 	  	2001

	  	2000

	
 	  	As
Previously
Reported
(000s)

	  	Restatement
Adjustments
(000s)

	 	 	As
Restated
(000s)

	  	As
Previously
Reported
(000s)

	  	Restatement
Adjustments
(000s)

	 	 	As
Restated
(000s)

	
Revenues:	  	 	 	  	 	 	 	 	 	 	  	 	 	  	 	 	 	 	 	 	
Rental income	  	$	44,204	  	$	—  	 	 	$	44,204	  	$	20,505	  	$	—  	 	 	$	20,505	
Tenant reimbursements	  	 	—  	  	 	6,830	 	 	 	6,830	  	 	—  	  	 	2,318	 	 	 	2,318	
Equity in income of joint ventures	  	 	3,721	  	 	—  	 	 	 	3,721	  	 	2,294	  	 	—  	 	 	 	2,294	
Take out fee	  	 	138	  	 	(138	)	 	 	—  	  	 	—  	  	 	—  	 	 	 	—  	
Interest and other income	  	 	1,246	  	 	275	 	 	 	1,521	  	 	574	  	 	—  	 	 	 	574	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	

	 	

	

	
 	  	 	49,309	  	 	6,967	 	 	 	56,276	  	 	23,373	  	 	2,318	 	 	 	25,691	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	

	 	

	

	
Expenses:	  	 	 	  	 	 	 	 	 	 	  	 	 	  	 	 	 	 	 	 	
Depreciation	  	 	15,345	  	 	—  	 	 	 	15,345	  	 	7,743	  	 	—  	 	 	 	7,743	
Interest expense	  	 	3,411	  	 	770	 	 	 	4,181	  	 	3,967	  	 	233	 	 	 	4,200	
Amortization of deferred financing costs	  	 	770	  	 	(770	)	 	 	—  	  	 	233	  	 	(233	)	 	 	—  	
Property operating costs	  	 	4,129	  	 	6,772	 	 	 	10,901	  	 	888	  	 	2,318	 	 	 	3,206	
Management and leasing fees	  	 	2,507	  	 	—  	 	 	 	2,507	  	 	1,310	  	 	—  	 	 	 	1,310	
General and administrative	  	 	974	  	 	195	 	 	 	1,169	  	 	439	  	 	—  	 	 	 	439	
Legal and accounting	  	 	449	  	 	—  	 	 	 	449	  	 	240	  	 	—  	 	 	 	240	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	

	 	

	

	
 	  	 	27,585	  	 	6,967	 	 	 	34,552	  	 	14,820	  	 	2,318	 	 	 	17,138	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	

	 	

	

	
Net income	  	$	21,724	  	$	—	 	 	$	21,724	  	 	$8,553	  	$	—	 	 	 	$8,553	

	

	  	

	

	

	 	

	

	  	

	

	  	

	

	

	 	

	

	

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In addition, the condensed combined statements of income disclosed in Note 4 have also been restated to reflect the effects of this revised presentation.
 
Since this presentation does not impact the amount of reimbursements received or property operating costs incurred and requires equal adjustments to revenues and expenses, the adoption of this guidance will have no impact on the financial position, net income, earnings per share or cash flows of the Company.
 
Furthermore, the statements of income for the years ended December 31, 2001 and 2000 have been revised to include disclosure of the weighted average shares outstanding for the years ended December 31, 2001 and 2000.
 
3.    REAL ESTATE ASSETS
 
The Company owns 100% interests in the following properties as of December 31, 2002. Operating results of the properties are included in the financial statements of the Company from the date of acquisition.
 
Property
Name

	 	Tenant

	 	Lease
Expiration

	 	Property
Location

	 	Date
Acquired

	 	Purchase
Price

	 	Square
Feet

	 	Annual
Rent

	
 	 	 	 	 	 	 	 	
Nestle
Los Angeles (1)	 	Nestle USA, Inc.
Various other tenants	 	8/2010	 	Glendale, CA	 	12/2002	 	$	157,000,000	 	505,115	 	$
$	14,844,799
29,065	
 	 	 	 	 	 	 	 	
Capital One
Richmond (2)	 	Capital One Services, Inc
Capital One Services, Inc
Capital One Services, Inc.	 	3/2010
5/2004
2/2010	 	Glen Allen, VA	 	11/2002	 	$	28,509,000	 	225,220	 	$
 
 	786,573
913,076
940,249	
 	 	 	 	 	 	 	 	
Caterpillar
Nashville	 	Caterpillar Financial Services Corporation
Thoughtworks, Inc
Highwoods Properties, Inc	 	2/2015
5/2005
9/2005	 	Nashville, TN	 	11/2002	 	$	61,525,000	 	312,297	 	$
$
$	7,384,111
162,944
129,946	
 	 	 	 	 	 	 	 	
NASA	 	National Aeronautics and Space Administration
Office of the Comptroller of the Currency	 	7/2012
5/2006	 	Washington, D.C.	 	11/2002	 	$	345,000,000	 	948,800	 	$
$	21,534,124
12,159,948	
 	 	 	 	 	 	 	 	
Daimler
Chrysler Dallas	 	Daimler Chrysler Services North America LLC	 	12/2011	 	Westlake, TX	 	9/2002	 	$	25,100,000	 	130,290	 	$	2,389,517	
 	 	 	 	 	 	 	 	
Allstate
Indianapolis	 	Allstate Insurance Company
Holladay Property Services Midwest, Inc.	 	8/2012
9/2006	 	Indianapolis, IN	 	9/2002	 	$	10,900,000	 	84,200
5,756	 	$
$	1,246,164
74,832	
 	 	 	 	 	 	 	 	
Intuit Dallas	 	Lacerte Software Corporation	 	6/2011	 	Plano, TX	 	9/2002	 	$	26,500,000	 	166,238	 	$	2,461,985	
 	 	 	 	 	 	 	 	
EDS Des Moines	 	EDS Information
Services LLC	 	4/2012	 	Des Moines, IA	 	9/2002	 	$	26,500,000	 	405,000	 	$	2,389,500	
 
32

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Property
Name

	 	Tenant

	 	Lease
Expiration

	 	Property
Location

	 	Date
Acquired

	 	Purchase
Price

	 	Square
Feet

	 	Annual
Rent

	
 	 	 	 	 	 	 	 	
Federal Express Colorado Springs	 	Federal Express Corporation	 	10/2016	 	Colorado Springs, CO	 	9/2002	 	$	26,000,000	 	155,808	 	$	2,248,309	
 	 	 	 	 	 	 	 	
KeyBank Parsippany	 	KeyBank U.S.A., N.A.
Gemini Technology Services	 	2/2016
12/2013	 	Parsippany, NJ	 	9/2002	 	$	101,350,000	 	200,000
204,515	 	$
$	3,800,000
5,726,420	
 	 	 	 	 	 	 	 	
IRS Long Island (3)	 	IRS Collection
IRS Compliance
IRS Daycare Facility	 	8/2005
12/2011
9/2004	 	Holtsville, NY	 	9/2002	 	$	50,975,000	 	128,000
50,949
12,100	 	$
$
$	5,029,380
1,663,200
486,799	
 	 	 	 	 	 	 	 	
AmeriCredit Phoenix (4) (5)	 	AmeriCredit Financial Services, Inc.	 	12/2013	 	Chandler, AZ	 	8/2002	 	$	24,700,000	 	153,494	 	$	1,609,315	
 	 	 	 	 	 	 	 	
Harcourt Austin	 	Harcourt, Inc.	 	6/2016	 	Austin, TX	 	8/2002	 	$	39,000,000	 	195,230	 	$	3,353,040	
 	 	 	 	 	 	 	 	
Nokia Dallas	 	Nokia, Inc.
Nokia, Inc.
Nokia, Inc.	 	7/2009
12/2010
7/2009	 	Irving, TX	 	8/2002	 	$	119,550,000	 	228,678
223,470
152,086	 	$
$
$	4,413,485
4,547,614
3,024,990	
 	 	 	 	 	 	 	 	
Kraft Atlanta	 	Kraft Foods North America, Inc.
Perkin Elmer Instruments, LLC	 	1/2012
11/2016	 	Suwanee, GA	 	8/2002	 	$	11,625,000	 	73,264
13,955	 	$
$	945,106
198,580	
 	 	 	 	 	 	 	 	
BMG Greenville (1)	 	BMG Direct Marketing, Inc.
BMG Music	 	12/2010
12/2009	 	Duncan, SC	 	7/2002	 	$	26,900,000	 	473,398
313,380	 	$
$	1,394,156
763,600	
 	 	 	 	 	 	 	 	
Kerr-McGee (1) (4) (5)	 	Kerr-McGee Oil & Gas Corporation	 	8/2014	 	Houston, TX	 	7/2002	 	$	15,760,000	 	100,000	 	$	1,655,000	
 	 	 	 	 	 	 	 	
PacifiCare San Antonio	 	PacifiCare Health Systems, Inc.	 	11/2010	 	San Antonio, TX	 	7/2002	 	$	14,650,000	 	142,500	 	$	1,471,700	
 	 	 	 	 	 	 	 	
ISS Atlanta (6)	 	Internet Security Systems, Inc.	 	5/2013	 	Atlanta, GA	 	7/2002	 	$	40,500,000	 	238,600	 	$	4,055,985	
 	 	 	 	 	 	 	 	
MFS Phoenix	 	Massachusetts Financial Services Company	 	7/2011	 	Phoenix, AZ	 	6/2002	 	$	25,800,000	 	148,605	 	$	2,347,959	
 	 	 	 	 	 	 	 	
TRW Denver	 	TRW, Inc.	 	9/2007	 	Aurora, CO	 	5/2002	 	$	21,060,000	 	108,240	 	$	2,871,069	
 	 	 	 	 	 	 	 	
Agilent Boston (7)	 	Agilent Technologies, Inc.	 	9/2011	 	Boxborough, MA	 	5/2002	 	$	31,742,274	 	174,585	 	$	3,578,993	
 	 	 	 	 	 	 	 	
Experian/TRW	 	Experian Information Solutions, Inc.	 	10/2010	 	Allen, TX	 	5/2002	 	$	35,150,000	 	292,700	 	$	3,701,918	
 	 	 	 	 	 	 	 	
BellSouth
Ft. Lauderdale (8)	 	BellSouth Advertising and Publishing Corporation	 	7/2008	 	Ft. Lauderdale, FL	 	4/2002	 	$	6,850,000	 	47,400	 	$	765,519	
 	 	 	 	 	 	 	 	
Agilent Atlanta (1)	 	Agilent Technologies, Inc.
Koninklijke Philips Electronics N.V.	 	9/2011
9/2011	 	Alpharetta, GA	 	4/2002	 	$	15,100,000	 	66,811
34,396	 	$
$	1,368,289
704,430	
 	 	 	 	 	 	 	 	
Travelers Express Denver	 	Travelers Express Company, Inc.	 	3/2012	 	Lakewood, CO	 	4/2002	 	$	10,395,845	 	68,165	 	$	1,012,250	
 	 	 	 	 	 	 	 	
Dana Kalamazoo (9)	 	Dana Corporation	 	10/2021	 	Kalamazoo, MI	 	3/2002	 	$	41,950,000	 	147,004	 	$	1,842,800	
 	 	 	 	 	 	 	 	
Dana Detroit (9)	 	Dana Corporation	 	10/2021	 	Farmington Hills, MI	 	3/2002	 	$	41,950,000	 	112,480	 	$	2,330,600	
 	 	 	 	 	 	 	 	
Novartis Atlanta (1)	 	Novartis Opthalmics, Inc.	 	7/2011	 	Duluth, GA	 	3/2002	 	$	15,000,000	 	100,087	 	$	1,454,765	
 
33

Table of Contents
Property
Name

	 	Tenant

	 	Lease
Expiration

	 	Property
Location

	 	Date
Acquired

	 	Purchase
Price

	 	Square
Feet

	 	Annual
Rent

	
 	 	 	 	 	 	 	 	
Transocean Houston	 	Transocean Deepwater Offshore Drilling, Inc.
Newpark Drilling Fluids, Inc.	 	3/2011
10/2009	 	Houston, TX	 	3/2002	 	$	22,000,000	 	103,260
52,731	 	$
$	2,103,285
1,153,227	
 	 	 	 	 	 	 	 	
Vertex Sarasota (formerly,
Arthur Andersen) (10)	 	Vertex Tax Technology	 	10/2009	 	Sarasota, FL	 	1/2002	 	$	21,400,000	 	157,700	 	$	621,257	
 	 	 	 	 	 	 	 	
Windy Point I (11)	 	TCI Great Lakes, Inc.
The Apollo Group, Inc.
Global Knowledge Network
Various other tenants	 	11/2009
7/2009
4/2010
Various	 	Schaumburg, IL	 	12/2001	 	$	32,225,000	 	129,157
28,322
22,028
8,884	 	$
$
$
$	2,128,503
477,226
393,776
141,010	
 	 	 	 	 	 	 	 	
Windy Point II (11)	 	Zurich American Insurance	 	8/2011	 	Schaumburg, IL	 	12/2001	 	$	57,050,000	 	300,034	 	$	5,244,594	
 	 	 	 	 	 	 	 	
Convergys	 	Convergys Customer Management Group, Inc.	 	9/2011	 	Tamarac, FL	 	12/2001	 	$	13,255,000	 	100,000	 	$	1,279,397	
 	 	 	 	 	 	 	 	
Lucent	 	Lucent Technologies, Inc.	 	9/2011	 	Cary, NC	 	9/2001	 	$	17,650,000	 	120,000	 	$	1,854,000	
 	 	 	 	 	 	 	 	
Ingram Micro (6)	 	Ingram Micro, L.P.	 	9/2011	 	Millington, TN	 	9/2001	 	$	21,050,000	 	701,819	 	$	2,035,275	
 	 	 	 	 	 	 	 	
Nissan (1) (4) (5)	 	Nissan Motor Acceptance Corporation	 	3/2013	 	Irving, TX	 	9/2001	 	$	42,259,000	 	268,290	 	$	4,225,860	
 	 	 	 	 	 	 	 	
IKON	 	IKON Office Solutions, Inc.	 	4/2010	 	Houston, TX	 	9/2001	 	$	20,650,000	 	157,790	 	$	2,015,767	
 	 	 	 	 	 	 	 	
State Street	 	SSB Realty, LLC	 	3/2011	 	Quincy, MA	 	7/2001	 	$	49,563,000	 	234,668	 	$	6,922,706	
 	 	 	 	 	 	 	 	
Metris Minnesota (1)	 	Metris Direct, Inc.	 	12/2011	 	Minnetonka, MN	 	12/2000	 	$	52,800,000	 	300,633	 	$	4,960,445	
 	 	 	 	 	 	 	 	
Stone & Webster	 	Stone & Webster, Inc. SYSCO Corporation	 	12/2010
9/2008	 	Houston, TX	 	12/2000	 	$	44,970,000	 	206,048
106,516	 	$
$	4,533,056
2,130,320	
 	 	 	 	 	 	 	 	
Motorola Plainfield (1)	 	Motorola, Inc.	 	10/2010	 	S. Plainfield, NJ	 	11/2000	 	$	33,648,156	 	236,710	 	$	3,324,428	
 	 	 	 	 	 	 	 	
Delphi (1)	 	Delphi Automotive Systems, LLC	 	4/2007	 	Troy, MI	 	6/2000	 	$	19,800,000	 	107,193	 	$	1,955,520	
 	 	 	 	 	 	 	 	
Avnet (1) (8)	 	Avnet, Inc.	 	4/2010	 	Tempe, AZ	 	6/2000	 	$	13,250,000	 	132,070	 	$	1,516,164	
 	 	 	 	 	 	 	 	
Motorola Tempe (8)	 	Motorola, Inc.	 	8/2005	 	Tempe, AZ	 	3/2000	 	$	16,000,000	 	133,225	 	$	2,054,329	
 	 	 	 	 	 	 	 	
ASML (1) (8)	 	ASM Lithography, Inc.	 	6/2013	 	Tempe, AZ	 	3/2000	 	$	17,355,000	 	95,133	 	$	1,927,788	
 	 	 	 	 	 	 	 	
Dial (1)	 	Dial Corporation	 	8/2008	 	Scottsdale, AZ	 	3/2000	 	$	14,250,000	 	129,689	 	$	1,387,672	
 	 	 	 	 	 	 	 	
Metris Tulsa	 	Metris Direct, Inc.	 	1/2010	 	Tulsa, OK	 	2/2000	 	$	12,700,000	 	101,100	 	$	1,187,925	
 	 	 	 	 	 	 	 	
Cinemark (1)	 	Cinemark USA, Inc.
The Coca-Cola Company	 	12/2009
11/2006	 	Plano, TX	 	12/1999	 	$	21,800,000	 	65,521
52,587	 	$
$	1,366,491
1,406,268	
 
34

Table of Contents
Property
Name

	 	Tenant

	 	Lease
Expiration

	 	Property
Location

	 	Date
Acquired

	 	Purchase
Price

	 	Square
Feet

	 	Annual
Rent

	
 	 	 	 	 	 	 	 	
Videojet Technologies Chicago (1)	 	Videojet Technologies, Inc.	 	11/2011	 	Wood Dale, IL	 	9/1999	 	$	32,630,940	 	250,354	 	$	3,376,743	
 	 	 	 	 	 	 	 	
Alstom Power Richmond (4) (1)	 	Alstom Power, Inc.	 	7/2007	 	Midlothian, VA	 	7/1999	 	$	11,400,000	 	99,057	 	$	1,244,501	
 	 	 	 	 	 	 	 	
Matsushita (4) (1)	 	Matsushita Avionics Systems Corporation	 	1/2007	 	Lake Forest, CA	 	3/1999	 	$	18,431,206	 	144,906	 	$	1,998,768	
 	 	 	 	 	 	 	 	
AT&T Pennsylvania (1)	 	Pennsylvania Cellular Telephone Corp.	 	11/2008	 	Harrisburg, PA	 	2/1999	 	$	12,291,200	 	81,859	 	$	1,468,529	
 	 	 	 	 	 	 	 	
Eisenhower Boulevard
(formerly, PwC) (1)	 	IBM (formerly, PricewaterhouseCoopers, LLP)	 	12/2008	 	Tampa, FL	 	12/1998	 	$	21,127,854	 	130,091	 	$	2,093,382	
 
(1)	 	Property is security for a debt facility.	
(2)	 	The previous owner has provided a guarantee of the Capital One leases for a specified period subsequent to the acquisition of the buildings, whereby the previous owner agrees to pay any rental shortfall, but also has the right to repurchase one of the buildings under certain terms.	
(3)	 	Excludes space subject to earn-out agreement.	
(4)	 	Includes the actual costs incurred or estimate to be incurred by Company to develop and construct the building in addition to the purchase price of the land.	
(5)	 	The related lease agreement and annual rent for the Americredit Phoenix, Kerr McGee and Nissan Properties do not take effect until construction of the building is completed and the tenant is occupying the building.	
(6)	 	Property is subject to capital lease obligation.	
(7)	 	In connection with the acquisition of the property, the Company assumed the obligation as landlord to provide the tenant $3.4 million for tenant improvements, of which $1.1 million had not been incurred at December 31, 2002.	
(8)	 	Property is subject to operating ground lease obligation.	
(9)	 	Dana Kalamazoo and Dana Detroit were purchased for an aggregate purchase price of $41,950,000.	
(10)	 	At December 31, 2002, 111,000 square feet, or approximately 70%, of the property was vacant and unleased as a result of the Company negotiating a lease termination agreement with the former tenant whereby the Company received approximately $1.0 million in cash and a 1.3 acre tract of land adjacent to the property which is used for parking.	
(11)	 	Windy Point I and Windy Point II were purchased for an aggregate purchase price of $89,275,000.	

35

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4.	 	INVESTMENTS IN JOINT VENTURES	
 
At December 31, 2002, the Company, through its ownership in Wells OP, owns interests in certain properties through joint ventures with affiliates as outlined below:
 
Joint Venture

	  	Joint Venture Partners

	  	Ownership
Percentage

	 	Properties Held by Joint Venture

	
Fund XIII-REIT Joint Venture	  	Wells OP
Wells Real Estate Fund XIII, L.P.	  	61%	 	AmeriCredit Building
ADIC Buildings
John Wiley Building	
 	 	 	 	
Fund XII-REIT Joint Venture	  	Wells OP
Wells Real Estate Fund XII, L.P.	  	55%	 	Siemens Building
AT&T Oklahoma Buildings
Comdata Building	
 	 	 	 	
Fund XI-XII-REIT Joint Venture	  	Wells OP
Wells Real Estate Fund XI, L.P.
Wells Real Estate Fund XII, L.P.	  	57%	 	EYBL CarTex Building
Sprint Building
Johnson Matthey Building
Gartner Building	
 	 	 	 	
Fund IX-X-XI-REIT Joint Venture	  	Wells OP
Wells Real Estate Fund IX, L.P.
Wells Real Estate Fund X, L.P.
Wells Real Estate Fund XI, L.P.	  	4%	 	Alstom Power Knoxville Building
Ohmeda Building
Interlocken Building
Avaya Building
Iomega Building	
 	 	 	 	
Wells/Freemont Associates Joint Venture
(the “Freemont Joint Venture”)	  	Wells OP
Fund X-XI Joint Venture	  	78%	 	Fairchild Building	
 	 	 	 	
Wells/Orange County Associates Joint Venture
(the “Orange County Joint Venture”)	  	Wells OP
Fund X-XI Joint Venture	  	44%	 	Cort Building	
 	 	 	 	
Fund VIII-IX-REIT Joint Venture	  	Wells OP
Fund VIII-IX Joint Venture	  	16%	 	Quest Building	
 
Details of the properties owned by the Company through Wells OP’s joint venture investments are as follows.
 
36

Table of Contents
Property
Name

	  	Tenant

	 	Lease
Expiration

	 	Property
Location

	 	Date
Acquired

	 	Purchase
Price

	 	Square
Feet

	 	Annual
Rent

	
 	 	 	 	 	 	 	 	
John Wiley Indianapolis (1)	  	John Wiley & Sons, Inc.
United Student Aid Funds, Inc.
Robert Half International, Inc.	 	10/2009
7/2005
4/2005	 	Fishers, IN	 	12/2002	 	$	17,450,000	 	141,047	 	$
$
$	1,940,892
223,401
55,500	
 	 	 	 	 	 	 	 	
ADIC (1)	  	Advanced Digital Information Corporation	 	10/2011	 	Parker, CO	 	12/2001	 	$	12,954,213	 	148,204	 	$	1,247,137	
 	 	 	 	 	 	 	 	
AmeriCredit (1)	  	AmeriCredit Financial Services Corporation	 	6/2011	 	Orange Park, FL	 	7/2001	 	$	12,500,000	 	85,000	 	$	1,336,200	
 	 	 	 	 	 	 	 	
Comdata (1)	  	Comdata Network, Inc.	 	5/2016	 	Brentwood, TN	 	5/2001	 	$	24,950,000	 	201,237	 	$	2,458,638	
 	 	 	 	 	 	 	 	
AT&T Oklahoma (1)	  	AT&T Corp.
Jordan Associates, Inc.	 	8/2010
12/2008	 	Oklahoma City, OK	 	12/2000	 	$	15,300,000	 	103,500
25,000	 	$
$	1,242,000
294,504	
 	 	 	 	 	 	 	 	
Quest (1)	  	Quest Software, Inc.	 	1/2004	 	Irvine, CA	 	7/2000	 	$	7,193,000	 	65,006	 	$	1,287,119	
 	 	 	 	 	 	 	 	
Siemens (1)	  	Siemens Automotive Corp.	 	8/2010	 	Troy, MI	 	5/2000	 	$	14,265,000	 	77,054	 	$	1,374,643	
 	 	 	 	 	 	 	 	
Gartner (1)	  	The Gartner Group, Inc.	 	1/2008	 	Ft. Myers, FL	 	9/1999	 	$	8,320,000	 	62,400	 	$	830,656	
 	 	 	 	 	 	 	 	
Johnson Matthey (1)	  	Johnson Matthey, Inc.	 	6/2007	 	Wayne, PA	 	8/1999	 	$	8,000,000	 	130,000	 	$	854,750	
 	 	 	 	 	 	 	 	
Sprint (1)	  	Sprint Communications Company, L.P.	 	5/2007	 	Leawood, KS	 	7/1999	 	$	9,500,000	 	68,900	 	$	1,102,400	
 	 	 	 	 	 	 	 	
EYBL CarTex (2)	  	EYBL CarTex, Inc.	 	—  	 	Fountain Inn, SC	 	5/1999	 	$	5,085,000	 	169,510	 	 	—  	
 	 	 	 	 	 	 	 	
Cort Furniture (1)	  	Cort Furniture Rental Corporation	 	10/2003	 	Fountain Valley, CA	 	7/1998	 	$	6,400,000	 	52,000	 	$	834,888	
 	 	 	 	 	 	 	 	
Fairchild (1)	  	Fairchild Technologies U.S.A., Inc.	 	11/2004	 	Fremont, CA	 	7/1998	 	$	8,900,000	 	58,424	 	$	945,564	
 	 	 	 	 	 	 	 	
Avaya (1)	  	Avaya, Inc.	 	1/2008	 	Oklahoma City, OK	 	6/1998	 	$	5,504,276	 	57,186	 	$	536,977	
 	 	 	 	 	 	 	 	
Iomega (1)	  	Iomega Corporation	 	4/2009	 	Ogden, UT	 	7/1998	 	$	5,025,000	 	108,250	 	$	539,958	
 	 	 	 	 	 	 	 	
Interlocken (3)	  	GAIAM, Inc.
ODS Technologies, L.P. Infocenter	 	5/2005
9/2003
5/2005	 	Broomfield, CO	 	3/1998	 	$	8,275,000	 	51,975	 	$
$
$	574,464
205,835
69,840	
 	 	 	 	 	 	 	 	
Ohmeda (1)	  	Ohmeda, Inc.	 	1/2005	 	Louisville, CO	 	2/1998	 	$	10,325,000	 	106,750	 	$	1,004,517	
 	 	 	 	 	 	 	 	
Alstom Power Knoxville (1)	  	Alstom Power, Inc.	 	11/2007	 	Knoxville, TN	 	3/1997	 	$	7,900,000	 	84,404	 	$	1,059,522	
 
(1)	 	Property is 100% leased as of December 31, 2002.	
(2)	 	The tenant vacated the space in November 2002 and filed for corporate dissolution in December 2002.	
(3)	 	Property is 75% leased as of December 31, 2002.	
 
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The investment objectives of each joint venture in which Wells OP is a partner are consistent with those of the Company. Wells OP is acting as the initial administrative venturer, as defined in the respective joint venture agreements, of each of the joint ventures included above, and as such, is responsible for establishing policies and operating procedures with respect to the business and affairs of each of these joint ventures. However, approval of the other joint venturers is required for any major decision or any action that materially affects these joint ventures or their real property investments.
 
Wells OP’s investment balance and percentage ownership in joint ventures at December 31, 2002 and 2001 are summarized as follows:
 
 	  	2002

	 	 	2001

	 	
 	  	Amount
(000s)

	  	Percent

	 	 	Amount
(000s)

	  	Percent

	 	
Fund VIII, IX, and REIT Joint Venture	  	$	1,089	  	16	%	 	$	1,189	  	16	%	
Fund IX, X, XI, and REIT Joint Venture	  	 	1,246	  	4	 	 	 	1,290	  	4	 	
Wells/Orange County Associates	  	 	2,641	  	44	 	 	 	2,740	  	44	 	
Wells/Fremont Associates	  	 	6,340	  	78	 	 	 	6,576	  	78	 	
Fund XI, XII, and REIT Joint Venture	  	 	16,361	  	57	 	 	 	17,188	  	57	 	
Fund XII and REIT Joint Venture	  	 	29,343	  	55	 	 	 	30,300	  	55	 	
Fund XIII and REIT Joint Venture	  	 	26,895	  	61	 	 	 	18,127	  	68	 	

	

	  	 	 	 	

	

	  	 	 	
 	  	$	83,915	  	 	 	 	$	77,410	  	 	 	

	

	  	 	 	 	

	

	  	 	 	
 
The following is a reconciliation of Wells OP’s investment in joint ventures for the years ended December 31, 2002 and 2001:
 
 	  	2002
(000s)

	 	 	2001
(000s)

	 	
Investment in joint ventures, beginning of year	  	$	77,410	 	 	$	44,236	 	
Equity in income of joint ventures	  	 	4,700	 	 	 	3,721	 	
Contributions to joint ventures	  	 	9,275	 	 	 	35,086	 	
Distributions from joint ventures	  	 	(7,470	)	 	 	(5,633	)	

	

	

	 	

	

	

	
Investment in joint ventures, end of year	  	$	83,915	 	 	$	77,410	 	

	

	

	 	

	

	

	
 
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Condensed combined financial information for all joint ventures as of December 31, 2002 and 2001, and for the years ended December 31, 2002, 2001 and 2000 is as follows:
 
Condensed Combined Balance Sheets
 
 	  	2002
(000s)

	  	2001
(000s)

	
Assets:	  	 	 	  	 	 	
Real estate assets	  	$	178,637	  	$	166,507	
Cash	  	 	4,780	  	 	4,827	
Accounts receivable	  	 	2,073	  	 	2,139	
Other assets	  	 	556	  	 	692	

	

	  	

	

	
Total adjustments	  	$	186,046	  	$	174,165	

	

	  	

	

	
Liabilities and partners’ equity	  	 	 	  	 	 	
Accounts payable and accrued expenses	  	 	1,071	  	 	1,152	
Distributions payable	  	 	3,777	  	 	3,968	

	

	  	

	

	
Total liabilities	  	 	4,848	  	 	5,120	

	

	  	

	

	
Partners’ equity	  	 	181,198	  	 	169,045	

	

	  	

	

	
Total liabilities and partners’ equity	  	$	186,046	  	$	174,165	

	

	  	

	

	
 
Condensed Combined Statements of Income	 	
 	  	2002
(000s)

	  	2001
(000s)

	 	 	2000
(000s)

	 	 	
Revenues:	  	 	 	  	 	 	 	 	 	 	 	 	
Rental income	  	$	19,167	  	$	15,931	 	 	$	10,895	 	 	
Tenant reimbursements (1)	  	 	1,849	  	 	2,251	(1)	 	 	1,768	(1)	 	
Other income	  	 	46	  	 	105	 	 	 	79	 	 	

	

	  	

	

	

	 	

	

	

	 	
Total revenues	  	 	21,062	  	 	18,287	 	 	 	12,742	 	 	

	

	  	

	

	

	 	

	

	

	 	
Expenses:	  	 	 	  	 	 	 	 	 	 	 	 	
Depreciation	  	 	6,470	  	 	5,516	 	 	 	3,489	 	 	
Operating expenses (1)	  	 	2,898	  	 	2,399	(1)	 	 	1,774	(1)	 	
Management and leasing fees	  	 	1,123	  	 	978	 	 	 	675	 	 	

	

	  	

	

	

	 	

	

	

	 	
Total expenses	  	 	10,491	  	 	8,893	 	 	 	5,938	 	 	

	

	  	

	

	

	 	

	

	

	 	
Net Income	  	$	10,571	  	$	9,394	 	 	$	6,804	 	 	

	

	  	

	

	

	 	

	

	

	 	
 
(1)	 	Amounts have been restated to reflect tenant reimbursements of $2,251,000 in 2001, and $1,768,000 in 2000 as revenue and gross operating costs as expenses as described in the Restatement Adjustments and Disclosures section of Note 2.	
 
The Company has historically presented the condensed balance sheets, statements of income, statements of partners’ capital, and statements of cash flows for each joint venture investment in the notes to the consolidated financial statements, although such disclosure is not required. In prior years, the joint venture investments had a more significant impact on the financial position and results of operations of the Company. However, with the continued acquisition of properties in the current year, the significance of the joint venture investments has been diluted. Management has determined that inclusion of the information presented in prior years is unnecessary due to the insignificance of the joint ventures as a percentage of total assets and net income.
 
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5.	 	INVESTMENTS IN BONDS AND OBLIGATIONS UNDER CAPITAL LEASES	
 
In connection with the purchase of a ground leasehold interest in the Ingram Micro Distribution Facility pursuant to a Bond Real Property Lease dated December 20, 1995 (the “Ingram Bond Lease”), Wells OP acquired an Industrial Development Revenue Note (the “Ingram Bond”) dated December 20, 1995 in the principal amount of $22 million. As part of the same transaction, Wells OP also acquired a Fee Construction Mortgage Deed of Trust Assignment of Rents and Leases (the “Ingram Bond Deed of Trust”), also dated December 20, 1995, which was executed by the Industrial Development Board in order to secure the Ingram Bond. The Ingram Bond Lease expires on December 31, 2026. Beginning in 2006, the Company has the option to purchase the land underlying the Ingram Micro Distribution Facility for $100 plus satisfaction of the indebtedness.
 
As part of the transaction to acquire a ground leasehold interest in the ISS Atlanta Buildings, Wells OP was assigned Development Authority of Fulton County Taxable Revenue Bonds totaling $32.5 million, which were originally issued in connection with the development of the ISS Atlanta Buildings (the “ISS Bonds”). The ISS Bonds entitle Wells OP to certain property tax abatement benefits. Upon payment of the outstanding balance on the ISS Bonds, on or before the expiration of the ground lease on December 1, 2015, fee title interest to the underlying land will be transferred to Wells OP.
 
The net carrying value of the ISS Atlanta Buildings and Ingram Micro Building is $62.4 million at December 31, 2002. Depreciation of the assets under capital leases is included with depreciation expense in the consolidated statements of income.
 
6.	 	BORROWINGS	
 
The Company has financed its investments, acquisitions, and developments through various lenders as described below. On December 31, 2002 and 2001, the Company had the following amounts outstanding:
 
Facility

	  	2002
(000s)

	  	2001
(000s)

	
$110 million Bank of America Line of Credit, accruing interest at LIBOR plus 175 basis points (3.31% at December 31, 2002), requiring interest payments monthly with principal due at maturity (May 11, 2004), collateralized by the Videojet Technologies Chicago Building, the AT&T Pennsylvania Building, the Matsushita Building, the Metris Minnesota Building, the Motorola Plainfield Building, and the Delphi Building	  	$	58,000	  	$	—  	
 	 	 	
$98.138 million SouthTrust Bank Line of Credit, accruing interest at LIBOR plus 175 basis points (3.31% at December 31, 2002), requiring interest payments monthly and principal due at maturity (June 10, 2003); collateralized by the Novartis Building, the Cinemark Building, the Dial Building, the ASML Building, the Alstom Power Richmond Building, the Avnet Building, the Agilent Atlanta Building, and the Eisenhower Boulevard Building (formerly the PWC Building)	  	 	61,399	  	 	7,655	
 	 	 	
$90 million note payable to Landesbank Schleswig-Hostein Gironzentrale, Kiel, accruing interest at LIBOR plus 115 basis points, currently locked at 2.53% through July 2, 2003 (2.53% at December 31, 2002), requiring interest payments monthly, with principal due at maturity (December 20, 2006), collateralized by the Nestle Building	  	 	90,000	  	 	—  	
 
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Facility

	  	2002
(000s)

	  	2001
(000s)

	
$34.2 million construction loan payable to Bank of America, accruing interest LIBOR plus 200 basis points (3.57% at December 31, 2002), requiring interest payments monthly and principal due at maturity (July 30, 2003), collateralized by the Nissan Property (1)	  	 	23,149	  	 	469	
$13.7 million construction loan payable to Bank of America, accruing interest at LIBOR plus 200 basis points (3.57% at December 31, 2002), requiring interest payments monthly, with principal due at maturity (January 29, 2004), collateralized by the Kerr-McGee Property (1)	  	 	4,038	  	 	—  	
$8.8 million note payable to Prudential, accruing interest at 8%, requiring interest and principal payments monthly with any unamortized principal due at maturity (December 15, 2003), collateralized by the BMG Buildings	  	 	8,709	  	 	—  	
$2.9 million note payable to Prudential, accruing interest at 8.5%, requiring interest payments monthly with principal due at maturity (December 15, 2003), collateralized by the BMG Buildings	  	 	2,900	  	 	—  	

	

	  	

	

	
Total borrowings	  	$	248,195	  	$	8,124	

	

	  	

	

	
 
 	(1)	 	The Company has entered into an interest rate swap for this construction loan. Refer to Note 7 for details of the interest rate swap agreements.	
 
The Company’s weighted average interest rate at December 31, 2002 for the aforementioned borrowings was approximately 3.3%. Cash paid for interest, including amounts capitalized was $4.2 million for the year ended December 31, 2002.
 
The following table summarizes the scheduled aggregate principal repayments, for the five years subsequent to December 31, 2002:
 
For the year ending December 31:

	  	Amount
(000s)

	
2003	  	$	96,157	
2004	  	 	62,038	
2005	  	 	—  	
2006	  	 	90,000	
2007	  	 	—  	
Thereafter	  	 	—  	

	

	
Total	  	$	248,195	

	

	

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The debt agreements contain requirements with regard to certain operating and financial covenants, including, but not limited to, maintaining insurance on the properties, distribution limits, and other financial ratios. For the year ended December 31, 2002, the Company was in violation of a debt covenant which limits the amount of the Company’s dividend payments to the Company’s funds from operations for the period. The lender provided a waiver for this violation for the year ended December 31, 2002. The Company’s compliance with this covenant in periods subsequent to December 31, 2002 will be dependent upon the future operations and dividends of the Company. Management projects that distributions will not exceed funds from operations for the year ended December 31, 2003.
 
7.	 	INTEREST RATE SWAP AGREEMENTS	
 
The Company has entered into interest rate swap agreements with Bank of America in order to hedge its interest rate exposure on the Bank of America construction loans for the Nissan Property (the Nissan Loan) and the Kerr McGee Property (the Kerr McGee Loan). The interest rate swap agreements involve the exchange of amounts based on a fixed interest rate for amounts based on a variable interest rate over the life of the loan agreement without an exchange of the notional amount upon which the payments are based. The notional amount of both interest rate swaps is the balance outstanding on the construction loan on the payment date.
 
The interest rate swap for the Nissan Loan became effective January 15, 2002 and terminates on June 15, 2003. The Company, as the fixed rate payer, has an interest rate of 3.9%, plus 200 basis points. Bank of America, the variable rate payer, pays at a rate equal to U.S. dollar LIBOR on the payment date. The result is an effective interest rate of 5.9% on the Nissan Loan.
 
The interest rate swap for the Kerr McGee Loan became effective September 15, 2002 and terminates on July 15, 2003. The Company as the fixed rate payer has an interest rate of 2.27%, plus 200 basis points. Bank of America, the variable rate payer, pays at a rate equal to U.S. dollar LIBOR on the payment date. The result is an effective interest rate of 4.27% on the Kerr McGee Loan.
 
For the year ended December 31, 2002, the Company made interest payments totaling approximately $0.2 million under the terms of the interest rate swap agreements. At December 31, 2002, the combined estimated fair value of the interest rate swaps for the Nissan Loan and the Kerr McGee Loan was approximately $(0.4 million).
 
8.	 	COMMITMENTS AND CONTINGENCIES	
 
Take Out Purchase and Escrow Agreement
 
The Advisor and it’s affiliates have developed a program (the “Wells Section 1031 Program”) involving the acquisition by a subsidiary of Wells Management Company (“Wells Exchange”) of income-producing commercial properties and the formation of a series of single member limited liability companies for the purpose of facilitating the resale of co-tenancy interests in such real estate properties to be owned in co-tenancy arrangements with persons (“1031 Participants”) who are seeking to invest the proceeds from a sale of real estate held for investment in another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Code. The acquisition of each of the properties acquired by Wells Exchange will be financed by a combination of permanent first mortgage financing and interim loan financing obtained from institutional lenders.
 
Following the acquisition of each property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to repay a prorata portion of the interim financing. In
 
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consideration for the payment of a take out fee to Wells OP, and following approval of the potential property acquisition by the Company’s board of directors, it is anticipated that Wells OP will enter into a take out purchase and escrow agreement or similar contract providing that, in the event that Wells Exchange is unable to sell all of the co-tenancy interests in that particular property to 1031 Participants, Wells OP will purchase, at Wells Exchange’s cost, any co-tenancy interests remaining unsold at the end of the offering period.
 
Ford Motor Credit Transaction
 
As a part of the initial transaction in the Wells Section 1031 Program, and in consideration for the payment of a take out fee in the amount of $0.1 million to the Company, Wells OP entered into a take out purchase and escrow agreement dated April 16, 2001. However, Wells OP was not required to satisfy any of the requirements under the agreement as all co-tenancy interests were sold prior to the extended deadline. The pay off of the loan on April 12, 2002 by Wells Exchange-Federal Drive-Colorado Springs, LLC triggered the release of Wells OP from its prior obligations under the take out agreement. The $0.1 million take out fee was recognized as income in 2001.
 
Meadow Brook Corporate Park Transaction
 
The second transaction in the Section 1031 Exchange Program involves the acquisition by Wells Exchange-Meadow Brook Park, Birmingham, LLC (“Wells Exchange-Meadow Brook Park”), a wholly owned subsidiary of Wells Management Company, and resale of co-tenancy interests in two single tenant office buildings each containing approximately 98,216 rentable square feet located in Birmingham, Alabama (“Meadow Brook Corporate Park”) currently under lease agreements with Allstate Insurance Company and Computer Sciences Corporation. Wells Exchange-Meadow Brook Park is currently engaged in the offer and sale of co-tenancy interests in the Meadow Brook Corporate Park to 1031 Participants.
 
In consideration for the payment of a take out fee in the amount of $0.2 million, which was recognized as income in the year ended December 31, 2002, Wells OP entered into a take out purchase and escrow Agreement relating to the Meadow Brook Corporate Park. Pursuant to the terms of the take out purchase and escrow agreement, Wells OP is obligated to acquire, at Wells Exchange-Meadow Brook Park’s cost ($0.4 million in cash for each 2.9994% co-tenancy interest), any co-tenancy interests in the Meadow Brook Corporate Park that remain unsold on September 30, 2003.
 
The obligation of Wells OP under the Take Out Purchase and Escrow Agreement relating to Meadow Brook Corporate Park is secured by a line of credit with Bank of America, N.A. (BOA). If, for any reason, Wells OP fails to acquire any of the co-tenancy interests in the Meadow Brook Corporate Park which remain unsold as of September 30, 2003, or if there is otherwise an uncured default under the interim loan, BOA is authorized to draw down on Wells OP’s line of credit in the amount necessary to pay the outstanding balance of the interim loan in full, in which event the appropriate amount of unsold co-tenancy interests in the Meadow Brook Corporate Park would be deeded to Wells OP. Wells OP’s maximum economic exposure in the transaction is $14 million, in which event Wells OP would acquire the Meadow Brook Corporate Park for $14 million in cash plus assumption of the first mortgage financing in the amount of $13.9 million. If Wells Exchange-Meadow Brook Park successfully sells 100% of the co-tenancy interests to 1031 participants, Wells OP will not acquire any interest in the Meadow Brook Corporate Park. If some, but not all, of the co-tenancy interests are sold by Wells Exchange-Meadow Brook Park, Wells OP’s exposure would be less, and it would end up owning an interest in the property in co-tenancy with 1031 Participants who had previously acquired co-tenancy interests in the Meadow Brook Corporate Park from Wells Exchange-Meadow Brook Park.

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Letters of Credit
 
At December 31, 2002, Wells OP had three unused letters of credit totaling approximately $19.7 million outstanding from financial institutions, consisting of letters of credit of approximately $14.5 million; $4.8 million; and $0.4 million with expiration dates of February 28, 2004; August 12, 2003; and February 2, 2004; respectively. These amounts are not recorded in the accompanying consolidated balance sheet as of December 31, 2002. These letters of credit were required by three unrelated parties to ensure completion of the Company’s obligations under certain earn-out and construction agreements. Management does not anticipate a need to draw on these letters of credit.
 
Properties Under Contract
 
At December 31, 2002, the Company has a contract to acquire a third building at the Company’s ISS Atlanta Buildings development upon completion of construction for a fixed purchase price of $10.0 million. The property is currently under construction, with an expected completion date in June 2003.
 
Commitments Under Existing Lease Agreements
 
Certain lease agreements include provisions that, at the option of the tenant, the Company may be obligated to expend certain amounts of capital to expand an existing property, construct on adjacent property, or provide other expenditures for the benefit of the tenant, which would then be leased to the tenant upon completion, in favor of additional rental revenue. No such options have been exercised by tenants.
 
Properties Under Construction
 
Wells OP has entered into an agreement with an independent third-party general contractor for the purpose of designing and constructing a three-story office building containing 268,290 rentable square feet on the Nissan Property. The construction agreement provides that Wells OP will pay the contractor a fee of $25.3 million for the design and construction of the building, plus $5.6 million for acquisition of the land. Construction commenced in January 2002 and the building was completed in February 2003. Construction was funded through a construction loan with Bank of America (see Note 6). As of December 31, 2002, approximately $25.7 million of costs had been incurred to construct the property, with minimal additional costs incurred subsequently to complete the building.
 
Wells OP has entered into an agreement with an independent third-party general contractor for the purpose of developing, designing, and constructing the Kerr-McGee Building. The building’s completion is projected for July 2003. Construction is being funded through the construction loan with Bank of America (see Note 6). The total anticipated aggregate of all costs and expenses to be incurred by Wells OP with respect to the acquisition of the Kerr-McGee Property and the planning design, development, construction, and completion of the Kerr-McGee Building will total approximately $15.8 million, plus $2.1 million for acquisition of the land. At December 31, 2002, $5.4 million had been incurred.
 
Wells OP has entered into an agreement with an independent third-party general contractor for the purpose of designing and constructing the Americredit Phoenix Building. Construction commenced in September 2002 with budgeted costs of $24.7 million with scheduled completion in May 2003. The cost of the underlying land was $2.7 million. Construction is being funded through the use of investor proceeds. As of December 31, 2002, approximately $6.3 million of costs had been incurred to construct the property, with an additional $15.7 million of additional costs anticipated to compete the building.

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Earn-out Agreements
 
As part of the acquisition of the IRS Building, the Company entered into an agreement whereby the Company is obligated to pay the seller an additional $14.5 million if the Company or the seller locates a suitable tenant and leases the vacant space of the building within 18 months after the date of acquisition of the property, or March 2004. If the space is not leased within this time, the Company is released from any obligation to pay this additional purchase consideration. The 26% of the building that was unleased at the time of acquisition remains unleased at December 31, 2002.
 
Leasehold Property Obligations
 
The ASML, Motorola Tempe, Avnet, and Bellsouth Ft. Lauderdale Buildings are subject to certain ground leases with expiration dates of 2082, 2082, 2083, and 2049, respectively. Required payments, under the terms of the leases are as follows at December 31, 2002, in thousands:
 
 	  	Amount
(000s)

	
2003	  	$     726	
2004	  	726	
2005	  	726	
2006	  	726	
2007	  	726	
Thereafter	  	92,366	

	
Total	  	$95,996	

	
 
Ground rent expense for the years ended December 31, 2002, 2001, and 2000 was approximately $0.7 million, $0.7 million, and $0.5 million, respectively. The net book value of the related land improvements subject to operating leases is $50.3 million at December 31, 2002.
 
Pending Litigation
 
In the normal course of business, the Company and its subsidiaries may become subject to litigation or claims. In November 2002, Shoreview Associates LLC (“Shoreview”), the owner of an office building located in Ramsey County, Minnesota that Wells OP had contracted to purchase, filed a lawsuit against Wells OP in state court in Minnesota alleging that Shoreview was entitled to the $750,000 in earnest money that Wells OP had deposited under the contract. Wells OP has filed a counterclaim in the case asserting that it is entitled to the $750,000 earnest money deposit. Procedurally, Wells OP had the case transferred to U.S. District Court in Minnesota, and Shoreview has moved to transfer the case back to state court. The dispute currently remains in litigation. After consultation with legal counsel, management does not believe that a reserve for a loss contingency is necessary.

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9.	 	SHAREHOLDERS’ EQUITY	
 
General
 
Under the Company’s Articles of Incorporation, the total number of shares of stock authorized for issuance is 1 billion, consisting of 750 million common shares, 100 million preferred shares, and 150 million shares-in-trust, each as defined by the Company’s Articles of Incorporation as amended and restated on June 26, 2002.
 
The common shares shall have a par value of $0.01 per share and shall entitle the holders to one vote per share on all matters upon which shareholders, subject to the express terms of any series preferred shares, are entitled to vote pursuant to the Articles of Incorporation.
 
The Company is authorized to issue one or more series of preferred shares. Prior to the issuance of such shares, the board of directors shall fix the number of shares outstanding to be included in each series, and the designation, preferences, terms, rights, restrictions, limitations and qualifications and terms and conditions of redemption of the shares of each class or series. As of December 31, 2002, the Company has not issued any preferred shares.
 
In order to ensure that certain ownership restrictions are not violated and the Company’s REIT status is not violated, the Articles of Incorporation of the Company authorize the Company to issue certain shares-in-trust and exchange these for such shares causing violation. Such shares shall be deemed transferred to and held in a trust established on behalf of the violator and administered by the trustee, as defined in the Articles of Incorporation. Such shares-in-trust shall be issued and outstanding stock of the Company and are entitled to the same rights and privileges as all other shares of the same class or series, except that the trust will receive all distributions on such shares, the trustee will be entitled to the vote associated with the shares-in-trust, and shares-in-trust are not transferable. Upon liquidation, such shares-in-trust shall be treated consistently with all other shares of the same class or series. As of December 31, 2002, the Company has not issued any shares-in-trust.
 
2000 Employee Stock Option Plan
 
On June 28, 2000, the shareholders approved the 2000 Employee Stock Option Plan of Wells Real Estate Investment Trust, Inc. (the “Employee Option Plan”), which provides for grants of “non-qualified” stock options to be made to selected employees of Wells Capital and Wells Management, subject to the discretion of the Compensation Committee and the limitations of the Employee Option Plan. A total of 750,000 shares have been authorized and reserved for issuance under the Employee Option Plan. At December 31, 2002, no stock options have been granted or exercised under the Employee Stock Option Plan; therefore, 750,000 shares are available for issue.
 
The exercise price for the employee options shall be the greater of (1) $11.00 per share, or (2) the Fair Market Value, as defined in the Employee Option Plan, of the shares on the date the option is granted. The Compensation Committee has the authority to set the term and vesting period of the stock option except that no option shall have a term greater than five years from the later of (1) the date the Company’s shares are listed on a national securities exchange, or (2) the date the stock option is granted. In the event that the Compensation Committee determines that the potential benefits of the stock options may be inappropriately diluted or enlarged as a result of a certain corporate transaction or event, the Compensation Committee may adjust the number and kind of shares or the exercise price with respect to any option. Upon exercise, the employee agrees to remain in the employment of Wells Capital or Wells Management for a period of one year after the date of grant. No stock option may be exercised if such exercise would jeopardize the Company’s status as a REIT under the Internal Revenue Code. No option may be sold, pledged, assigned or transferred by an employee in any manner other than by will or the laws of descent or distribution.

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Independent Director Stock Option Plan
 
On June 16, 1999, the shareholders approved the Wells Real Estate Investment Trust, Inc. Independent Director Stock Option Plan (“the Independent Director Plan”), which provides for grants of stock to be made to independent non-employee directors of the Company. A total of 100,000 shares have been authorized and reserved for issuance under the Independent Director Plan. At December 31, 2002, 41,000 options have been granted, with 59,000 available to be granted.
 
Options to purchase 2,500 shares of common stock at the greater of (1) $12 per share or (2) the Fair Market Value, as defined in the Independent Director Plan, are granted upon initially becoming an independent director of the Company, or at the date of the approval of the Independent Stock Option Plan for existing independent directors. Of these shares, 20% are exercisable immediately on the date of grant. An additional 20% of these shares become exercisable on each anniversary following the date of grant for a period of four years. Additionally, effective on the date of each annual meeting of shareholders of the Company, beginning in 2000, each independent director will be granted an option to purchase 1,000 additional shares of common stock. These options are 100% exercisable at the completion of two years of service after the date of grant. All options granted under the Independent Director Plan expire no later than the date immediately following the tenth anniversary of the date of grant and may expire sooner in the event of the disability or death of the independent director or if the independent director ceases to serve as a director. In the event that the potential benefits of the stock options may be inappropriately diluted or enlarged as a result of a certain corporate transaction or event, a corresponding adjustment to the consideration payable with respect to all stock options shall be made. No option may be sold, pledged, assigned or transferred by an independent director in any manner other than by will or the laws of descent or distribution.
 
A summary of the Company’s stock option activity for the years ended December 31, 2002, 2001, and 2000 is as follows:
 
 	  	Number

	  	Exercise
Price

	  	Exercisable

	
Outstanding at December 31, 1999	  	17,500	  	$	12	  	 	
Granted in 2000	  	7,000	  	 	12	  	 	

	  	 	 	  	 	
Outstanding at December 31, 2000	  	24,500	  	 	12	  	7,000	
Granted in 2001	  	7,000	  	 	12	  	 	

	  	 	 	  	 	
Outstanding at December 31, 2001	  	31,500	  	 	12	  	10,500	
Granted in 2002	  	9,500	  	 	12	  	 	

	  	 	 	  	 	
Outstanding at December 31, 2002	  	41,000	  	 	12	  	21,500	

	  	 	 	  	 	
 
For SFAS 123 purposes, the fair value of each stock option for 2002, 2001, and 2000 has been estimated as of the date of the grant using the Black-Scholes minimum value method. The weighted average risk-free interest rates assumed for 2002, 2001 and 2000 were 4.57%, 5.05% and 6.45%, respectively. Projected future dividend yields of 7.0%, 7.8% and 7.3% were estimated for the options granted in 2002, 2001, and 2000, respectively. The expected life of an option was assumed to be six, six, and four years for 2002, 2001, and 2000, respectively. Based on these assumptions, the fair value of the options granted during the years ended December 31, 2002, 2001, and 2000 is $0. All options granted have an exercise price of $12 per share. The weighted average contractual remaining life for options that are exercisable at December 31, 2002 was approximately 8.7 years.

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Independent Director Warrant Plan
 
The Independent Director Warrant Plan (the “Independent Director Warrant Plan”), was approved by the shareholders on June 28, 2000, providing for the issuance of one warrant to purchase common stock for every 25 shares of common stock purchased by the independent director. A total of 500,000 warrants have been authorized and reserved for issuance under the Independent Director Warrant Plan. The exercise price of the warrants shall be $12 per share. No warrant may be sold, pledged, assigned or transferred by an independent director in any manner other than by the laws of descent or distribution. At December 31, 2002, approximately 5,000 warrants have been earned under the Independent Director Warrant Plan, but no warrants have been issued under the Independent Director Warrant Plan.
 
Dividend Reinvestment Plan
 
During 1999, the Company’s board of directors authorized a dividend reinvestment plan (the “DRP”), through which common shareholders may elect to reinvest an amount equal to the dividends declared on their common shares into additional shares of the Company’s common stock in lieu of receiving cash dividends. The shares may be purchased at a fixed price per share and participants in the DRP may purchase fractional shares so that 100% of the dividends will be used to acquire shares of the Company’s stock. With respect to such shares, the Company will pay selling commissions of 7%, a dealer manager fee of 2.5%, organization and offering costs of up to 3% of the reinvestment, acquisition and advisory fees and expenses of 3.5% of the purchase price, which is consistent with the costs paid in connection with the current offering of shares of the Company’s common stock. The board of directors, by majority vote, may amend or terminate the DRP for any reason upon 10 days notice to the participants of the DRP.
 
Share Redemption Program
 
As the Company’s stock is currently not listed on a national exchange, there is no market for the Company’s stock. As a result, there is risk that a shareholder may not be able to sell the Company’s stock at a time or price acceptable to the shareholder. During 2000, the Company’s board of directors authorized a common stock redemption plan for investors who held the shares for more than one year, subject to the limitation that aggregate shares redeemed under the plan could not exceed the lesser of (i) the amount reinvested in the Company’s common shares through the DRP, less shares already redeemed, or (ii) 3% of the average common shares outstanding during the preceding year. The Company has no obligation to repurchase shares under its share redemption program. Shares redeemed under the share redemption program are purchased by the Company at the amount contributed by the shareholder, including any commissions paid at issuance. During 2002, 2001, and 2000, the Company repurchased 1.5 million; 0.4 million; and 0.1 million of its own common shares at an aggregate cost of $15.3 million; $4.1 million; and $1.4 million, respectively. These transactions were funded with cash on hand and did not exceed any of the foregoing limitations. At the time of such redemption, Wells Investment Securities, Inc. (“WIS”) has refunded to the Company the 2.5% commission earned upon the issuance of such shares. The board of directors, by majority vote, may amend or terminate the Company’s share redemption program at any time.
 
Dealer Warrant Plan
 
Under the terms of each offering of the Company’s stock, warrants to purchase shares of the Company’s stock were delivered to WIS. Currently such warrants are issued in book form only and warrant certificates are not issued. For each warrant, the warrant-holder shall have the right to purchase one share from the Company at a price of $12 during the time period beginning one year from the effective date of the respective offering and ending on the date five years after the effective date. Warrants outstanding as of December 31, 2002 for the first, second, third, and fourth offerings to date are approximately 0.5 million, 0.7 million, 4.7 million, and 1.1 million, respectively. As of December 31, 2002, no warrants have been exercised under the plan.

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10.	 	SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES	
 
Outlined below are significant non-cash transactions for the years ended December 31, 2002, 2001, and 2000:
 
 	  	2002
(000s)

	  	2001
(000s)

	  	2000
(000s)

	
Deferred project costs applied to real estate assets	  	$	47,491	  	$	14,321	  	$	5,114	

	

	  	

	

	  	

	

	
Deferred project costs contributed to joint ventures	  	$	366	  	$	1,395	  	$	628	

	

	  	

	

	  	

	

	
Deferred project costs applied to lease acquisition costs	  	$	16	  	$	—  	  	$	—  	

	

	  	

	

	  	

	

	
Deferred project costs due to affiliate	  	$	7,708	  	$	1,114	  	$	191	

	

	  	

	

	  	

	

	
Deferred offering costs due to affiliate	  	$	—  	  	$	—  	  	$	1,291	

	

	  	

	

	  	

	

	
Reversal of deferred offering costs due to affiliate	  	$	—  	  	$	965	  	$	—  	

	

	  	

	

	  	

	

	
Other offering expenses due to affiliate	  	$	8,263	  	$	943	  	$	—  	

	

	  	

	

	  	

	

	
Assumption of obligation under capital lease and related bonds	  	$	32,500	  	$	22,000	  	$	—  	

	

	  	

	

	  	

	

	
Assumption of debt at property acquisition	  	$	90,000	  	$	—  	  	$	—  	

	

	  	

	

	  	

	

	
 
 	  	2002
(000s)

	  	2001
(000s)

	  	2000
(000s)

	
Acquisition of intangible lease liability	  	$	32,697	  	$	—  	  	$	—  	

	

	  	

	

	  	

	

	
Dividends Payable	  	$	6,046	  	$	1,059	  	$	1,025	

	

	  	

	

	  	

	

	
Due from affiliates	  	$	1,774	  	$	1,693	  	$	250	

	

	  	

	

	  	

	

	
Write off fully amortized deferred financing costs	  	$	623	  	$	—  	  	$	—    	

	

	  	

	

	  	

	

	
 
11.	 	INCOME TAX BASIS NET INCOME	
 
The Company’s income tax basis net income for the years ended December 31, 2002, 2001, and 2000 is calculated as follows:
 
 	  	2002
(000s)

	 	 	2001
(000s)

	 	 	2000
(000s)

	 	
GAAP basis financial statement net income	  	$	59,854	 	 	$	21,724	 	 	$	8,553	 	
Increase (decrease) in net income resulting from:	  	 	 	 	 	 	 	 	 	 	 	 	
Depreciation expense for financial reporting purposes in excess of amounts for income tax purposes	  	 	17,160	 	 	 	7,347	 	 	 	3,511	 	
Rental income accrued for income tax purposes in excess of (less than) amounts for financial reporting purposes	  	 	3,578	 	 	 	(2,735	)	 	 	(1,822	)	
Expenses deductible when paid for income tax purposes, accrued for financial reporting purposes	  	 	(71	)	 	 	26	 	 	 	38	 	

	

	

	 	

	

	

	 	

	

	

	
Income tax basis net income, prior to dividends paid deduction	  	$	80,521	 	 	$	26,362	 	 	$	10,280	 	

	

	

	 	

	

	

	 	

	

	

	

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At December 31, 2002, the tax basis carrying value of the Company’s total assets was approximately $2,237.2 million.
 
12.	 	RELATED-PARTY TRANSACTIONS	
 
Advisory Agreement
 
The Company has entered into an Advisory Agreement with the Advisor, which entitles the Advisor to specified fees upon the completion of certain services with regard to the offering of shares to the public and investment of funds in real estate projects. The current Advisory Agreement dated January 30, 2002 has been temporarily extended by the board of directors until May 19, 2003.
 
The Company pays a percentage of shareholder contributions to the Advisor for acquisition and advisory services and acquisition expenses. These payments, as stipulated in the Company’s current offering prospectus, are limited to 3.5% of shareholder contributions, subject to certain overall operating expense limitations contained in the prospectus. Aggregate fees incurred through December 31, 2002 and 2001 were $75.5 million and $29.1 million, respectively, and approximated 3.5% of shareholder contributions received. As of December 31, 2002, $67.8 million had been paid to the Advisor through December 31, 2002, with $7.7 million payable to the Advisor.
 
Under the terms of the Advisory Agreement, the Company reimburses the Advisor for organization and offering costs not to exceed 3% of the offering proceeds raised. To the extent that organization and offering costs exceed 3% of gross offering proceeds, offering costs will be paid by the Advisor and not by the Company. As of December 31, 2002 the Advisor had paid fund to date organization and offering expenses on behalf of the Company in the aggregate amount of approximately $40.0 million, which did not exceed the 3% limitation. The Advisor had been reimbursed $31.7 million as of December 31, 2002.
 
Additionally, the Advisory Agreement provides that if the Advisor provides a substantial amount of the associated services, as determined by the Independent Directors, the Advisor shall earn a disposition fee in the event that properties are disposed of, in the amount of 50% of a competitive real estate commission or 3.0% of the sales price of the property. At December 31, 2002, no such fees had been paid to the Advisor as no properties had been disposed of to date. The disposition fee will be paid only if shareholders have received total dividends in an amount equal to the sum of their aggregate invested capital, plus an 8% return on invested capital.
 
The Advisory Agreement also provides that the Advisor shall earn an amount equal to 10% of the net sales proceeds remaining after shareholders have received dividends equal to the sum of the shareholders’ invested capital plus an 8% return of invested capital. The Advisor will not earn this fee in the event that the Company’s shares are listed on a national stock exchange. As of December 31, 2002, no such fees have been paid.
 
If the Company’s shares are listed on a national stock exchange at any future date, the Advisor shall be entitled to an incentive fee in an amount equal to 10.0% of the amount by which (1) the market value of the outstanding stock of the Company as defined in the Advisory Agreement, exceeds (2) the sum of 100% of invested capital and the total dividends required to be paid to the shareholders in order to pay the shareholders an 8.0% return on invested capital from inception through the date of listing. No such amounts have been incurred as of December 31, 2002. In the event the fee is paid to the Advisor following listing, no other performance fee will be paid to the Advisor.

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Administrative Services Reimbursement
 
The Company has no direct employees. The employees of the Advisor and Wells Management Company, Inc. (“Wells Management”), an affiliate of the Advisor, perform a full range of real estate services including leasing and property management, accounting, asset management and investor relations for the Company. The related expenses are allocated among the Company and the various Wells Real Estate Funds based on time spent on each entity by individual administrative personnel. The Company was allocated salaries, wages, and other payroll related costs by the Advisor and Wells Management totaling $2.0 million, $0.7 million, and $0.2 million for the years ended December 31, 2002, 2001, and 2000, respectively. These amounts are included in general and administrative expenses in the consolidated statements of income.
 
Property Management and Leasing Agreements
 
The Company entered into a property management and leasing agreement with Wells Management. In consideration for supervising the management and leasing of the Company’s properties, the Company will pay management and leasing fees to Wells Management equal to the lesser of (a) 4.5% of the gross revenues generally paid over the life of the lease or (b) 0.6% of the net asset value of the properties (excluding vacant properties) owned by the Company. These management and leasing fees are calculated on an annual basis plus a separate competitive fee for the one-time initial lease-up of newly constructed properties generally paid in conjunction with the receipt of the first month’s rent. Management and leasing fees incurred for services provided by Wells Management were $5.0 million, $2.5 million, and $1.1 million for the years ended December 31, 2002, 2001, and 2000, respectively.
 
Dealer Manager Agreement
 
The Company has entered into a dealer manager agreement, whereby, WIS, performs the dealer manager function for the Company. For these services, WIS earns fees of 7% of the gross proceeds from the sale of the shares of the Company, which is reallocated to participating broker-dealers. Additionally, WIS earns a dealer manager fee of 2.5% of the gross offering proceeds at the time the shares are sold, of which up to 1.5% may be reallowed to the broker-dealer. WIS has elected, although is not obligated, to reduce the dealer manager fee amount in each period by 2.5% of the gross redemptions under the Company’s redemption plan. The amount of such reduction was $0.4 million, $0.1 million, and $0.0 million for the years ended
December 31, 2002, 2001, and 2000, respectively. During the years ended December 31, 2002, 2001, and 2000, the Company incurred commissions and dealer manager fees of $127.3 million, $49.2 million, and $17.0 million, respectively.

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Due From Affiliates
 
Due from affiliates included in the consolidated balance sheets at December 31, 2002 and 2001 represents the Company’s share of the cash to be distributed from its joint venture investments for the fourth quarter of 2002 and 2001 and other amounts payable to the Company from other related parties:
 
 	  	2002
(000s)

	  	2001
(000s)

	
Fund VIII, IX, and REIT Joint Venture	  	$	48	  	$	47	
Fund IX, X, XI, and REIT Joint Venture	  	 	21	  	 	36	
Wells/Orange County Associates	  	 	85	  	 	84	
Wells/Fremont Associates	  	 	168	  	 	164	
Fund XI, XII, and REIT Joint Venture	  	 	361	  	 	430	
Fund XII and REIT Joint Venture	  	 	688	  	 	681	
Fund XIII and REEIT Joint Venture	  	 	403	  	 	251	
Affiliates of the Advisor	  	 	187	  	 	—  	

	

	  	

	

	
 	  	$	1,961	  	$	1,693	

	

	  	

	

	
 
Conflict of Interest
 
The Advisor also is a general partner in various Wells Real Estate Funds. As such, there are conflicts of interest where the Advisor, while serving in the capacity as general partner for Wells Real Estate Funds, may be in competition with the Company in connection with property acquisitions or for tenants in similar geographic markets.
 
13.	 	OPERATING LEASES	
 
Virtually all of the Company’s real estate assets are leased to tenants under operating leases for which the terms and expirations vary. The leases frequently have provisions to extend the lease agreement, options for early termination after paying a specified penalty, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Amounts required as security deposits vary depending upon the terms of the respective leases and the creditworthiness of the tenant, but generally are not significant amounts. Therefore exposure to credit risk is limited to the extent that the receivables exceed this amount. Security deposits related to tenant leases are included in accounts payable and accrued expenses in the consolidated balance sheets.
 
The future minimum rental income from the Company’s investment in real estate assets under non-cancelable operating leases, excluding properties under development, at December 31, 2002 is as follows:
 
 	  	Amount
(000s)

	
Year ending December 31:	  	 	 	
2003	  	$	195,677	
2004	  	 	197,680	
2005	  	 	197,852	
2006	  	 	192,666	
2007	  	 	183,494	
Thereafter	  	 	759,559	

	

	
 	  	$	1,726,928	

	

	

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No individual tenant accounted for greater than 10% of the rental income for the year ended December 31, 2002. At December 31, 2002, approximately 12% of the future rental amounts are attributable to one tenant, the National Aeronautics and Space Administration.
 
14.	 	QUARTERLY RESULTS (UNAUDITED)	
 
Presented below is a summary of the unaudited quarterly financial information for the years ended December 31, 2002 and 2001, in thousands, except per share data:
 
 	  	2002 Quarters Ended

	
 	  	March 31

	  	June 30

	  	September 30

	  	December 31

	
Revenues	  	$	23,608	  	$	29,402	  	$	34,913	  	$	51,705	
Net income	  	$	10,780	  	$	13,756	  	$	15,285	  	$	20,033	
Basic and diluted earnings per share (a)	  	$	0.11	  	$	0.11	  	$	0.09	  	$	0.10	
Dividends per share (a)	  	$	0.19	  	$	0.19	  	$	0.19	  	$	0.18	
 
 	  	2001 Quarters Ended

	
 	  	March 31

	  	June 30

	  	September 30

	  	December 31

	
Revenues	  	$	12,232	  	$	12,468	  	$	13,839	  	$	17,737	
Net income	  	$	3,275	  	$	5,039	  	$	6,109	  	$	7,301	
Basic and diluted earnings per share (a)	  	$	0.10	  	$	0.12	  	$	0.11	  	$	0.10	
Dividends per share (a)	  	$	0.19	  	$	0.19	  	$	0.19	  	$	0.19	
 
 	(a)	 	The totals of the four quarterly amounts for the years ended December 31, 2002, and 2001, do not equal the totals for the years then ended. This difference results from rounding differences between quarters.	
 
15.	 	ECONOMIC DEPENDENCY	
 
The Company is dependent on the Advisor for certain services which are essential to the Company, including the sale of the Company’s shares of common stock available for issue, asset acquisition and disposition decisions and other general administrative responsibilities. Additionally, the Company is dependent upon Wells Management to provide certain property management and leasing services. In the event that these companies were unable to provide the respective services to the Company, the Company would be required to obtain such services from other sources.
 
The Company is dependent upon the ability of its current tenants to pay their contractual rent amounts as they become due. The inability of a tenant to pay future rental amounts would have a negative impact on the Company. One tenant, the National Aeronautics and Space Administration, represents approximately 12% of the future rental income under non-cancelable leases at December 31, 2002. No other tenants exceed 10% of future rental income. Except for the tenant that has filed for corporate dissolution as discussed in Note 4, the Company is not aware of any reason that its current tenants would not be able to pay their contractual rental amounts as they become due.

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Table of Contents
16.	 	SUBSEQUENT EVENTS	
 
Sale of Shares of Common Stock
 
From January 1, 2003 through January 24, 2003, the Company has raised approximately $84.6 million through the issuance of 8.5 million shares of common stock of the Company.
 
Redemptions of Common Stock
 
From January 1, 2003 through January 24, 2003, the Company has redeemed approximately 0.5 million shares of common stock of the Company at an aggregate cost of $4.8 million pursuant to its share redemption program. The Company’s current plan allows for redemptions of approximately 4.0 million shares at an aggregate cost of $40.0 million for the year ending December 31, 2003. See Note 9 for a description of the limitations of the Company’s share redemption plan.
 
Property Acquisitions
 
On January 9, 2003, Wells OP purchased two three-story office buildings containing approximately 187,735 aggregate rentable square feet located in Mayfield Heights, Ohio, for a purchase price of $22.0 million, excluding closing costs and acquisition and advisory fees paid to the Advisor. The entire 102,484 rentable square feet of East Point I is leased to Progressive Casualty Insurance Company. East Point II contains approximately 85,251 rentable square feet, of which 70,585 is currently leased to Austin, Danaher Power Solutions LLC and Moreland Management Co. Approximately 14,666 rentable square feet (17%) of East Point II is vacant.
 
In connection with the acquisition of the property, the Company entered into an earn-out agreement whereby the Company is required to pay the seller certain amounts for each new lease fully executed after the date of acquisition of the property but on or before March 31, 2004, or on or before July 31, 2004, if the tenant thereunder is a leasing prospect as defined by the agreement. Payments shall be the anticipated first year’s annual rent less operating expenses with the sum divided by 0.105 and the result reduced by tenant improvement costs related to the space.

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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
(A MARYLAND CORPORATION)
SCHEDULE III—REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2002
 
(dollars in thousands)
 
 	 	 	 	 	 	 	 	Initial Cost

	 	Cost
Capitalized
Subsequent
to
Acquisition

	 	Gross Amount at Which Carried at
December 31, 2002

	 	 	 	 	 	 	 	Life on which
Depreciation is
Computed

	 	
Description

	 	Location

	 	Ownership
Percentage

	 	Encumbrances

	 	Land

	 	Buildings and
Improvements

	 	 	 	Land

	 	Buildings and
Improvements

	 	Construction
in Progress

	 	Total

	 	Accumulated
Depreciation

	 	Date of
Construction

	 	Date
Acquired

	 	 	 	
EISENHOWER BLVD	 	Tampa, FL	 	100	 	(a)	 	$  1,460	 	$19,839	 	$     826	 	$  1,521	 	$20,604	 	$         0	 	$22,125	 	$3,294	 	1998	 	    12/31/98	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
AT&T—PA	 	Harrisburg, PA	 	100	 	(b)	 	662	 	11,836	 	676	 	690	 	12,484	 	0	 	13,174	 	  1,905	 	1998	 	        2/4/99	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
VIDEOJET
    TECHNOLOGY	 	Wood Dale, IL	 	100	 	(b)	 	5,000	 	28,162	 	1,381	 	5,208	 	29,335	 	0	 	34,543	 	  3,911	 	1991	 	      9/10/99	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CINEMARK	 	Plano, TX	 	100	 	(a)	 	1,456	 	20,377	 	908	 	1,517	 	21,224	 	0	 	22,741	 	  2,618	 	1999	 	    12/21/99	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
MATSUSHITA	 	Lake Forest, CA	 	100	 	(b)	 	4,577	 	0	 	13,965	 	4,768	 	13,774	 	0	 	18,542	 	  3,072	 	1999	 	      3/15/99	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ALSTOM POWER
    —RICHMOND	 	Midlothian, VA	 	100	 	(a)	 	948	 	0	 	9,963	 	988	 	9,923	 	0	 	10,911	 	  1,542	 	1999	 	      7/22/99	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
METRIS—OK	 	Tulsa, OK	 	100	 	None    	 	1,150	 	11,570	 	541	 	1,198	 	12,063	 	0	 	13,261	 	  1,404	 	2000	 	      2/11/00	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DIAL	 	Scottsdale, AZ	 	100	 	(a)	 	3,500	 	10,785	 	736	 	3,646	 	11,375	 	0	 	15,021	 	  1,276	 	1997	 	      3/29/00	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ASML	 	Tempe, AZ	 	100	 	(a)	 	0	 	17,393	 	731	 	0	 	18,124	 	0	 	18,124	 	  2,040	 	1995	 	      3/29/00	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
MOTOROLA TEMPE	 	Tempe, AZ	 	100	 	None    	 	0	 	16,036	 	670	 	0	 	16,706	 	0	 	16,706	 	  1,887	 	1998	 	      3/29/00	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
AVNET	 	Tempe, AZ	 	100	 	(a)	 	0	 	13,272	 	551	 	0	 	13,823	 	0	 	13,823	 	  1,421	 	2000	 	    6/12/00	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DELPHI	 	Troy, MI	 	100	 	(b)	 	2,160	 	16,776	 	1,811	 	2,250	 	18,497	 	0	 	20,747	 	  2,117	 	2000	 	      6/29/00	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
MOTOROLA—NJ	 	South Plainfield, NJ	 	100	 	(b)	 	9,653	 	20,495	 	5,857	 	10,055	 	25,950	 	0	 	36,005	 	  3,020	 	2000	 	      11/1/00	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
METRIS—MN	 	Minnetonka, MN	 	100	 	(b)	 	7,700	 	45,152	 	2,211	 	8,021	 	47,042	 	0	 	55,063	 	  3,882	 	2000	 	    12/21/00	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
STONE & WEBSTER	 	Houston, TX	 	100	 	None    	 	7,100	 	37,915	 	1,889	 	7,396	 	39,508	 	0	 	46,904	 	  3,260	 	1994	 	    12/21/00	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
STATE STREET	 	Quincy, MA	 	100	 	None    	 	10,600	 	38,963	 	4,348	 	11,042	 	40,933	 	1,936	 	53,911	 	  2,438	 	1990	 	  7/30/2001	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
IKON	 	Houston, TX	 	100	 	None    	 	2,735	 	17,915	 	990	 	2,847	 	18,793	 	0	 	21,640	 	  1,002	 	2000	 	    9/7/2001	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NISSAN PROPERTY	 	Irving, TX	 	100	 	23,149    	 	5,546	 	0	 	25,727	 	5,567	 	0	 	25,706	 	31,273	 	         0	 	2002	 	  9/19/2001	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INGRAM MICRO	 	Millington, TN	 	100	 	22,000    	 	320	 	20,667	 	936	 	333	 	21,590	 	0	 	21,923	 	  1,156	 	1997	 	  9/26/2001	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
LUCENT	 	Cary, NC	 	100	 	None    	 	7,000	 	10,650	 	1,110	 	7,276	 	11,484	 	0	 	18,760	 	     612	 	2000	 	  9/28/2001	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CONVERGYS	 	Tamarac, FL	 	100	 	None    	 	3,500	 	9,755	 	792	 	3,642	 	10,405	 	0	 	14,047	 	     451	 	2001	 	12/21/2001	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
WINDY POINT I	 	Schaumburg, IL	 	100	 	None    	 	4,360	 	29,299	 	2,735	 	4,537	 	31,857	 	0	 	36,394	 	  1,380	 	1999	 	12/31/2001	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
WINDY POINT II	 	Schaumburg, IL	 	100	 	None    	 	3,600	 	52,016	 	3,156	 	3,746	 	55,026	 	0	 	58,772	 	  2,384	 	2001	 	12/31/2001	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
VERTEX SARASOTA	 	Sarasota, FL	 	100	 	None    	 	1,700	 	19,866	 	1,291	 	2,203	 	20,654	 	0	 	22,857	 	     821	 	1999	 	  1/11/2002	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
TRANSOCEAN
    HOUSTON	 	Houston, TX	 	100	 	None    	 	     845	 	21,186	 	     887	 	     879	 	22,039	 	        0	 	22,918	 	   735	 	1999	 	  3/15/2002	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NOVARTIS
    ATLANTA	 	Duluth, GA	 	100	 	(a)	 	2,000	 	13,047	 	605	 	2,080	 	13,572	 	0	 	15,652	 	     452	 	2001	 	  3/28/2002	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DANA DETROIT	 	Farmington Hills, MI	 	100	 	None    	 	2,208	 	21,703	 	973	 	2,298	 	22,586	 	0	 	24,884	 	     753	 	1999	 	  3/29/2002	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DANA KALAMAZOO	 	Kalamazoo, MI	 	100	 	None    	 	963	 	13,318	 	753	 	1,002	 	14,032	 	0	 	15,034	 	     608	 	1999	 	  3/29/002	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
TRAVELERS EXPRESS	 	Lakewood, CO	 	100	 	None    	 	1,487	 	9,076	 	430	 	1,548	 	9,445	 	0	 	10,993	 	     283	 	2002	 	  4/10/2002	 	20 to 25 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
AGILENT ATLANTA	 	Alpharetta, GA	 	100	 	(a)	 	1,500	 	13,652	 	616	 	1,561	 	14,207	 	0	 	15,768	 	     426	 	2001	 	  4/18/2002	 	20 to 25 years	 	
 
55

Table of Contents
 	 	 	 	 	 	 	 	Initial Cost

	 	Cost
Capitalized
Subsequent to
Acquisition

	 	Gross Amount at Which Carried at
December 31, 2002

	 	 	 	 	 	 	 	Life on which
Depreciation is
Computed

	 	
Description

	 	Location

	 	Ownership
Percentage

	 	Encumbrances

	 	Land

	 	Buildings and
Improvements

	 	 	 	Land

	 	Buildings and
Improvements

	 	Construction
in Progress

	 	Total

	 	Accumulated
Depreciation

	 	Date of
Construction

	 	Date
Acquired

	 	 	 	 	
BELLSOUTH FT.
    LAUDERDALE	 	Ft. Lauderdale, FL	 	100	 	 	None	 	$	1,100	 	$	5,792	 	$	280	 	$	1,145	 	$	6,027	 	$	0	 	$	7,172	 	 	181	 	2001	 	4/18/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EXPERIAN/
    TRW DALLAS	 	Allen, TX	 	100	 	 	None	 	 	4,000	 	 	31,695	 	 	1,453	 	 	4,163	 	 	32,985	 	 	0	 	 	37,148	 	 	880	 	1982	 	5/1/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
AGILENT BOSTON	 	Boxborough, MA	 	100	 	 	None	 	 	3,500	 	 	31,751	 	 	1,296	 	 	3,642	 	 	29,498	 	 	3,407	 	 	36,547	 	 	787	 	2002	 	5/3/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
TRW DENVER	 	Aurora, CO	 	100	 	 	None	 	 	1,325	 	 	14,570	 	 	6,069	 	 	1,397	 	 	20,567	 	 	0	 	 	21,964	 	 	548	 	1997	 	5/29/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
MFS PHOENIX	 	Phoenix, AZ	 	100	 	 	None	 	 	2,500	 	 	23,381	 	 	1,054	 	 	2,602	 	 	24,333	 	 	0	 	 	26,935	 	 	568	 	2001	 	6/4/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ISS ATLANTA	 	Atlanta, GA	 	100	 	 	32,500	 	 	2,700	 	 	38,065	 	 	1,659	 	 	2,810	 	 	39,614	 	 	0	 	 	42,424	 	 	792	 	2001	 	7/1/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
PACIFICARE SAN
    ANTONIO	 	San Antonio, TX	 	100	 	 	None	 	 	2,450	 	 	12,240	 	 	598	 	 	2,550	 	 	12,738	 	 	0	 	 	15,288	 	 	255	 	2000	 	7/12/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
KERR MCGEE
    HOUSTON	 	Houston, TX	 	100	 	 	4,038	 	 	1,738	 	 	0	 	 	5,754	 	 	2,118	 	 	0	 	 	5,374	 	 	7,492	 	 	0	 	2003	 	7/29/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
BMG
    GREENVILLE	 	Greenville, SC	 	100	 	 	11,609	 	 	1,600	 	 	25,601	 	 	1,087	 	 	1,665	 	 	26,623	 	 	0	 	 	28,288	 	 	522	 	1987	 	7/31/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
KRAFT ATLANTA	 	Suwanee, GA	 	100	 	 	None	 	 	2,700	 	 	8,976	 	 	475	 	 	2,810	 	 	9,341	 	 	0	 	 	12,151	 	 	156	 	2001	 	7/31/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NOKIA DALLAS	 	Irving, TX	 	100	 	 	None	 	 	9,100	 	 	110,831	 	 	4,892	 	 	9,470	 	 	115,353	 	 	0	 	 	124,823	 	 	1,923	 	1999	 	8/15/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
HARCOURT AUSTIN	 	Austin, TX	 	100	 	 	None	 	 	5,860	 	 	33,143	 	 	1,587	 	 	6,098	 	 	34,492	 	 	0	 	 	40,590	 	 	575	 	2001	 	8/15/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
AMERICREDIT
    PHOENIX	 	Chandler, AZ	 	100	 	 	None	 	 	2,632	 	 	0	 	 	6,362	 	 	2,671	 	 	0	 	 	6,323	 	 	8,994	 	 	0	 	2003	 	9/12/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
IRS LONG ISLAND	 	Holtsville, NY	 	100	 	 	None	 	 	4,200	 	 	38,716	 	 	2,104	 	 	4,374	 	 	40,646	 	 	0	 	 	45,020	 	 	643	 	200	 	9/16/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
KEYBANK
    PARSIPPANY	 	Parsippany, NJ	 	100	 	 	None	 	 	8,700	 	 	92,944	 	 	4,137	 	 	9,053	 	 	96,728	 	 	0	 	 	105,781	 	 	1,290	 	1985	 	9/27/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
FEDEX
    COLORADO
    SPRINGS	 	Colorado
    Springs, CO	 	100	 	 	None	 	 	2,100	 	 	23,988	 	 	1,061	 	 	2,185	 	 	24,964	 	 	0	 	 	27,149	 	 	333	 	2001	 	9/27/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EDS DES MOINES	 	Des Moines, IA	 	100	 	 	None	 	 	850	 	 	25,727	 	 	1,082	 	 	885	 	 	26,774	 	 	0	 	 	27,659	 	 	357	 	2002	 	9/27/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INTUIT DALLAS	 	Plano, TX	 	100	 	 	None	 	 	3,030	 	 	23,640	 	 	1,089	 	 	3,153	 	 	24,606	 	 	0	 	 	27,759	 	 	328	 	2001	 	9/27/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ALLSTATE
    INDIANAPOLIS	 	Indianapolis, IN	 	100	 	 	None	 	 	1,275	 	 	9,680	 	 	443	 	 	1,327	 	 	10,071	 	 	0	 	 	11,398	 	 	134	 	2001	 	9/27/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DAIMLER
    CHRYSLER
    DALLAS	 	Westlake, TX	 	100	 	 	None	 	 	2,585	 	 	22,588	 	 	1,010	 	 	2,689	 	 	23,494	 	 	0	 	 	26,183	 	 	313	 	2001	 	9/30/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NASA	 	Washington, DC	 	100	 	 	None	 	 	80,000	 	 	299,188	 	 	11,909	 	 	82,881	 	 	308,216	 	 	0	 	 	391,097	 	 	1,850	 	1991	 	11/22/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CATERPILLAR
    NASHVILLE	 	Nashville, TN	 	100	 	 	None	 	 	4,900	 	 	58,923	 	 	1,124	 	 	5,101	 	 	59,846	 	 	0	 	 	64,947	 	 	380	 	2000	 	11/26/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CAPITAL ONE
    RICHMOND	 	Glen Allen, VA	 	100	 	 	None	 	 	2,855	 	 	25,541	 	 	442	 	 	2,972	 	 	25,866	 	 	0	 	 	28,838	 	 	172	 	1999	 	11/26/2002	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NESTLE
    LOS ANGELES	 	Glendale, CA	 	100	 	 	90,000	 	 	23,200	 	 	134,447	 	 	2,751	 	 	23,605	 	 	136,793	 	 	0	 	 	160,398	 	 	457	 	1990	 	12/20/2002	 	20 to 25 years	 	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total—
    100% REIT
    Properties	 	 	 	 	 	$	302,695	 	$	268,630	 	$	1,652,148	 	$	147,783	 	$	279,185	 	$	1,746,630	 	$	42,746	 	$	2,068,561	 	$	63,594	 	 	 	 	 	 	 	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ALSTOM POWER
    —KNOXVILLE	 	Knoxville, TN	 	        4%	 	 	None	 	$	583	 	$	744	 	$	6,745	 	$	608	 	$	7,464	 	$	0	 	$	8,072	 	$	2,250	 	1997	 	3/26/97	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
AVAYA	 	Oklahoma
    City, OK	 	    4	 	 	None	 	 	1,003	 	 	4,386	 	 	242	 	 	1,051	 	 	4,580	 	 	0	 	 	5,631	 	 	840	 	1998	 	6/24/98	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
360 INTERLOCKEN	 	Broomfield, CO	 	    4	 	 	None	 	 	1,570	 	 	6,734	 	 	748	 	 	1,650	 	 	7,369	 	 	33	 	 	9,052	 	 	1,388	 	1996	 	3/20/98	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
IOMEGA	 	Ogden City, UT	 	    4	 	 	None	 	 	597	 	 	4,675	 	 	876	 	 	642	 	 	5,506	 	 	0	 	 	6,148	 	 	963	 	1998	 	7/01/98	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
OHMEDA	 	Louisville, CO	 	    4	 	 	None	 	 	2,614	 	 	7,762	 	 	528	 	 	2,747	 	 	8,157	 	 	0	 	 	10,904	 	 	1,604	 	1998	 	2/13/98	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
FAIRCHILD	 	Fremont, CA	 	  78	 	 	None	 	 	2,130	 	 	6,853	 	 	374	 	 	2,219	 	 	7,138	 	 	0	 	 	9,357	 	 	1,285	 	1998	 	7/21/98	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CORT FURNITURE	 	Fountain Valley,
CA	 	  44	 	 	None	 	 	2,100	 	 	4,464	 	 	288	 	 	2,188	 	 	4,664	 	 	0	 	 	6,852	 	 	838	 	1988	 	7/31/98	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EYBL CARTEX	 	Fountain Inn, SC	 	  57	 	 	None	 	 	330	 	 	4,792	 	 	213	 	 	344	 	 	4,991	 	 	0	 	 	5,335	 	 	732	 	1998	 	5/18/99	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
SPRINT	 	Leawood, KS	 	  57	 	 	None	 	 	1,696	 	 	7,851	 	 	398	 	 	1,767	 	 	8,178	 	 	0	 	 	9,945	 	 	1,145	 	1998	 	7/2/99	 	20 to 25 years	 	 	
 
56

Table of Contents
 	 	 	 	 	 	 	 	Initial Cost

	 	Cost
Capitalized
Subsequent to
Acquisition

	 	Gross Amount at Which Carried at
December 31, 2002

	 	 	 	 	 	 	 	Life on which
Depreciation is
Computed

	 	
Description

	 	Location

	 	Ownership
Percentage

	 	Encumbrances

	 	Land

	 	Buildings and
Improvements

	 	 	 	Land

	 	Buildings and
Improvements

	 	Construction
in Progress

	 	Total

	 	Accumulated
Depreciation

	 	Date of
Construction

	 	Date
Acquired

	 	 	 	 	
JOHNSON MATTHEY	 	Tredyffrin, PA	 	57	 	None	 	$	1,925	 	$	6,131	 	$	336	 	$	2,005	 	$	6,387	 	$        0	 	$	8,392	 	$	873	 	1973	 	8/17/99	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
GARTNER	 	Ft. Myers, FL	 	57	 	None	 	 	896	 	 	7,452	 	 	347	 	 	933	 	 	7,762	 	           0	 	 	8,695	 	 	1,035	 	1998	 	9/20/99	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
SIEMENS	 	Troy, MI	 	55	 	None	 	 	2,144	 	 	12,049	 	 	695	 	 	2,233	 	 	12,655	 	           0	 	 	14,888	 	 	1,586	 	2000	 	5/10/00	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
QUEST	 	Irvine, CA	 	16	 	None	 	 	2,221	 	 	5,545	 	 	57	 	 	2,221	 	 	5,602	 	           0	 	 	7,823	 	 	1,111	 	1997	 	7/1/00	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
AT&T—OK	 	Oklahoma City, OK	 	55	 	None	 	 	2,100	 	 	13,228	 	 	646	 	 	2,188	 	 	13,786	 	           0	 	 	15,974	 	 	1,149	 	1999	 	12/28/00	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
COMDATA	 	Brentwood, TN	 	55	 	None	 	 	4,300	 	 	20,650	 	 	1,095	 	 	4,479	 	 	21,566	 	           0	 	 	26,045	 	 	1,438	 	1986	 	5/15/2001	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
AMERICREDIT	 	Orange Park, FL	 	61	 	None	 	 	1,610	 	 	10,890	 	 	563	 	 	1,677	 	 	11,386	 	           0	 	 	13,063	 	 	683	 	2001	 	7/16/2001	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ADIC	 	Parker, CO	 	61	 	None	 	 	1,954	 	 	11,000	 	 	758	 	 	2,048	 	 	11,664	 	           0	 	 	13,712	 	 	505	 	2001	 	12/21/2001	 	20 to 25 years	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
JOHN WILEY
    INDIANAPOLIS	 	Indianapolis, IN	 	61	 	None	 	 	1,300	 	 	15,042	 	 	723	 	 	1,354	 	 	15,711	 	           0	 	 	17,065	 	 	56	 	1999	 	12/12/2002	 	20 to 25 years	 	 	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	 	

	

	 	

	

	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total – JV Properties	 	 	 	 	 	$           0	 	$	31,073	 	$	150,248	 	$	15,632	 	$	32,354	 	$	164,566	 	$       33	 	$	196,953	 	$	19,481	 	 	 	 	 	 	 	 	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	 	

	

	 	

	

	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total—All Properties	 	 	 	 	 	$302,695	 	$	299,703	 	$	1,802,396	 	$	163,415	 	$	311,539	 	$	1,911,196	 	$42,779	 	$	2,265,514	 	$	83,075	 	 	 	 	 	 	 	 	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	

	 	

	 	

	

	 	

	

	 	 	 	 	 	 	 	 	
 
 	(a)	 	These properties collateralize the $98.138 million SouthTrust Bank line of credit that accrues interest at LIBOR plus 175 basis points (3.31% at December 31, 2002) and requires interest payments monthly and principal due at maturity (June 10, 2003). The principal amount outstanding as of December 31, 2002 was $61.399 million.	 	
 
 	(b)	 	These properties collateralize the $110 million Bank of America line of credit that accrues interest at LIBOR plus 175 basis points (3.31% at December 31, 2002) and requires interest payments monthly and principal due at maturity (May 11, 2004). The principal amount outstanding as of December 31, 2002 was $58 million.	 	

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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
 
(A Maryland Corporation)
 
SCHEDULE III—REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
 
DECEMBER 31, 2002
 
(dollars in thousands)
 
 	  	Cost

	  	Accumulated
Depreciation

	
BALANCE AT DECEMBER 31, 1999	  	$	180,118	  	$	5,732	
 	 	 	
2000 additions	  	 	293,450	  	 	11,232	

	

	  	

	

	
BALANCE AT DECEMBER 31, 2000	  	 	473,568	  	 	16,964	
 	 	 	
2001 additions	  	 	294,740	  	 	20,821	

	

	  	

	

	
BALANCE AT DECEMBER 31, 2001	  	 	768,308	  	 	37,785	
 	 	 	
2002 additions	  	 	1,497,206	  	 	45,290	

	

	  	

	

	
BALANCE AT DECEMBER 31, 2002	  	$	2,265,514	  	$	83,075	

	

	  	

	

	

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PRIOR PERFORMANCE TABLES
 
The following Prior Performance Tables (Tables) provide information relating to real estate investment programs sponsored by Wells Capital, Inc., our advisor, and its affiliates (Wells Public Programs) which have investment objectives similar to Wells Real Estate Investment Trust, Inc. (Wells REIT). (See “Investment Objectives and Criteria.”) Except for the Wells REIT, all of the Wells Public Programs have used capital, and no acquisition indebtedness, to acquire their properties.
 
Prospective investors should read these Tables carefully together with the summary information concerning the Wells Public Programs as set forth in the “Prior Performance Summary” section of this prospectus.
 
Investors in the Wells REIT will not own any interest in the other Wells Public Programs and should not assume that they will experience returns, if any, comparable to those experienced by investors in other Wells Public Programs.
 
Our advisor is responsible for the acquisition, operation, maintenance and resale of the real estate properties. For both the Wells REIT and other Wells Public Programs. The financial results of other Wells Public Programs, thus, may provide some indication of our advisor’s performance of its obligations during the periods covered. However, general economic conditions affecting the real estate industry and other factors contribute significantly to financial results.
 
The following tables are included herein:
 
Table I—Experience in Raising and Investing Funds (As a Percentage of Investment)
 
Table II—Compensation to Sponsor (in Dollars)
 
Table III—Annual Operating Results of Wells Public Programs
 
Table IV (Results of completed programs) has been omitted since none of the Wells Public Programs have been liquidated.
 
Table V—Sales or Disposals of Property
 
Additional information relating to the acquisition of properties by the Wells Public Programs is contained in Table VI, which is included in Part II of the registration statement which the Wells REIT has filed with the Securities and Exchange Commission. Copies of any or all information will be provided to prospective investors at no charge upon request.
 
The following are definitions of certain terms used in the Tables:
 
“Acquisition Fees” shall mean fees and commissions paid by a Wells Public Program in connection with its purchase or development of a property, except development fees paid to a person not affiliated with the Wells Public Program or with a general partner or advisor of the Wells Public Program in connection with the actual development of a project after acquisition of the land by the Wells Public Program.
 
“Organization Expenses” shall include legal fees, accounting fees, securities filing fees, printing and reproduction expenses and fees paid to the sponsor in connection with the planning and formation of the Wells Public Program.
 
“Underwriting Fees” shall include selling commissions and wholesaling fees paid to broker-dealers for services provided by the broker-dealers during the offering.
 
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TABLE I
 
EXPERIENCE IN RAISING AND INVESTING FUNDS
(UNAUDITED)
 
This Table provides a summary of the experience of the sponsors of Wells Public Programs for which offerings have been completed since December 31, 1999. Information is provided with regard to the manner in which the proceeds of the offerings have been applied. Also set forth is information pertaining to the timing and length of these offerings and the time period over which the proceeds have been invested in the properties. All figures are as of December 31, 2002.
 
 	  	Wells Real
Estate Fund
XII, L.P.

	 	  	Wells Real Estate
Investment
Trust, Inc.

	 	
Dollar Amount Raised	  	$	35,611,192	(3)	  	$	1,458,206,058	(4)	

	

	

	  	

	

	

	
 	 	 	
Percentage Amount Raised	  	 	100	%(3)	  	 	100	%(4)	
 	 	 	
Less Offering Expenses	  	 	 	 	  	 	 	 	
Underwriting Fees	  	 	9.5	%	  	 	9.5	%	
Organizational Expenses	  	 	3.0	%	  	 	3.0	%	
Reserves(1)	  	 	0.0	%	  	 	0.0	%	

	

	

	  	

	

	

	
Percent Available for Investment	  	 	87.5	%	  	 	87.5	%	
Acquisition and Development Costs	  	 	 	 	  	 	 	 	
Prepaid Items and Fees related to Purchase of Property	  	 	0.0	%	  	 	0.0	%	
Cash Down Payment	  	 	84.0	%	  	 	81.7	%	
Acquisition Fees(2)	  	 	3.5	%	  	 	3.5	%	
Development and Construction Costs	  	 	0.0	%	  	 	2.3	%	

	

	

	  	

	

	

	
Reserve for Payment of Indebtedness	  	 	0.0	%	  	 	0.0	%	

	

	

	  	

	

	

	
Total Acquisition and Development Cost	  	 	87.5	%	  	 	87.5	%	
Percent Leveraged	  	 	0.0	%	  	 	0.0	%	

	

	

	  	

	

	

	
 	 	 	
Date Offering Began	  	 	03/22/99	 	  	 	(4	)	
 	 	 	
Length of Offering	  	 	24 mo.	 	  	 	(4	)	
 	 	 	
Months to Invest 90% of Amount Available for Investment (Measured from Beginning of Offering)	  	 	26 mo.	 	  	 	(4	)	
 	 	 	
Number of Investors as of 12/31/02	  	 	1,337	 	  	 	37,270	 	
 
(1)	 	Does not include general partner contributions held as part of reserves.	
 
(2)	 	Includes acquisition fees, real estate commissions, general contractor fees and/or architectural fees paid to affiliates of the general partners.	
 
(3)	 	Total dollar amount registered and available to be offered was $70,000,000. Wells Real Estate Fund XII, L.P. closed its offering on March 21, 2001, and the total dollar amount raised was $35,611,192.	
 
(4)	 	This amount includes only the Wells Real Estate Investment Trust, Inc.’s second and third offerings. The total dollar amount registered and available to be offered in the second offering was $222,000,000. Wells Real Estate Investment Trust, Inc. began its second offering on December 20, 1999 and closed its second offering on December 19, 2000. It took Wells Real Estate Investment Trust, Inc. 10 months to invest 90% of the amount available for investment in the second offering. The total dollar amount raised in its second offering was $175,229,193. The total dollar amount registered and available to be offered in the third offering was $1,350,000,000. Wells Real Estate Investment Trust, Inc. began its third offering on December 20, 2000 and closed its third offering on July 26, 2002. It took Wells Real Estate Investment Trust, Inc. 21 months to invest 90% of the amount available for investment in the third offering. The total dollar amount raised in its third offering was $1,282,976,862.	
 
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TABLE II
COMPENSATION TO SPONSOR
(UNAUDITED)
 
The following sets forth the compensation received by Wells Capital, Inc., our advisor, and its affiliates, including compensation paid out of offering proceeds and compensation paid in connection with the ongoing operations of Wells Public Programs having similar or identical investment objectives the offerings of which have been completed since December 31, 1999. All figures are as of December 31, 2002.
 
 	  	Wells Real
Estate Fund
XII, L.P.

	  	Wells Real
Estate
Investment
Trust, Inc.(1)

	  	Other
Public
Programs(2)

	
Date Offering Commenced	  	 	03/22/99	  	 	12/20/99	  	 	—  	
Dollar Amount Raised	  	$	35,611,192	  	$	1,458,206,058	  	$	284,902,808	
Amount paid to Sponsor from Proceeds of Offering:	  	 	 	  	 	 	  	 	 	
Underwriting Fees(3)	  	$	362,416	  	$	59,280,729	  	$	1,646,381	
Acquisition Fees	  	 	 	  	 	 	  	 	 	
Real Estate Commissions	  	 	—  	  	 	—  	  	 	—  	
Acquisition and Advisory Fees(4)	  	$	1,246,392	  	$	51,037,212	  	$	13,223,204	
Dollar Amount of Cash Generated from Operations Before Deducting Payments to Sponsor(5)	  	$	520,102	  	$	113,853,928	  	$	7,980,284	
Amount Paid to Sponsor from Operations:	  	 	 	  	 	 	  	 	 	
Property Management Fee(2)	  	$	158,647	  	$	3,250,927	  	$	2,342,594	
Partnership Management Fee	  	 	—  	  	 	—  	  	 	—  	
Reimbursements	  	$	205,071	  	$	1,130,152	  	$	3,186,612	
Leasing Commissions	  	$	158,647	  	$	3,250,927	  	$	2,342,594	
General Partner Distributions	  	 	—  	  	 	—  	  	 	—  	
Other	  	 	—  	  	 	—  	  	 	—  	
Dollar Amount of Property Sales and Refinancing Payments to Sponsors:	  	 	 	  	 	 	  	 	 	
Cash	  	 	—  	  	 	—  	  	 	—  	
Notes	  	 	—  	  	 	—  	  	 	—  	
Amount Paid to Sponsor from Property Sales and Refinancing:	  	 	 	  	 	 	  	 	 	
Real Estate Commissions	  	 	—  	  	 	—  	  	 	—  	
Incentive Fees	  	 	—  	  	 	—  	  	 	—  	
Other	  	 	—  	  	 	—  	  	 	—  	
 
(1)	 	This amount includes only the Wells Real Estate Investment Trust, Inc.’s second and third offerings. The total dollar amount registered and available to be offered in the second offering was $222,000,000. Wells Real Estate Investment Trust, Inc. closed its second offering on December 19, 2000, and the total dollar amount raised in its second offering was $175,229,193. The total dollar amount registered and available to be offered in the third offering was $1,350,000,000. Wells Real Estate Investment Trust, Inc. closed its third offering on July 26, 2002, and the total dollar amount raised in its third offering was $1,282,976,862.	
 
(2)	 	Includes compensation paid to the general partners from Wells Real Estate Fund I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells Real Estate Fund III, L.P., Wells Real Estate Fund IV, L.P., Wells Real Estate Fund V, L.P., Wells Real Estate Fund VI, L.P., Wells Real Estate Fund VII, L.P., Wells Real Estate Fund VIII, L.P., Wells Real Estate Fund IX, L.P., Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P. during the past three years. In addition to the amounts shown, affiliates of the general partners of Wells Real Estate Fund I are entitled to certain property management and leasing fees but have elected to defer the payment of such fees until a later year on properties owned by Wells Real Estate Fund I. As of December 31, 2002, the aggregate amount of such deferred fees totaled $2,881,491.	
 
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(3)	 	Includes net underwriting compensation and commissions paid to Wells Investment Securities, Inc. in connection with the offering which was not reallowed to participating broker-dealers.	
 
(4)	 	Fees paid to the general partners or their affiliates for acquisition and advisory services in connection with the review and evaluation of potential real property acquisitions.	
 
(5)	 	Includes $2,263 in net cash used in operating activities and $522,365 in payments to sponsor for Wells Real Estate Fund XII, L.P., $106,221,922 in net cash provided by operating activities and $7,632,006 in payments to sponsor for Wells Real Estate Investment Trust, Inc. and $108,482 in net cash provided by operating activities and $7,871,802 in payments to sponsor for other public programs.	
 
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TABLE III
(UNAUDITED)
 
The following two tables set forth operating results of Wells Public Programs the offerings of which have been completed since December 31, 1997. The information relates only to public programs with investment objectives similar to those of Wells Real Estate Investment Trust, Inc. All figures are as of December 31 of the year indicated.
 
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TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
(UNAUDITED)
WELLS REAL ESTATE FUND XI, L.P.
 
 	  	2002

	 	 	2001

	 	 	2000

	 	 	1999

	 	 	1998

	 	
Gross Revenues(1)	  	$	839,691	 	 	$	960,676	 	 	$	975,850	 	 	$	766,586	 	 	$	262,729	 	
Profit on Sale of Properties	  	 	    —  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Less: Operating Expenses(2)	  	 	92,876	 	 	 	90,326	 	 	 	79,861	 	 	 	111,058	 	 	 	113,184	 	
Depreciation and Amortization(3)	  	 	0	 	 	 	0	 	 	 	—  	 	 	 	25,000	 	 	 	6,250	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Net Income GAAP Basis(4)	  	$	746,815	 	 	$	870,350	 	 	$	895,989	 	 	$	630,528	 	 	$	143,295	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Taxable Income: Operations	  	$	965,422	 	 	$	1,038,394	 	 	$	944,775	 	 	$	704,108	 	 	$	177,692	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Used By):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operations	  	 	(105,148	)	 	 	(128,985	)	 	 	(72,925	)	 	 	40,906	 	 	 	(50,858	)	
Joint Ventures	  	 	1,473,190	 	 	 	1,376,673	 	 	 	1,333,337	 	 	 	705,394	 	 	 	102,662	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	$	1,368,042	 	 	$	1,247,688	 	 	$	1,260,412	 	 	$	746,300	 	 	$	51,804	 	
 	 	 	 	 	 	
Less Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Cash Flow	  	 	1,294,485	 	 	 	1,247,688	 	 	 	1,205,303	 	 	 	746,300	 	 	 	51,804	 	
Return of Capital	  	 	—  	 	 	 	4,809	 	 	 	—  	 	 	 	49,761	 	 	 	48,070	 	
Undistributed Cash Flow From Prior Year Operations	  	 	—  	 	 	 	55,109	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Deficiency) after Cash Distributions	  	$	73,557	 	 	$	(59,918	)	 	$	55,109	 	 	$	(49,761	)	 	$	(48,070	)	
Special Items (not including sales and financing):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Increase in Limited Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	16,532,801	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	$	73,557	 	 	$	(59,918	)	 	$	55,109	 	 	$	(49,761	)	 	$	16,484,731	 	
Use of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales Commissions and Offering Expenses	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	214,609	 	 	 	1,779,661	 	
Return of Original Limited Partner’s Investment	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	100	 	 	 	—  	 	
Property Acquisitions and Deferred Project Costs	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	9,005,979	 	 	 	5,412,870	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Deficiency) after Cash Distributions and Special Items	  	$	73,557	 	 	$	(59,918	)	 	$	55,109	 	 	$	(9,270,449	)	 	$	9,292,200	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Net Income and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income on GAAP Basis:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	91	 	 	 	101	 	 	 	103	 	 	 	77	 	 	 	50	 	
—  Operations Class A Units	  	 	(168	)	 	 	(158	)	 	 	(155	)	 	 	(112	)	 	 	(77	)	
—  Operations Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Capital Gain (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	
Tax and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Federal Income Tax Results:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	93	 	 	 	100	 	 	 	97	 	 	 	71	 	 	 	18	 	
—  Operations Class A Units	  	 	(109	)	 	 	(100	)	 	 	(112	)	 	 	(73	)	 	 	(17	)	
—  Operations Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Capital Gain (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	
Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source (on GAAP Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—  Investment Income Class A Units	  	 	90	 	 	 	97	 	 	 	90	 	 	 	60	 	 	 	8	 	
—  Return of Capital Class A Units	  	 	4	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
—  Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on Cash Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—  Operations Class A Units	  	 	94	 	 	 	97	 	 	 	90	 	 	 	56	 	 	 	4	 	
—  Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	4	 	 	 	4	 	
—  Operations Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on a Priority Distribution Basis)(5)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—  Investment Income Class A Units	  	 	75	 	 	 	75	 	 	 	69	 	 	 	46	 	 	 	6	 	
—  Return of Capital Class A Units	  	 	19	 	 	 	22	 	 	 	21	 	 	 	14	 	 	 	2	 	
—  Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
 
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 	  	2002

	 	 	2001

	 	 	2000

	  	1999

	  	1998

	
Amount (in Percentage Terms)
Remaining Invested in Program
Properties at the end of the Last Year
Reported in the Table	  	100	%	 	100	%	 	 	  	 	  	 	
 
(1)	 	Includes $142,163 in equity in earnings of joint ventures and $120,566 from investment of reserve funds in 1998; $607,579 in equity in earnings of joint ventures and $159,007 from investment of reserve funds in 1999; $967,900 in equity in earnings of joint ventures and $7,950 from investment of reserve funds in 2000; $959,631 in equity in earnings of joint ventures and $1,045 from investment of reserve funds in 2001; and $837,509 in equity in earnings of joint ventures and $2,182 from investment of reserve funds in 2002. As of December 31, 2002, the leasing status was 100% including developed property in initial lease up.	
 
(2)	 	Includes partnership administrative expenses.	
 
(3)	 	Included in equity in earnings of joint ventures in gross revenues is depreciation of $105,458 for 1998; $353,840 for 1999; $485,558 for 2000; $491,478 for 2001; and $492,404 for 2002.	
 
(4)	 	In accordance with the partnership agreement, net income or loss, depreciation and amortization are allocated $254,862 to Class A Limited Partners, $(111,067) to Class B Limited Partners and $(500) to General Partners for 1998; $1,009,368 to Class A Limited Partners, $(378,840) to Class B Limited Partners and $0 to the General Partners for 1999; $1,381,547 to Class A Limited Partners, $(485,558) to Class B Limited Partners and $0 to General Partners for 2000; $1,361,828 to Class A Limited Partners, $(491,478) to Class B Limited Partners and $0 to the General Partners for 2001; and $ 1,239,219 to Class A Limited Partners, $ (492,404) to Class B Limited Partners and $ 0 to the General Partners for 2002.	
 
(5)	 	Pursuant to the terms of the partnership agreement, an amount equal to the cash distributions paid to Class A Limited Partners is payable as priority distributions out of the first available net proceeds from the sale of partnership properties to Class B Limited Partners. The amount of cash distributions paid per unit to Class A Limited Partners is shown as a return of capital to the extent of such priority distributions payable to Class B Limited Partners. As of December 31, 2002, the aggregate amount of such priority distributions payable to Class B Limited Partners totaled $1,057,338.	
 
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TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
(UNAUDITED)
WELLS REAL ESTATE FUND XII, L.P.
 
 	  	2002

	 	 	2001

	 	 	2000

	 	 	1999

	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross Revenues(1)	  	$	1,727,330	 	 	$	1,661,194	 	 	$	929,868	 	 	$	160,379	 	
Profit on Sale of Properties	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Less: Operating Expenses(2)	  	 	179,436	 	 	 	105,776	 	 	 	73,640	 	 	 	37,562	 	
Depreciation and Amortization(3)	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Net Income GAAP Basis(4)	  	$	1,547,894	 	 	$	1,555,418	 	 	$	856,228	 	 	$	122,817	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Taxable Income: Operations	  	$	1,929,381	 	 	$	1,850,674	 	 	$	863,490	 	 	$	130,108	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Used By):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operations	  	 	(176,478	)	 	 	(73,029	)	 	 	247,244	 	 	 	3,783	 	
Joint Ventures	  	 	2,824,519	 	 	 	2,036,837	 	 	 	737,266	 	 	 	61,485	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	$	2,648,041	 	 	$	1,963,808	 	 	$	984,510	 	 	$	65,268	 	
 	 	 	 	 	
Less Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Cash Flow	  	 	2,648,041	 	 	 	1,963,808	 	 	 	779,818	 	 	 	62,934	 	
Return of Capital	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Undistributed Cash Flow From Prior Year Operations	  	 	2,156	 	 	 	164,482	 	 	 	—  	 	 	 	—  	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Deficiency) after Cash Distributions	  	$	(2,156	)	 	$	(164,482	)	 	$	204,692	 	 	$	2,334	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Special Items (not including sales and financing):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General Partner Contributions	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Increase in Limited Partner Contributions	  	 	—  	 	 	 	10,625,431	 	 	 	15,617,575	 	 	 	9,368,186	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	$	(2,156	)	 	$	10,460,949	 	 	$	15,822,267	 	 	$	9,370,520	 	
Use of Funds:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales Commissions and Offering Expenses	  	 	—  	 	 	 	1,338,556	 	 	 	1,952,197	 	 	 	1,171,024	 	
Return of Original Limited Partner’s Investment	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	100	 	
Property Acquisitions and Deferred Project Costs	  	 	—  	 	 	 	9,298,085	 	 	 	16,246,485	 	 	 	5,615,262	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash Generated (Deficiency) after Cash Distributions and Special Items	  	$	(2,156	)	 	$	(175,692	)	 	$	(2,376,415	)	 	$	2,584,134	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income on GAAP Basis:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—  Operations Class A Units	  	 	94	 	 	 	98	 	 	 	89	 	 	 	50	 	
—  Operations Class B Units	  	 	(151	)	 	 	(131	)	 	 	(92	)	 	 	(56	)	
Capital Gain (Loss)	  	 	 	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Tax and Distributions Data per $1,000 Invested:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Federal Income Tax Results:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ordinary Income (Loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—  Operations Class A Units	  	 	91	 	 	 	84	 	 	 	58	 	 	 	23	 	
—  Operations Class B Units	  	 	(95	)	 	 	(74	)	 	 	(38	)	 	 	(25	)	
Capital Gain (Loss)	  	 	 	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash Distributions to Investors:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Source (on GAAP Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—  Investment Income Class A Units	  	 	93	 	 	 	77	 	 	 	41	 	 	 	8	 	
—  Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
—  Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on Cash Basis)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—  Operations Class A Units	  	 	93	 	 	 	77	 	 	 	41	 	 	 	8	 	
—  Return of Capital Class A Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
—  Operations Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Source (on a Priority Distribution Basis)(5)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
—  Investment Income Class A Units	  	 	70	 	 	 	55	 	 	 	13	 	 	 	6	 	
—  Return of Capital Class A Units	  	 	23	 	 	 	22	 	 	 	28	 	 	 	2	 	
—  Return of Capital Class B Units	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Amount (in Percentage Terms) Remaining Invested in Program Properties at the end of the Last Year Reported in the Table	  	 	100	%	 	 	100	% 	 	 	 	 	 	 	 	 	
 
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(1)	 	Includes $124,542 in equity in earnings of joint ventures and $35,837 from investment of reserve funds in 1999; $664,401 in equity in earnings of joint ventures and $265,467 from investment of reserve funds in 2000; $1,577,523 in equity in earnings of joint ventures and $83,671 from investment of reserve funds in 2001; and $1,726,553 in equity in earnings of joint ventures and $777 from investment of reserve funds in 2002. As of December 31, 2002, the leasing status was 100% including developed property in initial lease up.	
 
(2)	 	Includes partnership administrative expenses.	
 
(3)	 	Included in equity in earnings of joint ventures in gross revenues is depreciation of $72,427 for 1999; $355,210 for 2000; $1,035,609 for 2001; and $1,107,728 for 2002.	
 
(4)	 	In accordance with the partnership agreement, net income or loss, depreciation and amortization are allocated $195,244 to Class A Limited Partners, $(71,927) to Class B Limited Partners and $(500) to the General Partners for 1999; $1,209,438 to Class A Limited Partners, $(353,210) to Class B Limited Partners and $0 to General Partners for 2000; $2,591,027 to Class A Limited Partners, $(1,035,609) to Class B Limited Partners and $0 to the General Partners for 2001; and $2,655,622 to Class A Limited Partners, $(1,107,728) to Class B Limited Partners, $ 0 to General Partners for 2002.	
 
(5)	 	Pursuant to the terms of the partnership agreement, an amount equal to the cash distributions paid to Class A Limited Partners is payable as priority distributions out of the first available net proceeds from the sale of partnership properties to Class B Limited Partners. The amount of cash distributions paid per unit to Class A Limited Partners is shown as a return of capital to the extent of such priority distributions payable to Class B Limited Partners. As of December 31, 2002, the aggregate amount of such priority distributions payable to Class B Limited Partners totaled $1,524,597.	
 
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TABLE V
SALES OR DISPOSALS OF PROPERTIES
(UNAUDITED)
 
The following Table sets forth sales or other disposals of properties by Wells Public Programs within the most recent three years. The information relates to only public programs with investment objectives similar to those of Wells Real Estate Investment Trust, Inc. All figures are as of December 31, 2002.
 
Property

	 	Date
Acquired

	 	Date
Of
Sale

	 	 	 	Selling Price, Net Of
Closing Costs And GAAP
Adjustments

	 	 	 	 	 	 	Cost Of Properties
Including Closing And
Soft Costs

	 	Excess
(Deficiency)
Of Property
Operating Cash
Receipts Over
Cash
Expenditures

	 	
 	 	 	 	 	 	Cash
Received
Net Of
Closing
Costs

	 	Mortgage
Balance
At Time
Of Sale

	 	Purchase
Money
Mortgage
Taken
Back By
Program

	 	Adjustments
Resulting
From
Application
Of GAAP

	 	Total

	 	 	Original
Mortgage
Financing

	 	Total
Acquisition
Cost, Capital
Improvement,
Closing And
Soft Costs(1)

	 	Total

	 	 	 	 	 	
3875 Peachtree Place,
Atlanta, GA	 	12/1/85	 	08/31/00	 	$	727,982	 	-0-	 	-0-	 	-0-	 	$	727,982	(2)	 	-0-	 	$	582,337	 	$	582,337	 	-0-	 	 	 	
Crowe’s Crossing
Shopping Center,
DeKalb County, GA	 	12/31/86	 	01/11/01	 	$	6,487,000	 	-0-	 	-0-	 	-0-	 	$	6,487,000	(3)	 	-0-	 	$	9,255,594	 	$	9,255,594	 	-0-	 	 	 	
Cherokee Commons
Shopping Center,
Cherokee County, GA	 	10/30/87	 	10/01/01	 	$	8,434,089	 	-0-	 	-0-	 	-0-	 	$	8,434,089	(4)	 	-0-	 	$	10,450,555	 	$	10,450,555	 	-0-	 	 	 	
Greenville Center,
Greenville, SC	 	6/20/90	 	9/30/02	 	$	2,271,187	 	-0-	 	-0-	 	-0-	 	$	2,271,187	(5)	 	-0-	 	$	4,297,901	 	$	4,297,901	 	-0-	 	 	 	
Tanglewood Commons Outparcel, Clemmens, NC	 	5/30/95	 	10/07/02	 	$	524,398	 	-0-	 	-0-	 	-0-	 	$	524,398	(6)	 	-0-	 	$	506,326	 	$	506,326	 	-0-	 	 	 	
 
(1)	 	Amount shown does not include pro rata share of original offering costs.	
(2)	 	Includes Wells Real Estate Fund I’s share of taxable gain from this sale in the amount of $205,019, of which $205,019 is allocated to capital gain and $0 is allocated to ordinary gain.	
(3)	 	Includes taxable gain from this sale in the amount of $11,496, of which $11,496 is allocated to capital gain and $0 is allocated to ordinary gain.	
(4)	 	Includes taxable gain from this sale in the amount of $207,613, of which $207,613 is allocated to capital gain and $0 is allocated to ordinary gain.	
(5)	 	Includes taxable loss from this sale in the amount of $910,227.	
(6)	 	Includes taxable gain from this sale in the amount of $ 13,062 of which $13,062 is allocated to capital gain and $0 is allocated to ordinary gain.	
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
SUMMARY OF UNAUDITED PRO FORMA FINANCIAL STATEMENTS
 
This pro forma information should be read in conjunction with the financial statements and notes of Wells Real Estate Investment Trust, Inc., a Maryland Corporation (the “Wells REIT”), included in its annual report on Form 10-K for the year ended December 31, 2002. In addition, this pro forma information should be read in conjunction with the financial statements and notes of certain acquired properties included in various Form 8-Ks previously filed.
 
The following unaudited pro forma balance sheet as of December 31, 2002 has been prepared to give effect to the first quarter 2003 acquisition of the East Point Buildings and the 150 West Jefferson Building (collectively, the “Recent Acquisitions”) by Wells Operating Partnership, L.P. (“Wells OP”) as if the acquisitions occurred on December 31, 2002.
 
Wells OP is a Delaware limited partnership that was organized to own and operate properties on behalf of Wells REIT. As the sole general partner of Wells OP, Wells REIT possesses full legal control and authority over the operations of Wells OP. Accordingly, the accounts of Wells OP are consolidated with the accompanying pro forma financial statements of Wells REIT.
 
The following unaudited pro forma statement of income for the year ended December 31, 2002 has been prepared to give effect to the 2002 acquisition of the Vertex Sarasota Building (formerly, the Arthur Andersen Building), the Transocean Houston Building, the Novartis Atlanta Building, the Dana Corporation Buildings, the Travelers Express Denver Buildings, the Agilent Atlanta Building, the BellSouth Ft. Lauderdale Building, the Experian/TRW Buildings, the Agilent Boston Building, the TRW Denver Building, the MFS Phoenix Building, the ISS Atlanta Buildings, the PacifiCare San Antonio Building, the BMG Greenville Buildings, the Kraft Atlanta Building, the Nokia Dallas Buildings, the Harcourt Austin Building, the IRS Long Island Buildings, the KeyBank Parsippany Building, the Allstate Indianapolis Building, the Federal Express Colorado Springs Building, the EDS Des Moines Building, the Intuit Dallas Building, the Daimler Chrysler Dallas Building, the NASA Buildings, the Caterpillar Nashville Building, the Capital One Richmond Buildings, the John Wiley Indianapolis Building and the Nestle Los Angeles Building (collectively, the “2002 Acquisitions”) and the Recent Acquisitions as if the acquisitions occurred on January 1, 2002. The Kerr McGee Property and the AmeriCredit Phoenix Property had no operations during the year ended December 31, 2002.
 
These unaudited pro forma financial statements are prepared for informational purposes only and are not necessarily indicative of future results or of actual results that would have been achieved had the acquisition of the 2002 Acquisitions and the Recent Acquisitions been consummated as of January 1, 2002. In addition, the pro forma balance sheet includes allocations of the purchase price for certain acquisitions based upon preliminary estimates of the fair value of the assets and liabilities acquired. Therefore, these allocations may be adjusted in the future upon finalization of these preliminary estimates.

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA BALANCE SHEET
 
DECEMBER 31, 2002
 
(in thousands, except share amounts)
 
(Unaudited)
 
ASSETS
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (e)

	  	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	
 	  	 	  	Other

	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	 	 	 	East Point

	 	 	150 West Jefferson

	 	 	 	 	 	 	 	 	 	 	
REAL ESTATE ASSETS, at cost:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Land	  	$	279,185	  	$	0	 	 	$	2,163	(c)	 	$	9,375	(c)	 	$	291,196	 	 	 	 	 	 	 	
 	  	 	 	  	 	 	 	 	 	89	(d)	 	 	384	(d)	 	 	 	 	 	 	 	 	 	 	
Buildings, less accumulated depreciation of $63,594	  	 	1,683,036	  	 	0	 	 	 	19,916	(c)	 	 	84,519	(c)	 	 	1,791,746	 	 	 	 	 	 	 	
 	  	 	 	  	 	 	 	 	 	815	(d)	 	 	3,460	(d)	 	 	 	 	 	 	 	 	 	 	
Construction in progress	  	 	42,746	  	 	0	 	 	 	0	 	 	 	0	 	 	 	42,746	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
Total real estate assets	  	 	2,004,967	  	 	0	 	 	 	22,983	 	 	 	97,738	 	 	 	2,125,688	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
INVESTMENT IN JOINT VENTURES	  	 	83,915	  	 	0	 	 	 	0	 	 	 	0	 	 	 	83,915	 	 	 	 	 	 	 	
CASH AND CASH EQUIVALENTS	  	 	45,464	  	 	380,046	(a)	 	 	(22,079	)(c)	 	 	(93,894	)(c)	 	 	294,591	 	 	 	 	 	 	 	
 	  	 	 	  	 	(14,946	)(b)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
RENT RECEIVABLE	  	 	19,321	  	 	0	 	 	 	0	 	 	 	0	 	 	 	19,321	 	 	 	 	 	 	 	
DEFERRED PROJECT COSTS	  	 	1,494	  	 	14,946	(b)	 	 	(904	)(d)	 	 	(3,844	)(d)	 	 	11,692	 	 	 	 	 	 	 	
DUE FROM AFFILIATES	  	 	1,961	  	 	0	 	 	 	0	 	 	 	0	 	 	 	1,961	 	 	 	 	 	 	 	
PREPAID EXPENSES AND OTHER ASSETS, NET	  	 	4,407	  	 	0	 	 	 	0	 	 	 	0	 	 	 	4,407	 	 	 	 	 	 	 	
DEFERRED LEASE ACQUISITION COSTS, NET	  	 	1,638	  	 	0	 	 	 	0	 	 	 	0	 	 	 	1,638	 	 	 	 	 	 	 	
INTANGIBLE LEASE ASSET	  	 	12,060	  	 	0	 	 	 	0	 	 	 	0	 	 	 	12,060	 	 	 	 	 	 	 	
INVESTMENT IN BONDS	  	 	54,500	  	 	0	 	 	 	0	 	 	 	0	 	 	 	54,500	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
Total assets	  	$	2,229,727	  	$	380,046	 	 	$	0	 	 	$	0	 	 	$	2,609,773	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	

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LIABILITIES AND SHAREHOLDERS’ EQUITY
 
(in thousands, except share amounts)
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (e)

	 	 	Pro Forma Adjustments

	  	Pro Forma
Total

	 	 	
 	  	 	 	 	Other

	 	 	Recent Acquisitions

	  	 	 	 	 	 	 	
 	  	 	 	 	 	 	 	East Point

	  	150 West Jefferson

	  	 	 	 	 	 	 	 	 	 	 	 	
LIABILITIES:	  	 	 	 	 	 	 	 	 	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	
Notes payable	  	$	248,195	 	 	$	0	 	 	$	0	  	$	0	  	$	248,195	 	 	 	 	 	 	 	 	 	 	
Obligations under capital lease	  	 	54,500	 	 	 	0	 	 	 	0	  	 	0	  	 	54,500	 	 	 	 	 	 	 	 	 	 	
Intangible lease liability	  	 	32,697	 	 	 	0	 	 	 	0	  	 	0	  	 	32,697	 	 	 	 	 	 	 	 	 	 	
Accounts payable and accrued expenses	  	 	24,580	 	 	 	0	 	 	 	0	  	 	0	  	 	24,580	 	 	 	 	 	 	 	 	 	 	
Due to affiliate	  	 	15,975	 	 	 	0	 	 	 	0	  	 	0	  	 	15,975	 	 	 	 	 	 	 	 	 	 	
Dividends payable	  	 	6,046	 	 	 	0	 	 	 	0	  	 	0	  	 	6,046	 	 	 	 	 	 	 	 	 	 	
Deferred rental income	  	 	11,584	 	 	 	0	 	 	 	0	  	 	0	  	 	11,584	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
Total liabilities	  	 	393,577	 	 	 	0	 	 	 	0	  	 	0	  	 	393,577	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
COMMITMENTS AND CONTINGENCIES	  	 	 	 	 	 	 	 	 	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP	  	 	200	 	 	 	0	 	 	 	0	  	 	0	  	 	200	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	 	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	
Common shares, $.01 par value; 750,000,000 shares authorized, 217,790,874 shares issued and 215,699,717 outstanding at December 31, 2002	  	 	2,178	 	 	 	427	(a)	 	 	0	  	 	0	  	 	2,605	 	 	 	 	 	 	 	 	 	 	
Additional paid-in capital	  	 	1,929,381	 	 	 	379,619	(a)	 	 	0	  	 	0	  	 	2,309,000	 	 	 	 	 	 	 	 	 	 	
Cumulative distributions in excess of earnings	  	 	(74,310	)	 	 	0	 	 	 	0	  	 	0	  	 	(74,310	)	 	 	 	 	 	 	 	 	 	
Treasury stock, at cost, 2,091,157 shares at December 31, 2002	  	 	(20,912	)	 	 	0	 	 	 	0	  	 	0	  	 	(20,912	)	 	 	 	 	 	 	 	 	 	
Other comprehensive loss	  	 	(387	)	 	 	0	 	 	 	0	  	 	0	  	 	(387	)	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
Total shareholders’ equity	  	 	1,835,950	 	 	 	380,046	 	 	 	0	  	 	0	  	 	2,215,996	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
Total liabilities and shareholders’ equity	  	$	2,229,727	 	 	$	380,046	 	 	$	0	  	$	0	  	$	2,609,773	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	  	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
 
(a)	 	Reflects capital raised through issuance of additional shares subsequent to December 31, 2002 through 150 West Jefferson acquisition date, net of organizational and offering costs, commissions and dealer-manager fees.	
 
(b)	 	Reflects deferred project costs capitalized as a result of additional capital raised described in note (a) above.	
 
(c)	 	Reflects Wells Real Estate Investment Trust, Inc.’s purchase price for the land, building and liabilities assumed.	
 
(d)	 	Reflects deferred project costs applied to the land and building at approximately 4.094% of the cash paid for purchase.	
 
(e)	 	Historical financial information derived from annual report on Form 10-K.	
 
The accompanying notes are an integral part of this statement.

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE YEAR ENDED DECEMBER 31, 2002
 
(in thousands, except per share amounts)
 
(Unaudited)
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (h)

	  	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	
 	  	 	  	 	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	2002 Acquisitions

	 	 	East Point

	 	 	150 West Jefferson

	 	 	 	 	 	 	 	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	107,526	  	$	98,599	(a)	 	$	1,531	(a)	 	$	11,665	(a)	 	$	219,321	 	 	 	 	
Tenant reimbursements	  	 	18,992	  	 	9,584	(b)	 	 	63	(b)	 	 	5,527	(b)	 	 	34,166	 	 	 	 	
Equity in income of joint ventures	  	 	4,700	  	 	648	(c)	 	 	0	 	 	 	0	 	 	 	5,348	 	 	 	 	
Lease termination income	  	 	1,409	  	 	0	 	 	 	0	 	 	 	0	 	 	 	1,409	 	 	 	 	
Interest and other income	  	 	7,001	  	 	0	 	 	 	0	 	 	 	0	 	 	 	7,001	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
 	  	 	139,628	  	 	108,831	 	 	 	1,594	 	 	 	17,192	 	 	 	267,245	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	38,780	  	 	34,362	(d)	 	 	829	(d)	 	 	3,519	(d)	 	 	77,490	 	 	 	 	
Interest expense	  	 	4,638	  	 	9,657	(e)	 	 	0	 	 	 	0	 	 	 	14,295	 	 	 	 	
Property operating costs	  	 	26,949	  	 	25,244	(f)	 	 	990	(f)	 	 	7,752	(f)	 	 	60,935	 	 	 	 	
Management and leasing fees	  	 	5,155	  	 	3,196	(g)	 	 	72	(g)	 	 	774	(g)	 	 	9,197	 	 	 	 	
General and administrative	  	 	3,244	  	 	0	 	 	 	0	 	 	 	0	 	 	 	3,244	 	 	 	 	
Legal and accounting	  	 	1,008	  	 	0	 	 	 	0	 	 	 	0	 	 	 	1,008	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
 	  	 	79,774	  	 	72,459	 	 	 	1,891	 	 	 	12,045	 	 	 	166,169	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
NET INCOME	  	$	59,854	  	$	36,372	 	 	$	(297	)	 	$	5,147	 	 	$	101,076	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	  	$	0.41	  	 	 	 	 	 	 	 	 	 	 	 	 	$	0.39	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	145,633	  	 	 	 	 	 	 	 	 	 	 	 	 	 	257,084	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	
 
 	(a)	 	Rental income is recognized on a straight-line basis.	
 
 	(b)	 	Consists of operating costs reimbursements.	
 
 	(c)	 	Reflects Wells Real Estate Investment Trust, Inc.’s equity in income of the Wells Fund XIII-REIT Joint Venture related to the John Wiley Indianapolis Building. The pro forma adjustment results from rental revenues less operating expenses, management fees and depreciation.	
 
 	(d)	 	Depreciation expense on the buildings is recognized using the straight-line method and a 25-year life.	
 
 	(e)	 	Represents interest expense on lines of credits used to acquire assets, which bear interest at approximately 3.99% for the year ended December 31, 2002 and assumed mortgages on the BMG Direct, BMG Music and Nestle Buildings, which bear interest at 8.5%, 8% and 3.39% for the year ended December 31, 2002, respectively.	
 
 	(f)	 	Consists of operating expenses.	
 
 	(g)	 	Management and leasing fees are calculated at 4.5% of rental income and tenant reimbursements.	
 
 	(h)	 	Historical financial information derived from annual report on Form 10-K.	
 
The accompanying notes are an integral part of this statement.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
SUPPLEMENT NO. 7 DATED MAY 15, 2003 TO THE PROSPECTUS
DATED JULY 26, 2002
 
This document supplements, and should be read in conjunction with, the prospectus of Wells Real Estate Investment Trust, Inc. dated July 26, 2002, as supplemented and amended by Supplement No. 1 dated August 14, 2002, Supplement No. 2 dated August 29, 2002, Supplement No. 3 dated October 25, 2002, Supplement No. 4 dated December 10, 2002, Supplement No. 5 dated January 15, 2003, and Supplement No. 6 dated April 14, 2003. When we refer to the “prospectus” in this supplement, we are also referring to any and all supplements to the prospectus. Unless otherwise defined in this supplement, capitalized terms used in this supplement shall have the same meanings as set forth in the prospectus.
 
The purpose of this supplement is to describe the following:
 
 	(1)	 	Status of the offering of shares in Wells Real Estate Investment Trust, Inc. (Wells REIT);	
 
 	(2)	 	Revisions to the “Description of Real Estate Investments” section of the prospectus to describe the following real property acquisitions;	
 
 	(A)	 	Acquisition of a three-story office building in Englewood Cliffs, New Jersey (Citicorp Englewood Cliffs, NJ Building);	
 
 	(B)	 	Acquisition of a 32-story office building in Minneapolis, Minnesota (US Bancorp Minneapolis Building);	
 
 	(C)	 	Acquisition of an 83-story office building in Chicago, Illinois (Aon Center Chicago Building); and	
 
 	(D)	 	Acquisition of a three-story office building in Auburn Hills, Michigan (GMAC Detroit Building);	
 
 	(3)	 	Status of the development of the Nissan Project, the Kerr-McGee Property and the AmeriCredit Phoenix Building;	
 
 	(4)	 	Description of unsecured line of credit in the amount of $500 million;	
 
 	(5)	 	Revisions to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the prospectus;	
 
 	(6)	 	Unaudited financial statements of the Wells REIT for the three month period ended March 31, 2003;	
 
 	(7)	 	Financial statements relating to the recently acquired US Bancorp Minneapolis Building and the Aon Center Chicago Building; and	
 
 	(8)	 	Unaudited pro forma financial statements of the Wells REIT reflecting the acquisition of the Citicorp Englewood Cliffs, NJ Building, the US Bancorp Minneapolis Building, the Aon Center Chicago Building and the GMAC Detroit Building.	
 
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Status of the Offering
 
We commenced our initial public offering of common stock on January 30, 1998. Our initial public offering was terminated on December 19, 1999. We received approximately $132.2 million in gross offering proceeds from the sale of 13.2 million shares in our initial public offering. We commenced our second offering of common stock on December 20, 1999. Our second public offering was terminated on December 19, 2000. We received approximately $175.2 million in gross offering proceeds from the sale of 17.5 million shares in our second public offering. We commenced our third public offering of common stock on December 20, 2000. Our third public offering was terminated on July 26, 2002. We received approximately $1.3 billion in gross offering proceeds from the sale of 128.3 million shares in our third public offering.
 
Pursuant to the prospectus, we commenced our fourth public offering of common stock on July 26, 2002. As of May 15, 2003, we had received additional gross proceeds of approximately $1.3 billion from the sale of approximately 126.8 million shares in our fourth public offering. Accordingly, as of May 15, 2003, we had received aggregate gross offering proceeds of approximately $2.9 billion from the sale of approximately 285.9 million shares in all of our public offerings. After payment of approximately $98.6 million in acquisition and advisory fees and acquisition expenses, payment of $319.4 million in selling commissions and organization and offering expenses, and common stock redemptions of approximately $42.7 million pursuant to our share redemption program, as of May 15, 2003, we had raised aggregate net offering proceeds available for investment in properties of approximately $2.4 billion, out of which approximately $2.3 billion had been invested in real estate properties, and approximately $74.3 million remained available for investment in real estate properties.
 
Description of Properties
 
As of May 15, 2003, we had purchased interests in 78 real estate properties located in 23 states. Below is a description of our recent real property acquisitions.
 
Citicorp Englewood Cliffs, NJ Building
 
On April 30, 2003, Wells Operating Partnership, L.P. (Wells OP), a Delaware limited partnership formed to acquire, own, lease and operate real properties on behalf of the Wells REIT, purchased a three-story office building containing approximately 410,000 rentable square feet located on an approximately 27-acre tract of land at 111 Sylvan Avenue in Englewood Cliffs, New Jersey (Citicorp Englewood Cliffs, NJ Building) for a purchase price of $70.5 million. The Citicorp Englewood Cliffs, NJ Building was purchased from US Fund Sylvan Avenue, L.P., a Delaware limited partnership not in any way affiliated with the Wells REIT, Wells OP or Wells Capital, Inc., our advisor. In order to finance the acquisition of the Citicorp Englewood Cliffs, NJ Building, Wells OP obtained approximately $50 million in loan proceeds by drawing down on its existing line of credit with SouthTrust Bank, N.A.
 
The Citicorp Englewood Cliffs, NJ Building, which was originally built in 1953 and renovated in 1998, is leased under a net lease (i.e., operating costs and maintenance costs are paid by the tenant) entirely to Citicorp North America, Inc. (Citicorp North America), a wholly-owned subsidiary of Citicorp, Inc. (Citicorp). Citicorp, which is a guarantor of the Citicorp North America lease, is a financial services holding company whose four main business segments include consumer financial services, corporate and institutional financial services, investment management services, and private investment services. Citicorp provides its services in approximately 100 countries worldwide.
 
The Citicorp North America lease commenced in June 1998 and expires in November 2010. The current annual base rent payable under the Citicorp North America lease is approximately $6.0 million. Citicorp North America has the right, at its option, to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. Under the Citicorp North America lease, the tenant is responsible for maintaining the Citicorp Englewood Cliffs, NJ Building and for the payment of
 
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all operating expenses relating to the property and Wells OP, as the landlord, is responsible for maintaining and repairing the structural portions and mechanical systems of the Citicorp Englewood Cliffs, NJ Building.
 
Since the Citicorp Englewood Cliffs, NJ Building is leased to a single tenant on a long-term basis under a net lease that transfers substantially all of the operating costs to the tenant, we believe that financial information about the guarantor of the lease, Citicorp, is more relevant to investors than financial statements of the property acquired.
 
Citicorp currently files its financial statements in reports filed with the SEC, and the following summary financial data regarding Citicorp is taken from its previously filed public reports:
 
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
 
 	  	FOR THE FISCAL YEAR ENDED

	
 	  	12/31/2002

	  	12/31/2001

	  	12/31/2000

	
 	  	(IN MILLIONS)	
Revenues	  	$	66,401	  	$	67,266	  	$	64,503	
Operating Income	  	$	16,166	  	$	15,221	  	$	12,915	
Net Income	  	$	10,709	  	$	9,642	  	$	8,110	
 
CONSOLIDATED BALANCE SHEET DATA:
 
 	  	AS OF THE FISCAL YEAR ENDED

	
 	  	12/31/2002

	  	12/31/2001

	  	12/31/2000

	
 	  	(IN MILLIONS)	
Total Assets	  	$	727,337	  	$	646,944	  	$	551,607	
Long-Term Debt	  	$	78,372	  	$	81,053	  	$	80,335	
Stockholders’ Equity	  	$	73,540	  	$	63,453	  	$	47,865	
 
For more detailed financial information regarding Citicorp, please refer to the financial statements of Citicorp, Inc., which are publicly available with the SEC at http://www.sec.gov.
 
Wells Management Company, Inc. (Wells Management), an affiliate of the Wells REIT and our advisor, will manage the Citicorp Englewood Cliffs, NJ Building on behalf of Wells OP and will be paid management and leasing fees in the amount of up to 4.5% of the gross revenues from the Citicorp Englewood Cliffs, NJ Building, subject to certain limitations.
 
US Bancorp Minneapolis Building
 
On May 1, 2003, Wells OP purchased a 32-story office building containing approximately 929,694 rentable square feet located at 800 Nicollet Mall, Minneapolis, Minnesota (US Bancorp Minneapolis Building) for a purchase price of $174 million from MN-Nicolet Mall, L.L.C. (Nicolet Mall), a Delaware limited liability company not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
The US Bancorp Minneapolis Building was built in 2000 and is located on an approximately 1.2-acre tract of land in downtown Minneapolis, Minnesota. The US Bancorp Minneapolis Building is leased to 29 different tenants.
 
U.S. Bancorp Piper Jaffray Companies, Inc. (US Bancorp Piper Jaffray) leases approximately 718,171 rentable square feet of the US Bancorp Minneapolis Building (77.2%). US Bancorp Piper Jaffray is currently a wholly-owned subsidiary of U.S. Bancorp. U.S. Bancorp, which is a guarantor of the US Bancorp Piper Jaffray lease, is a financial services holding company having its corporate
 
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headquarters in Minneapolis, Minnesota. U.S. Bancorp reported a net worth, as of December 31, 2002, of approximately $18.1 billion. US Bancorp Piper Jaffray provides investment products and services, including securities, mutual funds and annuities, and insurance products, to individuals, institutions and businesses. In February 2003, U.S. Bancorp announced a plan to spin-off its capital markets business unit, including US Bancorp Piper Jaffray, in late 2003. In connection with the spin-off, shareholders of U.S. Bancorp will receive a stock dividend of the shares in US Bancorp Piper Jaffray, as a result of which US Bancorp Piper Jaffray will become an independent company and will no longer be a wholly-owned subsidiary of U.S. Bancorp. U.S. Bancorp will remain as a guarantor of the US Bancorp Piper Jaffray lease after the spin-off.
 
The US Bancorp Piper Jaffray lease commenced in June 2000 and expires in May 2014. The current annual base rent payable under the US Bancorp Piper Jaffray lease is approximately $10.8 million. US Bancorp Piper Jaffray has the right, at its option, to extend the initial term of its lease for one additional six-year period, and two additional five-year periods. US Bancorp Piper Jaffray also has options to lease additional available space in the US Bancorp Minneapolis Building in 2004, 2006, 2008, 2010, and 2012, as well as a right of first refusal to lease additional available space beginning in June 2003. Under the US Bancorp Piper Jaffray lease, US Bancorp Piper Jaffray is responsible for its pro rata share of operating and maintenance costs. Wells OP, as the landlord, is responsible for maintaining and repairing the structural portions and mechanical systems of the US Bancorp Minneapolis Building.
 
The other 28 tenants lease approximately 205,056 rentable square feet (22.1%) of the US Bancorp Minneapolis Building for an aggregate annual base rent payable of approximately $3.7 million. Approximately 6,467 rentable square feet (0.7%) of the US Bancorp Minneapolis Building is currently vacant.
 
Wells Management will be paid management and leasing fees in the amount of up to 4.5% of gross revenues from the US Bancorp Minneapolis Building, subject to certain limitations. Wells OP has entered into a two-year management agreement with Equity Office Management, L.L.C. (Equity Office Management), an affiliate of the seller of the US Bancorp Minneapolis Building, to serve as the on-site property manager for the US Bancorp Minneapolis Building. The property management fees payable to Equity Office Management will be paid out of or credited against the fees payable to Wells Management. Equity Office Management is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
Aon Center Chicago Building
 
On May 9, 2003, Wells REIT—Chicago Center, Chicago, LLC (REIT—Chicago Center), a single member Delaware limited liability company wholly-owned by Wells OP, purchased an 83-story office building containing approximately 2,577,000 rentable square feet located at 200 East Randolph Street in Chicago, Illinois (Aon Center Chicago Building) for a purchase price of approximately $465.2 million, from BRE/Randolph Drive, L.L.C. (BRE/Randolph), a Delaware limited liability company. BRE/Randolph is not in any way affiliated with the Wells REIT, REIT—Chicago Center, Wells OP or our advisor. In order to finance the acquisition of the Aon Center Chicago Building, REIT—Chicago Center obtained (1) approximately $350 million in loan proceeds by having Wells OP draw down on its existing $500 million unsecured line of credit described below, and (2) approximately $112.3 million in seller financing from BRE/Randolph. The seller financing in favor of BRE/Randolph (a) was provided on an interest free basis, (b) is due and payable in full on January 31, 2004, (c) is secured by a first priority mortgage on the Aon Center Chicago Building, and (d) is guaranteed by Wells OP.
 
The Aon Center Chicago Building, which was built in 1972 and is located on an approximately 3.7-acre tract of land in downtown Chicago, is the third tallest building in North America. The Aon Center Chicago Building is leased or subleased to approximately 40 different tenants. BP Corporation North America Inc., Aon Corporation, Kirkland & Ellis, DDB & Needham Chicago Inc., Daniel J. Edelman, Inc., PricewaterhouseCoopers, Deloitte and Touche USA LLP, and Jones Lang LaSalle
 
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Americas, Inc. lease or sublease, in the aggregate, approximately 1,759,000 rentable square feet (68.3%) of the Aon Center Chicago Building. The other tenants lease approximately 622,000 rentable square feet (24.1%) of the Aon Center Chicago Building for an aggregate annual base rent payable of approximately $7.9 million. Approximately 196,000 rentable square feet (7.6%) of the Aon Center Chicago Building is vacant. REIT—Chicago Center, as the landlord for the Aon Center Chicago Building, is responsible for maintaining and repairing the structural portions and mechanical systems of the Aon Center Chicago Building.
 
Approximately 775,796 rentable square feet of the Aon Center Chicago Building (30.1%) is leased to BP Corporation North America Inc. (BP Corporation) is a wholly-owned subsidiary of BP p.l.c. (BP), a British public limited company which is one of the leading oil companies in the world. BP Corporation controls operations in North America for BP.
 
The BP Corporation lease is a net lease which commenced in December 1998 and expires in December 2013. The current annual base rent payable under the BP Corporation lease is approximately $15.6 million. BP Corporation has the right, at its option, to extend the initial term of its lease for four additional five-year periods at 95% of the then-current market rental rate. BP Corporation also has an option to lease an additional floor in the Aon Center Chicago Building, as well as a right of first offer to lease additional available space, subject to various restrictions. Further, BP Corporation has a right of first offer to purchase the Aon Center Chicago Building upon a subsequent sale of the Aon Center Chicago Building by REIT—Chicago Center, subject to various restrictions.
 
BP Corporation has subleased approximately 515,083 rentable square feet of the Aon Center Chicago Building (20.0%) to Aon Corporation (Aon). The Aon sublease commenced in September 2001 and expires in December 2013. The current annual base rent payable to BP Corporation under the Aon sublease is approximately $6.9 million. Aon, which has its headquarters located in the Aon Center Chicago Building, is a holding company whose subsidiaries provide insurance brokerage, consulting, and insurance underwriting services. Aon has approximately 550 offices in 120 countries worldwide. Aon reported a net worth, as of December 31, 2002, of approximately $3.9 billion.
 
Approximately 351,243 rentable square feet of the Aon Center Chicago Building (13.6%) is leased to Kirkland & Ellis. Kirkland & Ellis is a law firm with approximately 900 attorneys and offices in Chicago, Washington, D.C., New York, Los Angeles, San Francisco, and London. Kirkland & Ellis handles matters of litigation, corporate, intellectual property and technology, bankruptcy, tax, and counseling for national and international clients.
 
The Kirkland & Ellis lease is a net lease which commenced in January 1987 and expires in December 2011. The current annual base rent payable under the Kirkland & Ellis lease is approximately $4.8 million. Kirkland & Ellis has the right, at its option, to extend the initial term of its lease for one additional ten-year period at the then-current market rental rate. Kirkland & Ellis also has an option to lease additional available space in the Aon Center Chicago Building, and a right of first offer to lease additional space on the 47 th , 50 th , 51 st , 52 nd , and 66 th  floors. Kirkland & Ellis has exercised a right of first offer to lease additional available space in the Aon Center Chicago Building on the 65 th  and 67 th  floors beginning in 2004 and 2005 respectively.
 
Approximately 263,978 rentable square feet of the Aon Center Chicago Building (10.2%) is leased to DDB & Needham Chicago Inc. (DDB), which has its corporate headquarters in the Aon Center Chicago Building. DDB is an advertising and marketing firm with offices in approximately 96 countries worldwide. DDB is a wholly-owned subsidiary of Omnicom Group, Inc. (Omnicom), which is a guarantor of the DDB lease. Omnicom is one of the largest advertising and corporate communications companies in the world. Omnicom reported a net worth, as of December 31, 2002, of approximately $2.57 billion.
 
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The DDB lease is a net lease which commenced in July 1997 and expires in June 2018. The current annual base rent payable under the DDB lease is approximately $4.3 million. DDB has the right, at its option, to extend the initial term of its lease for one additional five-year period at the then-current market rental rate. DDB also has an option and a right of first offer to lease space on the 34 th  floor in the Aon Center Chicago Building. In addition, the DDB lease provides DDB with the right to reduce its leased space by between 10,000 and 50,000 square feet if DDB experiences reduced advertising account revenue.
 
Approximately 126,735 rentable square feet of the Aon Center Chicago Building (4.9%) is leased to Daniel J. Edelman, Inc. (Edelman), the parent company of Edelman Public Relations Worldwide. Edelman Public Relations Worldwide is a large privately held public relations firm with 38 offices worldwide and has its corporate headquarters in the Aon Center Chicago Building.
 
The Edelman lease is a net lease which commenced in March 1995 and expires in February 2010. The current annual base rent payable under the Edelman lease is approximately $1.9 million. Edelman has the right, at its option, to extend the initial term of its lease for two additional five-year periods at 95% of the then-current market rental rate. Edelman also has a right of third offer to lease additional space on the 78 th  floor of the Aon Center Chicago Building.
 
Approximately 121,788 rentable square feet of the Aon Center Chicago Building (4.7%) is leased to PricewaterhouseCoopers (PwC), an accounting services firm with offices in approximately 142 countries worldwide. PwC’s five main business units include Audit, Assurance and Business Advisory Services; Business Process Outsourcing; Corporate Finance and Recovery Services; Human Resource Services; and Global Tax Services.
 
The PwC lease is a net lease which commenced in January 1994 and expires in December 2003. The current annual base rent payable under the PwC lease is approximately $1.7 million. PwC currently subleases its entire leased premises to Deloitte and Touche USA LLP (Deloitte), a professional services organization which provides assurance and advisory, tax, and consulting services in over 140 countries worldwide.
 
Deloitte’s sublease expires in December 2003 at the same time as the expiration of the PwC lease. Deloitte has entered into a new net lease for 134,966 rentable square feet, which commences on the earlier of (1) the termination of the PwC lease, or (2) January 1, 2004, and expires in June 2005. The initial annual base rent payable under the Deloitte lease will be approximately $3.9 million. Deloitte has the right, at its option, to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate.
 
Approximately 119,215 rentable square feet of the Aon Center Chicago Building (4.6%) is leased to Jones Lang LaSalle Americas, Inc. (Jones Lang), which has its corporate headquarters in the Aon Center Chicago Building. Jones Lang is a real estate services and investment company with offices in approximately 34 countries worldwide. Jones Lang’s operations include space acquisition and disposition, facilities and property management, project and development management services, leasing, buying and selling properties, consulting and capital markets expertise. Jones Lang reported a net worth, as of December 31, 2002, of approximately $367 million.
 
The Jones Lang lease is a net lease which commenced in March 1996 and expires in February 2006. The current annual base rent payable under the Jones Lang lease is approximately $1.4 million. Jones Lang has the right, at its option, to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. Jones Lang also has a right of first offer to lease additional space on the 42 nd  floor of the Aon Center Chicago Building.
 
Wells Management will be paid management and leasing fees in the amount of up to 4.5% of gross revenues from the Aon Center Chicago Building, subject to certain limitations. REIT—Chicago Center has entered into a five-year management agreement with Brea Property Management of Illinois, LLC (Brea) pursuant to which Brea will serve as the on-site property manager for the Aon Center Chicago Building.
 
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Brea will be paid management fees out of or credited against the fees payable to Wells Management. Brea is not in any way affiliated with the Wells REIT, REIT—Chicago Center, Wells OP or our advisor.
 
GMAC Detroit Building
 
On May 9, 2003, Wells OP purchased a three-story office building containing approximately 119,122 rentable square feet located at 900 Squirrel Road in Auburn Hills, Michigan (GMAC Detroit Building) for a purchase price of approximately $17.8 million, from KDC-SW, Auburn Hills 1, L.P., a Texas limited partnership (KDC-SW). KDC-SW is not in any way affiliated with the Wells REIT, Wells OP or our advisor. KDC-SW is an affiliate of the sellers of the Federal Express Colorado Springs Building, the EDS Des Moines Building, and the Intuit Dallas Building, which were purchased by Wells OP in September 2002.
 
The GMAC Detroit Building was built in 2001 and is located on an approximately 7.3-acre tract of land in Auburn Hills, Michigan, 30 miles north of downtown Detroit. The GMAC Detroit Building is leased to General Motors Acceptance Corp and Delmia Corp. Approximately 16,182 rentable square feet (13.6%) of the GMAC Detroit Building is vacant. Wells OP entered into an earn-out agreement with the seller at closing, pursuant to which Wells OP is required to pay the seller certain amounts for each new lease executed before November 8, 2004 for any portion of the currently vacant space.
 
Approximately 60,034 rentable square feet of the GMAC Detroit Building (50.4%) is leased to General Motors Acceptance Corp (GMAC), a wholly-owned subsidiary of General Motors Corporation (GM). GMAC provides financing, mortgage and insurance services directly and through its subsidiaries to consumers and businesses on a global basis. GMAC reported a net worth, as of December 31, 2002, of approximately $17.8 billion.
 
The GMAC lease commenced in January 2002 and expires in March 2007. The current annual base rent payable under the GMAC lease is approximately $1.4 million. GMAC has the right, at its option, to extend the initial term of its lease for two additional five-year periods at 95% of the then-current market rental rate. Under the GMAC lease, Wells OP, as the landlord, is responsible for maintaining and repairing the structural portions and mechanical systems of the GMAC Detroit Building and for paying operating expenses and maintenance costs relating to the GMAC Detroit Building, subject to reimbursement obligations described below. Beginning in the lease year after 95% of the GMAC Detroit Building is occupied, GMAC will be responsible for its pro rata share of increases in operating and maintenance costs which exceed the expenses incurred by Wells OP in the first lease year in which 95% of the GMAC Detroit Building is occupied.
 
Approximately 42,906 rentable square feet of the GMAC Detroit Building (36.0%) is leased to Delmia Corp. (Delmia). Delmia designs digital manufacturing software products for process planning, detailing, verification and simulation of digital factories. Delmia, which has its corporate headquarters in the GMAC Detroit Building, is a subsidiary of Dassault Systemes, S.A. (Dassault), a French corporation. Dassault, which is a guarantor of the Delmia lease, provides product lifecycle management software using three-dimensional digital technology. Dassault reported a net worth, as of December 31, 2002, of approximately $735 million.
 
The Delmia lease commenced in January 2003 and expires in July 2013. The initial annual base rent payable under the Delmia lease is approximately $0.9 million. Delmia has the right, at its option, to extend the initial term of its lease for two additional five-year periods at 95% of the then-current market rental rate. Delmia also has a right of first refusal to lease additional available space in the GMAC Detroit Building during the first 2 years of the Delmia lease and a right of first offer on available space for the remainder of the Delmia lease. Delmia, at its option, may terminate the Delmia lease at the end of the 66 th  month by paying a termination fee of approximately $1 million plus other costs and commissions. Under the Delmia lease, Wells OP, as the landlord, is responsible for maintaining and repairing the structural portions and mechanical systems of the GMAC Detroit Building and for paying operating expenses and maintenance costs relating to the GMAC Detroit Building, subject to reimbursement obligations described below. Beginning in 2004, Delmia will be responsible for its pro rata share of increases in operating and maintenance costs which exceed the expenses incurred by Wells OP in 2003.
 
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Wells Management will be paid management and leasing fees in the amount of up to 4.5% of gross revenues from the GMAC Detroit Building, subject to certain limitations. Wells OP has entered into an agreement with Trammell Crow Company (Trammell Crow) to serve as the on-site property manager for the GMAC Detroit Building. The property management fees payable to Trammel Crow will be paid out of or credited against the fees payable to Wells Management. Trammell Crow is not in any way affiliated with the Wells REIT, Wells OP or our advisor.
 
Status of the Nissan Building
 
In March 2003, the construction of the Nissan Building , a three-story approximately 268,290 rentable square foot office building in Irving, Texas, was substantially completed. The aggregate cost and expenses incurred by Wells OP with respect to the acquisition and construction of the Nissan Building totaled approximately $41.7 million, which is within the budgeted amount for the property. Nissan Motor Acceptance Corporation occupied the building under a net lease agreement commencing on April 1, 2003. The construction was financed through a loan that was paid off in March 2003, when the building was substantially completed.
 
Status of the AmeriCredit Phoenix Building
 
In April 2003, the construction of the AmeriCredit Phoenix Building, a three-story approximately 153,494 rentable square foot office building in Chandler, Arizona, was substantially completed. The aggregate cost and expenses incurred by Wells OP with respect to the acquisition and construction of the AmeriCredit Phoenix Building totaled approximately $25.6 million. The revised total cost, which reflects an increase of approximately $0.9 million from the budgeted amount for the property, is due to certain recently requested additional tenant improvements and requirements by the City of Chandler. AmeriCredit Financial Services, Inc. occupied the building under a net lease agreement commencing on April 15, 2003.
 
Status of the Kerr-McGee Building
 
As of May 15, 2003, Wells OP had expended approximately $11.0 million towards the construction of the four-story approximately 100,000 rentable square foot office building in Houston, Texas. The Kerr-McGee Building is approximately 65% complete and is currently expected to be completed in July 2003. We estimate that the aggregate cost and expenses to be incurred by Wells OP with respect to the acquisition and construction of the Kerr-McGee Building will total approximately $15.8 million, which is within the budgeted amount for the property.
 
Description of $500 Million Line of Credit
 
Wells OP established an unsecured secured line of credit in the amount of $500 million with Bank of America, N.A. (BOA) and a consortium of other financial institutions ($500 Million Line of Credit). This unsecured line of credit replaces the $110 million secured line of credit with BOA. The interest rate on the $500 Million Line of Credit is an annual variable rate equal to the London InterBank Offered Rate (LIBOR) for a 30-day period plus up to 1.625% or certain other alternative rates. Wells OP paid up-front commitment fees in an amount equal to approximately $2.3 million in connection with the $500 Million Line of Credit. In addition, Wells OP is required to pay a quarterly facility fee of .25% per annum on the entire amount of the $500 Million Line of Credit. As of May 15, 2003, the interest rate on the $500 Million Line of Credit was 4.4% per annum, and the outstanding principal balance on the $500 Million Line of Credit was $350 million.
 
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contained in Supplement No. 6 dated April 14, 2003 and should also be read in conjunction with our accompanying financial statements and notes thereto.
 
Forward Looking Statements
 
This supplement 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 our financial condition, anticipated capital expenditures required to complete certain projects, amounts of anticipated cash distributions to stockholders in the future and certain other matters. Readers of this supplement should be aware that there are various factors that could cause actual results to differ materially from any forward-looking statements made in this supplement, which include changes in general economic conditions, changes in real estate conditions, construction costs which may exceed estimates, construction delays, increases in interest rates, lease-up risks, inability to obtain new tenants upon the expiration of existing leases, inability to invest in properties on a timely basis or in properties that will provide targeted rates of return and the potential need to fund tenant improvements or other capital expenditures out of operating cash flow.
 
REIT Qualification
 
We have made an election under Section 856 of the Internal Revenue Code to be taxed as a REIT beginning with our taxable year ended December 31, 1998. As a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is lost. Such an event could materially, adversely affect our financial position and results of operations. However, management believes that we are organized and operate in a manner which will enable us to qualify for treatment as a REIT for federal income tax purposes during the year ending December 31, 2003. In addition, we intend to continue to operate to remain qualified as a REIT for federal income tax purposes.
 
Liquidity and Capital Resources
 
During the three months ended March 31, 2003, we received aggregate gross offering proceeds of $426.8 million from the sale of 42.7 million shares of our common stock. After incurring costs of $14.4 million in acquisition and advisory fees and acquisition expenses, $45.0 million in selling commissions and organization and offering expenses and common stock redemptions of $12.9 million pursuant to our share redemption program, we raised net offering proceeds of $354.5 million during the three months ended March 31, 2003.
 
During the three months ended March 31, 2002, we received aggregate gross offering proceeds of $255.7 million from the sale of 25.7 million shares of our common stock. After incurring costs of $8.9 million in acquisition and advisory fees and acquisition expenses, $27.1 million in selling commissions and organizational and offering expenses and common stock redemptions of $3.0 million pursuant to our share redemption program, we raised net offering proceeds of $216.7 million during the three months ended March 31, 2002.
 
The significant increase in capital resources available to us is due to significantly increased sales of our common stock during the first quarter of 2003. After payment of the costs described above associated with the sale of shares of common stock and acquisitions of properties, we have $108.6 million available for investment in real estate assets as of March 31, 2003.
 
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As of March 31, 2003, we owned interests in 74 real estate properties either directly or through our interests in joint ventures located throughout the United States. Our real estate investment policies are to identify and invest in high-grade commercial office and industrial buildings located in densely populated metropolitan markets which are newly constructed, under construction or which have been previously constructed and have operating histories. However, we are not limited to such investments. We expect to continue to acquire commercial properties which meet our standards of quality in terms of the real estate and the creditworthiness of the tenants.
 
We have developed specific standards for determining creditworthiness of potential tenants of our properties in order to reduce the risk of tenant default. Although authorized to enter into leases with any type of tenant, we anticipate that a majority of our tenants will be large corporations or other entities which have a net worth in excess of $100 million or whose lease obligations are guaranteed by another corporation or entity with a net worth in excess of $100 million.
 
Creditworthy tenants of the type we target are becoming more and more highly valued in the marketplace and, accordingly, there is increased competition in acquiring properties with these creditworthy tenants. As a result, the purchase prices for such properties have increased with corresponding reductions in cap rates and returns on investment. In addition, changes in market conditions have caused us to add to our internal procedures for ensuring the creditworthiness of our tenants before entering into any commitment to buy a property. We continue to remain steadfast in our commitment to invest in quality properties that will produce quality income for our stockholders.
 
Dividends during the three months ended March 31, 2003, were $39.7 million compared to $17.6 million during the three months ended March 31, 2002. For each $10 share of our common stock, our board of directors declared dividends for the period December 16, 2002 through March 15, 2003, at an annualized percentage rate of return of 7.0% compared to an annualized percentage rate of return of 7.75% for the period December 16, 2001 through March 15, 2002. The reduction of the annualized percentage rate of return for the dividends resulted from the higher value placed on our type of properties and the additional time it now takes in the acquisition process for us to assess tenant creditworthiness and, therefore, invest proceeds in properties.
 
Our board of directors has declared dividends for the period March 16, 2003, through June 15, 2003, at an annualized percentage rate of return of 7.0%. Second quarter dividends are calculated on a daily record basis of $0.001902 (0.1902 cents) per day per share on the outstanding shares of our common stock payable to stockholders of record as shown on our books at the close of business on each day during the period commencing on March 16, 2003, and continuing on each day thereafter through and including June 15, 2003.
 
The payment of dividends in the future will generally be dependent upon the cash flows from operating the properties currently owned and acquired in future periods, our financial condition, amounts paid for properties acquired, the timing of property acquisitions, capital expenditure requirements and distribution requirements in order to maintain our REIT status under the Internal Revenue Code.
 
Subsequent to March 31, 2003, we obtained an additional variable rate unsecured line of credit in the amount of $500 million to provide us with increased flexibility for funding acquisitions at times when real estate investments are available at appropriate prices but sufficient offering proceeds to fund such acquisitions have not been raised.
 
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Cash Flows From Operating Activities
 
Our net cash provided by operating activities was $38.7 million and $13.5 million for the three months ended March 31, 2003 and 2002, respectively. The increase in net cash provided by operating activities was due primarily to the net income generated by $1.4 billion of additional properties acquired during 2002 and $115.8 million of properties acquired during the three months ended March 31, 2003. We do not recognize in operations the full effect from the properties during the year of acquisition, as the operations of the properties are only included in operations from the date of acquisition. Operating cash flows are expected to increase as we acquire additional properties in future periods and as we obtain the benefit of a full quarter of operations for properties acquired during the three months ended March 31, 2003.
 
Cash Flows Used In Investing Activities
 
Our net cash used in investing activities was $151.9 million and $112.2 million for the three months ended March 31, 2003 and 2002, respectively. The increase in net cash used in investing activities was due primarily to greater investments in properties and the payment of the related deferred project costs resulting from raising a greater amount of offering proceeds. Our investments in real estate assets and intangible lease assets and payment of acquisition and advisory costs totaled $153.6 million and $113.5 million for the three months ended March 31, 2003 and 2002, respectively. The cash outflow from the investments in properties and the payment of deferred project costs were partially offset by distributions from joint ventures of $1.8 million and $1.7 million during the three months ended March 31, 2003, and 2002, respectively. The increase in distributions from joint ventures is primarily due to additional investment in joint ventures during the fourth quarter of 2002.
 
Cash Flows From Financing Activities
 
Our net cash provided by financing activities was $185.8 million and $210.1 million for the three months ended March 31, 2003 and 2002, respectively. The raising of additional capital increased to $426.8 million during the three months ended March 31, 2003, as compared to $255.7 million during the three months ended March 31, 2002. The amounts raised were partially offset by the payment of commissions and offering costs totaling $49.2 million and $27.9 million and redemptions of $13.0 million and $3.0 million during the three months ended March 31, 2003 and 2002, respectively.
 
Additionally, we obtained funds from debt financing arrangements totaling $5.2 million and $2.9 million and made debt repayments of $144.4 million and $0 during the three months ended March 31, 2003 and 2002, respectively, based on the availability and need of cash for investment in real estate assets during the period. Primarily as a result of the increased cash flow from operations, during the three months ended March 31, 2003 and 2002, we paid dividends of $39.7 million and $17.6 million, respectively.
 
Results of Operations
 
As of March 31, 2003, our 74 real estate properties were 98% leased. Our results of operations have changed significantly for the three months ended March 31, 2003, as compared to the three months ended March 31, 2002, generally as result of the acquisition of approximately $1.4 billion of real estate assets during the year ended December 31, 2002, and an additional $115.8 million of real estate assets acquired during the three months ended March 31, 2003. We expect that rental income, tenant reimbursements, depreciation expense, operating expenses, management and leasing fees and net income will each increase in future periods as a result of owning the assets acquired during the three months ended March 31, 2003, for an entire quarter and as a result of anticipated future acquisitions of real estate assets. Due to the average remaining terms of the long-term leases currently in place at our properties,
 
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management does not anticipate significant changes in near-term rental revenues from properties currently owned.
 
Rental income increased by $36.6 million, during the first quarter of 2003, from $16.7 million for the three months ended March 31, 2002, to $53.3 million for the three months ended March 31, 2003. Tenant reimbursements were $9.6 million and $4.4 million for the three months ended March 31, 2003 and 2002, respectively, for an increase of $5.2 million. The increases were primarily due to the rental income and tenant reimbursements for properties acquired subsequent to March 31, 2002, which totaled $35.0 million and $5.3 million, respectively, for the three months ended March 31, 2003. Revenues in future periods are expected to increase compared to historical periods as additional properties are acquired.
 
Our equity in income of joint ventures was $1.3 million and $1.2 million for the three months ended March 31, 2003 and 2002, respectively. Equity in income of joint ventures is not anticipated to change significantly in future periods unless we invest additional proceeds in future joint venture investments.
 
Depreciation expense for the three months ended March 31, 2003 and 2002, was $19.2 million and $5.7 million, respectively comprising approximately 36% and 34% of rental income for the respective three month periods. The change in the percentages between periods is generally due to a change in the applicable cost of the real estate assets compared to the revenues generated by the real estate assets. Depreciation expense relating to assets acquired after March 31, 2002, was $12.9 million. Depreciation expense is expected to increase in future periods as additional properties are acquired, however should remain consistent as a percentage of revenues unless the relationship between the cost of the assets and the revenues earned changes.
 
Property operating costs were $15.2 million and $5.0 million for the three months ended March 31, 2003 and 2002, respectively, representing approximately 24% of the sum of the rental income and tenant reimbursements for each three month period. Property operating costs for the properties acquired subsequent to March 31, 2002, were $9.1 million for the three months ended March 31, 2003. Property operating costs are expected to increase as more properties are acquired, but expenses should remain relatively consistent as a percentage of the sum of rental income and tenant reimbursements.
 
Management and leasing fees expenses were $2.3 million and $0.9 million for the three months ended March 31, 2003 and 2002, respectively, representing approximately 4% of the sum of the rental income and tenant reimbursements for each three month period. Management and leasing fees for properties acquired after March 31, 2002, were $1.3 million for the three months ended March 31, 2003. Management and leasing fees are expected to increase as additional properties are acquired but, as a percentage of the sum of rental income and tenant reimbursements, should remain relatively consistent with historical results.
 
General and administrative expenses increased from $0.5 million for the three months ended March 31, 2002, to $1.6 million for the three months ended March 31, 2003, representing approximately 2% of the total revenues for each three month period. General and administrative expenses are expected to increase in future periods as our assets continue to increase as additional properties are acquired, but are expected remain relatively constant as a percentage of total revenues.
 
Interest expense was $2.6 million and $0.6 million for the three months ended March 31, 2003 and 2002, respectively. Interest expense of $1.0 and $0.4 million for the three months ended March 31, 2003 and 2002, respectively, was attributable to interest on the bonds related to the Ingram Micro and ISS Buildings, which is offset by the interest income associated with the bonds, which results in no net impact on our operating results. The remaining $1.6 million and $0.2 million is due to the interest on our
 
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outstanding borrowings for each period. We had significantly more borrowings outstanding during the three months ended March 31, 2003, as compared to the three months ended March 31, 2002, resulting in a significant increase in the interest expense between the two periods. Interest expense in future periods will be dependent upon the amount of borrowings outstanding during those periods and current interest rates. Historical results may not be indicative of interest expense in future periods.
 
Earnings per share for the three months ended March 31, 2003, decreased to $0.10 per share compared to $0.11 per share for the three months ended March 31, 2002. This decrease is primarily a result of the higher cost of investments in real estate assets resulting in lower revenues and higher depreciation expense as a percentage of the cost of those assets, as described above.
 
Funds From Operations
 
Funds from Operations (FFO), as defined by the National Association of Real Estate Investment Trusts (NAREIT), generally means net income, computed in accordance with accounting principles generally accepted in the United States (GAAP) excluding extraordinary items (as defined by GAAP) and gains (or losses) from sales of property, plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures and subsidiaries. Management believes that FFO is helpful to investors as a measure of the performance of an equity REIT. However, our calculation of FFO, while consistent with NAREIT’s definition, may not be comparable to similarly titled measures presented by other REITs. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income as an indication of our performance or to cash flows as a measure of liquidity or ability to make distributions.
 
The following table reflects the calculation of FFO for the three month periods ended March 31, 2003 and 2002:
 
 	  	For the three months ended March 31,

	
 	  	2003

	  	2002

	
Funds from operations:	  	 	 	  	 	 	
Net income	  	$	24,364	  	$	10,780	
Add:	  	 	 	  	 	 	
Depreciation of real estate assets	  	 	19,218	  	 	5,744	
Amortization of deferred leasing costs	  	 	78	  	 	73	
Depreciation and amortization—unconsolidated investments in joint ventures	  	 	785	  	 	706	

	

	  	

	

	
Funds from operations (FFO)	  	$	44,445	  	$	17,303	

	

	  	

	

	
Weighted average shares	  	 	 	  	 	 	
Basic and diluted	  	 	233,247	  	 	95,130	

	

	  	

	

	
 
In order to recognize revenues on a straight line basis over the terms of the respective leases, we recognized straight line rental revenue of $0.8 million and $1.0 million during the three months ended March 31, 2003 and 2002, respectively.
 
Amortization of the intangible lease assets and liabilities resulted in a net increase in rental revenue of $0.5 million for the three months ended March 31, 2003.
 
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Inflation
 
The real estate market has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. However, there are provisions in the majority of tenant leases, which would protect us from the impact of inflation. These provisions include reimbursement billings for operating expense pass-through 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. However, due to the long-term nature of the leases, the leases may not re-set frequently enough to cover inflation.
 
Application of Critical Accounting Policies
 
Our accounting policies have been established to conform with generally accepted accounting principles (GAAP). The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If management’s judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied; thus, resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses.
 
The critical accounting policies outlined below have been discussed with members of our audit committee. There have been no significant changes in the critical accounting policies, methodology, or assumptions in the current period.
 
Below is a discussion of the accounting policies that management considers to be critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain.
 
Investment in Real Estate Assets
 
We are required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives. These assessments have a direct impact on net income. The estimated useful lives of our assets by class are as follows:
 
Building	  	25 years	
Building improvements	  	10-25 years	
Land improvements	  	20-25 years	
Tenant Improvements	  	Lease term	
 
In the event that inappropriate useful lives or methods are used for depreciation, our net income would be misstated.
 
Valuation of Real Estate Assets
 
We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate assets, both operating properties and properties under construction, in which we have an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When indicators of potential impairment are present which indicate that the carrying amounts of real estate assets may not be recoverable, we assess the recoverability of the real estate assets by determining whether the carrying value of the real estate assets will be recovered through the undiscounted future
 
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operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, we adjust the real estate assets to the fair value and recognize an impairment loss. We have determined that there has been no impairment in the carrying value of real estate assets held by us and any unconsolidated joint ventures at March 31, 2003.
 
Projections of expected future cash flows requires us to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the number of months it takes to re-lease the property and the number of years the property is held for investment. The use of inappropriate assumptions in the future cash flow analysis would result in an incorrect assessment of the property’s future cash flows and fair value and could result in the overstatement of the carrying value of our real estate assets and net income.
 
Intangible Lease Asset/Liability
 
We determine whether an intangible asset or liability related to above or below market leases was acquired as part of the acquisition of the real estate assets. The intangible assets and liabilities are recorded at their estimated fair market values at the date of acquisition and amortized over the remaining term of the respective lease to rental income.
 
The determination of the estimated fair values of the intangible lease asset or liability requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, discount rates and other variables. If inappropriate estimates with regard to these variables are used, misclassification of assets or liabilities and incorrect calculation of depreciation amounts would occur, which would misstate our net income.
 
Commitments and Contingencies
 
Take Out Purchase and Escrow Agreement
 
Wells Capital, Inc., our advisor, and its affiliates have developed a program (Wells Section 1031 Program) involving the acquisition by a subsidiary of Wells Management Company (Wells Exchange) of income-producing commercial properties and the formation of a series of single member limited liability companies for the purpose of facilitating the resale of co-tenancy interests in such real estate properties to be owned in co-tenancy arrangements with persons (1031 Participants) who are seeking to invest the proceeds from a sale of real estate held for investment in another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Internal Revenue Code. The acquisition of each of the properties acquired by Wells Exchange will be financed by a combination of permanent first mortgage financing and interim loan financing obtained from institutional lenders.
 
Following the acquisition of each property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to repay a prorata portion of the interim financing. In consideration for the payment of a take out fee to us and following approval of the potential property acquisition by our board of directors, it is anticipated that we will enter into a take out purchase and escrow agreement or similar contract providing that, if Wells Exchange is unable to sell all of the co-tenancy interests in that particular property to 1031 Participants, we will purchase, at Wells Exchange’s cost, any co-tenancy interests remaining unsold at the end of the offering period.
 
In consideration for the payment of a take out fee in the amount of approximately $0.2 million, on December 31, 2002, Wells OP entered into a take out purchase and escrow agreement providing, among other things, that we would be obligated to acquire, at Wells Exchange’s cost ($0.4 million in cash plus $0.4 million of assumed debt for each 2.9994% interest of co-tenancy
 
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interest unsold), any unsold co-tenancy interests in two buildings known as Meadow Brook Corporate Park located in Birmingham, Alabama, which remain unsold at the expiration of the offering of Wells Exchange on September 30, 2003.
 
Our obligations under the take out purchase and escrow agreement are secured by reserving against our existing line of credit with Bank of America, N.A. (Interim Lender). If, for any reason, we fail to acquire any of the co-tenancy interests in Meadow Brook Corporate Park which remain unsold as of September 30, 2003, or there is otherwise an uncured default under the interim loan or the line of credit documents, the Interim Lender is authorized to draw down our line of credit in the amount necessary to pay the outstanding balance of the interim loan in full, in which event the appropriate amount of co-tenancy interest in Meadow Brook Corporate Park would be deeded to us. Our maximum economic exposure in the transaction was initially $14.0 million in cash plus assumption of the first mortgage financing in the amount of $13.9 million. As of March 31, 2003, due to the number of co-tenancy interests sold in Meadow Brook Corporate Park through such date, our maximum exposure has been reduced to $6.7 million in cash plus the assumption of the first mortgage financing in the amount of $6.7 million.
 
Letters of Credit
 
At March 31, 2003, we had three unused letters of credit totaling approximately $19.7 million outstanding from financial institutions, consisting of letters of credit of approximately $14.5 million, $4.8 million and $0.4 million with expiration dates of February 28, 2004; August 12, 2003; and February 2, 2004, respectively. These amounts are not recorded in the accompanying consolidated balance sheet as of March 31, 2003. These letters of credit were required by three unrelated parties to ensure completion of our obligations under certain earn-out and construction agreements. We do not anticipate a need to draw on these letters of credit.
 
Properties Under Contract
 
At March 31, 2003, we have a contract to acquire a third building at our ISS Atlanta Buildings development upon completion of construction (expected in June 2003) for a fixed purchase price of $10.0 million.
 
Commitments Under Existing Lease Agreements
 
Certain lease agreements include provisions that, at the option of the tenant, we may be obligated to expend certain amounts of capital to expand an existing property, construct on adjacent property or provide other expenditures for the benefit of the tenant, in favor of additional rental revenue. At March 31, 2003, tenants have exercised no such options.
 
Properties Under Construction
 
As of March 31, 2003, we have executed construction agreements with unrelated third parties for the purpose of constructing two buildings. The table below details the status of the properties under construction as of March 31, 2003:
 
Property

	  	Total
Projected
Cost

	  	Construction
Costs to Date

	  	Expected
Future Costs

	  	Expected
Completion
Date

	  	Primary
Source of Funds

	
Kerr-McGee	  	$	15.8 million	  	$	9.7 million	  	$	6.1 million	  	July 2003	  	Debt	
AmeriCredit—Phoenix	  	$	24.7 million	  	$	18.9 million	  	$	5.8 million	  	April 2003	  	Investor Proceeds	

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Earn-out Agreements
 
As part of the acquisition of the IRS Building, we entered into an agreement to pay the seller an additional $14.5 million if we or the seller locates a suitable tenant and leases the vacant space of the building within 18 months after the date of acquisition of the property, or March 2004. If the space is not leased within this time, we are released from any obligation to pay this additional purchase consideration. The 26% of the building that was unleased at the time of acquisition remains unleased at March 31, 2003.
 
In connection with the acquisition of East Point I and II Buildings, we entered into an earn-out agreement whereby we are required to pay the seller certain amounts for each new, fully executed lease after the date of acquisition of the property but on or before March 31, 2004. Payments shall be the anticipated first year’s annual rent less operating expenses with the sum divided by 0.105 and the result reduced by tenant improvement costs related to the space.
 
Leasehold Property Obligations
 
The ASML, Motorola Tempe, Avnet, and Bellsouth Ft. Lauderdale Buildings are subject to certain ground leases with expiration dates of 2082, 2082, 2083 and 2049, respectively.
 
Pending Litigation
 
In the normal course of business, we may become subject to litigation or claims. In November 2002, we contracted to purchase an office building located in Ramsey County, Minnesota, from Shoreview Associates LLC (Shoreview), who filed a lawsuit against us in Minnesota state court alleging that Shoreview was entitled to the $0.8 million in earnest money that we had deposited under the contract. We have filed a counterclaim in the case asserting that we are entitled to the $0.8 million earnest money deposit. Procedurally, we had the case transferred to U.S. District Court in Minnesota, and Shoreview has moved to transfer the case back to state court. The dispute currently remains in litigation. After consultation with legal counsel, we do not believe that a reserve for a loss contingency is necessary.
 
Related Party Transactions and Agreements
 
We have entered into agreements with our advisor and its affiliates, whereby we pay certain fees or reimbursements to our advisor or its affiliates for acquisition and advisory fees and expenses, organization and offering costs, sales commissions dealer manager fees, property management and leasing fees and reimbursement of operating costs. See Note 5 to our consolidated financial statements included in this report for a discussion of the various related party transactions, agreements and fees.
 
Conflicts of Interest
 
Our advisor is also a general partner in and advisor to various Wells Real Estate Funds. As such, there are conflicts of interest where our advisor, while serving in the capacity as general partner for Wells Real Estate Funds, may be in competition with us in connection with property acquisitions or for tenants in similar geographic markets.
 
Subsequent Events
 
Sale of shares of our Common Stock
 
From April 1, 2003 through May 15, 2003, we raised approximately $271.6 million through the issuance of approximately 27.2 million shares of our common stock.
 
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Property Acquisitions
 
On April 30, 2003, we purchased the Citicorp Englewood Cliffs, NJ Building, a three-story office building containing approximately 410,000 rentable square feet located in Englewood Cliffs, New Jersey, for a purchase price of $70.5 million, excluding closing costs and acquisition and advisory fees and expenses paid to our advisor. The building is leased entirely to Citicorp North America, Inc., a wholly-owned subsidiary of Citicorp, Inc.
 
On May 1, 2003, we purchased the US Bancorp Minneapolis Building, a 32-story office building containing approximately 929,694 rentable square feet located in Minneapolis, Minnesota, for a purchase price of $174 million, excluding closing costs and acquisition and advisory fees and expenses paid to our advisor. The building is approximately 99% leased under leases to various tenants with varying terms, including US Bancorp Piper Jaffray Companies, Inc. which leases approximately 77% of the building.
 
On May 9, 2003, we purchased the Aon Center Chicago Building, an 83-story office building containing approximately 2.6 million rentable square feet located in Chicago, Illinois, for a purchase price of $465.2 million, excluding closing costs and acquisition and advisory fees and expenses paid to our advisor. The building is approximately 92% leased under leases to various tenants with varying lease terms, including BP Corporation North America, Inc, DDB & Needham Chicago, Inc. and Kirkland & Ellis, which collectively lease approximately 54% of the building.
 
On May 9, 2003, we acquired the GMAC Detroit Building, a three-story office building containing approximately 119,122 square feet located in Auburn Hills, Michigan, for a purchase price of approximately $17.8 million, excluding closing costs and acquisition and advisory fees and expenses paid to our advisor. The building is approximately 86% leased to the GMAC Corporation and Delmia Corporation. For the remaining approximately 14% unleased portion of the building, we are required to pay the seller certain amounts for each new, fully executed lease entered into after the date of acquisition of the building but on or before November 8, 2004. Payments are calculated by dividing the sum of the anticipated first year’s annual rent less operating expenses by 0.095 and the result reduced by tenant improvement costs related to the space.
 
Line of Credit
 
On April 23, 2003, we entered into the $500 Million Line of Credit, an unsecured revolving credit facility with a consortium of banks, including Bank of America, N.A. (BOA). The agreement expires in April 2005 and replaced the $110 million line of credit with BOA. We paid up-front commitment fees totaling $2.3 million to the lenders based on each financial institution’s relative commitment level. The agreement contains alternative borrowing arrangements that provide for interest costs based on LIBOR plus up to 1.625% or certain other alternative rates. Additionally, we are required to pay a quarterly facility fee of .25% per annum on the entire amount of this credit facility.
 
Financial Statements
 
Audited Financial Statements
 
The statements of revenues over certain operating expenses of the US Bancorp Minneapolis Building and the Aon Chicago Center Building for the year ended December 31, 2002, which are included in this supplement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.
 
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Unaudited Financial Statements
 
The financial statements of the Wells REIT, as of March 31, 2003, and for the three month period ended March 31, 2003, which are included in this supplement, have not been audited.
 
The statements of revenues over certain operating expenses of the Aon Chicago Center Building for the three months ended March 31, 2003, which are included in this supplement, have not been audited.
 
The pro forma balance sheet of the Wells REIT, as of March 31, 2003, the pro forma statement of income for the year ended December 31, 2002, and the pro forma statement of income for the three months ended March 31, 2003, which are included in this supplement, have not been audited.
 
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INDEX TO FINANCIAL STATEMENTS
 
 	  	Page

	
Wells Real Estate Investment Trust, Inc. and Subsidiaries	  	 	
 	 	
Unaudited Financial Statements	  	 	
 	 	
Consolidated Balance Sheets as of March 31, 2003 (unaudited) and December 31, 2002	  	21	
 	 	
Consolidated Statements of Income for the three months ended March 31, 2003 and March 31, 2002 (unaudited)	  	22	
 	 	
Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2002 and for the three months ended March 31, 2003 (unaudited)	  	23	
 	 	
Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and March 31, 2002 (unaudited)	  	24	
 	 	
Condensed Notes to Consolidated Financial Statements March 31, 2003 (unaudited)	  	25	
 	 	
US Bancorp Minneapolis Building	  	 	
 	 	
Report of Independent Auditors	  	35	
 	 	
Statement of Revenues Over Certain Operating Expenses for the year ended December 31, 2002 (audited)	  	36	
 	 	
Notes to Statement of Revenues Over Certain Operating Expenses for the year ended December 31, 2002 (audited)	  	37	
 	 	
Aon Center Chicago Building	  	 	
 	 	
Report of Independent Auditors	  	39	
 	 	
Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2002 (audited) and for the three months ended March 31, 2003 (unaudited)	  	40	
 	 	
Notes to Statements of Revenues Over Certain Operating Expenses for the year ended December 31, 2002 (audited) and for the three months ended March 31, 2003 (unaudited)	  	41	
 	 	
Wells Real Estate Investment Trust, Inc. and Subsidiaries	  	 	
 	 	
Unaudited Pro Forma Financial Statements	  	 	
 	 	
Summary of Unaudited Pro Forma Financial Statements	  	43	
 	 	
Pro Forma Balance Sheet as of March 31, 2003 (unaudited)	  	44	
 	 	
Pro Forma Statement of Income for the year ended December 31, 2002 (unaudited)	  	46	
 	 	
Pro Forma Statement of Income for the three months ended March 31, 2003 (unaudited)	  	47	
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 
 	  	March 31,
2003

	 	 	December 31,
2002

	 	
 	  	(unaudited)	 	 	 	 	
Assets:	  	 	 	 	 	 	 	 	
 	 	 	
Real estate assets, at cost:	  	 	 	 	 	 	 	 	
Land	  	$	291,140	 	 	$	279,185	 	
Building and improvements, less accumulated depreciation of $82,812 at March 31, 2003, and $63,594 at December 31, 2002	  	 	1,811,220	 	 	 	1,683,036	 	
Construction in progress	  	 	24,102	 	 	 	42,746	 	

	

	

	 	

	

	

	
Total real estate assets	  	 	2,126,462	 	 	 	2,004,967	 	
Investments in joint ventures	  	 	83,286	 	 	 	83,915	 	
Cash and cash equivalents	  	 	118,030	 	 	 	45,464	 	
Rents receivable	  	 	19,928	 	 	 	19,321	 	
Deferred project costs	  	 	5,124	 	 	 	1,494	 	
Due from affiliates	  	 	2,167	 	 	 	1,961	 	
Prepaid expenses and other assets, net	  	 	5,997	 	 	 	4,407	 	
Deferred lease acquisition costs, net	  	 	1,561	 	 	 	1,638	 	
Intangible lease assets	  	 	14,147	 	 	 	12,060	 	
Investment in bonds	  	 	54,500	 	 	 	54,500	 	

	

	

	 	

	

	

	
Total assets	  	$	2,431,202	 	 	$	2,229,727	 	

	

	

	 	

	

	

	
Liabilities, Minority Interest and Shareholders’ Equity:	  	 	 	 	 	 	 	 	
 	 	 	
Borrowings	  	$	108,986	 	 	$	248,195	 	
Obligations under capital leases	  	 	54,500	 	 	 	54,500	 	
Intangible lease liabilities	  	 	32,033	 	 	 	32,697	 	
Accounts payable and accrued expenses	  	 	23,131	 	 	 	24,580	 	
Due to affiliates	  	 	5,292	 	 	 	15,975	 	
Dividends payable	  	 	7,252	 	 	 	6,046	 	
Deferred rental income	  	 	11,164	 	 	 	11,584	 	

	

	

	 	

	

	

	
Total liabilities	  	 	242,358	 	 	 	393,577	 	
 	 	 	
Minority interest of unit holder in operating partnership	  	 	200	 	 	 	200	 	

	

	

	 	

	

	

	
Commitments and Contingencies	  	 	—  	 	 	 	—  	 	
 	 	 	
Shareholders’ Equity:	  	 	 	 	 	 	 	 	
Common shares, $.01 par value; 750,000,000 shares authorized, 260,469,726 shares issued and 257,083,636 outstanding at March 31, 2003, and 750,000,000 shares authorized, 217,790,874 shares issued and 215,699,717 shares outstanding at December 31, 2002	  	 	2,605	 	 	 	2,178	 	
Additional paid-in capital	  	 	2,310,731	 	 	 	1,929,381	 	
Cumulative distributions in excess of earnings	  	 	(90,802	)	 	 	(74,310	)	
Treasury stock, at cost, 3,386,090 shares at March 31, 2003 and 2,091,157 shares at December 31, 2002	  	 	(33,860	)	 	 	(20,912	)	
Other comprehensive loss	  	 	(30	)	 	 	(387	)	

	

	

	 	

	

	

	
Total shareholders’ equity	  	 	2,188,644	 	 	 	1,835,950	 	

	

	

	 	

	

	

	
Total liabilities, minority interest and shareholders’ equity	  	$	2,431,202	 	 	$	2,229,727	 	

	

	

	 	

	

	

	
 
See accompanying notes.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share amounts)
 
 	  	Three Months Ended
March 31,

	
 	  	2003

	  	2002

	
Revenues:	  	 	 	  	 	 	
Rental income	  	$	53,343	  	$	16,738	
Tenant reimbursements	  	 	9,601	  	 	4,415	
Equity in income of joint ventures	  	 	1,261	  	 	1,207	
Interest income and other income	  	 	1,154	  	 	1,248	

	

	  	

	

	
 	  	 	65,359	  	 	23,608	

	

	  	

	

	
Expenses:	  	 	 	  	 	 	
Depreciation	  	 	19,218	  	 	5,744	
Property operating costs	  	 	15,220	  	 	5,040	
Management and leasing fees	  	 	2,333	  	 	900	
General and administrative	  	 	1,576	  	 	529	
Interest expense	  	 	2,648	  	 	615	

	

	  	

	

	
 	  	 	40,995	  	 	12,828	

	

	  	

	

	
Net income	  	$	24,364	  	$	10,780	

	

	  	

	

	
Earnings per share	  	 	 	  	 	 	
Basic and diluted	  	$	0.10	  	$	0.11	

	

	  	

	

	
Weighted average shares outstanding	  	 	 	  	 	 	
Basic and diluted	  	 	233,247	  	 	94,845	

	

	  	

	

	
Dividends declared per share	  	$	0.18	  	$	0.19	

	

	  	

	

	
 
See accompanying notes.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2002
AND FOR THE THREE MONTHS ENDED MARCH 31, 2003 (UNAUDITED)
(in thousands, except per share amounts)
 
 	  	Common Stock

	  	Additional
Paid-In
Capital

	 	 	Cumulative
Distributions
in Excess
of Earnings

	 	 	Retained
Earnings

	 	 	Treasury Stock

	 	  	Other
Comprehensive
Income

	 	  	Total
Shareholders’
Equity

	 	 	
 	  	Shares

	  	Amount

	  	 	 	 	 	 	 	 	 	 	Shares

	 	 	Amount

	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Balance, December 31, 2001	  	83,761	  	$	838	  	$	738,236	 	 	$	(24,181	)	 	$	—  	 	 	(555	)	 	$	(5,550	)	  	 	—  	 	  	$	709,343	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Issuance of common stock	  	134,030	  	 	1,340	  	 	1,338,953	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	1,340,293	 	 	 	 	 	 	 	 	 	 	
Treasury stock purchased	  	—  	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	(1,536	)	 	 	(15,362	)	  	 	—  	 	  	 	(15,362	)	 	 	 	 	 	 	 	 	 	
Dividends ($0.76 per share)	  	—  	  	 	—  	  	 	—  	 	 	 	(50,129	)	 	 	(59,854	)	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	(109,983	)	 	 	 	 	 	 	 	 	 	
Sales commissions and dealer manager fees	  	—  	  	 	—  	  	 	(127,332	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	(127,332	)	 	 	 	 	 	 	 	 	 	
Other offering costs	  	—  	  	 	—  	  	 	(20,476	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	(20,476	)	 	 	 	 	 	 	 	 	 	
Components of comprehensive income:	  	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	—  	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	59,854	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	59,854	 	 	 	 	 	 	 	 	 	 	
Change in value of interest rate swap	  	—  	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	(387	)	  	 	(387	)	 	 	 	 	 	 	 	 	 	

	

	

	 	 	 	 	 	 	 	 	 	
Comprehensive income	  	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	59,467	 	 	 	 	 	 	 	 	 	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
Balance, December 31, 2002	  	217,791	  	 	2,178	  	 	1,929,381	 	 	 	(74,310	)	 	 	—  	 	 	(2,091	)	 	 	(20,912	)	  	 	(387	)	  	 	1,835,950	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Issuance of common stock	  	42,679	  	 	427	  	 	426,362	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	426,789	 	 	 	 	 	 	 	 	 	 	
Treasury stock purchased	  	—  	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	(1,295	)	 	 	(12,948	)	  	 	—  	 	  	 	(12,948	)	 	 	 	 	 	 	 	 	 	
Dividends ($0.18 per share)	  	—  	  	 	—  	  	 	—  	 	 	 	(16,492	)	 	 	(24,364	)	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	(40,856	)	 	 	 	 	 	 	 	 	 	
Sales commissions and dealer manager fees	  	—  	  	 	—  	  	 	(40,221	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	(40,221	)	 	 	 	 	 	 	 	 	 	
Other offering costs	  	—  	  	 	—  	  	 	(4,791	)	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	(4,791	)	 	 	 	 	 	 	 	 	 	
Components of comprehensive income:	  	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	—  	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	24,364	 	 	—  	 	 	 	—  	 	  	 	—  	 	  	 	24,364	 	 	 	 	 	 	 	 	 	 	
Change in value of interest rate swap	  	—  	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	 	—  	 	  	 	357	 	  	 	357	 	 	 	 	 	 	 	 	 	 	

	

	

	 	 	 	 	 	 	 	 	 	
Comprehensive income	  	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	24,721	 	 	 	 	 	 	 	 	 	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
Balance, March 31, 2003	  	260,470	  	$	2,605	  	$	2,310,731	 	 	$	(90,802	)	 	 	—  	 	 	(3,386	)	 	$	(33,860	)	  	$	(30	)	  	$	2,188,644	 	 	 	 	 	 	 	 	 	 	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	

	

	

	  	

	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
 
See accompanying notes.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
 	  	Three Months Ended March 31,

	 	
 	  	2003

	 	 	2002

	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	
Net income	  	$	24,364	 	 	$	10,780	 	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	(1,261	)	 	 	(1,207	)	
Depreciation	  	 	19,218	 	 	 	5,744	 	
Amortization of deferred financing costs	  	 	415	 	 	 	175	 	
Amortization of intangible lease assets/liabilities	  	 	(485	)	 	 	—  	 	
Amortization of deferred lease acquisition costs	  	 	78	 	 	 	73	 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	
Rents receivable	  	 	(607	)	 	 	(1,694	)	
Due from affiliates	  	 	—  	 	 	 	(13	)	
Deferred rental income	  	 	(420	)	 	 	906	 	
Accounts payable and accrued expenses	  	 	(1,449	)	 	 	(157	)	
Prepaid expenses and other assets, net	  	 	(1,140	)	 	 	(1,092	)	
Due to affiliates	  	 	(21	)	 	 	(1	)	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	38,692	 	 	 	13,514	 	

	

	

	 	

	

	

	
Cash flows from investing activities:	  	 	 	 	 	 	 	 	
Investment in real estate assets	  	 	(129,981	)	 	 	(104,052	)	
Contributions to joint ventures	  	 	(78	)	 	 	—  	 	
Investment in intangible lease assets	  	 	(2,651	)	 	 	—  	 	
Deferred project costs paid	  	 	(20,966	)	 	 	(9,461	)	
Distributions received from joint ventures	  	 	1,786	 	 	 	1,691	 	
Deferred lease acquisition costs paid	  	 	—  	 	 	 	(400	)	

	

	

	 	

	

	

	
Net cash used in investing activities	  	 	(151,890	)	 	 	(112,222	)	

	

	

	 	

	

	

	
Cash flows from financing activities:	  	 	 	 	 	 	 	 	
Proceeds from borrowings	  	 	5,151	 	 	 	2,947	 	
Repayment of borrowings	  	 	(144,360	)	 	 	—  	 	
Dividends paid to shareholders	  	 	(39,650	)	 	 	(17,556	)	
Issuance of common stock	  	 	426,789	 	 	 	255,703	 	
Treasury stock purchased	  	 	(12,952	)	 	 	(3,042	)	
Sales commissions and dealer manager fees paid	  	 	(40,221	)	 	 	(24,580	)	
Other offering costs paid	  	 	(8,993	)	 	 	(3,327	)	

	

	

	 	

	

	

	
Net cash provided by financing activities	  	 	185,764	 	 	 	210,145	 	

	

	

	 	

	

	

	
Net increase in cash and cash equivalents	  	 	72,566	 	 	 	111,437	 	
 	 	 	
Cash and cash equivalents, beginning of year	  	 	45,464	 	 	 	75,586	 	

	

	

	 	

	

	

	
Cash and cash equivalents, end of period	  	$	118,030	 	 	$	187,023	 	

	

	

	 	

	

	

	
 
See accompanying notes.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES
 
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
MARCH 31, 2003
 
(UNAUDITED)
 
1.    Organization
 
General
 
Wells Real Estate Investment Trust, Inc. (the “Company”) is a Maryland corporation that qualifies as a real estate investment trust (“REIT”). The Company was incorporated in 1997 and commenced operations on June 5, 1998.
 
The Company engages in the acquisition and ownership of commercial real estate properties throughout the United States, including properties which are under construction, are newly constructed or have operating histories. At March 31, 2003, the Company has invested in commercial office and industrial real estate assets, either directly or through joint ventures with real estate limited partnership programs sponsored by Wells Capital, Inc. (the “Advisor”) or its affiliates.
 
The Company’s business is conducted through Wells Operating Partnership, L.P. (“Wells OP”), a Delaware limited partnership, and its subsidiaries, and Wells REIT-Independence Square, LLC (“Wells REIT-Independence”), a single member Georgia limited liability company. Wells OP was formed to acquire, develop, own, lease and operate properties on behalf of the Company, directly, through wholly-owned subsidiaries or through joint ventures. Wells REIT-Independence was formed to acquire the NASA building located in Washington, D.C. The Company is the sole general partner in Wells OP and the sole member of Wells REIT-Independence and possesses full legal control and authority over the operations of Wells OP and Wells REIT-Independence. Wells OP, and its subsidiaries, and Wells REIT-Independence comprise the Company’s subsidiaries.
 
Four offerings of the Company’s stock have been initiated as follows:
 
Offering #

	  	Date Commenced

	  	Termination Date

	  	Gross Proceeds

	  	Shares Issued

	
1	  	January 30, 1998	  	December 19, 1999	  	$ 132.2 million	  	13.2 million	
2	  	December 20, 1999	  	December 19, 2000	  	$ 175.2 million	  	17.5 million	
3	  	December 20, 2000	  	July 26, 2002	  	$ 1,283.0 million	  	128.3 million	
4	  	July 26, 2002	  	Offering will terminate on
or before July 25, 2004	  	$ 1,014.3 million
(through March 31, 2003)	  	101.5 million
(through March 31, 2003)	
Total as of
March 31, 2003	  	 	  	 	  	$ 2,604.7 million	  	260.5 million	
 
After incurring costs from all offerings of $90.0 million in acquisition and advisory fees and expenses, $246.6 million in selling commissions, $44.8 million in organization and offering expenses to the Advisor, investment in real estate assets and joint ventures of $2,080.8 million and common stock redemptions pursuant to the Company’s share redemption program of $33.9 million, the Company was holding net offering proceeds of approximately $108.6 million available for investment in properties at March 31, 2003.

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The Company’s stock is not listed on a national exchange. However, the Company’s Articles of Incorporation currently require if the Company’s stock is not listed on a national exchange by January 30, 2008, the Company must begin the process of liquidating its investments and distributing the resulting proceeds to the shareholders. The Company’s Articles of Incorporation can only be amended by a proxy vote of the Company’s shareholders.
 
Basis of Presentation
 
The consolidated financial statements of the Company have been prepared in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X and do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Independent auditors have not examined these quarterly statements, but in the opinion of management, the statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary to present a fair presentation of the results for such periods. Results for interim periods are not necessarily indicative of full year results. For further information, refer to the financial statements and footnotes included in the Company’s Form 10-K for the year ended December 31, 2002.
 
Income Taxes
 
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and has operated as such beginning with its taxable year ended December 31, 1998. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90% of the REIT’s ordinary taxable income to shareholders. As a REIT, the Company generally will not be subject to federal income tax on taxable income that it distributes to its shareholders. If the Company fails to qualify as a REIT in any taxable year, it will then be subject to federal income taxes on its taxable income for four years following the year during which qualification is lost, unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to shareholders. However, the Company believes that it is organized and operates in such a manner as to qualify for treatment as a REIT and intends to continue to operate in the foreseeable future in such a manner that the Company will remain qualified as a REIT for federal income tax purposes. No provision for federal income taxes has been made in the accompanying consolidated financial statements, as the Company made distributions in excess of its taxable income for the periods presented.
 
Recent Pronouncements
 
On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 141 “Business Combinations,” and Statement of Financial Accounting Standards No. 142 “ Goodwill and Intangibles.”  These standards govern business combinations, asset acquisitions and the accounting for acquired intangibles. The Company determines whether an intangible asset or liability related to above or below market leases was acquired as part of the acquisition of real estate assets. The resulting intangible lease assets and liabilities are recorded at their estimated fair market values at the date of acquisition and amortized over the remaining term of the respective lease to rental income. Amortization of the intangible lease assets and liabilities resulted in a net increase in rental revenue of $0.5 million for the three months ended March 1, 2003.
 
In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,”  which clarifies the application of Accounting Research Bulletin (“ARB”) No. 51,  “Consolidated Financial Statements,”  relating to consolidation of certain entities. FIN 46 requires the identification of the Company’s participation in variable interest entities (“VIEs”), which are defined as entities with a level of invested equity that is not sufficient to fund future activities to permit them to operate on a stand alone basis, or whose equity holders lack certain characteristics of a controlling financial interest. For entities identified as VIEs, FIN 46 sets forth a model to evaluate potential
 
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consolidation based on an assessment of which party to the VIE, if any, bears a majority of the exposure to its expected losses, or stands to gain from a majority of its expected returns. FIN 46 is effective for all new VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. FIN 46 also sets forth certain disclosures regarding interests in VIEs that are deemed significant, even if consolidation is not required. As the Company’s joint ventures do not fall under the definition of VIEs provided above, we do not believe that the adoption of FIN 46 will result in the consolidation of any previously unconsolidated entities.
 
2.	 	Real Estate Assets	
 
Significant Events
 
During the three months ended March 31, 2003, the Company acquired ownership interests in two properties for a total purchase price of $115.8 million, exclusive of related closing costs and acquisition and advisory fees paid to the Advisor as described below.
 
East Point I & II Buildings
 
On January 9, 2003, the Company purchased two three-story office buildings containing approximately 187,735 aggregate rentable square feet located in Mayfield Heights, Ohio, for a purchase price of $22.0 million. Progressive Casualty Insurance; Austin, Danaher Power Solutions; and Moreland Management Company occupy approximately 92% of the rentable square feet in the two buildings. The remaining approximately 8% of the rentable square feet is vacant. At closing, the Company entered into an earn-out agreement with the seller with regard to the vacant space that requires the Company to pay the seller certain amounts for each new, fully-executed lease after the date of acquisition but on or before March 31, 2004, relating to the vacant space. Payments are calculated by dividing the anticipated first year’s annual rent less operating expenses 0.105, with the result being reduced by tenant improvement costs related to the space.
 
150 West Jefferson Detroit Building
 
On March 31, 2003, the Company purchased a 25-story office building containing approximately 505,417 rentable square feet located at 150 West Jefferson Avenue, downtown Detroit, Michigan, for a purchase price of $93.8 million. The building is 99% occupied under leases to various tenants with varying lease terms, including Miller, Canfield, Paddock, & Stone; Butzel Long PC; and MCN Energy Group, Inc., which collectively occupy approximately 62% of the building.
 
Nissan Building
 
In March 2003, the Company substantially completed the construction of the Nissan Building located in Dallas, Texas, and transferred total construction costs for the project from construction in progress to building and improvements. Nissan Motor Acceptance Corporation will occupy the building under a lease commencing on April 1, 2003. The construction was financed through a loan that was paid off in March 2003, when the building was substantially complete.
 
3.	 	Investment in Joint Ventures	
 
The information below summarizes the operations of the seven unconsolidated joint ventures that the Company, through Wells OP, had ownership interests as of March 31, 2003.
 
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CONDENSED COMBINED STATEMENTS OF INCOME
 
 	  	Three Months
Ended March 31,

	
 	  	2003

	  	2002

	
 	  	(000s)	  	(000s)	
Revenues:	  	 	 	  	 	 	
Rental income	  	$	5,284	  	$	4,728	
Tenant reimbursements	  	 	470	  	 	641	
Other income	  	 	8	  	 	13	

	

	  	

	

	
Total revenues	  	 	5,762	  	 	5,382	

	

	  	

	

	
Expenses:	  	 	 	  	 	 	
Depreciation	  	 	1,768	  	 	1,604	
Operating expenses	  	 	966	  	 	831	
Management and leasing fees	  	 	329	  	 	262	

	

	  	

	

	
Total expenses	  	 	3,063	  	 	2,697	

	

	  	

	

	
Net income	  	$	2,699	  	$	2,685	

	

	  	

	

	
Net income allocated to the Company	  	$	1,261	  	$	1,207	

	

	  	

	

	
 
4.	 	Borrowings	
 
The Company has financed certain investments, acquisitions and developments through various borrowings as described below. On March 31, 2003, and December 31, 2002, the Company had the following amounts outstanding:
 
Facility

	  	March 31,
2003

	  	December 31,
2002

	
 	  	(000s)	  	(000s)	
$110 million Bank of America Line of Credit; accruing interest at LIBOR plus 175 basis points (3.05% at March 31, 2003); requiring interest payments monthly with principal due at maturity (May 11, 2004); collateralized by the Videojet Technologies Chicago Building, the AT&T Pennsylvania Building, the Matsushita Building, the Metris Minnesota Building, the Motorola Plainfield Building and the Delphi Building	  	$	—  	  	$	58,000	
 	 	 	
$98.1 million SouthTrust Bank Line of Credit; accruing interest at LIBOR plus 175 basis points (3.05 % at March 31, 2003); requiring interest payments monthly and principal due at maturity (June 10, 2003); collateralized by the Novartis Building, the Cinemark Building, the Dial Building, the ASML Building, the Alstom Power Richmond Building, the Avnet Building, the Agilent Atlanta Building and the Eisenhower Boulevard Building (formerly the PwC Building)	  	 	—  	  	 	61,399	
 	 	 	
$90 million note payable to Landesbank Schleswig-Hostein Gironzentrale, Kiel; accruing interest at LIBOR plus 115 basis points; currently locked at 2.53% through July 2, 2003 (2.53% at March 31, 2003); requiring interest payments monthly, with principal due at maturity (December 20, 2006); collateralized by the Nestle Building	  	 	90,000	  	 	90,000	
 	 	 	
$34.2 million construction loan payable to Bank of America; accruing interest at LIBOR plus 200 basis points; requiring interest payments monthly and principal due at maturity (July 30, 2003); collateralized by the Nissan Building(1)	  	 	—  	  	 	23,149	
 	 	 	
$13.7 million construction loan payable to Bank of America; accruing interest at LIBOR plus 200 basis points (3.30% at March 31, 2003); requiring interest payments monthly, with principal due at maturity (January 29, 2004); collateralized by the Kerr-McGee Property(2)	  	 	7,435	  	 	4,038	
 	 	 	
$8.8 million note payable to Prudential; accruing interest at 8%; requiring interest and principal payments monthly with any unamortized principal due at maturity (December 15, 2003); collateralized by the BMG Buildings	  	 	8,651	  	 	8,709	
 
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Facility

	  	March 31,
2003

	  	December  31,
2002

	
 	  	(000s)	  	(000s)	
$2.9 million note payable to Prudential; accruing interest at 8.5%; requiring interest payments monthly with principal due at maturity (December 15, 2003); collateralized by the BMG Buildings	  	 	2,900	  	 	2,900	

	

	  	

	

	
Total borrowings	  	$	108,986	  	$	248,195	

	

	  	

	

	

(1)	 	The Company repaid this loan in March 2003, upon substantial completion of the construction of the property. At that time, the Company terminated the interest rate swap at a cost of $0.3 million, which was reclassified from other comprehensive income to interest expense.	
(2)	 	The Company has entered into an interest rate swap for this construction loan. The swap has the effect of fixing the interest rate at 4.27% through July 15, 2003.	
 
5.	 	Related-Party Transactions	
 
Advisory Agreement
 
The Company has entered into an Advisory Agreement with the Advisor, which entitles the Advisor to specified fees upon the completion of certain services with regard to the offering of shares to the public and investment of funds in real estate projects. The current Advisory Agreement dated January 30, 2002, has been temporarily extended by the board of directors until May 19, 2003.
 
Under the terms of the agreement, the Advisor receives the following fees and reimbursements:
 
 	•	 	Acquisition and advisory fees and expenses of 3.5% of gross offering proceeds, subject to certain limitations;	
 
 	•	 	Reimbursement of organization and offering costs paid on behalf of the Company, not to exceed 3% of gross offering proceeds;	
 
 	•	 	Disposition fee of 50% of the lesser of a competitive real estate commission or 3% of the sales price of the property, subordinated to the payment of dividends to shareholders equal to the sum of the shareholders’ invested capital plus an 8% return on invested capital;	
 
 	•	 	Incentive fee of 10% of net sales proceeds remaining after shareholders have received dividends equal to the sum of the shareholders’ invested capital plus an 8% return of invested capital; and	
 
 	•	 	Listing fee of 10% of the excess by which the market value of the stock plus dividends paid prior to listing exceeds the sum of 100% of the invested capital plus an 8% return on invested capital.	
 
Acquisition and advisory fees and expenses incurred for the quarters ended March 31, 2003 and 2002, totaled $14.5 million and $8.8 million, respectively. Organizational and offering costs incurred for the quarters ended March 31, 2003 and 2002, totaled $4.8 million and $1.8 million, respectively. The Company incurred no disposition, incentive or listing fees during the quarters ended March 31, 2003 and 2002.
 
Administrative Services Reimbursement
 
The Company has no direct employees. The employees of the Advisor and Wells Management Company, Inc. (“Wells Management”), an affiliate of the Advisor, perform a full range of real estate services including leasing and property management, accounting, asset management and investor relations for the Company. The related expenses are allocated among the Company and the various Wells Real Estate Funds based on time spent on each entity by individual administrative personnel. These expenses are
 
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included in general and administrative expenses in the consolidated statements of income. These expenses totaled $1.0 million and $0.3 million for the three months ended March 31, 2003 and 2002, respectively.
 
Property Management and Leasing Agreements
 
The Company has entered into a property management and leasing agreement with Wells Management. In consideration for supervising the management and leasing of the Company’s properties, the Company will pay management and leasing fees to Wells Management equal to the lesser of (a) 4.5% of the gross revenues generally paid over the life of the lease or (b) 0.6% of the net asset value of the properties (excluding vacant properties) owned by the Company. These management and leasing fees are calculated on an annual basis plus a separate competitive fee for the one-time initial lease-up of newly constructed properties generally paid in conjunction with the receipt of the first month’s rent. These expenses totaled $2.2 million and $0.8 million for the three months ended March 31, 2003 and 2002, respectively.
 
Dealer Manager Agreement
 
The Company has entered into a dealer manager agreement with Wells Investment Securities, Inc. (“WIS”), an affiliate of the Advisor, whereby WIS performs the dealer manager function for the Company. For these services, WIS earns fees of 7% of the gross proceeds from the sale of the shares of the Company, most of which are reallowed to participating broker-dealers. Additionally, WIS earns a dealer manager fee of 2.5% of the gross offering proceeds at the time the shares are sold, of which up to 1.5% may be reallowed to participating broker-dealers. WIS has elected, although is not obligated, to reduce the dealer manager fee amount in each period by 2.5% of the gross redemptions under the Company’s share redemption plan. During the three months ended March 31, 2003 and 2002, the Company incurred commissions of $29.9 million and $17.9 million, respectively, of which more than 99% was reallowed to participating broker-dealers. Dealer manager fees of $10.3 million and $6.3 million were incurred for the quarters ended March 31, 2003 and 2002, respectively. Of these amounts, $5.0 million and $2.0 million were reallowed to participating broker-dealers for the quarters ended March 31, 2003 and 2002, respectively.
 
Due From Affiliates
 
Due from affiliates included in the consolidated balance sheets primarily represents the Company’s share of the cash to be distributed from its joint venture investments for the first quarter of 2003 and the fourth quarter 2002 and other amounts payable to the Company from other related parties.
 
Conflicts of Interest
 
The Advisor also is a general partner in various Wells Real Estate Funds. As such, there are conflicts of interest where the Advisor, while serving in the capacity as general partner for Wells Real Estate Funds, may be in competition with the Company in connection with property acquisitions or for tenants in similar geographic markets.
 
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6.	 	Consolidated Statement of Cash Flows Supplemental Information	
 
 	  	For the three months ended
March 31,

	
 	  	2003

	  	2002

	
SUPPLEMENTAL INFORMATION:	  	 	 	  	 	 	
Interest paid during the period, including amounts capitalized	  	$	3,188	  	$	493	

	

	  	

	

	
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:	  	 	 	  	 	 	
Deferred project costs applied to real estate assets	  	$	10,853	  	$	4,080	

	

	  	

	

	
Deferred project costs due to affiliate	  	$	1,224	  	$	496	

	

	  	

	

	
Deferred offering costs due to affiliate	  	$	—  	  	$	245	

	

	  	

	

	
Other offering expenses due to affiliate	  	$	4,061	  	$	142	

	

	  	

	

	
Acquisition of intangible lease liability	  	$	385	  	$	—  	

	

	  	

	

	
Dividends payable	  	$	7,252	  	$	3,657	

	

	  	

	

	
Due from affiliates	  	$	1,968	  	$	1,805	

	

	  	

	

	
 
7.	 	Commitments and Contingencies	
 
Take Out Purchase and Escrow Agreement
 
The Advisor and its affiliates have developed a program (the “Wells Section 1031 Program”) involving the acquisition by a subsidiary of Wells Management Company (“Wells Exchange”) of income-producing commercial properties and the formation of a series of single member limited liability companies for the purpose of facilitating the resale of co-tenancy interests in such real estate properties to be owned in co-tenancy arrangements with persons (“1031 Participants”) who are seeking to invest the proceeds from a sale of real estate held for investment in another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Internal Revenue Code. The acquisition of each of the properties acquired by Wells Exchange will be financed by a combination of permanent first mortgage financing and interim loan financing obtained from institutional lenders.
 
Following the acquisition of each property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to repay a prorata portion of the interim financing. In consideration for the payment of a take out fee to the Company and following approval of the potential property acquisition by the Company’s board of directors, it is anticipated that the Company will enter into a take out purchase and escrow agreement or similar contract providing that, if Wells Exchange is unable to sell all of the co-tenancy interests in that particular property to 1031 Participants, the Company will purchase, at Wells Exchange’s cost, any co-tenancy interests remaining unsold at the end of the offering period.
 
In consideration for the payment of a take out fee in the amount of approximately $0.2 million, on December 31, 2002, Wells OP entered into a take out purchase and escrow agreement providing, among other things, that Wells OP would be obligated to acquire, at Wells Exchange’s cost ($0.4 million in cash plus $0.4 million of assumed debt for each 2.9994% interest of co-tenancy interest unsold), any unsold co-tenancy interests in two buildings known as Meadow Brook Corporate Park located in Birmingham, Alabama, which remain unsold at the expiration of the offering of Wells Exchange on September 30, 2003.
 
The obligations of Wells OP under the take out purchase and escrow agreement are secured by reserving against Well OP’s existing line of credit with Bank of America, N.A. (the “Interim Lender”). If, for any
 
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reason, Wells OP fails to acquire any of the co-tenancy interests in Meadow Brook Corporate Park which remain unsold as of September 30, 2003, or there is otherwise an uncured default under the interim loan or the line of credit documents, the Interim Lender is authorized to draw down Wells OP’s line of credit in the amount necessary to pay the outstanding balance of the interim loan in full, in which event the appropriate amount of co-tenancy interest in Meadow Brook Corporate Park would be deeded to Wells OP. Wells OP’s maximum economic exposure in the transaction was initially $14.0 million in cash plus assumption of the first mortgage financing in the amount of $13.9 million. As of March 31, 2003, due to the number of co-tenancy interests sold in Meadow Brook Corporate Park through such date, Wells OP’s maximum exposure has been reduced to $6.7 million in cash plus the assumption of the first mortgage financing in the amount of $6.7 million.
 
Letters of Credit
 
At March 31, 2003, the Company had three unused letters of credit totaling approximately $19.7 million outstanding from financial institutions, consisting of letters of credit of approximately $14.5 million, $4.8 million and $0.4 million with expiration dates of February 28, 2004; August 12, 2003; and February 2, 2004, respectively. These amounts are not recorded in the accompanying consolidated balance sheet as of March 31, 2003. These letters of credit were required by three unrelated parties to ensure completion of the Company’s obligations under certain earn-out and construction agreements. The Company does not anticipate a need to draw on these letters of credit.
 
Properties Under Contract
 
At March 31, 2003, the Company has a contract to acquire a third building at the ISS Atlanta Buildings development upon completion of construction (expected in June 2003) for a fixed purchase price of $10.0 million.
 
Commitments Under Existing Lease Agreements
 
Certain lease agreements include provisions that, at the option of the tenant, the Company may be obligated to expend certain amounts of capital to expand an existing property, construct on adjacent property or provide other expenditures for the benefit of the tenant, in favor of additional rental revenue. At March 31, 2003, no tenants have exercised such options.
 
Properties Under Construction
 
As of March 31, 2003, the Company had executed construction agreements with unrelated third parties for the purpose of constructing two buildings. The table below details the status of the properties under construction as of March 31, 2003:
 
Property

	  	Total
Projected Cost

	  	Construction
Costs to Date

	  	Expected
Future Costs

	  	Expected
Completion
Date

	  	Primary
Source of Funds

	
Kerr-McGee	  	$	15.8  million	  	$	9.7 million	  	$	6.1 million	  	July 2003	  	Debt	
AmeriCredit—Phoenix	  	$	24.7  million	  	$	18.9 million	  	$	5.8 million	  	April 2003	  	Investor Proceeds	
 
Earn-out Agreements
 
As part of the acquisition of the IRS Building, the Company entered into an agreement to pay the seller an additional $14.5 million if the Company or the seller locates a suitable tenant and leases the vacant space of
 
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the building within 18 months after the date of acquisition of the property, or March 2004. If the space is not leased within this time, the Company is released from any obligation to pay this additional purchase consideration. The 26% of the building that was vacant at the time of acquisition remains unleased at March 31, 2003.
 
In connection with the acquisition of the East Point I and II Buildings, the Company entered into an earn-out agreement whereby the Company is required to pay the seller certain amounts for each new, fully executed lease after the date of acquisition of the property but on or before March 31, 2004. Payments shall be the anticipated first year’s annual rent less operating expenses with the sum divided by 0.105 and the result reduced by tenant improvement costs related to the space.
 
Leasehold Property Obligations
 
The ASML, Motorola Tempe, Avnet and Bellsouth Ft. Lauderdale Buildings are subject to certain ground leases with expiration dates of 2082, 2082, 2083 and 2049, respectively.
 
Pending Litigation
 
In the normal course of business, the Company may become subject to litigation or claims. In November 2002, the Company contracted to purchase an office building located in Ramsey County, Minnesota, from Shoreview Associates LLC (“Shoreview”), who filed a lawsuit against the Company in Minnesota state court alleging that Shoreview was entitled to the $0.8 million in earnest money the Company had deposited under the contract. The Company has filed a counterclaim in the case asserting that the Company is entitled to the $0.8 million earnest money deposit. Procedurally, the Company had the case transferred to U.S. District Court in Minnesota, and Shoreview has moved to transfer the case back to state court. The dispute currently remains in litigation. After consultation with legal counsel, management does not believe that a reserve for a loss contingency is necessary.
 
8.	 	Subsequent Events	
 
Sale of Shares of Common Stock
 
From April 1, 2003 through April 30, 2003, the Company has raised approximately $179.2 million through the issuance of 17.9 million shares of common stock of the Company.
 
Property Acquisitions
 
On April 30, 2003, the Company purchased the Citicorp Englewood Cliffs, NJ Building, a three-story office building containing approximately 410,000 rentable square feet located in Englewood Cliffs, New Jersey, for a purchase price of $70.5 million, excluding closing costs and acquisition and advisory fees and expenses paid to the Advisor. The building is leased entirely to Citicorp North America, Inc., a wholly-owned subsidiary of Citicorp, Inc.
 
On May 1, 2003, the Company purchased the US Bancorp Minneapolis Building, a 32-story office building containing approximately 929,694 rentable square feet located in Minneapolis, Minnesota, for a purchase price of $174.0 million, excluding closing costs and acquisition and advisory fees and expenses paid to the Advisor. The building is approximately 99% leased under leases to various tenants with varying terms, including US Bancorp Piper Jaffray Companies, Inc., which leases approximately 77% of the building.
 
On May 9, 2003, the Company purchased the Aon Center Chicago Building, an 83-story office building containing approximately 2.6 million rentable square feet located in Chicago, Illinois, for a purchase price of approximately $465.2 million, excluding closing costs and acquisition and advisory costs paid to the Advisor. The building is approximately 92% leased under leases to various tenants with varying lease
 
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terms, including BP Corporation North American, Inc., DDB Needham Chicago, Inc. and Kirkland & Ellis, which collectively lease approximately 54% of the building.
 
On May 9, 2003, the Company acquired the GMAC Detroit Building, a three story office building containing approximately 119,122 square feet located in Auburn Hills, Michigan, for a purchase price of approximately $17.8 million, excluding closing costs and acquisition and advisory fees and expenses paid to the Advisor. The building is approximately 86% leased to the GMAC Corporation and Delmia Corporation. For the remaining approximately 14% of the building, the Company is required to pay the seller certain amounts for each new, fully executed lease entered into after the date of acquisition of the building but on or before November 8, 2004. Payments are calculated by dividing the sum of the anticipated first year’s annual rent less operating expenses by 0.095, with the result being reduced by tenant improvement costs related to the space.
 
Line of Credit
 
On April 23, 2003, the Company entered into a $500 million unsecured revolving credit facility with a consortium of banks. The agreement expires in April 2005 and replaced the $110 million line of credit with Bank of America. The Company paid up-front commitment fees totaling $2.3 million to the lenders based on each financial institution’s relative commitment level. The agreement contains alternative borrowing arrangements that provide for interest costs based on LIBOR plus up to 1.625%, or certain other alternative rates. Additionally, the Company is required to pay a quarterly facility fee of .25% per annum on the entire amount of this credit facility.
 
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Report of Independent Auditors
 
Shareholders and Board of Directors
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying statement of revenues over certain operating expenses of the US Bancorp Minneapolis Building for the year ended December 31, 2002. This statement is the responsibility of the US Bancorp Minneapolis Building’s management. Our responsibility is to express an opinion on this statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
 
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of the US Bancorp Minneapolis Building’s revenues and expenses.
 
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the US Bancorp Minneapolis Building for the year ended December 31, 2002 in conformity with accounting principles generally accepted in the United States.
 
/s/    ERNST & YOUNG LLP
 
Atlanta, Georgia
May 5, 2003
 
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US Bancorp Minneapolis Building
 
Statement of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2002
(in thousands)
 
Revenues:	  	 	 	
Base rent	  	$	12,495	
Tenant reimbursements	  	 	9,699	
Parking revenues	  	 	980	

	

	
Total revenues	  	 	23,174	
Expenses:	  	 	 	
Real estate taxes	  	 	5,839	
Other operating expenses	  	 	2,022	
Utilities	  	 	1,476	
Cleaning	  	 	971	
Management fee	  	 	690	
Administrative	  	 	646	

	

	
Total expenses	  	 	11,644	

	

	
Revenues over certain operating expenses	  	$	11,530	

	

	
 
See accompanying notes.
 
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US Bancorp Minneapolis Building
 
Notes to Statement of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2002
 
1. Description of Real Estate Property Acquired
 
On May 1, 2003, Wells Operating Partnership, L.P. (“Wells OP’) acquired the US Bancorp Minneapolis Building, a 929,694 square foot Class A office tower located in Minneapolis, Minnesota, from MN-Nicollet Mall, LLC (“Nicollet Mall”). Total consideration for the acquisition was approximately $174 million, excluding acquisition costs. Wells OP is a Delaware limited partnership formed to acquire, own, lease, operate, and manage real properties on behalf of Wells Real Estate Investment Trust, Inc., a Maryland corporation. As the sole general partner of Wells OP, Wells Real Estate Investment Trust, Inc. possesses full legal control and authority over the operations of Wells OP.
 
2. Basis of Accounting
 
The accompanying statement of revenues over certain operating expenses is presented in conformity with accounting principles generally accepted in the United States and in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired. Accordingly, the statement excludes certain historical expenses that are not comparable to the proposed future operations of the property such as certain ancillary income, amortization, depreciation, interest and corporate expenses. Therefore, this statement is not comparable to the statement of operations of the US Bancorp Minneapolis Building after its acquisition by Wells OP.
 
3. Significant Accounting Policies
 
Rental Revenues
 
Rental revenue is recognized on a straight-line basis over the terms of the related leases. The excess of recognized rentals over amounts due pursuant to lease terms is recorded as straight-line rent receivable. The impact of the straight-line rent adjustment increased revenue by approximately $1.6 million for the year ended December 31, 2002.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
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US Bancorp Minneapolis Building
 
Notes to Statement of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2002
 
4. Description of Leasing Arrangements
 
The office and retail space is leased to tenants under leases with terms that vary in length. Certain leases contain reimbursement clauses and renewal options. Nicollet Mall’s interests in all lease agreements were assigned to Wells OP upon its acquisition of the US Bancorp Minneapolis Building.
 
5. Future Minimum Rental Commitments
 
Future minimum rental commitments for the years ended December 31 are as follows (in thousands):
 
2003	  	$	14,589	
2004	  	 	14,645	
2005	  	 	14,603	
2006	  	 	13,890	
2007	  	 	13,161	
Thereafter	  	 	85,650	

	

	
 	  	$	156,538	

	

	
 
One tenant, US Bancorp Piper Jaffray Companies, Inc., contributed approximately 73% of rental income for the year ended December 31, 2002. Subsequent to December 31, 2002, this tenant will contribute approximately 86% of the future minimum rental income of those leases in place as of that date.
 
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Report of Independent Auditors
 
Shareholders and Board of Directors
Wells Real Estate Investment Trust, Inc.
 
We have audited the accompanying statement of revenues over certain operating expenses of the Aon Center Chicago Building for the year ended December 31, 2002. This statement is the responsibility of the Aon Center Chicago Building’s management. Our responsibility is to express an opinion on this statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
 
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of the Aon Center Chicago Building’s revenues and expenses.
 
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the Aon Center Chicago Building for the year ended December 31, 2002 in conformity with accounting principles generally accepted in the United States.
 
/s/    ERNST & YOUNG LLP
 
Atlanta, Georgia
May 9, 2003
 
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Aon Center Chicago Building
 
Statements of Revenues Over Certain Operating Expenses
 
For the year ended December 31, 2002
and the three months ended March 31, 2003 (unaudited)
(in thousands)
 
 	  	2003

	  	2002

	
 	  	(unaudited)	  	 	
Revenues:	  	 	 	  	 	 	
Base rent	  	$	9,478	  	$	37,923	
Tenant reimbursements	  	 	8,411	  	 	37,119	
Parking revenues	  	 	436	  	 	1,679	
Other revenues	  	 	526	  	 	1,332	

	

	  	

	

	
Total revenues	  	 	18,851	  	 	78,053	
 	 	 	
Expenses:	  	 	 	  	 	 	
Real estate taxes	  	 	5,128	  	 	21,501	
Other operating expenses	  	 	837	  	 	4,749	
Cleaning	  	 	1,103	  	 	4,629	
Security	  	 	682	  	 	4,143	
Utilities	  	 	1,279	  	 	4,025	
Administrative	  	 	635	  	 	2,965	
HVAC	  	 	385	  	 	2,224	

	

	  	

	

	
Total expenses	  	 	10,049	  	 	44,236	

	

	  	

	

	
Revenues over certain operating expenses	  	$	8,802	  	$	33,817	

	

	  	

	

	
 
See accompanying notes.
 
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Aon Center Chicago Building
 
Notes to Statements of Revenues Over Certain Operating Expenses
For the year ended December 31, 2002
and the three months ended March 31, 2003 (unaudited)
 
1. Description of Real Estate Property Acquired
 
On May 9, 2003, Wells REIT-Chicago Center, Chicago LLC (“the Company”) acquired the Aon Center Chicago Building, an approximately 2.6 million square foot Class A office tower located in Chicago, Illinois, from BRE/Randolph Drive, LLC (“Randolph Drive”). Total consideration for the acquisition was approximately $465.2 million. The Company, a Georgia limited liability company, was created on April 30, 2003. Wells Operating Partnership, L.P. (“Wells OP”) is the sole member of the Company. Wells OP is a Delaware limited partnership formed to acquire, own, lease, operate, and manage real properties on behalf of Wells Real Estate Investment Trust, Inc., a Maryland corporation. As the sole general partner of Wells OP, Wells Real Estate Investment Trust, Inc. possesses full legal control and authority over the operations of Wells OP.
 
2. Basis of Accounting
 
The accompanying statements of revenues over certain operating expenses is presented in conformity with accounting principles generally accepted in the United States and in accordance with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired. Accordingly, the statements exclude certain historical expenses that are not comparable to the proposed future operations of the property such as certain ancillary income, amortization, depreciation, interest and corporate expenses. Therefore, the statements will not be comparable to the statements of operations of the Aon Center Chicago Building after its acquisition by the Company.
 
3. Significant Accounting Policies
 
Rental Revenues
 
Rental revenue is recognized on a straight-line basis over the terms of the related leases. The excess of recognized rentals over amounts due pursuant to lease terms is recorded as straight-line rent receivable. The impact of the straight-line rent adjustment increased revenue by approximately $1.7 million for the year ended December 31, 2002 and $195,000 for the three months ended March 31, 2003.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
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Aon Center Chicago Building
 
Notes to Statements of Revenues Over Certain Operating Expenses
For the year ended December 31, 2002
and the three months ended March 31, 2003 (unaudited)
 
4. Description of Leasing Arrangements
 
The office and retail space is leased to tenants under leases with terms that vary in length. Certain leases contain reimbursement clauses and renewal options. Randolph Drive’s interests in all lease agreements were assigned to the Company upon its acquisition of the Aon Center Chicago Building.
 
5. Future Minimum Rental Commitments
 
Future minimum rental commitments for the years ended December 31 are as follows (in thousands):
 
2003	  	$	36,822	
2004	  	 	39,539	
2005	  	 	36,693	
2006	  	 	32,778	
2007	  	 	32,652	
Thereafter	  	 	185,071	

	

	
 	  	$	363,555	

	

	
 
Two tenants, Amoco Corporation and Kirkland & Ellis, contributed approximately 46% and 11%, respectively, of rental income for the year ended December 31, 2002. At December 31, 2002, three tenants, Amoco Corporation, DDB Needham and Kirkland & Ellis, will contribute approximately 54%, 12% and 11%, respectively, of the future minimum rental income of those leases in place as of that date.
 
6. Interim Unaudited Financial Information
 
The financial statement for the three months ended March 31, 2003 is unaudited, however, in the opinion of management, all adjustments (consisting solely of normal, recurring adjustments) necessary for the fair presentation of the financial statement for the interim period have been included. The results of the interim period are not necessarily indicative of the results to be obtained for a full fiscal year.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
SUMMARY OF UNAUDITED PRO FORMA FINANCIAL STATEMENTS
 
This pro forma information should be read in conjunction with the financial statements and notes of Wells Real Estate Investment Trust, Inc., a Maryland Corporation (the “Wells REIT”), included in its annual report on Form 10-K for the year ended December 31, 2002 and its quarterly report on Form 10-Q for the three months ended March 31, 2003. In addition, this pro forma information should be read in conjunction with the financial statements and notes of certain acquired properties included in various Form 8-Ks previously filed.
 
The following unaudited pro forma balance sheet as of March 31, 2003 has been prepared to give effect to the second quarter 2003 acquisitions of the Citicorp Englewood Cliffs, NJ Building, the US Bancorp Minneapolis Building and the GMAC Detroit Building by Wells Operating Partnership, L.P. (“Wells OP”) and the acquisition of the Aon Center Chicago Building (collectively, the “Recent Acquisitions”) by Wells REIT—Chicago Center, Chicago, LLC, a single member limited liability company of which Wells OP is the sole member, as if the acquisitions occurred on March 31, 2003.
 
Wells OP is a Delaware limited partnership that was organized to own and operate properties on behalf of Wells REIT. As the sole general partner of Wells OP, Wells REIT possesses full legal control and authority over the operations of Wells OP. Accordingly, the accounts of Wells OP are consolidated with the accompanying pro forma financial statements of Wells REIT.
 
The following unaudited pro forma statement of income for the three months ended March 31, 2003 has been prepared to give effect to the first quarter 2003 acquisitions of the East Point Cleveland Buildings and the 150 West Jefferson Detroit Building (collectively, the “2003 Acquisitions”) and the Recent Acquisitions as if the acquisitions occurred on January 1, 2002.
 
The following unaudited pro forma statement of income for the year ended December 31, 2002 has been prepared to give effect to the 2002 acquisition of the Vertex Sarasota Building (formerly, the Arthur Andersen Building), the Transocean Houston Building, the Novartis Atlanta Building, the Dana Corporation Buildings, the Travelers Express Denver Buildings, the Agilent Atlanta Building, the BellSouth Ft. Lauderdale Building, the Experian/TRW Buildings, the Agilent Boston Building, the TRW Denver Building, the MFS Phoenix Building, the ISS Atlanta Buildings, the PacifiCare San Antonio Building, the BMG Greenville Buildings, the Kraft Atlanta Building, the Nokia Dallas Buildings, the Harcourt Austin Building, the IRS Long Island Buildings, the KeyBank Parsippany Building, the Allstate Indianapolis Building, the Federal Express Colorado Springs Building, the EDS Des Moines Building, the Intuit Dallas Building, the Daimler Chrysler Dallas Building, the NASA Buildings, the Caterpillar Nashville Building, the Capital One Richmond Buildings, the John Wiley Indianapolis Building and the Nestle Los Angeles Building (collectively, the “2002 Acquisitions”), the 2003 Acquisitions and the Recent Acquisitions as if the acquisitions occurred on January 1, 2002. The Kerr McGee Property and the AmeriCredit Phoenix Property had no operations during the year ended December 31, 2002.
 
These unaudited pro forma financial statements are prepared for informational purposes only and are not necessarily indicative of future results or of actual results that would have been achieved had the acquisition of the 2002 Acquisitions, 2003 Acquisitions and the Recent Acquisitions been consummated as of January 1, 2002. In addition, the pro forma balance sheet includes allocations of the purchase price for certain acquisitions based upon preliminary estimates of the fair value of the assets and liabilities acquired. Therefore, these allocations may be adjusted in the future upon finalization of these preliminary estimates.
 
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA BALANCE SHEET
 
MARCH 31, 2003
 
(in thousands, except share amounts)
 
(Unaudited)
 
ASSETS
 
 	  	Wells Real
Estate
Investment
Trust, Inc.(a)

	  	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	
 	  	 	  	Other

	 	 	Recent Acquisitions

	 	 	 	 	 	 	 	
 	  	 	  	 	 	 	Citicorp Englewood
Cliffs, NJ

	 	 	US Bancorp
Minneapolis

	 	 	Aon Center
Chicago

	 	 	GMAC
Detroit

	 	 	 	 	 	 	 	 	 	 	 	 	
REAL ESTATE ASSETS, at cost:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Land	  	$	291,140	  	$	0	 	 	$
 	10,300
124	(d)
(e)	 	$
 	10,700
438	(d)
(e)	 	$
 	23,258
10	(d)
(e)	 	$
 	1,900
78	(d)
(e)	 	$	337,948	 	 	 	 	 	 	 	 	 	
Buildings, less accumulated depreciation of $82,812	  	 	1,811,220	  	 	0	 	 	 	60,587	(d)	 	 	162,797	(d)	 	 	445,956	(d)	 	 	15,919	(d)	 	 	2,504,723	 	 	 	 	 	 	 	 	 	
 	  	 	 	  	 	 	 	 	 	732	(e)	 	 	6,665	(e)	 	 	195	(e)	 	 	652	(e)	 	 	 	 	 	 	 	 	 	 	 	 	
Construction in progress	  	 	24,102	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	24,102	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	
Total real estate assets	  	 	2,126,462	  	 	0	 	 	 	71,743	 	 	 	180,600	 	 	 	469,419	 	 	 	18,549	 	 	 	2,866,773	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INVESTMENT IN JOINT VENTURES	  	 	83,286	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	83,286	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CASH AND CASH EQUIVALENTS	  	 	118,030	  	 	192,164	(b)	 	 	(20,929	)(d)	 	 	(173,497	)(d)	 	 	(7,833	)(d)	 	 	(17,819	)(d)	 	 	82,559	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	  	 	(7,557	)(c)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
RENT RECEIVABLE	  	 	19,928	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	19,928	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DEFERRED PROJECT COSTS	  	 	5,124	  	 	7,557	(c)	 	 	(856	)(e)	 	 	(7,103	)(e)	 	 	(205	)(e)	 	 	(730	)(e)	 	 	3,787	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DUE FROM AFFILIATES	  	 	2,167	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	2,167	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
PREPAID EXPENSES AND OTHER ASSETS, NET	  	 	5,997	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	5,997	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DEFERRED LEASE ACQUISITION COSTS, NET	  	 	1,561	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,561	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INTANGIBLE LEASE ASSET	  	 	14,147	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	14,147	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INVESTMENT IN BONDS	  	 	54,500	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	54,500	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	
Total assets	  	$	2,431,202	  	$	192,164	 	 	$	49,958	 	 	$	0	 	 	$	461,381	 	 	$	0	 	 	$	3,134,705	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	
 
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LIABILITIES AND SHAREHOLDERS’ EQUITY
 
(in thousands, except share amounts)
 
 	  	Wells Real
Estate
Investment 

Trust,
Inc.(a)

	 	 	Pro Forma Adjustments

	  	Pro Forma
Total

	 	 	
 	  	 	 	 	Other

	 	 	Recent Acquisitions

	  	 	 	 	 	 	 	
 	  	 	 	 	 	 	 	Citicorp Englewood
Cliffs, NJ

	 	 	US Bancorp
Minneapolis

	  	Aon Center
Chicago

	 	 	GMAC
Detroit

	  	 	 	 	 	 	 	 	 	 	 	 	
LIABILITIES:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	
Borrowings	  	$	108,986	 	 	$	0	 	 	$	49,958	(d)	 	$	0	  	$	461,381	(d)	 	$	0	  	$	620,325	 	 	 	 	 	 	 	 	 	 	
Obligations under capital lease	  	 	54,500	 	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	54,500	 	 	 	 	 	 	 	 	 	 	
Intangible lease liability	  	 	32,033	 	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	32,033	 	 	 	 	 	 	 	 	 	 	
Accounts payable and accrued expenses	  	 	23,131	 	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	23,131	 	 	 	 	 	 	 	 	 	 	
Due to affiliate	  	 	5,292	 	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	5,292	 	 	 	 	 	 	 	 	 	 	
Dividends payable	  	 	7,252	 	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	7,252	 	 	 	 	 	 	 	 	 	 	
Deferred rental income	  	 	11,164	 	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	11,164	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
Total liabilities	  	 	242,358	 	 	 	0	 	 	 	49,958	 	 	 	0	  	 	461,381	 	 	 	0	  	 	753,697	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
COMMITMENTS AND CONTINGENCIES	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	
MINORITY INTEREST OF UNIT HOLDER IN
    OPERATING PARTNERSHIP	  	 	200	 	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	200	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
SHAREHOLDERS’ EQUITY:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	
Common shares, $.01 par value; 750,000,000 shares authorized, 217,790,874 shares issued and 215,699,717 outstanding at December 31, 2002	  	 	2,605	 	 	 	216	(b)	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	2,821	 	 	 	 	 	 	 	 	 	 	
Additional paid-in capital	  	 	2,310,731	 	 	 	191,948	(b)	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	2,502,679	 	 	 	 	 	 	 	 	 	 	
Cumulative distributions in excess of earnings	  	 	(90,802	)	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	(90,802	)	 	 	 	 	 	 	 	 	 	
Treasury stock, at cost, 2,091,157 shares at December 31, 2002	  	 	(33,860	)	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	(33,860	)	 	 	 	 	 	 	 	 	 	
Other comprehensive loss	  	 	(30	)	 	 	0	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	(30	)	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
Total shareholders’ equity	  	 	2,188,644	 	 	 	192,164	 	 	 	0	 	 	 	0	  	 	0	 	 	 	0	  	 	2,380,808	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	
Total liabilities and shareholders’ equity	  	$	2,431,202	 	 	$	192,164	 	 	$	49,958	 	 	$	0	  	$	461,381	 	 	$	0	  	$	3,134,705	 	 	 	 	 	 	 	 	 	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	  	

	

	

	 	

	

	  	

	

	

	 	 	 	 	 	 	 	 	 	

(a)	 	Historical financial information derived from quarterly report on Form 10-Q.	
(b)	 	Reflects capital raised through issuance of additional shares subsequent to March 31, 2003 through GMAC Detroit acquisition date, net of organizational and offering costs, commissions and dealer-manager fees.	
(c)	 	Reflects deferred project costs capitalized as a result of additional capital raised described in note (b) above.	
(d)	 	Reflects Wells Real Estate Investment Trust, Inc.’s purchase price for the land, building and liabilities assumed.	
(e)	 	Reflects deferred project costs applied to the land and building at approximately 4.094% of the cash paid for purchase.	
 
The accompanying notes are an integral part of this statement.
 
45

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE YEAR ENDED DECEMBER 31, 2002
 
(in thousands, except per share amounts)
 
(Unaudited)
 
 	  	Wells Real
Estate
Investment
Trust, Inc.(a)

	  	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	
 	  	 	  	2002
Acquisitions

	 	 	2003
Acquisitions

	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	 	 	 	 	 	 	Citicorp Englewood
Cliffs, NJ

	 	 	US Bancorp
Minneapolis

	 	 	Aon Center
Chicago

	 	 	GMAC
Detroit

	 	 	 	 	 	 	 	 	 	 	 	 	 	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	107,526	  	$	98,599	(b)	 	$	13,196	(b)	 	$	6,359	(b)	 	$	13,665	(b)	 	$	42,592	(b)	 	$	1,336	(b)	 	$	283,273	 	 	 	 	 	 	 	 	 	 	
Tenant reimbursements	  	 	18,992	  	 	9,584	(c)	 	 	5,590	(c)	 	 	14	(c)	 	 	9,699	(c)	 	 	37,119	(c)	 	 	39	(c)	 	 	81,037	 	 	 	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	4,700	  	 	648	(d)	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	5,348	 	 	 	 	 	 	 	 	 	 	
Lease termination income	  	 	1,409	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,409	 	 	 	 	 	 	 	 	 	 	
Interest and other income	  	 	7,001	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	7,001	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
 	  	 	139,628	  	 	108,831	 	 	 	18,786	 	 	 	6,373	 	 	 	23,364	 	 	 	79,711	 	 	 	1,375	 	 	 	378,068	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	38,780	  	 	34,362	(e)	 	 	4,348	(e)	 	 	2,453	(e)	 	 	6,778	(e)	 	 	17,846	(e)	 	 	663	(e)	 	 	105,230	 	 	 	 	 	 	 	 	 	 	
Interest expense	  	 	4,638	  	 	9,657	(f)	 	 	0	 	 	 	1,993	(f)	 	 	0	 	 	 	22,414	(i)	 	 	0	 	 	 	38,702	 	 	 	 	 	 	 	 	 	 	
Property operating costs	  	 	26,949	  	 	25,244	(g)	 	 	8,742	(g)	 	 	63	(g)	 	 	10,955	(g)	 	 	45,627	(g)	 	 	609	(g)	 	 	118,189	 	 	 	 	 	 	 	 	 	 	
Management and leasing fees	  	 	5,155	  	 	3,196	(h)	 	 	846	(h)	 	 	287	(h)	 	 	1,051	(h)	 	 	3,587	(h)	 	 	62	(h)	 	 	14,184	 	 	 	 	 	 	 	 	 	 	
General and administrative	  	 	3,244	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	3,244	 	 	 	 	 	 	 	 	 	 	
Legal and accounting	  	 	1,008	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,008	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
 	  	 	79,774	  	 	72,459	 	 	 	13,936	 	 	 	4,796	 	 	 	18,784	 	 	 	89,474	 	 	 	1,334	 	 	 	280,557	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
NET INCOME	  	$	59,854	  	$	36,372	 	 	$	4,850	 	 	$	1,577	 	 	$	4,580	 	 	$	(9,763	)	 	$	41	 	 	$	97,511	 	 	 	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	  	$	0.41	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.35	 	 	 	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	145,633	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	278,027	 	 	 	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	 	 	 	

(a)	 	Historical financial information derived from annual report on Form 10-K.	
(b)	 	Rental income is recognized on a straight-line basis.	
(c)	 	Consists of operating costs reimbursements.	
(d)	 	Reflects Wells Real Estate Investment Trust, Inc.’s equity in income of the Wells Fund XIII-REIT Joint Venture related to the John Wiley Indianapolis Building. The pro forma adjustment results from rental revenues less operating expenses, management fees and depreciation.	
(e)	 	Depreciation expense is recognized using the straight-line method and a 25-year life.	
(f)	 	Represents interest expense on lines of credits used to acquire assets, which bear interest at approximately 3.99% for the year ended December 31, 2002 and assumed mortgages on the BMG Direct, BMG Music and Nestle Buildings, which bear interest at 8.5%, 8% and 3.39% for the year ended December 31, 2002, respectively.	
(g)	 	Consists of operating expenses.	
(h)	 	Management and leasing fees are generally calculated at 4.5% of rental income and tenant reimbursements.	
(i)	 	Represents interest expense on loan used to acquire Aon Center Chicago Building, which bears interest at approximately 4.858% for the year ended December 31, 2002.	
 
The accompanying notes are an integral part of this statement.
 
46

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE THREE MONTHS ENDED MARCH 31, 2003
 
(in thousands, except per share amounts)
 
(Unaudited)
 
 	  	Wells Real
Estate
Investment
Trust, Inc. (a)

	  	Pro Forma Adjustments

	 	 	Pro Forma
Total

	 	
 	  	 	  	2003
Acquisitions

	 	 	Recent Acquisitions

	 	 	 	 	 	 	
 	  	 	  	 	 	 	Citicorp Englewood
Cliffs, NJ

	 	 	US Bancorp
Minneapolis

	 	 	Aon Center
Chicago

	 	 	GMAC
Detroit

	 	 	 	 	 	 	 	 	 	 	
REVENUES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	  	$	53,343	  	$	2,941	(b)	 	$	1,590	(b)	 	$	3,421	(b)	 	$	10,855	(b)	 	$	563	(b)	 	$	72,713	 	 	 	 	 	 	 	
Tenant reimbursements	  	 	9,601	  	 	1,378	(c)	 	 	6	(c)	 	 	2,799	(c)	 	 	8,411	(c)	 	 	23	(c)	 	 	22,218	 	 	 	 	 	 	 	
Equity in income of joint ventures	  	 	1,261	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,261	 	 	 	 	 	 	 	
Interest and other income	  	 	1,154	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,154	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
 	  	 	65,359	  	 	4,319	 	 	 	1,596	 	 	 	6,220	 	 	 	19,266	 	 	 	586	 	 	 	97,346	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
EXPENSES:	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation	  	 	19,218	  	 	888	(d)	 	 	613	(d)	 	 	1,694	(d)	 	 	4,462	(d)	 	 	166	(d)	 	 	27,041	 	 	 	 	 	 	 	
Property operating costs	  	 	15,220	  	 	1,946	(f)	 	 	74	(f)	 	 	2,682	(f)	 	 	10,572	(f)	 	 	270	(f)	 	 	30,764	 	 	 	 	 	 	 	
Management and leasing fees	  	 	2,333	  	 	194	(g)	 	 	72	(g)	 	 	280	(g)	 	 	867	(g)	 	 	26	(g)	 	 	3,772	 	 	 	 	 	 	 	
General and administrative	  	 	1,576	  	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,576	 	 	 	 	 	 	 	
Interest expense	  	 	2,648	  	 	0	 	 	 	388	(e)	 	 	0	 	 	 	5,075	(h)	 	 	0	 	 	 	8,111	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
 	  	 	40,995	  	 	3,028	 	 	 	1,147	 	 	 	4,656	 	 	 	20,976	 	 	 	462	 	 	 	71,264	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
NET INCOME	  	$	24,364	  	$	1,291	 	 	$	449	 	 	$	1,564	 	 	$	(1,710	)	 	$	124	 	 	$	26,082	 	 	 	 	 	 	 	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	 	 	 	 	 	 	 	
EARNINGS PER SHARE, basic and diluted	  	$	0.10	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.09	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	
WEIGHTED AVERAGE SHARES, basic and diluted	  	 	233,247	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	278,027	 	 	 	 	 	 	 	

	

	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	

	 	 	 	 	 	 	 	

(a)	 	Historical financial information derived from quarterly report on Form 10-Q.	
(b)	 	Rental income is recognized on a straight-line basis.	
(c)	 	Consists of operating costs reimbursements.	
(d)	 	Depreciation expense is recognized using the straight-line method and a 25-year life.	
(e)	 	Represents interest expense on lines of credits used to acquire assets, which bear interest at approximately 3.106% for the three months ended March 31, 2003.	
(f)	 	Consists of operating expenses.	
(g)	 	Management and leasing fees are generally calculated at 4.5% of rental income and tenant reimbursements.	
(h)	 	Represents interest expense on loan used to acquire Aon Center Chicago Building, which bears interest at approximately 4.40% for the three months ended March 31, 2003.	
 
The accompanying notes are an integral part of this statement.
 
47

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 8 DATED JUNE 15, 2003 TO THE PROSPECTUS
DATED JULY 26, 2002
 
This document supplements, and should be read in conjunction with, the prospectus of Wells Real Estate Investment Trust, Inc. dated July 26, 2002, as supplemented and amended by Supplement No. 1 dated August 14, 2002, Supplement No. 2 dated August 29, 2002, Supplement No. 3 dated October 25, 2002, Supplement No. 4 dated December 10, 2002, Supplement No. 5 dated January 15, 2003, Supplement No. 6 dated April 14, 2003, and Supplement No. 7 dated May 15, 2003 . When we refer to the “prospectus” in this supplement, we are also referring to any and all supplements to the prospectus. Unless otherwise defined in this supplement, capitalized terms used in this supplement shall have the same meanings as set forth in the prospectus.
 
The purpose of this supplement is to describe the following:
 
 	(1)	 	Status of the offering of shares in Wells Real Estate Investment Trust, Inc. (Wells REIT);	
 
 	(2)	 	The declaration of dividends for the third quarter of 2003; and	
 
 	(3)	 	Notice received from the NASD of its determination to institute an enforcement action against Wells Investment Securities, Inc. (Wells Investment Securities), our Dealer Manager, and Leo F. Wells, III for alleged NASD Rule violations relating to the educational and due diligence conferences sponsored by Wells Investment Securities in 2001 and 2002.	
 
Status of the Offering
 
We commenced our initial public offering of common stock on January 30, 1998. Our initial public offering was terminated on December 19, 1999. We received approximately $132.2 million in gross offering proceeds from the sale of 13.2 million shares in our initial public offering. We commenced our second offering of common stock on December 20, 1999. Our second public offering was terminated on December 19, 2000. We received approximately $175.2 million in gross offering proceeds from the sale of 17.5 million shares in our second public offering. We commenced our third public offering of common stock on December 20, 2000. Our third public offering was terminated on July 26, 2002. We received approximately $1.3 billion in gross offering proceeds from the sale of 128.3 million shares in our third public offering.
 
Pursuant to the prospectus, we commenced our fourth public offering of common stock on July 26, 2002. As of May 31, 2003, we had received additional gross proceeds of approximately $1.4 billion from the sale of approximately 137.3 million shares in our fourth public offering. Accordingly, as of May 31, 2003, we had received aggregate gross offering proceeds of approximately $3.0 billion from the sale of approximately 296.3 million shares in all of our public offerings. After payment of approximately $102.2 million in acquisition and advisory fees and acquisition expenses, payment of $329.2 million in selling commissions and organization and offering expenses, and common stock redemptions of approximately $43.6 million pursuant to our share redemption program, as of May 31, 2003, we had raised aggregate net offering proceeds available for investment in properties of approximately $2.5 billion, out of which approximately $2.0 billion had been invested in real estate properties, and approximately $50.6 million remained available for investment in real estate properties.

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Dividends
 
On June 11, 2003, our board of directors declared dividends for the third quarter of 2003 in the amount of a 7.0% annualized percentage rate return on an investment of $10.00 per share to be paid in September 2003. Our third quarter dividends are calculated on a daily record basis of $0.001902 (0.1902 cents) per day per share on the outstanding shares of common stock payable to stockholders of record of such shares as shown on the books of the Wells REIT at the close of business on each day during the period, commencing on June 16, 2003, and continuing on each day thereafter through and including September 15, 2003.
 
NASD Enforcement Action
 
On June 6, 2003, the enforcement division of NASD, Inc. (NASD) informed Wells Investment Securities, our Dealer Manager, and Leo F. Wells, III, our President and a director, that the NASD has made a determination to institute disciplinary proceedings against both Wells Investment Securities and Mr. Wells, as registered principal of Wells Investment Securities, for alleged violations of various NASD Conduct Rules entirely related to providing non-cash compensation of more than $100 to associated persons of NASD member firms in connection with their attendance at the annual educational and due diligence conferences sponsored by Wells Investment Securities in 2001 and 2002.
 
While the NASD has not yet instituted a formal action against Wells Investment Securities or Mr. Wells and, in its notice, only cited alleged rule violations in general terms, Wells Investment Securities and Mr. Wells are in the process of ascertaining the specific factual details forming the basis for these allegations. Based upon what we know at this time, however, we believe that these alleged rule violations will relate primarily to (1) the failure to obtain full reimbursement from some of the registered representatives for travel expenses of guests and the cost of golf in connection with attendance at our 2001 educational conference, and (2) the payment for meals of guests of attendees at our 2001 and 2002 educational conferences. We are unable to predict at this time the potential outcome of any such enforcement action against Wells Investment Securities and Mr. Wells or the potential effect such an enforcement action may have on the operations of Wells Capital, Inc., our advisor, and, accordingly, on our operations, if any.

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PART II
 
INFORMATION NOT REQUIRED IN PROSPECTUS
 
Items 31 through 35 and Item 37 of Part II are incorporated by reference to the Registrant’s Registration Statement, as amended to date, Commission File No. 333-85848
 
Item 36 Financial Statements and Exhibits.
 
 	(a)	 	Financial Statements:	
 
The following financial statements of Registrant are filed as part of this Registration Statement and included in the Prospectus:
 
Audited Financial Statements
 
 	(1)	 	Report of Independent Public Accountants,	
 
 	(2)	 	Consolidated Balance Sheets as of December 31, 2001 and December 31, 2000,	
 
 	(3)	 	Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999,	
 
 	(4)	 	Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2001, 2000 and 1999,	
 
 	(5)	 	Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999,	
 
 	(6)	 	Notes to Consolidated Financial Statements, and	
 
 	(7)	 	Schedule III–Real Estate Investments and Accumulated Depreciation as of December 31, 2001.	
 
Unaudited Financial Statements
 
 	(1)	 	Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001,	
 
 	(2)	 	Consolidated Statements of Income for the three months ended March 31, 2002 and March 31, 2001,	
 
 	(3)	 	Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2001 and for the three months ended March 31, 2002,	
 
 	(4)	 	Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and March 31, 2001, and	
 
 	(5)	 	Condensed Notes to Consolidated Financial Statements.	
 
The following financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 1 to the Prospectus:
 
Unaudited Financial Statements
 
 	(1)	 	Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001,	
 
 	(2)	 	Consolidated Statements of Income for the three months ended June 30, 2002 and June 30, 2001 and for the six months ended June 30, 2002 and June 30, 2001,	
 
II-1

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 	(3)	 	Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2001 and for the six months ended June 30, 2002,	
 
 	(4)	 	Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and June 30, 2001, and	
 
 	(5)	 	Condensed Notes to Consolidated Financial Statements.	
 
The following unaudited pro forma financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 1 to the Prospectus:
 
 	(1)	 	Summary of Unaudited Pro Forma Financial Statements,	
 
 	(2)	 	Pro Forma Balance Sheet as of June 30, 2002,	
 
 	(3)	 	Pro Forma Statement of Income for the year ended December 31, 2001, and	
 
 	(4)	 	Pro Forma Statement of Income for the six months ended June 30, 2002.	
 
The following unaudited pro forma financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 2 to the Prospectus:
 
 	(1)	 	Summary of Unaudited Pro Forma Financial Statements,	
 
 	(2)	 	Pro Forma Balance Sheet as of June 30, 2002,	
 
 	(3)	 	Pro Forma Statement of Income for the year ended December 31, 2001, and	
 
 	(4)	 	Pro Forma Statement of Income for the six months ended June 30, 2002.	
 
The following financial statements relating to the acquisition of the Harcourt Austin Building are filed as part of this Registration Statement and included in Supplement No. 3 to the Prospectus:
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the six months ended June 30, 2002 (unaudited), and	
 
 	(3)	 	Notes to Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the six months ended June 30, 2002 (unaudited).	
 
The following financial statements relating to the acquisition of the IRS Long Island Buildings are filed as part of this Registration Statement and included in Supplement No. 3 to the Prospectus:
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the six months ended June 30, 2002 (unaudited), and	
 
 	(3)	 	Notes to Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the six months ended June 30, 2002 (unaudited).	
 
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The following financial statements relating to the acquisition of the KeyBank Parsippany Building are filed as part of this Registration Statement and included in Supplement No. 3 to the Prospectus:
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the six months ended June 30, 2002 (unaudited), and	
 
 	(3)	 	Notes to Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the six months ended June 30, 2002 (unaudited).	
 
The following unaudited pro forma financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 3 to the Prospectus:
 
 	(1)	 	Summary of Unaudited Pro Forma Financial Statements,	
 
 	(2)	 	Pro Forma Balance Sheet as of June 30, 2002,	
 
 	(3)	 	Pro Forma Statement of Income for the year ended December 31, 2001, and	
 
 	(4)	 	Pro Forma Statement of Income for the six months ended June 30, 2002.	
 
The following financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 4 to the Prospectus:
 
Unaudited Financial Statements
 
 	(1)	 	Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001,	
 
 	(2)	 	Consolidated Statements of Income for the three months ended September 30, 2002 and September 30, 2001 and for the nine months ended September 30, 2002 and September 30, 2001,	
 
 	(3)	 	Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2001 and for the nine months ended September 30, 2002,	
 
 	(4)	 	Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and September 30, 2001, and	
 
 	(5)	 	Condensed Notes to Consolidated Financial Statements.	
 
The following financial statements relating to the acquisition of the NASA Buildings are filed as part of this Registration Statement and included in Supplement No. 4 to the Prospectus:
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the nine months ended September 30, 2002 (unaudited), and	
 
 	(3)	 	Notes to Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the nine months ended September 30, 2002 (unaudited).	
 
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The following financial statements relating to the acquisition of the Caterpillar Nashville Building are filed as part of this Registration Statement and included in Supplement No. 4 to the Prospectus:
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the nine months ended September 30, 2002 (unaudited), and	
 
 	(3)	 	Notes to Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the nine months ended September 30, 2002 (unaudited).	
 
The following unaudited pro forma financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 4 to the Prospectus:
 
 	(1)	 	Summary of Unaudited Pro Forma Financial Statements,	
 
 	(2)	 	Pro Forma Balance Sheet as of September 30, 2002,	
 
 	(3)	 	Pro Forma Statement of Income for the year ended December 31, 2001, and	
 
 	(4)	 	Pro Forma Statement of Income for the nine months ended September 30, 2002.	
 
The following revised financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 5 to the Prospectus:
 
 	(1)	 	Consolidated Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001 (audited),	
 
 	(2)	 	Consolidated Statements of Income for the three months ended September 30, 2002 and September 30, 2001 (unaudited) and for the nine months ended September 30, 2002 and September 30, 2001 (unaudited),	
 
 	(3)	 	Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2001 (audited) and for the nine months ended September 30, 2002 (unaudited),	
 
 	(4)	 	Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and September 30, 2001 (unaudited), and	
 
 	(5)	 	Condensed Notes to Consolidated Financial Statements (unaudited).	
 
The following financial statements relating to the acquisition of the Nestle Building are filed as part of this Registration Statement and included in Supplement No. 5 to the Prospectus:
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the nine months ended September 30, 2002 (unaudited), and	
 
 	(3)	 	Notes to Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2001 (audited) and the nine months ended September 30, 2002 (unaudited).	
 
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The following unaudited pro forma financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 5 to the Prospectus:
 
 	(1)	 	Summary of Unaudited Pro Forma Financial Statements,	
 
 	(2)	 	Pro Forma Balance Sheet as of September 30, 2002,	
 
 	(3)	 	Pro Forma Statement of Income for the year ended December 31, 2001, and	
 
 	(4)	 	Pro Forma Statement of Income for the nine months ended September 30, 2002.	
 
The following audited financial statements of Registrant are filed as part of this Registration Statement and included in Supplement No. 6 to the Prospectus:
 
Audited Financial Statements
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Report of Independent Public Accountants,	
 
 	(3)	 	Consolidated Balance Sheets as of December 31, 2002 and December 31, 2001,	
 
 	(4)	 	Consolidated Statements of Income for the years ended December 31, 2002, 2001 and 2000,	
 
 	(5)	 	Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2002, 2001 and 2000,	
 
 	(6)	 	Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000,	
 
 	(7)	 	Notes to Consolidated Financial Statements, and	
 
 	(8)	 	Schedule III–Real Estate Assets and Accumulated Depreciation as of December 31, 2002.	
 
The following unaudited pro forma financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 6 to the Prospectus:
 
 	(1)	 	Summary of Unaudited Pro Forma Financial Statements,	
 
 	(2)	 	Pro Forma Balance Sheet as of December 31, 2002, and	
 
 	(3)	 	Pro Forma Statement of Income for the year ended December 31, 2002.	
 
The following financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 7 to the Prospectus:
 
 	(1)	 	Consolidated Balance Sheets as of March 31, 2003 (unaudited) and December 31, 2002,	
 
 	(2)	 	Consolidated Statements of Income for the three months ended March 31, 2003 and March 31, 2002 (unaudited),	
 
 	(3)	 	Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2002 and for the three months ended March 31, 2003 (unaudited),	
 
 	(4)	 	Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and March 31, 2002 (unaudited), and	
 
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 	(5)	 	Condensed Notes to Consolidated Financial Statements March 31, 2003 (unaudited).	
 
The following financial statements relating to the acquisition of the US Bancorp Minneapolis Building are filed as part of this Registration Statement and included in Supplement No. 7 to the Prospectus:
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2002 (audited)	
 
 	(3)	 	Notes to Statement of Revenues over Certain Operating Expenses for the year ended December 31, 2002 (audited).	
 
The following financial statements relating to the acquisition of the Aon Center Chicago Building are filed as part of this Registration Statement and included in Supplement No. 7 to the Prospectus:
 
 	(1)	 	Report of Independent Auditors,	
 
 	(2)	 	Statement of Revenues over Certain Operating Expenses for the year ended December 31, 2002 (audited) and the three months ended March 31, 2003 (unaudited), and	
 
 	(3)	 	Notes to Statements of Revenues over Certain Operating Expenses for the year ended December 31, 2002 (audited) and the three months ended march 31, 2003 (unaudited).	
 
The following unaudited pro forma financial statements of the Registrant are filed as part of this Registration Statement and included in Supplement No. 7 to the Prospectus:
 
 	(1)	 	Summary of Unaudited Pro Forma Financial Statements,	
 
 	(2)	 	Pro Forma Balance Sheet as of March 31, 2003,	
 
 	(3)	 	Pro Forma Statement of Income for the year ended December 31, 2002, and	
 
 	(4)	 	Pro Forma Statement of Income for the three months ended March 31, 2003.	
 
 	(b)	 	Exhibits (See Exhibit Index):	
 
Exhibit No.

	  	Description

	
 	 	
1.1	  	Form of Dealer Manager Agreement (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
1.2	  	Form of Warrant Purchase Agreement (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
3.1	  	Amended and Restated Articles of Incorporation dated as of July 1, 2000 (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on August 31, 2000)	
 
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3.2	  	Articles of Amendment to Amended and Restated Articles of Incorporation dated as June 26, 2002 (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
3.3	  	Bylaws (previously filed in and incorporated by reference to Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on January 23, 1998)	
 	 	
3.4	  	Amendment No. 1 to Bylaws (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on April 15, 1999)	
 	 	
4.1	  	Form of Subscription Agreement and Subscription Agreement Signature Page (included as Exhibit A to Prospectus)	
 	 	
5.1	  	Opinion of Holland & Knight LLP as to legality of securities (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
8.1	  	Opinion of Holland & Knight LLP as to tax matters (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
8.2	  	Opinion of Holland & Knight LLP as to ERISA matters (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.1	  	Advisory Agreement dated January 30, 2002 (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on April 8, 2002)	
 	 	
10.2	  	Amended and Restated Property Management and Leasing Agreement among Registrant, Wells Operating Partnership, L.P. and Wells Management Company, Inc. (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.3	  	Amended and Restated Joint Venture Agreement of The Fund IX, Fund X, Fund XI and REIT Joint Venture (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on July 9, 1998)	
 	 	
10.4	  	Joint Venture Agreement of Wells/Fremont Associates (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on August 14, 1998)	
 	 	
10.5	  	Joint Venture Agreement of Wells/Orange County Associates (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on August 14, 1998)	
 	 	
10.6	  	Amended and Restated Joint Venture Partnership Agreement of The Wells Fund XI-Fund XII – REIT Joint Venture (previously filed in and incorporated by reference to Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on November 17, 1999)	
 
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10.7	  	Joint Venture Partnership Agreement of Wells Fund XII-REIT Joint Venture Partnership (previously filed as Exhibit 10.11 and incorporated by reference to Post-Effective Amendment No. 2 to Form S-11 Registration Statement of Wells Real Estate Fund XII, L.P. on Form S-11, Commission File No. 33-66657, filed on April 25, 2000)	
 	 	
10.8	  	Joint Venture Partnership Agreement of Fund VIII-IX-REIT Joint Venture (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on August 31, 2000)	
 	 	
10.9	  	Joint Venture Partnership Agreement of Wells Fund XIII-REIT Joint Venture Partnership (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on July 23, 2001)	
 	 	
10.10	  	Agreement of Limited Partnership of Wells Operating Partnership, L.P. as Amended and Restated as of January 1, 2000 (previously filed in and incorporated by reference to Form 10-K of Registrant for the fiscal year ended December 31, 2000, Commission File No. 0-25739)	
 	 	
10.11	  	Amended and Restated Promissory Note for $15,500,000 for the SouthTrust Loan (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on January 15, 1999)	
 	 	
10.12	  	Amendment No. 1 to Mortgage and Security Agreement and other Loan Documents for the PwC Building securing the SouthTrust Loan (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on January 15, 1999)	
 	 	
10.13	  	Loan Agreement with SouthTrust Bank, N.A. for a $35,000,000 revolving line of credit dated May 3, 2000 (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on September 8, 2000)	
 	 	
10.14	  	Promissory Note for $35,000,000 to SouthTrust Bank, N.A. (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on September 8, 2000)	
 	 	
10.15	  	Allonge to Revolving Note relating to the SouthTrust Bank N.A. $32,393,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.16	  	First Amendment to Revolving Loan Agreement and Other Loan Documents relating to the SouthTrust Bank N.A. $32,393,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.17	  	Second Note Modification Agreement relating to the SouthTrust Bank N.A. $12,844,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.18	  	Second Amendment to Amended and Restated Loan Agreement and Other Loan Documents relating to the SouthTrust Bank N.A. $12,844,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the	
 
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 	  	Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.19	  	Revolving Note relating to the SouthTrust Bank N.A. $19,003,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.20	  	Revolving Loan Agreement relating to the SouthTrust Bank N.A. $19,003,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.21	  	Amended and Restated Revolving Note relating to the SouthTrust Bank N.A. $7,900,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.22	  	Amended and Restated Loan Agreement relating to the SouthTrust Bank N.A. $7,900,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.23	  	Revolving Credit Agreement relating to the Bank of America, N.A. $85,000,000 revolving line of credit (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on April 8, 2002)	
 	 	
10.24	  	Construction Loan Agreement relating to the Bank of America, N.A. $34,200,000 construction loan (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on April 8, 2002)	
 	 	
10.25	  	Lease for the Eisenhower Blvd Tampa Building (formerly the PwC Building) (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on January 15, 1999)	
 	 	
10.26	  	Office Lease for the Matsushita Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on April 15, 1999)	
 	 	
10.27	  	Guaranty of Lease for the Matsushita Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on April 15, 1999)	
 	 	
10.28	  	Lease Agreement with Cinemark USA, Inc. for a portion of the Cinemark Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on March 15, 2000)	
 	 	
10.29	  	Lease Agreement with The Coca-Cola Company for a portion of the Cinemark Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on March 15, 2000)	
 
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10.30	  	Lease Agreement for the Motorola Tempe Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on June 9, 2000)	
 	 	
10.31	  	First Amendment to Lease Agreement for the Motorola Tempe Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on June 9, 2000)	
 	 	
10.32	  	Ground Lease Agreement for the Motorola Tempe Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on June 9, 2000)	
 	 	
10.33	  	Lease Agreement for the Motorola Plainfield Building (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 1, 2000)	
 	 	
10.34	  	Lease Agreement with Stone & Webster, Inc. for a portion of the Stone & Webster Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 	 	
10.35	  	Lease Agreement with Sysco Corporation for a portion of the Stone & Webster Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 	 	
10.36	  	Lease Agreement for the Metris Minnesota Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 	 	
10.37	  	Fourth Amendment to Lease Agreement for the Metris Minnesota Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 	 	
10.38	  	Guaranty of Lease for the Metris Minnesota Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 	 	
10.39	  	Lease Agreement for the Comdata Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on July 23, 2001)	
 	 	
10.40	  	First Amendment to Lease Agreement for the Comdata Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on July 23, 2001)	
 	 	
10.41	  	Lease Agreement for the State Street Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 
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10.42	  	Lease Agreement for the IKON Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.43	  	First Amendment to Lease Agreement for the IKON Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.44	  	Reinstatement of and Second Amendment to Lease Agreement for the IKON Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.45	  	Agreement of Sale for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.46	  	Lease Agreement for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.47	  	Guaranty of Lease for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.48	  	Development Agreement for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.49	  	Design and Build Construction Agreement for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.50	  	Indenture of Lease Agreement for Ingram Micro Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.51	  	Guaranty of Lease Agreement for Ingram Micro Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.52	  	Absolute Assignment of Lease and Assumption Agreement for Ingram Micro Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.53	  	Bond Real Property Lease Agreement for the Ingram Micro Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 
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10.54	  	Second Amendment to Lease Agreement for Matsushita Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.55	  	Lease Agreement with TCI Great Lakes, Inc. for a portion of the Windy Point I Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.56	  	First Amendment to Office Lease with TCI Great Lakes, Inc. (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.57	  	Lease Agreement with Zurich American Insurance Company for the Windy Point II Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.58	  	Third Amendment to Office Lease with Zurich American Insurance Company (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.59	  	Lease Agreement with Arthur Andersen LLP for the Vertex Sarasota Building (formerly the Arthur Andersen Building) (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.60	  	Lease Agreement with Transocean Deepwater Offshore Drilling, Inc. for a portion of the Transocean Houston Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.61	  	Lease Agreement with Newpark Drilling Fluids, Inc. for a portion of the Transocean Houston Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.62	  	Lease Agreement for the Dana Detroit Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.63	  	Second Amendment to Lease Agreement for the Dana Detroit Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.64	  	Lease Agreement for the Dana Kalamazoo Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 
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10.65	  	Second Amendment to Lease Agreement for the Dana Kalamazoo Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.66	  	Purchase and Sale Agreement for the Experian/TRW Buildings (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
10.67	  	Lease Agreement for the Experian/TRW Buildings (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
10.68	  	Lease Amendment to Lease Agreement for the Experian/TRW Buildings (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
10.69	  	Purchase and Sale Agreement and Escrow Instructions for the Agilent Boston Building (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
10.70	  	Lease Agreement for the Agilent Boston Building (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
10.71	  	Purchase and Sale Agreement for the TRW Denver Building (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.72	  	Lease Agreement for the TRW Denver Building (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.73	  	Purchase and Sale Agreement for the MFS Phoenix Building (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.74	  	Lease Agreement for the MFS Phoenix Building (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.75	  	Purchase and Sale Agreement for the ISS Atlanta Buildings (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.76	  	Lease Agreement for the ISS Atlanta Buildings (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.77	  	Amendment No. 5 to Lease Agreement for the ISS Atlanta Buildings (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.78	  	Ground Lease Agreement for ISS Atlanta Buildings (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 
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10.79	  	Purchase and Sale Agreement for the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.80	  	Lease Agreement for Building No. 1 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.81	  	Amendment to Lease Agreement for Building No. 1 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.82	  	Lease Agreement for Building No. 2 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.83	  	Amendment to Lease Agreement for Building No. 2 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.84	  	Lease Agreement for Building No. 3 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.85	  	Amendment to Lease Agreement for Building No. 3 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.86	  	Agreement of Sale for the KeyBank Parsippany Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.87	  	Lease Agreement with KeyBank U.S.A., N.A. for a portion of the KeyBank Parsippany Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.88	  	Lease Agreement with Gemini Technology Services for a portion of the KeyBank Parsippany Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.89	  	Amendment to Lease Agreement with Gemini Technology Services for a portion of the KeyBank Parsippany Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 
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10.90	  	Purchase and Sale Agreement for NASA Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.91	  	Lease Agreement with the Office of the Comptroller of the Currency and amendments thereto (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.92	  	Lease Agreement with the United States of America (NASA) and amendments thereto (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.93	  	Agreement of Purchase and Sale for Nestle Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.94	  	Loan Agreement for $90,000,000 loan assumed with Landesbank Schleswig-Holstein Gironzentrale, Kiel (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.95	  	Lease Agreement for Nestle Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.96	  	Various amendments to Lease Agreement for Nestle Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.97	  	Agreement of Purchase and Sale for 150 West Jefferson Detroit Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on April 14, 2003)	
 	 	
10.98	  	$500,000,000 Credit Agreement for an unsecured line of credit with Bank of America, N.A. and a consortium of other banks	
 	 	
10.99	  	Real Estate Sale Agreement for US Bancorp Minneapolis Building	
 	 	
10.100	  	Lease Agreement with US Bancorp Piper Jaffray Companies, Inc. and amendments thereto for a portion of US Bancorp Minneapolis Building	
 	 	
10.101	  	Agreement of Purchase and Sale for Aon Center Chicago Building	
 	 	
10.102	  	Lease Agreement with BP Corporation North America, Inc. and amendments thereto for a portion of the Aon Center Chicago Building	
 	 	
23.1	  	Consent of Holland & Knight LLP (included in exhibits 5.1 and 8.1)	
 	 	
23.2	  	Consent of Arthur Andersen LLP (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on April 8, 2002)	
 	 	
23.3	  	Consent of Ernst & Young LLP	
 
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23.4	  	Consent of Ernst & Young LLP	
 	 	
24.1	  	Power of Attorney	
 
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SIGNATURES
 
Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-11 and has duly caused this Post-Effective Amendment No. 4 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Norcross, and State of Georgia, on the 20 th  day of June, 2003.
 
WELLS REAL ESTATE INVESTMENT TRUST, INC.
A Maryland corporation
(Registrant)	
 	 	
By:	 	/s/ Leo F. Wells, III

	
 	 	Leo F. Wells, III, President	

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 4 to Registration Statement has been signed below on June 20, 2003 by the following persons in the capacities indicated.
 
Name

	  	Title

	
 	 	
/s/ Leo F. Wells, III

Leo F. Wells, III	  	President and Director
(Principal Executive Officer)	
 	 	
/s/ Douglas P. Williams

Douglas P. Williams	  	Executive Vice President and Director
(Principal Financial and Accounting Officer)	
 	 	
/s/ John L. Bell *

John L. Bell (By Douglas P. Williams, as Attorney-in-fact)	  	Director	
 	 	
/s/ Michael R. Buchanan *

Michael R. Buchanan (By Douglas P. Williams, as Attorney-in-fact)	  	Director	
 	 	
/s/ Richard W. Carpenter *

Richard W. Carpenter (By Douglas P. Williams, as Attorney-in-fact)	  	Director	
 	 	
/s/ Bud Carter *

Bud Carter (By Douglas P. Williams, as Attorney-in-fact)	  	Director	
 	 	
/s/ William H. Keogler, Jr. *

William H. Keogler, Jr. (By Douglas P. Williams, as Attorney-in-fact)	  	Director	
 	 	
/s/ Donald S. Moss *

Donald S. Moss (By Douglas P. Williams, as Attorney-in-fact)	  	Director	
 	 	
/s/ Walter W. Sessoms *

Walter W. Sessoms (By Douglas P. Williams, as Attorney-in-fact)	  	Director	
 	 	
/s/ Neil H. Strickland *

Neil H. Strickland (By Douglas P. Williams, as Attorney-in-fact)	  	Director	
 
*	 	By Douglas P. Williams, as Attorney-in-fact, pursuant to Power of Attorney dated April 20, 2003 and included as Exhibit 24.1 herein.	

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EXHIBIT INDEX
 
Exhibit No.

	  	Description

	
 	 	
1.1	  	Form of Dealer Manager Agreement (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
1.2	  	Form of Warrant Purchase Agreement (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
3.1	  	Amended and Restated Articles of Incorporation dated as of July 1, 2000 (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on August 31, 2000)	
 	 	
3.2	  	Articles of Amendment to Amended and Restated Articles of Incorporation dated as June 26, 2002 (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
3.3	  	Bylaws (previously filed in and incorporated by reference to Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on January 23, 1998)	
 	 	
3.4	  	Amendment No. 1 to Bylaws (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on April 15, 1999)	
 	 	
4.1	  	Form of Subscription Agreement and Subscription Agreement Signature Page (included as Exhibit A to Prospectus)	
 	 	
5.1	  	Opinion of Holland & Knight LLP as to legality of securities (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
8.1	  	Opinion of Holland & Knight LLP as to tax matters (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
8.2	  	Opinion of Holland & Knight LLP as to ERISA matters (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.1	  	Advisory Agreement dated January 30, 2002 (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on April 8, 2002)	
 	 	
10.2	  	Amended and Restated Property Management and Leasing Agreement among Registrant, Wells Operating Partnership, L.P. and Wells Management Company, Inc. (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.3	  	Amended and Restated Joint Venture Agreement of The Fund IX, Fund X, Fund XI and REIT Joint Venture (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on July 9, 1998)	
 	 	
10.4	  	Joint Venture Agreement of Wells/Fremont Associates (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 of the Registrant’s	

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 	  	Registration Statement on Form S-11, Commission File No. 333-32099, filed on August 14, 1998)	
 	 	
10.5	  	Joint Venture Agreement of Wells/Orange County Associates (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on August 14, 1998)	
 	 	
10.6	  	Amended and Restated Joint Venture Partnership Agreement of The Wells Fund XI-Fund XII – REIT Joint Venture (previously filed in and incorporated by reference to Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on November 17, 1999)	
 	 	
10.7	  	Joint Venture Partnership Agreement of Wells Fund XII-REIT Joint Venture Partnership (previously filed as Exhibit 10.11 and incorporated by reference to Post-Effective Amendment No. 2 to Form S-11 Registration Statement of Wells Real Estate Fund XII, L.P. on Form S-11, Commission File No. 33-66657, filed on April 25, 2000)	
 	 	
10.8	  	Joint Venture Partnership Agreement of Fund VIII-IX-REIT Joint Venture (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on August 31, 2000)	
 	 	
10.9	  	Joint Venture Partnership Agreement of Wells Fund XIII-REIT Joint Venture Partnership (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on July 23, 2001)	
 	 	
10.10	  	Agreement of Limited Partnership of Wells Operating Partnership, L.P. as Amended and Restated as of January 1, 2000 (previously filed in and incorporated by reference to Form 10-K of Registrant for the fiscal year ended December 31, 2000, Commission File No. 0-25739)	
 	 	
10.11	  	Amended and Restated Promissory Note for $15,500,000 for the SouthTrust Loan (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on January 15, 1999)	
 	 	
10.12	  	Amendment No. 1 to Mortgage and Security Agreement and other Loan Documents for the PwC Building securing the SouthTrust Loan (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on January 15, 1999)	
 	 	
10.13	  	Loan Agreement with SouthTrust Bank, N.A. for a $35,000,000 revolving line of credit dated May 3, 2000 (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on September 8, 2000)	
 	 	
10.14	  	Promissory Note for $35,000,000 to SouthTrust Bank, N.A. (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on September 8, 2000)	
 	 	
10.15	  	Allonge to Revolving Note relating to the SouthTrust Bank N.A. $32,393,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.16	  	First Amendment to Revolving Loan Agreement and Other Loan Documents relating to the SouthTrust Bank N.A. $32,393,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	

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10.17	  	Second Note Modification Agreement relating to the SouthTrust Bank N.A. $12,844,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.18	  	Second Amendment to Amended and Restated Loan Agreement and Other Loan Documents relating to the SouthTrust Bank N.A. $12,844,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.19	  	Revolving Note relating to the SouthTrust Bank N.A. $19,003,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.20	  	Revolving Loan Agreement relating to the SouthTrust Bank N.A. $19,003,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.21	  	Amended and Restated Revolving Note relating to the SouthTrust Bank N.A. $7,900,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.22	  	Amended and Restated Loan Agreement relating to the SouthTrust Bank N.A. $7,900,000 revolving line of credit (previously filed in and incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 18, 2000)	
 	 	
10.23	  	Revolving Credit Agreement relating to the Bank of America, N.A. $85,000,000 revolving line of credit (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on April 8, 2002)	
 	 	
10.24	  	Construction Loan Agreement relating to the Bank of America, N.A. $34,200,000 construction loan (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on April 8, 2002)	
 	 	
10.25	  	Lease for the Eisenhower Blvd Tampa Building (formerly the PwC Building) (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on January 15, 1999)	
 	 	
10.26	  	Office Lease for the Matsushita Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on April 15, 1999)	
 	 	
10.27	  	Guaranty of Lease for the Matsushita Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 of the Registrant’s Registration Statement on Form S-11, Commission File No. 333-32099, filed on April 15, 1999)	
 	 	
10.28	  	Lease Agreement with Cinemark USA, Inc. for a portion of the Cinemark Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on March 15, 2000)	

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10.29	  	Lease Agreement with The Coca-Cola Company for a portion of the Cinemark Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on March 15, 2000)	
 	 	
10.30	  	Lease Agreement for the Motorola Tempe Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on June 9, 2000)	
 	 	
10.31	  	First Amendment to Lease Agreement for the Motorola Tempe Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on June 9, 2000)	
 	 	
10.32	  	Ground Lease Agreement for the Motorola Tempe Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-83933, filed on June 9, 2000)	
 	 	
10.33	  	Lease Agreement for the Motorola Plainfield Building (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on December 1, 2000)	
 	 	
10.34	  	Lease Agreement with Stone & Webster, Inc. for a portion of the Stone & Webster Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 	 	
10.35	  	Lease Agreement with Sysco Corporation for a portion of the Stone & Webster Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 	 	
10.36	  	Lease Agreement for the Metris Minnesota Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 	 	
10.37	  	Fourth Amendment to Lease Agreement for the Metris Minnesota Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 	 	
10.38	  	Guaranty of Lease for the Metris Minnesota Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on February 9, 2001)	
 	 	
10.39	  	Lease Agreement for the Comdata Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on July 23, 2001)	
 	 	
10.40	  	First Amendment to Lease Agreement for the Comdata Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on July 23, 2001)	
 	 	
10.41	  	Lease Agreement for the State Street Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	

Table of Contents
 	 	
10.42	  	Lease Agreement for the IKON Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.43	  	First Amendment to Lease Agreement for the IKON Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.44	  	Reinstatement of and Second Amendment to Lease Agreement for the IKON Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.45	  	Agreement of Sale for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.46	  	Lease Agreement for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.47	  	Guaranty of Lease for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.48	  	Development Agreement for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.49	  	Design and Build Construction Agreement for the Nissan Property (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.50	  	Indenture of Lease Agreement for Ingram Micro Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.51	  	Guaranty of Lease Agreement for Ingram Micro Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.52	  	Absolute Assignment of Lease and Assumption Agreement for Ingram Micro Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.53	  	Bond Real Property Lease Agreement for the Ingram Micro Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	
 	 	
10.54	  	Second Amendment to Lease Agreement for Matsushita Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on October 23, 2001)	

Table of Contents
 	 	
10.55	  	Lease Agreement with TCI Great Lakes, Inc. for a portion of the Windy Point I Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.56	  	First Amendment to Office Lease with TCI Great Lakes, Inc. (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.57	  	Lease Agreement with Zurich American Insurance Company for the Windy Point II Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.58	  	Third Amendment to Office Lease with Zurich American Insurance Company (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.59	  	Lease Agreement with Arthur Andersen LLP for the Vertex Sarasota Building (formerly the Arthur Andersen Building) (previously filed in and incorporated by reference to Post-Effective Amendment No. 5 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on January 23, 2002)	
 	 	
10.60	  	Lease Agreement with Transocean Deepwater Offshore Drilling, Inc. for a portion of the Transocean Houston Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.61	  	Lease Agreement with Newpark Drilling Fluids, Inc. for a portion of the Transocean Houston Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.62	  	Lease Agreement for the Dana Detroit Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.63	  	Second Amendment to Lease Agreement for the Dana Detroit Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.64	  	Lease Agreement for the Dana Kalamazoo Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.65	  	Second Amendment to Lease Agreement for the Dana Kalamazoo Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 6 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-44900, filed on April 22, 2002)	
 	 	
10.66	  	Purchase and Sale Agreement for the Experian/TRW Buildings (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
10.67	  	Lease Agreement for the Experian/TRW Buildings (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	

Table of Contents
 	 	
10.68	  	Lease Amendment to Lease Agreement for the Experian/TRW Buildings (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
10.69	  	Purchase and Sale Agreement and Escrow Instructions for the Agilent Boston Building (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
10.70	  	Lease Agreement for the Agilent Boston Building (previously filed in and incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on June 10, 2002)	
 	 	
10.71	  	Purchase and Sale Agreement for the TRW Denver Building (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.72	  	Lease Agreement for the TRW Denver Building (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.73	  	Purchase and Sale Agreement for the MFS Phoenix Building (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.74	  	Lease Agreement for the MFS Phoenix Building (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.75	  	Purchase and Sale Agreement for the ISS Atlanta Buildings (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.76	  	Lease Agreement for the ISS Atlanta Buildings (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.77	  	Amendment No. 5 to Lease Agreement for the ISS Atlanta Buildings (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.78	  	Ground Lease Agreement for the ISS Atlanta Buildings (previously filed in and incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on July 15, 2002)	
 	 	
10.79	  	Purchase and Sale Agreement for the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.80	  	Lease Agreement for Building No. 1 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.81	  	Amendment to Lease Agreement for Building No. 1 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	

Table of Contents
 	 	
10.82	  	Lease Agreement for Building No. 2 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.83	  	Amendment to Lease Agreement for Building No. 2 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.84	  	Lease Agreement for Building No. 3 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.85	  	Amendment to Lease Agreement for Building No. 3 of the Nokia Dallas Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.86	  	Agreement of Sale for the KeyBank Parsippany Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.87	  	Lease Agreement with KeyBank U.S.A., N.A. for a portion of the KeyBank Parsippany Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.88	  	Lease Agreement with Gemini Technology Services for a portion of the KeyBank Parsippany Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.89	  	Amendment to Lease Agreement with Gemini Technology Services for a portion of the KeyBank Parsippany Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on October 25, 2002)	
 	 	
10.90	  	Purchase and Sale Agreement for NASA Buildings (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.91	  	Lease Agreement with the Office of the Comptroller of the Currency and amendments thereto (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.92	  	Lease Agreement with the United States of America (NASA) and amendments thereto (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.93	  	Agreement of Purchase and Sale for Nestle Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	

Table of Contents
 	 	
10.94	  	Loan Agreement for $90,000,000 loan assumed with Landesbank Schleswig-Holstein Gironzentrale, Kiel (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.95	  	Lease Agreement for Nestle Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.96	  	Various amendments to Lease Agreement for Nestle Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on January 24, 2003)	
 	 	
10.97	  	Agreement of Purchase and Sale for 150 West Jefferson Detroit Building (previously filed in and incorporated by reference to Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on April 14, 2003)	
 	 	
10.98	  	$500,000,000 Credit Agreement for an unsecured line of credit with Bank of America, N.A. and a consortium of other banks, filed herewith	
 	 	
10.99	  	Real Estate Sale Agreement for US Bancorp Minneapolis Building, filed herewith	
 	 	
10.100	  	Lease Agreement with US Bancorp Piper Jaffray Companies, Inc. and amendments thereto for a portion of US Bancorp Minneapolis Building, filed herewith	
 	 	
10.101	  	Agreement of Purchase and Sale for Aon Center Chicago Building, filed herewith	
 	 	
10.102	  	Lease Agreement with BP Corporation North America, Inc. and amendments thereto for a portion of the Aon Center Chicago Building, filed herewith	
 	 	
23.1	  	Consent of Holland & Knight LLP (included in exhibits 5.1 and 8.1)	
 	 	
23.2	  	Consent of Arthur Andersen LLP (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-85848, filed on April 8, 2002)	
 	 	
23.3	  	Consent of Ernst & Young LLP, filed herewith	
 	 	
23.4	  	Consent of Ernst & Young LLP, filed herewith	
 	 	
24.1	  	Power of Attorney, filed herewith	

EXHIBIT 10.98
 
$500,000,000 CREDIT AGREEMENT FOR AN UNSECURED LINE OF CREDIT WITH BANK
OF AMERICA, NA. AND A CONSORTIUM OF OTHER BANKS

CREDIT AGREEMENT
 
Dated as of April, 23, 2003
 
among
 
WELLS OPERATING PARTNERSHIP, L.P.,
as the Borrower,
 
WELLS REAL ESTATE INVESTMENT TRUST, INC.,
as the REIT Guarantor,
 
the other parties from time to time party hereto,
and identified as Guarantors,
 
BANK OF AMERICA, N.A.,
as Administrative Agent, Swingline Lender and L/C Issuer,
 
the other parties from time to time party hereto,
and identified as Lenders,
 
BANC OF AMERICA SECURITIES LLC,
as Sole Lead Arranger and Sole Book Manager,
 
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Syndication Agent, and
 
COMMERZBANK AG, NEW YORK BRANCH
and
KEY BANK NATIONAL ASSOCIATION
as Co-Documentation Agents

TABLE OF CONTENTS
 
 	 	Section

	  	 	  	Page

	
 	 	ARTICLE I DEFINITIONS AND ACCOUNTING TERMS	  	1	
 	 	 	 	1.01	  	Defined Terms.	  	1	
 	 	 	 	1.02	  	Other Interpretive Provisions.	  	22	
 	 	 	 	1.03	  	Accounting Terms.	  	23	
 	 	 	 	1.04	  	Rounding.	  	23	
 	 	 	 	1.05	  	References to Agreements and Laws.	  	23	
 	 	 	 	1.06	  	Times of Day.	  	23	
 	 	 	 	1.07	  	Letter of Credit Amounts.	  	23	
 	 	 	 	1.08	  	Covenant Calculations Related to Certain Bond Projects.	  	23	
 	 	 	 	1.09	  	Covenant Calculations Related to Leases.	  	24	
 	 	 	 	1.10	  	Unconsolidated Entities.	  	24	
 	 	 	 	1.11	  	Covenant Calculations Related to Indebtedness.	  	24	
 	 	 	
 	 	ARTICLE II THE COMMITMENTS AND CREDIT EXTENSIONS	  	24	
 	 	 	 	2.01	  	Loans.	  	24	
 	 	 	 	2.02	  	Borrowings, Conversions and Continuations of Loans.	  	26	
 	 	 	 	2.03	  	Letters of Credit.	  	27	
 	 	 	 	2.04	  	Prepayments.	  	33	
 	 	 	 	2.05	  	Termination, Increase or Reduction of Aggregate Revolving Commitments.	  	34	
 	 	 	 	2.06	  	Maturity Date.	  	35	
 	 	 	 	2.07	  	Interest.	  	36	
 	 	 	 	2.08	  	Fees.	  	36	
 	 	 	 	2.09	  	Computation of Interest and Fees.	  	36	
 	 	 	 	2.10	  	Evidence of Debt.	  	37	
 	 	 	 	2.11	  	Payments Generally.	  	37	
 	 	 	 	2.12	  	Sharing of Payments.	  	38	
 	 	 	
 	 	ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY	  	39	
 	 	 	 	3.01	  	Taxes.	  	39	
 	 	 	 	3.02	  	Illegality.	  	40	
 	 	 	 	3.03	  	Inability to Determine Rates.	  	40	
 	 	 	 	3.04	  	Increased Cost and Reduced Return; Capital Adequacy; Reserves on Eurodollar Rate Loans.	  	40	
 	 	 	 	3.05	  	Funding Losses.	  	41	
 	 	 	 	3.06	  	Matters Applicable to all Requests for Compensation.	  	41	
 	 	 	 	3.07	  	Survival.	  	41	
 	 	 	
 	 	ARTICLE IV GUARANTY	  	42	
 	 	 	 	4.01	  	The Guaranty.	  	42	
 	 	 	 	4.02	  	Obligations Unconditional.	  	42	
 	 	 	 	4.03	  	Reinstatement.	  	43	
 	 	 	 	4.04	  	Certain Additional Waivers.	  	43	
 	 	 	 	4.05	  	Remedies.	  	43	
 	 	 	 	4.06	  	Rights of Contribution.	  	43	
 	 	 	 	4.07	  	Guarantee of Payment; Continuing Guarantee.	  	44	
 	 	 	
 	 	ARTICLE V CONDITIONS PRECEDENT TO CREDIT EXTENSIONS	  	44	
 	 	 	 	5.01	  	Conditions of Initial Credit Extension.	  	44	
 	 	 	 	5.02	  	Conditions to all Credit Extensions.	  	47	
 	 	 	
 	 	ARTICLE VI REPRESENTATIONS AND WARRANTIES	  	48	
 	 	 	 	6.01	  	Existence, Qualification and Power; Compliance with Laws.	  	48	
 	 	 	 	6.02	  	Authorization; No Contravention.	  	48	
 	 	 	 	6.03	  	Governmental Authorization; Other Consents.	  	48	
 	 	 	 	6.04	  	Binding Effect.	  	48	
 
i

 	 	6.05	  	Financial Statements; No Material Adverse Effect.	  	48	
 	 	6.06	  	Litigation.	  	49	
 	 	6.07	  	No Default.	  	49	
 	 	6.08	  	Ownership of Property; Liens.	  	49	
 	 	6.09	  	Environmental Compliance.	  	49	
 	 	6.10	  	Insurance.	  	50	
 	 	6.11	  	Taxes.	  	50	
 	 	6.12	  	ERISA Compliance.	  	50	
 	 	6.13	  	Corporate Structure.	  	51	
 	 	6.14	  	Margin Regulations; Investment Company Act; Public Utility Holding Company Act.	  	51	
 	 	6.15	  	Disclosure.	  	52	
 	 	6.16	  	Compliance with Laws.	  	52	
 	 	6.17	  	Closing Date Borrowing Base Assets.	  	52	
 	 	6.18	  	Solvency.	  	52	
 	 	6.19	  	Investments.	  	52	
 	 	6.20	  	Property/Business Locations.	  	52	
 	 	6.21	  	Brokers' Fees.	  	52	
 	 	6.22	  	Labor Matters.	  	53	
 	 	6.23	  	Nature of Business.	  	53	
 	 	6.24	  	Representations and Warranties from Other Credit Documents.	  	53	
 	 	6.25	  	REIT Status.	  	53	
 	 	6.26	  	Tax Shelter Regulations.	  	53	
 	 	
ARTICLE VII AFFIRMATIVE COVENANTS	  	53	
 	 	7.01	  	Financial Statements.	  	53	
 	 	7.02	  	Certificates; Other Information.	  	54	
 	 	7.03	  	Notices and Information.	  	56	
 	 	7.04	  	Payment of Obligations.	  	56	
 	 	7.05	  	Preservation of Existence, Etc.	  	56	
 	 	7.06	  	Maintenance of Properties.	  	56	
 	 	7.07	  	Maintenance of Insurance.	  	57	
 	 	7.08	  	Compliance with Laws.	  	57	
 	 	7.09	  	Books and Records.	  	57	
 	 	7.10	  	Inspection Rights.	  	57	
 	 	7.11	  	Use of Proceeds.	  	57	
 	 	7.12	  	Interest Rate Protection.	  	58	
 	 	7.13	  	Additional Credit Parties.	  	58	
 	 	7.14	  	Distributions from Excluded Entities.	  	58	
 	 	7.15	  	REIT Status/REIT Ownership of Borrower.	  	58	
 	 	
ARTICLE VIII NEGATIVE COVENANTS	  	59	
 	 	8.01	  	Reserved.	  	59	
 	 	8.02	  	Investments.	  	59	
 	 	8.03	  	Indebtedness.	  	60	
 	 	8.04	  	Fundamental Changes.	  	60	
 	 	8.05	  	Addition/Removal of Borrowing Base Properties and Leases; Dispositions.	  	60	
 	 	8.06	  	Restricted Payments.	  	61	
 	 	8.07	  	Change in Nature of Business.	  	61	
 	 	8.08	  	Transactions with Affiliates and Insiders.	  	62	
 	 	8.09	  	Burdensome Agreements.	  	62	
 	 	8.10	  	Use of Proceeds.	  	62	
 	 	8.11	  	Financial Covenants.	  	63	
 	 	8.12	  	No Foreign Subsidiaries.	  	64	
 	 	8.13	  	Prepayment of Other Indebtedness, Etc.	  	64	
 	 	8.14	  	Organization Documents; Fiscal Year.	  	64	
 	 	8.15	  	Ownership of Subsidiaries; Limitations on the REIT Guarantor.	  	64	
 	 	8.16	  	Sale Leasebacks.	  	64	
 
ii

 	 	
ARTICLE IX EVENTS OF DEFAULT AND REMEDIES	  	65	
 	 	9.01	  	Events of Default.	  	65	
 	 	9.02	  	Remedies Upon Event of Default.	  	66	
 	 	9.03	  	Application of Funds.	  	67	
 	 	
ARTICLE X ADMINISTRATIVE AGENT	  	67	
 	 	10.01	  	Appointment and Authorization of Administrative Agent.	  	67	
 	 	10.02	  	Delegation of Duties.	  	68	
 	 	10.03	  	Liability of Administrative Agent.	  	68	
 	 	10.04	  	Reliance by Administrative Agent.	  	68	
 	 	10.05	  	Notice of Default.	  	69	
 	 	10.06	  	Credit Decision; Disclosure of Information by Administrative Agent.	  	69	
 	 	10.07	  	Indemnification of Administrative Agent.	  	69	
 	 	10.08	  	Administrative Agent in its Individual Capacity.	  	70	
 	 	10.09	  	Successor Administrative Agent.	  	70	
 	 	10.10	  	Administrative Agent May File Proofs of Claim.	  	71	
 	 	10.11	  	Guaranty Matters.	  	71	
 	 	10.12	  	Other Agents; Arrangers and Managers.	  	71	
 	 	
ARTICLE XI MISCELLANEOUS	  	72	
 	 	11.01	  	Amendments, Etc.	  	72	
 	 	11.02	  	Notices and Other Communications; Facsimile Copies.	  	73	
 	 	11.03	  	No Waiver; Cumulative Remedies.	  	74	
 	 	11.04	  	Attorney Costs, Expenses and Taxes.	  	74	
 	 	11.05	  	Indemnification by the Credit Parties.	  	74	
 	 	11.06	  	Payments Set Aside.	  	75	
 	 	11.07	  	Successors and Assigns.	  	75	
 	 	11.08	  	Confidentiality.	  	77	
 	 	11.09	  	Set-off.	  	78	
 	 	11.10	  	Interest Rate Limitation.	  	78	
 	 	11.11	  	Counterparts.	  	78	
 	 	11.12	  	Integration.	  	79	
 	 	11.13	  	Survival of Representations and Warranties.	  	79	
 	 	11.14	  	Severability.	  	79	
 	 	11.15	  	Tax Forms.	  	79	
 	 	11.16	  	Replacement of Lenders.	  	80	
 	 	11.17	  	Governing Law.	  	81	
 	 	11.18	  	Waiver of Right to Trial by Jury.	  	81	
 	 	11.19	  	ENTIRE AGREEMENT.	  	81	
 	 	 	
 	 	SIGNATURES	  	S - 1	
 
iii

 	 	
SCHEDULES	  	 	
 	 	1.08	  	Description of Bond Transactions	
 	 	2.01	  	Commitments and Pro Rata Shares	
 	 	6.05	  	Supplement to Interim Financial Statements/Indebtedness	
 	 	6.06	  	Litigation	
 	 	6.09	  	Environmental Matters	
 	 	6.10	  	Insurance	
 	 	6.13	  	Corporate Structure	
 	 	6.17	  	Borrowing Base Properties and Leases	
 	 	6.20(a)	  	Real Properties/Excluded Properties	
 	 	6.20(b)	  	Chief Executive Office, Jurisdiction of Incorporation, Principal Place of Business	
 	 	8.02	  	Existing Investments	
 	 	11.02	  	Administrative Agent’s Office, Certain Addresses for Notices	
 	 	11.09	  	Accounts Excluded From Lender Set-Off Rights	
 	 	
EXHIBITS	  	 	
 	 	 	
 	 	A	  	Form of Loan Notice (Revolving/Swingline Loans)	
 	 	B	  	Form of Revolving Note	
 	 	C	  	Form of Swingline Note	
 	 	D	  	Form of Compliance Certificate	
 	 	E	  	Form of Assignment and Assumption	
 	 	F	  	Form of Joinder Agreement	
 
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CREDIT AGREEMENT
 
This CREDIT AGREEMENT (as amended, modified, restated or supplemented from time to time, the “Agreement”) is entered into as of April 23, 2003 by and among  WELLS OPERATING PARTNERSHIP, L.P. , a Delaware limited partnership (together with any permitted successors and assigns, the “ Borrower ”),  WELLS REAL ESTATE INVESTMENT TRUST, INC. , a Maryland corporation (together with any permitted successors and assigns, the “ REIT Guarantor ”), the other entities identified as guarantors on the signature pages hereto or from time to time made guarantors hereunder through the execution of a Joinder Agreement (together with any permitted successors and assigns, the “ Other Guarantors ”; collectively, with the REIT Guarantor, the “ Guarantors ”), the Lenders (as defined herein),  BANK OF AMERICA, N.A. , as Administrative Agent, Swingline Lender and L/C Issuer (each, as defined herein) and  BANC OF AMERICA SECURITIES LLC, as Sole Lead Arranger and Sole Book Manager.
 
The Borrower has requested that the Lenders provide credit facilities in an initial aggregate amount of $500,000,000.00 (the “Credit Facilities ”) for the purposes hereinafter set forth, and the Lenders are willing to do so on the terms and conditions set forth herein.
 
In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:
 
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
 
1.01	 	Defined Terms.	
 
As used in this Agreement, the following terms shall have the meanings set forth below:
 
“1031 Debt” means the aggregate outstanding principal balance of all unsecured equity bridge loans relating to “1031 exchanges”, payable by any Credit Party to Bank of America.
 
“Acquisition”, by any Person, means the acquisition by such Person, in a single transaction or in a series of related transactions, of all of the Capital Stock or all or substantially all of the Property of another Person, whether or not involving a merger or consolidation with such other Person and whether for cash, property, services, assumption of Indebtedness, securities or otherwise.
 
“Adjusted EBITDA” means, for any period, the sum of (a) EBITDA, less (b) aggregate Capital Expenditure Reserves for all Real Properties and Excluded Properties with respect to such period,  plus  or  minus  (as applicable) (c) an amount equal to any increase or decrease in EBITDA for such period attributable to the Straight-Lining of Rents,  plus  or  minus  (as applicable) (d) an amount equal to any net increase or decrease in EBITDA for such period attributable to the amortization of intangible lease assets and intangible lease liabilities.
 
“Adjusted Investment Value” means, as of any date of determination, the sum of (a) the value of any Investments by any of the Credit Parties in any non-Credit Parties as of such date of determination,  plus  (b) the aggregate outstanding principal balance of all loans made by a Credit Party to any Person which is not a Credit Party to the extent such loans are not included in clause (a) of this definition,  plus  (c) the aggregate outstanding principal balance of all loans made by a third party to a Person which is not a Credit Party if such loans are guaranteed by a Credit Party to the extent such guaranteed loans are not included in clauses (a) or (b) of this definition.
 
“Administrative Agent” or “Agent” means Bank of America in its capacity as administrative agent under any of the Credit Documents, or any successor administrative agent.
 
“Administrative Agent’s Office” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 11.02 , or such other address or account as the Administrative Agent may from time to time notify the Borrower and the Lenders.

“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.
 
“Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. “ Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “ Controlling ” and “ Controlled ” have meanings correlative thereto. Without limiting the generality of the foregoing, a Person shall be deemed to be Controlled by another Person if such other Person possesses, directly or indirectly, power to vote 5% or more of the securities having ordinary voting power for the election of directors, managing general partners or the equivalent.
 
“Agent-Related Persons” means the Administrative Agent, together with its Affiliates (including, in the case of Bank of America in its capacity as the Administrative Agent, the Arranger), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates.
 
“Aggregate Borrowing Base Property Value” means, as of any date of determination, an amount equal to the sum of the Borrowing Base Property Values for each Borrowing Base Property in existence as of such date.
 
“Aggregate Debt Service” means, for any Person for any given period, an amount equal to the sum of (a) all interest due and owing from or (without duplication) actually paid by such Person on all Indebtedness during such period;  plus  (b) all principal payments due or owing from or (without duplication) actually paid by such Person with respect to such Person’s Indebtedness during such period;  plus  (c) all preferred dividends or similar distributions paid by such Person during such period; provided, however that “Aggregate Debt Service” shall not be deemed to include any “balloon”, “bullet” or other extraordinary lump sum payments required with respect to the Indebtedness of a Person.
 
“Aggregate Revolving Commitments” means the Revolving Commitments of all the Lenders. The initial amount of the Aggregate Revolving Commitments in effect on the Closing Date is FIVE HUNDRED MILLION AND NO/100 DOLLARS ($500,000,000.00).
 
“Agreement” shall the meaning assigned to such term in the heading hereof.
 
“Annualized Adjusted NOI” means, with respect to any applicable time period for any Real Property, Excluded Property or any lease (as applicable), (a) the sum of (i) Annualized NOI for such period with respect to such Real Property, Excluded Property or such lease (as applicable) plus  (ii) actual management fees that were deducted from Annualized NOI for such period with respect to such Real Property, Excluded Property or such lease (as applicable),  less  (b) the sum of (i) the Capital Expenditure Reserve amount for such Real Property, Excluded Property or such lease (as applicable) during such period,  plus  (ii) a management fee equal to the greater of actual or two percent (2%) of total revenues derived from the Real Property, Excluded Property or such lease (as applicable) during such period; provided, that in calculating Annualized Adjusted NOI (and the related components thereof) for any lease, costs, fees, expenses and other amounts associated generally with the underlying Real Property or Excluded Property as opposed to any individual lease thereof (including taxes and applicable management fees) shall be attributable to such lease on a pro rata basis based on the percentage of the net rentable space of such Real Property or Excluded Property covered pursuant to the terms of such lease.
 
“Annualized NOI” means (a) for each Real Property or Excluded Property owned by the REIT Guarantor and/or its Subsidiaries (including, without limitation, the Excluded Entities) for 12 months or more or any lease under which the REIT Guarantor and/or its Subsidiaries (including, without limitation, the Excluded Entities) has been the landlord for such period, Net Operating Income for such Real Property, Excluded Property or lease (as applicable) for the immediately preceding 12 month period; (b) for each Real Property or Excluded Property owned by the REIT Guarantor and/or its Subsidiaries (including, without limitation, the Excluded Entities) for a period of less than 12 months or any lease under which the REIT Guarantor and/or its Subsidiaries (including, without limitation, the Excluded Entities) has been the landlord for a period of less than 12 months, Net Operating Income for such Real Property, Excluded Property or lease (as applicable) calculated by annualizing Net Operating Income for such Real Property, Excluded Property or lease since the date of acquisition and adjusting (through appropriate
 
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pro-rating, removal, accruals or other correction) for all annual or one-time lump sum payments or expenses with respect to such Real Property, Excluded Property or lease or for any extraordinary income or expense items with respect to such Real Property, Excluded Property or lease.
 
“Annualized Hypothetical Debt Service” means the annual aggregate installments of principal and interest which would be due and payable on a hypothetical loan in the full amount of the lesser of (a) the Aggregate Revolving Commitments and (b) the Borrowing Base, if such amount were amortized over a period of twenty-five (25) years at a fixed rate of interest equal to the 10-year Treasury Rate as of such date plus two and one half percent (2.50%), but in no event less than nine (9) percentage points per annum. Agent’s determination of the Annualized Hypothetical Debt Service shall be binding and conclusive absent manifest error.
 
“Applicable Spread” means the following percentages per annum, based upon the Total Leverage Ratio as set forth in the most recent Compliance Certificate received by the Administrative Agent pursuant to  Section 7.02(a) :
 
Total Leverage Ratio

	  	Eurodollar %

	 	 	  	Base Rate %

	 	
< 0.30 to 1.00	  	1.375%	 	 	  	0	%	
³ 0.30 to 1.00, but < 0.40 to 1.00	  	1.500%	 	 	  	0.15	%	
³ 0.40 to 1.00	  	1.625%	 	 	  	0.25	%	
 
Any increase or decrease in the Applicable Spread resulting from a change in the Total Leverage Ratio shall become effective as of the first Business Day immediately following the date a Compliance Certificate is delivered pursuant to  Section 7.02(a) ;  provided ,  however , that if a Compliance Certificate is not delivered when due in accordance with such Section, then the applicable percentage shall be the percentage that would apply if the Total Leverage Ratio was equal to or greater than 0.40 to 1.00 and it shall apply as of the first Business Day after the date on which such Compliance Certificate was required to have been delivered.
 
“Arranger” means Banc of America Securities LLC, in its capacity as sole lead arranger and sole book manager.
 
“Assignment and Assumption” means an Assignment and Assumption substantially in the form of Exhibit E.
 
“Attorney Costs” means and includes all fees, expenses and disbursements of any law firm or other external counsel and, without duplication, the allocated cost of internal legal services and all expenses and disbursements of internal counsel.
 
“Attributable Indebtedness” means, on any date, (a) in respect of any Capital Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (b) in respect of any Off-Balance Sheet Liabilities, the capitalized amount of the remaining lease payments under the relevant lease that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease were accounted for as a Capital Lease.
 
“Audited Financial Statements” means the audited consolidated balance sheet of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) for the fiscal year ended December 31, 2002, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities), including the notes thereto.
 
“Availability Period” means, with respect to the Revolving Commitments, the period from the Closing Date to the earliest of (a) the Maturity Date, (b) the date of termination of the Aggregate Revolving Commitments pursuant to  Section 2.05  and (c) the date of termination of the commitment of each Lender to make Revolving Loans, the Swingline Lender to make Swingline Loans and the L/C Issuer to make L/C Credit Extensions pursuant to  Section 9.02 .
 
“Bank of America” means Bank of America, N.A. and its successors.
 
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“Bankruptcy Event” means, with respect to any Person, the occurrence of any of the following: (a) the entry of a decree or order for relief by a court or governmental agency in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or the appointment by a court or governmental agency of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or the ordering of the winding up or liquidation of its affairs by a court or governmental agency; or (b) the commencement against such Person of an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or of any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or for the winding up or liquidation of its affairs, and such involuntary case or other case, proceeding or other action shall remain undismissed for a period of ninety (90) consecutive days, or the repossession or seizure by a creditor of such Person of a substantial part of its Property; or (c) such Person shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment of or the taking possession by a receiver, liquidator, assignee, creditor in possession, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or make any general assignment for the benefit of creditors; or (d) such Person shall admit in writing its inability to pay its debts generally as they become due.
 
“Base Rate” means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Agent as its “prime rate.” The “prime rate” is a rate set by Agent based upon various factors including Agent’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Agent shall take effect at the opening of business on the day specified in the public announcement of such change.
 
“Base Rate Loan” means a Loan that bears interest based on the Base Rate.
 
“Borrower” has the meaning specified in the heading hereof.
 
“Borrowing” means a borrowing consisting of simultaneous Loans of the same Type (whether constituting Revolving Loans or Swingline Loans) and, in the case of Eurodollar Rate Loans, having the same Interest Period made by each of the Lenders pursuant to  Section 2.01 .
 
“Borrowing Base” means, as of any day, an amount equal to (a) fifty percent (50.0%), multiplied by (b) the Aggregate Borrowing Base Property Value, as set forth in the most recent Compliance Certificate delivered to the Administrative Agent and the Lenders in accordance with the terms of  Section 7.02(a) ; provided, however, that, prior to such calculation, the Borrowing Base Property Value associated with a single Borrowing Base Property shall not, in any case (i) during the twelve (12) calendar months immediately following the Closing Date, account for more than twenty-five percent (25.0%) of the Aggregate Borrowing Base Property Value; or (ii) at all times thereafter, account for more than twenty percent (20.0%) of the Aggregate Borrowing Base Property Value; and to the extent the Borrowing Base Property Value associated with a single Borrowing Base Property would account for a greater percentage of the Aggregate Borrowing Base Property Value than permitted pursuant to clauses (i) or (ii) above (as applicable), such Borrowing Base Property Value shall be removed from the calculation of Aggregate Borrowing Base Property Value to the extent necessary to reduce the percentage of Aggregate Borrowing Base Property Value attributable to such Borrowing Base Property Value (after giving effect to the reduction in value) to a percentage that is equal to or less than the percentage required pursuant to the terms of clauses (i) or (ii) above (as applicable).
 
“Borrowing Base Lease” means, as of any date of determination, a lease with respect to any parcel of Real Property satisfying each of the following:
 
 	(a)	 	such lease (i) has, as of such date of determination, a remaining term (without consideration of any extension options contained therein) extending not less than thirty-six (36) calendar months beyond the Maturity Date and (ii) has (or had, as applicable), as of the first date on which the Annualized Adjusted NOI associated with such Borrowing Base Lease is/was included in the calculation of Borrowing Base Property Value and Aggregate Borrowing Base Property Value for purposes of calculating the Borrowing Base, a remaining term of not less than sixty (60) calendar	
 
4

 	months; provided, however, that certain lease with Danaher Power Solutions, LLC as tenant and encompassing approximately 14,459 square feet shall be deemed to satisfy the requirements of this clause (a) so long as its expiration date is not before November 1, 2007;	
 
 	(b)	 	the lessee under such lease shall not be the subject of a Bankruptcy Event;	
 
 	(c)	 	no required rental payment, principal or interest payment, or other payment due under such lease is, as of the date of determination, more than fifteen (15) days past due; and	
 
 	(d)	 	such lease shall have, pursuant to either Section 5.01 or Section 8.05(c) hereof, been approved by the Agent in writing on behalf of the Lenders and in its sole discretion for inclusion in the calculation of Borrowing Base Property Value and Aggregate Borrowing Base Property Value for purposes of calculating the Borrowing Base.	
 
“Borrowing Base Properties” means, as of any date of determination, all Real Properties (except Real Properties which are Speculative Properties or Properties Under Development) nominated by Borrower in writing, approved by the Agent and (except to the extent approved by the Required Lenders) satisfying each of the following:
 
 	(a)	 	the applicable Real Property is located in the United States of America and is 100% owned by a Credit Party in fee simple (meaning, for purposes of clarification, that the applicable Credit Party’s ownership interest will not be created pursuant to or otherwise subject to a ground lease) subject to no Liens (except Permitted Liens); provided, that the Credit Parties’ interest in the real property underlying the “bond projects” referenced in  Section 1.08  shall not be deemed to be 100% owned in fee simple for purposes of this definition;	
 
 	(b)	 	the applicable Real Property is subject to one or more Borrowing Base Leases and the Occupancy Rate associated with the applicable Real Property is greater than or equal to eighty-five percent (85.0%); provided, however, that (i) the Real Property located in Irving, Texas with respect to which Nissan is the major tenant shall be deemed to satisfy the conditions set forth in this clause (b) for the period from the Closing Date through and including June 30, 2003 regardless of the Occupancy Rate for such Real Property during such period; and (ii) the Real Property located in Quincy, Massachusetts with respect to which State Street Bank (or an Affiliate thereof) is the major tenant shall be deemed to satisfy the conditions set forth in this clause (b) for the period from the Closing Date through and including June 30, 2003 to extent the Occupancy Rate associated with such Real Property does not, during such period, drop below sixty percent (60.0%);	
 
 	(c)	 	no condemnation proceedings have been instituted or condemnation has occurred with respect to a material portion of the applicable parcel of Real Property since the initial inclusion of the Borrowing Base Property Value associated with such Real Property in the calculation of the Aggregate Borrowing Base Property Value; and	
 
 	(d)	 	the applicable Real Property shall not have been materially injured or damaged by fire or other casualty whereby either any lessee with respect to such Real Property is permitted to terminate its lease, materially reduce or abate the rental payments required thereunder or otherwise materially postpone or limit its performance under such lease as a result of such fire or other casualty event; provided, that as used in this clause (d), a rent reduction or abatement shall be deemed “material” if it results in a reduction of more than 10% of the previous rental payments and a postponement or limitation shall be “material” if it is for a duration in excess of 30 days or, if longer, the time period covered by any rent loss insurance a Credit Party may have with respect to the applicable Real Property.	
 
“Borrowing Base Property Value” means, with respect to any given Borrowing Base Property as of any date of determination, an amount equal to the sum of the Eligible Asset Values of each of the Borrowing Base Leases associated with such Borrowing Base Property.
 
5

“Borrowing Letter” means that certain letter from the Borrower to the Administrative Agent dated as of the date hereof and identifying an account (and associated wire information) as the default account for the funding of Borrowings hereunder.
 
“Budgeted Project Costs” means, with respect to Properties Under Development, the budgeted cost of construction and final completion of such Properties Under Development (including contingency amounts, whether or not spent); provided that the Budgeted Project Costs shall include projected operating deficits through completion and the projected date of occupancy of eighty-five percent (85.0%) of the gross leasable space.
 
“Build to Suit Properties” means those Properties Under Development which have been 100% leased to tenants and have projected Net Operating Income (based on projections approved by the Administrative Agent in its discretion) after final completion in an amount acceptable to Agent in its discretion.
 
“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent’s Office is located and, if such day relates to any Eurodollar Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.
 
“Businesses” means, at any time, a collective reference to the businesses operated by the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) at such time.
 
“Capital Expenditure Reserve” means, with respect to any Real Property, any Excluded Property or any lease with respect to which a Credit Party is the landlord, a normalized annual reserve in the aggregate amount of (a) with respect to space in all such properties other than space constituting Industrial Space, $1.75 per year per square foot of net leaseable area not constituting Industrial Space, or (b) with respect to all space in such properties constituting Industrial Space, $0.50 per year per square foot of net leaseable area constituting Industrial Space, in each case, for: (i) replacement reserves; (ii) capital expenditures; (iii) tenant improvements; and (iv) leasing commissions. When the Capital Expenditure Reserve is used in computing an amount with respect to a fiscal period which is shorter than a year, said amount shall be appropriately pro rated.
 
“Capital Lease” means, as applied to any Person, any lease of any Property (whether real, personal or mixed) by that Person as lessee which, in accordance with GAAP, is required to be accounted for as a capital lease on the balance sheet of that Person.
 
“Capital Stock” means (i) in the case of a corporation, capital stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (iii) in the case of a partnership, partnership interests (whether general or limited), (iv) in the case of a limited liability company, membership interests and (v) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.
 
“Capitalization Rate” means 9.5%; provided, however, that the capitalization rate shall be reviewed annually and be subject to annual adjustment (with such adjustment being made for each year on or before each anniversary of the Closing Date) by the Required Lenders in their sole discretion based upon market conditions for comparable property types. Notwithstanding the foregoing, the capitalization rate shall not, in any case, be adjusted by more than one and one quarter of one percent (1.25%) in connection with any such annual adjustment (meaning, that the first such adjustment may increase the Capitalization Rate to no greater than 10.75% and decrease it to no less than 8.25%).
 
“Cash Collateralize” has the meaning specified in Section 2.03(g).
 
“Cash Equivalents” means, as at any date, (a) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition, (b) Dollar denominated time deposits and certificates of deposit of (i) any Lender, (ii) any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000 or (iii) any bank whose short-term commercial paper
 
6

rating from S&P is at least A-1 or the equivalent thereof or from Moody’s is at least P-1 or the equivalent thereof (any such bank being an “Approved Bank”), in each case with maturities of not more than 270 days from the date of acquisition, (c) commercial paper and variable or fixed rate notes issued by any Approved Bank (or by the parent company thereof) or any variable rate notes issued by, or guaranteed by, any domestic corporation rated A-1 (or the equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or better by Moody’s and maturing within six months of the date of acquisition, (d) repurchase agreements entered into by any Person with a bank or trust company (including any of the Lenders) or recognized securities dealer having capital and surplus in excess of $500,000,000 for direct obligations issued by or fully guaranteed by the United States in which such Person shall have a perfected first priority security interest (subject to no other Liens) and having, on the date of purchase thereof, a fair market value of at least 100% of the amount of the repurchase obligations and (e) Investments, classified in accordance with GAAP as current assets, in money market investment programs registered under the Investment Company Act of 1940, as amended, which are administered by reputable financial institutions having capital of at least $500,000,000 and the portfolios of which are limited to Investments of the character described in the foregoing subdivisions (a) through (d).
 
“Change of Control” means the occurrence of any of the following events: (a) the sale, lease, transfer or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of either the REIT Guarantor or the Borrower and its Subsidiaries taken as a whole to any “person” or “group” (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934), (b) the REIT Guarantor or the Borrower is liquidated or dissolved or adopts a plan of liquidation or dissolution; (c) the REIT Guarantor shall fail to own directly or indirectly 99.99% of the outstanding Capital Stock of the Borrower; or (d) any Person or two or more Persons acting in concert shall have acquired beneficial ownership, directly or indirectly, of, or shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation, will result in its or their acquisition of, control over, Voting Stock of the REIT Guarantor (or other securities convertible into such Voting Stock) representing 35% or more of the combined voting power of all Voting Stock of the REIT Guarantor. As used herein, “beneficial ownership” shall have the meaning provided in Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act.
 
“Closing Date” means the first date all the conditions precedent in Section 5.01 are satisfied or waived in accordance with Section 5.01 .
 
“Code” means the Internal Revenue Code of 1986.
 
“Commitment” means, (i) with respect to each Lender, the Revolving Commitment of such Lender, (ii) with respect to the Swingline Lender, the Swingline Commitment, and (iii) with respect to the L/C Issuer, the commitment of such L/C Issuer to issue Letters of Credit pursuant to Section 2.03 .
 
“Compliance Certificate” means a certificate substantially in the form of Exhibit D; provided, that each such Compliance Certificate shall also include an updated version of  Schedule 6.13(a) ,  (b)  and  (c) ,  Schedule 6.17 ,  Schedule 6.20(a)  and  Schedule 11.09 , along with a summary of changes made to such schedules since the previous delivery thereof; provided, further, that upon the delivery of such updated schedules,  Schedule 6.13(a) , (b)  and  (c) ,  Schedule 6.17 ,  Schedule 6.20(a)  and  Schedule 11.09  shall each be deemed to have been amended and restated to read in accordance with the applicable updated schedule and, with respect to  Schedule 6.13(a) ,  (b)  and  (c) ,  Schedule 6.17 ,  Schedule 6.20(a)  and  Schedule 11.09 , respectively, the representations and warranties contained in  Schedule 6.13 ,  Section 6.17 ,  Schedule 6.20(a)  and  Schedule 11.09  respectively, shall apply to such amended and restated schedules.
 
“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.
 
“Control” has the meaning specified in the definition of “Affiliate” set forth in this Section 1.01.
 
“Credit Documents” means this Agreement, each Note, each Letter of Credit, each Letter of Credit Application, each Joinder Agreement and the Fee Letter.
 
“Credit Extension” means each of the following: (a) a Borrowing and (b) an L/C Credit Extension.
 
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“Credit Parties” means, as of any date, the Borrower and each of the Guarantors a party hereto.
 
“Debt Issuance” means the issuance by any Credit Party of any Indebtedness of the type referred to in clause (a) or (b) of the definition thereof set forth in this  Section 1.01 .
 
“Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
 
“Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.
 
“Default Rate” means an interest rate equal to (a) the Base Rate plus (b) the Applicable Spread, if any, applicable to Base Rate Loans plus  (c) four percent (4.0%) per annum;  provided ,  however , that with respect to a Eurodollar Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Spread) otherwise applicable to such Loan  plus  four percent (4.0%) per annum, in each case to the fullest extent permitted by applicable Laws.
 
“Defaulting Lender” means any Lender that (a) has failed to fund any portion of the Loans or participations in L/C Obligations or Swingline Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a good faith dispute, or (c) has been deemed insolvent or becomes the subject of a Bankruptcy Event.
 
“Disposition” or “Dispose” means any disposition (including pursuant to a Sale and Leaseback Transaction) of any or all of the Property (including without limitation the Capital Stock of a Subsidiary) of any Credit Party whether by sale, lease, licensing, transfer or otherwise, but other than pursuant to any casualty or condemnation event;  provided ,  however , that the term “Disposition” shall be deemed to exclude any Equity Issuance.
 
“Dividend Reinvestment Proceeds” means, as of any date of determination and for any given period, an amount equal to all dividends or other distributions paid by the REIT Guarantor during such period, direct or indirect, on account of any shares of any equity interest of the REIT Guarantor which any holder(s) of such equity interest direct to be used, concurrently with the making of such dividend or distribution, for the purpose of purchasing for the account of such holder(s) additional equity interests in the REIT Guarantor or its Subsidiaries.
 
“Dollar” and “$” mean lawful money of the United States.
 
“Domestic Subsidiary” means any Subsidiary of any Credit Party that is organized under the laws of any political subdivision of the United States.
 
“EBITDA” means, for any period, the sum of (a) Net Income during such period, plus (b) an amount which, in the determination of Net Income for such period, has been deducted for (i) Interest Expense (to the extent deducted in calculating Net Income), (ii) total federal, state, local and foreign income, value added and similar taxes and (iii) depreciation and amortization expense, all as determined in accordance with GAAP.
 
“Eligible Asset Value” means, as of any date of calculation for any Borrowing Base Lease, an amount equal to (a) the Annualized Adjusted NOI allocable to such Borrowing Base Lease;  divided  by (b) the Capitalization Rate.
 
“Eligible Assignee” has the meaning specified in Section 11.07(g).
 
“Environmental Laws” means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials
 
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into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.
 
“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower, any other Credit Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
 
“ERISA” means the Employee Retirement Income Security Act of 1974.
 
“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with any Credit Party within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).
 
“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by any Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate.
 
“Equity Issuance” means any issuance by any Credit Party to any Person of (a) shares of its Capital Stock, (b) any shares of its Capital Stock pursuant to the exercise of options or warrants, (c) any shares of its Capital Stock pursuant to the conversion of any debt securities to equity or the conversion of any class equity securities to any other class of equity securities or (d) any options or warrants relating to its Capital Stock. The term “Equity Issuance” shall not be deemed to include any Disposition.
 
“Eurodollar Rate” means for any Interest Period with respect to any Eurodollar Rate Loan:
 
(a) the rate per annum equal to the rate determined by the Administrative Agent to be the offered rate that appears on the page of the Telerate screen (or any successor thereto) that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or
 
(b) if the rate referenced in the preceding clause (a) does not appear on such page or service or such page or service shall not be available, the rate per annum equal to the rate determined by the Administrative Agent to be the offered rate on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or
 
(c) if the rates referenced in the preceding clauses (a) and (b) are not available, the rate per annum determined by the Administrative Agent as the rate of interest at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by Agent and with a term equivalent to such Interest Period would be offered by Agent’s London Branch (if any) to major banks in the London
 
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interbank eurodollar market at their request at approximately 4:00 p.m. (London time) two Business Days prior to the first day of such Interest Period.
 
“Eurodollar Rate Loan” means a Loan that bears interest at a rate based on the Eurodollar Rate.
 
“Event of Default” has the meaning specified in Section 9.01.
 
“Excluded Entity” means any Subsidiary of the REIT Guarantor or any of its Subsidiaries (a) formed for the specific purpose of holding title to assets which are collateral for Indebtedness owing by such Subsidiary and (b) which is expressly prohibited in writing from Guaranteeing Indebtedness of any other Person pursuant to (i) a provision in any document, instrument or agreement evidencing such Indebtedness of such Subsidiary or (ii) a provision of such Subsidiary’s organizational documents, in each case, which provision was included in such organizational document or such other document, instrument or agreement as an express condition to the extension of such Indebtedness required by the third party creditor providing the subject financing; provided, that a Subsidiary meeting the above requirements shall only remain an “Excluded Entity” for so long as (x) each of the above requirements are satisfied, (y) such Subsidiary does not guarantee any other indebtedness and (z) the Indebtedness with respect to which the restrictions noted in clause (b) are imposed remains outstanding.
 
“Excluded Property” means any parcel of real property which is one hundred percent (100.0%) owned by either (a) a single Excluded Entity, (b) a group of Excluded Entities, or (c) a group including one or more Excluded Entities and one or more Credit Parties.
 
“Excluded Property Asset Cost” means, at any time, the aggregate cost of all Excluded Properties. For purposes of this definition, the cost of any loan or Guarantee shall be determined as provided in the last sentence of the definition of “Investments”.
 
“Extended Maturity Date” has the meaning set forth in Section 2.06.
 
“Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank on the Business Day next succeeding such day;  provided  that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to the Administrative Agent on such day on such transactions as determined by the Administrative Agent.
 
“Fee Letter” means the letter agreement, dated January 31, 2003 among the Borrower, the REIT Guarantor, the Administrative Agent and the Arranger.
 
“FFO” means, for a given period, (a) Net Income of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) for such period (before extraordinary and non-recurring items),  minus  (or  plus ) (b) gains (or losses) from debt restructuring and sales of property during such period,  plus  (c) depreciation and amortization of real and personal property assets for such period, plus (d) without duplication, income from unconsolidated partnerships and joint ventures, determined in each case in accordance with GAAP.
 
“FFO Distribution Allowance” means, commencing as of March 31, 2003, and for each fiscal quarter ending thereafter, an amount equal to ninety percent (90.0%) of FFO for such quarter,  plus  an amount equal to ninety percent (90.0%) of FFO for the three (3) fiscal quarters ending immediately prior to such fiscal quarter and not otherwise distributed prior to commencement of such quarter.
 
“Floating Rate Debt” means (in each case without duplication and on a consolidated basis): (a) 100% of the Indebtedness under the Credit Documents; (b) 100% of the Indebtedness of any members of the REIT Group under any other credit facility which has a maturity date (disregarding any extension options) which will occur less than one (1) calendar year from the date of such calculation, and (c) 100% of the Indebtedness of any members of the REIT Group under any other credit facility pursuant to which the interest rate (or equivalent thereof) paid by the
 
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applicable member(s) of the REIT Group is not fixed, as of the date of calculation, for a period in excess of one (1) calendar year (the Indebtedness in this clause (c) being referred to herein as “Other Debt”); provided, however, that to the extent such Other Debt is subject to interest rate protection instruments with a tenor in excess of one (1) calendar year, as of the date of calculation, and otherwise hedging the interest rate risks thereunder in a manner reasonably acceptable to the Agent, such Other Debt will not be considered “Floating Rate Debt” hereunder.
 
“Foreign Lender” has the meaning specified in Section 11.15(a)(i).
 
“Foreign Subsidiary” means any Subsidiary that is not a Domestic Subsidiary.
 
“FRB” means the Board of Governors of the Federal Reserve System of the United States.
 
“Fully Satisfied” means, with respect to the Obligations as of any date, that, as of such date, (a) all principal of and interest accrued to such date which constitute Obligations shall have been irrevocably paid in full in cash, (b) all fees, expenses and other amounts then due and payable which constitute Obligations shall have been irrevocably paid in cash, (c) all outstanding Letters of Credit shall have been (i) terminated, (ii) fully irrevocably Cash Collateralized or (iii) secured by one or more letters of credit on terms and conditions, and with one or more financial institutions, reasonably satisfactory to the L/C Issuer and (d) the Commitments shall have expired or been terminated in full.
 
“GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.
 
“Governmental Authority” means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.
 
“Guarantee” means, as to any Person, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.
 
“Guarantors” has the meaning specified in the introductory paragraph hereof.
 
“Guaranty” means the Guaranty made by the Guarantors in favor of the Agent and the Lenders pursuant to Article IV hereof.
 
“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing
 
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materials, polychlorinated biphenyls, radon gas, toxic mold, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
 
“Indebtedness” means, with respect to any Person, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, or upon which interest payments are customarily made, (c) all obligations of such Person under conditional sale or other title retention agreements relating to Property purchased by such Person (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business), (d) all obligations of such Person issued or assumed as the deferred purchase price of Property or services purchased by such Person (other than trade debt incurred in the ordinary course of business and due within six months of the incurrence thereof) which would appear as liabilities on a balance sheet of such Person, (e) all obligations of such Person under take-or-pay or similar arrangements or under commodities agreements, (f) the Attributable Indebtedness of such Person with respect to Capital Leases and Off Balance Sheet Liabilities, (g) all net obligations of such Person under Swap Contracts, (h) the principal portion of all obligations of such Person as an account party in respect of letters of credit (other than trade letters of credit) and bankers’ acceptances, including, without duplication, all unreimbursed drafts drawn thereunder (less the amount of any cash collateral securing any such letters of credit or and bankers’ acceptances), (i) all obligations of such Person to repurchase any securities issued by such Person at any time prior to the Maturity Date which repurchase obligations are related to the issuance thereof, including, without limitation, obligations commonly known as residual equity appreciation potential shares, (j) the aggregate amount of uncollected accounts receivable of such Person subject at such time to a sale of receivables (or similar transaction) to the extent such transaction is effected with recourse to such Person (whether or not such transaction would be reflected on the balance sheet of such Person in accordance with GAAP), (k) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on, or payable out of the proceeds of production from, Property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (l) all Guarantees of such Person with respect to Indebtedness of another Person and (m) the Indebtedness of any partnership or unincorporated joint venture in which such Person is a general partner or a joint venturer to the extent such Indebtedness is recourse to such Person. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date.
 
“Indemnified Liabilities” has the meaning set forth in Section 11.05.
 
“Indemnitees” has the meaning set forth in Section 11.05.
 
“Industrial Space” means, with respect to any parcel of Real Property or Excluded Property of which at least 48% of its total square footage is warehouse or manufacturing space, the portion (in square feet) of such Real Property or Excluded Property (in square feet) allocable to such warehouse or manufacturing space.
 
“Initial Maturity Date” has the meaning set forth in Section 2.06.
 
“Interest Expense” for any period, the sum of interest expense (including the interest component under Capital Leases and with respect to Off-Balance Sheet Liabilities) of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) on a consolidated basis for such period, as determined in accordance with GAAP.
 
“Interest Payment Date” means, (a) as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date;  provided ,  however , that if any Interest Period for a Eurodollar Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan (including, without limitation, any Swingline Loan), the last Business Day of each calendar month and the Maturity Date.
 
“Interest Period” means, (a) as to each Eurodollar Rate Loan, the period commencing on the date such Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Borrower in its Loan Notice and (b) as to any Swingline Loan, a period commencing in each case on the date of the borrowing and ending on the date agreed to by Borrower and the Swingline Lender in accordance with the provisions of  Section 2.01(b)  (such ending date in any event to be not more than three (3) Business Days from the date of borrowing);  provided  that: (i) any Interest Period that would otherwise
 
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end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; (ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (iii) no Interest Period shall extend beyond the Maturity Date.
 
“Investment” means any investment made in cash or by delivery of property by any Credit Party (a) in any Person, whether by (i) acquisition of assets, shares of Capital Stock, bonds, notes, mortgage instruments (including deeds of trust, deeds to secure debt and mortgages), debentures, partnership, joint ventures or other ownership interests or other securities of any Person or (ii) any deposit with, or advance, loan or other extension of credit to, any Person (other than deposits made in connection with the purchase of equipment or other assets in the ordinary course of business) or (iii) any other capital contribution to or investment in such Person, including, without limitation, any guaranty obligations (including any support for a letter of credit issued on behalf of such Person) incurred for the benefit of such Person, or (b) in any Property. Investments which are loans, advances, extensions of credit or Guarantees shall be valued at the principal amount of such loan, advance or extension of credit outstanding as of the date of determination or, as applicable, the principal amount of the loan or advance outstanding as of the date of determination actually guaranteed by such Guarantees.
 
“Involuntary Disposition” means any loss of, damage to or destruction of, or any condemnation or other taking for public use of, any Property of any Credit Party.
 
“IRS” means the United States Internal Revenue Service.
 
“Joinder Agreement” means a Joinder Agreement substantially in the form of Exhibit F hereto, executed and delivered by a new Guarantor in accordance with the provisions of  Section 7.13 .
 
“Laws” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.
 
“L/C Advance” means, with respect to each Lender, such Lender’s funding of its participation in any L/C Borrowing in accordance with its Pro Rata Share.
 
“L/C Borrowing” means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Borrowing of Revolving Loans.
 
“L/C Credit Extension” means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the renewal or increase of the amount thereof.
 
“L/C Issuer” means Bank of America in its capacity as issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit hereunder.
 
“L/C Obligations” means, as at any date of determination, the aggregate undrawn amount of all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C Borrowings.
 
“Lenders” means a collective reference to the Persons identified as “Lenders” on the signature pages hereto (including, without limitation, the Swingline Lender), together with any Person that subsequently becomes a Lender by way of assignment in accordance with the terms of  Section 11.07 , together with their respective successors, and “ Lender ” means any one of them.
 
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“Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.
 
“Letter of Credit” means any letter of credit issued hereunder. Each Letter of Credit shall be a standby letter of credit.
 
“Letter of Credit Application” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer.
 
“Letter of Credit Expiration Date” means the day that is sixty (60) days prior to the Maturity Date then in effect (or, if such day is not a Business Day, the next preceding Business Day).
 
“Letter of Credit Sublimit” means an amount equal to $40,000,000.00. The Letter of Credit Sublimit is part of, and not in addition to, the Aggregate Revolving Commitments.
 
“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing).
 
“Loan” or “Loans” means the Revolving Loans and/or the Swingline Loans, individually or collectively, as appropriate.
 
“Loan Notice” means a notice of (a) a Borrowing, (b) a conversion of Loans from one Type to the other, or (c) a continuation of Eurodollar Rate Loans, pursuant to  Section 2.02(a) , which, if in writing, shall be substantially in the form of  Exhibit A .
 
“Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), or financial condition of the Credit Parties taken as a whole; (b) a material impairment of the ability of any Credit Party to perform its material obligations under any Credit Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Credit Party of any Credit Document to which it is a party.
 
“Maturity Date” means the later to occur of (a) the Initial Maturity Date; and (b) to the extent the initial extension is granted, the Extended Maturity Date.
 
“Minimum Shareholder Equity Amount” means, as of any date of calculation, an amount equal to (a) $1,835,950,000.00; plus (b) an amount equal to seventy-two and one quarter percent (72.25%) of the gross cash proceeds of any Equity Issuances received by the REIT Guarantor or by any other Credit Party during the period commencing on the Closing Date and ending as of the most-recently ended fiscal quarter of the REIT Guarantor; plus  (c) one hundred percent (100.0%) of Net Income during the period commencing on the Closing Date and ending as of the most-recently ended fiscal quarter of the REIT Guarantor;  less  (d) one hundred percent (100.0%) of the amount expended by the REIT Guarantor in connection with the purchase or redemption of treasury stock of the REIT Guarantor during the period commencing on the Closing Date and ending as of the most-recently ended fiscal quarter of the REIT Guarantor;  less  (e) one hundred percent (100.0%) of the amount of dividends or similar distributions (including, for purposes of clarification and without limitation, dividends which become Dividend Reinvestment Proceeds) paid by the REIT Guarantor during the period commencing on the Closing Date and ending as of the most-recently ended fiscal quarter of the REIT Guarantor.
 
“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.
 
“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.
 
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“Negative Pledge” means a provision of any agreement (other than this Agreement or any other Credit Document) that prohibits the creation of any Lien on any assets of a Person or the sale of any assets of a Person;  provided ,  however , that an agreement that establishes a maximum ratio of unsecured debt to unencumbered assets, or of secured debt to total assets, or that otherwise conditions a Person’s ability to encumber its assets upon the maintenance of one or more specified ratios that limit such Person’s ability to encumber its assets but that do not generally prohibit the encumbrance of its assets, or the encumbrance of specific assets, shall not constitute a “Negative Pledge” for purposes hereof.
 
“Net Dividends” means, for any given period of time for the REIT Guarantor, an amount equal to (a) one hundred percent (100.0%) of all dividends or other distributions, direct or indirect, on account of any shares of any equity interest of the REIT Guarantor (except dividends or distributions payable solely in shares of that class of equity interest to the holders of that class) during such period,  less  (b) any amount of such dividends or distributions constituting Dividend Reinvestment Proceeds.
 
“Net Income” means, for any period, net income (excluding extraordinary gains and losses and related tax effects thereof) after taxes of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) on a consolidated basis for such period, as determined in accordance with GAAP.
 
“Net Operating Income” means, for any given period and with respect to any one or more Real Properties or Excluded Properties or any lease (as applicable), the amount equal to the sum of (a) Net Income attributable to such Real Property, Real Properties, Excluded Property, Excluded Properties or such lease for such period  plus  (b) the aggregate amount deducted during such period and not otherwise included in Net Income with respect to such Real Property, Real Properties, Excluded Property, Excluded Properties or allocable to such lease for (i) income taxes, (ii) depreciation and amortization, and (iii) Interest Expense,  less  (c) interest income,  plus  or  minus  (as applicable) (d) an amount equal to any increase or decrease in revenues of the applicable Real Property, Excluded Property or lease during the applicable period attributable to Straight-Lining of Rents.
 
“Non-Recourse Indebtedness” means any Indebtedness of any member of the REIT Group or with respect to the assets of any member of the REIT Group, in each case, for which such Person is not personally liable to the holder of such Indebtedness, other than to the extent of any security therefor or pursuant to customary recourse exceptions (as determined by the Agent, in its reasonable discretion).
 
“Note” or “Notes” means the Revolving Notes and/or the Swingline Note, individually or collectively, as appropriate.
 
“Notes Receivable” means all promissory notes or other similar obligations to pay money, whether secured or unsecured, that are not over thirty (30) days past due in which any Credit Party has an interest.
 
“Obligations” means all advances to, and debts, liabilities, obligations, covenants and duties of, any Credit Party arising under any Credit Document or otherwise with respect to any Loan (whether a Revolving Loan or Swingline Loan) or Letter of Credit, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Credit Party of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding. The foregoing shall also include any Swap Contract of any Credit Party relating to the Indebtedness under the Credit Documents and to which a Lender or any Affiliate of such Lender is a party.
 
“Occupancy Rate” means, for any Real Property, the percentage of rentable area of such Real Property that is (a) leased pursuant to a lease that qualifies as Borrowing Base Lease (as reasonably determined by the Agent) and (b) actually occupied by tenants which are not more than 15 days in arrears on rental payments and not in bankruptcy.
 
“Off Balance Sheet Liabilities” means, with respect to any Person, the monetary obligations of such Person with respect to (without duplication) (a) any repurchase obligation or liability, contingent or otherwise, of such Person with respect to any accounts or notes receivable sold, transferred or otherwise disposed of by such Person, (b) any repurchase obligation or liability, contingent or otherwise, of such Person with respect to property or assets
 
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leased by such Person as lessee, (c) all obligations, contingent or otherwise, of such Person under any synthetic lease, tax retention operating lease, off balance sheet loan or similar off balance sheet financing if the transaction giving rise to such obligation (i) is considered Indebtedness for borrowed money for tax purposes but is classified as an operating lease and (ii) does not (and is not required pursuant to GAAP to) appear as a liability on the balance sheet of such Person, (d) any leases treated as a financing for GAAP or tax purposes, but excluding from the forgoing provisions of this definition any obligations or liabilities of any such Person as lessee under any operating lease so long as the terms of such operating lease do not require any payment by or on behalf of such Person at the scheduled termination date of such operating lease, pursuant to a required purchase by or on behalf of such Person of the property or assets subject to such operating lease, or under any arrangements pursuant to which such Person guarantees or otherwise assures any other Person of the value of the property or assets subject to such operating lease and (e) any other agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment), in each case.
 
“Operating Lease” means, as applied to any Person, any lease (including, without limitation, leases which may be terminated by the lessee at any time) of any Property (whether real, personal or mixed) which is not a Capital Lease other than any such lease in which that Person is the lessor.
 
“Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.
 
“Outstanding Amount” means (i) with respect to Loans (whether Revolving Loans or Swingline Loans) on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of such Loans, as the case may be, occurring on such date; and (ii) with respect to any L/C Obligations on any date, the amount of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements of outstanding unpaid drawings under any Letters of Credit or any reductions in the maximum amount available for drawing under Letters of Credit taking effect on such date.
 
“Participant” has the meaning specified in Section 11.07(d).
 
“PBGC” means the Pension Benefit Guaranty Corporation.
 
“Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by any Credit Party or any ERISA Affiliate or to which any Credit Party or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.
 
“Permitted Investments” means, at any time, Investments by the Credit Parties permitted to exist at such time pursuant to the terms of Section 8.02 .
 
“Permitted Liens” means, at any time, Liens in respect of Property of the Credit Parties constituting:
 
(a) Liens existing pursuant to any Credit Document;
 
(b) Liens (other than Liens imposed under ERISA) for taxes, assessments or governmental charges or levies not yet due or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;
 
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(c) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and suppliers and other Liens imposed by law or pursuant to customary reservations or retentions of title arising in the ordinary course of business,  provided  that such Liens secure only amounts not yet due and payable or, if due and payable, are unfiled and no other action has been taken to enforce the same or are being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established;
 
(d) easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person;
 
(e) leases or subleases on market terms granted to third parties not interfering in any material respect with the business of any Credit Party;
 
(f) Liens securing judgments for the payment of money not constituting an Event of Default under Section 9.01(g) or securing appeal or other surety bonds related to such judgments; and
 
(g) any interest of title of a lessor under, and Liens arising from UCC financing statements (or equivalent filings, registrations or agreements in foreign jurisdictions) relating to, leases permitted by this Agreement.
 
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
 
“Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by any Credit Party or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.
 
“Pro Forma Basis” means, for purposes of performing calculations required in any Compliance Certificate delivered in connection with a proposed or expected transaction, that such transaction shall be deemed to have occurred as of the first day of the four fiscal-quarter period ending as of the most recent fiscal quarter end preceding the date of such transaction with respect to which the Administrative Agent has received the Required Financial Information. As used herein, “transaction” shall mean (a) any Disposition as referred to in  Section 8.05  or  Section 8.12  or other removal of the Borrowing Base Property Value of a former Borrowing Base Property or the Eligible Asset Value of a former Borrowing Base Lease from the calculation of Aggregate Borrowing Base Property Value and the Borrowing Base pursuant to  Section 8.05  hereof; (b) any addition pursuant to Section 8.05  hereof of the Borrowing Base Property Value of a new Borrowing Base Property or the Eligible Asset Value of a new Borrowing Base Lease to the calculation of Aggregate Borrowing Base Property Value and the Borrowing Base; and (c) any Credit Extension hereunder.
 
“Pro Forma Compliance Certificate” means a certificate of a Responsible Officer of the Borrower delivered to the Administrative Agent in connection with (a) any Disposition as referred to in  Section 8.05  or  Section 8.12  or other removal of the Borrowing Base Property Value of a former Borrowing Base Property or the Eligible Asset Value of a former Borrowing Base Lease from the calculation of Aggregate Borrowing Base Property Value and the Borrowing Base pursuant to  Section 8.05  hereof; (b) any addition pursuant to  Section 8.05  hereof of the Borrowing Base Property Value of a new Borrowing Base Property or the Eligible Asset Value of a new Borrowing Base Lease to the calculation of Aggregate Borrowing Base Property Value and the Borrowing Base; or (c) any Credit Extension hereunder, as applicable, and containing reasonably detailed calculations, upon giving effect to the applicable transaction on a Pro Forma Basis, of the matters set forth in each Compliance Certificate as of the most recently ended calendar month preceding the date of the applicable transaction.
 
“Pro Rata Share” means as to each Lender, with respect to such Lender’s Revolving Commitment at any time, a fraction (expressed as a percentage, carried out to the ninth decimal place), the numerator of which is the amount of the Revolving Commitment of such Lender at such time and the denominator of which is the amount of
 
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the Aggregate Revolving Commitments at such time; provided that if the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to  Section 9.02 , then the Pro Rata Share of such Lender shall be determined based on the Pro Rata Share of such Lender immediately prior to such termination and after giving effect to any subsequent assignments made pursuant to the terms hereof. The initial Pro Rata Share of each Lender is set forth opposite the name of such Lender on  Schedule 2.01  or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.
 
“Properties Under Development” means all Real Properties or Excluded Properties, the primary purpose of which is to be leased in the ordinary course of business and on which the applicable Credit Party has commenced construction of a building or other improvements; provided, that any such Real Property or Excluded Property will no longer be considered a Property Under Development when, as of the beginning of any fiscal quarter, eighty-five percent (85%) of the gross leasable space contained therein is occupied by tenants under leases pursuant to which all free rent periods have expired and rent payments have commenced.
 
“Property” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.
 
“Proposed Borrowing Base Asset” has the meaning assigned to such term in Section 8.05(c).
 
“Qualified REIT Subsidiary” shall have the meaning given to such term in the Code.
 
“Real Properties” means, at any time, a collective reference to all parcels of real property in which one or more Credit Parties hold one hundred percent (100.0%) of the ownership interests; and “ Real Property ” means any single parcel of such real property.
 
“Real Property Asset Cost” means, at any time, the aggregate cost of all Real Properties. For purposes of this definition, the cost of any loan or Guarantee shall be determined as provided in the last sentence of the definition of “Investments”.
 
“Recourse Indebtedness” means any Indebtedness of any member of the REIT Group which is not Non-Recourse Indebtedness (without duplication on account of the guaranty obligations of any member of the REIT Group relating to the Indebtedness of another such Person).
 
“Register” has the meaning set forth in Section 11.07(c).
 
“REIT” means a Person qualifying for treatment as a “real estate investment trust” under the Code.
 
“REIT Group” means a collective reference to the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities).
 
“REIT Guarantor” has the meaning set forth in the preamble to this Agreement.
 
“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.
 
“Request for Credit Extension” means (a) with respect to a Borrowing, conversion or continuation of Loans, a Loan Notice and (b) with respect to an L/C Credit Extension, a Letter of Credit Application.
 
“Required Financial Information” means, with respect to each fiscal period or quarter of the REIT Guarantor, (a) the financial statements required to be delivered pursuant to  Section 7.01(a)  or  (b)  for such fiscal period or quarter, and (b) the certificate of a Responsible Officer of the Borrower required by  Section 7.02(a)  to be delivered with the financial statements described in clause (a) above.
 
“Required Lenders” means, at any time, Lenders holding in the aggregate at least sixty-six and two-thirds percent (662/3%) of (a) the unfunded Commitments (and participations therein) and the outstanding Loans, L/C
 
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Obligations and participations therein or (b) if the Commitments have been terminated, the outstanding Loans, L/C Obligations and participations therein. The unfunded Commitments of, and the outstanding Loans held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.
 
“Responsible Officer” means the chief executive officer, president, executive vice president, chief financial officer, treasurer or assistant treasurer of a Credit Party. Any document delivered hereunder that is signed by a Responsible Officer of a Credit Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Credit Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Credit Party. The Agent, the Lenders and the L/C Issuer shall be entitled to rely upon the authority of each of the above-listed individuals and to conclusively presume that such individuals are, in taking any actions, acting on behalf of the Borrower or the other applicable Credit Party, except to the extent the Borrower provides written notice to the Agent to the contrary.
 
“Restricted Payment” means (a) any dividend or other payment or distribution, direct or indirect, on account of any shares of any class of Capital Stock of any Credit Party, now or hereafter outstanding (including without limitation any payment in connection with any dissolution, merger, consolidation or disposition involving any Credit Party), or to the holders, in their capacity as such, of any shares of any class of Capital Stock of any Credit Party, now or hereafter outstanding, (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of any Credit Party, now or hereafter outstanding or (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of any Credit Party, now or hereafter outstanding.
 
“Revolving Commitment” means, as to each Lender, its obligation to (a) make Revolving Loans to the Borrower pursuant to Section 2.01 , (b) purchase participations in L/C Obligations and (c) purchase participations in the Swingline Loans pursuant to  Section 2.01(b) , in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on  Schedule 2.01  or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.
 
“Revolving Loan” has the meaning specified in Section 2.01(a).
 
“Revolving Note” has the meaning specified in Section 2.10(a).
 
“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto.
 
“Sale and Leaseback Transaction” means any arrangement pursuant to which any Credit Party, directly or indirectly, becomes liable as lessee, guarantor or other surety with respect to any lease, whether an Operating Lease or a Capital Lease, of any Property (a) which such Credit Party has sold or transferred (or is to sell or transfer) to a Person which is not a Credit Party or (b) which such Credit Party intends to use for substantially the same purpose as any other Property which has been sold or transferred (or is to be sold or transferred) by such Credit Party to another Person which is not a Credit Party in connection with such lease.
 
“SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.
 
“Secured Debt” means, for any given calculation date, the total aggregate principal amount of Indebtedness (other than Indebtedness incurred with respect to this Agreement and the other Credit Documents) of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities), on a consolidated basis (and without duplication on account of the guaranty obligations of any member of the REIT Group relating to the Indebtedness of another member of the REIT Group), that is secured in any manner by any Lien; provided, that Indebtedness in respect of Capitalized Leases shall not be deemed to be Secured Debt. For clarification purposes, (i) any unsecured guaranty given by any member of the REIT Group of secured indebtedness of a Person who is not a member of the REIT Group does not constitute Secured Debt of the Person giving the guaranty, (ii) any unsecured guaranty given by any member of the REIT Group of the Secured Debt of another member of the REIT Group constitutes the Secured Debt of the Person directly incurring the Secured Debt and shall not be calculated as part of
 
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the Indebtedness of the Person giving the guaranty, (iii) any unsecured guaranty given by any member of the REIT Group of the unsecured indebtedness of a Person who is not a member of the REIT Group does not constitute Secured Debt of the Person giving the guaranty, (iv) any unsecured guaranty given by any member of the REIT Group of the unsecured Indebtedness of another member of the REIT Group does not constitute the Secured Debt of the Person directly incurring such Indebtedness and shall not be calculated as part of the Indebtedness (secured or otherwise) of the Person giving the guaranty, (v) any secured guaranty given by any member of the REIT Group of secured indebtedness of a Person who is not a member of the REIT Group constitutes Secured Debt of such Person giving the guaranty, (vi) any secured guaranty given by any member of the REIT Group of the secured indebtedness of another member of the REIT Group constitutes the Secured Debt of the Person directly incurring the secured indebtedness and shall not be calculated as part of the Indebtedness (secured or otherwise) of the Person giving the guaranty, (vii) any secured guaranty given by any member of the REIT Group of the unsecured indebtedness of a Person who is not a member of the REIT Group constitutes the Secured Debt of the Person giving the guaranty, and (viii) any secured guaranty given by any member of the REIT Group of the unsecured Indebtedness of another member of the REIT Group constitutes the Secured Debt of the Person giving the guaranty and shall not be calculated as part of the Indebtedness (secured or otherwise) of the Person directly incurring such Indebtedness.
 
“Shareholder Equity” means an amount equal to shareholders’ equity or net worth of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) on a consolidated basis, as determined in accordance with GAAP.
 
“Solvent” or “Solvency” means, with respect to any Person as of a particular date, that on such date (a) such Person is able to pay its debts and other liabilities, contingent obligations and other commitments as they mature in the ordinary course of business, (b) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature in their ordinary course, (c) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person’s Property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged or is to engage, (d) the fair value of the Property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person and (e) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
 
“Speculative Properties” means all Real Properties and all Excluded Properties that have not been developed and are not currently being developed.
 
“Speculative Property Value” means an amount equal to the sum of the book values of each Speculative Property, as determined in accordance with GAAP and reported on the books of the Credit Parties.
 
“Straight-Lining of Rents” means, with respect to any lease, the method by which rent received with respect to such lease is considered earned equally over the term of such lease despite the existence of (a) any free rent periods under such lease, and (b) any rent escalation provisions under such lease.
 
“Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of Capital Stock having ordinary voting power for the election of directors or other governing body (other than Capital Stock having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. For purposes of clarification, any entity which is not consolidated on the balance sheet of such Person and is accounted for using the equity method of accounting shall not be considered a “Subsidiary” hereunder.
 
“Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency
 
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options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “ Master Agreement ”), including any such obligations or liabilities under any Master Agreement.
 
“Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).
 
“Swingline Commitment” means the commitment of the Swingline Lender to make Swingline Loans in an aggregate principal amount at any time outstanding of up to the Swingline Committed Amount.
 
“Swingline Committed Amount” means $25,000,000.00. The Swingline Committed Amount is part of, and not in addition to, the Aggregate Revolving Commitments.
 
“Swingline Lender” means the Agent.
 
“Swingline Loan” shall have the meaning assigned to such term in Section 2.01(b).
 
“Swingline Note” means the promissory note of the Borrower in favor of the Swingline Lender evidencing the Swingline Loans provided pursuant to  Section 2.01(b) , as such promissory note may be amended, modified, restated, supplemented, extended, renewed or replaced from time to time.
 
“Syndication Letter” means that certain letter among the Borrower, the REIT Guarantor, the Agent and the Arranger dated as of January 31, 2003 relating to the syndication of the Credit Facilities.
 
“Title Policies” has the meaning assigned to such term in Section 5.01(d)(ii).
 
“Total Assets” means the sum of, without duplication, (a) the aggregate Annualized Adjusted NOI of all Real Properties and Excluded Properties other than Speculative Properties and Properties Under Development, divided by the Capitalization Rate;  plus  (b) the aggregate value of all Speculative Properties at cost;  plus  (c) the aggregate value of all Properties Under Development at cost,  plus  (d) cash and Cash Equivalents held by the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities), and  plus  (e) Notes Receivable held by the Credit Parties. Total Assets will specifically exclude any interests in joint ventures and non-consolidated entities.
 
“Total Indebtedness” means, without duplication, the aggregate Indebtedness of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) on a consolidated basis.
 
“Total Leverage Ratio” means, as of any date of calculation, the ratio of (a) Total Indebtedness to (b) Total Assets.
 
“Total Outstandings” means, as of any date, the aggregate Outstanding Amount as of such date of (i) all Revolving Loans, (ii) all L/C Obligations and (iii) all Swingline Loans.
 
“Type” means, with respect to any Loan, its character as a Base Rate Loan or a Eurodollar Rate Loan.
 
“Unencumbered Assets” means all Real Properties (other than Speculative Properties and Properties Under Development) that are wholly-owned by one or more members of the REIT Group and that (a) are operating and
 
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generating revenues from third parties, and (b) are not subject to any Liens (except Permitted Liens) or any Negative Pledges.
 
“Unencumbered Asset Value” means as of any date of calculation, the aggregate value of all Unencumbered Assets, with the value of each such Unencumbered Asset equaling (a) the aggregate Annualized Adjusted NOI allocable to such Unencumbered Asset;  divided  by (b) the Capitalization Rate.
 
“Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.
 
“United States” and “U.S.” mean the United States of America.
 
“Unreimbursed Amount” has the meaning set forth in Section 2.03(c)(i).
 
“Unsecured Funded Debt” means, for any given calculation date, the total aggregate principal amount of all Indebtedness of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) that is not Secured Debt (including, without limitation, all Indebtedness in respect of capitalized lease obligations) and does not constitute a Guarantee or other form of contingent Indebtedness. For purposes of calculating the financial covenants contained herein, the Obligations shall, to the extent drawn, be deemed Unsecured Funded Debt.
 
“Voting Stock” means, with respect to any Person, Capital Stock issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even though the right so to vote has been suspended by the happening of such a contingency.
 
“Wholly Owned Subsidiary” means any Person 100% of whose Voting Stock is at the time owned by the Borrower or any Subsidiary of the Borrower directly or indirectly through other Persons 100% of whose Voting Stock is at the time owned, directly or indirectly, by the Borrower or such Subsidiary.
 
1.02	 	Other Interpretive Provisions.	
 
With reference to this Agreement and each other Credit Document, unless otherwise specified herein or in such other Credit Document:
 
(a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.
 
(b) (i) The words “herein,” “hereto,” “hereof” and “hereunder” and words of similar import when used in any Credit Document shall refer to such Credit Document as a whole and not to any particular provision thereof.
 
(ii) Article, Section, Exhibit and Schedule references are to the Credit Document in which such reference appears.
 
(iii) The term “including” is by way of example and not limitation.
 
(iv) The term “documents” includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form.
 
(c) Section headings herein and in the other Credit Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Credit Document.
 
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1.03	 	Accounting Terms.	
 
(a) Except as otherwise specifically prescribed herein, all accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with GAAP (applied on a consistent basis) as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements;  provided ,  however , that calculations of Attributable Indebtedness with respect to any Off-Balance Sheet Liabilities or the implied interest component with respect to any Off-Balance Sheet Liabilities shall be made by the Borrower in accordance with accepted financial practice and consistent with the terms of such Off-Balance Sheet Liabilities.
 
(b) If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Credit Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders);  provided that , until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.
 
1.04	 	Roundi ng.	
 
Any financial ratios required to be maintained by the Credit Parties pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
 
1.05	 	References to A greements and Laws.	
 
Unless otherwise expressly provided herein, (a) references to Organization Documents, agreements (including the Credit Documents) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are not prohibited by any Credit Document; and (b) references to any Law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Law.
 
1.06	 	Times of Day.	
 
Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).
 
1.07	 	Letter of Credit Amounts.	
 
Unless otherwise specified, all references herein to the amount of a Letter of Credit at any time shall be deemed to mean the maximum face amount of such Letter of Credit after giving effect to all increases thereof contemplated by such Letter of Credit or the Letter of Credit Application therefor, whether or not such maximum face amount is in effect at such time.
 
1.08	 	Covenant Calculations Related to Certain Bond Projects.	
 
Notwithstanding anything contained herein to the contrary, subject in each case to the Administrative Agent’s review and approval, the calculation of the financial covenants contained in Section 8.11 and the other covenants contained in Article VIII shall exclude (a) amounts of rent paid by the REIT Guarantor or any Subsidiary and bond interest income received pursuant to the transactions described on  Schedule 1.08 , and (b) any amount of Indebtedness of, or bond interest income received by, the REIT Guarantor or any Subsidiary, in each case to the
 
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extent such amounts are related to the REIT Guarantor’s or its Subsidiaries’ “bond projects” such that the Properties associated with such bond projects are treated as if the applicable Subsidiary owns them in fee simple without related Indebtedness and does not own the bonds issued in connection therewith. The Borrower shall, in each case, provide to the Administrative Agent a description of such bond projects in form and detail satisfactory to Administrative Agent in all respects. The Administrative Agent shall have the right, following the Borrower’s delivery of such information, to determine in its sole discretion (subject to the disapproval of the Required Lenders) whether such exclusion is appropriate under the circumstances.
 
1.09	 	Covenant Calculations Related to Leases.	
 
Notwithstanding anything contained herein to the contrary, to the extent any calculation of any financial covenant component or other amount (including, without limitation, Annualized NOI, Annualized Adjusted NOI, Capital Expenditure Reserve, Net Operating Income and other such components or amounts) involves calculating amounts allocable to a lease which is for less than one hundred percent (100%) of the net rentable area contained in a given parcel of Real Property or Excluded Property, costs, expenses, fees and other amounts associated with such Real Property or Excluded Property generally and not incurred or generated in connection with any specific lease or leases shall be allocated among each of then-effective leases with respect to such Real Property or Excluded Property based a percentage equal to (a) the total square footage of such Real Property or Excluded Property leased under such lease,  divided  by (b) the total square footage of such Real Property or Excluded Property leased under then-effective leases.
 
1.10	 	Unconsolidated Entities.	
 
Notwithstanding anything contained herein to the contrary, calculations with respect to the assets, liabilities, income, indebtedness and any other measured financial component related to the Credit Parties (whether or not on a consolidated basis and whether or not such calculations include amounts or items attributable to the Excluded Entities) shall not include any amounts allocable to assets, liabilities, income, indebtedness or any other measured financial component with respect to entities which are not Credit Parties and are not Subsidiaries of a Credit Party, including, without limitation, joint ventures or other similar entities (except, with respect to indebtedness or liability calculations, to the extent such indebtedness or liabilities are recourse to a Credit Party).
 
1.11  Covenant Calculations Related to Indebtedness.
 
Notwithstanding anything contained herein to the contrary and for purposes of clarification, calculations of the principal amount of any Indebtedness attributable to any Person (including calculations of Total Indebtedness, Secured Debt, Unsecured Funded Debt, Recourse Indebtedness and Non-Recourse Indebtedness hereunder) shall not include any undrawn committed or available amounts under any line of credit or similar financing structure; provided, however, that this provision shall not be deemed to exclude from any such calculations amounts associated with (a) any obligations of a Person under any Swap Contracts; (b) the stated amount of any letters of credit (including, without limitation, Letters of Credit issued pursuant to the terms hereof); (c) the amount, whether drawn or undrawn, of any construction or development lines of credit or similar loans or other lines of credit pursuant to which the applicable Person has committed to undertake a project and intends to fund such project with the proceeds of such financing; or (d) the amount of any line of credit which is subject to any reserve requirement or is otherwise blocked to account for obligations (whether contingent or otherwise) of such Person (including, without limitation, amounts blocked or reserved against with respect to so-called 1031 transactions or letters of credit).
 
ARTICLE II
THE COMMITMENTS AND CREDIT EXTENSIONS
 
2.01	 	Loans.	
 
(a) Revolving Loans.
 
(i) Revolving Loan Commitments. Subject to the terms and conditions set forth herein, each Lender severally agrees to make loans (each such loan, a “ Revolving Loan ”) to the Borrower from time to
 
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time, on any Business Day during the Availability Period, in an aggregate amount not to exceed at any time outstanding the amount of such Lender’s Revolving Commitment;  provided ,  however , that after giving effect to any Borrowing of Revolving Loans, (i) the Total Outstandings shall not exceed the lesser of (A) the Aggregate Revolving Commitments and (B) the Borrowing Base, and (ii) the aggregate Outstanding Amount of the Revolving Loans of any Lender,  plus  such Lender’s Pro Rata Share of the Outstanding Amount of all L/C Obligations,  plus  such Lender’s Pro Rata Share of the Outstanding Amount of all Swingline Loans shall not exceed such Lender’s Revolving Commitment. Within the limits of each Lender’s Revolving Commitment, and subject to the other terms and conditions hereof, the Borrower may borrow under this  Section 2.01(a)(i) , prepay under  Section 2.04(a) , and reborrow under this  Section 2.01(a) .
 
(ii) Applicable Interest Rate. Revolving Loans may be Base Rate Loans or Eurodollar Rate Loans, as further provided herein.
 
(iii) Repayment of Revolving Loans. The principal amount of the Revolving Loans shall be repaid in accordance with Section 2.06.
 
(b) Swingline Loans.
 
(i) Swingline Commitment. Subject to the terms and conditions hereof and in reliance upon the representations and warranties set forth herein and in reliance upon the agreements of the other Lenders set forth in this  Section 2.01(b) , the Swingline Lender, in its individual capacity, agrees to make certain revolving credit loans requested by the Borrower in Dollars to the Borrower (each a “ Swingline Loan ” and, collectively, the “ Swingline Loans ”) from time to time during the Availability Period for the purposes hereinafter set forth;  provided , however , that after giving effect to any requested Swingline Loan (i) the aggregate principal amount of Swingline Loans outstanding at any time shall not exceed the Swingline Committed Amount, and (ii) the Total Outstandings shall not at any time exceed the lesser of (A) the Aggregate Revolving Commitments and (B) the Borrowing Base. Each Swingline Loan shall have such maturity date (which maturity date shall not be a date more than three (3) Business Days from the date of advance thereof) as the Swingline Lender and the Borrower shall agree upon receipt by the Swingline Lender of any Loan Notice from the Borrower pursuant to  Section 2.02(a) . Swingline Loans may be repaid and reborrowed in accordance with the terms and conditions set forth herein.
 
(ii) Applicable Interest Rate. Each Swingline Loan shall be a Base Rate Loan and shall not, at any time, be converted to a Eurodollar Rate Loan.
 
(iii) Repayment of Swingline Loans. Notwithstanding anything to the contrary contained herein or in any of the other Credit Documents, the principal amount of all Swingline Loans shall be due and payable on the earlier of (A) the maturity date agreed to by the Swingline Lender and the Borrower with respect to such Loan (which maturity date shall not be a date more than three (3) Business Days from the date of advance thereof), (B) the Maturity Date and (C) the date (if any) on which the Obligations, or any portion thereof, are accelerated pursuant to the terms of this Agreement, at which time the Borrower shall be deemed to have requested a Revolving Loan borrowing (which deemed request for a Revolving Loan borrowing shall constitute a representation and warranty by the Credit Parties of the correctness of the matters specified in  Section 5.02 ) in the amount of the maturing Swingline Loan, the proceeds of which will be used to repay such Swingline Loan. The Swingline Lender may, at any time, in its sole discretion, by written notice to the Borrower and the Lenders, demand repayment of its Swingline Loans by way of a Revolving Loan advance, in which case the Borrower shall be deemed to have requested a Revolving Loan advance (which deemed request for a Revolving Loan borrowing shall constitute a representation and warranty by the Credit Parties of the correctness of the matters specified in  Section 5.02 ) comprised solely of Base Rate Loans in the amount of such Swingline Loans;  provided ,  however , that any such demand shall be deemed to have been given one (1) Business Day prior to the Maturity Date and on the date of the occurrence of any Event of Default described in  Section 9.01 and upon acceleration of the indebtedness hereunder and the exercise of remedies in accordance with the provisions of  Section 9.02 . Each Lender hereby irrevocably agrees, upon the request of the Swingline Lender, to make its Pro Rata Share of each such Revolving Loan in the amount, in the manner and on the date specified in the preceding sentence  notwithstanding  (I) the amount of such borrowing may not comply with the minimum
 
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amount for advances of Revolving Loans otherwise required hereunder, (II) whether any conditions specified in Section 5.02 are then satisfied, (III) whether a Default or an Event of Default then exists, (IV) failure of any such request or deemed request for Revolving Loan to be made by the time otherwise required hereunder, (V) whether the date of such borrowing is a date on which Revolving Loans are otherwise permitted to be made hereunder, (VI) any termination of the Commitments relating thereto immediately prior to or contemporaneously with such borrowing or (VII) whether any other conditions specified in any Credit Document to the making a Borrowing available to the Borrower has been satisfied. Notwithstanding the preceding sentence, following the occurrence of and during the continuation of an Event of Default with respect to which the Swingline Lender, in its capacity as Agent, has received a notice of default pursuant to  Section 10.05  hereof prior to the funding of any requested Swingline Loan, the Lenders shall have the option but not the obligation during the continuation of such Event of Default to make Revolving Loans to fund their ratable shares of any such Swingline Loan made following the Swingline Lender’s receipt of such notice and during the continuation of such Event of Default. In the event that any Revolving Loan cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code with respect to the Borrower or any other Credit Party), then each Lender hereby agrees that it shall forthwith purchase (as of the date such borrowing would otherwise have occurred, but adjusted for any payments received from the Borrower on or after such date and prior to such purchase) from the Swingline Lender such participation interests in the outstanding Swingline Loans as shall be necessary to cause each such Lender to share in such Swingline Loans ratably based upon its Pro Rata Share,  provided  that (A) all interest payable on the Swingline Loans shall be for the account of the Swingline Lender until the date as of which the respective Lenders purchase any participation interests in such Swingline Loans and (B) at the time of any purchase of participation interests pursuant to this sentence is actually made, the purchasing Lender shall be required to pay to the Swingline Lender, to the extent not paid to the Swingline Lender by the Borrower, interest on the principal amount of the participation interests purchased for each day from and including the day upon which such borrowing would otherwise have occurred to but excluding the date of payment for such participation interests, at the rate equal to the Federal Funds Rate. Following the Lenders’ purchase of participation interests pursuant to the preceding sentence, payments (both principal and interest) made by the Credit Parties with respect to the applicable Swingline Loans shall be allocated among the Lenders in accordance with their Pro Rata Shares.
 
2.02	 	Borrowings, Conversions and Continuations of Loans.	
 
(a) Each Borrowing, each conversion of Loans from one Type to the other, and each continuation of Eurodollar Rate Loans shall be made upon the Borrower’s irrevocable written notice (in the form of a Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower) to the Administrative Agent or Swingline Lender (as applicable); provided, that the Borrower will provide telephonic confirmation of each such notice to the Administrative Agent immediately following the delivery thereof (although Administrative Agent shall be entitled to rely upon any written notice received by it from the Borrower regardless of whether such telephonic notice is delivered). Each such notice must be received by the Administrative Agent or Swingline Lender (as applicable) not later than 11:00 A.M. (i) three Business Days prior to the requested date of any Borrowing of, conversion to or continuation of Eurodollar Rate Loans or of any conversion of Eurodollar Rate Loans to Base Rate Loans, (ii) one Business Day prior to the requested date of any Borrowing of Base Rate Loans, and (iii) on the requested date of any Borrowing of Swingline Loans. Each Borrowing of, conversion to or continuation of Eurodollar Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Except as provided in  Sections 2.03(c) , each Borrowing of or conversion to Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof. Each Loan Notice (whether telephonic or written) shall specify (i) whether the Borrower is requesting a Borrowing, a conversion of Loans from one Type to the other, or a continuation of Eurodollar Rate Loans, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Loans to be borrowed, converted or continued, (iv) the Type of Loans to be borrowed or to which existing Loans are to be converted, and (v) if applicable, the duration of the Interest Period with respect thereto. If the Borrower fails to specify a Type of Loan in a Loan Notice or if the Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Loans shall be made as, or converted to, Base Rate Loans which are Revolving Loans. Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurodollar Rate Loans. If the Borrower requests a Borrowing of, conversion to, or continuation of Eurodollar Rate Loans in any such Loan Notice, but fails to specify an Interest
 
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Period, it will be deemed to have specified an Interest Period of one month. Notwithstanding anything to the contrary contained herein, Swingline Loans may not be converted or continued pursuant to the terms of this  Section 2.02 .
 
(b) Following receipt of a Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Pro Rata Share of the applicable Loans, and if no timely notice of a conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans described in the preceding subsection. In the case of a Borrowing, each Lender shall make the amount of its Loan available to the Administrative Agent in immediately available funds at the Administrative Agent’s Office not later than 1:00 p.m. on the Business Day specified in the applicable Loan Notice. Upon satisfaction of the applicable conditions set forth in  Section 5.02  (and, if such Borrowing is the initial Credit Extension,  Section 5.01 ), the Administrative Agent shall make all funds so received available to the Borrower in like funds as received by the Administrative Agent either by (i) crediting the account of the Borrower on the books of Bank of America with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower; provided, that to the extent the Borrower does not specifically identify a different account, the Administrative Agent shall be permitted to assume that any Borrowing is to be funded to the account identified in the Borrowing Letter.
 
Notwithstanding anything contained herein to the contrary, if, on the date a Loan Notice with respect to a Borrowing consisting of Revolving Loans is given by the Borrower, there are L/C Borrowings outstanding, then the proceeds of such Borrowing shall be applied,  first , to the payment in full of any such L/C Borrowings and  second , to the Borrower as provided above. With respect to Loan Notices requesting Swingline Loans, the Swingline Lender shall initiate the transfer of funds representing the Swingline Loan advance to the Borrower by 3:00 P.M. on the Business Day of the requested borrowing.
 
(c) If a Eurodollar Rate Loan is continued or converted on a day other than the last day of an Interest Period for such Eurodollar Rate Loan the Borrower shall pay the amounts, if any, due under Section 3.05. During the existence of a Default, no Loans may be requested as, converted to or continued as Eurodollar Rate Loans.
 
(d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the interest rate applicable to any Interest Period for Eurodollar Rate Loans upon determination of such interest rate. The determination of the Eurodollar Rate by the Administrative Agent shall be conclusive in the absence of manifest error. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrower and the Lenders of any change in Bank of America’s prime rate used in determining the Base Rate promptly following the public announcement of such change.
 
(e) After giving effect to all Borrowings, all conversions of Loans from one Type to the other, and all continuations of Loans as the same Type, there shall not be more than five (5) Interest Periods in effect with respect to Borrowings of Revolving Loans.
 
2.03	 	Letters of Credit.	
 
(a) The Letter of Credit Commitment.
 
(i) Subject to the terms and conditions set forth herein, (A) the L/C Issuer agrees, in reliance upon the agreements of the other Lenders set forth in this  Section 2.03 , (1) from time to time on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, to issue Letters of Credit for the account of any Credit Party, and to amend or renew Letters of Credit previously issued by it, in accordance with subsection (b) below, and (2) to honor drafts under the Letters of Credit; and (B) the Lenders severally agree to participate in Letters of Credit issued for the account of any Credit Party;  provided  that the L/C Issuer shall not be obligated to make any L/C Credit Extension with respect to any Letter of Credit, and no Lender shall be obligated to participate in any Letter of Credit if as of the date of such L/C Credit Extension if, after giving effect to any such requested L/C Credit Extension, (x) the Total Outstandings would exceed the lesser of (1) the Aggregate Revolving Commitments and (2) the Borrowing Base, (y) the aggregate Outstanding Amount of the Revolving Loans of any Lender,  plus  such Lender’s Pro Rata Share of the Outstanding Amount of all L/C Obligations,  plus  such Lender’s Pro Rata
 
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Share of the Outstanding Amount of any Swingline Loans would exceed such Lender’s Revolving Commitment, or (z) the Outstanding Amount of the L/C Obligations would exceed the Letter of Credit Sublimit. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrower’s ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrower may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.
 
(ii) The L/C Issuer shall be under no obligation to issue any Letter of Credit if:
 
(A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the L/C Issuer from issuing such Letter of Credit, or any Law applicable to the L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the L/C Issuer shall prohibit, or request that the L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the L/C Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the L/C Issuer is not otherwise entitled to compensation hereunder) not in effect on the Closing Date, or shall impose upon the L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date, which the L/C Issuer in good faith deems material to it and for which the Borrower is not required to reimburse the L/C Issuer hereunder;
 
(B) subject to Section 2.03(b)(iii), the expiry date of such requested Letter of Credit would occur more than twelve (12) months after the date of issuance or last renewal, unless the Required Lenders have approved such expiry date;
 
(C) the expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless all the Lenders have approved such expiry date;
 
(D) the issuance of such Letter of Credit would violate one or more policies of the L/C Issuer; or
 
(E) such Letter of Credit is in an initial amount less than $300,000, or is to be denominated in a currency other than Dollars.
 
(iii) The L/C Issuer shall be under no obligation to amend any Letter of Credit if (A) the L/C Issuer would have no obligation at such time to issue such Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.
 
(b) Procedures for Issuance and Amendment of Letters of Credit; Auto-Renewal Letters of Credit.
 
(i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Borrower to be issued, with such request being delivered by the Borrower to the L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the Borrower. Such Letter of Credit Application must be received by the L/C Issuer and the Administrative Agent not later than 11:00 a.m. at least five (5) Business Days (or such later date and time as the L/C Issuer may agree in a particular instance in its sole discretion) prior to the proposed issuance date or date of amendment, as the case may be. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (B) the amount thereof; (C) the expiry date thereof; (D) the name and address of the beneficiary thereof; (E) the documents to be presented by such beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; and (G) such other matters as the L/C Issuer may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer (A) the Letter of Credit to be amended; (B) the proposed date of
 
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amendment thereof (which shall be a Business Day); (C) the nature of the proposed amendment; and (D) such other matters as the L/C Issuer may require.
 
(ii) Promptly after receipt of any Letter of Credit Application, the L/C Issuer will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Application from the Borrower and, if not, the L/C Issuer will provide the Administrative Agent with a copy thereof. Upon receipt by the L/C Issuer of confirmation from the Administrative Agent that the requested issuance or amendment is permitted in accordance with the terms hereof, then, subject to the terms and conditions hereof, the L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the Borrower or enter into the applicable amendment, as the case may be, in each case in accordance with the L/C Issuer’s usual and customary business practices. Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the L/C Issuer a risk participation in such Letter of Credit in an amount equal to the product of such Lender’s Pro Rata Share  times  the amount of such Letter of Credit.
 
(iii) If the Borrower so requests in any applicable Letter of Credit Application, the L/C Issuer may, in its sole and absolute discretion, agree to issue a Letter of Credit that has automatic renewal provisions (each, an “ Auto-Renewal Letter of Credit ”); provided that any such Auto-Renewal Letter of Credit must permit the L/C Issuer to prevent any such renewal at least once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a date certain (the “ Nonrenewal Notice Date ”) in each such twelve-month period to be agreed upon at the time such Letter of Credit is issued. Unless otherwise directed by the L/C Issuer, the Borrower shall not be required to make a specific request to the L/C Issuer for any such renewal. Once an Auto-Renewal Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the L/C Issuer to permit the renewal of such Letter of Credit at any time to but not beyond an expiry date not later than the date sixty (60) days prior to the Letter of Credit Expiration Date; provided, however, that the L/C Issuer shall not permit any such renewal if (A) the L/C Issuer has determined that it would have no obligation at such time to issue such Letter of Credit in its renewed form under the terms hereof (by reason of the provisions of  Section 2.03(a)(ii)  or otherwise), or (B) it has received notice (which may be by telephone or in writing) on or before the day that is two Business Days before the Nonrenewal Notice Date (1) from the Administrative Agent that the Required Lenders have elected not to permit such renewal or (2) from the Administrative Agent, any Lender or the Borrower that one or more of the applicable conditions specified in  Section 5.02  is not then satisfied.
 
(iv) Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the L/C Issuer will also deliver to the Borrower and the Administrative Agent a true and complete copy of such Letter of Credit or amendment.
 
(c) Drawings and Reimbursements; Funding of Participations.
 
(i) Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the L/C Issuer shall notify the Borrower and the Administrative Agent thereof. Not later than 11:00 a.m. on the date of any payment by the L/C Issuer under a Letter of Credit (each such date, an “ Honor Date ”), the Borrower shall reimburse the L/C Issuer through the Administrative Agent in an amount equal to the amount of such drawing. If the Borrower fails to so reimburse the L/C Issuer by such time through a direct payment or pursuant to the funding of a Borrowing hereunder, the Administrative Agent shall promptly notify each Lender of the Honor Date, the amount of the unreimbursed drawing (the “ Unreimbursed Amount ”), and the amount of such Lender’s Pro Rata Share thereof. In such event, the Borrower shall be deemed to have requested a Borrowing of Revolving Loans that are Base Rate Loans to be disbursed on the Honor Date in an amount equal to the Unreimbursed Amount, without regard to the minimum and multiples specified in  Section 2.02  for the principal amount of Base Rate Loans, but subject to the amount of the unutilized portion of the Aggregate Revolving Commitments and the conditions set forth in  Section 5.02 (other than the delivery of a Loan Notice). Any notice given by the L/C Issuer or the Administrative Agent pursuant to this  Section 2.03(c)(i)  may be given by telephone if immediately confirmed in writing;  provided  that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.
 
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(ii) Each Lender (including the Lender acting as L/C Issuer) shall upon any notice pursuant to Section 2.03(c)(i) make funds available to the Administrative Agent for the account of the L/C Issuer at the Administrative Agent’s Office in an amount equal to its Pro Rata Share of the Unreimbursed Amount not later than 1:00 p.m. on the Business Day specified in such notice by the Administrative Agent, whereupon, subject to the provisions of  Section 2.03(c)(iii) , each Lender that so makes funds available shall be deemed to have made a Revolving Loan that is a Base Rate Loan to the Borrower in such amount. The Administrative Agent shall remit the funds so received to the L/C Issuer.
 
(iii) With respect to any Unreimbursed Amount that is not fully refinanced by a Borrowing of Revolving Loans that are Base Rate Loans because the conditions set forth in  Section 5.02  cannot be satisfied or for any other reason, the Borrower shall be deemed to have incurred from the L/C Issuer an L/C Borrowing in the amount of the Unreimbursed Amount that is not so refinanced, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the Default Rate. In such event, each Lender hereby agrees to fund its Pro Rata Share of the applicable L/C Borrowing and, to the extent applicable, each Lender’s payment to the Administrative Agent for the account of the L/C Issuer pursuant to  Section 2.03(c)(ii)  shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its participation obligation under this  Section 2.03 .
 
(iv) Until each Lender funds its Revolving Loan or L/C Advance pursuant to this Section 2.03(c) to reimburse the L/C Issuer for any amount drawn under any Letter of Credit, interest in respect of such Lender’s Pro Rata Share of such amount shall be solely for the account of the L/C Issuer.
 
(v) Each Lender’s obligation to make Revolving Loans or L/C Advances to reimburse the L/C Issuer for amounts drawn under Letters of Credit, as contemplated by this  Section 2.03(c) , shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the L/C Issuer, the Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of a Default, (C) any failure to satisfy the conditions set forth in  Section 5.02 ; or (D) any other occurrence, event or condition, whether or not similar to any of the foregoing;  provided ,  however , that each Lender’s obligation to make Revolving Loans pursuant to this  Section 2.03(c)  (but not such Lender’s obligation to fund an L/C Borrowing pursuant to  Section 2.03(c)(iii) ) is subject to the conditions set forth in  Section 5.02  (other than delivery by the Borrower of a Loan Notice). No such making of an L/C Advance shall relieve or otherwise impair the obligation of Borrower to reimburse the L/C Issuer for the amount of any payment made by the L/C Issuer under any Letter of Credit, together with interest as provided herein.
 
(vi) If any Lender fails to make available to the Administrative Agent for the account of the L/C Issuer any amount required to be paid by such Lender pursuant to the foregoing provisions of this  Section 2.03(c)  by the time specified in  Section 2.03(c)(ii) , the L/C Issuer shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the L/C Issuer at a rate per annum equal to the Federal Funds Rate from time to time in effect. A certificate of the L/C Issuer submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (vi) shall be conclusive absent manifest error.
 
(d) Repayment of Participations.
 
(i) At any time after the L/C Issuer has made a payment under any Letter of Credit and has received from any Lender such Lender’s L/C Advance in respect of such payment in accordance with  Section 2.03(c) , if the Administrative Agent receives for the account of the L/C Issuer any payment in respect of the related Unreimbursed Amount or interest thereon (whether directly from the Borrower or otherwise, including proceeds of Cash Collateral applied thereto by the Administrative Agent), the Administrative Agent will distribute to such Lender its Pro Rata Share thereof (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s L/C Advance was outstanding) in the same funds as those received by the Administrative Agent.
 
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(ii) If any payment received by the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.03(c)(i) is required to be returned under any of the circumstances described in  Section 11.06  (including pursuant to any settlement entered into by the L/C Issuer in its discretion), each Lender shall pay to the Administrative Agent for the account of the L/C Issuer its Pro Rata Share thereof on demand of the Administrative Agent,  plus  interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the Federal Funds Rate from time to time in effect.
 
(e) Obligations Absolute. The obligation of the Borrower to reimburse the L/C Issuer for each drawing under each Letter of Credit and to repay each L/C Borrowing shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following:
 
(i) any lack of validity or enforceability of such Letter of Credit, this Agreement, or any other agreement or instrument relating thereto;
 
(ii) the existence of any claim, counterclaim, set-off, defense or other right that the Borrower may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the L/C Issuer or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;
 
(iii) any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit;
 
(iv) any payment by the L/C Issuer under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by the L/C Issuer under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Law; or
 
(v) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or Credit Parties.
 
The Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Borrower’s instructions or other irregularity, the Borrower will notify the L/C Issuer within three (3) Business Days of receipt of such Letter of Credit or amendment. The Borrower shall be conclusively deemed to have waived any such claim against the L/C Issuer and its correspondents unless such notice is given as aforesaid.
 
(f) Role of L/C Issuer. Each Lender and the Borrower agree that, in paying any drawing under a Letter of Credit, the L/C Issuer shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of the L/C Issuer, any Agent-Related Person nor any of the respective correspondents, participants or assignees of the L/C Issuer shall be liable to any Lender for (i) any action taken or omitted in connection herewith at the request or with the approval of the Lenders or the Required Lenders, as applicable; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Letter of Credit Application. The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit;  provided ,  however , that this assumption is not intended to, and shall not, preclude the Borrower’s pursuing
 
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such rights and remedies as they may have against the beneficiary or transferee at law or under any other agreement. None of the L/C Issuer, any Agent-Related Person, nor any of the respective correspondents, participants or assignees of the L/C Issuer, shall be liable or responsible for any of the matters described in clauses (i) through (v) of  Section 2.03(e) ;  provided ,  however , that anything in such clauses to the contrary notwithstanding, the Borrower may have a claim against the L/C Issuer, and the L/C Issuer may be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrower which the Borrower proves were caused by the L/C Issuer’s willful misconduct or gross negligence or the L/C Issuer’s willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing, the L/C Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary, and the L/C Issuer shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.
 
(g) Cash Collateral. Upon the request of the Administrative Agent, (i) if the L/C Issuer has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in an L/C Borrowing, or (ii) if, as of the Letter of Credit Expiration Date, any Letter of Credit may for any reason remain outstanding and partially or wholly undrawn, the Borrower shall immediately Cash Collateralize the then Outstanding Amount of all L/C Obligations (in an amount equal to such Outstanding Amount determined as of the date of such L/C Borrowing or the Letter of Credit Expiration Date, as the case may be). For purposes hereof, “ Cash Collateralize ” means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the L/C Issuer and the Lenders, as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Administrative Agent and the L/C Issuer (which documents are hereby consented to by the Lenders). Derivatives of such term have corresponding meanings. The Borrower hereby grants to the Administrative Agent, for the benefit of the L/C Issuer and the Lenders, a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Cash collateral shall be maintained in blocked, interest bearing deposit accounts at Bank of America and amounts of cash collateral deposited pursuant to the terms hereof which are, pursuant to the terms of this Agreement, subsequently returned to the Borrower, shall include interest on such amounts from the date deposited; provided, that the amount of such interest to be returned to the Borrower shall be determined by the Administrative Agent and such determination shall be conclusive and binding in the absence of manifest error.
 
(h) Applicability of ISP98. Unless otherwise expressly agreed by the L/C Issuer and the Borrower when a Letter of Credit is issued, the rules of the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance) shall apply to each standby Letter of Credit.
 
(i) Letter of Credit Fees. The Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Pro Rata Share a Letter of Credit fee for each Letter of Credit equal to the Applicable Spread for Eurodollar Loans  multiplied  by the daily maximum amount available to be drawn under such Letter of Credit (whether or not such maximum amount is then in effect under such Letter of Credit). Such letter of credit fee shall be computed on a quarterly basis in arrears. Such letter of credit fees shall be due and payable on the first Business Day after the end of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. If there is any change in the Applicable Spread during any quarter, the daily maximum amount of each Letter of Credit shall be computed and multiplied by the Applicable Spread separately for each period during such quarter that such Applicable Spread was in effect.
 
(j) Fronting Fee and Documentary and Processing Charges Payable to L/C Issuer. The Borrower shall pay directly to the L/C Issuer for its own account a fronting fee with respect to each Letter of Credit in the amounts and at the times specified in the Fee Letter. In addition, the Borrower shall pay directly to the L/C Issuer for its own account the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the L/C Issuer relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.
 
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(k) Conflict with Letter of Credit Application. In the event of any conflict between the terms hereof and the terms of any Letter of Credit Application, the terms hereof shall control.
 
2.04	 	Prepayments.	
 
(a) Voluntary Prepayments of Loans. The Borrower may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay Loans (other than the Swingline Loans) in whole or in part without premium or penalty;  provided  that (i) such notice must be received by the Administrative Agent not later than 11:00 a.m. (A) three Business Days prior to any date of prepayment of Eurodollar Rate Loans and (B) one Business Day prior to the prepayment of Base Rate Loans; (ii) any prepayment of Eurodollar Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof (or, if less, the entire principal amount thereof then outstanding); and (iii) any prepayment of Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof (or, if less, the entire principal amount thereof then outstanding). Each such notice shall specify the date and amount of such prepayment and the Type(s) of Loans to be prepaid. The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender’s Pro Rata Share of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of a Eurodollar Rate Loan shall be accompanied by all accrued interest thereon, together with any additional amounts required pursuant to  Section 3.05 . Each such prepayment shall be applied to the Loans of the Lenders in accordance with their respective Pro Rata Shares.
 
(b) Mandatory Prepayments.
 
(i) Outstanding Principal in Excess of Aggregate Revolving Commitments. If for any reason the Total Outstandings at any time exceed the lesser of (A) the Aggregate Revolving Commitments and (B) the Borrowing Base then in effect, the Borrower shall immediately prepay Revolving Loans, Swingline Loans and/or Cash Collateralize the L/C Obligations in an aggregate amount equal to such excess;  provided ,  however , that (1) the Borrower shall not be required to Cash Collateralize the L/C Obligations pursuant to this  Section 2.04(b)(i)  unless, after the prepayment in full of the Revolving Loans and the Swingline Loans as required hereby, the Total Outstandings exceed the lesser of (A) the Aggregate Revolving Commitments then in effect and (B) the Borrowing Base; (2) if a prepayment of the Obligations is required by this  Section 2.04(b)(i)  as a sole and direct result of a change in Borrowing Base caused by a change in Capitalization Rate pursuant to the terms of the definition of such term, Borrower’s failure to prepay the Obligations in the amount required by this  Section 2.04(b)(i)  shall not be a Default or an Event of Default to the extent such prepayment is made within ninety (90) days after the Borrower receives written notice from the Administrative Agent of such adjustment in the Capitalization Rate; and (3) if a prepayment of the Obligations is required by this  Section 2.04(b)(i)  as a sole and direct result of the failure of a property or lease that previously qualified as a Borrowing Base Property or Borrowing Base Lease to meet the criteria for such qualification, Borrower’s failure to prepay the Obligations in the amount required by this  Section 2.04(b)(i)  shall not be a Default or an Event of Default to the extent that within fifteen (15) days after the date on which Borrower receives notification or otherwise becomes aware of such property’s or such lease’s failure to qualify as a Borrowing Base Property or Borrowing Base Lease (as applicable), either (A) such prepayment is made in full; (B) the Borrower nominates one or more Proposed Borrowing Base Assets and receives approval of all or some of such Proposed Borrowing Base Assets as one or more Borrowing Base Properties or Borrowing Base Leases (as applicable) and the Borrowing Base is, as a result of such approval(s), increased by an amount which is sufficient to remedy the applicable excess; or (C) the Borrower combines a prepayment pursuant to item (A) above and the addition of one or more Borrowing Base Properties or Borrowing Base Leases pursuant to item (B) above which, in the aggregate, result in the elimination of the applicable excess.
 
(ii) L/C Obligations. If, at any time, the sum of the aggregate principal amount of L/C Obligations shall exceed the Letter of Credit Sublimit, the Borrower immediately shall Cash Collateralize the L/C Obligations in an amount sufficient to eliminate such excess.
 
(iii) Application of Mandatory Prepayments. All amounts required to be paid pursuant to this Section 2.04(b) shall be applied first, to Revolving Loans,  second  (after all Revolving Loans have been repaid)
 
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Swingline Loans, and third (after all Swingline Loans have been repaid) to Cash Collateralize L/C Obligations. Within the parameters of the applications set forth in the previous sentence, prepayments shall be applied first to Base Rate Loans and then to Eurodollar Rate Loans in direct order of Interest Period maturities. All prepayments under this  Section 2.04(b)  shall be subject to  Section 3.05 , but otherwise without premium or penalty, and shall be accompanied by interest on the principal amount prepaid through the date of prepayment.
 
(iv) Prepayment Account. If the Borrower is required to make a mandatory prepayment of Eurodollar Rate Loans under this Section 2.04(b), the Borrower shall have the right, in lieu of making such prepayment in full, to deposit an amount equal to such mandatory prepayment with the Administrative Agent in a cash collateral account maintained (pursuant to documentation reasonably satisfactory to the Administrative Agent) by and in the sole dominion and control of the Administrative Agent. Any amounts so deposited shall be held by the Administrative Agent as collateral for the prepayment of such Eurodollar Rate Loans and shall be applied to the prepayment of the applicable Eurodollar Rate Loans at the end of the current Interest Periods applicable thereto. At the request of the Borrower, amounts so deposited shall be invested by the Administrative Agent in Cash Equivalents maturing prior to the date or dates on which it is anticipated that such amounts will be applied to prepay such Eurodollar Rate Loans; any interest earned on such Cash Equivalents will be for the account of the Borrower and the Borrower will deposit with the Administrative Agent the amount of any loss on any such Cash Equivalents to the extent necessary in order that the amount of the prepayment to be made with the deposited amounts may not be reduced.
 
2.05  Termination, Increase or Reduction of Aggregate Revolving Commitments.
 
(a) Voluntary Reductions. The Borrower may, upon notice to the Administrative Agent from the Borrower, terminate the Aggregate Revolving Commitments, or from time to time permanently reduce the Aggregate Revolving Commitments;  provided  that (i) any such notice shall be received by the Administrative Agent not later than 11:00 a.m. five Business Days prior to the date of termination or reduction, (ii) any such partial reduction shall be in an aggregate amount of $10,000,000 or any whole multiple of $1,000,000 in excess thereof, (iii) the Borrower shall not terminate or reduce the Aggregate Revolving Commitments if, after giving effect thereto and to any concurrent prepayments hereunder, the Total Outstandings would exceed the Aggregate Revolving Commitments, and (iv) if, after giving effect to any reduction of the Aggregate Revolving Commitments, the Letter of Credit Sublimit exceeds the amount of the Aggregate Revolving Commitments, the Letter of Credit Sublimit shall be automatically reduced by the amount of such excess.
 
(b) Voluntary Increases. Following the Closing Date, the Aggregate Revolving Commitments may be increased by an aggregate amount of up to $100,000,000.00 (such that the Aggregate Revolving Commitments would total an amount of up to $600,000,000.00) if:
 
(i) the Borrower, on or before the date occurring twelve (12) calendar months following the Closing Date, requests an increase in the Aggregate Revolving Commitments in writing to the Administrative Agent (such requested increase to be in an amount of $100,000,000.00 or less) and Borrower has not previously made any request for an increase in the Aggregate Revolving Commitments;
 
(ii) the Arranger is able, within ninety (90) days of receiving an increase request pursuant to subclause (i) above, to syndicate the amount of such increase (A) to one or more Lenders or one or more financial institutions qualifying as an Eligible Assignee and otherwise acceptable to the Borrower, Agent and Arranger and (B) in a manner otherwise in accordance with the terms and conditions set forth in the Syndication Letter; provided, that the Borrower shall pay to the Arranger all fees, costs and expenses due and owing pursuant to the terms of the Syndication Letter regardless of whether Arranger is able to syndicate the amount of the requested increase;
 
(iii) such increase does not increase the amount of the Revolving Commitment of any Lender without the written consent of such Lender;
 
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(iv) the Borrower execute new Notes reflecting the increase in the Aggregate Revolving Commitments and executes such other amendments to the Credit Documents as are deemed necessary by the Administrative Agent;
 
(v) no Default or Event of Default exists as of the date of such request or as of the date on which such increase is to occur; and
 
(vi) the Borrower pay all fees required by the Fee Letter and the Syndication Letter in connection with such increase in the Aggregate Revolving Commitments and all costs and expenses (including Attorney Costs) incurred by the Administrative Agent in documenting or implementing such increase.
 
All of the terms and conditions of the Credit Documents shall apply to the increased amount of the Aggregate Revolving Commitments as if such amount were in effect as of the date hereof. Each Lender that may be a party hereto from time to time hereby acknowledges that the Aggregate Revolving Commitments may be increased pursuant to this  Section 2.05(b)  regardless of whether such Lender approves such increase or increases its Revolving Commitment hereunder; provided, that Arranger hereby agrees to offer to each existing Lender, on terms and conditions similar to those being offered to other prospective lenders, a portion of any increase in the Aggregate Revolving Commitments equal to such Lender’s Pro Rata Share of the Aggregate Revolving Commitments immediately prior to such increase. Notwithstanding anything to the contrary contained herein, the Borrower may request an increase in the Aggregate Revolving Commitments no more than once during the term of this Agreement.
 
(c) General. The Administrative Agent will promptly notify the Lenders of any such notice of termination, reduction or increase of the Aggregate Revolving Commitments. Any reduction of the Aggregate Revolving Commitments shall be applied to the Revolving Commitment of each Lender according to its Pro Rata Share. All commitment fees accrued until the effective date of any termination of the Aggregate Revolving Commitments shall be paid on the effective date of such termination. To the extent the Aggregate Revolving Commitments are increased pursuant to clause (b) above, all Lenders (including both previously-existing and new Lenders) shall receive new Notes reflecting their respective Commitments and new Lenders shall, to the extent necessary to cause the outstanding principal amount of the Loans and other Obligations allocable to each Lender to equal each such Lender’s Pro Rata Share, fund Loans directly to the other Lenders, as directed by the Administrative Agent. The Credit Parties hereby agree to execute and deliver any new Notes required pursuant to this  Section 2.05  to evidence the Loans made by the Lenders and acknowledge, consent and agree to the funding by any new Lenders of Loans pursuant to the previous sentence for the purpose of causing the Outstanding Amount of such Loans to equal each Lender’s Pro Rata Share.
 
2.06	 	Maturity Date.	
 
(a) Initial Maturity Date. Subject to extension pursuant to the terms and conditions set forth in clause (b) of this Section 2.06 and subject to the provisions of clause (c) of this  Section 2.06 , the Borrower shall, on the date occurring twenty-four (24) calendar months from date hereof (the “ Initial Maturity Date ”), cause the Obligations (including, without limitation, all outstanding principal and interest on the Loans and all fees, costs and expenses due and owing under the Credit Documents) to be Fully Satisfied.
 
(b) Extended Maturity Date Option. Not more than 180 days and not less than 120 days prior to the Initial Maturity Date, the Borrower may request in writing that the Lenders extend the term of this Agreement for an additional twelve (12) calendar month period (the end of such period being the “ Extended Maturity Date ”). Such extension option shall be subject to the satisfaction of the following requirements:
 
(i) one hundred percent (100.0%) of the Lenders shall have consented in writing to such extension prior to the Initial Maturity Date; provided, that (A) each Lender shall provide the Administrative Agent and the Borrower, not less than ninety (90) days prior to the Initial Maturity Date, with written notice regarding whether it agrees to the requested extension, with any failure by a Lender to give timely written notice hereunder being deemed a decision by such Lender not to grant such extension and (B) each decision by a Lender regarding whether to grant a requested extension shall be in such Lender’s sole discretion;
 
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(ii) at the time of the request, and at the Initial Maturity Date, there shall not exist any Default, nor any condition, which after notice and/or lapse of time would constitute a Default by the Borrower or any other Credit Party; and
 
(iii) the Borrower shall, at the time of the request, deliver to the Administrative Agent (for the pro rata benefit of the Lenders based on their respective Commitments) an extension fee equal to fifteen hundredths of one percent (0.15%) of the then-existing Commitments (whether funded or unfunded).
 
(c) Satisfaction of Obligations Upon Acceleration. Notwithstanding anything contained herein or in any other Credit Agreement to the contrary, to the extent any of the Obligations are accelerated pursuant to the terms hereof (including, without limitation,  Section 9.02  hereof), the Borrower shall, immediately upon the occurrence of such acceleration, cause such accelerated Obligations to be Fully Satisfied.
 
2.07	 	Interest.	
 
(a) Subject to the provisions of subsection (b) below, (i) each Eurodollar Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurodollar Rate for such Interest Period  plus  the Applicable Spread; and (ii) each Base Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate  plus the Applicable Spread.
 
(b) If any amount payable by the Borrower under any Credit Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. Furthermore, upon the request of the Required Lenders, while any Event of Default exists, the Borrower shall pay interest on the principal amount of all outstanding Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.
 
(c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.
 
2.08	 	Fees.	
 
(a) Facility Fee. The Borrower shall, on the first Business Day of each calendar quarter prior to the termination of this Agreement and the date on which the Obligations are Fully Satisfied, pay to the Administrative Agent (for the pro rata benefit of the Lenders according to their respective Pro Rata Shares), a facility fee (the “ Facility Fee ”), for the immediately preceding calendar quarter, in an amount equal to (a) the highest amount of the Aggregate Revolving Commitments (whether funded or unfunded) during such previous calendar quarter, multiplied by (b) one quarter of one percent (0.25%) per annum.
 
(b) Other Fees. In addition to the fees described in this Section 2.08 and those fees described in subsections (i) and (j) of Section 2.03 and Section 2.06(b) , the Borrower shall pay to the Arranger, the Administrative Agent and the Lenders for their own respective accounts, fees in the amounts and at the times specified in the Fee Letter. All such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.
 
2.09	 	Computation of Interest and Fees.	
 
All computations of interest for Base Rate Loans when the Base Rate is determined by Bank of America’s “prime rate” shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year).
 
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Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid,  provided  that any Loan that is repaid on the same day on which it is made shall, subject to  Section 2.11(a) , bear interest for one day.
 
2.10	 	Evidence of Debt.	
 
(a) The Credit Extensions made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Credit Extensions made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. The Borrower shall execute and deliver to each Lender (through the Administrative Agent) a promissory note which shall evidence such Lender’s Loans in addition to such accounts or records. Each such promissory note shall (i) in the case of Revolving Loans, be in the form of Exhibit B  (a “ Revolving Note ”), and (ii) in the case of the Swingline Loans, be in the form of  Exhibit C  (a “ Swingline Note ”). Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto.
 
(b) In addition to the accounts and records referred to in subsection (a), each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit. In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.
 
2.11	 	Payments Generally.	
 
(a) All payments to be made by the Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent’s Office in Dollars and in immediately available funds not later than 2:00 p.m. on the date specified herein. All payments received by the Administrative Agent after 2:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. The Administrative Agent will promptly distribute to each Lender its Pro Rata Share (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender’s Lending Office; provided that to the extent the Administrative Agent does not send such wire transfers to which the Lenders are entitled pursuant to this clause (a) prior to the completion of the Business Day immediately following the date on which it receives any applicable payment from the Borrower, the amount distributed to the Lenders shall be accompanied by interest, calculated at the Federal Funds Rate, on the amount to which each Lender was initially entitled.
 
(b) If any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.
 
(c) Unless the Borrower or any Lender has notified the Administrative Agent, prior to the date any payment is required to be made by it to the Administrative Agent hereunder, that the Borrower or such Lender, as the case may be, will not make such payment, the Administrative Agent may assume that the Borrower or such Lender, as the case may be, has timely made such payment and may (but shall not be so required to), in reliance thereon, make available a corresponding amount to the Person entitled thereto. If and to the extent that such payment is not in fact made to the Administrative Agent in immediately available funds, then:
 
(i) if the Borrower failed to make such payment, each Lender shall forthwith on demand repay to the Administrative Agent the portion of such assumed payment that was made available to such
 
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Lender in immediately available funds, together with interest thereon in respect of each day from and including the date such amount was made available by the Administrative Agent to such Lender to the date such amount is repaid to the Administrative Agent in immediately available funds at the Federal Funds Rate from time to time in effect; and
 
(ii) if any Lender failed to make such payment, such Lender shall forthwith on demand pay to the Administrative Agent the amount thereof in immediately available funds, together with interest thereon for the period from the date such amount was made available by the Administrative Agent to the Borrower to the date such amount is recovered by the Administrative Agent (the “ Compensation Period ”) at a rate per annum equal to the Federal Funds Rate from time to time in effect. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in the applicable Borrowing. If such Lender does not pay such amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent may make a demand therefor upon the Borrower, and the Borrower shall pay such amount to the Administrative Agent, together with interest thereon for the Compensation Period at a rate per annum equal to the rate of interest applicable to the applicable Borrowing. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Commitment or to prejudice any rights which the Administrative Agent or the Borrower may have against any Lender as a result of any default by such Lender hereunder.
 
A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (c) shall be conclusive, absent manifest error.
 
(d) If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this  Article II , and such funds are not made available to the Borrower by the Administrative Agent because the conditions to the applicable Credit Extension set forth in  Article V  are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, with interest calculated at the Federal Funds Rate (which interest shall begin to accrue on the second Business Day following the date of the requested Credit Extension).
 
(e) The obligations of the Lenders hereunder to make Loans and to fund participations in Letters of Credit are several and not joint. The failure of any Lender to make any Loan or to fund any such participation on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Loan or purchase its participation.
 
(f) Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.
 
2.12	 	Sharing of Payments.	
 
If, other than as expressly provided elsewhere herein, any Lender shall obtain on account of the Loans made by it, or the participations in L/C Obligations held by it, any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its ratable share (or other share contemplated hereunder) thereof, such Lender shall immediately (a) notify the Administrative Agent of such fact, and (b) purchase from the other Lenders such participations in the Loans made by them and/or such subparticipations in the participations in L/C Obligations held by them, as the case may be, as shall be necessary to cause such purchasing Lender to share the excess payment in respect of such Loans or such participations, as the case may be, pro rata with each of them;  provided ,  however , that if all or any portion of such excess payment is thereafter recovered from the purchasing Lender under any of the circumstances described in  Section 11.06  (including pursuant to any settlement entered into by the purchasing Lender in its discretion), such purchase shall to that extent be rescinded and each other Lender shall repay to the purchasing Lender the purchase price paid therefor, together with an amount equal to such paying Lender’s ratable share (according to the proportion of (i) the amount of such paying Lender’s required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered, without further interest thereon. The
 
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Borrower agrees that any Lender so purchasing a participation from another Lender may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to  Section 11.09 ) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. The Administrative Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this Section and will in each case notify the Lenders following any such purchases or repayments. Each Lender that purchases a participation pursuant to this Section shall from and after such purchase have the right to give all notices, requests, demands, directions and other communications under this Agreement with respect to the portion of the Obligations purchased to the same extent as though the purchasing Lender were the original owner of the Obligations purchased.
 
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
 
3.01	 	Taxes.	
 
(a) Any and all payments by any Credit Party to or for the account of the Administrative Agent or any Lender under any Credit Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and all liabilities with respect thereto,  excluding , in the case of the Administrative Agent and each Lender, taxes imposed on or measured by its overall net income, and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the Laws of which the Administrative Agent or such Lender, as the case may be, is organized or maintains a lending office (all such non-excluded taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and liabilities being hereinafter referred to as “ Taxes ”). If any Credit Party shall be required by any Laws to deduct any Taxes from or in respect of any sum payable under any Credit Document to the Administrative Agent or any Lender, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section), each of the Administrative Agent and such Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Credit Party shall make such deductions, (iii) such Credit Party shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable Laws, and (iv) within 30 days after the date of such payment, such Credit Party shall furnish to the Administrative Agent (which shall forward the same to such Lender) the original or a certified copy of a receipt evidencing payment thereof.
 
(b) In addition, the Borrower agrees to pay any and all present or future stamp, court or documentary taxes and any other excise or property taxes or charges or similar levies which arise from any payment made under any Credit Document or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, any Credit Document (hereinafter referred to as “ Other Taxes ”).
 
(c) If the Borrower shall be required to deduct or pay any Taxes or Other Taxes from or in respect of any sum payable under any Credit Document to the Administrative Agent or any Lender, the Borrower shall also pay to the Administrative Agent or to such Lender, as the case may be, at the time interest is paid, such additional amount that the Administrative Agent or such Lender specifies is necessary to preserve the after-tax yield (after factoring in all taxes, including taxes imposed on or measured by net income) that the Administrative Agent or such Lender would have received if such Taxes or Other Taxes had not been imposed.
 
(d) The Borrower agrees to indemnify the Administrative Agent and each Lender for (i) the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section) paid by the Administrative Agent and such Lender, (ii) amounts payable under  Section 3.01(c)  and (iii) any liability (including additions to tax, penalties, interest and expenses) arising therefrom or with respect thereto, in each case whether or not such Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. Payment under this subsection (d) shall be made within 30 days after the date the Lender or the Administrative Agent makes a demand therefor.
 
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3.02	 	Illegality.	
 
If any Lender reasonably determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Eurodollar Rate Loans, or to determine or charge interest rates based upon the Eurodollar Rate, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, any obligation of such Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Loans to Eurodollar Rate Loans shall be suspended until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Eurodollar Rate Loans of such Lender to Base Rate Loans, either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Rate Loans. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted. Each Lender agrees to designate a different Lending Office if such designation will avoid the need for such notice and will not, in the good faith judgment of such Lender, otherwise be materially disadvantageous to such Lender.
 
3.03	 	Inability to Determine Rates.	
 
If the Required Lenders determine that for any reason adequate and reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan, or that the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so notify the Borrower and each Lender. Thereafter, the obligation of the Lenders to make or maintain Eurodollar Rate Loans shall be suspended until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of Eurodollar Rate Loans or, failing that, will be deemed to have converted such request into a request for a Borrowing of Base Rate Loans in the amount specified therein.
 
3.04	 	Increased Cost and Reduced Return; Capital Adequacy; Reserves on Eurodollar Rate Loans.	
 
(a) If any Lender reasonably determines that as a result of the introduction of or any change in or in the interpretation of any Law, or such Lender’s compliance therewith, there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Loans or (as the case may be) issuing or participating in Letters of Credit, or a reduction in the amount received or receivable by such Lender in connection with any of the foregoing (excluding for purposes of this subsection (a) any such increased costs or reduction in amount resulting from (i) Taxes or Other Taxes (as to which  Section 3.01  shall govern), (ii) changes in the basis of taxation of overall net income or overall gross income by the United States or any foreign jurisdiction or any political subdivision of either thereof under the Laws of which such Lender is organized or has its Lending Office, and (iii) reserve requirements contemplated by  Section 3.04(c) ), then from time to time upon demand of such Lender (with a copy of such demand to the Administrative Agent), the Borrower shall pay to such Lender such additional amounts as will compensate such Lender for such increased cost or reduction; provided, that a Lender’s request for payment of such additional amounts may not extend to increased costs to such Lender which were incurred more than one (1) calendar year prior to such request.
 
(b) If any Lender determines that the introduction of any Law regarding capital adequacy or any change therein or in the interpretation thereof, or compliance by such Lender (or its Lending Office) therewith, has the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of such Lender’s obligations hereunder (taking into consideration its policies with respect to capital adequacy and such Lender’s desired return on capital), then from time to time upon demand of such Lender (with a copy of such demand to the Administrative Agent), the Borrower shall pay to such Lender such additional amounts as will compensate such Lender for such reduction; provided, that a Lender’s request for payment of such additional amounts may not extend to reduced rates of return to such Lender for time periods prior to the date occurring one (1) calendar year prior to such request.
 
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(c) The Borrower shall pay to each Lender, as long as such Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as “Eurocurrency liabilities”), additional interest on the unpaid principal amount of each Eurodollar Rate Loan equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such Loan, provided  the Borrower shall have received at least 15 days’ prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender. If a Lender fails to give notice 15 days prior to the relevant Interest Payment Date, such additional interest shall be due and payable 15 days from receipt of such notice.
 
3.05	 	Funding Losses.	
 
Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:
 
(a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);
 
(b) any failure by the Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by the Borrower; or
 
(c) any assignment of a Eurodollar Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Borrower pursuant to  Section 11.16 ;
 
including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.
 
For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each Eurodollar Rate Loan made by it at the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan was in fact so funded.
 
3.06	 	Matters Applicable to all Requests for Compensation.	
 
(a) A certificate of the Administrative Agent or any Lender claiming compensation under this Article III and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, the Administrative Agent or such Lender may use any reasonable averaging and attribution methods.
 
(b) Upon any Lender’s making a claim for compensation under Section 3.01 or 3.04 or if a Lender invokes the provisions of Section 3.02, the Borrower may replace such Lender in accordance with  Section 11.16 .
 
3.07	 	Survival.	
 
All of the Borrower’s obligations under this Article III shall survive termination of the Aggregate Revolving Commitments and repayment of all other Obligations hereunder.
 
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ARTICLE IV
GUARANTY
 
4.01	 	The Guaranty.	
 
Each of the Guarantors hereby jointly and severally guarantees to each Lender, each Affiliate of a Lender that enters into a Swap Contract with respect to the Indebtedness evidenced by the Credit Documents, and the Administrative Agent as hereinafter provided, as primary obligor and not as surety, the prompt payment of the Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) strictly in accordance with the terms thereof. The Guarantors hereby further agree that if any of the Obligations are not paid in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise), the Guarantors will, jointly and severally, promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) in accordance with the terms of such extension or renewal.
 
Notwithstanding any provision to the contrary contained herein or in any other of the Credit Documents or Swap Contracts, the obligations of each Guarantor under this Agreement and the other Credit Documents shall be limited to an aggregate amount equal to the largest amount that would not render such obligations subject to avoidance under the Debtor Relief Laws or any comparable provisions of any applicable state law.
 
4.02	 	Obligations Unconditional.	
 
The obligations of the Guarantors under Section 4.01 are joint and several, absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Credit Documents or applicable Swap Contracts, or any other agreement or instrument referred to therein, or any substitution, release, impairment or exchange of any other guarantee of or security for any of the Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this  Section 4.02  that the obligations of the Guarantors hereunder shall be absolute and unconditional under any and all circumstances. Each Guarantor agrees that such Guarantor shall have no right of subrogation, indemnity, reimbursement or contribution against the Borrower or any other Guarantor for amounts paid under this  Article IV  until such time as the Obligations have been Fully Satisfied. Without limiting the generality of the foregoing, it is agreed that, to the fullest extent permitted by law, the occurrence of any one or more of the following shall not alter or impair the liability of any Guarantor hereunder which shall remain absolute and unconditional as described above:
 
(a) at any time or from time to time, without notice to any Guarantor, the time for any performance of or compliance with any of the Obligations shall be extended, or such performance or compliance shall be waived;
 
(b) any of the acts mentioned in any of the provisions of any of the Credit Documents, any applicable Swap Contract between any Credit Party and any Lender, or any Affiliate of a Lender, or any other agreement or instrument referred to in the Credit Documents or such Swap Contracts shall be done or omitted;
 
(c) the maturity of any of the Obligations shall be accelerated, or any of the Obligations shall be modified, supplemented or amended in any respect, or any right under any of the Credit Documents, any applicable Swap Contract between any Credit Party and any Lender, or any Affiliate of a Lender, or any other agreement or instrument referred to in the Credit Documents or such Swap Contracts shall be waived or any other guarantee of any of the Obligations or any security therefor shall be released, impaired or exchanged in whole or in part or otherwise dealt with;
 
(d) any Lien granted to, or in favor of, the Administrative Agent or any Lender or Lenders as security for any of the Obligations shall fail to attach or be perfected; or
 
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(e) any of the Obligations shall be determined to be void or voidable (including, without limitation, for the benefit of any creditor of any Guarantor) or shall be subordinated to the claims of any Person (including, without limitation, any creditor of any Guarantor).
 
With respect to its obligations hereunder, each Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Administrative Agent or any Lender exhaust any right, power or remedy or proceed against any Person under any of the Credit Documents, any applicable Swap Contract between any Credit Party and any Lender, or any Affiliate of a Lender, or any other agreement or instrument referred to in the Credit Documents or such Swap Contracts, or against any other Person under any other guarantee of, or security for, any of the Obligations.
 
4.03	 	Reinstatement.	
 
The obligations of the Guarantors under this Article IV shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the Obligations is rescinded or must be otherwise restored by any holder of any of the Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and each Guarantor agrees that it will indemnify the Administrative Agent and each Lender on demand for all reasonable costs and expenses (including, without limitation, fees and expenses of counsel) incurred by the Administrative Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law.
 
4.04	 	Certain Additional Waivers.	
 
Each Guarantor hereby agrees that such Guarantor shall have no right of recourse to security for the Obligations, except through the exercise of rights of subrogation pursuant to  Section 4.02  and through the exercise of rights of contribution pursuant to  Section 4.06 .
 
4.05	 	Remedies.	
 
The Guarantors agree that, to the fullest extent permitted by law, as between the Guarantors, on the one hand, and the Administrative Agent and the Lenders, on the other hand, the Obligations may be declared to be forthwith due and payable as provided in  Section 9.02  (and shall be deemed to have become automatically due and payable in the circumstances provided in said  Section 9.02 ) for purposes of  Section 4.01  notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing the Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or the Obligations being deemed to have become automatically due and payable), the Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Guarantors for purposes of  Section 4.01 .
 
4.06	 	Rights of Contribution.	
 
The Guarantors hereby agree as among themselves that, if any Guarantor shall make an Excess Payment (as defined below), such Guarantor shall have a right of contribution from each other Guarantor in an amount equal to such other Guarantor’s Contribution Share (as defined below) of such Excess Payment. The payment obligations of any Guarantor under this  Section 4.06  shall be subordinate and subject in right of payment to the Obligations until such time as the Obligations have been Fully Satisfied, and none of the Guarantors shall exercise any right or remedy under this  Section 4.06  against any other Guarantor until such Obligations have been Fully Satisfied. For purposes of this  Section 4.06 , (a) ”Excess Payment” shall mean the amount paid by any Guarantor in excess of its Ratable Share of any Guaranteed Obligations; (b) ”Ratable Share” shall mean, for any Guarantor in respect of any payment of Obligations, the ratio (expressed as a percentage) as of the date of such payment of Guaranteed Obligations of (i) the amount by which the aggregate present fair salable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Guarantor (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder) to (ii) the amount by which the aggregate present fair salable value of all assets and other properties of all of the Credit Parties exceeds the amount of all of the debts and liabilities (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Credit Parties hereunder) of the Credit Parties;  provided ,  however , that, for purposes of calculating the Ratable Shares of the
 
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Guarantors in respect of any payment of Obligations, any Guarantor that became a Guarantor subsequent to the date of any such payment shall be deemed to have been a Guarantor on the date of such payment and the financial information for such Guarantor as of the date such Guarantor became a Guarantor shall be utilized for such Guarantor in connection with such payment; (c) ”Contribution Share” shall mean, for any Guarantor in respect of any Excess Payment made by any other Guarantor, the ratio (expressed as a percentage) as of the date of such Excess Payment of (i) the amount by which the aggregate present fair salable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Guarantor (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder) to (ii) the amount by which the aggregate present fair salable value of all assets and other properties of the Credit Parties other than the maker of such Excess Payment exceeds the amount of all of the debts and liabilities (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Credit Parties) of the Credit Parties other than the maker of such Excess Payment;  provided ,  however , that, for purposes of calculating the Contribution Shares of the Guarantors in respect of any Excess Payment, any Guarantor that became a Guarantor subsequent to the date of any such Excess Payment shall be deemed to have been a Guarantor on the date of such Excess Payment and the financial information for such Guarantor as of the date such Guarantor became a Guarantor shall be utilized for such Guarantor in connection with such Excess Payment; and (d) ”Guaranteed Obligations” shall mean the Obligations guaranteed by the Guarantors pursuant to this  Article IV . This  Section 4.06  shall not be deemed to affect any right of subrogation, indemnity, reimbursement or contribution that any Guarantor may have under Law against the Borrower in respect of any payment of Guaranteed Obligations. Notwithstanding the foregoing, all rights of contribution against any Guarantor shall terminate from and after such time, if ever, that such Guarantor shall be relieved of its obligations shall be relieved of its obligations in accordance with  Section 10.11 .
 
4.07	 	Guarantee of Payment; Continuing Guarantee.	
 
The guarantee in this Article IV is a guaranty of payment and not of collection, is a continuing guarantee, and shall apply to all Obligations whenever arising.
 
ARTICLE V
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS
 
5.01	 	Conditions of Initial Credit Extension.	
 
The obligation of each Lender to make its initial Credit Extension hereunder is subject to satisfaction of the following conditions precedent:
 
(a) Credit Documents, Organization Documents, Etc. The Administrative Agent’s receipt of the following, each of which shall be originals or facsimiles (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Credit Party, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance satisfactory to the Administrative Agent and its legal counsel:
 
(i) executed counterparts of this Agreement and each of the other Credit Documents;
 
(ii) a Revolving Note executed by the Borrower in favor of each Lender and a Swingline Note executed by the Borrower in favor of the Swingline Lender;
 
(iii) copies of the Organization Documents of each Credit Party certified to be true and complete as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its incorporation or organization, where applicable, and certified by a secretary or assistant secretary of such Credit Party to be true and correct as of the Closing Date;
 
(iv) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Credit Party as the Administrative Agent may
 
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require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Credit Documents to which such Credit Party is a party; and
 
(v) such documents and certifications as the Administrative Agent may reasonably require to evidence that each Credit Party is duly organized or formed, and is validly existing, in good standing and qualified to engage in business in (A) the jurisdiction of its incorporation or organization and (B) each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.
 
(b) Opinions of Counsel. The Administrative Agent shall have received, in each case dated as of the Closing Date and in form and substance reasonably satisfactory to the Administrative Agent:
 
(i) a legal opinion of Alston & Bird LLP, counsel for the Credit Parties; and
 
(ii) a legal opinion of special local counsel for each Credit Party not organized in the State of Delaware;
 
(c) REIT Status. Evidence, satisfactory to the Agent, that the REIT Guarantor qualifies as a REIT, that each of its Subsidiaries that are corporations are Qualified REIT Subsidiaries and that the execution and performance by the Credit Parties under the Credit Documents shall not affect such status.
 
(d) Information Concerning Real Properties. The Administrative Agent shall have received, in form and substance reasonably satisfactory to the Administrative Agent, each of the following with respect to the Borrowing Base Properties identified as of the Closing Date on  Schedule 6.17 :
 
(i) copies currently in the possession of or available to any of the Credit Parties of the most recent maps or plats (and those referenced in any existing title insurance commitment or policy) of an as-built survey of the sites of each such Borrowing Base Property, by an independent professional licensed land surveyor, which maps or plats and the surveys on which they are based shall be sufficient to delete any standard printed survey exception contained in a title policy with respect to such Borrowing Base Property and be made in accordance with the Minimum Standard Detail Requirements for Land Title Surveys jointly established and adopted by the American Land Title Association and the American Congress on Surveying and Mapping in 1997 with all items from Table A thereof completed, except for Nos. 5 and 12;
 
(ii) copies currently in the possession of or available to any of the Credit Parties of the most recent owner’s ALTA title insurance policies issued by a title insurance company acceptable to the Agent (the “ Title Policies ”) with respect to each such Borrowing Base Property, showing, in the case of each such Borrowing Base Property, that such Borrowing Base Property was, as of the effective date of the applicable Title Policy, free and clear of any Liens except Permitted Liens, which Title Policies shall otherwise be in form and substance reasonably satisfactory to the Administrative Agent;
 
(iii) evidence as to (A) whether any such Borrowing Base Property is in an area designated by the Federal Emergency Management Agency as having special flood or mud slide hazards (a “Flood Hazard Property”) and (B) if any such Borrowing Base Property is a Flood Hazard Property, (1) whether the community in which such Borrowing Base Property is located is participating in the National Flood Insurance Program, and (2) copies of insurance policies or certificates of insurance of the Credit Parties evidencing flood insurance satisfactory to the Administrative Agent;
 
(iv) evidence reasonably satisfactory to the Administrative Agent that each of such Borrowing Base Properties, and the uses thereof, are in compliance in all material respects with all applicable zoning laws (the evidence submitted as to which should include the zoning designation
 
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made for each of such Borrowing Base Properties, the permitted uses of each such Borrowing Base Property under such zoning designation and, if available, zoning requirements as to parking, lot size, ingress, egress and building setbacks);
 
(v) copies of all leases with respect to each of such Borrowing Base Properties;
 
(vi) copies of the most recent environmental reports or assessments in the possession of or available to the Borrower or any other Credit Party with respect to the environmental condition of each of such Borrowing Base Properties and any other earlier or supplemental reports or assessments in the possession of the Borrower or any other Credit Party requested by the Administrative Agent in connection therewith;
 
(vii) such other information, reports or other materials concerning such Borrowing Base Properties or the leases associated therewith as Administrative Agent may reasonably request.
 
(e) Opening Compliance Certificate. Receipt by the Administrative Agent of Compliance Certificates as of December 31, 2002, which shall, respectively, show covenant compliance information prior to and after giving pro forma effect to any Borrowings requested as of the Closing Date and shall each be substantially in the form of  Exhibit D  and certified by a Responsible Officer of the Borrower to be true and correct as of the Closing Date; provided, that (i) with respect to the Compliance Certificate showing calculations prior to giving pro forma effect to the Closing Date Borrowings, the Indebtedness of the Borrower under that certain secured line of credit extended by Bank of America to Borrower pursuant to that certain Amended and Restated Revolving Credit Agreement dated as of May 7, 2002 (which Indebtedness shall be fully repaid, satisfied and terminated as of the date hereof) and existing as of the date of the information provided in such Compliance Certificate shall be included in the calculations set forth in such Compliance Certificate and (ii) the Compliance Certificate giving pro forma effect to the Borrowings as of the Closing Date shall show the amount of the Indebtedness incurred and the resultant cash held by the Borrower as a result of such Borrowings and shall not include Indebtedness related to the credit facility referenced in subclause (i) above.
 
(f) Evidence of Insurance. Receipt by the Administrative Agent of copies of insurance policies or certificates of insurance of the Credit Parties evidencing liability and casualty insurance meeting the requirements set forth in the Credit Documents.
 
(g) Officer’s Certificates. The Administrative Agent shall have received a certificate or certificates executed by a Responsible Officer of the Borrower as of the Closing Date, in form and substance satisfactory to the Administrative Agent, stating that (A) the conditions specified in Sections 5.02(a)  and  (b)  have been satisfied, (B) each Credit Party is in compliance with all existing financial obligations, (C) all governmental, shareholder and third party consents and approvals, if any, with respect to the Credit Documents and the transactions contemplated thereby have been obtained (and attaching copies thereof), (D) no action, suit, investigation or proceeding is pending or threatened in any court or before any arbitrator or governmental instrumentality that purports to affect any Credit Party or any transaction contemplated by the Credit Documents, if such action, suit, investigation or proceeding could be reasonably expected to have a Material Adverse Effect and (E) immediately after giving effect to the requested Credit Extension, (1) no Default or Event of Default exists, (2) all representations and warranties contained herein and in the other Credit Documents are true and correct in all material respects and (3) on the basis of income statement items and capital expenditures for the 12-month period ending on the last day of the most recently ended calendar month prior to the Closing Date and balance sheet items as of the Closing Date after giving effect to the Credit Extension, the Credit Parties would be in pro forma compliance with each of the financial, Investment and Indebtedness covenants set forth in  Article VIII  as of the first date provided for the measurement of each of such covenants in accordance with the terms thereof.
 
(h) Solvency. The Administrative Agent shall have received a certificate executed by a Responsible Officer of the Borrower as of the Closing Date, in form and substance satisfactory to the
 
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Administrative Agent, regarding the Solvency of each of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) on a consolidated basis.
 
(i) Letter Agreements. The Arranger shall have received from the Borrower and the REIT Guarantor a fully executed original of the Syndication Letter and the Arranger and Agent shall have received from the Borrower and the REIT Guarantor a fully executed original of the Fee Letter.
 
(j) Fees. Any fees required to be paid on or before the Closing Date pursuant to the terms hereof or of the Fee Letter shall have been paid.
 
(k) Attorney Costs. Unless waived by the Administrative Agent, the Borrower shall have paid all Attorney Costs of the Administrative Agent to the extent invoiced prior to or on the Closing Date,  plus  such additional amounts of Attorney Costs as shall constitute its reasonable estimate of Attorney Costs incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrower and the Administrative Agent).
 
(l) Approval of Borrowing Base Properties. The Administrative Agent shall have approved each of the Real Properties and leases listed on Schedule 6.17  as Borrowing Base Properties or Borrowing Base Leases (as applicable).
 
(m) Other. Receipt by the Lenders of such other documents, instruments, agreements or information as reasonably requested by any Lender, including, but not limited to, information regarding litigation, tax, accounting, labor, insurance, pension liabilities (actual or contingent), real estate leases, material contracts, debt agreements, property ownership and contingent liabilities of the Credit Parties.
 
5.02	 	Conditions to all Credit Extensions.	
 
The obligation of each Lender to honor any Request for Credit Extension (other than a Loan Notice requesting only a conversion of Loans to the other Type, or a continuation of Eurodollar Rate Loans) is subject to the following conditions precedent:
 
(a) The representations and warranties of the Borrower and each other Credit Party contained in Article VI or any other Credit Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct in all material respects on and as of the date of such Credit Extension, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date, and except that for purposes of this  Section 5.02 , the representations and warranties contained in subsections (a) and (b) of  Section 6.05  shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of  Section 7.01 .
 
(b) No Default shall exist, or would result from such proposed Credit Extension.
 
(c) There shall not have occurred a Bankruptcy Event with respect to any Credit Party.
 
(d) The Administrative Agent and, if applicable, the L/C Issuer or Swingline Lender shall have received a Request for Credit Extension in accordance with the requirements hereof.
 
(e) Immediately after giving effect to the making of such Credit Extension, (i) the sum of the aggregate outstanding principal amount of Revolving Loans  plus  L/C Obligations  plus  the Swingline Loans shall not exceed the lesser of (A) the Aggregate Revolving Commitments, and (B) the Borrowing Base, (ii) the L/C Obligations shall not exceed the Letter of Credit Sublimit and (iii) the Outstanding Amount of the Swingline Loans shall not exceed the Swingline Commitment.
 
Each Request for Credit Extension (other than a Loan Notice requesting only a conversion of Loans to the other Type or a continuation of Eurodollar Rate Loans) submitted by the Borrower shall be deemed to be a representation
 
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and warranty that the conditions specified in Sections 5.02(a), (b) and (c) have been satisfied on and as of the date of the applicable Credit Extension.
 
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
 
The Credit Parties represent and warrant to the Administrative Agent and the Lenders that:
 
6.01	 	Existence, Qualification and Power; Compliance with Laws.	
 
Each Credit Party (a) is duly organized or formed, validly existing and in good standing under the Laws of the jurisdiction of its organization or formation, (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Credit Documents, if any, to which it is a party and (c) is duly qualified and is licensed and in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clause (b)(i) or (c), to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.
 
6.02	 	Authorization; No Contravention.	
 
The execution, delivery and performance by each Credit Party of each Credit Document to which such Person is party, have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such Person’s Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, (i) any Contractual Obligation to which such Person is a party or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law (including, without limitation, Regulation U or Regulation X issued by the FRB).
 
6.03	 	Governmental Authorization; Other Consents.	
 
No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by any Credit Party of this Agreement or any other Credit Document.
 
6.04	 	Binding Effect.	
 
This Agreement has been, and each other Credit Document, when delivered hereunder, will have been, duly executed and delivered by each Credit Party that is party thereto. This Agreement constitutes, and each other Credit Document when so delivered will constitute, a legal, valid and binding obligation of each Credit Party a party thereto, enforceable against each such Credit Party in accordance with its terms except as enforceability may be limited by applicable Debtor Relief Laws and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).
 
6.05	 	Financial Statements; No Material Adverse Effect.	
 
(a) The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present, in all material respects, the financial condition of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) to the extent required by GAAP, show all material indebtedness and other liabilities, direct or contingent, of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) as of the date thereof, including liabilities for taxes, material commitments and Indebtedness.
 
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(b) The unaudited consolidated financial statements of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) dated December 31, 2002, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for the fiscal quarter ended on that date (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (ii) fairly present, in all material respects, the financial condition of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) as of the date thereof and their results of operations for the period covered thereby, subject, in the case of clauses (i) and (ii), to the absence of footnotes and to normal year-end audit adjustments.  Schedule 6.05  sets forth all material Indebtedness and other liabilities, direct or contingent, of the Credit Parties as of the date of such financial statements, including liabilities for taxes, material commitments and Indebtedness.
 
(c) During the period from December 31, 2002 to and including the Closing Date, there has been no sale, transfer or other disposition by any Credit Party of any material part of the business or Property of the Credit Parties, taken as a whole, and no purchase or other acquisition by any of them of any business or property (including any Capital Stock of any other Person) material in relation to the consolidated financial condition of the Credit Parties, taken as a whole, in each case, which is not reflected in the foregoing financial statements or in the notes thereto and has not otherwise been disclosed in writing to the Lenders on or prior to the Closing Date.
 
(d) The financial statements delivered pursuant to Section 7.01(a) and (b) have been prepared in accordance with GAAP (except as may otherwise be permitted under  Section 7.01(a)  and  (b) ) and present fairly (on the basis disclosed in the footnotes to such financial statements), in all material respects, the consolidated financial condition, results of operations and cash flows of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) as of such date and for such periods.
 
(e) Since the date of the Audited Financial Statements, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.
 
6.06	 	Litigation.	
 
Except as specifically disclosed in Schedule 6.06, there are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of the Credit Parties after due and diligent investigation, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, by or against any Credit Party or against any of its properties or revenues that (a) purport to affect or pertain to this Agreement or any other Credit Document, or any of the transactions contemplated hereby or (b) either individually or in the aggregate, if determined adversely, could reasonably be expected to have a Material Adverse Effect.
 
6.07	 	No Default.	
 
No Credit Party is in default under or with respect to any Contractual Obligation that could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. No Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Credit Document.
 
6.08	 	Ownership of Property; Liens.	
 
Each Credit Party has good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each Real Property is in material compliance with all instruments, agreements and other matters of record.
 
6.09	 	Environmental Compliance.	
 
Except as disclosed and described in Schedule 6.09 attached hereto and except for matters that could not reasonably be expected to have a Material Adverse Effect:
 
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(a) Each of the Real Properties and all operations at the Real Properties are in material compliance with all applicable Environmental Laws, there is no material violation of any Environmental Law with respect to the Real Properties or the Businesses, and there are no material conditions relating to the Real Properties or the Businesses that could reasonably be expected to give rise to liability under any applicable Environmental Laws.
 
(b) None of the Real Properties contains, or has previously contained, any Hazardous Materials at, on or under the Real Properties in amounts or concentrations that constitute or constituted a violation of, or could give rise to material liability under, Environmental Laws.
 
(c) No Credit Party has received any written or verbal notice of, or inquiry from any Governmental Authority regarding, any violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Real Properties or the Businesses, nor does any Responsible Officer of any Credit Party have knowledge or reason to believe that any such notice will be received or is being threatened.
 
(d) Hazardous Materials have not been transported or disposed of from the Real Properties, or generated, treated, stored or disposed of at, on or under any of the Real Properties or any other location, in each case by or on behalf of any Credit Party in violation of, or in a manner that could reasonably be expected to give rise to liability under, any applicable Environmental Law.
 
(e) No judicial proceeding or governmental or administrative action is pending or, to the best knowledge of the Responsible Officers of the Credit Parties, threatened, under any Environmental Law to which any Credit Party is or will be named as a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Credit Parties, the Real Properties or the Businesses.
 
(f) There has been no material release, or threat of release, of Hazardous Materials at or from the Real Properties, or arising from or related to the operations (including, without limitation, disposal) of any Credit Party in connection with the Real Properties or otherwise in connection with the Businesses, in violation of or in amounts or in a manner that could reasonably be expected to give rise to liability under Environmental Laws.
 
6.10	 	Insurance.	
 
The Real Properties are insured with financially sound and reputable insurance companies not Affiliates of any of the Credit Parties or their respective Subsidiaries, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the applicable Person operates. The insurance coverage of the Credit Parties and their respective Subsidiaries as of the Closing Date is outlined as to carrier, policy number, expiration date, type and amount on  Schedule 6.10 .
 
6.11	 	Taxes.	
 
The Credit Parties have filed all Federal, state and other material tax returns and reports required to be filed, and have paid all Federal, state and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against any Credit Party that could reasonably be expected to have a Material Adverse Effect.
 
6.12	 	ERISA Compliance.	
 
(a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or state Laws. Each Plan that is intended to qualify under Section 401(a) of the Code has
 
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received a favorable determination letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the best knowledge of the Credit Parties, nothing has occurred which would prevent, or cause the loss of, such qualification. Each Credit Party and each ERISA Affiliate have made all required contributions to each Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan.
 
(b) There are no pending or, to the best knowledge of the Credit Parties, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could be reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.
 
(c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) no Credit Party nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) no Credit Party nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) no Credit Party nor any ERISA Affiliate has engaged in a transaction that could be subject to Sections 4069 or 4212(c) of ERISA.
 
6 .13	 	Corporate Structure.	
 
The corporate capital and ownership structure of the REIT Group as of the Closing Date (and as of each date on which such schedule is subsequently updated pursuant to the terms hereof) is as described in  Schedule 6.13(a) . Set forth on  Schedule 6.13(b)  is a complete and accurate list with respect to each of the Credit Parties and each member of the REIT Group of (i) jurisdiction of incorporation, (ii) number of shares of each class of Capital Stock outstanding, (iii) number and percentage of outstanding shares of each class owned (directly or indirectly) by such Persons and (iv) number and effect, if exercised, of all outstanding options, warrants, rights of conversion or purchase and all other similar rights with respect thereto as of the Closing Date (and as of each date on which such schedule is subsequently updated pursuant to the terms hereof). The outstanding Capital Stock of all such Persons is validly issued, fully paid and non-assessable (in the case of a corporation) and (other than the REIT Guarantor) is owned by the Credit Parties, directly or indirectly, in the manner set forth on  Schedule 6.13(b) , free and clear of all Liens (other than those arising under or contemplated in connection with the Credit Documents) as of the Closing Date (and as of each date on which such schedule is subsequently updated pursuant to the terms hereof). Other than as set forth in  Schedule 6.13(b) , as of the Closing Date (and as of each date on which such schedule is subsequently updated pursuant to the terms hereof) the Borrower does not have outstanding any securities convertible into or exchangeable for its Capital Stock nor does the Borrower have outstanding any rights to subscribe for or to purchase or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to its Capital Stock. Each of the Subsidiaries of the Borrower is a Wholly Owned Subsidiary of the Borrower. Set forth on  Schedule 6.13(c)  is a complete and accurate list of all Excluded Entities as of the Closing Date (and as of each date on which such schedule is subsequently updated pursuant to the terms hereof).
 
6.14	 	Margin Regulations; Investment Company Act; Public Utility Holding Company Act.	
 
(a) No Credit Party is engaged and no Credit Party will engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock.
 
(b) None of the Credit Parties, any Person Controlling any Credit Party, or any Subsidiary of any Credit Party (i) is a “holding company,” or a “subsidiary company” of a “holding company,” or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company,” within the meaning of the Public Utility Holding Company Act of 1935, (ii) is or is required to be registered as an “investment company” under the Investment Company Act of 1940 or (iii) subject to regulation under any other Law which limits its ability to incur Indebtedness.
 
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6 .15	 	Disclosure.	
 
Each Credit Party has disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. No report, financial statement, certificate or other written information furnished by or on behalf of any Credit Party to the Administrative Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;  provided  that, with respect to projected financial information, the Credit Parties represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.
 
6.16	 	Compliance with Laws.	
 
Each Credit Party is in compliance in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.
 
6.17	 	Closing Date Borrowing Base Assets.	
 
Schedule 6.17 sets forth each of the Borrowing Base Properties and the Borrowing Base Leases as of the Closing Date (and as of each date on which such schedule is subsequently updated pursuant to the terms hereof), along with (a) the remaining terms of such Borrowing Bases Leases, (b) the lessees under the Borrowing Base Leases, (c) the Annualized Adjusted NOI allocable to such Borrowing Base Properties for the most recently ended fiscal quarter of the REIT Guarantor (to the extent not included in any Compliance Certificate delivered therewith) and (d) the Occupancy Rate applicable to each such Borrowing Base Property. Each asset included in determination of the Borrowing Base fully qualifies as a Borrowing Base Property or Borrowing Base Lease, as applicable.
 
6.18	 	Solvency.	
 
The REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) are Solvent on a consolidated basis.
 
6.19	 	Investments.	
 
All Investments of each Credit Party are Permitted Investments.
 
6.20	 	Property/Business Locations.	
 
Set forth on Schedule 6.20(a) is a list of all Real Properties and Excluded Properties as of the Closing Date (and as of each date on which such schedule is subsequently updated pursuant to the terms hereof), along with (a) the identity of the Person owning each such Real Property or Excluded Property; (b) the total leasable square feet within such Real Property or Excluded Property; and (c) the total leasable square footage within such Real Property or Excluded Property constituting Industrial Space. Each of the Real Properties is located inside of the United States. Set forth on  Schedule 6.20(b)  is the chief executive office, jurisdiction of incorporation or formation and principal place of business of each Credit Party as of the Closing Date (and as of each date on which such Schedule is subsequently updated pursuant to the terms hereof).
 
6.21	 	Brokers’ Fees.	
 
No Credit Party has any obligation to any Person in respect of any finder’s, broker’s, investment banking or other similar fee in connection with any of the transactions contemplated under the Credit Documents.
 
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6.22	 	Labor Matters.	
 
There are no collective bargaining agreements or Multiemployer Plans covering the employees of a Credit Party as of the Closing Date and none of the Credit Parties has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five years.
 
6 .23	 	Nature of Business.	
 
As of the Closing Date, the Credit Parties are engaged in the business of acquiring, developing, owning, leasing and selling for-lease office and industrial properties and acquiring, owning, developing, leasing and selling Speculative Properties and Properties Under Development.
 
6.24	 	Representations and Warranties from Other Credit Documents.	
 
Each of the representations and warranties made by any of the Credit Parties in any of the other Credit Documents is true and correct in all material respects.
 
6.25	 	REIT Status.	
 
The REIT Guarantor is qualified as a REIT and each of its Subsidiaries that is a corporation is a Qualified REIT Subsidiary.
 
6.26	 	Tax Shelter Regulations.	
 
The Borrower does not intend to treat the Loans and Letters of Credit and the transactions related thereto as being a “reportable transaction” (within the meaning of Treasury Regulation Section 1.6011-4). In the event the Borrower determines to take any action inconsistent with such intention, it will promptly notify the Administrative Agent thereof. If the Borrower so notifies the Administrative Agent, the Borrower acknowledges that one or more of the Lenders may treat its Loans and/or its interest in Swingline Loans and/or Letters of Credit as part of a transaction that is subject to Treasury Regulation Section 301.6112-1, and such Lender or Lenders, as applicable, will maintain the lists and other records required by such Treasury Regulation.
 
ARTICLE VII
AFFIRMATIVE COVENANTS
 
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, each Credit Party shall:
 
7.01	 	Financial Statements.	
 
Deliver to the Administrative Agent and each Lender, in form and detail satisfactory to the Administrative Agent and the Required Lenders:
 
(a) as soon as available, but in any event within 120 days after the end of each fiscal year of the REIT Guarantor, a consolidated balance sheet of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) as at the end of such fiscal year, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, audited and accompanied by a report and opinion of an independent certified public accountant of nationally recognized standing reasonably acceptable to the Agent, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit; and
 
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(b) as soon as available, but in any event within 60 days after the end of each of the first three fiscal quarters of each fiscal year of the REIT Guarantor, a consolidated balance sheet of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) as at the end of such fiscal quarter, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal quarter and for the portion of the REIT Guarantor ‘s fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail and certified by a Responsible Officer of the REIT Guarantor as fairly presenting, in all material respects, the financial condition, results of operations, shareholders’ equity and cash flows of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes.
 
7.02	 	Certificates; Other Information.	
 
Deliver to the Administrative Agent and each Lender, in form and detail satisfactory to the Administrative Agent and the Required Lenders:
 
(a) concurrently with the delivery of the financial statements referred to in Sections 7.01(a) and (b):
 
(i) a duly completed Compliance Certificate signed by a Responsible Officer of the Borrower; provided, that, for the period ending March 31, 2003, the Borrower shall deliver two Compliance Certificates, one providing actual calculations as of such date and one providing pro forma calculations including Borrowings made as of the Closing Date; provided, further, that (A) the Compliance Certificate delivered in connection with the period ending March 31, 2003 and showing actual calculations for such date (rather than pro forma calculations based on the Borrowings made as of the Closing Date) shall include in the calculations set forth therein all Indebtedness of the Borrower under the secured line of credit extended by Bank of America to Borrower pursuant to that certain Amended and Restated Revolving Credit Agreement dated as of May 7, 2002 as such Indebtedness existed on March 31, 2003; (B) the Compliance Certificate for March 31, 2003 giving pro forma effect to the Borrowings as of the Closing Date shall show the amount of the Indebtedness incurred and the resultant cash held by the Borrower as a result of the Closing Date Borrowings and shall exclude Indebtedness associated with the credit facility referenced in subclause (A) above; and (C) all other Compliance Certificates delivered thereafter shall report actual amounts; and
 
(ii) a certificate as of the end of the immediately preceding fiscal quarter of the Borrower, setting forth and certifying the amount of all Dividend Reinvestment Proceeds received by the Credit Parties during such immediately preceding fiscal quarter;
 
(b) not later than March 15 and September 15 of each year, pro-forma financial statements and a statement of sources and uses of cash of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) for the eight (8) fiscal quarters beginning with the most recent January 1 and July 1, respectively, along with a Pro Forma Compliance Certificate demonstrating that, upon giving effect to such pro forma financial projections, the Credit Parties will, during such eight fiscal quarter period, on a pro forma basis, be in compliance with all of the covenants contained in  Sections 8.02 ,  8.03 ,  8.06  and  8.11 ;
 
(c) at least 30 days prior to the end of each fiscal year of the REIT Guarantor, beginning with the fiscal year ending December 31, 2003, an annual business plan and budget of the Credit Parties containing, among other things, pro forma financial statements for the next fiscal year and projected capital expenditures of the Credit Parties for the following fiscal year;
 
(d) within 120 days after the end of each fiscal year of the REIT Guarantor, a certificate (signed by a Responsible Officer) containing information regarding the amount of all capital expenditures, Dispositions, Debt Issuances, Equity Issuances and Acquisitions that occurred during the prior fiscal year;
 
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(e) promptly after any request by the Administrative Agent or any Lender, copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of any Credit Party by independent accountants in connection with the accounts or books of any Credit Party, or any audit of any of them existing as of the date of this Agreement and promptly upon receipt thereof, a copy of any other report or “management letter” or recommendations submitted to the board of directors (or the audit committee of the board of directors) of any Credit Party by independent accountants in connection with the accounts or books of any Credit Party, or any audit of any of them;
 
(f) promptly after the same are available, (i) copies of each annual report, proxy or financial statement or other report or communication sent generally to the stockholders of any Credit Party, and copies of all annual, regular, periodic and special reports and registration statements which any Credit Party may file or be required to file with the SEC under Section 13 or 15(d) of the Securities Exchange Act of 1934 or to a holder of any Indebtedness owed by any Credit Party in its capacity as such a holder and not otherwise required to be delivered to the Administrative Agent pursuant hereto, (ii) copies of each prospectus or other offering memorandum (and each supplement thereto) at any time prepared by or on behalf of any of the Credit Parties, and (iii) upon the request of the Administrative Agent, all reports and written information to and from the United States Environmental Protection Agency, or any state or local agency responsible for environmental matters, the United States Occupational Health and Safety Administration, or any state or local agency responsible for health and safety matters, or any successor agencies or authorities concerning environmental, health or safety matters;
 
(g) promptly, such additional information regarding the business, financial or corporate affairs of any Credit Party, or compliance with the terms of the Credit Documents, as the Administrative Agent or any Lender may from time to time reasonably request; and
 
(h) promptly after the Borrower has notified the Administrative Agent of any intention by the Borrower to treat the Loans and/or Letters of Credit as being a “reportable transaction” (within the meaning of Treasury Regulation Section 1.6011-4), a duly completed copy of IRS form 8886 or any successor form.
 
Documents required to be delivered pursuant to Section 7.01(a) or Section 7.02(f) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the applicable Credit Party posts such documents, or provides a link thereto on such Credit Party’s website on the Internet at the website address listed on  Schedule 11.02 ; or (ii) on which such documents are posted on the applicable Credit Party ‘s behalf on IntraLinks/IntraAgency or another relevant website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent);  provided  that: (i) the applicable Credit Party shall deliver paper copies of such documents to the Administrative Agent or any Lender that requests the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (ii) the Borrower shall notify (which may be by facsimile or electronic mail) the Administrative Agent and each Lender of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions ( i.e. , soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Borrower shall be required to provide paper copies of the Compliance Certificates required by  Section 7.02(a)  to the Administrative Agent and each of the Lenders. Except for such Compliance Certificates, the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Credit Parties with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.
 
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7.03	 	Notices and Information.	
 
(a) Promptly notify the Administrative Agent and each Lender of the occurrence of any Default.
 
(b) Promptly notify the Administrative Agent and each Lender of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of any Credit Party; (ii) any dispute, litigation, investigation, proceeding or suspension between any Credit Party and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting any Credit Party, including pursuant to any applicable Environmental Laws.
 
(c) Promptly notify the Administrative Agent and each Lender of the occurrence of any ERISA Event.
 
(d) Promptly notify the Administrative Agent and each Lender of any material change in accounting policies or financial reporting practices by any Credit Party.
 
(e) Upon the reasonable written request of the Administrative Agent, the Credit Parties will furnish or cause to be furnished to the Administrative Agent, at the Credit Parties’ expense, a report of an environmental assessment of reasonable scope, form and depth, (including, where appropriate, invasive soil or groundwater sampling) by a consultant reasonably acceptable to the Administrative Agent as to the nature and extent of the presence of any Hazardous Materials on any Borrowing Base Properties and as to the compliance by any Credit Party with Environmental Laws at such Borrowing Base Properties. If the Credit Parties fail to deliver such an environmental report within seventy-five (75) days after receipt of such written request then such Borrowing Base Properties shall be immediately ineligible to be qualified as Borrowing Base Properties hereunder and shall remain ineligible until such date as the Administrative Agent receives an environmental assessment with respect to such Borrowing Base Properties in accordance with the first sentence of this  Section 7.03(e) .
 
Each notice pursuant to this Section 7.03(a) through (e) shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the Credit Parties have taken and propose to take with respect thereto. Each notice pursuant to  Section 7.03(a)  shall describe with particularity any and all provisions of this Agreement and any other Credit Document that have been breached.
 
7.04	 	Payment of Obligations.	
 
Pay and discharge and cause each of its Subsidiaries to pay and discharge as the same shall become due and payable, all of its obligations and liabilities, including (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by the applicable Credit Party or Subsidiary; and (b) all lawful claims which, if unpaid, could reasonably be expected to have a Material Adverse Effect, unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by the applicable Credit Party or Subsidiary.
 
7.05	 	Preservation of Existence, Etc.	
 
(a) Preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization except in a transaction permitted by  Section 8.04  or  8.05 ; (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business; and (c) preserve or renew all of its material registered copyrights, patents, trademarks, trade names and service marks.
 
7.06	 	Maintenance of Properties.	
 
(a) Maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear and Involuntary Dispositions
 
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excepted; and (b) make all necessary repairs thereto and renewals and replacements thereof; and (c) use the standard of care typical in the industry in the operation and maintenance of its facilities.
 
7.07	 	Maintenance of Insurance.	
 
At all times maintain and cause each of its Subsidiaries to maintain in full force and effect insurance (including worker’s compensation insurance, liability insurance, casualty insurance, terrorism insurance consistent with the Terrorism Risk Insurance Act of 2002 and business interruption insurance) in such amounts, covering such risks and liabilities and with such deductibles or self-insurance retentions as are in accordance with normal industry practice.
 
7.08	 	Compliance with Laws.	
 
Comply and cause each of its Subsidiaries to comply with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (b) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.
 
7.09	 	Books and Records.	
 
(a) Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of each Credit Party, as the case may be; and (b) maintain such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over any such Credit Party, as the case may be.
 
7.10	 	Inspection Rights.	
 
(a) Subject to the rights of tenants, permit the representatives and independent contractors of the Administrative Agent on behalf of the Lenders to visit and inspect any of the Borrowing Base Properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, all at the expense of the Borrower and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Borrower.
 
(b) Subject to the rights of tenants, permit each of the Lenders and the representatives and independent contractors of each such Lender to visit and inspect any of the Borrowing Base Properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, all at the expense of each such Lender and as often as may be reasonably desired; provided, that any Lender seeking to perform any such visit or inspection shall provide notice of such intention directly to the Administrative Agent (rather than to the Borrower or any Credit Party). The Administrative Agent shall coordinate the performance of all such visits or inspections by the Lenders and shall provide the Borrower and such Credit Parties reasonable advance notice of such visits and inspections and shall schedule such visits and inspection at reasonable times during normal business hours.
 
Notwithstanding anything contained in this Section 7.10 to the contrary, during the continuance of any Event of Default, the Administrative Agent or any Lender (or any of their respective representatives or independent contractors) may do any of the foregoing at the expense of the Borrower at any time during normal business hours and without advance notice.
 
7.11	 	Use of Proceeds.	
 
Use the proceeds of the Credit Extensions (a) to finance the acquisition of for-lease office and industrial properties or Persons owning such properties, (b) to finance the development of new office and industrial properties,
 
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or (c) for working capital and other general corporate purposes not in contravention of any Law or of any Credit Document.
 
7.12	 	Interest Rate Protection.	
 
In the event that, at any time, the ratio of (a) the total Floating Rate Debt of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) to (b) Total Assets (the “ FRD to Total Assets Ratio ”) is in excess of 0.35 to 1.00, the Agent may (and shall, at the direction of the Required Lenders) require the Borrower to obtain one or more Swap Contracts providing interest rate protection for a tenor and for an amount of Indebtedness reasonably satisfactory to the Agent and the Required Lenders;  provided ,  however , that the amount of Floating Rate Debt made subject to such Swap Contracts shall not be required to exceed an amount equal to the total Floating Rate Debt of the Borrower less the amount of Floating Rate Debt which, given the Total Assets as of such date, would result in a FRD to Total Assets Ratio of exactly 0.35 to 1.00. Upon the Borrower’s failure to maintain an FRD to Total Assets Ratio of less than or equal to 0.35 to 1.00, the right of the Agent and Required Lenders to require the Borrower to procure interest rate protection for the amount of Indebtedness determined pursuant to the preceding sentence shall exist until such time as the Administrative Agent receives evidence reasonably satisfactory to it that (i) the FRD to Total Assets Ratio is equal to or less than 0.35 to 1.00 and (ii) the unwind of any existing Swap Contract is not reasonably likely to result in any Material Adverse Effect.
 
7.13	 	Additional Credit Parties.	
 
(a) Cause each Subsidiary that is not already a Guarantor and that owns a Proposed Borrowing Base Asset to deliver to the Administrative Agent prior to such Proposed Borrowing Base Asset being included in the calculation of the Borrowing Base, (i) a Joinder Agreement executed by such Subsidiary and (ii) the items that would have been delivered under  Sections 5.01(a)(iii)  through  (v) ,  (b) ,  (d) ,  (e) ,  (f) ,  (g) ,  (k)  and  (m)  if such Subsidiary had been a Credit Party on the Closing Date and the Proposed Borrowing Base Asset were a Borrowing Base Property as of such date;
 
(b) as soon as practicable and in any event within 30 days after any Person (other than an Excluded Entity) becomes a direct or indirect Subsidiary of the REIT Guarantor or the Borrower, the Borrower shall provide the Administrative Agent with written notice thereof setting forth information in reasonable detail describing all of the assets of such Person and shall cause such Person to deliver to the Administrative Agent (i) a Joinder Agreement executed by such Subsidiary and (ii) the items that would have been delivered under  Sections 5.01(a)(iii)  through  (v) ,  (b) ,  (d) ,  (e) ,  (f) ,  (g) ,  (k)  and (m)  if such Subsidiary had been a Credit Party on the Closing Date; and
 
(c) cause each Person owning a Borrowing Base Property or a Proposed Borrowing Base Property to, at all times, be a Subsidiary (whether direct or indirect) of either the Borrower or the REIT Guarantor.
 
7.14	 	Distributions from Excluded Entities.	
 
Cause each Excluded Entity to distribute to its parent Credit Party not less than once every six (6) calendar months the lesser of (a) one hundred percent (100.0%) of all net income of such Excluded Entity (excluding adjustments for depreciation and non-cash charges and after deduction of capital expenditures), less reasonable and customary reserves for tenant improvement costs and other capital expenditures or property operating costs and expenses; and (b) the maximum amount permitted pursuant to express conditions set forth in financing documents and expressly required by a third party creditor in connection with its agreement to enter into such financing arrangement, less reasonable and customary reserves for tenant improvement costs and other capital expenditures or property operating costs and expenses.
 
7.15	 	REIT Status/REIT Ownership of Borrower.	
 
The REIT Guarantor will maintain its status as a REIT. The REIT Guarantor shall, at all times, own (whether directly or indirectly) at least 99.99% of the outstanding Capital Stock of the Borrower.
 
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ARTICLE VIII
NEGATIVE COVENANTS
 
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, no Credit Party shall directly or indirectly:
 
8.01	 	Reserved.	
 
8.02	 	Investments.	
 
Make any Investments or permit or cause any of their Subsidiaries to make any Investments other than Investments in for lease office and industrial Properties, except:
 
(a) Investments in the form of Cash Equivalents;
 
(b) Investments existing as of the Closing Date and set forth in Schedule 8.02; provided, that such existing Investments shall, to the extent applicable, be included in the calculation of the limits set forth in clauses (f), (g), (i) and (j) below;
 
(c) Investments in any Person (other than the REIT Guarantor) which is a Credit Party prior to giving effect to such Investment or becomes one at the time of such Investment;
 
(d) Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss;
 
(e) Guarantees permitted by Section 8.03;
 
(f) Investments in Budgeted Project Costs of Properties Under Development; provided, however, that the Credit Parties shall not:
 
(i) permit, at any time, the ratio of (A) the Budgeted Project Costs of all Properties Under Development (excluding Build To Suit Properties) to (B) Total Assets to be greater than 0.10 to 1.00;
 
(ii) permit, at any time, the ratio of (A) the Budgeted Project Costs of all Properties Under Development (including Build to Suit Properties) to (B) Total Assets to be greater than 0.20 to 1.00;
 
(g) Investments in Properties other than for lease office and industrial Properties (whether directly or indirectly or for purposes of acquisition, development or otherwise); provided, however, that the Credit Parties shall not, at any time, permit the ratio of (i) the value of such Investments in any such Properties (with the value of such Investments for purposes of this subsection (i) to be calculated based on the book value of the applicable Properties, plus accumulated depreciation) to (ii) Total Assets to be greater than 0.10 to 1.00;
 
(h) Reserved;
 
(i) Investments in Persons that are unconsolidated partnerships and joint ventures; provided, however, that the Credit Parties shall not, at any time, permit the ratio of (i) the aggregate Adjusted Investment Value of all such Investments in all such Persons to (ii) Total Assets to be greater than 0.20 to 1.00; and
 
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(j) Investments in Speculative Properties: provided, however, that the Credit Parties shall not, at any time, permit the ratio of (i) Speculative Property Value to (ii) Total Assets to be greater than 0.05 to 1.00.
 
In addition to (and not, in any way, in limitation of) the foregoing, the Credit Parties shall not, at any time, permit, the ratio of (a) the aggregate value of all of the Investments made pursuant to the preceding clauses (f)(ii), (g), (i) and (j), to (b) Total Assets to be greater than 0.30 to 1.00.
 
8.03	 	Indebtedness.	
 
Create, incur, assume or suffer to exist any Indebtedness, except:
 
(a) Indebtedness under the Credit Documents;
 
(b) obligations (contingent or otherwise) of the Credit Parties existing or arising under any Swap Contract, provided that (i) such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with liabilities, commitments, investments, assets, or property held or reasonably anticipated by such Person, or changes in the value of securities issued by such Person, and not for purposes of speculation or taking a “market view;” and (ii) such Swap Contract does not contain any provision exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party;
 
(c) other Indebtedness not prohibited pursuant to the terms of Section 8.11.
 
8.04	 	Fundamental Changes.	
 
Enter into any transaction of merger or consolidation or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution); provided that, notwithstanding the foregoing provisions of this  Section 8.04  but subject to the terms of  Section 7.13 , (a) the Borrower may merge or consolidate with any of its Subsidiaries  provided  that the Borrower shall be the continuing or surviving entity, (b) any Credit Party other than the Borrower or the REIT Guarantor may merge or consolidate with any other Person  provided  that either (i) such Credit Party shall be the continuing or surviving entity and such Credit Party’s obligation under the Credit Documents are not reduced, offset, terminated (in part or in whole) or otherwise altered as a result of such merger or consolidation or (ii) the continuing or surviving entity becomes a Credit Party upon the effectiveness of such merger or consolidation, and (c) any Subsidiary of the Borrower may dissolve, liquidate or wind up its affairs at any time provided that such dissolution, liquidation or winding up, as applicable, could not reasonably be expected to have a Material Adverse Effect.
 
8.05	 	Addition/Removal of Borrowing Base Properties and Leases; Dispositions.	
 
(a) Seek to voluntarily remove any Borrowing Base Property or Borrowing Base Lease from qualification as such (whether in anticipation of the Disposition or encumbrance thereof or otherwise), unless the Borrower shall have delivered to the Administrative Agent at least ten (10) Business Days prior to the effective date of such removal, a Pro Forma Compliance Certificate (which certificate shall include an update to the information set forth on Schedule 6.17 ) demonstrating that, upon giving effect to such removal, on a Pro Forma Basis the Credit Parties shall be in compliance with all of the covenants contained in  Article VIII  of this Agreement; or
 
(b) fail to deliver to the Administrative Agent, immediately upon a Responsible Officer of the Borrower obtaining knowledge of a Borrowing Base Property or Borrowing Base Lease failing to qualify as a Borrowing Base Property or Borrowing Base Lease (as applicable), a Pro Forma Compliance Certificate (which certificate shall include an update to the information set forth on  Schedule 6.17 ) demonstrating that, upon giving effect to the removal of the Eligible Asset Value(s) attributable to the applicable Borrowing Base Leases, on a Pro Forma Basis the Credit Parties shall be in compliance with all of the covenants contained in  Article VIII  of this Agreement; or
 
(c) include any Real Property or lease as a Borrowing Base Property or Borrowing Base Lease (as applicable) in any compliance certificate delivered to the Agent, on  Schedule 6.17  or otherwise in any calculation of
 
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the Borrowing Base, unless (i) the Agent has approved such Real Property or lease pursuant to Section 5.01(l) hereof; or (ii) (A) the Borrower has delivered to the Agent (1) a written request for the inclusion of such Real Property or lease (each a “ Proposed Borrowing Base Asset ”) in the calculation of the Borrowing Base, (2) a proposed revision to  Schedule 6.17  reflecting the inclusion of the Proposed Borrowing Base Asset in such schedule, and (3) a Pro Forma Compliance Certificate demonstrating compliance by the Credit Parties, both immediately prior to and immediately following the addition of such Proposed Borrowing Base Asset to the Borrowing Base, with all of the covenants contained in  Sections 8.02 ,  8.03 ,  8.06 and  8.11  of this Agreement; (B) the Borrower provides the Agent, promptly upon Agent’s request for same, such supporting documentation and other information (including, as applicable and without limitation, information concerning title to the applicable Real Property, surveys, appraisals, copies of the applicable leases and payment records with respect thereto, zoning certifications, evidence of insurance with respect to such Property, environmental reports with respect to the underlying Real Property and information concerning the applicable lessees) with respect to the applicable Proposed Borrowing Base Asset as may be requested by the Agent for the purpose of determining, in its sole and absolute discretion, whether such Proposed Borrowing Base Asset (1) qualifies as a Borrowing Base Property or Borrowing Base Lease (as applicable) and (2) is acceptable for inclusion in the Borrowing Base; and (C) the Agent has delivered to the Borrower written confirmation of its approval for the inclusion of such Proposed Borrowing Base Asset in the calculation of the Borrowing Base and of the proposed revision to  Schedule 6.17 ; or
 
(d) make any Dispositions of any assets or Property during the term of this Agreement in which the aggregate value of the assets sold or otherwise disposed pursuant to such Dispositions exceeds $100,000,000.00 unless the Borrower shall have delivered to the Administrative Agent at least two (2) Business Days prior to such Disposition a Pro Forma Compliance Certificate demonstrating that, upon giving effect to such Disposition, on a pro forma basis the Credit Parties shall be in compliance with the covenants set forth in  Sections 8.02 ,  8.03 ,  8.06  and  8.11  of this Agreement.
 
8.06	 	Restricted Payments.	
 
Declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except that:
 
(a) each Credit Party may make Restricted Payments (directly or indirectly) to any other Credit Party;
 
(b) the REIT Guarantor shall be permitted to repurchase or otherwise redeem treasury stock or other Capital Stock of the REIT Guarantor to the extent such redemptions: (i) do not, during any fiscal year of the REIT Guarantor, exceed three percent (3.0%) of the weighted average number of shares of such Capital Stock outstanding during the prior fiscal year of the Borrower; (ii) do not exceed $125,000,000.00 in the aggregate during the term of this Agreement; and (iii) do not, in the aggregate, exceed at any time during the term of this Agreement the aggregate amount of Dividend Reinvestment Proceeds during the period commencing as of the Closing Date and extending until the applicable date of determination;
 
(c) the REIT Guarantor shall be permitted to make dividends and distributions to the extent permitted pursuant to Section 8.11(i) if and to the extent that prior to or contemporaneously with the making of any such dividend or distribution, the REIT Guarantor delivers to the Agent (A) evidence satisfactory to the Agent of the application of any Dividend Reinvestment Proceeds to be generated in connection with such dividend or distribution and (B) a certificate from the chief financial officer of the REIT Guarantor certifying that the REIT Guarantor shall, immediately following the making of such dividend or distribution, be in compliance with all applicable provisions of the Code (including those relating to the REIT Guarantor’s status as a REIT) and with its bylaws and operating covenants; and
 
(d) as required pursuant to Section 7.14.
 
8.07	 	Change in Nature of Business.	
 
Engage in any material line of business substantially different from those lines of business conducted by the Borrower and its Subsidiaries on the date hereof or any business substantially related or incidental thereto.
 
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8.08	 	Transactions with Affiliates and Insiders.	
 
Enter into or permit to exist or permit or cause any of their Subsidiaries to enter into any transaction or series of transactions with any officer, director or Affiliate of such Person other than (a) advances of working capital to any Credit Party other than the REIT Guarantor, (b) transfers of cash and assets to any Credit Party other than the REIT Guarantor, (c) intercompany transactions (if any) expressly permitted by  Section 8.02 ,  Section 8.03 , Section 8.04 ,  Section 8.05  or  Section 8.06 , (d) normal compensation and reimbursement of expenses of officers and directors and (e) except as otherwise specifically limited in this Agreement, other transactions which are entered into in the ordinary course of such Person’s business on terms and conditions substantially as favorable to such Person as would be obtainable by it in a comparable arms-length transaction with a Person other than an officer, director or Affiliate.
 
8.09	 	Burdensome Agreements.	
 
(a) Enter into any Contractual Obligation that encumbers or restricts on the ability of any such Person to (i) pay dividends or make any other distributions to any Credit Party on its Capital Stock or with respect to any other interest or participation in, or measured by, its profits, (ii) pay any Indebtedness or other obligation owed to any Credit Party, (iii) make loans or advances to any Credit Party, (iv) sell, lease or transfer any of its Property to any Credit Party or (v) act as a Credit Party pursuant to the Credit Documents or any renewals, refinancings, exchanges, refundings or extension thereof, except (in respect of any of the matters referred to in clauses (i)-(iv) above) for (1) this Agreement and the other Credit Documents, (2) any Permitted Lien or any document or instrument governing any Permitted Lien,  provided  that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien or (3) customary restrictions and conditions contained in any agreement relating to the sale of any Property permitted under  Section 8.05  pending the consummation of such sale.
 
(b) Enter into any Contractual Obligation that prohibits or otherwise restricts the sale of any Borrowing Base Property or that prohibits or otherwise restricts the existence of any Lien upon any Borrowing Base Property in favor of the Administrative Agent (for the benefit of the Lenders) for the purpose of securing the Obligations, whether now owned or hereafter acquired, or requiring the grant of any security for any obligation if such Borrowing Base Property is given as security for the Obligations, except (i) in connection with any Permitted Lien or any document or instrument governing any Permitted Lien,  provided  that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien and (ii) pursuant to customary restrictions and conditions contained in any agreement relating to the sale of any Borrowing Base Property permitted pursuant to the terms of this Agreement, pending the consummation of such sale.
 
(c) None of the Credit Parties shall, at any time, pledge or otherwise encumber (except in connection herewith or with any of the Credit Documents) any income derived from any of the Borrowing Base Properties contributing to the calculation of Borrowing Base (until removal of such Borrowing Base Properties from the Borrowing Base in accordance with  Section 8.05 .
 
(d) The REIT Guarantor shall not, at any time, contract, create, incur, assume or permit to exist any Lien on its ownership interests in the Borrower or on the income derived therefrom (except to the extent such Liens arise in connection with the Credit Documents).
 
(e) Permit or cause any Excluded Entity to enter into any Contractual Obligation that encumbers or restricts on the ability of any such Person to (i) pay dividends or make any other distributions to any Credit Party on its Capital Stock or with respect to any other interest or participation in, or measured by, its profits or (ii) pay any Indebtedness or other obligation owed to any Credit Party, in each case except to the extent such restriction is an express requirement of a third party creditor in connection with a financing arrangement with such Credit Party or Excluded Entity.
 
8.10	 	Use of Proceeds.	
 
Use the proceeds of any Credit Extension, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the FRB) or to
 
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extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose.
 
8.11	 	Financial Covenants.	
 
(a) Total Leverage Ratio. Permit the Total Leverage Ratio, as of the end of any fiscal quarter of the REIT Guarantor, to be greater than 0.50 to 1.00.
 
(b) Secured Debt to Total Assets Ratio. Permit, as of the end of any fiscal quarter of the REIT Guarantor, the ratio of (i) Secured Debt to (ii) Total Assets to be greater than 0.40 to 1.00.
 
(c) Unsecured Funded Debt to Unencumbered Asset Value Ratio. Permit, as of the end of any fiscal quarter of the REIT Guarantor, the ratio of (i) Unsecured Funded Debt to (ii) Unencumbered Asset Value to be greater than 0.50 to 1.00.
 
(d) Adjusted EBITDA to Interest Expense Ratio. Permit, as of the end of any fiscal quarter of the REIT Guarantor, the ratio of (i) Adjusted EBTIDA of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) for the immediately preceding twelve (12) calendar months to (ii) Interest Expense for the immediately preceding twelve (12) calendar months to be equal to or less than 2.25 to 1.00.
 
(e) Adjusted EBTIDA to Aggregate Debt Service Ratio. Permit, as of the end of any fiscal quarter of the REIT Guarantor, the ratio of (i) Adjusted EBITDA of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) for the immediately preceding twelve (12) calendar months to (ii) Aggregate Debt Service of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) (on a consolidated basis, and without duplication) for the immediately preceding twelve (12) calendar months to be equal to or less than 2.00 to 1.00.
 
(f) Borrowing Base NOI to Hypothetical Debt Service Ratio. Permit, at any time, the ratio of (i) the aggregate Annualized Adjusted NOI attributable to each of the Borrowing Base Leases for the immediately preceding twelve (12) calendar months to (ii) the Annualized Hypothetical Debt Service to be equal to or less than 1.50 to 1.00.
 
(g) Aggregate Borrowing Base Property Value. Permit the Aggregate Borrowing Base Property Value to be equal to or less than $700,000,000.00 for any period in excess of fifteen (15) days.
 
(h) Minimum Shareholder Equity. Permit Shareholder Equity, at any time, to be less than the Minimum Shareholder Equity Amount.
 
(i) Distribution Limitation. Permit the REIT Guarantor to declare or make cash dividends or similar distributions to its equity holders (excluding any equity holders which are Credit Parties) during any given fiscal quarter such that Net Dividends during such period are in excess of the greater of (i) the FFO Distribution Allowance for such fiscal quarter or (ii) the amount necessary to maintain the status of the REIT Guarantor as a REIT; provided, that, to the extent a Default or Event of Default has occurred and is then-continuing, the REIT Guarantor shall not be permitted to make or declare any dividends or similar distributions without the written consent of the Agent and Required Lenders except to the extent necessary to maintain its status as a REIT.
 
(j) Unsecured Funded Debt. Incur Unsecured Funded Debt (excluding the Obligations, all 1031 Debt and obligations under unsecured letters of credit which are unrelated to any overriding revolving line of credit) in an amount that would cause the aggregate amount of Unsecured Funded Debt of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) to exceed $25,000,000.00.
 
(k) Recourse Indebtedness. Incur Recourse Indebtedness in an amount that would cause the aggregate Recourse Indebtedness (excluding the Obligations) of the REIT Guarantor and its Subsidiaries (including, without limitation, the Excluded Entities) to exceed twenty percent (20.0%) of Total Assets.
 
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(l) Excluded Property Asset Cost to Real Property Asset Cost. Permit, at any time, the ratio of (i) Excluded Property Asset Cost to (ii) the sum of (A) Real Property Asset Cost, plus (B) Excluded Property Asset Cost, to exceed 0.45 to 1.00.
 
8.12	 	No Foreign Subsidiaries.	
 
Create, acquire or permit to exist or permit or cause any of their Subsidiaries to create, acquire or permit to exist, any Foreign Subsidiary.
 
8.13	 	Prepayment of Other Indebtedness, Etc.	
 
Permit any Credit Party to, if any Default or Event of Default has occurred and is continuing or would be directly or indirectly caused as a result thereof, (a) amend or modify any of the terms of any Indebtedness of such Credit Party if such amendment or modification would shorten the final maturity or average life to maturity or require any payment to be made sooner than originally scheduled, increase the interest rate applicable thereto, require additional collateral or add or change any terms in a manner otherwise materially adverse to such Credit Party or (b) make (or give any notice with respect thereto) any voluntary or optional payment or prepayment or redemption or acquisition for value of (including without limitation, by way of depositing money or securities with the trustee with respect thereto before due for the purpose of paying when due), refund, refinance or exchange of any other Indebtedness of such Credit Party.
 
8 .14	 	Organization Documents; Fiscal Year.	
 
Permit any Credit Party to (a) amend, modify or change its Organization Documents in a manner materially adverse to the Lenders or (b) change its fiscal year.
 
8.15	 	Ownership of Subsidiaries; Limitations on the REIT Guarantor.	
 
Notwithstanding any other provisions of this Agreement to the contrary:
 
(a) Permit any Credit Party to (i), except in the case of the REIT Guarantor, permit any Person (other than another Credit Party) to own any Capital Stock of any Credit Party, except (A) to qualify directors where required by applicable law or to satisfy other requirements of applicable law with respect to the ownership of Capital Stock of Foreign Subsidiaries, (B) as a result of or in connection with a dissolution, merger, consolidation or disposition of a Subsidiary not prohibited by  Section 8.04  or  Section 8.05  or (C) the current 0.01% interest in the Borrower held by Wells Capital, (ii) permit any Subsidiary of any Credit Party to issue or have outstanding any shares of preferred Capital Stock or (iii) permit, create, incur, assume or suffer to exist any Lien on any Capital Stock of any Credit Party.
 
(b) Permit the REIT Guarantor to (i) hold any assets other than the Capital Stock of the Borrower, or any other Credit Parties or any Excluded Entity, or (ii) engage in any business other than (A) owning the Capital Stock of the Borrower or other Credit Parties or Excluded Entities and activities incidental or related thereto, (B) acting as a Guarantor hereunder and (C) as otherwise permitted hereunder.
 
8.16	 	Sale Leasebacks.	
 
Permit any Credit Party to enter into any Sale and Leaseback Transaction.
 
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ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
 
9.01	 	Events of Default.	
 
Any of the following shall constitute an Event of Default:
 
(a) Non-Payment. The Borrower or any other Credit Party fails to pay (i) when and as required to be paid herein, any amount of principal of any Loan or any L/C Obligation, or (ii) within 5 days after the same becomes due, any interest on any Loan or on any L/C Obligation, any commitment or other fee due hereunder or any other amount payable hereunder or under any other Credit Document; or
 
(b) Specific Covenants. Any Credit Party fails to perform or observe any term, covenant or agreement contained in any of Section 7.01, 7.02 ,  7.03 ,  7.05 ,  7.10 ,  7.11 ,  7.13  or  7.14  or  Article VIII ; or
 
(c) Other Defaults. Any Credit Party fails to perform or observe any other covenant or agreement (not specified in subsection (a) or (b) above) contained in any Credit Document on its part to be performed or observed and such failure continues for 30 days (or, if such failure cannot be reasonably cured within such period, 60 days, so long as the applicable Credit Party has diligently commenced such cure and is diligently pursuing completion thereof); or
 
(d) Representations and Warranties. Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of any Credit Party herein, in any other Credit Document, or in any document delivered in connection herewith or therewith shall be incorrect or misleading in any material respect when made or deemed made; or
 
(e) Cross-Default. (i) Any one or more of the Credit Parties (A) fails to perform or observe (beyond the applicable grace period with respect thereto, if any) any Contractual Obligation if such failure could reasonably be expected to have a Material Adverse Effect, (B) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) or otherwise defaults in respect of any Indebtedness or Guarantee (other than Indebtedness hereunder and Indebtedness under Swap Contracts) constituting Non-Recourse Indebtedness of such Credit Party(ies) and having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $10,000,000.00, (C) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) or otherwise defaults in respect of any Indebtedness or Guarantee (other than Indebtedness hereunder and Indebtedness under Swap Contracts) constituting Non-Recourse Indebtedness of such Credit Party(ies) and/or any of their unconsolidated partnerships or joint ventures and having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $25,000,000.00 or suffers or permits any unconsolidated partnership or joint venture to fail to make any such payment or otherwise default thereunder, (D) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) or otherwise defaults in respect of any Indebtedness or Guarantee (other than Indebtedness hereunder and Indebtedness under Swap Contracts) constituting Recourse Indebtedness of such Credit Party(ies) and having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $5,000,000.00 or (E) fails to observe or perform any other agreement or condition relating to any such Indebtedness or Guarantee or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness or the beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity, or such Guarantee to become payable or cash collateral in respect thereof to be demanded; or (ii) there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract)
 
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resulting from (A) any event of default under such Swap Contract as to which any Credit Party is the Defaulting Party (as defined in such Swap Contract) or (B) any Termination Event (as so defined) under such Swap Contract as to which any Credit Party is an Affected Party (as so defined) and, in either event, the Swap Termination Value owed by any Credit Party as a result thereof is greater than $5,000,000.00; or
 
(f) Bankruptcy Events. Any Credit Party is subject to a Bankruptcy Event; or
 
(g) Judgments. There is entered against any Credit Party (i) any one or more final judgments or orders for the payment of money in an aggregate amount exceeding $5,000,000.00 (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage), or (ii) any one or more non-monetary final judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are commenced by any creditor upon such judgment or order, or (B) there is a period of 10 consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or
 
(h) ERISA. (i) One or more ERISA Events occur with respect to Pension Plans or Multiemployer Plans which have resulted or could reasonably be expected to result in liability of any Credit Party under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $5,000,000.00, or (ii) any Credit Party or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $5,000,000.00; or
 
(i) Invalidity of Credit Documents; Guarantees. (i) Any Credit Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Credit Party or any other Person contests in any manner the validity or enforceability of any Credit Document; or any Credit Party denies that it has any or further liability or obligation under any Credit Document, or purports to revoke, terminate or rescind any Credit Document; or (ii) except as the result of or in connection with a dissolution, merger or disposition of a Subsidiary not prohibited by  Section 8.04  or  Section 8.05 , the Guaranty given by any Guarantor hereunder or any provision thereof shall cease to be in full force and effect, or any Guarantor hereunder or any Person acting by or on behalf of such Guarantor shall deny or disaffirm such Guarantor’s obligations under its Guaranty, or any Guarantor shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to its Guaranty; or
 
(j) Change of Control. There occurs any Change of Control.
 
9.02	 	Remedies Upon Event of Default.	
 
If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders, take any or all of the following actions:
 
(a) declare the commitment of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions to be terminated, whereupon such commitments and obligation shall be terminated;
 
(b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Credit Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by each Credit Party;
 
(c) require that the Borrower Cash Collateralize the L/C Obligations (in an amount equal to the then Outstanding Amount thereof); and
 
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(d) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Credit Documents or applicable law;
 
provided, however, that upon the occurrence of any Bankruptcy Event with respect to any Credit Party, the obligation of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, and the obligation of the Borrower to Cash Collateralize the L/C Obligations as aforesaid shall automatically become effective, in each case without further act of the Administrative Agent or any Lender.
 
9.03	 	Application of Funds.	
 
After the acceleration of the Obligations as provided for in Section 9.02(b) (or after the Loans have automatically become immediately due and payable and the L/C Obligations have automatically been required to be Cash Collateralized as set forth in the proviso to  Section 9.02 ), any amounts received on account of the Obligations shall be applied by the Administrative Agent in the following order:
 
First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including Attorney Costs and amounts payable under  Article III ) payable to the Administrative Agent in its capacity as such;
 
Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal and interest) payable to the Lenders (including Attorney Costs and amounts payable under  Article III ), ratably among them in proportion to the amounts described in this clause  Second  payable to them;
 
Third, to payment of that portion of the Obligations constituting accrued and unpaid interest on the Loans and L/C Borrowings, ratably among the Lenders in proportion to the respective amounts described in this clause  Third  payable to them;
 
Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans and L/C Borrowings and to Cash Collateralize the undrawn amounts of Letters of Credit, ratably among the Lenders in proportion to the respective amounts described in this clause  Fourth  held by them;
 
Fifth, to payment of that portion of the Obligations constituting obligations under Swap Contracts between any Credit Party and any Lender of Affiliate of any Lender; and
 
Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by Law.
 
Subject to Section 2.03(c), amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Fourth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above.
 
ARTICLE X
ADMINISTRATIVE AGENT
 
10.01	 	Appointment and Authorization of Administrative Agent.	
 
(a) Each Lender hereby irrevocably appoints, designates and authorizes the Administrative Agent to take such action on its behalf under the provisions of this Agreement and each other Credit Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Credit Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere herein or in any other Credit Document, the Administrative Agent
 
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shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Administrative Agent have or be deemed to have any fiduciary relationship with any Lender or participant, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Credit Document or otherwise exist against the Administrative Agent. Without limiting the generality of the foregoing sentence, the use of the term “agent” herein and in the other Credit Documents with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.
 
(b) The L/C Issuer shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and the L/C Issuer shall have all of the benefits and immunities (i) provided to the Administrative Agent in this  Article X  with respect to any acts taken or omissions suffered by the L/C Issuer in connection with Letters of Credit issued by it or proposed to be issued by it and the applications and agreements for letters of credit pertaining to such Letters of Credit as fully as if the term “Administrative Agent” as used in this  Article X  and in the definition of “Agent-Related Person” included the L/C Issuer with respect to such acts or omissions, and (ii) as additionally provided herein with respect to the L/C Issuer.
 
10.02	 	Delegation of Duties.	
 
The Administrative Agent may execute any of its duties under this Agreement or any other Credit Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel and other consultants or experts concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects in the absence of gross negligence or willful misconduct.
 
10.03	 	Liability of Administrative Agent.	
 
No Agent-Related Person shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Credit Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct in connection with its duties expressly set forth herein), or (b) be responsible in any manner to any Lender or participant for any recital, statement, representation or warranty made by any Credit Party or any officer thereof, contained herein or in any other Credit Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Credit Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Credit Document, or for any failure of any Credit Party or any other party to any Credit Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender or participant to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Credit Document, or to inspect the properties, books or records of any Credit Party or any Affiliate thereof.
 
10.04	 	Reliance by Administrative Agent.	
 
(a) The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, communication, signature, resolution, representation, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, electronic mail message, statement or other document or conversation reasonably believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to any Credit Party), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under any Credit Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Credit Document in accordance with a request or consent of the Required Lenders (or such greater number of Lenders as may be expressly required hereby in any instance) and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders.
 
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(b) For purposes of determining compliance with the conditions specified in Section 5.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.
 
10.05	 	Notice of Default.	
 
The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Administrative Agent for the account of the Lenders, unless the Administrative Agent shall have received written notice from a Lender or the Borrower referring to this Agreement, describing such Default and stating that such notice is a “notice of default.” The Administrative Agent will promptly notify the Lenders of its receipt of any such notice. The Administrative Agent shall take such action with respect to such Default as may be directed by the Required Lenders in accordance with  Article IX ;  provided ,  however , that unless and until the Administrative Agent has received any such direction, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable or in the best interest of the Lenders.
 
10.06	 	Credit Decision; Disclosure of Information by Administrative Agent.	
 
Each Lender acknowledges that no Agent-Related Person has made any representation or warranty to it, and that no act by the Administrative Agent hereafter taken, including any consent to and acceptance of any assignment or review of the affairs of any Credit Party or any Affiliate thereof, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender as to any matter, including whether Agent-Related Persons have disclosed material information in their possession. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Credit Parties and their respective Subsidiaries, and all applicable bank or other regulatory Laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Borrower hereunder. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Credit Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrower and the other Credit Parties. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent herein, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of any of the Credit Parties or any of their respective Affiliates which may come into the possession of any Agent-Related Person.
 
10.07	 	Indemnification of Administrative Agent.	
 
Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand each Agent-Related Person (to the extent not reimbursed by or on behalf of any Credit Party and without limiting the obligation of any Credit Party to do so), pro rata, and hold harmless each Agent-Related Person from and against any and all Indemnified Liabilities incurred by it;  provided ,  however , that no Lender shall be liable for the payment to any Agent-Related Person of any portion of such Indemnified Liabilities to the extent determined in a final, nonappealable judgment by a court of competent jurisdiction to have resulted from such Agent-Related Person’s own gross negligence or willful misconduct; provided ,  however , that no action taken in accordance with the directions of the Required Lenders shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section. Without limitation of the foregoing, each Lender shall reimburse the Administrative Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including reasonable Attorney Costs) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification,
 
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amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Credit Document, or any document contemplated by or referred to herein, to the extent that the Administrative Agent is not reimbursed for such expenses by or on behalf of the Borrower. The undertaking in this Section shall survive termination of the Aggregate Revolving Commitments, the payment of all other Obligations and the resignation of the Administrative Agent.
 
10.08	 	Administrative Agent in its Individual Capacity.	
 
Bank of America and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with each of the Credit Parties and their respective Affiliates as though Bank of America were not the Administrative Agent, Swingline Lender or the L/C Issuer hereunder and without notice to or consent of the Lenders. The Lenders acknowledge that, pursuant to such activities, Bank of America or its Affiliates may receive information regarding any Credit Party or its Affiliates (including information that may be subject to confidentiality obligations in favor of such Credit Party or such Affiliate) and acknowledge that the Administrative Agent shall be under no obligation to provide such information to them. With respect to its Loans, Bank of America shall have the same rights and powers under this Agreement as any other Lender and may exercise such rights and powers as though it were not the Administrative Agent, Swingline Lender or the L/C Issuer, and the terms “Lender” and “Lenders” include Bank of America in its individual capacity.
 
10.09	 	Successor Administrative Agent.	
 
The Administrative Agent may resign as Administrative Agent upon 30 days’ notice to the Lenders; provided that any such resignation by the Administrative Agent shall also constitute its resignation as L/C Issuer and Swingline Lender. In addition, the Administrative Agent may be removed at the written direction of the Required Lenders to the extent the Administrative Agent is shown to be grossly negligent in the performance of its material obligations and/or duties hereunder or to have engaged in willful misconduct in the performance of such obligations and/or duties. Finally, to the extent the amount of the Administrative Agent’s Commitment hereunder is less than $10,000,000.00, the Administrative Agent may, at any time during which such Commitment is below $10,000,000.00, be removed at the written direction of the Required Lenders; provided that any such removal of the Administrative Agent by the Required Lenders pursuant to this paragraph shall also constitute the removal of such Person as L/C Issuer and Swingline Lender.
 
If the Administrative Agent resigns or is otherwise removed as Administrative Agent under this Agreement, the Required Lenders shall appoint from among the Lenders a successor administrative agent for the Lenders, which successor administrative agent shall be consented to by the Borrower at all times other than during the existence of an Event of Default (which consent of the Borrower shall not be unreasonably withheld, conditioned or delayed). If no successor administrative agent is appointed prior to the effective date of the resignation or removal of the Administrative Agent, the Administrative Agent may appoint, after consulting with the Lenders and the Borrower, a successor administrative agent from among the Lenders. Upon the acceptance of its appointment as successor administrative agent hereunder, the Person acting as such successor administrative agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent, L/C Issuer and Swingline Lender and the respective terms “Administrative Agent”, “L/C Issuer” and “Swingline Lender” shall mean such successor administrative agent, Letter of Credit issuer and Swingline Lender. Upon such retirement or removal, the retiring/removed Administrative Agent’s appointment, powers and duties as Administrative Agent shall be terminated, the retiring/removed L/C Issuer’s rights, powers and duties as such shall be terminated and the retiring/removed Swingline Lender’s rights, powers and duties as such shall be terminated, in each case, without any other or further act or deed on the part of such retiring Administrative Agent, L/C Issuer or Swingline Lender or any other Lender, other than (a) the obligation of the successor L/C Issuer to issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or to make other arrangements satisfactory to the retiring L/C Issuer to effectively assume the obligations of the retiring L/C Issuer with respect to such Letters of Credit and (b) the obligation of the successor Swingline Lender to purchase from the departing Swingline Lender all existing and outstanding Swingline Loans for the full principal amount thereof. After any former Administrative Agent’s resignation or removal hereunder as Administrative Agent, the provisions of this  Article X  and  Sections 11.04  and  11.05  shall inure to its benefit as to any actions taken or omitted to be taken by it while it was
 
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Administrative Agent under this Agreement. If no successor administrative agent has accepted appointment as Administrative Agent by the date which is 30 days following a retiring Administrative Agent’s notice of resignation or the removal of an Administrative Agent by the Lenders, the retiring/removed Administrative Agent’s resignation or removal (as applicable) shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above.
 
10.10	 	Administrative Agent May File Proofs of Claim.	
 
In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to any Credit Party, the Administrative Agent (irrespective of whether the principal of any Loan or L/C Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise
 
(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, L/C Obligations and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under  Sections 2.03(i)  and  (j) ,  2.08  and  11.04 ) allowed in such judicial proceeding; and
 
(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
 
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under  Sections 2.08  and  11.04 .
 
Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.
 
10.11	 	Guaranty Matters.	
 
The Lenders irrevocably authorize the Administrative Agent, at its option and in its discretion, to release any Guarantor (other than the REIT Guarantor) from its obligations under the hereunder if such Person ceases to be a Subsidiary of any Credit Party as a result of a transaction permitted hereunder. Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agent’s authority to grant releases pursuant to this  Section 10.11 .
 
10.12	 	Other Agents; Arrangers and Managers.	
 
None of the Lenders or other Persons identified on the facing page or signature pages of this Agreement as a “syndication agent,” “documentation agent,” “co-agent,” “book manager,” “lead manager,” “arranger,” “lead arranger” or “co-arranger” shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than, in the case of such Lenders, those applicable to all Lenders as such. Without limiting the foregoing, none of the Lenders or other Persons so identified shall have or be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders or other Persons so identified in deciding to enter into this Agreement or in taking or not taking action hereunder.
 
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ARTICLE XI
MISCELLANEOUS
 
11.01	 	Amendments, Etc.	
 
No amendment or waiver of any provision of this Agreement or any other Credit Document, and no consent to any departure by the Borrower or any other Credit Party therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrower or the applicable Credit Party, as the case may be, and delivered to the Administrative Agent at its address set forth on  Schedule 11.02  or unless approval or consent of such matter is deemed to have occurred pursuant to  Section 11.02(d)  hereof, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given;  provided ,  however , that no such amendment, waiver or consent shall:
 
(a) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 9.02) without the written consent (or deemed approval) of such Lender (it being understood and agreed that a waiver of any condition precedent set forth in  Section 5.02  or of any Default or Event of Default or mandatory reduction in the Commitments shall not constitute a change in the terms of any Commitment of any Lender);
 
(b) postpone any date fixed by this Agreement or any other Credit Document for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Credit Document without the written consent (or deemed approval) of each Lender directly affected thereby;
 
(c) reduce the principal of, or the rate of interest specified herein on, any Loan or L/C Borrowing, or any fees or other amounts payable hereunder or under any other Credit Document without the written consent (or deemed approval) of each Lender directly affected thereby;  provided , however , that only the consent of the Required Lenders shall be necessary to amend the definition of “Default Rate” or to waive any obligation of the Borrower to pay interest at the Default Rate;
 
(d) change Section 2.12 or Section 9.03 in a manner that would alter the pro rata sharing of payments required thereby without the written consent (or deemed approval) of each Lender;
 
(e) change any provision of this Section or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent (or deemed approval) of each Lender;
 
(f) except as the result of or in connection with a dissolution, merger or disposition of a Credit Party not prohibited by Section 8.04 or Section 8.05 , release the Borrower, the REIT Guarantor or substantially all of the other Credit Parties from its or their obligations under the Credit Documents without the written consent (or deemed approval) of each Lender;
 
and, providedfurther, that (i) no amendment, waiver or consent shall, unless in writing and signed by the L/C Issuer in addition to the Lenders required above, affect the rights or duties of the L/C Issuer under this Agreement or any Letter of Credit Application relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Credit Document; (iii) no amendment, waiver or consent shall, unless in writing and signed by the Swingline Lender in addition to the Lenders required above, affect the rights or duties of the Swingline Lender under this Agreement or any other Credit Document; and (iv) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto.
 
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Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be increased or extended without the consent of such Lender.
 
Notwithstanding the fact that the consent of all the Lenders is required in certain circumstances as set forth above, (x) each Lender is entitled to vote as such Lender sees fit on any bankruptcy reorganization plan that affects the Loans, and each Lender acknowledges that the provisions of Section 1126(c) of the Bankruptcy Code supersedes the unanimous consent provisions set forth herein and (y) the Required Lenders shall determine whether or not to allow a Credit Party to use cash collateral in the context of a bankruptcy or insolvency proceeding and such determination shall be binding on all of the Lenders.
 
11.02	 	Notices and Other Communications; Facsimile Copies.	
 
(a) General. Unless otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including by facsimile transmission). All such written notices shall be mailed, faxed or delivered to the applicable address, facsimile number or (subject to subsection (c) below) electronic mail address, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:
 
(i) if to the Borrower, the Administrative Agent or the L/C Issuer, to the address, facsimile number, electronic mail address or telephone number specified for such Person on  Schedule 11.02  (as the same may be updated by the Borrower from time to time by notice to the Administrative Agent) or to such other address, facsimile number, electronic mail address or telephone number as shall be designated by such party in a notice to the other parties; and
 
(ii) if to any other Lender, to the address, facsimile number, electronic mail address or telephone number specified in its Administrative Questionnaire or to such other address, facsimile number, electronic mail address or telephone number as shall be designated by such party in a notice to the Borrower, the Administrative Agent and the L/C Issuer.
 
All such notices and other communications shall be deemed to be given or made upon the earlier to occur of (i) actual receipt by the relevant party hereto and (ii) (A) if delivered by hand or by courier, when signed for by or on behalf of the relevant party hereto; (B) if delivered by mail, four Business Days after deposit in the mails, postage prepaid; (C) if delivered by facsimile, when sent and receipt has been confirmed by telephone; and (D) if delivered by electronic mail (which form of delivery is subject to the provisions of subsection (c) below), when delivered;  provided ,  however , that notices and other communications to the Administrative Agent and the L/C Issuer pursuant to  Article II  shall not be effective until actually received by such Person. In no event shall a voicemail message be effective as a notice, communication or confirmation hereunder.
 
(b) Effectiveness of Facsimile Documents and Signatures. Credit Documents may be transmitted and/or signed by facsimile. The effectiveness of any such documents and signatures shall, subject to applicable Law, have the same force and effect as manually-signed originals and shall be binding on all Credit Parties, the Administrative Agent and the Lenders. The Administrative Agent may also require that any such documents and signatures be confirmed by a manually-signed original thereof;  provided ,  however , that the failure to request or deliver the same shall not limit the effectiveness of any facsimile document or signature.
 
(c) Limited Use of Electronic Mail. Electronic mail and Internet and intranet websites may be used only to distribute routine communications, such as financial statements and other information as provided in  Section 7.02 , and to distribute Credit Documents for execution by the parties thereto, and may not be used for any other purpose.
 
(d) Reliance by Administrative Agent and Lenders. The Administrative Agent and the Lenders shall be entitled to rely and act upon any notices (including telephonic Loan Notices) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify each Agent-Related Person and each
 
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Lender from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower. All telephonic notices to and other communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording. To the extent a Lender or any Credit Party is given written notice of any request for an approval, consent or other decision from the Administrative Agent and such Person fails to reply to any such request within ten (10) Business Days of its receipt (or deemed receipt) thereof, such Lender or Credit Party shall be deemed to have approved the requested action, amendment, waiver or other matter.
 
11.03	 	No Waiver; Cumulative Remedies.	
 
No failure by any Lender or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
 
11.04	 	Attorney Costs, Expenses and Taxes.	
 
The Credit Parties jointly and severally agree (a) to pay or reimburse the Administrative Agent for all reasonable and actual costs and expenses incurred in connection with the development, preparation, negotiation and execution of this Agreement and the other Credit Documents and any amendment, waiver, consent or other modification of the provisions hereof and thereof (whether or not the transactions contemplated hereby or thereby are consummated), and the consummation and administration of the transactions contemplated hereby and thereby, including all reasonable and actual Attorney Costs, and (b) to pay or reimburse the Administrative Agent and each Lender for all reasonable and actual costs and expenses incurred in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or the other Credit Documents (including all such costs and expenses incurred during any “workout” or restructuring in respect of the Obligations and during any legal proceeding, including any proceeding under any Debtor Relief Law), including all reasonable and actual Attorney Costs. The foregoing costs and expenses shall include all search, filing, recording, title insurance and appraisal charges and fees and taxes related thereto, and other out-of-pocket expenses incurred by the Administrative Agent and the cost of independent public accountants and other outside experts retained by the Administrative Agent or any Lender. All amounts due under this  Section 11.04  shall be payable within ten Business Days after demand therefor. The agreements in this Section shall survive the termination of the Aggregate Revolving Commitments and repayment of all other Obligations.
 
11.05	 	Indemnification by the Credit Parties.	
 
Whether or not the transactions contemplated hereby are consummated, the Credit Parties jointly and severally shall indemnify and hold harmless each Agent-Related Person, each Lender and their respective Affiliates, directors, officers, employees, counsel, agents and attorneys-in-fact (collectively the “ Indemnitees ”) from and against any and all liabilities, obligations, losses, damages, penalties, claims, demands, actions, judgments, suits, costs, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time be imposed on, incurred by or asserted against any such Indemnitee in any way relating to or arising out of or in connection with (a) the execution, delivery, enforcement, performance or administration of any Credit Document or any other agreement, letter or instrument delivered in connection with the transactions contemplated thereby or the consummation of the transactions contemplated thereby, (b) any Commitment, Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the L/C Issuer to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (c) any actual or alleged presence or release of Hazardous Materials on or from any property currently or formerly owned or operated by any Credit Party, or any Environmental Liability related in any way to any Credit Party, or (d) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory (including any investigation of, preparation for, or defense of any pending or threatened claim, investigation, litigation or proceeding) and regardless of whether any Indemnitee is a party thereto (all the foregoing, collectively, the “ Indemnified Liabilities ”), in all cases, whether or not caused by or arising, in whole or in part, out of the negligence of the Indemnitee;  provided  that such indemnity shall not, as to any Indemnitee, be available to the extent that such liabilities, obligations, losses,
 
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damages, penalties, claims, demands, actions, judgments, suits, costs, expenses or disbursements are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. No Indemnitee shall be liable for any damages arising from the use by others of any information or other materials obtained through IntraLinks or other similar information transmission systems in connection with this Agreement, nor shall any Indemnitee have any liability for any indirect or consequential damages relating to this Agreement or any other Credit Document or arising out of its activities in connection herewith or therewith (whether before or after the Closing Date). All amounts due under this  Section 11.05  shall be payable within ten Business Days after demand therefor. The agreements in this Section shall survive the resignation of the Administrative Agent, the replacement of any Lender, the termination of the Aggregate Revolving Commitments and the repayment, satisfaction or discharge of all the other Obligations.
 
11.06	 	Payments Set Aside.	
 
To the extent that any payment by or on behalf of any Credit Party is made to the Administrative Agent or any Lender, or the Administrative Agent or any Lender exercises its right of set-off, and such payment or the proceeds of such set-off or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share of any amount so recovered from or repaid by the Administrative Agent,  plus  interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect.
 
11.07	 	Successors and Assigns.	
 
(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Credit Parties may not assign or otherwise transfer any of their respective rights or obligations hereunder without the prior written consent of each Lender (other than in connection with a transaction not prohibited by  Section 8.04 ) and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section, or (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) or (h) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Indemnitees) any legal or equitable right, remedy or claim under or by reason of this Agreement.
 
(b) Any Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans (including for purposes of this subsection (b), participations in L/C Obligations) at the time owing to it);  provided  that (i) except in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund (as defined in subsection (g) of this Section) with respect to a Lender, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $2,500,000.00 unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld, conditioned or delayed); (ii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loans or the Commitment assigned; (iii) any assignment of a Revolving Commitment must be approved by the Administrative Agent and the L/C Issuer unless the Person that is the proposed assignee is itself a Lender (whether or not the proposed assignee would otherwise qualify as an Eligible Assignee); (iv) the parties to each assignment shall execute and deliver to the
 
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Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500 and (v) no party that is, immediately following such assignment, a Lender under this Agreement shall have, immediately following such assignment, a Commitment that is less than $5,000,000.00 in the aggregate. Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of  Sections 3.01 ,  3.04 ,  3.05 ,  11.04  and  11.05  with respect to facts and circumstances occurring prior to the effective date of such assignment). Upon request, the Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section.
 
(c) The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans and L/C Obligations owing to, each Lender pursuant to the terms hereof from time to time (the “ Register ”). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
 
(d) Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person or the Credit Parties or any of their respective Affiliates or Subsidiaries) (each, a “ Participant ”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans (including such Lender’s participations in L/C Obligations) owing to it);  provided  that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement;  provided  that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to  Section 11.01  that directly affects such Participant. Subject to subsection (e) of this Section, the Borrower agree that each Participant shall be entitled to the benefits of  Sections 3.01 ,  3.04  and  3.05  to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 11.09  as though it were a Lender,  provided  such Participant agrees to be subject to  Section 2.12  as though it were a Lender.
 
(e) A Participant shall not be entitled to receive any greater payment under Section 3.01 or 3.04 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of  Section 3.01  unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with  Section 11.15  as though it were a Lender.
 
(f) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank;  provided  that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
 
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(g) As used herein, the following terms have the following meanings:
 
“Eligible Assignee” means (a) a Lender; (b) an Affiliate of a Lender; (c) an Approved Fund; and (d) any other Person (other than a natural person) approved by (i) the Administrative Agent, Swingline Lender and the L/C Issuer (each such approval not to be unreasonably withheld, conditioned or delayed), and (ii) unless an Event of Default has occurred and is continuing, the Borrower (such approval not to be unreasonably withheld, conditioned or delayed);  provided  that notwithstanding the foregoing, “Eligible Assignee” shall not include the Credit Parties or any of their respective Affiliates or Subsidiaries.
 
“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.
 
“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
 
(h) Notwithstanding anything to the contrary contained herein, any Lender that is a Fund may create a security interest in all or any portion of the Loans owing to it and the Note, if any, held by it to the trustee for holders of obligations owed, or securities issued, by such Fund as security for such obligations or securities,  provided  that unless and until such trustee actually becomes a Lender in compliance with the other provisions of this  Section 11.07 , (i) no such pledge shall release the pledging Lender from any of its obligations under the Credit Documents and (ii) such trustee shall not be entitled to exercise any of the rights of a Lender under the Credit Documents even though such trustee may have acquired ownership rights with respect to the pledged interest through foreclosure or otherwise.
 
(i) Notwithstanding anything to the contrary contained herein, if at any time Bank of America assigns all of its Commitment and Loans pursuant to subsection (b) above, Bank of America may, upon 30 days’ notice to the Borrower and the Lenders, resign as L/C Issuer. In the event of any such resignation as L/C Issuer, the Borrower shall be entitled to appoint from among the Lenders a successor L/C Issuer hereunder;  provided ,  however , that no failure by the Borrower to appoint any such successor shall affect the resignation of Bank of America as L/C Issuer. If Bank of America resigns as L/C Issuer, it shall retain all the rights and obligations of the L/C Issuer hereunder with respect to all Letters of Credit outstanding as of the effective date of its resignation as L/C Issuer and all L/C Obligations with respect thereto (including the right to require the Lenders to make Base Rate Loans or fund risk participations in Unreimbursed Amounts pursuant to  Section 2.03(c) ).
 
11.08	 	Confidentiality.	
 
Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential); (b) to the extent requested by any regulatory authority (including any self-regulatory authority, such as the National Association of Insurance Commissioners); (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process; (d) to any other party to this Agreement; (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any suit, action or proceeding relating to this Agreement or any Loan Document or the enforcement of rights hereunder or thereunder; (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or to any credit derivative transaction relating to the Credit Parties and their obligations; (g) with the consent of the Borrower; and (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than the Credit Parties. For purposes of this Section, “ Information ” means all information received from any Credit Party relating to any Credit Party or any of their respective business, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by any Credit
 
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Party; provided that, in the case of information received from a Credit Party after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. Notwithstanding anything herein to the contrary, “Information” shall not include, and the Administrative Agent and each Lender (and each employee, representative, or other agent of the Administrative Agent and each Lender) may disclose to any and all Persons without limitation of any kind, any information with respect to the “tax treatment” and “tax structure” (in each case, within the meaning of Treasury Regulation Section 1.6011-4) of the transactions contemplated hereby and all materials of any kind (including options or other tax analyses) that are provided to the Administrative Agent or such Lender (and each employee, representative, or other agent of the Administrative Agent or such Lender) relating to such tax treatment and tax structure;  provided , that with respect to any document or similar item that in either case contains information concerning the tax treatment or tax structure of the transaction as well as other information, this sentence shall only apply to such portions of the document or similar item that relate to the tax treatment or tax structure of the Loans, Letters of Credit and other transactions contemplated hereby.
 
11.09	 	Set-off.	
 
In addition to any rights and remedies of the Lenders provided by law, upon the occurrence and during the continuance of any Event of Default, each Lender is authorized at any time and from time to time, without prior notice to any Credit Party, any such notice being waived by each Credit Party to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such Lender to or for the credit or the account of the respective Credit Parties against any and all Obligations owing to such Lender hereunder or under any other Credit Document, now or hereafter existing, irrespective of whether or not the Administrative Agent or such Lender shall have made demand under this Agreement or any other Credit Document and although such Obligations may be contingent or unmatured or denominated in a currency different from that of the applicable deposit or indebtedness. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such set-off and application made by such Lender;  provided ,  however , that the failure to give such notice shall not affect the validity of such set-off and application. Notwithstanding the foregoing, no Lender shall be entitled to set-off or apply any deposits in a property specific operating account or reserve account established by a Credit Party for any Real Properties encumbered by mortgage liens in favor of another financial institution to the extent such financial institution expressly requires such agreement by the Lenders hereunder and provided such Lender and the Administrative Agent has received notice of the interest of such other financial institution prior to such set-off or application. The list of accounts as of the Closing Date (and as of each date on which such schedule is subsequently updated pursuant to the terms hereof) which are not subject to set-off is set forth on  Schedule 11.09  attached hereto.
 
11.10	 	Interest Rate Limitation.	
 
Notwithstanding anything to the contrary contained in any Credit Document, the interest paid or agreed to be paid under the Credit Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the “ Maximum Rate ”). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.
 
11.11	 	Counterparts.	
 
This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
 
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11.12	 	Integration.	
 
This Agreement, together with the other Credit Documents, comprises the complete and integrated agreement of the parties on the subject matter hereof and thereof and supersedes all prior agreements, written or oral, on such subject matter. In the event of any conflict between the provisions of this Agreement and those of any other Credit Document, the provisions of this Agreement shall control;  provided  that the inclusion of supplemental rights or remedies in favor of the Administrative Agent or the Lenders in any other Credit Document shall not be deemed a conflict with this Agreement. Each Credit Document was drafted with the joint participation of the respective parties thereto and shall be construed neither against nor in favor of any party, but rather in accordance with the fair meaning thereof.
 
11.13	 	Survival of Representations and Warranties.	
 
All representations and warranties made hereunder and in any other Credit Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding.
 
11.14	 	Severability.	
 
If any provision of this Agreement or the other Credit Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Credit Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
 
11.15	 	Tax Forms.	
 
(a) (i) Each Lender that is not a “United States person” within the meaning of Section 7701(a)(30) of the Code (a “Foreign Lender ”) shall deliver to each of the Administrative Agent and the Borrower, prior to receipt of any payment subject to withholding under the Code (or upon accepting an assignment of an interest herein), a duly signed completed copy of either IRS Form W-8BEN or any successor thereto (relating to such Foreign Lender and entitling it to an exemption from, or reduction of, withholding tax on all payments to be made to such Foreign Lender by the Borrower pursuant to this Agreement) or IRS Form W-8ECI or any successor thereto (relating to all payments to be made to such Foreign Lender by the Borrower pursuant to this Agreement) or such other evidence satisfactory to the Borrower and the Administrative Agent that such Foreign Lender is entitled to an exemption from, or reduction of, U.S. withholding tax, including any exemption pursuant to Section 881(c) of the Code. Thereafter and from time to time, each such Foreign Lender shall (A) promptly submit to each of the Administrative Agent and the Borrower such additional duly completed and signed copies of one of such forms (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) as may then be available under then current United States laws and regulations to avoid, or such evidence as is satisfactory to the Borrower and the Administrative Agent of any available exemption from or reduction of, United States withholding taxes in respect of all payments to be made to such Foreign Lender by the Borrower pursuant to this Agreement, (B) promptly notify each of the Administrative Agent and the Borrower of any change in circumstances which would modify or render invalid any claimed exemption or reduction, and (C) take such steps as shall not be materially disadvantageous to it, in the reasonable judgment of such Lender, and as may be reasonably necessary (including the re-designation of its Lending Office) to avoid any requirement of applicable Laws that the Borrower make any deduction or withholding for taxes from amounts payable to such Foreign Lender.
 
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(ii) Each Foreign Lender, to the extent it does not act or ceases to act for its own account with respect to any portion of any sums paid or payable to such Lender under any of the Credit Documents (for example, in the case of a typical participation by such Lender), shall deliver to each of the Administrative Agent and the Borrower on the date when such Foreign Lender ceases to act for its own account with respect to any portion of any such sums paid or payable, and at such other times as may be necessary in the determination of the Administrative Agent and the Borrower (in the reasonable exercise of its discretion), (A) a duly signed completed copy of the forms or statements required to be provided by such Lender as set forth above, to establish the portion of any such sums paid or payable with respect to which such Lender acts for its own account that is not subject to U.S. withholding tax, and (B) a duly signed completed copy of IRS Form W-8IMY (or any successor thereto), together with any information such Lender chooses to transmit with such form, and any other certificate or statement of exemption required under the Code, to establish that such Lender is not acting for its own account with respect to a portion of any such sums payable to such Lender.
 
(iii) The Borrower shall not be required to pay any additional amount to any Foreign Lender under Section 3.01 (A) with respect to any Taxes required to be deducted or withheld on the basis of the information, certificates or statements of exemption such Lender transmits with an IRS Form W-8IMY pursuant to this  Section 11.15(a)  or (B) if such Lender shall have failed to satisfy the foregoing provisions of this  Section 11.15(a) ;  provided  that if such Lender shall have satisfied the requirement of this  Section 11.15(a)  on the date such Lender became a Lender or ceased to act for its own account with respect to any payment under any of the Credit Documents, nothing in this  Section 11.15(a)  shall relieve the Borrower of its obligation to pay any amounts pursuant to  Section 3.01  in the event that, as a result of any change in any applicable law, treaty or governmental rule, regulation or order, or any change in the interpretation, administration or application thereof, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender or other Person for the account of which such Lender receives any sums payable under any of the Credit Documents is not subject to withholding or is subject to withholding at a reduced rate.
 
(iv) The Administrative Agent may, without reduction, withhold any Taxes required to be deducted and withheld from any payment under any of the Credit Documents with respect to which the Borrower is not required to pay additional amounts under this  Section 11.15(a) .
 
(b) Upon the request of the Administrative Agent or the Borrower, each Lender that is a “United States person” within the meaning of Section 7701(a)(30) of the Code shall deliver to the Administrative Agent and the Borrower a duly signed completed copy of IRS Form W-9. If such Lender fails to deliver such forms, then the Administrative Agent and the Borrower may withhold from any interest payment to such Lender an amount equivalent to the applicable back-up withholding tax imposed by the Code, without reduction.
 
(c) If any Governmental Authority asserts that the Administrative Agent or the Borrower did not properly withhold or backup withhold, as the case may be, any tax or other amount from payments made to or for the account of any Lender, such Lender shall indemnify the Administrative Agent and the Borrower therefor, including all penalties and interest, any taxes imposed by any jurisdiction on the amounts payable to the Administrative Agent and the Borrower under this Section, and costs and expenses (including Attorney Costs) of the Administrative Agent and the Borrower. The obligation of the Lenders under this Section shall survive the termination of the Aggregate Revolving Commitments, repayment of all other Obligations hereunder and the resignation of the Administrative Agent.
 
11.16	 	Replacement of Lenders.	
 
Under any circumstances set forth herein providing that the Borrower shall have the right to replace a Lender as a party to this Agreement, the Borrower may, upon notice to such Lender and the Administrative Agent, replace such Lender by causing such Lender to assign its Commitment and outstanding Loans (with the assignment fee to be paid by the Borrower in such instance) pursuant to  Section 11.07(b)  to one or more other Lenders or Eligible Assignees procured by the Borrower;  provided ,  however , that if the Borrower elects to exercise such right with respect to any Lender pursuant to  Section 3.06(b) , it shall be obligated to replace all Lenders that have made similar requests for compensation pursuant to  Section 3.01  or  3.04 . The Borrower shall (x) pay in full all principal,
 
80

interest, fees and other amounts owing to such Lender through the date of replacement (including any amounts payable pursuant to Section 3.05), (y) provide appropriate assurances and indemnities (which may include letters of credit) to the L/C Issuer as it may reasonably require with respect to any continuing obligation to fund participation interests in any L/C Obligations then outstanding, and (z) release such Lender from its obligations under the Credit Documents. Any Lender being replaced shall execute and deliver an Assignment and Assumption with respect to such Lender’s Commitment and outstanding Loans and participations in L/C Obligations.
 
11.17	 	Governing Law.	
 
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF GEORGIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE;  PROVIDED  THAT THE ADMINISTRATIVE AGENT AND EACH LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
 
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF GEORGIA SITTING IN FULTON COUNTY OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF SUCH STATE, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWER, THE GUARANTORS, THE ADMINISTRATIVE AGENT AND EACH LENDER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE BORROWER, THE GUARANTORS, THE ADMINISTRATIVE AGENT AND EACH LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF  FORUM NON CONVENIENS , WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF ANY CREDIT DOCUMENT OR OTHER DOCUMENT RELATED THERETO. EACH OF THE BORROWER, THE GUARANTORS, THE ADMINISTRATIVE AGENT AND EACH LENDER WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF SUCH STATE.
 
11.18	 	Waiver of Right to Trial by Jury.	
 
EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY CREDIT DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY CREDIT DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
 
11.19	 	ENTIRE AGREEMENT.	
 
THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES.
 
81

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
 
BORROWER:	
 	
WELLS OPERATING PARTNERSHIP, L.P.,	
 	 	
 	 	By: WELLS REAL ESTATE INVESTMENT TRUST, INC., its sole general partner        	
 	 	 	
 	 	By:	 	/s/    Douglas P. Williams        

	
 	 	Name:	 	Douglas P. Williams	
 	 	Title:	 	Executive Vice President	
 	
REIT GUARANTOR:	
 	
WELLS REAL ESTATE INVESTMENT TRUST, INC.,	
 	 	
By:	 	/s/    Douglas P. Williams       

	
Name:	 	Douglas P. Williams	
Title:	 	Executive Vice President	
 	
OTHER GUARANTORS:	
 	
WELLS REIT-HOLTSVILLE, NY, LLC	
 	 	
By:	 	/s/    Randall M. Fretz       

	
Name:	 	Randall M. Fretz	
Title:	 	President	
 	
WELLS REIT-INDEPENDENCE SQUARE, LLC	
 	 	
By:	 	/s/    Randall M. Fretz       

	
Name:	 	Randall M. Fretz	
Title:	 	President	
 	
DANACQ FARMINGTON HILLS, LLC	
 	 	
 	 	By: WELLS REAL ESTATE INVESTMENT TRUST, INC., its sole Manager        	
 	 	 	
 	 	By:	 	/s/    Douglas P. Williams        

	
 	 	Name:	 	Douglas P. Williams	
 	 	Title:	 	Executive Vice President	

DANACQ KALAMAZOO, LLC	
 	 	
 	 	By: WELLS REAL ESTATE INVESTMENT
TRUST, INC., its sole Manager	
 	 	 	 	
 	 	By:	 	 	 	/s/    Douglas P. Williams        

	
 	 	Name:	 	 	 	Douglas P. Williams	
 	 	Title:	 	 	 	Executive Vice President	
 	
WELLS REIT-CHICAGO CENTER, CHICAGO, LLC	
 	 	
 	 	By: WELLS OPERATING PARTNERSHIP,
L.P., its sole member	
 	 	 	 	
 	 	 	 	By:	 	WELLS REAL ESTATE INVESTMENT
TRUST, INC., its sole general partner	
 	 	 	 	 	
 	 	 	 	 	 	By:	 	/s/    Douglas P. Williams        

	
 	 	 	 	 	 	Name:	 	Douglas P. Williams	
 	 	 	 	 	 	Title:	 	Executive Vice President	
 	
WELLS-EDS DES MOINES, L.P.	
 	 	
 	 	By: WELLS REAL ESTATE DES MOINES, IA,
LLC, its sole general partner	
 	 	 	 	
 	 	 	 	By:	 	WELLS OPERATING PARTNERSHIP,
L.P., its sole member	
 	 	 	 	 	
 	 	 	 	 	 	By:	 	WELLS REAL ESTATE INVESTMENT TRUST, INC., its sole general partner	
 	 	 	 	 	
 	 	 	 	 	 	By:	 	/s/    Douglas P. Williams        

	
 	 	 	 	 	 	Name:	 	Douglas P. Williams	
 	 	 	 	 	 	Title:	 	Executive Vice President	
 	
WESTLAKE WELLS, L.P.	
 	 	
 	 	By: WELLS REAL ESTATE DES MOINES, IA,
LLC, its sole general partner	
 	 	 	
 	 	 	 	By: WELLS OPERATING PARTNERSHIP,
L.P., its sole member	
 	 	 	 	
 	 	 	 	 	 	By: WELLS REAL ESTATE
INVESTMENT TRUST, INC., its sole
general partner	
 	 	 	 	 	
 	 	 	 	 	 	By:	 	/s/    Douglas P. Williams        

	
 	 	 	 	 	 	Name:	 	Douglas P. Williams	
 	 	 	 	 	 	Title:	 	Executive Vice President	

ADMINISTRATIVE AGENT:	
 	
BANK OF AMERICA, N.A., as	
Administrative Agent	
 	 	
By:	 	/s/    Gerald R. Massey, Jr.        

	
Name:	 	Gerald R. Massey, Jr.

	
Title:	 	Senior Vice President

	
 
[signature pages continued]

LENDERS; L/C ISSUER; SWINGLINE LENDER:	
 	
BANK OF AMERICA, N.A.,	
individually in its capacity as a Lender, individually in its capacity as L/C Issuer and individually in its capacity as Swingline Lender	
 	 	
By:	 	/s/    Gerald R. Massey, Jr.      

	
Name:	 	Gerald R. Massey, Jr.

	
Title:	 	Senior Vice President

	
 
[signature pages continued]

BANK OF MONTREAL	
individually in its capacity as a Lender	
 	 	
By:	 	/s/    Eduardo Mendoza      

	
Name:	 	Eduardo Mendoza	
Title:	 	Vice President	

[signature pages continued]

BANK ONE, NA	
individually in its capacity as a Lender	
 	 	
By:	 	/s/    Mark C. Kramer      

	
Name:	 	Mark C. Kramer	
Title:	 	Director, Senior Banker II	
 
[signature pages continued]

CHEVY CHASE BANK, FSB	
individually in its capacity as a Lender	
 	 	
By:	 	/s/    Eric A. Lawrence        

	
Name:	 	Eric A. Lawrence	
Title:	 	Vice President	
 
[signature pages continued]

COMERICA BANK	
individually in its capacity as a Lender	
 	 	
By:	 	/s/    Jessica Kempf        

	
Name:	 	Jessica Kempf	
Title:	 	Account Officer	
 
[signature pages continued]

COMMERCEBANK, N.A.	
individually in its capacity as a Lender	
 	 	
By:	 	/s/    Peter H. Smith        

	
Name:	 	Peter H. Smith	
Title:	 	Vice President	

By:	 	/s/    Diego Arnal      

	
Name:	 	Diego Arnal	
Title:	 	Director	
 
[signature pages continued]

ERSTE BANK, NEW YORK BRANCH	
individually in its capacity as a Lender	
 	 	
By:	 	/s/    Gregory T. Aptman        

	
Name:	 	Gregory T. Aptman	
Title:	 	Vice President	

By:	 	/s/    Robert R. Suehnholz       

	
Name:	 	Robert R. Suehnholz	
Title:	 	First Vice President	
 
[signature pages continued]

EUROHYPO AG, NEW YORK BRANCH	
individually in its capacity as a Lender	
 	 	
By:	 	/s/    Michael Seton        

	
Name:	 	Michael Seton	
Title:	 	Senior Director	

By:	 	/s/    Andrew Cherrick         

	
Name:	 	Andrew Cherrick	
Title:	 	Vice President	
 
[signature pages continued]

FLEET NATIONAL BANK	
individually in its capacity as a Lender	
 	 	
By:	 	/s/    Bill Lamb         

	
Name:	 	Bill Lamb	
Title:	 	Vice President	
 
[signature pages continued]

KEY BANK NATIONAL ASSOCIATION	
individually in its capacity as a Lender	
 	 	
By:	 	/s/    Dan R. Heberle        

	
Name:	 	Dan R. Heberle	
Title:	 	Senior Vice President	
 
[signature pages continued]

LANDESBANK SCHLESWIG-HOLSTEIN GIROZENTRALE, NEW YORK BRANCH	
individually in its capacity as a Lender	
 	 	
By:	 	/s/    Stefan Kolle           

	
Name:	 	Stefan Kolle	
Title:	 	Senior Vice President	

By:	 	/s/    Gabi Shields           

	
Name:	 	Gabi Shields	
Title:	 	Assistant Vice President	
 
[signature pages continued]

LASALLE BANK NATIONAL ASSOCIATION	
individually in its capacity as a Lender	
 	 	
By:	 	/s/    Jay Palmer           

	
Name:	 	Jay Palmer

	
Title:	 	Vice President

	
 
[signature pages continued]

PNC BANK, NATIONAL ASSOCIATION	
individually in its capacity as a Lender	
 	 	
By:	 	/s/    Wayne Robertson            

	
Name:	 	Wayne Robertson	
Title:	 	Senior Vice President	
 
[signature pages continued]

SOCIETE GENERALE	
individually in its capacity as a Lender	
 	 	
By:	 	/s/    Joseph T. Martinez, Jr.      

	
Name:	 	Joseph T. Martinez, Jr.

	
Title:	 	Vice President

	
 
[signature pages continued]

SOVEREIGN BANK	
individually in its capacity as a Lender	
 	 	
By:	 	/s/    T. Gregory Donohue           

	
Name:	 	T. Gregory Donohue	
Title:	 	Vice President	
 
[signature pages continued]

SUMITOMO MITSUI BANKING CORPORATION	
individually in its capacity as a Lender	
 	 	
By:	 	/s/    William M. Ginn            

	
Name:	 	William M. Ginn	
Title:	 	General Manager	

UNITED OF OMAHA LIFE INSURANCE	
individually in its capacity as a Lender	
 	 	
By:	 	/s/    Peter Newland III            

	
Name:	 	Peter Newland III	
Title:	 	Vice President	
 
[signature pages continued]

WELLS FARGO BANK, NATIONAL ASSOCIATION	
individually in its capacity as a Lender	
 	 	
By:	 	/s/    Douglas E. Miller        

	
Name:	 	Douglas E. Miller	
Title:	 	Vice President	

EXHIBIT 10.99
 
REAL ESTATE SALE AGREEMENT
FOR US BANCORP MINNEAPOLIS BUILDING

REAL ESTATE SALE AGREEMENT
US BANCORP CENTER, MINNEAPOLIS, MINNESOTA
 
THIS REAL ESTATE SALE AGREEMENT (this “Agreement”) is made effective as of April 16, 2003 (the “Effective Date ”), by and between MN-NICOLLET MALL, L.L.C., a Delaware limited liability company (“ Seller ”), and WELLS OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (“ Purchaser ”), and joined in by EOP Operating Limited Partnership solely for purposes of Sections 8.2, 8.5, 9.2, and 10 hereof. In consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser agree as follows:
 
1. PURCHASE AND SALE OF PROPERTY. Subject to and in accordance with the terms and conditions set forth in this Agreement, Purchaser shall purchase from Seller and Seller shall sell to Purchaser (a) a certain parcel of real estate (the “ Real Property ”) in the City of Minneapolis, County of Hennepin, State of Minnesota, which parcel is more particularly described in attached Exhibit A , and upon which is located an office building commonly known as “US BANCORP CENTER;” (b) all rights, privileges and easements appurtenant to the Real Property, including all water rights, mineral rights, development rights, air rights, reversions or other appurtenances to said Real Property, and all right, title, and interest of Seller, if any, in and to any land lying in the bed of any street, road, alley or right-of-way, open or proposed, adjacent to or abutting the Real Property; (c) all buildings, structures and improvements situated on the Real Property, including, without limitation, that certain office building containing approximately 929,694 square feet of rentable floor area, all parking areas and other amenities, and all apparatus, elevators, escalators, built-in appliances, equipment, pumps, machinery, plumbing, heating, air conditioning, electrical and other fixtures located on the Real Property (collectively the “ Improvements ”); (d) Seller’s right, title and interest in and to the leases, occupancy agreements and license agreements affecting the Property or any part thereof described on Exhibit Q  (collectively, the “ Leases ”); (e) all furniture, furnishings, fixtures, equipment and other tangible personal property owned by Seller, located on the Real Property and used in connection therewith (the “ Tangible Personal Property ”), including, without limitation, the items set forth and described in the list attached hereto as Exhibit B , (f) all right, title and interest of Seller under any and all of the maintenance, service and other like contracts and agreements with respect to the maintenance and operation of the Property (excluding contracts affecting the Property and other properties) (the “ Service Contracts ”), a list of which is attached hereto as Exhibit C  (the contracts and agreements which are excluded because they affect other properties being denoted as “(National Contract)” on Exhibit C ) ; and (g) to the extent assignable, all right, title and interest of Seller (if any) in and to the plans and specifications with respect to the Improvements, any guarantees, trademarks, rights of copyright, warranties or other rights solely related to the ownership of or use and operation of the Real Property, Tangible Personal Property, or Improvements, and all governmental licenses and permits associated with the Real Property, Tangible Personal Property, and Improvements, including any rights, if any, in the name “U.S. Bancorp Center” and the logo therefor, if any. Items (a) through (g) above, are collectively referred to in this Agreement as the “ Property ”; provided, however, the term “Property” expressly excludes (i) all trade fixtures and personal property owned by tenants or other users or occupants of the Property, (ii) all rights with respect to any refund of taxes applicable to the period prior to Closing (as defined in  Section 4  below), (iii) all rights to any insurance proceeds or settlements for events occurring prior to Closing (subject to  Section 5  below), (iv) all property in the management office of the Property owned by the Property Manager (hereinafter defined) and identified on Exhibit B-1  attached hereto, and (v) all trademarks, tradenames, rights of copyright and other intangible property in any way not relating to the ownership of or use and operation of the Property (including, without limitation, rights in the names “Equity Office”, “EOP”, and “MN-Nicollet Mall, L.L.C.” and any logos therefor.

2. PURCHASE PRICE. The total consideration to be paid by Purchaser to Seller for the Property is One Hundred Seventy-Four Million and No/100 Dollars ($174,000,000.00) (the “ Purchase Price ”).
 
2.1 Earnest Money. Within one (1) business day of the Effective Date, Purchaser shall deliver to Chicago Title and Trust Company, Chicago, Illinois (“ Escrow Agent ”) the sum of Five Million Dollars ($5,000,000.00) (the “ Earnest Money ”), to be received pursuant to the Escrow Agreement attached hereto as Exhibit D . The Earnest Money, together with any interest earned thereon and net of investment costs, are referred to in this Agreement as the “ Earnest Money .” The Earnest Money shall be invested as Seller and Purchaser so direct. Any and all interest earned on the Earnest Money shall be reported to Purchaser’s federal tax identification number. Except as expressly set forth herein to the contrary, the Earnest Money shall become nonrefundable upon the expiration of the Extended Due Diligence Period described in Section 8.1 if Purchaser does not give notice to Seller in writing, in accordance with the provisions of Section 8.1, on or before the expiration of the Extended Due Diligence Period that Purchaser elects to terminate the transaction. Notwithstanding the prior sentence, if the transaction fails to close because of Seller’s default under this Agreement or failure of a condition precedent to Purchaser’s obligations to close, the Earnest Money shall be returned to the Purchaser. If the transaction closes in accordance with the terms of this Agreement, then Escrow Agent shall deliver the Earnest Money to Seller at Closing as payment toward the Purchase Price.
 
2.2 Cash Balance. At Closing, Purchaser shall pay to Seller the Purchase Price, less the Earnest Money, plus or minus the prorations described in this Agreement (such amount, as adjusted, being referred to as the “ Cash Balance ”). Purchaser shall pay the Cash Balance by federal funds wire transferred to an account designated by Seller in writing.
 
3. EVIDENCE OF TITLE. Seller has delivered or caused to be delivered to Purchaser (a) a current commitment for an ALTA Owner’s Title Insurance Policy (the “ Title Commitment ”), in the amount of the Purchase Price, issued by Chicago Title Insurance Company, Chicago Illinois National Business Unit (the “ Title Insurer ”), (b) copies of all title exception documents referred to in the Title Commitment, and (c) any existing surveys of the Real Property and the Improvements in Seller’s possession (the “ Survey ”). At Closing, Seller shall cause the Title Commitment to be updated, subject only to those exceptions which are more fully described on attached Exhibit E  and exceptions which become Permitted Exceptions pursuant to this  Section 3  (collectively, the “ Permitted Exceptions ”). In addition, Seller has arranged for the preparation of a current ALTA as-built survey (or an update of any existing Survey) with respect to the Property (the “ Updated Survey ”) in accordance with the requirements of the proposal letter from C.E. Coulter & Associates, Inc. dated March 19, 2003 (the “ Survey Proposal ”), a copy of which proposal letter has been provided to Purchaser. The Updated Survey shall be certified to Seller, Purchaser, Bank of America, N.A., and the Title Insurer. Purchaser may, in its discretion, arrange for the Updated Survey to include certifications as to matters in excess of those outlined in the Survey Proposal. If the Title Commitment (or update), Survey or Updated Survey discloses exceptions or matters other than those Permitted Exceptions which are listed on Exhibit E , then prior to the later of (i) five (5) business days after its receipt of the same (but no later than the Closing Date), or (ii) the expiration of the Due Diligence Period, Purchaser shall notify Seller of any such exceptions or matters to which it objects. Any such exceptions or matters not objected to by Purchaser as aforesaid shall become “Permitted Exceptions”. If Purchaser objects to any such exceptions or matters, Seller shall have until Closing (but in any event at least fifteen (15) days after it receives notice of Purchaser’s objections) to cause the removal of such exceptions or matters (which removal may be by way of waiver or endorsement by the Title Insurer). If Seller fails to cause the removal of any such exceptions or matters as aforesaid, Purchaser shall have the option, as its sole and exclusive remedy, to either (i) waive the unsatisfied objections and close, or (ii) terminate this Agreement and obtain a return
 
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of the Earnest Money. If Purchaser does not elect to terminate this Agreement, Purchaser shall consummate the Closing and accept title to the Property subject to all such exceptions and matters (in which event, all such exceptions and matters shall be deemed “ Permitted Exceptions ”). Notwithstanding anything contained in this Paragraph 3 to the contrary, at or prior to the Closing, Seller shall cause the deletion from the title commitment of (i) any mortgage or other current financing items listed thereon and (ii) any liens or encumbrances respecting the Property affirmatively placed on the Property by Seller after the date of this Agreement in violation of this Agreement, and in no event shall Seller have the right to adjourn the Closing Date or to terminate this Agreement as a result of Seller’s failure or refusal to discharge any such title exceptions as to which Seller is required to obtain releases as provided in this sentence.
 
4. CLOSING. The payment of the Purchase Price, the transfer of title to the Property, and the satisfaction of all other terms and conditions of the transaction contemplated by this Agreement (the “ Closing ”) shall occur at 10:00 a.m., Chicago time on April 25, 2003 (such day being sometimes referred to as the “ Closing Date ”), through escrow at the Chicago office of the Title Insurer.
 
4.1 Seller’s Closing Deliveries. At Closing, Seller shall execute or obtain (as necessary) and deliver to Purchaser (either through escrow or as otherwise provided below) each of the documents described below: (a) one original “Special” or “Limited” Warranty Deed, in form acceptable to the Title Insurer, warranting title to the Real Property and Improvements against all persons claiming by, through or under Seller, but not otherwise, subject to the exceptions listed on attached Exhibit F  and any other matters which become Permitted Exceptions pursuant to  Section 3  above; (b) two original counterparts of the Bill of Sale and Assignment of Leases and Contracts, in the form attached hereto as Exhibit G  (the “ General Assignment ”); (c) one original notice letter to tenants, substantially in the form attached hereto as Exhibit H ; (d) one original notice letter to each Service Contract vendor, substantially in the form attached hereto as Exhibit I ; (e) Seller’s non-foreign affidavit, in the form attached hereto as Exhibit J ; (f) two original counterparts of the Closing Statement (as defined in Section 4.3  below); (g) evidence of termination of the existing property management agreement with Equity Office Management, L.L.C. (“ Property Manager ”) and if Purchaser requests in writing prior to the date of Closing, evidence of termination of the Exclusive Listing Agreement with United Properties Brokerage LLC; (h) such transfer tax forms as are required by law (“ Transfer Documents ”) ;  (i) assignments of Seller’s rights to any security deposit which is not in the form of cash, (j) State of Minnesota Well Disclosure Statement, (k) two original counterparts of Assignment of Easements and Declarations, in the form attached hereto as Exhibit O  (the “ Easement Assignment ”); (l) two original counterparts of Assignment and Assumption Agreement (Steam Service Agreement) in the form of Exhibit P  (the “ Steam Agreement Assignment ”); provided, however, that while Seller shall endeavor to obtain execution of the Consent to such Steam Agreement Assignment by NRG Energy Center Minneapolis, LLC, failure of Seller to secure execution of such consent shall not be deemed a default hereunder; (m) two original counterparts of Blanket Transfer and Assignment, in the form attached hereto as Exhibit V  (the “ Blanket Transfer ”); (n) a customary Seller’s Affidavit in the form required by the Title Insurer; (o) in the event the legal description set forth in the Updated Survey differs from the legal description set forth on Exhibit A  attached hereto, a quitclaim deed containing a legal description of the Real Property based upon such Updated Survey; (p) originals of the Estoppel Certificates; (q) originals (or copies if originals are not available) of the Leases, together with all guaranties thereof, any letters of credit issued with respect to such Leases, and all tenant files, tenant lists, and tenant marketing information relating to the Property, which delivery may be satisfied by delivery of the on-site property management office at the Property, to the extent such items are located therein; (r) a rent delinquency report, (s) all of the keys to doors or locks on the
 
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Property in the possession or control of Seller; (t) originals (or copies if originals are not available) of each of the Service Contracts; (u) original (or copies if originals are not available) certificates of occupancy for all space within the Improvements, to the extent same are in the possession or control of Seller; (v) such surveys, site plans, plans and specifications, permits, licenses, and other such matters described in the Blanket Assignment (as hereinafter defined) relating to the Property as are in the possession or control of Seller; (w) such evidence of Seller’s power and authority as the Title Insurer may reasonably request; (x) such other assignments, instruments of transfer and other documents as Purchaser may reasonably require, including a certificate of good standing from the Secretary of State for the State of Delaware and the State of Minnesota, and duly certified resolutions of Seller authorizing the transaction contemplated hereunder, and are necessary to convey the Property as contemplated hereby, (y) two original counterparts of the New Management Agreement executed by Equity Office Management, L.L.C. (if agreed upon pursuant to Section 9.6) and (z) such indemnity in favor of Title Insurer as Title Insurer may require to delete the following exception: “The Company has been advised that tax protests have been filed with respect to the 2000 and 2001 tax years. This policy remains subject to such matters that may arise from the final adjudication of said protests.”. The Closing Statement may be signed in facsimile counterparts on the Closing Date
 
4.2 Purchaser’s Closing Deliveries. At Closing Purchaser shall deliver or cause to be delivered to Seller executed counterparts of the General Assignment, the Easement Assignment, the Steam Agreement Assignment, the Blanket Assignment, the Closing Statement, and Transfer Documents, the New Management Agreement (if agreed upon pursuant to Section 9.6), together with the Cash Balance described in  Section 2.2 above, and such evidence of Purchaser’s power and authority as Seller may reasonably request.
 
4.3 Closing Prorations and Adjustments. The provisions of this Section 4.3 shall survive the Closing. Seller shall prepare a statement of the prorations and adjustments required by this Agreement (the “ Closing Statement ”), and submit it to Purchaser for approval at least four (4) business days prior to the Closing Date. The items listed below are to be equitably prorated or adjusted as of the close of business preceding the Closing Date, it being understood that for purposes of prorations and adjustments, Seller shall be deemed the owner of the Property on such day of Closing.
 
4.3.1 Taxes. Seller shall be responsible for real estate and personal property taxes and general and special assessments (including, if applicable, the “Nicollet Mall Maintenance Assessment”) payable during calendar year 2002 and any prior year. Real estate and personal property taxes and general and special assessments payable during the calendar year 2003 shall be prorated on the basis of the number of days in such calendar year the Property will have been owned by Seller and Purchaser, respectively. If the current tax bill is not available at Closing, then the proration shall be made on the basis of the most recent ascertainable tax bill. Should any such proration be based upon the most recent ascertainable tax bill, and if such tax bill shall prove to be inaccurate on receipt of the actual tax bills for the Property for the year of Closing, either Seller or Purchaser, as the case may be, may demand at any time after Closing a payment from the other correcting such malapportionment. If taxes and assessments for the calendar year in which Closing occurs have been determined but have not been paid before Closing, Seller shall be charged and Purchaser credited at Closing with an amount equal to that portion of such taxes and assessments which relates to the period before the date of Closing, and Purchaser shall pay the taxes and assessments prior to the same becoming delinquent.
 
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4.3.2 Rent. The “minimum” or “base” rent, additional rent, operating costs, and other income from the Property (other than percentage rents) collected by Seller from tenants under the Leases for the calendar month in which the Closing occurs shall be prorated on the basis of the number of days of such month the Property will have been owned by Purchaser and Seller, respectively. However, there shall be no proration of any such rent or other charges which are delinquent as of the Closing Date. Rather, Purchaser shall cause any such delinquent rent and charges for the period prior to Closing to be remitted to Seller if, as and when collected, provided that, upon Purchaser’s receipt of such delinquent rent and charges, such tenant is, or after application of a portion of such payment will be, current under such Lease in the payment of all accrued rental and other charges that become due and payable on the date of Closing or thereafter. At Closing, Seller shall deliver to Purchaser a schedule of all such delinquent rent and such other charges. Purchaser shall include the amount of delinquent rent and charges in the first bills thereafter submitted to the tenants in question after the Closing, and shall continue to do so for three (3) months thereafter. Purchaser shall promptly deliver to Seller a copy of each such bill submitted to tenants. After such three (3) month period, Seller may pursue remedies directly against delinquent tenants (but may not sue to evict or otherwise dispossess tenants), provided that Seller shall not initiate or pursue any remedies against (i) any delinquent tenant or (ii) any tenants and other parties under certain easement or other agreements who are delinquent in paying Reimbursements (hereinafter defined) (“ Reimbursement Parties ”) unless (A) the aggregate amount of delinquencies owed to Seller from all tenants of the Property (the “ Tenant Delinquencies ”) and the amount of delinquent Reimbursements owed to Seller from all Reimbursement Parties (the “ Reimbursement Delinquencies ”) collectively are in excess of $50,000.00 (the “ Minimum Collection Amount ”), and (B) Seller indemnifies Purchaser for any claims or liabilities arising or accruing for periods prior to Closing under the Lease with any such tenant.
 
4.3.3 Costs Relating to New Leases. Any tenant improvement costs, leasing commissions or other leasing costs paid or payable pursuant to any New Lease (hereinafter defined) entered into in accordance with  Section 9.3.1  below shall be prorated over the term of such New Lease, with Seller being responsible for a portion of such costs and commissions based on the ratio of base rent payments received by Seller through the Closing Date to the total base rent payable over the term of such New Lease.
 
4.3.4 Security Deposits; Utility Deposits. Purchaser shall receive a credit at Closing in the amount of any unapplied cash security deposits under the Leases. In addition, Seller shall assign (to the extent assignable) and deliver to Purchaser at Closing any and all letters of credit and other instruments held by Seller as security deposits under Leases. In the event any letter of credit or other instrument held by Seller as security deposits under the leases is not assignable (such as a letter of credit that is not transferable), Seller shall use commercially reasonable efforts to provide Purchaser, at no cost to Seller, with the economic benefits of such property by enforcing such property (solely at Purchaser’s discretion) for the benefit and at the expense of Purchaser; provided, Purchaser shall take all reasonable steps required (including making a demand on the tenant) to effectively transfer or reissue to Purchaser such security deposit promptly after Closing; and provided further that Purchaser shall indemnify, defend and hold harmless Seller against all claims or liabilities arising from a claim that Purchaser improperly exercised its rights under the letters of credit at any time after Closing. The obligations of Seller and Purchaser under this Section shall survive the Closing until the expiration of the term of the applicable letter of credit. Seller shall receive a credit at
 
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Closing in the amount of all refundable cash or other deposits posted with utility companies servicing the Property which are duly assigned to Purchaser at Closing.
 
4.3.5 Utilities. Water, electric, telephone and all other utility and fuel charges, fuel on hand (at cost plus sales tax), and any other payments to utility companies shall be prorated, except for any such utility and fuel charges which are the direct responsibility of the tenants to the applicable utility companies. If possible, utility prorations will be handled by final meter readings on the Closing Date. If final readings are not possible, or if any such charges are not separately metered, such charges will be prorated based on the most recent period for which costs are available.
 
4.3.6 Service Contracts. Charges and prepayments under the Service Contracts shall be prorated.
 
4.3.7 Fees Payable. Assignable license and permit fees, and similar fees and expenses of operation shall be prorated.
 
4.3.8 Tenant Inducement Costs and Leasing Commissions. Purchaser shall be responsible for the payment of all of the following Tenant Inducement Costs (as hereinafter defined) and leasing commissions: (i) those specifically identified as Purchaser’s obligation on Exhibit K  attached hereto, and which are not Seller’s responsibility under the following sentence and (ii) those relating to New Leases or renewals, amendments, expansions and extensions of leases entered into or which first become binding after the Effective Date. Seller shall be responsible for the payment of all of the following Tenant Inducement Costs and leasing commissions: (i) those specifically identified as Seller’s obligation on Exhibit K  and (ii) those relating to existing Leases and not identified as Purchaser’s obligations on Exhibit K . For purposes hereof, the term  “Tenant Inducement Costs ” shall mean any payments required under a Lease to be paid by the landlord thereunder to or for the benefit of the tenant thereunder which is in the nature of a tenant inducement, including specifically, without limitation, tenant improvement costs, lease buyout costs (other than those accruing as a result of a buyout option executed by Purchaser after the Closing Date, which buyout costs shall be Purchaser’s sole and exclusive responsibility), moving, design, refurbishment and club membership allowances, but specifically excluding legal fees or loss of income resulting from any free rental period (it being agreed that Seller shall bear the loss resulting from any free rental period until the date of Closing and that Purchaser shall bear such loss from and after the Closing Date). If, as of the date of Closing, Seller shall have paid any Tenant Inducement Costs or leasing commissions for which Purchaser is responsible pursuant to this  Section 4.3.8 , Seller shall be credited with an amount equal to such Tenant Inducement Costs and leasing commissions. If, as of the date of Closing, Seller shall not have paid any Tenant Inducement Costs or leasing commissions for which Seller is responsible to have paid prior to the date of Closing in accordance with the provisions of this  Section 4.3.8 , Purchaser shall be credited with an amount equal to such Tenant Inducement Costs and leasing commissions and Purchaser shall assume the obligation to pay the same.
 
4.3.9 Percentage Rents. Percentage rents, if any, collected by Purchaser from any tenant under such tenant’s Lease for the percentage rent accounting period in which the Closing occurs shall be prorated as, if, and when received by Purchaser, such that Seller’s pro rata share shall be an amount equal to the total percentage rentals paid for such percentage rent accounting period under the applicable Lease multiplied by a
 
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fraction, the numerator of which shall be the number of days in such accounting period prior to Closing and the denominator of which shall be the total number of days in such accounting period; provided, however, that such proration shall be made only at such time as such Tenant is current or, after application of a portion of such payment, will be current in the payment of all rental and other charges under such tenant’s Lease that accrue and become due and payable from and after the Closing.
 
4.3.10. Credit. At Closing, Seller shall give Purchaser a credit in the amount of $300,000 in consideration of Purchaser’s acceptance of the Property under the conditions set forth in Section 11.7 below.
 
If any item of income or expense set forth in this Section 4.3 is not finally determinable at Closing, then Seller and Purchaser shall make, and each shall be entitled to, an appropriate reproration to each such item promptly when accurate information becomes available. Any amounts due from one party to the other as a result of such reproration shall be paid promptly in cash to the party entitled thereto. Seller and Purchaser hereby covenant and agree to make available to each other for review such records as are necessary to complete such reprorations. The foregoing provisions of this  Section 4.3  shall survive the Closing.
 
4.4 Reimbursements. Reimbursement Parties are currently paying Seller certain amounts (referred to herein as “ Reimbursements ”) based on Seller’s estimates of certain expenses reimbursable by such parties to the Seller (collectively, “ Reimbursable Expenses ”).
 
4.4.1 For the Calendar Year of the Closing. At Closing, Reimbursements collected for the calendar month in which the Closing occurs shall be prorated on the basis of the number of days of such month the Property will have been owned by Purchaser and Seller, respectively. However, there shall be no proration of any such Reimbursements which are delinquent as of Closing. Rather, Purchaser shall cause any such delinquent Reimbursements for the period prior to Closing to be remitted to Seller if, as and when collected. At Closing, Seller shall deliver to Purchaser a schedule of all such delinquent Reimbursements. Purchaser shall include the amount of delinquent Reimbursements in the first bills thereafter submitted to the tenants or other parties in question after Closing, and shall continue to do so for two (2) months thereafter. Purchaser shall promptly deliver to Seller a copy of each such bill submitted to tenants or other parties. After such two (2) month period, Seller may pursue remedies directly against delinquent Reimbursement Parties (but may not sue to evict or otherwise dispossess tenants), provided that Seller shall not initiate or pursue any remedies against Reimbursement Parties unless (a) the Reimbursement Delinquencies, when aggregated with the Tenant Delinquencies, are in excess of the Minimum Collection Amount, and (ii) Seller indemnifies Purchaser for any claims or liabilities arising or accruing for periods prior to Closing under the Lease or other agreement with any such Reimbursement Party.
 
Within 90 days after the end of the calendar year in which Closing occurs, Seller shall determine Reimbursements paid to Seller and Reimbursable Expenses incurred by Seller for the calendar year in which the Closing occurs. If the amount of Reimbursements collected by Seller for such year is less than the amount of Reimbursable Expenses paid by Seller for such year (or less than the amount which Seller is entitled to recover under the terms of the Leases and other applicable agreements), then Purchaser shall promptly remit the difference to Seller if, as and to the extent actually collected, but not otherwise. If the amount of Reimbursements collected by Seller for the
 
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calendar year in which the Closing occurs exceeds the amount of Reimbursable Expenses paid by Seller for such year (or greater than the amount which Seller is entitled to recover under the terms of the Leases or other agreements), then Seller shall remit such excess amounts to Purchaser. Upon receipt of such excess amounts, Purchaser shall be thereafter obligated to promptly remit the applicable portion to the particular tenants or other parties entitled thereto, if and to the extent required by the applicable leases; and Purchaser shall indemnify, defend and hold Seller, its members, their partners, and their respective directors, trustees, officers, employees and agents, and each of them, harmless from and against any losses, claims, damages and liabilities, including, without limitation, reasonable attorneys’ fees and expenses incurred in connection therewith, arising out of or resulting from Purchaser’s failure to remit any amounts actually received from Seller to tenants or other parties in accordance with the provisions hereof.
 
4.4.2 For Prior Calendar Years. Seller shall be responsible for the reconciliation with tenants and other parties of Reimbursements and Reimbursable Expenses for any calendar year prior to that in which the Closing occurs and Seller shall provide the required annual statements and effectuate such reconciliations within the time period required under the applicable Leases. If the amount of Reimbursements collected by Seller for such prior years is less than the amount of Reimbursable Expenses paid by Seller for such period (or less than the amount which Seller is entitled to recover under the terms of the Leases and other applicable agreements), then Purchaser shall bill such tenants and other parties upon Seller’s request and, upon actual receipt, Purchaser agrees to remit to Seller any such amounts collected. If the amount of Reimbursements collected by Seller for such prior calendar year exceeds the amount of Reimbursable Expenses paid by Seller with respect to such period (or the amount which Seller is entitled to recover under the terms of the Leases and other applicable agreements), then, to the extent required under the terms of the Leases and other applicable agreements, Seller shall remit such excess amounts to the applicable tenants and other parties and Seller shall indemnify, defend and hold Purchaser, its partners and their respective directors, trustees, officers, employees and agents, and each of them, harmless from any losses, costs, claims and liabilities applicable thereto. In connection with the foregoing, Seller shall be permitted to make and retain copies of all leases, agreements and billings concerning Reimbursement for such prior years, and Purchaser covenants and agrees to provide Seller with reasonable access to the books and records pertaining to such Reimbursements, and to otherwise cooperate with Seller (at no out-of-pocket cost to Purchaser nor liability to Purchaser) for the purpose of enabling Seller to adequately respond to any claim for reimbursement of Reimbursements previously paid by such tenants or other parties. The provisions of this  Section 4.4.2  shall survive the Closing.
 
4.5 Reservation of Rights to Contest. Notwithstanding anything to the contrary contained in this Agreement, Seller reserves the right to meet with governmental officials and to contest any reassessment or assessment of the Property or any portion thereof and to attempt to obtain a refund for any taxes previously paid. Seller shall retain all rights with respect to any refund of taxes applicable to any period prior to the Closing Date, but Seller agrees to remit any such refund to the applicable tenants and other parties to the extent required under the terms of the Leases or any other applicable agreements to which Seller or its predecessor-in-title is a party. Purchaser hereby consents to Seller preparing, submitting and/or filing prior to Closing any necessary documentation in connection with a tax appeal relating to taxes payable during calendar year 2003, and Seller agrees to file such tax appeal prior to Closing. Following the Closing, Purchaser shall prosecute and control such tax appeal with respect to the taxes payable during calendar year 2003 and shall bear the expenses of such appeal incurred after Closing.
 
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4.6 Transaction Costs. Except as otherwise specifically set forth in this Agreement, Purchaser shall pay for (i) one-half (1/2) of the cost of any title search, title abstract and base title insurance policy and 100% of the costs of extended coverage and any endorsements, (ii) title insurance fees for any loan policy, (iii) one-half (1/2) of any costs incurred in connection with obtaining the Updated Survey in accordance with the terms of the Survey Proposal (i.e., one-half of $6,500.00) plus any additional sums due the surveyor in connection with satisfying the additional survey requirements of Purchaser; and (iv) one-half (1/2) of any escrow fees. Seller shall pay for (i )  one-half (1/2) of the cost of any title search, title abstract or base title insurance policy, (ii) state, county and municipal transfer or deed recordation taxes, (iii) one-half (1/2) of any costs incurred in connection with the Updated Survey in accordance with the terms of the Survey Proposal (i.e., one-half of $6,500.00), (iv) one-half (1/2) of any escrow charges and (v) charges for recording the deed and recording or filing any instruments effectuating a cure of any title defects .  Seller and Purchaser shall, however, be responsible for the fees of their respective attorneys.
 
5. CASUALTY LOSS AND CONDEMNATION. If, prior to Closing, the Property, or any part thereof shall be condemned or destroyed or damaged by fire or other casualty, Seller shall promptly so notify Purchaser. In the event of a material loss (hereinafter defined), either Seller or Purchaser shall have the option to terminate this Agreement by giving notice to the other party within fifteen (15) days of the other party’s request that the option be exercised (but no later than the Closing). If the condemnation, destruction or damage does not result in a material loss, then Seller and Purchaser shall consummate the transaction contemplated by this Agreement notwithstanding such condemnation, destruction or damage. If the transaction contemplated by this Agreement is consummated, Purchaser shall be entitled to receive any condemnation proceeds or proceeds of insurance previously paid or payable under all policies of insurance applicable to the destruction or damage of the Property plus the payment by Seller to Purchaser of the amount of any deductible with respect to such insurance, and Seller shall, at Closing, execute and deliver to Purchaser all customary proofs of loss and other similar items. If either party elects to terminate this Agreement in accordance with this  Section 5 , the Earnest Money shall be returned to Purchaser and this Agreement shall, without further action of the parties, become null and void and neither party shall have any further rights or obligations under this Agreement except these which expressly survive termination of this Agreement. For purposes of this Section 5, a “material loss” means condemnation, damage or destruction that either (a) is reasonably estimated to cost or be valued at (as the case may be) more than $1,000,000.00, or (b) results in the termination or the right to terminate of any Lease(s) with one or more tenants leasing, in the aggregate, more than 31,000 square feet of leased floor area, or (c) results in the termination or the right by the tenant to terminate of the US Bancorp Piper Jaffray Companies, Inc. Lease or the Northern States Power Lease, or (c) results in a loss not covered by insurance, if such uncovered loss exceeds the deductible under the applicable policy of insurance, unless Seller elects to give Purchaser a credit at Closing against the Purchase Price equal to the amount of such excess above such deductible, or (d) with respect to a condemnation, permanently and materially impairs the use and value of the Property, and which cannot be restored to substantially the same use and value as before the taking.
 
6. BROKERAGE. Each of Seller and Purchaser represents to the other that it has not dealt with any broker or finder in connection with this Agreement or the transaction contemplated hereby. Seller and Purchaser shall each indemnify and hold the other harmless from and against any and all claims of any brokers and finders claiming by, through or under the indemnifying party and in any way related to the sale and purchase of the Property, this Agreement or otherwise, including, without limitation, attorneys’ fees and expenses incurred by the indemnified party in connection with such claim. The obligations of the parties under this Section, shall survive the Closing.
 
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7. DEFAULT AND REMEDIES.
 
7.1 Purchaser’s Remedies. Notwithstanding anything to the contrary contained in this Agreement, if Closing does not occur due to a Seller default, then, as Purchaser’s sole and exclusive remedy hereunder and at Purchaser’s option, either (a) Purchaser may terminate this Agreement and receive an immediate refund of the Earnest Money, provided that if Seller’s default is intentional, Purchaser shall also be entitled to the payment from Seller of liquidated damages in the amount of $150,000, or (b) Purchaser may seek specific performance of this Agreement; provided that if Seller’s default is intentional and renders specific performance substantially unavailable to Purchaser, Purchaser shall be entitled to the return of the Earnest Money plus liquidated damages in the amount of $5,000,000. Purchaser and Seller have considered carefully the loss to Purchaser that would be occasioned by an intentional default by Seller, the expenses of Purchaser incurred in connection with the preparation of this Agreement and Purchaser’s due diligence investigation of the Property, and the other damages, general and special, which Purchaser and Seller realize and recognize Purchaser will sustain but which Purchaser cannot at this time calculate with absolute certainty. Based on all those considerations, Purchaser and Seller have agreed that the damage to Purchaser in the event of an intentional default by Seller (i) would reasonably be expected to be equal to the sum of $150,000 (in addition to the return of the Earnest Money) as full and complete liquidated damages and as Seller’s sole and exclusive remedy hereunder in the absence of Purchaser’s election to seek specific performance of this Agreement; and (ii) would, in the event the remedy of specific performance was rendered substantially unavailable to Purchaser as a result of Seller’s intentional default, reasonably be expected to be equal to the sum of $5,000,000 (in addition to the return of the Earnest Money) as full and complete liquidated damages and as Seller’s sole and exclusive remedy hereunder. Purchaser shall be deemed to have elected to terminate this Agreement and to receive a return of the Earnest Money if Purchaser fails to file suit for specific performance against Seller in a court having jurisdiction in the county and state in which the Property is located, on or before sixty (60) days following the date upon which the Closing was to have occurred. In no event shall Seller be liable to Purchaser for any punitive or consequential damages.
 
7.2 Seller’s Remedies. Purchaser and Seller acknowledge that it would be extremely impractical and difficult to ascertain the actual damages which would be suffered by Seller if Purchaser fails to consummate the purchase and sale contemplated herein for any reason other than Seller’s default hereunder in any material respect or the failure of any condition precedent to Purchaser’s obligation to close hereunder. Purchaser and Seller have considered carefully the loss to Seller occasioned by taking the Property off the market as a consequence of the negotiation and execution of this Agreement, the expenses of Seller incurred in connection with the preparation of this Agreement and Seller’s performance hereunder, and the other damages, general and special, which Purchaser and Seller realize and recognize Seller will sustain but which Seller cannot at this time calculate with absolute certainty. Based on all those considerations, Purchaser and Seller have agreed that the damage to Seller in such event would reasonably be expected to be equal to the sum of the Earnest Money. Accordingly, if Purchaser fails to consummate the purchase of the Property in accordance with the terms of this Agreement for any reason other than Seller’s default hereunder in any material respect or the failure of any condition precedent to Purchaser’s obligation to close hereunder, then Seller shall have the right to retain the Earnest Money as full and complete liquidated damages and as Seller’s sole and exclusive remedy hereunder.
 
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7.3 Post-Closing Remedies. After Closing, Seller and Purchaser shall, subject to the terms and conditions of this Agreement, have such rights and remedies as are available at law or in equity, except that neither Seller nor Purchaser shall be entitled to recover from the other consequential or special damages.
 
8. CONDITIONS PRECEDENT.
 
8.1 Due Diligence Period. Purchaser shall have until 5:00 p.m., Chicago time on April 15, 2003 (the “Due Diligence Period”) within which to inspect the Property, obtain any necessary internal approvals to the transaction, and satisfy itself as to all matters relating to the Property, including, but not limited to, environmental, engineering, structural, financial, title and survey matters. If Purchaser determines (in its sole discretion) that the Property is unsuitable for its purposes for any reason, then Purchaser may terminate this Agreement by written notice to Seller given at any time prior to the expiration of the Due Diligence Period. If Purchaser so terminates this Agreement, then the Earnest Money shall be returned to Purchaser, and neither party shall have any further rights or obligations under this Agreement except those which expressly survive termination of this Agreement. Subject to the next two sentences, Purchaser’s failure to so terminate this Agreement within the Due Diligence Period shall be deemed a waiver by Purchaser of the condition contained in this  Section 8.1 , and thereafter the Earnest Money shall not be refunded to Purchaser except pursuant to another express provision of this Agreement. Purchaser shall have until 5:00 p.m., Chicago time on April 21, 2003 (the “ Extended Due Diligence Period ”) within which to obtain and review an appraisal of the Property and to agree with Equity Office Management, L.L.C. upon a form of management agreement for the Property (for a period from and after Closing) (the “ New Management Agreement ”). If Purchaser determines (in its reasonable discretion) that the appraisal is not acceptable to Purchaser or that a form of New Management Agreement cannot be agreed upon, then Purchaser may terminate this Agreement solely because the appraisal is not acceptable to Purchaser and/or a form of New Management Agreement has not been agreed upon, by written notice to Seller given at any time prior to the expiration of the Extended Due Diligence Period, which notice shall specify in reasonable detail, the reason(s) for such termination in accordance with this sentence. If Purchaser so terminates this Agreement, then the Earnest Money shall be returned to Purchaser, and neither party shall have any further rights or obligations under this Agreement except those which expressly survive termination of this Agreement. Purchaser’s failure to so terminate this Agreement within the Extended Due Diligence Period shall be deemed a waiver by Purchaser of the condition contained in this  Section 8.1 , and thereafter the Earnest Money shall not be refunded to Purchaser except pursuant to another express provision of this Agreement. Purchaser’s right of inspection pursuant to this  Section 8.1  is and shall remain subject to the rights of tenants under the Leases and other occupants and users of the Property and Purchaser shall use reasonable efforts to minimize interference with tenants and Seller’s operation of the property. No inspection shall be undertaken without forty-eight (48) hours’ prior notice to Seller, unless Seller agrees to an earlier inspection. Seller or Seller’s representative shall have the right to be present at any or all inspections. Neither Purchaser nor its agents or representatives shall contact or interview any tenants without prior notice to Seller and Purchaser shall permit Seller to participate in any such contact. No inspection shall involve the taking of samples or other physically invasive procedures without the prior consent of Seller. Upon the completion of any inspection or test, Purchaser shall restore the Property to its condition prior to such inspection or test. Notwithstanding anything to the contrary contained in this Agreement, Purchaser shall indemnify, defend (with counsel reasonably acceptable to Seller) and hold Seller and its employees, tenants and agents harmless from and against any and all loss, cost, expense, liability,
 
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damage, cause of action or claim (including, without limitation, attorneys’ fees incurred in connection therewith) arising out of or resulting from Purchaser’s exercise of its right of entry upon and inspection and testing of the Property as provided for in this  Section 8.1 , other than to the extent arising from any act or omission of Seller and other than such as result from the discovery or release of any hazardous substances currently on the Property (unless brought on to the Property by Purchaser or its agents or representatives or caused by the unauthorized act of Purchaser) and such indemnity shall survive the Closing and any termination of this Agreement. Purchaser’s indemnification obligations hereunder shall expressly exclude consequential, punitive or special damages. Prior to entering upon the Property for purposes of performing any inspection thereof, Purchaser shall provide Seller with evidence of commercial general liability insurance, including broad form contractual liability, from such company and in such amount as Seller may reasonably request, which policy shall name each of Seller, Equity Office Management, L.L.C. and EOP Operating Limited Partnership as additional insureds.
 
8.2 Estoppel Certificates. As a condition to Purchaser’s obligation to close hereunder, Purchaser shall have received estoppel certificates (“ Estoppel Certificates ”), dated no more than forty-five (45) days prior to the originally scheduled Closing Date, from (i) US Bancorp Piper Jaffray Companies, Inc. and Northern States Power, (collectively, the “Major Tenants”), and (ii) such additional tenants which, together with the Major Tenants, occupy 85%, in the aggregate of the leased floor area of the Improvements (the Major Tenants and such additional tenants being herein collectively referred to as the “ Required Tenants ”), and in the form and content as set forth on Exhibit L  attached hereto as applicable (the aforesaid acceptable Estoppel Certificates to be delivered are collectively referred to as the “ Required Estoppel Certificates ”). The Estoppel Certificates delivered to the tenants for execution shall be in the form of Exhibit L attached hereto (the “ Form Tenant Estoppel Certificate ”). For purposes hereof, a “Conforming Estoppel Certificate” shall be an Estoppel Certificate which is executed by a tenant and which is not altered from the Form Tenant Estoppel Certificate in a manner materially and adversely affecting the landlord, provided, however, that an Estoppel Certificate executed by a tenant shall not fail to be a Conforming Estoppel Certificate because it fails to certify to Purchaser’s lender and/or if any one or more of the following statements of the tenant in the Estoppel Certificate are qualified by the tenant as being to its knowledge or any similar qualification: (1) that the Lease is in full force and effect, (2) that the Landlord is not in default under the Lease, (3) that the tenant has no defenses, counterclaims, set-offs or concessions against rent or charges due or to become due under the Lease, (4) that all allowances of whatever nature payable to the tenant under the Lease have been paid in full, and (5) that all work required to be performed by the Landlord with respect to the Lease and in connection with the Premises has been completed by Landlord to the satisfaction of the tenant. If at any time prior to Closing Seller shall receive an Estoppel Certificate from a tenant which is not a Conforming Estoppel Certificate because of allegations, claims or inconsistent statements made by the tenant therein, then Seller shall, at its option, have a period of up to ten (10) days (and Closing shall be extended accordingly if necessary) within which to resolve any allegation, claim or inconsistent statement made by the tenant and obtain a Conforming Estoppel Certificate from such tenant; provided, however, if the allegation, claim or inconsistent statement made by the tenant is of a nature that it can be resolved by the payment or expenditure by Seller of a fixed or liquidated amount of money, Seller shall be deemed to have provided a Conforming Estoppel Certificate from the applicable tenant for purposes of this Section 8.2 if Seller shall (which right shall be at Seller’s option) deposit into escrow with the Title Insurer at Closing an amount equal to such fixed or liquidated amount pursuant to an escrow agreement among Seller, Purchaser and the Title Insurer, which escrow agreement shall provide that the Title Insurer shall hold such escrowed amount for the purpose of assuring the availability of funds for the resolution by Seller of the particular tenant’s allegation, claim, or inconsistent statement, and which escrow agreement shall
 
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otherwise be in such form as shall be approved by Seller, Purchaser and Title Insurer within such ten (10) day period, each acting reasonably and in good faith. In such escrow agreement, Seller shall indemnify and hold Purchaser harmless from any losses, damages, claims, actions, liabilities, and expenses, including reasonable attorney’s fees, incurred by Purchaser relating to or arising from the applicable allegation, claim, or inconsistent statement made by the tenant, and such indemnity shall not be subject to the Liability Limitation and Floor Amount liability limitations set forth in Section 10 hereof. Purchaser and Seller agree that if the ten (10) day period referred to above has not expired before the final date for Closing under Section 4 hereof, such final date for Closing shall be extended to coincide with the first business day following the last day of such ten (10) day period. In the event Seller is unable to or does not provide to Purchaser Conforming Estoppel Certificates for the Required Tenants on or before Closing, Seller may, at its option, elect to execute and deliver to Purchaser certificates (individually, a “ Seller Estoppel Certificate, ” and, collectively, the “ Seller Estoppel Certificates ”), substantially in the same form as the certificate attached hereto as Exhibit M  (the “ Form Seller Estoppel Certificate ”), covering the particular tenants necessary so that Purchaser shall be deemed to have received, at Closing, Conforming Estoppel Certificates and Seller Estoppel Certificates with respect to the Required Tenants; provided, however, Seller shall not be entitled to deliver a Seller Estoppel Certificate for the Major Tenants. In the event that Seller elects to deliver such Seller Estoppel Certificates, each statement therein shall survive for a period terminating on the earlier to occur of (i) the date on which Purchaser has received an executed Conforming Estoppel Certificate signed by the tenant under the Lease in question, or (ii) one (1) year from the Closing Date. Subject to the Liability Limitation and Floor Amount liability limitations set forth in Section 10 hereof and the limitations on survival set forth in Section 9.5 hereof, EOP Operating Limited Partnership hereby agrees that it shall be jointly and severally liable for any actual and valid liability of Seller to Purchaser after Closing which arises out of statements contained in any Seller Estoppel Certificate. If Purchaser receives an estoppel certificate from a tenant (other than a Major Tenant) which contains some but not all of the matters set forth in the Form Tenant Estoppel Certificate (a “ Partial Certificate ”) and Seller provides a Seller Estoppel Certificate for such tenant, then the Seller Estoppel Certificate may omit matters contained in the Partial Certificate. In the event that (x) Seller does not provide (or is not deemed to have provided) to Purchaser either Conforming Estoppel Certificates or Seller Estoppel Certificates (to the extent Seller is entitled to do so) for the Required Tenants or (y) Purchaser receives an Estoppel Certificate from a tenant which is not a Conforming Estoppel Certificate because of allegations, claims or inconsistent statements made by the tenant therein that materially and adversely affect the landlord and which are not cured by Seller as described above, Purchaser may, by written notice to Seller given on the Closing Date, either (A) elect not to purchase the Property, in which event the Earnest Money shall be returned to Purchaser, at which time this Agreement shall terminate and become null and void and neither party shall have any further rights or obligations under this Agreement, except for those which expressly survive termination of this Agreement, or (B) elect to purchase the Property notwithstanding Seller’s inability to provide the Required Estoppel Certificates, in which event Purchaser shall be deemed to have waived the condition contained in this  Section 8.2 . If Purchaser fails to deliver such written notice as described above, Purchaser shall be deemed to have elected item (A) above. If any Estoppel Certificate contains statements confirming, without qualification as to the best knowledge of the tenant or otherwise, any of Seller’s representations or warranties set forth herein or in a Seller Estoppel Certificate, the Seller shall be deemed not to have made such representations or warranties as to such Lease. If any Estoppel Certificate or Seller Estoppel Certificate contains statements or allegations that a default or potential default exists on the part of Seller under the Lease in question or contains information inconsistent with any representations of Seller contained in this Agreement or in a Seller Estoppel Certificate and Purchaser elects to close the purchase and sale transaction contemplated herein notwithstanding the existence of such statements, allegations or information,
 
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then such Estoppel Certificates and/or Seller Estoppel Certificates shall be deemed acceptable for purposes of this Section, notwithstanding the existence of such allegations, statements or information and Seller shall have no liability to Purchaser with respect to the representations of Seller contained in this Agreement which are inconsistent with the information contained in the applicable Estoppel Certificate.
 
8.3 Accuracy of Seller’s Representations and Warranties. As a condition to the obligations of Purchaser to close hereunder, each of Seller’s representations and warranties set forth in  Section 9.1  below shall be materially true and correct when made and on and as of the Closing, as though such representations and warranties were made on and as of the Closing. Notwithstanding the foregoing, if Seller makes any material Pre-Closing Disclosure to Purchaser pursuant to the notice provisions of this Agreement, Purchaser shall have the right to terminate this Agreement and receive the return of the Earnest Money by delivering written notice thereof to Seller on or before the earlier of the Closing Date or the fifth business day after Purchaser receives written notice of such Pre-Closing Disclosure in which event this Agreement shall terminate and be of no further force or effect, except as may expressly survive termination hereof and except for any rights of Purchaser under Section 7.1 hereof to the extent of any breach of or default under this Agreement by Seller. If Purchaser does not terminate this Agreement pursuant to its rights under this  Section 8.3 , then such representations and warranties shall be deemed modified to conform them to the Pre-Closing Disclosure.
 
8.4 Performance by Seller of Covenants. As a condition to the obligations of Purchaser to close hereunder, Seller shall have performed or complied in all material respects with each obligation and covenant required by this Agreement to be performed or complied with by Seller on or before the Closing.
 
8.5 Estoppel Certificates Under Title Documents. As a condition to Purchaser’s obligation to close hereunder, Purchaser shall have received estoppel certificates (“Title Document Estoppel Certificates”) from those parties (other than Seller) to the documents and instruments specifically referred to on Exhibit A  attached hereto in substantially the form attached as Exhibit W . For purposes hereof, a certificate shall satisfy the condition described in this Section 8.5 if (i) the statements therein are subject to the qualification that such statements are made to such party’s knowledge (or subject to any similar qualification) and/or (ii) the certificate fails to certify to Purchaser’s lender. In the event Seller is unable to provide to Purchaser all required Title Documents Estoppel Certificates on or before Closing, Seller may, at its option, elect to execute and deliver to Purchaser certificates (individually, a “ Seller Title Document Estoppel Certificate, ” and, collectively, the “ Seller Title Document Estoppel Certificates ”), substantially in the same form as the certificates attached hereto as Exhibit W (but limited to Seller’s knowledge and subject to the limitations on liability set forth in Section 10) so that Purchaser shall be deemed to have received, at Closing, Title Document Estoppel Certificates and Seller Title Document Estoppel Certificates with respect to the required parties under this Section 8.5 In the event that Seller elects to deliver such Seller Title Document Estoppel Certificates, each statement therein shall survive for a period terminating on the earlier to occur of (i) the date on which Purchaser has received an executed Title Document Estoppel Certificate signed by the party in question, or (ii) one (1) year from the Closing Date. Subject to the Liability Limitation and Floor Amount liability limitations set forth in Section 10 hereof and the limitations on survival set forth in Section 9.5 hereof, EOP Operating Limited Partnership hereby agrees that it shall be jointly and severally liable for any actual and valid liability of Seller to Purchaser after Closing which arises out of statements contained in any Seller Title Document Estoppel Certificate. In the event that Seller does not provide to Purchaser either Title Document Estoppel Certificates or Seller Title Document Estoppel Certificates for required parties,
 
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Purchaser may, by written notice to Seller given on the Closing Date, either (A) elect not to purchase the Property, in which event the Earnest Money shall be returned to Purchaser, at which time this Agreement shall terminate and become null and void and neither party shall have any further rights or obligations under this Agreement, except for those which expressly survive termination of this Agreement, or (B) elect to purchase the Property notwithstanding Seller’s inability to provide the required Title Document Estoppel Certificates, in which event Purchaser shall be deemed to have waived the condition contained in this  Section 8.5 . If Purchaser fails to deliver such written notice as described above, Purchaser shall be deemed to have elected item (A) above. If any certificate contains statements or allegations that a default or potential default exists on the part of Seller or contains information inconsistent with any representations of Seller contained in this Agreement or in a Seller Title Document Estoppel Certificate and Purchaser elects to close the purchase and sale transaction contemplated herein notwithstanding the existence of such statements, allegations or information, then such certificates shall be deemed acceptable for purposes of this Section, notwithstanding the existence of such allegations, statements or information and Seller shall have no liability to Purchaser with respect to the existence of such allegations, statements or information.
 
8.6 Financial Condition of Major Tenants. As a condition to the obligations of Purchaser to close hereunder, neither Standard & Poor’s nor Moody’s Investor Service, Inc. shall have taken any of the following actions with respect to either of the Major Tenants at any time after expiration of the Due Diligence Period: (i) downgraded such tenant’s long term unsecured senior debt obligations rating from the rating that existed as of the expiration of the Due Diligence Period; (ii) publicly listed such tenant as being on “credit watch” or under “credit review”; or (iii) publicly issued a negative change in such credit service’s orientation toward such tenant’s financial condition.
 
8.7 Title Insurance. As a condition to the obligations of the Purchaser to close hereunder, the Title Insurer shall be prepared, subject only to the payment of the applicable premium, to issue to Purchaser an Owner’s Policy of Title Insurance insuring title to the Property is vested in Purchaser, subject only to the Permitted Exceptions; provided, however, that Purchaser shall be obligated to satisfy all requirements for such issuance reasonably imposed upon Purchaser by Title Insurer.
 
9. REPRESENTATIONS, WARRANTIES AND COVENANTS.
 
9.1 Seller’s Representations and Warranties. Subject to Section 9.5 below, Seller hereby represents and warrants to Purchaser as to the following matters, as of the date of this Agreement:
 
9.1.1 Organization and Authority. Seller is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business and is in good standing under the laws of the State of Minnesota. Seller has the power and authority under its organizational documents to sell, transfer, convey and deliver the Property to be sold and purchased hereunder, and all action and approvals required thereunder, including Board Approval, have been duly taken and obtained. This Agreement has been duly executed and delivered by Seller and constitutes its legal, valid and binding obligation, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy,
 
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insolvency, reorganization, moratorium or other laws affecting creditors rights and by general principles of equity (whether applied in a proceeding at law or in equity).
 
9.1.2 No Conflict. The execution and delivery of this Agreement, the consummation of the transactions provided for herein and the fulfillment of the terms hereof will not result in a breach of any of the terms or provisions of, or constitute a default under, any provision of Seller’s organizational documents or any law, regulation, writ, injunction or decree of any court or governmental instrumentality applicable to Seller or any evidence of indebtedness or agreement to which Seller is a party or by which Seller is bound.
 
9.1.3 Condemnation. Seller has not received from any governmental authority any written notice of any condemnation of the Property or any part thereof, and to the Seller’s knowledge, there are no pending or threatened condemnation or eminent domain proceedings (or proceedings of a nature or in lieu thereof) affecting the Property.
 
9.1.4 Litigation. Except as set forth onExhibit N attached hereto, there are no actions, suits, or proceedings pending against Seller or against, affecting or concerning the Property or Seller’s interest therein in any court or before or by any arbitration, tribunal or regulatory commission, department or agency. None of the actions, suits or proceedings disclosed in Exhibit N  involve claims or allegations against Seller or in respect of the Property which, if adversely determined, would adversely affect (i) Seller’s ability to consummate the transactions contemplated by this Agreement, (ii) ownership of the Property, or (iii) the operation of the Property.
 
9.1.5 Leases. Attached hereto asExhibit Q is a complete list setting forth all Leases (including all modifications and amendments to such Leases). Seller has delivered to Purchaser complete and accurate copies of all of the Leases. Seller is the “landlord” under all of the Leases and owns unencumbered legal and beneficial title to all of the Leases and the rents and other income thereunder, subject only to the collateral assignment of the Leases and rents thereunder in favor of the holder of an existing mortgage or deed of trust encumbering the Property and to Permitted Exceptions.
 
9.1.6 Leases—Default. Seller has not received or given any written notice of termination or default under any of the Leases, except as disclosed in Exhibit X .
 
9.1.7 Leases—Commissions. No rental, lease, or other commissions with respect to any Lease are payable to Seller, to any partner or member of Seller, or to any party affiliated with or related to Seller. There are no unpaid brokerage commissions or finder’s fees payable by the Seller or any predecessor landlord with respect to the current or any renewal term of any of the Leases or any expansion of premises under any of the Leases, and except as set forth on Exhibit Y  attached hereto, there are no agreements with any brokers with respect to any renewal term of any Lease or expansion of space leased thereunder.
 
9.1.8 Service Contracts. The list of Service Contracts attached hereto asExhibit C is a complete and accurate list and description of all of the service contracts, management agreements, or other agreements (other than the Leases) which are in effect and which relate solely to the operation, management, or maintenance of the Property. Seller has provided Purchaser with complete and accurate copies of all Service Contracts. All such Service Contracts are in full force and effect in accordance with their respective
 
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provisions, all payments required to be made by Seller or the “Owner” thereunder have been paid in full, and Seller has not received or given any written notice of termination or default thereunder. If Purchaser receives the consent of NRG Energy Center Minneapolis, LLC to the Steam Agreement Assignment at any time either prior or subsequent to the Closing, which consent confirms Seller’s representation and warranty regarding defaults under the Service Contract known as the “Steam Service Agreement”, then Seller shall be deemed not to have made such representation or warranty as to the Steam Service Agreement.
 
9.1.9 Certificates. Seller has not received written notice from any municipal department, insurance company or board of fire underwriters (or organization exercising functions similar thereto), directed to Seller and requesting the performance of any work or alteration in respect to the Property which has not been complied with.
 
9.1.10 Compliance With Governmental Requirements. Seller has not received any written notice alleging any violations of law, municipal or county ordinances, or other legal requirements with respect to the Property, and to Seller’s Knowledge, there are no material violations of law, municipal or county ordinances, or other legal requirements with respect to the Property. Seller agrees that item 4 of Exhibit E  and item 3 of Exhibit F  attached hereto and the corresponding exception to be set forth in the Deed from Seller to Purchaser shall not be deemed to limit or qualify in any respect the representations or warranty set forth in this Section 9.1.10.
 
9.1.12 Tax Contests. Except as disclosed onExhibit AA attached hereto and as contemplated in Section 4.5 hereof, and except with respect to matters which have been resolved or dropped, Seller has not filed, and has not retained anyone to file, notices of protest against, or to commence action to review, protest or contest real property tax assessments against the Property or the Tangible Personal Property.
 
9.1.13 Employees. There are no employment, collective bargaining, or similar agreements or arrangements between Seller or Seller’s managing agent and any of their employees or others which will be binding on Purchaser.
 
9.1.14 Pre-existing Right to Acquire. No person or entity has any right or option to acquire the Property or any portion thereof which will have any force or effect after execution hereof, other than Purchaser.
 
9.1.15 Seller Not a Foreign Person. Seller is not a “foreign person” which would subject Purchaser to the withholding tax provisions of Section 1445 of the Internal Revenue Code of 1986, as amended.
 
9.1.16 Security Deposits. Attached hereto asExhibit R is a true and complete list of the security deposits held by Seller under the Leases, whether in the form of cash, letters of credit or otherwise.
 
When used in this Agreement, the term “Seller’s Knowledge” shall mean and be limited to the actual (and not constructive) knowledge of Kevin Fossum, General Manager of the Property, and Kim Koehn, Senior Vice President—Denver Region with primary operational responsibility for all real estate assets (including the Property) owned or controlled by EOP Operating Limited Partnership in the Denver region, in each case without inquiry.
 
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9.2 Representations Remade. As of Closing, Seller shall be deemed to remake and restate the representations set forth in Section 9.1, except that the representations shall be updated by delivering written notice to Purchaser in order to reflect any fact, matter or circumstance which Seller becomes aware of that would make any of Seller’s representations or warranties contained herein untrue or incorrect (any such disclosure being referred to as a “ Pre-Closing Disclosure ”). EOP Operating Limited Partnership hereby agrees that, subject to the Liability Limitations and Floor Amount liability limitations set forth in Section 10 hereof and limitations on survival set forth in Section 9.5 hereof, it shall be jointly and severally liable with Seller to Purchaser under this Agreement with respect to any breach by Seller of the representations and warranties contained in  Section 9.1  of this Agreement, and EOP Operating Limited Partnership has agreed to join in the execution of this Agreement for the purpose evidencing such obligation.
 
9.3 Covenants. Seller hereby covenants and agrees with Purchaser as to the following matters.
 
9.3.1 New Leases. For purposes of this Agreement, any Lease entered into after the Effective Date, and any modification, amendment, restatement or renewal of any existing Lease entered into after such date, shall be referred to as “ New Lease(s) .” Until the expiration of the Due Diligence Period, (a) Seller may enter into any New Leases without Purchaser’s consent, so long as Seller delivers a copy of any New Lease to Purchaser prior to the expiration of the Due Diligence Period, and (b) Seller shall use reasonable, good faith efforts to keep Purchaser informed of any anticipated New Leases and shall deliver to Purchaser copies of all documentation in connection therewith. Following the expiration of the Due Diligence Period, Seller shall not enter into any New Lease (other than an amendment, restatement, modification or renewal of any existing Lease pursuant to a right granted the tenant under such existing Lease) without Purchaser’s prior written consent, which will not be unreasonably withheld or delayed. If Purchaser does not respond in writing to Seller’s request for approval or disapproval of a New Lease within five (5) business days after Purchaser’s receipt of Seller’s request (which request shall state that Purchaser’s failure to object will be deemed to be its approval), Purchaser shall be conclusively deemed to have approved of such New Lease.
 
9.3.2 Service Contracts. Between the Effective Date and the Closing Date, Seller shall not enter into any new Service Contracts, or cancel, materially modify or renew any existing Service Contracts, without the prior written consent of Purchaser, which consent shall not be unreasonably withheld or delayed, provided that consent shall not be required if such new Service Contract is cancelable by Seller or its successor in interest upon thirty (30) days’ notice and does not require the payment of more than $10,000 in any calendar year. If Purchaser fails to respond to Seller’s request for consent with respect to any such action within five (5) business days after receipt of Seller’s request (which request shall state that Purchaser’s failure to object will be deemed Purchaser’s consent), such consent shall be deemed given. Upon the written request of Purchaser delivered prior to expiration of the Due Diligence Period, Seller shall deliver to vendors under Service Contracts specified by Purchaser, on or before the Closing Date, notices of termination of such Service Contracts terminating such Service Contracts in accordance with the terms thereof at no cost to Seller (it being understood and agreed that such Service Contracts shall remain in full force and effect with respect to the Property, and that Purchaser shall assume the obligations of Seller thereunder first arising after Closing in accordance with the terms of this Agreement, from the Closing Date until such date as such termination is effectuated in accordance with the terms of the applicable
 
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Service Contracts); provided that Seller shall cooperate with Purchaser in good faith to effectuate the termination of such Service Contracts as soon as practicable after Closing.
 
9.3.3 Operations. Between the date of this Agreement and the Closing Date, Seller shall operate the Property in the normal course of Seller’s business and maintain the Property in the same condition as of the date of this Agreement, ordinary wear and tear excepted, and subject to  Section 5  above. Notwithstanding anything in the preceding sentence to the contrary, in no event shall Seller be required to make any capital repairs, replacements or improvements to the Property except as may be required by the Leases.
 
9.3.4 Other Agreements. Between the Effective Date and the Closing Date and except as required by law or by any of the Permitted Exceptions or as otherwise permitted under this Agreement, Seller shall not become party to agreements granting an easement, right-of-way or license on, under or about the Property, and Seller shall not become party to any agreements granting easements, rights-of-way or licenses in favor of the Property or otherwise encumber, or grant interests in, the Property.
 
9.3.5 Litigation. Seller shall advise Purchaser promptly of any litigation, arbitration proceeding or administrative hearing (including condemnation) to which Seller is a party and which affects the Property in any respect, which is instituted after the date of this Agreement.
 
9.3.6 Insurance. Seller shall keep the Improvements and Personal Property insured against fire and other hazards in such amounts and under such terms as Seller deems advisable, but in any event with scope of coverage and limits of liability at least equal to Seller’s insurance currently in force as of the date of this Agreement.
 
9.3.7 Sale of Personal Property. Seller shall not transfer or dispose of, or permit to be sold, transferred or otherwise disposed of, any item or group of items constituting Tangible Personal Property, except for the use and consumption of inventory, office and other supplies and spare parts (Seller hereby agreeing to replace such inventory, office and other supplies and spare parts with items of comparable quality in the ordinary course of business), and the replacement of worn out, obsolete and defective tools, equipment and appliances, in the ordinary course of business.
 
9.3.8 Performance Under Leases and Service Contracts. Seller shall perform, or cause its agents to perform, in all material respects, all obligations of landlord or lessor under the Leases and all obligations of owner under the Service Contracts. Seller shall not credit any portion of the security deposits against defaults or delinquencies of the tenants under the Leases.
 
9.3.9 Tenant Estoppels. Within five (5) business days following the Effective Date, Seller shall prepare and deliver to all tenants under the Leases, an estoppel certificate in the form of Exhibit L  attached hereto and request each such tenant to execute and deliver the Estoppel Certificate to Seller. Seller shall use commercially reasonable efforts to obtain the executed Estoppel Certificates in substantially the same form as Exhibit L  (as supplemented at the request of Purchaser as aforesaid) from such tenants (without the obligation to incur any material cost or liability in connection with such efforts). If a tenant returns an executed Estoppel Certificate to Seller, Seller shall deliver to Purchaser a copy of such executed Estoppel Certificate promptly following Seller’s receipt of such Estoppel Certificate.
 
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9.3.10 Cooperation with Purchaser’s Auditors and SEC Filing Requirements. Seller shall provide to Purchaser copies of, or shall provide Purchaser access to, such factual information as may be reasonably requested by Purchaser, and in the possession or control of Seller, or its property manager or accountants, to enable Purchaser (or Wells Real Estate Investment Trust, Inc.) to file its or their Form 8-K, if, as and when such filing may be required by the Securities and Exchange Commission (“SEC”). At Purchaser’s sole cost and expense, Seller shall allow Purchaser’s auditor (Ernst & Young or any successor auditor selected by Purchaser) to conduct an audit of the income statements of the Property for the year of Closing (to the date of Closing) and the two prior years, and shall cooperate (at no cost to Seller) with Purchaser’s auditor in the conduct of such audit. In addition, Seller agrees to provide to Purchaser’s auditor a letter in the form attached hereto as Exhibit BB , and, if requested by such auditor, historical financial statements for the Property, including income and balance sheet data for the Property, whether required before or after Closing. Without limiting the foregoing, (i) Purchaser or its designated independent or other auditor may audit Seller’s operating statements of the Property, at Purchaser’s expense, and Seller shall provide such documentation as Purchaser or its auditor may reasonably request in order to complete such audit, and (ii) Seller shall furnish to Purchaser such financial and other information as may be reasonably required by Purchaser to make any required filings with the SEC or other governmental authority; provided, however, that the foregoing obligations of Seller shall be limited to providing such information or documentation as may be in the possession of, or reasonably obtainable by, Seller, its property manager or accountants, at no cost to Seller, and in the format that Seller (or its property manager or accountants) have maintained such information. The obligations of Seller under this Section 9.3.10 shall survive the Closing.
 
9.3.11 Estoppel Certificates Under Title Documents. Seller shall use commercially reasonable efforts to obtain the Title Document Estoppel Certificates (without the obligation to incur any material cost or liability in connection with such effort) from the required parties in accordance with the provisions of Section 8.5, and similar estoppel certificates from the other parties (other than Seller) to the documents and instruments specifically referred to on Exhibit A .  Upon receipt of each Title Document Estoppel Certificate or similar estoppel certificates from such other parties, Seller shall promptly deliver a copy thereof to Purchaser.
 
If Seller fails to perform any of the covenants contained in this Section 9.3 hereof and either Purchaser receives written notice thereof from Seller pursuant to the notice provisions hereof prior to Closing or Clay Adams on behalf of the Purchaser shall have actual knowledge of a default by Seller under this Section 9.3 prior to Closing, Purchaser shall have the rights and remedies available to Purchaser under Section 7.1 hereof, and if Purchaser elects to close and consummate the transaction contemplated by this Agreement in lieu of exercising its rights and remedies under Section 7.1 hereof, then such default by Seller shall be deemed to be waived by Purchaser at the Closing, and to the extent such default by Seller is the entering into by Seller of New Lease(s), new Service Contracts or any other agreements in violation of Section 9.3.1, Section 9.3.2, or Section 9.3.4 hereof, Purchaser shall at Closing accept an assignment of Seller’s rights thereunder and assume the obligations of Seller thereunder arising or accruing after the Closing Date.
 
9.4 Purchaser’s Representations and Warranties. Subject to Section 9.5 below, Purchaser represents and warrants that:
 
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9.4.1 ERISA. Purchaser’s rights under this Agreement, the assets it shall use to acquire the Property and, upon its acquisition by Purchaser, the Property itself, do not and shall not constitute plan assets within the meaning of 29 C.F.R. §2510.3-101, and Purchaser is not a “governmental plan” within the meaning of section 3(32) of the Employee Retirement Income Security Act of 1974, as amended, and the execution of this Agreement and the purchase of the Property by Purchaser is not subject to state statutes regulating investments of and fiduciary obligations with respect to governmental plans.
 
9.4.2 Organization and Authority. Purchaser is duly organized and in good standing under the laws of the state of its organization. Purchaser has the power and authority under its organizational documents to perform its obligations hereunder, and all action and approvals required thereunder have been duly taken and obtained.
 
9.4.3 No Conflict. The execution and delivery of this Agreement, the consummation of the transactions provided for herein and the fulfillment of the terms hereof will not result in a breach of any of the terms or provisions of, or constitute a default under, any provision of Purchaser’s organizational documents.
 
9.5 Survival. Purchaser’s right to enforce the representations and warranties set forth in Section 9.1, subject to modifications thereto as a result of any Pre-Closing Disclosure, shall survive the Closing, but only as to claims of which Purchaser notifies Seller in writing within one (1) year after Closing (or such shorter period of time to the extent Purchaser receives an Estoppel Certificate which obviates any or all of Seller’s representations and/or warranties with respect to any Lease in accordance with  Section 8.2  above), and not otherwise. Seller’s right to enforce the representations and warranties set forth in  Section 9.4  shall survive the Closing, provided  Subsections 9.4.2  and  9.4.3  shall only survive the Closing as to claims of which Seller notifies Purchaser in writing within one (1) year after Closing, and not otherwise.
 
9.6 Management. Purchaser agrees, and Seller agrees to cause Property Manager, to use reasonable efforts and to act in good faith between the Effective Date and the expiration of the Extended Due Diligence Period in order to agree with each other upon the form of the New Management Agreement, which New Management Agreement shall contain such terms and provisions which are customary and reasonable for third party property management agreements for similar properties.
 
10. LIMITATION OF LIABILITY. Notwithstanding anything to the contrary contained herein, if the Closing shall have occurred (and Purchaser shall not have waived, relinquished or released any applicable rights in further limitation), (a) the aggregate liability of Seller arising pursuant to or in connection with the representations, warranties, indemnifications, covenants or other obligations (whether express or implied) of Seller set forth in Sections 8.2, 8.5, 9.1 and 9.3 under this Agreement (or any document executed or delivered in connection herewith under Section 4.1 hereof) and under the Seller Estoppel Certificates and Seller Title Document Estoppel Certificates shall not exceed five percent (5%) of the Purchase Price (the “ Liability Limitation ”), and (b) no claim by Purchaser alleging a breach by Seller of any representation, warranty, indemnification, covenant or other obligation of Seller contained herein (or in any document executed or delivered in connection therewith or pursuant to Section 4.1 hereof) may be made, and Seller shall not be liable for any judgment in any action based upon any such claim, unless and until such claim, either alone or together with any other claims by Purchaser alleging a breach by Seller of any representation, warranty, indemnification, covenant or other obligation of Seller contained herein (or in any document executed or delivered in connection herewith), is for an aggregate
 
21

amount (excluding attorneys’ fees) in excess of One Hundred Fifty Thousand Dollars ($150,000) (the “Floor Amount”), in which event Seller’s liability respecting any final judgment concerning such claim or claims shall be for the entire amount thereof, subject to the limitation set forth in clause (a) above to the extent applicable thereto; provided, however, that if the aggregate of any such final judgment is for an amount that is less than or equal to the Floor Amount, then Seller shall have no liability with respect thereto. Notwithstanding anything herein to the contrary, the Floor Amount liability limitations shall not apply with respect to the covenants or other obligations of Seller under Sections 4.3, 4.4, 4.5, 4.6 and 6 hereof. Subject to the provisions of Sections 8.2, 8.5, and 9.2 hereof and subject to the following  proviso , no constituent partner or member in or agent of Seller, nor any advisor, trustee, director, officer, member, partner, employee, beneficiary, shareholder, participant, representative or agent of any entity that is or becomes a constituent partner or member in Seller or an agent of Seller (including, but not limited to, EOP Operating Limited Partnership, Equity Office Properties Trust and Equity Office Management, L.L.C.) shall have any personal liability, directly or indirectly, under or in connection with this Agreement or any agreement made or entered into under or pursuant to the provisions of this Agreement, or any amendment or amendments to any of the foregoing made at any time or times, heretofore or hereafter, and Purchaser and its successors and assigns and, without limitation, all other persons and entities, shall look solely to Seller’s assets for the payment of any claim or for any performance, and the Purchaser, on behalf of itself and its successors and assigns, hereby waives any and all such personal liability; provided, however, EOP Operating Limited Partnership hereby agrees to satisfy any actual and valid liability of Seller to Purchaser after Closing which arises under this Agreement up to but not in excess of the Liability Limitation. Notwithstanding anything to the contrary contained in this Agreement, neither the negative capital account of any constituent partner or member in Seller nor any obligation of any constituent partner or member in any entity owning an interest (directly or indirectly) in Seller to restore a negative capital account or to contribute capital to Seller (or any entity owning an interest, directly or indirectly, in any other constituent partner or member of Seller), shall at any time be deemed to be the property or an asset of Seller or any such other partner or member (and neither Seller nor any of its successors or assigns shall have any right to collect, enforce or proceed against or with respect to any such negative capital account of Seller’s obligations to restore or contribute). The provisions of this Section shall survive the Closing and any termination of this Agreement.
 
11. MISCELLANEOUS.
 
11.1 Entire Agreement. All understandings and agreements heretofore had between Seller and Purchaser with respect to the Property are merged in this Agreement, which alone fully and completely expresses the agreement of the parties. Purchaser acknowledges that it has inspected or will inspect the Property and that it accepts the same in its “as is” condition subject to use, ordinary wear and tear and natural deterioration. Purchaser further acknowledges that, except as expressly provided in this Agreement, neither Seller nor any agent or representative of Seller has made, and Seller is not liable for or bound in any manner by, any express or implied warranties, guaranties, promises, statements, inducements, representations or information pertaining to the Property.
 
11.2 Assignment. Except as provided in Section 11.12 below, neither this Agreement nor any interest hereunder shall be assigned or transferred by Purchaser without Seller’s consent; provided, however, that no such consent shall be required with respect to Purchaser’s assignment to an affiliate of Purchaser; and provided further that upon any such assignment permitted hereunder, the Purchaser named herein shall remain liable to Seller for the performance of “Purchaser’s” obligations hereunder. Except as provided on Section 11.12 below, Seller may not assign or otherwise transfer its interest under this Agreement. Subject to the foregoing, this
 
22

Agreement shall inure to the benefit of and shall be binding upon Seller and Purchaser and their respective successors and permitted assigns.
 
11.3 Modifications. This Agreement shall not be modified or amended except in a written document signed by Seller and Purchaser.
 
11.4 Time of Essence. Time is of the essence of this Agreement. In the computation of any period of time provided for in this Agreement or by law, the day of the act or event from which the period of time runs shall be excluded, and the last day of such period shall be included, unless it is a Saturday, Sunday, or legal holiday, in which case the period shall be deemed to run until the end of the next day which is not a Saturday, Sunday, or legal holiday.
 
11.5 Governing Law. This Agreement shall be governed and interpreted in accordance with the laws of the state in which the Property is located.
 
11.6 Notices. All notices, requests, demands or other communications required or permitted under this Agreement shall be in writing and delivered personally or by certified mail, return receipt requested, postage prepaid, by facsimile transmission with confirmed receipt, or by overnight courier (such as Federal Express), addressed as follows below. All notices given in accordance with the terms hereof shall be deemed given when received or upon refusal of delivery. Either party hereto may change the address for receiving notices, requests, demands or other communication by notice sent in accordance with the terms of this  Section 11.6 .
 
If to Seller:
c/o Equity Office Management, L.L.C.
Two North Riverside Plaza, Suite 2200
Chicago, Illinois 60606
Attention:    Matthew Gworek
Telephone:  312/466-3872
Facsimile:    312/559-5070
 
With a copy to:
c/o Equity Office Management, L.L.C.
Two North Riverside Plaza, Suite 2200
Chicago, Illinois 60606
Attention:    Stanley M. Stevens
Telephone:  312/466-3362
Facsimile:    312/559-5021
 
With a copy to:
Neal, Gerber & Eisenberg
2 North LaSalle Street, Suite 2100
Chicago, Illinois 60602
Attention:    Douglas J. Lubelchek, Esq.
Telephone:  312/269-5255
Facsimile:    312/269-1747
 
If to Purchaser:
Wells Operating Partnership, L.P.
6200 The Corners Parkway, Suite 250
Norcross, GA 30092
 
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Attention:    Clay Adams
Telephone:  770-243-8439
Facsimile:   770-243-8510
 
With a copy to:
Troutman Sanders LLP
Bank of America Plaza
600 Peachtree Street, NE
Suite 5200
Atlanta, GA 30308
Attention:    John Griffin
Telephone:  404/885-3150
Facsimile:    404-962-6577
 
11.7 “AS IS” SALE. ACKNOWLEDGING THE PRIOR USE OF THE PROPERTY AND PURCHASER’S OPPORTUNITY TO INSPECT THE PROPERTY, PURCHASER AGREES TO TAKE THE PROPERTY IN ITS “AS-IS,” “WHERE-IS,” CONDITION AND WITH ALL FAULTS. ANY INFORMATION, REPORTS, STATEMENTS, DOCUMENTS OR RECORDS (COLLECTIVELY, THE “DISCLOSURES”) PROVIDED OR MADE TO PURCHASER OR ITS CONSTITUENTS BY SELLER OR ANY OF SELLER’S AFFILIATES CONCERNING THE CONDITION OF THE PROPERTY SHALL NOT BE REPRESENTATIONS OR WARRANTIES, UNLESS SET FORTH HEREIN OR IN ANY DOCUMENT OR INSTRUMENT EXECUTED AND DELIVERED BY SELLER AT CLOSING. PURCHASER SHALL NOT RELY ON SUCH DISCLOSURES, BUT RATHER, PURCHASER SHALL RELY ONLY ON ITS OWN INSPECTION OF THE PROPERTY. PURCHASER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS SET FORTH HEREIN OR IN ANY DOCUMENTS AND INSTRUMENTS EXECUTED AND DELIVERED BY SELLER AT CLOSING, SELLER HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO (A) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY, INCLUDING, WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY; (B) THE INCOME TO BE DERIVED FROM THE PROPERTY, (C) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH PURCHASER MAY CONDUCT THEREON, (D) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR BODY; (E) THE HABITABILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY; OR (F) ANY OTHER MATTER WITH RESPECT TO THE PROPERTY, AND EXCEPT AS SET FORTH IN THIS AGREEMENT, SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS REGARDING TERMITES OR WASTES, AS DEFINED BY THE U.S. ENVIRONMENTAL PROTECTION AGENCY REGULATIONS AT 40 C.F.R., OR ANY HAZARDOUS SUBSTANCE, AS DEFINED BY THE COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT OF 1980 (“CERCLA”), AS AMENDED, AND REGULATIONS PROMULGATED THEREUNDER. PURCHASER, ITS SUCCESSORS AND ASSIGNS, HEREBY WAIVE, RELEASE AND AGREE NOT TO MAKE ANY CLAIM OR BRING ANY COST RECOVERY ACTION OR CLAIM FOR CONTRIBUTION OR OTHER ACTION OR CLAIM AGAINST
 
24

SELLER OR SELLER’S AFFILIATES BASED ON (A) ANY FEDERAL, STATE, OR LOCAL ENVIRONMENTAL OR HEALTH AND SAFETY LAW OR REGULATION, INCLUDING CERCLA OR ANY STATE EQUIVALENT, OR ANY SIMILAR LAW NOW EXISTING OR HEREAFTER ENACTED, (B) ANY DISCHARGE, DISPOSAL, RELEASE, OR ESCAPE OF ANY CHEMICAL, OR ANY MATERIAL WHATSOEVER, ON, AT, TO, OR FROM THE PROPERTY, OR (C) ANY ENVIRONMENTAL CONDITIONS WHATSOEVER ON, UNDER, OR IN THE VICINITY OF THE PROPERTY; PROVIDED THAT SUCH WAIVER, RELEASE AND AGREEMENT SHALL BE INAPPLICABLE TO ANY CLAIM OR ACTION BASED UPON ANY EXPRESS REPRESENTATION, WARRANTY OR INDEMNITY OF SELLER CONTAINED IN THIS AGREEMENT OR IN ANY DOCUMENT OR INSTRUMENT EXECUTED AND DELIVERED BY SELLER AT CLOSING. THE PROVISIONS OF THIS  SECTION 11.7  SHALL SURVIVE THE CLOSING AND ANY TERMINATION OF THIS AGREEMENT.
 
PURCHASER ACKNOWLEDGES THAT PURCHASER HAS CONDUCTED, OR WILL CONDUCT PRIOR TO CLOSING, SUCH INVESTIGATIONS OF THE PROPERTY, INCLUDING, BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF, AS PURCHASER DEEMS NECESSARY OR DESIRABLE TO SATISFY ITSELF AS TO THE CONDITION OF THE PROPERTY AND THE EXISTENCE OR NONEXISTENCE OR CURATIVE ACTION TO BE TAKEN WITH RESPECT TO ANY HAZARDOUS OR TOXIC SUBSTANCES ON OR DISCHARGED FROM THE PROPERTY, AND WILL RELY SOLELY UPON SAME AND NOT UPON ANY INFORMATION PROVIDED BY OR ON BEHALF OF SELLER OR ITS AGENTS OR EMPLOYEES WITH RESPECT THERETO, EXCEPT AS SET FORTH IN THIS AGREEMENT OR IN ANY DOCUMENT OR INSTRUMENT EXECUTED AND DELIVERED BY SELLER AT CLOSING. UPON CLOSING, PURCHASER SHALL ASSUME THE RISK THAT ADVERSE MATTERS, INCLUDING BUT NOT LIMITED TO, CONSTRUCTION DEFECTS AND ADVERSE PHYSICAL AND ENVIRONMENTAL CONDITIONS, MAY NOT HAVE BEEN REVEALED BY PURCHASER’S INVESTIGATIONS, AND PURCHASER, UPON CLOSING, SHALL BE DEEMED TO HAVE WAIVED, RELINQUISHED AND RELEASED SELLER (AND SELLER’S AFFILIATES) FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION (INCLUDING CAUSES OF ACTION IN TORT), LOSSES, DAMAGES, LIABILITIES, COSTS AND EXPENSES (INCLUDING ATTORNEYS’ FEES) OF ANY AND EVERY KIND OR CHARACTER,  KNOWN OR UNKNOWN , WHICH PURCHASER MIGHT HAVE ASSERTED OR ALLEGED AGAINST SELLER (AND SELLER’S AFFILIATES) AT ANY TIME BY REASON OF OR ARISING OUT OF ANY LATENT OR PATENT CONSTRUCTION DEFECTS OR PHYSICAL CONDITIONS, VIOLATIONS OF ANY APPLICABLE LAWS AND ANY AND ALL OTHER ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS REGARDING THE PROPERTY, PROVIDED THAT SUCH WAIVER AND RELEASE SHALL BE INAPPLICABLE TO ANY CLAIMS, DEMANDS, CAUSES OF ACTION, LOSSES, DAMAGES, LIABILITIES, COSTS AND EXPENSES BASED UPON ANY EXPRESS REPRESENTATION, WARRANTY OR INDEMNITY OF SELLER CONTAINED IN THIS AGREEMENT OR IN ANY DOCUMENT OR INSTRUMENT EXECUTED AND DELIVERED BY SELLER AT CLOSING.
 
11.8 Trial by Jury. In any lawsuit or other proceeding initiated by any party under or with respect to this Agreement, any party waives any right it may have to trial by jury. In
 
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addition, Purchaser and Seller waive any right to seek rescission of the transaction provided for in this Agreement.
 
11.9 Confidentiality.
 
(i) Purchaser shall comply with that certain Confidentiality Agreement dated March 25, 2003 between Purchaser and Seller.
 
(ii) Except as may be required by law, without the prior written consent of the other party (not to be unreasonably withheld or delayed), prior to Closing neither party shall make any public pronouncements or issue any press releases regarding the transaction herein described; provided, however, that the foregoing shall not be construed to prevent Purchaser or Seller from making (without the consent of, but upon notice to, the other party) any disclosure required by any applicable law or regulation or judicial process.
 
11.10 Reports. If for any reason Purchaser does not consummate the Closing, then Purchaser shall, upon Seller’s written request, assign and transfer to Seller all of its right, title and interest in and to any and all environmental reports and boundary or as-built surveys relating to the Property or any part thereof prepared by third parties at the request of Purchaser (excluding internal memoranda), its employees and agents, and shall deliver to Seller copies of all of the foregoing. Purchaser hereby consents to Seller contacting any of the independent contractors, vendors, or other independent third parties hired by Purchaser (other than employees) in connection with Purchaser’s inspection and investigation of the physical condition of the Property.
 
11.11 Reporting Person. Seller and Purchaser hereby designate Escrow Agent to act as and perform the duties and obligations of the “reporting person” with respect to the transaction contemplated by this Agreement for purposes of 26 C.F.R. Section 1.6045-4(e)(5) relating to the requirements for information reporting on real estate transaction closed on or after January 1, 1991. In this regard, Seller and Purchaser each agree to execute at Closing, and to cause Escrow Agent to execute at Closing, a Designation Agreement, designating Escrow Agent as the reporting person with respect to the transaction contemplated by this Agreement.
 
11.12 Section 1031 Exchange. Either party may structure the disposition or acquisition of the Property, as the case may be, as a like-kind exchange under Internal Revenue Code Section 1031 at the exchanging party’s sole cost and expense. The other party shall reasonably cooperate therein, provided that such other party shall incur no material costs, expenses or liabilities in connection with the exchanging party’s exchange. If either party uses a qualified intermediary to effectuate an exchange, any assignment of the rights or obligations of such party hereunder shall not relieve, release or absolve such party of its obligations to the other party. The exchanging party shall indemnify, defend and hold harmless the other party from all liability in connection with the indemnifying party’s exchange, and the indemnified party shall not be required to take title to or contract for the purchase of any other property. The provisions of this  Section 11.12  shall survive the Closing.
 
11.13 Press Releases. Notwithstanding anything to the contrary contained herein, upon the Closing Seller may issue a press release disclosing the sale of the Property in substantially the form of the proposed press release attached hereto as Exhibit DD .
 
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11.14 Counterparts. This Agreement may be executed in any number of identical counterparts, any or all of which may contain the signatures of less than all of the parties, and all of which shall be construed together as but a single instrument.
 
11.15 Construction. This Agreement shall not be construed more strictly against Seller merely by virtue of the fact that the same has been prepared by Seller or its counsel, it being recognized both of the parties hereto have contributed substantially and materially to the preparation of this Agreement.
 
11.16 Attorneys’ Fees. In the event of litigation between the parties with respect to this Agreement or the transaction contemplated hereby, the prevailing party therein shall be entitled to recover from the losing party all of its costs of enforcement and litigation, including, but not limited to, its reasonable attorneys’ and paralegal fees, witness fees, court reporters’ fees and other costs of suit.
 
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their duly authorized representatives as of the date first above written.
 
SELLER:	 	 	 	MN-NICOLLET MALL, L.L.C., a Delaware limited liability company	
 	 	 	 	 	
 	 	 	 	 	 	By:	 	Equity Office Management, L.L.C., a Delaware limited liability company, its non-member manager	
 	 	 	 	 	 	
 	 	 	 	 	 	 	 	By:	 	/s/            Laura Hassan

	
 	 	 	 	 	 	 	 	Name:	 	Laura Hassan	
 	 	 	 	 	 	 	 	Title:	 	Vice President - Legal	
 
PURCHASER:	 	 	 	WELLS OPERATING PARTNERSHIP, L.P., a Delaware limited partnership	
 	 	 	 	 	
 	 	 	 	 	 	By:	 	Wells Real Estate Investment Trust, Inc., a Maryland corporation, its sole general partner	
 	 	 	 	 	 	
 	 	 	 	 	 	 	 	By:	 	

	
 	 	 	 	 	 	 	 	Name:	 	 	
 	 	 	 	 	 	 	 	Title:	 	 	
 
 	 	 	 	The undersigned joins in this Agreement solely for the purposes of Sections 8.2, 8.5, 9.2, and 10 hereof.	
 	 	 	
 	 	 	 	EOP Operating Limited Partnership	
 	 	 	 	 	
 	 	 	 	 	 	By:	 	Equity Office Properties Trust, a Maryland real estate investment trust, its general partner	
 	 	 	 	 	 	
 	 	 	 	 	 	 	 	By:	 	/s/        Laura Hassan

	
 	 	 	 	 	 	 	 	Name:	 	Laura Hassan	
 	 	 	 	 	 	 	 	Title:	 	Vice President - Legal	
 
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their duly authorized representatives as of the date first above written.
 
SELLER:	 	 	 	MN-NICOLLET MALL, L.L.C., a Delaware limited liability company	
 	 	 	 	 	
 	 	 	 	 	 	By:	 	Equity Office Management, L.L.C., a Delaware limited liability company, its non-member manager	
 	 	 	 	 	 	
 	 	 	 	 	 	 	 	By:	 	

	
 	 	 	 	 	 	 	 	Name:	 	 	
 	 	 	 	 	 	 	 	Title:	 	 	
 
PURCHASER:	 	 	 	WELLS OPERATING PARTNERSHIP, L.P., a Delaware limited partnership	
 	 	 	 	 	
 	 	 	 	 	 	By:	 	Wells Real Estate Investment Trust, Inc., a Maryland corporation, its sole general partner	
 	 	 	 	 	 	
 	 	 	 	 	 	 	 	By:	 	/s/        Douglas P. Williams

	
 	 	 	 	 	 	 	 	Name:	 	Douglas P. Williams	
 	 	 	 	 	 	 	 	Title:	 	Executive Vice President	
 
 	 	 	 	The undersigned joins in this Agreement solely for the purposes of Sections 8.2, 8.5, 9.2, and 10 hereof.	
 	 	 	
 	 	 	 	EOP Operating Limited Partnership	
 	 	 	 	 	
 	 	 	 	 	 	By:	 	Equity Office Properties Trust, a Maryland real estate investment trust, its general partner	
 	 	 	 	 	 	
 	 	 	 	 	 	 	 	By:	 	

	
 	 	 	 	 	 	 	 	Name:	 	 	
 	 	 	 	 	 	 	 	Title:	 	 	
 
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LIST OF EXHIBITS:
 
A	  	Legal Description	
B	  	List of Tangible Personal Property	
B-1	  	List of Excluded Personal Property	
C	  	List of Service Contracts	
D	  	Escrow Agreement	
E	  	Permitted Exceptions	
F	  	Exceptions to Deed	
G	  	Bill of Sale and Assignment and Assumption of Leases and Service Contracts	
H	  	Notice to Tenants	
I	  	Notice to Parties to Service Contracts	
J	  	Non-Foreign Affidavit	
K	  	Tenant Inducements	
L	  	Form Tenant Estoppel Certificate	
M	  	Form Seller Estoppel Certificate	
N	  	Litigation Matters	
O	  	Assignment of Easements and Declarations	
P	  	Steam Agreement Assignment	
Q	  	List of Leases and License Agreements	
R	  	List of Security Deposits	
S	  	Omitted	
T	  	Omitted	
U	  	Omitted	
V	  	Form of Blanket Transfer	
W	  	Title Document Estoppel Certificates	
X	  	Default Conditions Under Leases	
Y	  	List of Broker Agreements	
Z	  	Omitted	
AA	  	Tax Contests	
BB	  	Form of Accounting Letter	
CC	  	Omitted	
DD	  	Form of Press Release	

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EXHIBIT A
 
LEGAL DESCRIPTION
[U.S. Bancorp Center, Minneapolis, Minnesota]
 
Tract A, B, E and that part of Tract G lying Southeasterly of the Northeasterly extension of the Northwesterly line of said Tract B, Registered Land Survey No. 1625, Files of the Registrar of Titles, Hennepin County, Minnesota.
 
Together with appurtenant easements contained in Skyway Agreement dated May 31, 1989, filed January 11, 1990, as Document No. 2066682, rerecorded as Document No. 5563768 and appurtenant rights contained in Declaration of Transfer of Rights dated January 11, 1990, filed January 11, 1990, as Document No. 2066683, consented to and joined by Ryan Properties, Inc., a Minnesota corporation, dated March 3, 1998, by that certain Consent and Joinder filed March 5, 1998, as Document No. 2893784.
 
Together with appurtenant easements contained in Skyway and Tunnel Agreement dated April 4, 1986, filed June 27, 1986, as Document No. 5124377 as amended by Amendment to Skyway and Tunnel Agreement dated February 17, 1998, filed March 5, 1998, as Document No. 2893786 and Second Amendment to Skyway and Tunnel Agreement dated September 15, 1999, filed March 31, 2000, as Document No. 3268893.
 
Together with appurtenant easements contained in Second Restated Declaration-800 Tower Parcel/LaSalle Parcels dated October 10, 1997, filed November 21, 1997, as Document No. 2863489 as amended by First Amendment to Second Restated Declaration-800 Tower Parcel/LaSalle Parcels dated June 26, 1998, filed August 14, 1998, as Document No. 3058327.
 
Together with appurtenant easements contained in Restated Loading Dock Easement and Operating Agreement dated October 10, 1997, filed November 21, 1997, as Document No. 2863490 as amended by First Amendment to Restated Loading Dock Easement and Operating Agreement dated June 26, 1998, filed August 14, 1998, as Document No. 3058329.
 
Together with appurtenant easements contained in Restated Lakewood Declaration dated October 10, 1997, filed November 21, 1997, as Document No. 2863491, as amended by First Amendment to Restated Lakewood Declaration dated June 26, 1998, filed August 14, 1998, as Document No. 3058328 and Second Amendment to Restated Lakewood Agreement dated November 24, 1999, recorded as Document No. 3282523, and as assumed by Ryan 800 LLC, a Minnesota limited liability company, by that certain Assumption Agreement dated March 3, 1998, filed April 13, 2000, as Document No. 3271999.
 
Together with appurtenant easements contained in Parking Garage Easement dated October 10, 1997, filed November 21, 1997, as Document No. 2863492 as amended by First Amendment to Parking Garage Easement Agreement dated June 26, 1998, filed August 14, 1998, as Document No. 3058330.
 
Together with appurtenant easements contained in Agreement for Skyway Construction, Operation, Maintenance and Easements dated December 28, 1998, filed July 30, 1999, as Document No. 3187400 as amended by First Amendment to Agreement for Skyway Construction, Operation, Maintenance and Easements dated November 18, 1999, filed March 29, 2000, as Document No. 3268304.

Together with appurtenant easements contained in Party Wall and Cross-Easement Agreement dated October 27, 1998, filed July 28, 1999, as Document No. 3186115.
 
(Registered property, Hennepin County, Certificate of Title No. 1053162)
 
2

EXHIBIT 10.100
 
LEASE AGREEMENT WITH US BANCORP PIPER JAFFRAY COMPANIES, INC. AND
AMENDMENTS THERETO FOR A PORTION OF US BANCORP MINNEAPOLIS BUILDING

PIPER JAFFRAY CENTER
 
OFFICE LEASE
 
dated
 
MARCH 3, 1998,
 
between
 
RYAN 800, LLC,
 
as Landlord,
 
and
 
PIPER JAFFRAY COMPANIES INC.,
 
as Tenant

TABLE OF CONTENTS
 
PIPER JAFFRAY CENTER
 
Office Lease dated March 3, 1998,
between Ryan 800, LLC, as landlord
Piper Jaffray Companies Inc., as tenant
 
1.	  	Lease	
 	 	
2.	  	Short Form Lease	
 	 	
3.	  	Completion Guaranty (Ryan Companies US, Inc. and Ryan Properties, Inc.)	
 	 	
4.	  	Completion Guaranty (James R. Ryan and Patrick G. Ryan)	
 	 	
5.	  	Tax Reimbursement Agreement	
 	 	
6.	  	Letter Regarding Mortgage Subordination	

OFFICE LEASE
 
between
 
RYAN 800, LLC,
 
as Landlord,
 
and
 
PIPER JAFFRAY COMPANIES INC.,
 
as Tenant
 
DATED: March 3, 1998

TABLE OF CONTENTS
 
1.	  	Certain Definitions	  	1	
 	 	 	
2.	  	Premises	  	11	
 	  	2.1	  	Grant	  	11	
 	  	 	  	2.1.1	  	Initial Premises	  	11	
 	  	 	  	2.1.2	  	Additional Initial Premises	  	11	
 	  	 	  	2.1.3	  	Initial Retail Premises	  	12	
 	  	 	  	2.1.4	  	Excess Space	  	12	
 	  	 	  	2.1.5	  	Relationship Between Additional Premises and Excess Space	  	13	
 	  	 	  	2.1.6	  	Lease Amendment	  	13	
 	  	2.2	  	Measurement Standards	  	13	
 	  	 	  	2.2.1	  	Certain Defined Terms	  	13	
 	  	 	  	2.2.2	  	Rentable Area; Usable Area	  	14	
 	  	 	  	2.2.3	  	Determination	  	14	
 	  	 	  	2.2.4	  	Adjustment	  	15	
 	  	2.3	  	Floor Plans	  	15	
 	  	2.4	  	Common Areas	  	15	
 	  	 	  	2.4.1	  	Use by Tenant	  	15	
 	  	 	  	2.4.2	  	Special Events	  	15	
 	  	 	  	2.4.3	  	Landlord’s Reserved Rights in Common Areas	  	16	
 	  	 	  	2.4.4	  	Skyway and Other Appurtenant Agreements	  	17	
 	 	 	
3.	  	Use	  	17	
 	  	3.1	  	General	  	17	
 	  	3.2	  	Legal Use and Violations of Insurance Coverage	  	17	
 	  	3.3	  	Laws and Regulations	  	18	
 	  	3.4	  	Rules of Building	  	18	
 	  	3.5	  	Nuisance	  	18	
 	  	3.6	  	Other Building Occupants	  	18	
 	 	 	
4.	  	Term; Extension Terms	  	19	
 	  	4.1	  	Initial Term	  	19	
 	  	4.2	  	Memorandum	  	19	
 	  	4.3	  	Extension Terms	  	19	
 	  	 	  	4.3.1	  	Grant of Options	  	19	
 	  	 	  	4.3.2	  	Premises For Extension Terms	  	19	
 	  	 	  	4.3.3	  	Exercise of Extension Options	  	19	
 	  	 	  	4.3.4	  	Terms and Conditions of Extension Terms	  	20	
 	 	 	
5.	  	Construction of the Building and Leasehold Improvements	  	21	
 	  	5.1	  	Base Building Work	  	21	
 
i

 	  	 	  	5.1.1	  	Landlord’s Obligations	  	21	
 	  	 	  	5.1.2	  	Tenant’s Remedies	  	21	
 	  	 	  	5.1.3	  	LaSalle Passageway	  	24	
 	  	5.2	  	Construction of Leasehold Improvements	  	25	
 	  	 	  	5.2.1	  	Tenant Work	  	25	
 	  	 	  	5.2.2	  	Occupancy Before Commencement Date	  	26	
 	 	 	
6.	  	Base Rental	  	26	
 	  	6.1	  	Amounts	  	26	
 	  	 	  	6.1.1	  	Initial Term	  	26	
 	  	 	  	6.1.2	  	Extension Term	  	27	
 	  	 	  	6.1.3	  	Retail Premises	  	27	
 	  	 	  	6.1.4	  	Expansion Space	  	28	
 	  	 	  	6.1.5	  	First Offer Space	  	28	
 	  	6.2	  	Place and Manner of Payment	  	29	
 	  	6.3	  	Allocation of Base Rental for Income Tax Purposes	  	29	
 	 	 	
7.	  	Additional Rent	  	30	
 	  	7.1	  	Tenant’s Operating Expense Contribution	  	30	
 	  	7.2	  	Operating Expenses	  	30	
 	  	 	  	7.2.1	  	Definition	  	30	
 	  	 	  	7.2.2	  	Exclusions from Operating Expenses	  	31	
 	  	 	  	7.2.3	  	Further Reductions	  	35	
 	  	 	  	7.2.4	  	Limited Gross-Up	  	36	
 	  	 	  	7.2.5	  	Disproportionate Services	  	36	
 	  	 	  	7.2.6	  	Obligation to Reduce Operating Expenses	  	36	
 	  	 	  	7.2.7	  	General	  	36	
 	  	7.3	  	Estimate and Adjustment of Operating Expenses; Payment of Tenant’s Operating Expense Contribution	  	36	
 	  	 	  	7.3.1	  	Statement of Estimated Operating Expenses	  	36	
 	  	 	  	7.3.2	  	Payment by Tenant; Revision of Estimate	  	37	
 	  	 	  	7.3.3	  	Adjustment Based on Actual Operating Expenses	  	38	
 	  	 	  	7.3.4	  	Monthly Statements; Reports and Studies	  	38	
 	  	 	  	7.3.5	  	Forms of Statement	  	39	
 	  	 	  	7.3.6	  	Disputes	  	39	
 	  	7.4	  	Tenant’s Tax Contribution	  	39	
 	  	7.5	  	Real Property Taxes	  	40	
 	  	7.6	  	Payment of Tenant’s Tax Contribution	  	40	
 	  	7.7	  	Contest of Real Property Taxes	  	41	
 	  	7.8	  	No Assessment Agreements	  	41	
 	  	7.9	  	Audit; Books and Records	  	41	
 	  	7.10	  	List of Landlord’s Affiliates	  	42	
 	  	7.11	  	Cooperation and Budgeting	  	42	
 
ii

 	 	 	
8.	  	Expansion Options	  	42	
 	  	8.1	  	Grant	  	42	
 	  	8.2	  	Exercise	  	43	
 	  	8.3	  	Contiguous Space; Relationship to First Offer Right	  	43	
 	  	8.4	  	Term; Rental	  	44	
 	  	8.5	  	Condition of Expansion Space	  	44	
 	  	 	  	8.5.1	  	Unimproved Space	  	44	
 	  	 	  	8.5.2	  	Damaged Space	  	44	
 	  	8.6	  	Failure to Deliver Possession	  	45	
 	  	8.7	  	Lease Amendment	  	45	
 	  	8.8	  	Transfer	  	45	
 	 	 	
9.	  	Right of First Offer	  	45	
 	  	9.1	  	Grant; Landlord’s Notice	  	45	
 	  	9.2	  	Superior Rights	  	46	
 	  	9.3	  	Exercise	  	46	
 	  	 	  	9.3.1	  	Tenant’s Notice	  	46	
 	  	 	  	9.3.2	  	Tenant’s Failure to Elect	  	47	
 	  	 	  	9.3.3	  	Term; Rental	  	47	
 	  	9.4	  	Condition of First Offer Space	  	47	
 	  	 	  	9.4.1	  	Unimproved Space	  	47	
 	  	 	  	9.4.2	  	Damaged Space	  	48	
 	  	9.5	  	Failure to Deliver Possession	  	48	
 	  	9.6	  	Lease Amendment	  	48	
 	  	9.7	  	Transfer	  	49	
 	 	 	
10.	  	Right to Reduce Space	  	49	
 	  	10.1	  	Reduction Options	  	49	
 	  	 	  	10.1.1	  	First Reduction Option	  	49	
 	  	 	  	10.1.2	  	Second Reduction Option	  	49	
 	  	 	  	10.1.3	  	Third Reduction Option	  	49	
 	  	 	  	10.1.4	  	Fourth Reduction Option	  	49	
 	  	10.2	  	Reduction Space	  	49	
 	  	10.3	  	Exercise	  	50	
 	  	10.4	  	Unamortized Costs of Tenant Work	  	50	
 	  	10.5	  	Surrender	  	50	
 	  	10.6	  	Relation to First Offer Rights	  	51	
 	  	10.7	  	Lease Amendment	  	51	
 	  	10.8	  	Transfer	  	51	
 	 	 	
11.	  	Parking Rights	  	51	
 	  	11.1	  	Parking Rights	  	51	
 	  	11.2	  	Adjustment; Allocated Spaces	  	51	
 	  	11.3	  	Surrender; Additional Spaces	  	52	
 
iii

 	  	11.4	  	Reserved Spaces	  	52	
 	  	11.5	  	Fees	  	52	
 	  	11.6	  	Operating Costs	  	53	
 	  	11.7	  	After Hours Parking	  	53	
 	  	11.8	  	Secure Parking Area	  	54	
 	  	11.9	  	Permits Independent of Lease	  	54	
 	  	11.10	  	Transfer	  	54	
 	  	11.11	  	Subleasing	  	54	
 	 	 	
12.	  	Storage Space	  	54	
 	  	12.1	  	Storage Rights	  	54	
 	  	12.2	  	Adjustment; Allocated Storage Space	  	55	
 	  	12.3	  	Surrender; Additional Storage Space	  	55	
 	  	12.4	  	First Offer Right	  	55	
 	  	12.5	  	Rent	  	55	
 	  	12.6	  	Size; Condition	  	56	
 	  	12.7	  	Incorporation of Waiver	  	56	
 	  	12.8	  	Auxiliary Rooms	  	56	
 	  	12.9	  	Transfer	  	57	
 	 	 	
13.	  	Services	  	57	
 	  	13.1	  	General Services	  	57	
 	  	13.2	  	Services to the Building and the Office Space	  	57	
 	  	 	  	13.2.1	  	Heating, Ventilating and Air Conditioning	  	58	
 	  	 	  	13.2.2	  	Elevators	  	58	
 	  	 	  	13.2.3	  	Light Bulbs	  	58	
 	  	 	  	13.2.4	  	Building Security	  	58	
 	  	 	  	13.2.5	  	Cleaning Services; Tenant Right to Provide Own Cleaning Services; Recycling	  	59	
 	  	 	  	13.2.6	  	General Maintenance	  	60	
 	  	 	  	13.2.7	  	Skyways	  	60	
 	  	 	  	13.2.8	  	Electrical Facilities	  	60	
 	  	 	  	13.2.9	  	Directory	  	60	
 	  	 	  	13.2.10	  	Shuttle Service	  	60	
 	  	 	  	13.2.11	  	Exhaust Duct	  	60	
 	  	 	  	13.2.12	  	Building Risers	  	60	
 	  	 	  	13.2.13	  	Water	  	60	
 	  	 	  	13.2.14	  	Other Common Areas	  	60	
 	  	 	  	13.2.15	  	Other Services	  	61	
 	  	13.3	  	Interruption in Services	  	61	
 	  	13.4	  	Access, Keys and Locks	  	62	
 	  	13.5	  	Graphics	  	62	
 	 	 	
14.	  	Condition of Premises	  	62	
 
iv

 	 	 	
15.	  	Alterations; Removal of Trade Fixtures	  	62	
 	  	15.1	  	Alterations, Additions, Modifications	  	62	
 	  	 	  	15.1.1	  	Costs Over $50,000	  	62	
 	  	 	  	15.1.2	  	Plans and Specifications	  	63	
 	  	 	  	15.1.3	  	Effect on Exterior Appearance of Building	  	63	
 	  	 	  	15.1.4	  	Effect on Structure, Building Systems	  	63	
 	  	15.2	  	General Provisions	  	63	
 	  	 	  	15.2.1	  	Manner of Work	  	63	
 	  	 	  	15.2.2	  	Indemnification	  	64	
 	  	 	  	15.2.3	  	Insurance	  	64	
 	  	15.3	  	Title at End of Lease Term	  	64	
 	  	15.4	  	Surrender of Premises	  	64	
 	  	 	  	15.4.1	  	Condition	  	64	
 	  	 	  	15.4.2	  	Condition of Premises Upon Expiration of Lease	  	65	
 	  	 	  	15.4.3	  	Removal of Trade Fixtures, Equipment, etc.	  	65	
 	 	 	
16.	  	Repairs	  	65	
 	  	16.1	  	Repairs by Landlord	  	65	
 	  	16.2	  	Repairs by Tenant	  	66	
 	  	16.3	  	Failure by Landlord or Tenant to Repair	  	66	
 	  	16.4	  	Standards/Code Compliance	  	66	
 	  	16.5	  	Electro-Magnetic Fields	  	66	
 	 	 	
17.	  	Tenant’s Personal Property Taxes and Rent Taxes	  	67	
 	  	17.1	  	Payment of Personal Property Taxes	  	67	
 	  	17.2	  	Rent Taxes	  	67	
 	  	17.3	  	Exclusion from Real Property Taxes	  	67	
 	 	 	
18.	  	Entry for Repairs and Inspection	  	67	
 	 	 	
19.	  	Insurance; Indemnification; Release	  	68	
 	  	19.1	  	Property Insurance	  	68	
 	  	19.2	  	Liability Insurance	  	68	
 	  	19.3	  	Policy Requirements	  	69	
 	  	19.4	  	Waiver of Liability and Subrogation Rights	  	69	
 	  	19.5	  	Hold Harmless	  	70	
 	 	 	
20.	  	Damage or Destruction	  	70	
 	  	20.1	  	Damage; Determination of Repair Time	  	70	
 	  	20.2	  	Obligation to Repair	  	71	
 	  	20.3	  	Options to Terminate	  	71	
 	  	 	  	20.3.1	  	Initial Termination Rights	  	71	
 	  	 	  	20.3.2	  	Additional Tenant Termination Rights	  	72	
 	  	 	  	20.3.3	  	Damage at End of Term	  	72	
 
v

 	  	20.4	  	Business Unit Vacation	  	72	
 	  	20.5	  	Abatement	  	73	
 	  	20.6	  	Lease Termination; Proration of Rent	  	73	
 	  	20.7	  	Limited Continuation of Lease	  	73	
 	  	20.8	  	Base Building Work	  	74	
 	 	 	
21.	  	Eminent Domain	  	74	
 	  	21.1	  	Termination	  	74	
 	  	 	  	21.1.1	  	Appropriation of Entire Premises	  	74	
 	  	 	  	21.1.2	  	Partial Appropriation	  	74	
 	  	21.2	  	Termination as to Premises Appropriated	  	75	
 	  	21.3	  	Restoration	  	75	
 	  	21.4	  	Award	  	75	
 	  	21.5	  	Rent Abatement	  	75	
 	  	21.6	  	Temporary Appropriation	  	75	
 	 	 	
22.	  	Assignment and Subletting by Tenant	  	76	
 	 	 	
23.	  	Transfer of Landlord’s Interest; Management	  	76	
 	  	23.1	  	Transfer by Landlord	  	76	
 	  	23.2	  	Management	  	77	
 	  	23.3	  	Limitation of Liability	  	77	
 	 	 	
24.	  	Default by Landlord or Tenant	  	77	
 	  	24.1	  	Events of Default	  	77	
 	  	 	  	24.1.1	  	Monetary Default	  	77	
 	  	 	  	24.1.2	  	Nonmonetary Defaults	  	77	
 	  	24.2	  	Landlord’s Remedies	  	77	
 	  	 	  	24.2.1	  	Termination	  	77	
 	  	 	  	24.2.2	  	Repossession	  	78	
 	  	 	  	24.2.3	  	Remedies at Law	  	78	
 	  	 	  	24.2.4	  	Mitigation	  	78	
 	  	 	  	24.2.5	  	Tenant Dispute	  	79	
 	  	 	  	24.2.6	  	Agreements Regarding Minn. Stat. Chapter 566 and Section 504.02	  	79	
 	  	 	  	24.2.7	  	Non-Curable Defaults	  	79	
 	  	24.3	  	Landlord’s Right to Perform	  	79	
 	  	24.4	  	Exercise of Rights While in Default	  	80	
 	  	24.5	  	Landlord’s Default	  	80	
 	  	24.6	  	Non Waiver	  	80	
 	  	24.7	  	Attorney’s Fees	  	81	
 	  	24.8	  	Interest on Late Payments	  	81	
 	 	 	
25.	  	Subordination and Nondisturbance	  	81	
 
vi

 	 	 	
26.	  	Estoppel Certificate	  	82	
 	 	 	
27.	  	Arbitration	  	82	
 	  	27.1	  	General	  	82	
 	  	27.2	  	Arbitrators	  	82	
 	  	27.3	  	Procedures	  	83	
 	 	 	
28.	  	No Merger	  	83	
 	 	 	
29.	  	Holding Over	  	83	
 	 	 	
30.	  	Quiet Enjoyment	  	84	
 	 	 	
31.	  	No Operating Covenant	  	84	
 	 	 	
32.	  	Broker	  	84	
 	 	 	
33.	  	Hazardous Materials	  	84	
 	  	33.1	  	Landlord	  	84	
 	  	33.2	  	Tenant	  	85	
 	 	 	
34.	  	Changes in Building	  	85	
 	  	34.1	  	Construction of Building	  	85	
 	  	34.2	  	Changes in Building	  	85	
 	 	 	
35.	  	Name and Address of Building	  	86	
 	  	35.1	  	Building Name	  	86	
 	  	35.2	  	Building Address	  	86	
 	 	 	
36.	  	Building Signage	  	86	
 	  	36.1	  	Tenant’s Signage	  	86	
 	  	36.2	  	Signage of Other Building Occupants	  	87	
 	 	 	
37.	  	Building Directories	  	87	
 	 	 	
38.	  	Building Occupants	  	88	
 	  	38.1	  	Competitive Business	  	88	
 	  	38.2	  	Retail Tenants	  	88	
 	  	38.3	  	Leases	  	88	
 	 	 	
39.	  	Microwave Dishes, Satellite Dishes and Antennas	  	88	
 	  	39.1	  	Grant	  	88	
 	  	39.2	  	Installation; Maintenance; Taxes	  	89	
 	  	39.3	  	Transfer	  	89	
 	  	39.4	  	Other Uses	  	89	
 
vii

 	 	 	
40.	  	Electronic Financial Services Equipment	  	89	
 	  	40.1	  	Grant	  	89	
 	  	40.2	  	Exercise	  	89	
 	 	 	
41.	  	General Provisions	  	90	
 	  	41.1	  	No Waiver	  	90	
 	  	41.2	  	Terms; Headings	  	90	
 	  	41.3	  	Amendment	  	90	
 	  	41.4	  	Successors and Assigns	  	90	
 	  	41.5	  	Notices	  	91	
 	  	41.6	  	Severability	  	91	
 	  	41.7	  	Time of Essence	  	92	
 	  	41.8	  	Governing Law	  	92	
 	  	41.9	  	Interpretation	  	92	
 	  	41.10	  	Force Majeure	  	92	
 	  	41.11	  	Memorandum of Lease	  	92	
 	  	41.12	  	Recordable Termination	  	92	
 	  	41.13	  	Approvals and Consents	  	92	
 
EXHIBITS
 
EXHIBIT A	  	—	  	LEGAL DESCRIPTION OF LAND	
EXHIBIT B	  	—	  	FLOOR PLANS	
EXHIBIT C	  	—	  	MEMORANDUM OF COMMENCEMENT DATE	
EXHIBIT D	  	—	  	LANDLORD’S WORK LETTER	
EXHIBIT E	  	—	  	PERMITTED EXCEPTIONS	
EXHIBIT F	  	—	  	RULES AND REGULATIONS OF THE BUILDING	
EXHIBIT G	  	—	  	HVAC STANDARDS	
EXHIBIT H	  	—	  	JANITORIAL SPECIFICATIONS	
EXHIBIT I	  	—	  	LETTER OF CREDIT	
 
viii

LEASE AGREEMENT
 
THIS LEASE AGREEMENT is made and entered into as of March 3, 1998, by and between RYAN 800, LLC, a Minnesota limited liability company (“Landlord”), and PIPER JAFFRAY COMPANIES INC., a Delaware corporation (“Tenant”).
 
Landlord and Tenant agree as follows:
 
1. Certain Definitions
 
1.1 “Additional Initial Premises” shall have the meaning set forth in Section 2.1.2.
 
1.2 “Additional Rent” shall mean Tenant’s Operating Expense Contribution and Tenant’s Tax Contribution.
 
1.3 “Additional Skyway Construction Costs” shall have the meaning set forth in Exhibit D.
 
1.4 “Affiliate(s)” shall mean any entity controlled by, controlling or under common control with the named entity, with “control” meaning ownership of stock or other beneficial interest controlling more than one-half (1/2) of the aggregate voting rights of the owners of the entity in question.
 
1.5 “Agreed Interest Rate” shall mean the lesser of (a) two (2) percentage points per annum over the Prime Rate of Interest, or (b) the maximum rate permitted under Legal Requirements.
 
1.6 “Amortization Interest Rate” shall mean the sum of (a) two (2) percentage points per annum, plus (b) the yield per annum of actively traded U.S. Government Treasury Securities having a maturity date of the tenth (10th) anniversary of the date Amortization Interest Rate is determined for a particular purpose under this Lease published as “Treasury Constant Maturities” in Federal Reserve Statistical Release Document H. 15 (519) Selected Interest Rates, Yields in Percentage Per Annum for the week preceding the date of determination. If for any reason such index is no longer published, Amortization Interest Rate shall be based on the yields reported in another publication of comparable reliability and institutional acceptance which most closely approximates yields in percent per annum of selected U.S. Treasury securities of varying maturities. If no Treasury Constant Maturities are published for such ten (10) year period, the index to be utilized shall be the weighted average of the Treasury Constant Maturities published for the two (2) periods most nearly corresponding to such ten (10) year period. In the event Landlord and Tenant do not agree on the calculation of Amortization Interest Rate for a particular purpose, the dispute shall be resolved by Arbitration.

1.7 “Approved Base Building Plans and Specifications” shall have the meaning set forth in Exhibit D.
 
1.8 “Approved Tenant Work Plans and Specifications” shall have the meaning set forth in Exhibit D.
 
1.9 “Arbitration” shall mean dispute resolution and arbitration conducted in accordance with Article 27.
 
1.10 “Base Building Completion Date” shall have the meaning set forth in Exhibit D.
 
1.11 “Base Building Construction Schedule” shall have the meaning set forth in Exhibit D.
 
1.12 “Base Building Shell Condition Requirements” shall have the meaning set forth in Exhibit D.
 
1.13 “Base Building Work” shall have the meaning set forth in Exhibit D.
 
1.14 “Base Rental” shall mean the annual base rental specified in Section 6.1, subject to adjustment under the terms of this Lease.
 
1.15 “Building” shall mean the thirty-one (31) Floor office building, associated Parking Garage and all Skyways and other improvements of Landlord hereafter constructed on the Land, except improvements which space tenants may remove therefrom pursuant to the terms of their respective leases.
 
1.16 “Building Occupant” shall mean any tenant of the Building and any affiliate of such tenant that occupies any portion of such tenant’s premises within the Building, and any subtenant of any such tenant or affiliate.
 
1.17 “Building Systems” shall mean the systems of the Building, including the Building’s electrical, mechanical, structural, plumbing, HVAC, elevator, escalator, communication, security and life safety systems.
 
1.18 “Commencement Date” shall mean the first date when:
 
(a) the Base Building Completion Date has occurred; and
 
(b) each Floor of the Initial Premises (other than those Floors containing only all or portions of the Second Additional Initial Premises or the Initial Retail Premises) and the services described in Section 3.4 of  Exhibit D  with respect thereto
 
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shall have been continuously available and operating in the condition required pursuant to Exhibit D for a period of time not shorter than the Tenant Finish Period with respect to such Floor.
 
1.19 “Common Areas” shall mean all common areas of the Building, including to the extent that the following exist from time to time, the lobbies, Skyways (subject to the terms of skyway agreements), elevators, escalators, stairways and accessways, common restrooms, loading docks, ramps, drives, walkways, plaza, the common pipes, conduits, wires and appurtenant equipment necessary to service the Premises, and the corridors on any multi-tenant Floors.
 
1.20 “Constant Dollars” means the present value of the dollars to which such term refers. An adjustment shall occur on January 1 of the calendar year following the fifth (5th) anniversary of the Commencement Date, and thereafter at five (5) year intervals. Constant Dollars shall be determined by multiplying the dollar amount to be adjusted by a fraction, the numerator of which is the Current Index Number and the denominator of which is the Base Index Number. The “Base Index Number” shall be the level of the Index for the month as of which this Lease is dated; the “Current Index Number” shall be the level of the Index for the month of September of the year preceding the adjustment year; the “Index” shall be the Consumer Price Index for All Urban Consumers, U.S. City Average, All Items published by the United States Department of Labor, Bureau of Labor Statistics (base year 1982-1984=100), or any successor index thereto as hereinafter provided. If publication of the Index is discontinued, or if the basis of calculating the Index is materially changed, Landlord, with the reasonable approval of Tenant, shall substitute for the Index comparable statistics as computed by an agency of the United States Government or, if none is available, by a substantial and responsible periodical or publication of recognized authority most closely approximating the result which would have been achieved by the Index.
 
1.21 “Delivery Date” shall have the meaning set forth in Exhibit D.
 
1.22 “Event of Default” shall have the meaning set forth in Section 24.1.
 
1.23 “Excess Space” shall have the meaning set forth in Section 2.1.4.
 
1.24 “Existing Lease” shall mean Tenant’s lease, as the same may be amended from time to time, of space in the project located at 222 South Ninth Street in Minneapolis, Minnesota, commonly known as of the date of this Lease as the “Piper Jaffray Tower”.
 
1.25 “Existing Project Tax Liability Payment” shall mean any payment owing by Ryan Companies US, Inc. to Tenant pursuant to that certain Tax Reimbursement Agreement of even date herewith between Ryan Companies US, Inc. and Tenant.
 
1.26 “Expansion Option(s)” shall have the meaning set forth in Section 8.1.
 
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1.27 “Expansion Space(s)” shall have the meaning set forth in Section 8.1.
 
1.28 “Extension Option(s)” shall have the meaning set forth in Section 4.3.1.
 
1.29 “Extension Term(s)” shall have the meaning set forth in Section 4.3.1.
 
1.30 “Financial Services Business” shall mean any business or other operation engaged in banking, insurance or securities brokerage, trading or marketing, financial or investment planning or counseling, venture capital or other financial services, including any bank, savings and loan association, credit union, insurance company, trust company, stock broker, financial planner or investment advisor.
 
1.31 “First Additional Initial Premises” shall have the meaning set forth in Section 2.1.2.
 
1.32 “First Offer Right” shall have the meaning set forth in Section 9.1.
 
1.33 “First Offer Space” shall have the meaning set forth in Section 9.1.
 
1.34 “Floor(s)” shall mean floor(s) of the Building at ground level or above, unless specifically provided to the contrary, with the ground level Floor designated as Floor One (1).
 
1.35 “Full Floor Rate” shall have the meaning set forth in Section 6.1.2.
 
1.36 “Hazardous Material” means any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of Minnesota or the United States Government. The term “Hazardous Material” includes, without limitation, any material or substance which is (a) listed or defined as a “hazardous waste,” “extremely hazardous waste,” “restricted hazardous waste,” “hazardous substance” or “toxic substance” under any Legal Requirements, (b) petroleum, (c) asbestos, (d) polychlorinated biphenyl, (e) designated as a “hazardous substance” pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C. § 1317), (f) defined as a “hazardous waste” pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq. (42 U.S.C. § 6903), (g) defined as a “hazardous substance” pursuant to Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq. (42 U.S.C. § 9601), (h) defined as a toxic substance in the Toxic Substances Control Act (15 U.S.C. 2601 et. seq.) or (i) any substance which contaminates soil or ground water and causes degradation of the soil and/or water to the extent that mitigation methods are needed to restore the soil or water to its natural state.
 
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1.37 “Holidays” shall mean New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and such other holidays as are from time to time recognized as holidays by the New York Stock Exchange.
 
1.38 “HVAC” shall mean heating, ventilation and air conditioning.
 
1.39 “Initial Premises” shall mean the initial space Tenant leases under Section 2.1.1, together with any Additional Initial Premises and Initial Retail Premises, if any, less any Excess Space.
 
1.40 “Initial Retail Premises” shall have the meaning set forth in Section 2.1.3.
 
1.41 “Initial Term” shall mean the initial fourteen (14) year term of this Lease specified in Section 4.1.
 
1.42 “Land” shall mean the land located in Minneapolis, Minnesota, legally described on Exhibit A attached hereto.
 
1.43 “Landlord” shall mean Ryan 800, LLC, and its successors and assigns as landlord under this Lease.
 
1.44 “Landlord Delay” shall have the meaning set forth in Exhibit D.
 
1.45 “Landlord Delay Costs” shall mean any and all losses, damages, liabilities, costs and expenses suffered, sustained, incurred or paid by Tenant which result from or arise in connection with (a) any Landlord Delay, (b) any failure by Landlord to satisfy the requirements of Section 5.1.2(a) within the period required thereunder, (c) any other failure by Landlord to deliver the Premises or any portion thereof as and when required by the terms of this Lease (including Articles 8 and 9), or (d) any election by Tenant to terminate this Lease based upon any of the foregoing with resulting loss of the benefit of this Lease, whether such losses, damages, liabilities, costs and expenses are suffered, sustained, incurred or paid by Tenant upon or following the occurrence of any of the applicable events described in clause (a), (b), (c) or (d) above or in anticipation that Landlord Delay may occur, including, (t) all cancellation charges or penalties, or increased costs, imposed or incurred in connection with the cancellation or postponement of contracts or agreements made by Tenant in anticipation of the scheduled delivery date, (u) all moving, storage and insurance costs incurred in connection with storing materials, goods, fixtures, equipment or other items, (v) all rents or other costs associated with extending the Existing Lease or leasing any space (including any doubled-up, overlapping or expansion space) in another facility for any period determined necessary by Tenant in its good faith business judgment and which period may exceed the length of the period of such Landlord Delay or failure in performance of Landlord’s obligations, if applicable (provided, however, with respect to the period occurring prior to the date Tenant’s obligations to pay Rent commenced with respect to the subject space not timely
 
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delivered, the amounts payable by Landlord shall be limited to the amount by which such costs or rents exceed the Rent payable under this Lease with respect to the subject space), (w) all costs of performing any leasehold improvements associated with any alternative space described in clause (v) above, (x) all relocation costs, including those associated with any “double-move”, (y) all brokers’ commissions, professional fees (including attorneys’ fees) and consulting fees, and (z) all other costs and expenses incurred by Tenant by reason of or in anticipation of any such Landlord Delay or failure.
 
1.46 “Landlord’s Architect” shall have the meaning set forth in Exhibit D.
 
1.47 “LaSalle Passageway” shall have the meaning set forth in Section 5.1.3.
 
1.48 “Lease” shall mean this Lease Agreement and the Exhibits which are attached hereto and made a part hereof.
 
1.49 “Legal Requirements” shall mean all applicable federal, state, county municipal, local or other laws, statutes, ordinances, codes, rules and regulations, collectively.
 
1.50 “Market Base Rental Rate” shall mean the net market rental rate (i.e., comparable to Base Rental during the Initial Term) per rentable square foot per year for the Premises or portion thereof as to which the Market Base Rental Rate is being determined, and for the time period as to which such rate is being determined, that a willing tenant would pay, and a willing landlord would accept, in arm’s length bona fide negotiations, if the same were leased to a single tenant under a lease pursuant to which such tenant were not to receive any rental concession (such as rental abatements or “free rent” periods or rental assumption), tenant inducement (such as signing bonuses, equity participation, tax benefits or other participation in ownership) or any leasehold improvement allowance, and otherwise taking into account all pertinent factors, including a lease containing all the terms and conditions of this Lease, provided that (a) in any case the Market Base Rental Rate shall not be increased to take into account (i) the value of those provisions of this Lease which provide that the Base Rental shall be only ninety percent (90%) of the Market Base Rental Rate, or the Full Floor Rate, or which otherwise provide for a reduced or discounted Base Rental (including the provisions of clause (b) below), or (ii) that the management fee payable by Tenant described in clause (b) of Section 7.1 may be lower than management fees payable under a typical lease, and (b) the Market Base Rental Rate for Expansion Space and any First Offer Space (i) shall not be increased due to any term or condition of this Lease which is more favorable to Tenant than a typical lease with typical provisions for the space in question, and (ii) shall take into account the potential period of non-accrual of Rent pursuant to Sections 8.4 and 9.3.3, respectively. In the event the portion of the Premises as to which the Market Base Rental Rate is being determined consists of both Retail Premises and non-Retail Premises, Market Base Rental Rate shall be determined separately for the Retail Premises and for all other portions of the Premises in question.
 
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1.51 “Mechanical Floor” shall mean a Floor which, by reason of the size and/or number of vertical penetrations (other than elevator machine rooms and elevator shafts) thereon, has a Rentable Area which is materially less than a typical Floor.
 
1.52 “Minimum Building Standards” shall mean the standards of operation, maintenance and repair consistent with the requirements of this Lease, the Base Building Shell Condition Requirements and all Legal Requirements, and commensurate with the highest operational and maintenance standards from time to time observed by the highest class of high rise office buildings in downtown Minneapolis, Minnesota.
 
1.53 “Mortgage” shall have the meaning set forth in Article 25.
 
1.54 “Normal Business Hours” shall mean the periods from 6:00 a.m. to 6:00 p.m., Monday through Friday, and 6:00 a.m. to 1:00 p.m. Saturday, except Holidays.
 
1.55 “Operating Expenses” shall have the meaning set forth in Section 7.2.
 
1.56 “Parking Garage” shall mean only the parking areas and drives located in the parking garage included in the Building, together with all elevators, escalators, stairways, and other access thereto from the Building and public streets.
 
1.57 “Permitted Exceptions” shall mean the matters set forth on Exhibit E.
 
1.58 “Permitted Physical Limitations” shall mean physical limitations in the design and construction of the Building, other than such limitations which (a) result from the Base Building not being designed and constructed in accordance with the requirements of  Exhibit D  (including the Base Building Shell Condition Requirements and the Approved Base Building Plans and Specifications), (b) are not in compliance with Legal Requirements or the other requirements of this Lease, or (c) are not of the type or character which have been or are from time to time corrected or mitigated by the owners of first class high rise office buildings of similar age and construction in downtown Minneapolis, Minnesota.
 
1.59 “Premises” shall mean the Initial Premises, as adjusted pursuant to Section 4.3, Articles 8, 9 and 10 and any other applicable provision of this Lease, including all Retail Premises.
 
1.60 “Prime Rate of Interest” shall mean the published annual prime rate or other equivalent annual reference rate of interest announced as such by U.S. Bancorp’s main office, or if U.S. Bancorp discontinues announcing such a rate, the prime rate or other equivalent reference rate of interest of a major commercial bank reasonably designated by Landlord and acceptable to Tenant.
 
1.61 “Punch List Items” shall have the meaning set forth in Exhibit D.
 
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1.62 “Qualified Capital Improvement” shall mean any equipment, device or other improvement acquired or made subsequent to the Base Building Completion Date which (a) is capitalized on the books of Landlord in accordance with generally accepted accounting practices consistently applied, irrespective of the amount thereof, (b) is not the result of any inadequacy or defect in the design, maintenance or operation of the Building, and (c) is either (i) reasonably likely to achieve material annual savings in the operation, maintenance or repair of the Building in an amount at least equal to the Qualified Capital Improvement Amortization attributable thereto (exclusive of any improvement which achieves its cost savings through the alteration, repairs, or replacement of any item which has outlived its useful life (e.g., a roof or item of equipment which would be replaced rather than repaired by a prudent building owner)), or (ii) made to comply with any Legal Requirement with respect to the Building or any other portion of the Building (including fire, health, safety or construction requirements) first enacted after the Commencement Date.
 
1.63 “Qualified Capital Improvement Amortization” shall mean the amount determined by multiplying (a) the actual, documented out-of-pocket cost of making any Qualified Capital Improvement (net of any savings or net salvage value), by (b) the constant annual percentage required to fully amortize on a level payment basis such cost, together with interest at the Amortization Interest Rate at such time over the reasonably estimated practical useful life of the Qualified Capital Improvement. With respect to any Qualified Capital Improvement described in clause (c)(i) of the definition thereof, the Qualified Capital Improvement Amortization shall not exceed the actual annual cost savings actually achieved by Landlord as a result of such Qualified Capital Improvement.
 
1.64 “Rent” shall mean Base Rental, Additional Rent and all other payments by Tenant to Landlord under this Lease, including pursuant to Articles 11 and 12.
 
1.65 “Rent Commencement Date” shall mean the date when Tenant’s obligations to pay Base Rental and Additional Rent shall commence with respect to the Initial Premises (other than the Second Additional Initial Premises and the Initial Retail Premises) and which date shall be the later of (a) the Commencement Date, or (b) the earlier of (i) June 1, 2000, or (ii) the date on which Tenant’s obligation under the Existing Lease for rent, operating and other recurring charges terminates.
 
1.66 “Rent Determination Date” shall mean the date as of which a Market Base Rental Rate is to be determined for purposes of establishing the Market Base Rental Rate for each Extension Term and for Expansion Space and First Offer Space, as applicable, and which date shall be:
 
(a) In the case of any Extension Term, the date two (2) years prior to the commencement of such Extension Term;
 
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(b) In the case of any Expansion Space, the date one (1) year prior to the scheduled delivery date for such Expansion Space as provided in Section 8.1; and
 
(c) In the case of any First Offer Space, the date on which such First Offer Space is anticipated to be delivered to Tenant as specified in the notice given by Landlord pursuant to Section 9.1.
 
1.67 “Rentable Area” shall have the meaning set forth in Section 2.2.2.
 
1.68 “Retail Premises” shall mean the Initial Retail Premises, as adjusted pursuant to Article 9 and 10 and any other applicable provisions of this Lease where space on Floor One (1) or Floor Two (2) of the Building is added to the Premises.
 
1.69 “Second Additional Initial Premises” shall have the meaning set forth in Section 2.1.2.
 
1.70 “Services” shall mean the services described in Section 13.2.
 
1.71 “Skyways” shall mean (a) the skyway across Eighth Street connecting the Building directly with the building known on the date of this Lease as “Dayton Hudson Department Store”, (b) the Floor One (1) passageway connecting the Building directly with the building known on the date of this Lease as “LaSalle Court”, and (c) all other skyways, skywalks, tunnels and passageways from time to time connecting the Building to other buildings (including the LaSalle Passageway, the Additional Skyway (as defined in  Exhibit D ) and/or the Alternative Skyway (as defined in  Exhibit D ), subject to Section 5.1.3 or Section 2.10 of  Exhibit D , as applicable.
 
1.72 “Subtenant” shall mean any party or entity occupying or subletting the Premises, or any portion thereof, whether directly or indirectly, voluntarily or by operation of law.
 
1.73 “Superior Rights” shall have the meaning set forth in Section 9.2.
 
1.74 “Tenant” shall mean Piper Jaffray Companies Inc., and its successors and assigns as tenant under this Lease.
 
1.75 “Tenant Delay” shall have the meaning set forth in Exhibit D.
 
1.76 “Tenant Finish Period” shall mean with respect to each Floor of the Premises the period commencing on the Delivery Date with respect to such Floor and continuing for a period equal to (a) one hundred ninety-six (196) days, plus (b) the number of days Tenant is delayed in performing the Tenant Work by any Unavoidable Delay, plus (c) the number of days Tenant is delayed in performing the Tenant Work by any Landlord Delay, less (d) the
 
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number of days of Tenant Delay; provided, however, in no event shall the Tenant Finish Period be extended solely under clause (b) for any days that Tenant actually occupies the entire Premises for the operation of Tenant’s business.
 
1.77 “Tenant Work” shall have the meaning set forth in Exhibit D.
 
1.78 “Tenant Work Plans and Specifications” shall have the meaning set forth in Exhibit D.
 
1.79 “Tenant’s Operating Expense Contribution” shall have meaning set forth in Section 7.1.
 
1.80 “Tenant’s Pro Rata Share” shall mean the percentage obtained by dividing (a) the Rentable Area of the Premises, by (b) the Rentable Area of the Building, as such Rentable Areas may be adjusted from time to time in accordance with this Lease.
 
1.81 “Tenant’s Tax Contribution” shall have the meaning set forth in Section 7.4.
 
1.82 “Term” shall mean the Initial Term, together with all exercised Extension Terms at the time in question.
 
1.83 “Trade Fixtures” shall mean those items of personal property, equipment and fixtures in the Premises, and whether or however attached to the Building, at any time which are necessary, incidental or convenient to the business from time to time conducted at the Premises, including secretarial stations, portable or movable partitions, receptionist desks, trading desks and stations, millwork, credenzas, computer installations (including computers, computer hardware, raised flooring, freestanding supplemental air conditioning or cooling systems therefor), communications systems and equipment, financial services equipment (such as ATM’s), safes, safe doors, bulletin boards, book shelves and file cabinets, but excluding walls (other than demountable walls or partitions), doors, trim, floor and wall coverings, ceiling lights and tile, window shades and the like.
 
1.84 “Unavoidable Delay” shall mean delay caused by fire, explosion and other casualties; war, invasion, insurrection, riot, civil commotion; sabotage, and malicious mischief; strikes, work stoppages or slowdowns and lockouts; condemnation; future governmental restrictions and unforseeable interpretation of existing governmental restrictions; unforseeable impossibility of or delay in obtaining materials for which there is no reasonable substitute for reasons other than unavailability of funds; contractor defaults (except in the case of the Base Building Work); adverse weather conditions (except in the case of the Base Building Work); or any other unforseeable cause, the occurrence of which, or the extent and duration of the occurrence of which, is not within the reasonable control of the party in question other than delay caused by lack of funds.
 
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1.85 “Usable Area” shall have the meaning set forth in Section 2.2.2.
 
2. Premises
 
2.1 Grant.
 
2.1.1 Initial Premises. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, subject to the provisions of this Lease, those certain premises in the Building to be constructed on the Land, said premises consisting of all of the Rentable Area on Floors Four (4) through Thirteen (13), inclusive, of the Building, consisting of approximately Three Hundred Ninety-Three Thousand Five Hundred Fifty-Eight (393,558) square feet of Rentable Area.
 
2.1.2 Additional Initial Premises. Tenant may elect to increase the Rentable Area of the Initial Premises as determined under this Section 2.1 as follows:
 
(a) By up to the entire Rentable Area of Floor Three (3) by notice given to Landlord not later than July 1, 1998; and
 
(b) By up to the Rentable Area contained in three (3) full Floors by notice given to Landlord not later than June 1, 1999.
 
Any such area added to the Initial Premises shall hereinafter sometimes be referred to as the “Additional Initial Premises”, while the initial two (2) Floors so added (other than any area so added on Floor Three (3)) shall hereinafter sometimes be referred to as the “First Additional Initial Premises”, and any additional area so added (including any area so added on Floor Three (3)) shall hereinafter sometimes be referred to as the “Second Additional Initial Premises”. The size (except as provided above), location and configuration of the Additional Initial Premises shall be determined by Tenant in its sole discretion, except that (x) the Additional Initial Premises described in clause (a) above shall be located on Floor Three (3), (y) the other Additional Initial Premises shall, if the uppermost or lowermost Floor of the Initial Premises (other than Floors Two (2), Three (3) or any Mechanical Floor) does not include all of the Rentable Area on such Floor, consist of the remaining Rentable Area on such Floor, and then the remainder of the Additional Initial Premises shall be located on the Floors contiguous to the uppermost and/or lowermost Floor of the Initial Premises, and the uppermost and lowermost Floor of the Initial Premises (other than Floors Two (2), Three (3) or any Mechanical Floor), as so adjusted, shall consist of either one-half (1/2) or the entire Rentable Area of such Floors, and (z) the space not leased by Tenant of any partial Floor shall be capable of being configured so as to make the same reasonably leasable. Notwithstanding the foregoing requirements, no Additional Initial Premises shall be located on any Mechanical Floor unless Tenant shall otherwise elect in its sole discretion. All Additional Initial Premises shall be deemed to be part of the Initial
 
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Premises for all purposes of this Lease (including Article 5 and Exhibit D (including the Base Building Construction Schedule)), except that Rent for the Second Additional Initial Premises shall commence to accrue on a Floor by Floor basis from and after the later of (y) the Rent Commencement Date, or (z) the earlier of (i) the first date when the applicable Floor containing any portion of the Second Additional Initial Premises and the services described in Section 3.4 of Exhibit D with respect thereto shall have been continuously available and operating in the condition required pursuant to  Exhibit D  for a period of time not shorter than the Tenant Finish Period with respect to such Floor, or (ii) the first date when Tenant shall have commenced its business operations in the portion of the Second Additional Premises located on such Floor.
 
2.1.3 Initial Retail Premises. Tenant also may elect to increase the Rentable Area of the Initial Premises as determined under this Section 2.1 by up to the entire Rentable Area of Floor Two (2) by notice given to Landlord not later than September 1, 1998. Any such area added to the Initial Premises shall hereinafter sometimes be referred to as the “Initial Retail Premises”. The size (except as provided above), location and configuration of the Initial Retail Premises shall be determined by Tenant in its sole discretion, except that (a) the Initial Retail Premises shall be located on Floor Two (2), and (b) the space not leased by Tenant on Floor Two (2) shall be capable of being configured so as to make the same reasonably leasable. All Initial Retail Premises shall be deemed to be part of the Initial Premises for all purposes of this Lease (including Article 5 and  Exhibit D  (including the Base Building Construction Schedule)), except that Rent for the Initial Retail Premises shall commence to accrue from and after the later of (y) the Rent Commencement Date, or (z) the earlier of (i) the first date when the Initial Retail Premises and the services described in Section 3.4 of  Exhibit D  with respect thereto shall have been continuously available and operating in the condition required pursuant to  Exhibit D  for a period of time not shorter than the Tenant Finish Period with respect to such Floor, or (ii) the first date when Tenant shall have commenced its business operations in the Initial Retail Premises.
 
2.1.4. Excess Space. Tenant shall have the following rights to decrease the Rentable Area of the Initial Premises as determined under this Section 2.1 as follows:
 
(a) By up to Rentable Area contained in three (3) full Floors, by notice given to Landlord not later than July 1, 1998; and
 
(b) By up to the Rentable Area contained in one (1) full Floor, by notice given to Landlord not later than February 1, 1999;
 
provided that the aggregate Rentable Area deleted from the Initial Premises pursuant to clauses (a) and (b) shall not exceed three (3) full Floors. Any such area deleted from the Premises shall hereinafter be referred to as “Excess Space”. The size,
 
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location and configuration of the Excess Space shall otherwise be determined by Tenant in its sole discretion, except that (x) the Excess Space shall not consist of any portion of Floors Eleven (11) through Thirteen (13), (y) the Excess Space located on Floors other than Floors Two (2) or Three (3) or any Mechanical Floor, shall, if the uppermost or lowermost Floor of the Initial Premises (other than Floors Two (2), Three (3) or any Mechanical Floor) does not include all of the Rentable Area in such Floor, consist of the remaining Rentable Area on such Floor, and then the remainder of such Excess Space shall be located on the uppermost and/or lowermost Floor of the Initial Premises, and the uppermost and lowermost Floor of the Initial Premises (other than Floors Two (2), Three (3) or any Mechanical Floor), as so adjusted, shall consist of either one-half (1/2) or the entire Rentable Area on such Floor, and (z) the space not leased by Tenant on any partial Floor shall be capable of being configured so as to make the same reasonably leasable. Notwithstanding the foregoing, Tenant in its sole discretion may elect to have any or all of the Excess Space located on Floor Two (2) or Three (3) or on any Mechanical Floor.
 
2.1.5 Relationship Between Additional Premises and Excess Space. Tenant’s rights under Sections 2.1.2, 2.1.3 and 2.1.4 are independent, and no exercise by Tenant of any of its rights under such provisions shall limit or have any effect on Tenant’s later exercise of any of its rights under such provisions.
 
2.1.6 Lease Amendment. Upon any designation of Additional Initial Premises, Initial Retail Premises or Excess Space, the parties shall amend this Lease to incorporate such changes to the Initial Premises, but failure to do so shall not affect the validity of any such changes.
 
2.2 Measurement Standards. The measurement of space in the Building shall be governed by the following standards:
 
2.2.1 Certain Defined Terms. For purposes of this Section 2.2, the following terms shall be defined as follows:
 
(a) “finished surface” shall mean a wall, ceiling or floor surface, including glass, as prepared for tenant use, excluding the thickness of any special surfacing materials such as paneling, furring strips and carpeting.
 
(b) “dominant portion” shall mean the portion of the inside finished surface of the permanent outer building wall which is fifty (50%) or more of the vertical floor-to-ceiling dimension measured at the dominant portion. If there is no dominant portion, or if the dominant portion is not vertical, the measurement for area shall be to the inside finished surface of the permanent outer Building wall where it intersects the finished floor.
 
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(c) “vertical penetrations” shall mean stairs, elevator shafts, flues, pipe shafts, vertical ducts and the like, and their enclosing walls, and electrical, mechanical, water/fire pump and other utility or equipment rooms, which, regardless of size, serve more than one (1) Floor, but shall not include stairs, dumbwaiters, lifts, and the like, exclusively serving a tenant occupying offices on more than one (1) Floor, other than any shuttle or additional stairs or elevators serving the Premises which are constructed as a part of the Base Building Work and any enlarged or additional stairs serving the Premises required pursuant to applicable codes and ordinances based upon the population densities provided in Section 2.2.1 of  Exhibit D  , which elevators and stairs shall be excluded from Rentable Area and Usable Area in any event.
 
(d) “office” shall mean the premises leased to a tenant for which a measurement is to be computed.
 
2.2.2 Rentable Area; Usable Area. “Rentable Area”, as used in this Lease (a) in the case of a single tenancy Floor, shall be computed by measuring to the inside finished surface of the dominant portion of the permanent outer Building walls, excluding any vertical penetrations of the Floor, and (b) in the case of a multi-tenancy Floor, shall be computed by multiplying the Usable Area of an office by a fraction, the numerator of which is the Rentable Area of the Floor and the denominator of which is the Usable Area of the Floor. The “Usable Area” of an office shall be computed by measuring to the finished surface of the office side of corridor and other permanent walls, to the center of partitions that separate the office from adjoining Usable Areas, and to the inside finished surface of the dominant portion of the permanent outer Building walls. The Usable Area of a Floor shall be equal to the sum of all Usable Areas on that Floor. No deductions shall be made for columns and projections necessary to the Building. The Rentable Area of the Building shall be the sum of the Rentable Areas of all space in the Building which is leased, held or designed for lease or occupancy, other than any below-grade (i.e. basement) storage space areas. In determining the Rentable Area of the Building, the Rentable Area of the space on Floors One (1) and Two (2) which is leased, held or designed for lease or occupancy for retail sales and services shall, in the aggregate, equal the “Usable Area” of such space plus (y) the area of the public corridors or walkways adjacent to the store fronts of such spaces (but with the width of such corridors and walkways deemed to not exceed eight (8) feet), plus (z) all corridors and walkways used for service, delivery or exiting purposes for such retail space.
 
2.2.3 Determination. The Approved Base Building Plans and Specifications shall include a calculation of the designed Rentable Area of each Floor of the Building and the entire Building. In addition, Landlord shall deliver to Tenant on or before the Base Building Completion Date a calculation of the Rentable Area, as constructed, of each Floor (or portion thereof) included in the Premises and the entire Premises and
 
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the Building. Tenant shall have the right at its expense to have the Landlord’s Architect or an independent architect of Tenant’s selection recalculate the number of square feet of Rentable Area within the Premises and the Building on the basis of the foregoing definition upon the following terms and conditions: (a) Tenant shall cause such recalculation to be made and deliver to Landlord a notice of the results thereof no later than the Rent Commencement Date, failing which Tenant shall be deemed to have approved Landlord’s calculation; and (b) if Landlord shall disagree with the results of said recalculation, it shall so notify Tenant and the calculations shall be determined by Arbitration. Upon final determination of the number of square feet of Rentable Area within the Premises and the Building, Landlord and Tenant shall execute an amendment to this Lease memorializing such final determination and, if such determination differs from the determination set forth in the supplement provided for in Section 2.3, substitute floor plans to conform to such final determination, but the failure to do so shall have not affect the validity of any provision of this Lease.
 
2.2.4 Adjustment. The Rentable Area and Usable Area, as applicable, for any Premises added to or eliminated from this Lease shall be determined and agreed upon in a like manner to that provided in Section 2.2.3. In no event shall the Rentable Area of any portion of the Premises be increased (unless the area is added to the Premises pursuant to the other terms and conditions of this Lease (such as Articles 8, 9 and 10)) or the Rentable Area or Usable Area of any portion of the Building be materially decreased, without Tenant’s prior approval.
 
2.3 Floor Plans. The parties shall execute a supplement to Lease to include a copy of the floor plan for each Floor of the Premises setting forth the Rentable Area of each Floor of the Premises (together therewith a summary of the Rentable Area of the entire Premises and Building) as soon as practicable after completion of the Approved Base Building Plans and Specifications for the Building, which floor plans, including any substitute floor plans as contemplated by Section 2.2.3, shall constitute  Exhibit B  to this Lease.
 
2.4 Common Areas.
 
2.4.1 Use by Tenant. Tenant and its agents, employees, customers and invitees shall have the non-exclusive right, in common with Landlord and other Building Occupants, at no additional charge to use all Common Areas.
 
2.4.2 Special Events. Landlord may from time to time arrange for civic or cultural events in the Floor One (1) and Floor Two (2) lobbies of the Building and may grant similar rights to other Building Occupants, subject to Tenant’s prior written approval, which will not be unreasonably withheld or delayed, except that Tenant may withhold its approval in its sole discretion if such event (a) would conflict with an event Tenant has scheduled or proposed to schedule, or (b) is sponsored by, advertises in any manner or gives any attribution whatsoever to any Financial Services Business.
 
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In the event Landlord or any other Building Occupant shall desire to schedule any such use, Landlord shall give Tenant not less than thirty (30) days’ prior notice thereof, which notice shall include reasonable detail as to the date, time, place and subject matter of such use and in any event shall not schedule any such use more than nine (9) months in advance or for a duration of greater than one (1) week. Subject to (y) not less than thirty (30) days’ prior notice to Landlord, and (z) usual pedestrian use by other Building Occupants and the general public in reasonable locations, Tenant shall have the use of lobbies and other common areas on Floor One (1) and Floor Two (2) for the purposes of staging or promoting events of a cultural or civic nature or occasional business events or occasional entertainment events related to a business function. If the notice in clause (y) is not given within fifteen (15) days after Landlord’s notice, then Tenant may not use such common areas during the use so scheduled by Landlord in such notice (and which is otherwise approved by Tenant as provided above) in a manner which would conflict with such use. All such Tenant events will be conducted or sponsored by Tenant at its sole expense, but without any charge by Landlord for such use, except that Landlord may charge Tenant and any other Building Occupants making such use for any extraordinary costs reasonably incurred by Landlord as a result of such use, including additional janitorial and security expenses. If there is a conflict between Tenant and another Building Occupant or Landlord as to use of the Floor One (1) and Floor Two (2) lobbies of the Building on a date for an event hereunder, Tenant shall have first priority as to date, time and place. Tenant and any other Building Occupants using the Floor One (1) and Floor Two (2) lobbies of the Building in such manner shall obtain all appropriate insurance with respect to such events and shall provide Landlord with certificates evidencing all such insurance before any such event.
 
2.4.3 Landlord’s Reserved Rights in Common Areas. Subject to the limitations provided in Article 34, Landlord reserves the right from time to time without unreasonable interruption or interference with Building Systems or Services (including jeopardizing Building security) or Tenant’s business or use to: (a) install, use, maintain, repair and replace pipes, ducts, conduits, wires and appurtenant meters and equipment relating to Building Systems or Building structure above the ceiling surfaces, below the floor surfaces, within the walls and in the central core areas of the Common Areas; (b) close temporarily any of the Common Areas for maintenance purposes; and (c) use the Common Areas while engaged in making additional improvements, repairs or alterations to the Building or any portion thereof. If such activities may interfere with Tenant’s use or enjoyment of the Premises or the Common Areas, then to the extent possible, Landlord shall confine such activities to periods other than Normal Business Hours. Without limitation to the foregoing, Landlord shall confine any movement of freight, equipment or other deliveries and materials through the Floor One (1) and Floor Two (2) lobbies of the Building to other than Normal Business Hours.
 
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2.4.4 Skyway and Other Appurtenant Agreements. Landlord shall not modify, amend or terminate, or consent (actively or passively) to any such modification, amendment or termination of any of the agreements described on  Exhibit A  (the “Appurtenant Agreements”) without Tenant’s prior consent. In the event any Appurtenant Agreement is terminated, Landlord shall use diligent efforts to cause (a) the terminated agreement to be replaced with a comparable replacement agreement similarly benefiting the Building, and (b) any skywalks or other improvements associated therewith to be replaced or reconfigured as necessary to provide reasonable comparable service and benefit to the Building. In the event Landlord shall perform the Work described in clause (b) above solely by reason of Tenant’s written requirement to do the same, such work shall constitute a Qualified Capital Improvement. Landlord shall use reasonable efforts to enforce the Appurtenant Agreements against all other parties from time to time bound thereby.
 
3. Use
 
3.1 General. Tenant shall have the right to use the Premises for (a) general office, retail and/or Financial Services Business purposes, (b) any business being conducted by Piper Jaffray Companies Inc. or any corporate or business successor thereof, or any Affiliate thereof at any time during the Term, and/or (c) any use permitted under Legal Requirements which is not incompatible with a first class office building in downtown Minneapolis, Minnesota, together with any uses which are incidental or ancillary to any such use or uses. Without limiting the generality of the foregoing, Tenant may install kitchens, lunchrooms and other amenities; whether for employees or with public or limited accessibility thereto. Notwithstanding the foregoing, in the event Tenant shall have previously approved or been deemed to have approved pursuant to Section 38.2 any specific exclusive retail use (other than any use associated with any Financial Services Business) granted to a particular retail tenant of Floor One (1) or Floor Two (2) pursuant to a notice given to Tenant pursuant to Section 38.2, Tenant shall not thereafter use the Retail Premises or any portion thereof for such specific exclusive retail use during such period of the term of the lease held by such particular retail tenant as such tenant shall be engaged in such exclusive retail use.
 
3.2 Legal Use and Violations of Insurance Coverage. Tenant shall not occupy or use, or permit any portion of the Premises to be occupied or used, for any business or purpose which would subject Landlord to any civil or criminal penalty or which is reasonably determined by Landlord’s insurer to be extra-hazardous on account of fire or other hazards. If Tenant uses or permits any use (other than Tenant’s use as permitted in Section 3.1(a)) which would in any way increase the rate of fire or liability or any other insurance coverage maintained by Landlord on the Building and/or its contents, Tenant shall pay to Landlord, from time to time within thirty (30) days after demand, said increased insurance costs to the extent Landlord can reasonably demonstrate the same, but in no event for any longer period than Tenant continues such inconsistent use.
 
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3.3 Laws and Regulations. Tenant shall not occupy or use the Premises or any part thereof for any business or purpose which is unlawful, and Tenant shall substantially comply at its expense with all applicable present and future Legal Requirements which relate directly to the specific nature of Tenant’s use or occupancy of the Premises, provided that Landlord, not Tenant, shall be required to make any alterations or improvements to the Premises and the Building, including the Base Building Work, which are applicable to office use (which, for such purpose, shall be deemed to be open as a public accommodation) generally, save and except any such required alterations and improvements to (a) the Tenant Work, (b) Tenant’s Trade Fixtures, (c) any alterations, additions or modifications to the Premises made by Tenant after the Commencement Date except those made to the Base Building Work or any other portion of the Premises or Building required to be repaired by Landlord pursuant to Section 16.1, and (d) any element of the Base Building Work or any other portion of the Premises or Building required to be repaired by Landlord pursuant to Section 16.1 which, but for any alterations, additions and modifications thereto made by Tenant after the Commencement Date, would not be required under Legal Requirements. Landlord, at its expense, shall comply with all present and future Legal Requirements which relate to the use, condition or occupancy of the Building and the Land, including those requiring physical changes to any portion of the Premises for which Tenant is not responsible pursuant to the preceding sentence, including those required by the Americans with Disabilities Act.
 
3.4 Rules of Building. Tenant shall comply with rules of the Building attached as Exhibit F. Except to the extent inconsistent with the terms of this Lease, and subject to Tenant’s consent, which consent shall not be unreasonably withheld, Landlord may supplement or amend such rules from time to time after thirty (30) days’ written notice from Landlord to Tenant for the safety, care and cleanliness of the Premises and Building and for preservation of good order therein. Said rules or any amendments thereto shall not discriminate against Tenant, either as written or applied. In case of any conflict or inconsistency between said rules or amendments and any of the other terms and conditions of this Lease, the other terms and conditions of this Lease shall control.
 
3.5 Nuisance. Tenant shall conduct its business and shall use reasonable efforts to control its agents, contractors, employees, invitees, and visitors in such manner as not to create any nuisance, or unreasonably interfere with, annoy or disturb any other Building Occupant or Landlord in its operation of the Building.
 
3.6 Other Building Occupants. Landlord shall use reasonable efforts to enforce against all other Building Occupants the terms, covenants, conditions and restrictions provided in Sections 3.2, 3.3, 3.4 and 3.5, and will include similar provisions in all leases and other occupancy agreements with any Building Occupants.
 
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4. Term; Extension Terms
 
4.1 Initial Term. The Term of this Lease shall commence on the Commencement Date and shall end on the day prior to the fourteenth (14th) anniversary of the Commencement Date.
 
4.2 Memorandum. Promptly following the Commencement Date, Landlord and Tenant shall execute and deliver a memorandum of commencement date in the form attached hereto as  Exhibit C  which sets forth the Commencement Date and the expiration date of the Initial Term of this Lease. The memorandum of commencement date may be recorded at the request of either party and at the expense of the party making such request, but the failure to execute such memorandum shall not affect the validity of any provision of this Lease.
 
4.3 Extension Terms.
 
4.3.1. Grant of Options. Tenant is hereby granted the options (each, an “Extension Option”) to extend the Term of this Lease for three (3) successive periods (each, an “Extension Term”), the first Extension Term being for a period of six (6) years and the second and third Extension Terms being for periods of five (5) years each, each such period to commence at the expiration of the Initial Term or immediately preceding Extension Term, as the case may be.
 
4.3.2 Premises For Extension Terms. The size, configuration and location of the portions of the Premises leased by Tenant for an Extension Term shall be determined by Tenant in its sole discretion at the time of exercise of the subject Extension Option, provided that the Premises leased by Tenant for any Extension Term may include any space on any number of Floors of the Premises, whether or not contiguous, provided that (a) to the extent Tenant leases the entire Rentable Area on a particular Floor (other than Floor Two (2)), and Tenant elects to continue to lease any space on such Floor, then Tenant shall lease the entire Rentable Area on such Floor, (b) Tenant may exercise the subject Extension Option, if at all, as to all or any portion of the Retail Premises then-leased, provided the part of the Retail Premises not leased for the subject Extension Term shall be capable of being configured so as to make the same reasonably leasable, and (c) to the extent Tenant leases less than the entire Rentable Area on a particular Floor, Tenant may exercise the subject Extension Option, if at all, as to all or any portion of the Premises then-located on such Floor, provided the part of such portion of the Premises not leased for the subject Extension Term shall be capable of being configured so as to make the same reasonably usable.
 
4.3.3 Exercise of Extension Options. Tenant shall exercise an Extension Option, if at all, as follows: At least thirty (30), but not more than thirty-two (32), months prior to the expiration of the Initial Term or previous Extension Term, as the case may be, Landlord shall deliver to Tenant notice of (a) the date upon which
 
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Tenant’s right to exercise the subject Extension Option shall expire, (b) Landlord’s best estimate of what the Full Floor Rate and the Market Base Rental Rate with respect to both the Retail Premises and all other portions of the Premises will be at the Rent Determination Date, and (c) Landlord’s best estimate of the market rate management fee as described in Section 7.1(b). On or before the later of (y) sixty (60) days after Landlord gives the notice in accordance with the preceding sentence, and (z) twenty-four (24) months prior to the expiration of the Initial Term or the then-current Extension Term, as the case may be, Tenant may give Landlord notice (x) that Tenant elects to exercise the subject Extension Option, (y) subject to the limitations in Section 4.3.2, specifying the portion or portions of the Premises which Tenant will lease for the subject Extension Term, and (z) whether Tenant agrees with Landlord’s estimates of the Market Base Rental Rates, the Full Floor Rate or such market rate management fee. Failure to give such notice shall constitute a waiver of the subject Extension Option and failure to agree as provided above shall constitute rejection of Landlord’s estimates with which Tenant did not expressly agree. If Tenant’s notice includes disagreement with any of Landlord’s estimate of the Market Base Rental Rate, the Full Floor Rate or such market rate management fee in its extension notice or shall be deemed to have rejected the same, as above provided, such rates with which Tenant disagrees or is deemed to have rejected shall be determined by Arbitration. Tenant shall have the right to terminate this Lease by giving notice thereof to Landlord within forty-five (45) days after the determination of the Market Base Rental Rate and the Full Floor Rate, which termination shall be effective as of the later of (a) the date elected by Tenant which is at least twenty-four (24) months after such termination notice is given by Tenant, or (b) the scheduled expiration of the Term without giving effect to the Extension Term in question. If Tenant so terminates this Lease pursuant to the preceding sentence, the Base Rental applicable to that portion, if any, of the Extension Term in question which precedes the effective date of such termination shall be the Base Rental determined in accordance with Section 6.1.2.
 
4.3.4 Terms and Conditions of Extension Terms. Any renewal for an Extension Term shall operate as an extension of the Term hereof, so that this Lease and each and every covenant, agreement and provision thereof shall be and remain in full force and effect during the Term hereof as extended and with the same force and effect as if the Term of this Lease were originally for such Extension Term, except (a) the Premises shall be as determined by Tenant pursuant to Section 4.3.2, (b) the Base Rental during each Extension Term shall be as set forth in Section 6.1.2, (c) Tenant shall have no option to extend the Term of this Lease beyond the expiration of the Extension Terms herein expressly provided for, and (d) Landlord shall not be obligated to provide any new or additional leasehold improvements to Tenant in connection with any such extension.
 
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5. Construction of the Building and Leasehold Improvements
 
5.1 Base Building Work.
 
5.1.1 Landlord’s Obligations. The work letter attached hereto as Exhibit D shall govern the design, planning and construction of the Building. Without limitation to the foregoing, Landlord at its sole cost and expense shall perform and provide all of the Base Building Work in accordance with  Exhibit D . Landlord represents and warrants to Tenant that Landlord has obtained all governmental, quasi-governmental and third party agreements, approvals, licenses, permits, variances, determinations and other authorizations to demolish the existing improvements on the Land and to construct (in accordance with  Exhibit D ), occupy and operate the Building (exclusive of Skyways other than those described in clauses (a) and (b) of the definition thereof), provided that such authorizations do not include a building permit (but do include all required demolition permits) or certificate of occupancy.
 
5.1.2 Tenant’s Remedies. Tenant shall have the following rights and remedies with respect to the acquisition of the Land and the performance of the Base Building Work by Landlord:
 
(a) In the event Landlord does not deliver to Tenant on or before May 4, 1998 a binding and enforceable commitment to provide construction financing sufficient to complete the Base Building Work and fund the costs to be paid by Landlord pursuant to Section 3.6 of Exhibit D in form, substance and amounts reasonably acceptable to Tenant (including without further leasing requirements, commitment for permanent financing, or any other conditions other than routine disbursement conditions) then, whether or not this Lease may be terminated pursuant to clause (b) below, Landlord shall reimburse Tenant, for any and all Landlord Delay Costs incurred by Tenant from time to time in connection with or resulting from such failure, or from any election by Tenant to terminate this Lease as a result of such failure, within twenty (20) days after demand made by Tenant from time to time, which demand shall describe in reasonable detail the Landlord Delay Costs for which reimbursement is being sought. In the event Landlord shall fail to so reimburse Tenant within such twenty (20) day period, Tenant thereafter from time to time may draw upon the Five Million Dollar ($5,000,000) letter of credit issued by U.S. Bank National Association in favor of Tenant (a copy of which is attached hereto as  Exhibit I )  to obtain reimbursement of the Landlord Delay Costs so demanded which remain unpaid, regardless of any dispute with respect thereto. Tenant also may draw the entire amount of such letter of credit if at least thirty (30) days prior to the expiration date thereof, Lender has not either (i) extended such letter of credit for a period of at least one (1) year from the then-current expiration date, or (ii) Lender or another issuer acceptable to Tenant in its sole discretion has
 
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not issued to Tenant a replacement letter of credit with an expiration date of at least one (1) year from the expiration date of the then-current letter of credit and otherwise acceptable to Tenant. Upon delivery to Tenant, on or before June 15, 1998, of the commitment described above, Tenant shall thereafter take no action which would result in additional Landlord Delay Costs solely relating to the failure to deliver such commitment by May 4, 1998; and upon reimbursement by Landlord of (or by drawing upon such letter of credit for) any Landlord Delay Costs for which Landlord is responsible pursuant to this clause (a), Tenant shall deliver such letter of credit to Landlord, together with such acknowledgment of its cancellation as Landlord shall reasonably request.
 
(b) Without limitation to clause (a) above, in the event that Landlord does not deliver to Tenant on or before June 15, 1998 the commitment described in clause (a) above, then Tenant may terminate this Lease by giving notice to Landlord at any time on or before July 15, 1998.
 
(c) In the event that Landlord fails for any reason (including Unavoidable Delay) to complete demolition of all existing improvements on the Land on or before September 1, 1998, then Tenant may terminate this Lease by giving written notice to Landlord at any time on or after such date and before such demolition is completed.
 
(d) In the event that Landlord fails for any reason (including Unavoidable Delay) to commence construction of the Base Building Work as required by Section 2.4.1 of  Exhibit D  on or before October 1, 1998, then Tenant may terminate this Lease by giving written notice to Landlord at any time on or after such date and before such construction commences. For purposes hereof, construction shall be deemed to have commenced only when demolition of all existing improvements on the Land has been completed, and the Building footing and foundation work has begun.
 
(e) In the event that any item of Landlord Delay equals or exceeds one (1) year in length, then Tenant may terminate this Lease by giving notice to Landlord at any time after such date and before the applicable items of the Base Building Construction Schedule are completed.
 
(f) Without limitation to clause (e) above, in the event that the Base Building Completion Date does not occur on or before the date which is the first (1st) anniversary of the date specified therefor in the Base Building Construction Schedule for any reason (including Unavoidable Delays), plus the number of days in which such Base Building Completion Date is not achieved solely as a result of Tenant Delay, then Tenant may terminate this Lease by
 
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giving notice to Landlord at any time after such date and before the Base Building Completion Date.
 
(g) Landlord shall indemnify Tenant against, and shall pay to Tenant, in cash, within twenty (20) days after demand made by Tenant from time to time, all Landlord Delay Costs incurred by Tenant from time to time as a result of or in connection with any Landlord Delay, which demand shall describe in reasonable detail the Landlord Delay Costs for which reimbursement is being sought; provided, however, Tenant must make any such demand on or before the third anniversary of the Rent Commencement Date, or, in the event Tenant terminates this Lease pursuant to this Section 5.1.2, the third anniversary of such termination. No termination of, or election not to terminate, this Lease pursuant to any of the provisions of this Section 5.1.2 shall release Landlord from its obligations to pay to Tenant pursuant to this clause (g) all Landlord Delay Costs suffered, sustained, incurred or paid by Tenant as a result of or in connection with the Landlord Delay associated with the event giving rise to such termination. Although Tenant in its discretion may incur Landlord Delay Costs in anticipation that a Landlord Delay may occur (in addition to upon or following the occurrence thereof), Landlord shall not be obligated to reimburse Tenant pursuant to this clause (g) for such Landlord Delay Costs unless such Landlord Delay shall actually occur.
 
(h) Landlord acknowledges that in the event Landlord shall fail to achieve any Delivery Date provided in the Base Building Construction Schedule, Tenant would suffer considerable business interruptions, losses and damages, in addition to Landlord Delay Costs, which would be extremely difficult, if not impossible to measure. Accordingly, in addition to the Landlord Delay Costs which are reimbursable under clause (g) above, Landlord shall pay to Tenant in cash, and without notice or demand by Tenant, for each day of Landlord Delay in meeting any Delivery Date on the Base Building Construction Schedule, as liquidated damages for damages other than those included in Landlord Delay Costs (and not as a penalty) for such delay, the sum of Ten Thousand Dollars ($10,000) per day for each missed Delivery Date on a cumulative basis (i.e., each Delivery Date shall continue to accrue the per diem amount until the occurrence of such Delivery Date, notwithstanding that the per diem amount continues or ceases to accrue for any other prior or subsequent Delivery Date).
 
(i) Without limitation to the foregoing or any other guaranty or agreement in favor of or benefiting Tenant, Landlord’s construction obligations under this Lease and payment of all Landlord Delay Costs and liquidated damages described in clauses (g) and (h) above, respectively, have been jointly and severally guaranteed by Ryan Properties, Inc. and Ryan Companies U.S.,
 
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Inc. pursuant to a Completion Guaranty of even date herewith by such parties to and for the benefit of Tenant.
 
(j) Each right or remedy conferred upon the Tenant under this Section 5.1.2 and under such letter of credit, Completion, Guaranty and any other guaranty, security or other financial or performance assurances, shall be cumulative and shall be in addition to every other right or remedy, express or implied, now or hereafter arising, available to Tenant, at law, in equity, or under any other contract or agreement, and each and every right and remedy herein set forth or otherwise so existing may be exercised from time to time as often and in such order as may be deemed expedient by the Tenant and shall not be a waiver of the right to exercise at any time thereafter any other right or remedy. No delay or omission by the Tenant in the exercise of any right or remedy arising under this Section 5.1.2 (subject to the time limitations in clause (g) above) or under such letter of credit, Completion Guaranty or other guaranty, security or other financial or performance assurances, or arising otherwise, shall impair any such right or remedy or the right of Tenant to resort thereto at a later date or be construed to be a waiver of any such right, power or remedy or as an election of remedies. In the event Tenant shall have proceeded to invoke any right or remedy permitted under this Section 5.1.2 or under such letter of credit, Completion Guaranty or other guaranty, security or other financial or performance assurances, and shall thereafter elect to discontinue or abandon the same for any reason and to resort to any other right or remedy, Tenant shall have the unqualified right to do so. No termination of this Lease by Tenant pursuant to this Section 5.1.2 shall be deemed to be an election of remedies by Tenant, shall limit any other right, power or remedy, express or implied, now or hereafter arising, available to Tenant, at law, in equity, or under any other contract or agreement, or shall operate to release Landlord from its obligation to pay all Landlord Delay Costs suffered, sustained, incurred or paid by Tenant as a result of or in connection with the Landlord Delay giving rise to any such termination or the election by Tenant to terminate this Lease, or from any other damages which may be available to Tenant at law, in equity or under any other contract or agreement, whether the Landlord Delay Costs or other damages suffered, sustained, incurred or paid by Tenant before, on or after such termination, all of which obligations of Landlord shall survive any such termination.
 
5.1.3 LaSalle Passageway. Landlord and Tenant acknowledge and agree that (a) in the event a reasonably direct Skyway level connection between Floor Two (2) of the Building and the second level passageways (and therefore to the broader downtown Minneapolis skyway system connecting thereto) of the building known on the date of this Lease as “LaSalle Court” is not completed as a part of the Base Building Work, the value of Tenant’s leasehold estate created by this Lease will be
 
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materially and substantially diminished, and (b) as of the date of this Lease, Landlord has been unable to obtain the rights to such a connection on terms satisfactory to Landlord. Accordingly, Landlord shall do one (1) of the following: (x) pay to Tenant on or before the Rent Commencement Date in cash or certified funds the sum of One Million and No/100 Dollars ($1,000,000.00); (y) provide as a part of the Base Building Work a passageway connecting Floor Two (2) of the Building to the second level passageways of the LaSalle Court building through the building known on the date of this Agreement as the “Lakewood Building”; or (z) provide as a part of the Base Building Work a passageway connecting Floor Two (2) of the Building directly to the second level passageways of the LaSalle Court building. In the event Landlord elects either option (y) or (z) above, then (a) the passageway Landlord so elects to construct shall hereinafter sometimes be referred to as the “LaSalle Passageway”, and (b) Landlord at its sole cost and expense shall (i) deliver to Tenant along with its notice of election binding and enforceable agreements benefiting the Building and all Building Occupants acquiring and providing for appropriate easements and for the design, construction, operation and maintenance of the LaSalle Passageway and for the use by all Building Occupants of the first and second level passageways and associated elevators, escalators and stairways of such LaSalle Court building and, in the case of option (y) above, the Lakewood Building, which agreements shall provide, without limitation, minimum hours of operation for the LaSalle Passageway and such passageways, elevators, escalators and stairways consistent with the minimum hours specified in Section 13.2.7, (ii) cause such agreements to be recorded in the appropriate Hennepin County, Minnesota real estate records, (iii) cause Old Republic National Title Insurance Company to issue an endorsement to Tenant’s title insurance policy with respect to this Lease insuring such agreements as an appurtenance to the Land in a form and manner reasonably satisfactory to Tenant, and (iv) construct the LaSalle Passageway as a part of the Base Building Work in accordance with the terms and conditions of  Exhibit D , including the Minimum Building Standards (except that passageway described in option (z) above may have a clear ceiling height of not less than seven feet (7’)), the Base Building Construction Schedule and the design and approval procedure contained in  Exhibit D . In the event Landlord elects option (x) above but fails to make the One Million and No/100 Dollar payment required thereunder on or before the Rent Commencement Date, then Tenant may deduct such amount, together with interest thereon at the Agreed Interest Rate, from the Rent and any other sums payable by Tenant to Landlord under this Lease.
 
5.2 Construction of Leasehold Improvements.
 
5.2.1 Tenant Work. Subject to the provisions of Exhibit D, Tenant at its option may cause to be performed, and Landlord shall pay certain costs associated with, any Tenant Work in the manner provided in  Exhibit D .
 
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5.2.2 Occupancy Before Commencement Date. Tenant shall have the right from and after the Delivery Date with respect to each Floor to use and occupy such Floor for any purpose permitted by this Lease (including for the performance of the Tenant Work, installation of Tenant’s furniture, Trade Fixtures and personal property, and operation of Tenant’s business therein). Any such access shall be subject to all of the terms and conditions of this Lease (including the parties’ obligations and agreements under Article 19), except that Tenant’s obligations to pay Rent and other charges under this Lease, which shall not commence until the Rent Commencement Date, irrespective of whether Tenant has commenced or completed any improvement work, occupancy or business operations in any portion of the Premises; provided, however, Tenant shall pay with respect to any period prior to Rent Commencement Date during which Tenant occupies any portion of the Premises for Tenant’s normal business purposes, the reasonable out-of-pocket costs incurred by Landlord in providing electricity and janitorial services to such portion of the Premises.
 
6. Base Rental.
 
6.1 Amounts. Tenant shall pay from, after and including the Rent Commencement Date and thereafter during the Term a base annual rental with respect to the Premises and this Lease (“Base Rental”) in the amounts provided in this Section 6.1.
 
6.1.1 Initial Term. Base Rental during the Initial Term for the entire Initial Premises (other than any Initial Retail Premises) shall be in accordance with the following payment schedule:
 
(a) From the Rent Commencement Date through the day prior to the eighth (8th) anniversary of the Commencement Date, Seventeen and 20/100 Dollars ($17.20) per square foot of Rentable Area included in such Initial Premises per year; and
 
(b) From the eighth (8th) anniversary of the Commencement Date through the remainder of Initial Term, Twenty-Two and 40/100 Dollars ($22.40) per square foot of Rentable Area included in such Initial Premises per year.
 
If, at the written request of Tenant the Additional Skyway is timely constructed and completed in the manner provided in Section 2.10 of Exhibit D , the monthly Base Rental payable pursuant to the above payment schedule for the Initial Term shall be increased by an amount calculated by multiplying (y) the Additional Skyway Construction Costs by (z) Tenant’s Pro Rata Share, and amortizing on a level monthly payment basis with payments made in advance the resulting product over the period of the Term commencing with the first month following the date the amount of the Additional Skyway Construction Costs and Tenant’s Pro Rata Share thereof are finally
 
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determined pursuant to this paragraph and ending with the last month of the original Term provided in Section 4.1 at an assumed interest rate of nine percent (9%) per annum. Following such completion of construction, Landlord shall submit to Tenant its calculation of the Additional Skyway Construction Costs and the corresponding adjustment to the monthly Base Rental payment schedule described above, together with such supporting documentation as Tenant shall reasonably request. If Tenant disputes Landlord’s calculations and the parties are unable to resolve such dispute within ten (10) days after notice thereof from Tenant, the disputed amounts and calculations shall be determined by Arbitration. The parties shall amend this Lease to incorporate such adjustment to the monthly Base Rental payment schedule as soon as practicable after the Additional Skyway Contribution Costs and such adjustment is determined.
 
6.1.2 Extension Term. During the first twelve (12) months of the first Extension Term, the Base Rental for the Initial Premises (other than any Initial Retail Premises) shall be in the amount of Twenty-Two and 40/100 Dollars ($22.40) per square foot of Rentable Area per year and the Base Rental for any Retail Premises, Expansion Space or First Offer Space then included in the Premises shall continue at the same rate as in effect at the end of the Initial Term. During the remainder of such first Extension Term and during each subsequent Extension Term, (a) the Base Rental for the Premises (including any Expansion Space and First Offer Space which is included in the Premises as of the first day of the Extension Term in question, but excluding any Retail Premises) shall be at a per annum rate equal to the lesser of (i) the product obtained by multiplying (A) the Market Base Rental Rate as of the Rent Determination Date for the Premises in question considered as an aggregate block of space leased to a single tenant by (B) ninety percent (90%), or (ii) the product obtained by multiplying (A) the Market Base Rental Rate as of the Rent Determination Date for a single tenant leasing one (1) full Floor of the size and design of Floor Six and located on the elevator bank on which Floor Six is located (the “Full Floor Rate”) by (B) ninety percent (90%), and (b) the Base Rental for the Retail for the Retail Premises shall be at the per annum rate equal to the product obtained by multiplying (i) the Market Base Rental Rate as of the Rent Determination Date for the Retail Premises in question, by (ii) ninety percent (90%).
 
6.1.3 Retail Premises. The Base Rental during the Initial Term for the Initial Retail Premises, if any, included in the Premises shall be in accordance with the following payment schedule:
 
(a) From the date Tenant’s obligation to pay Rent with respect to the Initial Retail Premises commences pursuant to Section 2.1.3 through the day prior to the eighth (8th) anniversary of the Commencement Date, the lesser of (i) Twenty-Eight and No/100 Dollars ($28.00) per square foot of Rentable Area
 
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included in the Initial Retail Premises per year, or (ii) the Market Base Rental Rate as of such rent commencement date for the Initial Retail Premises; and
 
(b) From the eighth (8th) anniversary of the Commencement Date through the remainder of the Initial Term, the lesser of (i) Thirty-Two and No/100 ($32.00) per square foot of Rentable Area included in the Initial Retail Premises per year, or (ii) the Market Base Rental Rate as of such eighth (8th) anniversary for the Initial Retail Premises.
 
Not later than sixty (60) days prior to both the Rent Commencement Date and the eighth (8th) anniversary of the Commencement Date, Landlord shall notify Tenant of Landlord’s best estimate of what the Market Base Rental Rate will be for the Initial Retail Premises at the commencement of periods described in clauses (a) or (b), as the case may be. On or before thirty (30) days after Landlord gives such notice, Tenant may give Landlord notice of whether Tenant agrees with an estimate by Landlord of the Market Base Rental Rate. Failure to expressly agree with Landlord’s’ estimate shall constitute rejection thereof. If Tenant shall give notice of disagreement with an estimate by Landlord of the Market Base Rental Rate or shall be deemed to have rejected the same, as provided above Market Base Rental Rate shall be determined by Arbitration.
 
6.1.4 Expansion Space. The Base Rental for Expansion Space leased by Tenant pursuant to the Expansion Options shall be at a per annum rate equal to the product obtained by multiplying (a) the Market Base Rental Rate as of the Rent Determination Date for the Expansion Space in question by (b) ninety percent (90%). Such rate shall apply until the Base Rental rate for such space is determined and becomes effective pursuant to Section 6.1.2 in connection with the next occurring Extension Term, if any. In determining Market Base Rental Rate for any Expansion Space applicable to the period, if any, from the commencement of accrual of Base Rental for such Expansion Space to the commencement of the next occurring Extension Term, if any, the following adjustments shall be made: the time period that such rate applies shall be deemed to be five (5) years for unencumbered space (that is, not subject to any expansion, first offer, first refusal or similar rights). If Landlord and Tenant do not agree on the Market Base Rental Rate for any Expansion Space, then Market Base Rental Rate shall be determined by Arbitration.
 
6.1.5 First Offer Space. The Base Rental for First Offer Space leased by Tenant pursuant to the First Offer Right shall be at a per annum rate equal to the product obtained by multiplying (a) the Market Base Rental Rate as of the Rent Determination Date for the First Offer Space in question by (b) ninety percent (90%). Such rate shall apply until the Base Rental rate for such space is determined and becomes effective pursuant to Section 6.1.2 in connection with the next occurring Extension Term, if any. In determining the Market Base Rental for any First Offer
 
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Space applicable to the period, if any, from the commencement of accrual of Base Rental for such First Offer Space to the commencement of the next occurring Extension Term, if any, the following adjustments shall be made: (y) if the time period that such rate applies is less than five (5) years, such time period shall be deemed to be five (5) years; and (z) there shall be taken into consideration the effect on the Market Base Rental Rate of any Superior Rights, if any, applicable to such space, including the Expansion Options, if any, held by Tenant with respect to such space which have a scheduled delivery date under Section 8.1 either prior to the commencement of the next Extension Term or within any deemed five (5) year time period as provided in clause (y) above and, if the Market Base Rental Rate is reduced by any such Expansion Option held by Tenant, then the amount of such reduction shall also be determined and such Market Base Rental Rate shall be increased by the amount of such reduction for the period after the scheduled delivery date for such space under such Expansion Option, whether or not such Expansion Option is exercised. If Landlord and Tenant do not agree on the Market Base Rental Rate for any First Offer Space, then the Market Base Rental Rate shall be determined by Arbitration.
 
6.2 Place and Manner of Payment. Base Rental shall be due and payable in advance in twelve (12) equal installments on or before the first (1st) day of each calendar month during the Term and at that rate payable in advance for any fractional month at the beginning or end of the Term. Tenant hereby agrees to so pay such rent to Landlord at Landlord’s address as provided herein (or such other address in the continental United States as may be designated by Landlord from time to time), without demand, abatement, counterclaim or setoff, except as expressly provided in this Lease to the contrary. Installments of Base Rental shall be deemed to be paid by Tenant upon deposit of the same in the United States Mail or dispatch of the same in any other manner permitted for notices under Section 41.5 (other than a facsimile), provided such Base Rental is actually later received by Landlord. In the event the applicable Rent Commencement Date is on other than the first day of a calendar month or year, then Base Rental and Additional Rent for such periods shall be prorated based upon the number of days in said month or year.
 
6.3 Allocation of Base Rental for Income Tax Purposes. Notwithstanding the payment schedules for Base Rental provided in Section 6.1, Tenant’s obligations for and Landlord’s rights to Base Rental during the Initial Term shall be allocated as follows:
 
(a) For any fiscal year preceding the first Payment Tax Year (defined below), if any, the Base Rental allocation shall equal the Base Rental payments under Section 6.1.
 
(b) For any fiscal year of Tenant (a “Payment Tax Year”) as to which Ryan Companies US, Inc. shall be obligated to make any Existing Project Tax Liability Payment to Tenant, (i) the Base Rental allocation as otherwise calculated pursuant to this Section 6.3 for such Payment Tax Year hereunder shall be increased by the
 
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Existing Project Tax Liability Payment attributable to such Payment Tax Year, and (ii) the Base Rental allocation as otherwise calculated pursuant to this Section 6.3 for each year during the remainder of the Initial Term shall be reduced by an amount equal to the quotient determined by dividing such Existing Project Tax Liability Payment by the total number of years remaining in the Initial Term.
 
In no event shall any such Base Rental allocation adjustments alter or amend the amount or timing of the payment of Base Rental, as to which Section 6.1.1 shall govern absolutely. Landlord and Tenant intend that allocations of rent be respected for federal tax purposes under Section 467 of the Internal Revenue Code.
 
7. Additional Rent
 
7.1 Tenant’s Operating Expense Contribution. For purposes of this Lease, “Tenant’s Operating Expense Contribution” shall mean for each full or partial calendar year during the Term an amount equal to the sum of:
 
(a) The total amount of Operating Expenses for the Building for such year (or portion thereof) multiplied by Tenant’s Pro Rata Share; plus
 
(b) A management fee contribution calculated by multiplying (i) the Rentable Area of the Premises, by (ii) either (A) during the Initial Term, sixty cents ($0.60) per annum, or (B) during any Extension Term, the annual market rate per square foot of Rentable Area for such services as provided to anchor tenants of similar stature in buildings of similar stature in downtown Minneapolis, Minnesota.
 
Tenant’s Operating Expense contribution shall be prorated on a daily basis for any partial calendar year at the beginning (as of the Rent Commencement Date) and end of the Term, and shall be adjusted and prorated on a daily basis as of the date Operating Expenses commence to accrue with respect to any space that is added to or deleted from the Premises in accordance with this Lease.
 
7.2 Operating Expenses.
 
7.2.1 Definition. “Operating Expenses” shall mean all actual expenses, costs, and disbursements reasonably incurred by Landlord in connection with the ordinary course of operating and maintenance of the Building and shall include, without limitation, the following (except to the extent excluded or limited by the other terms and conditions of this Lease):
 
(a) the cost of fire, extended coverage, “all risk”, boiler, sprinkler, apparatus, public liability, property damage, rent loss, and other insurance generally required by institutional lenders with respect to other buildings or projects in the central business district of Minneapolis, Minnesota;
 
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(b) any Qualified Capital Improvement Amortization;
 
(c) the cost of air-conditioning, electricity, steam, heating, mechanical, ventilation, escalator and elevator systems and all other utilities and the cost of supplies and equipment and maintenance and service contracts in connection therewith;
 
(d) costs associated with any shuttle or additional stairs or elevators serving the Premises (but excluding any internal private elevators or stairwells for the convenience of Tenant or any other Building Occupant), which are constructed as a part of Base Building Work and any additional or enlarged stairwells serving the Premises required pursuant to applicable codes and ordinances based upon the population densities provided in Section 2.2.1 of  Exhibit D ;
 
(e) operating costs relating to the Skyways, excluding any costs (i) attributable to the interior of buildings connected to the Building through such Skyways, (ii) attributable to the Skyways described in clause (b) of the definition thereof or the LaSalle Passageway, and (iii) in excess of fifty percent (50%) of the costs of operating and maintaining any Skyway (other than the Additional Skyway, as defined in  Exhibit D ), with such excess payable by Landlord without contribution from Tenant;
 
(f) the cost of repairs, general maintenance, cleaning, trash removal, janitorial service, light bulb and tube replacement, supplies, security and other Services required to be performed by Landlord under this Lease;
 
(g) a reasonable allocation of the rent, calculated based upon the reasonable rental rate for the space in question, of the Building manager’s offices in the Building attributable to the use of such offices for the management, operation, maintenance or repair of the Building, but excluding any portion reasonably allocable to leasing or other functions (the costs associated with which may not be included in Operating Expenses); and
 
(h) wages, salaries and other labor costs including taxes, insurance, retirement, medical and other employee benefits, to the extent relating to persons not above the level of the on-site Building manager who perform duties connected with the operation and maintenance of the Building (but only for the portion of their time allocable to work related to the Building).
 
7.2.2 Exclusions from Operating Expenses. Notwithstanding anything contained in this Section 7.2, and without in any way implying that the following
 
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would be included in Operating Expenses if not specifically excluded hereinafter, the following shall be excluded from Operating Expenses and Landlord shall be solely responsible for the payment thereof:
 
(a) costs directly or indirectly resulting from or relating to (including repairs, restoration, security measures, emergency or temporary services, inspection and, during the period of such repair or restoration, any increase in operating expenses resulting from) fire, windstorm or other casualty or damage or destruction from any other cause, whether or not insured or insurable;
 
(b) costs directly or indirectly resulting from or relating to (including repairs, restoration, security measures, emergency or temporary services, inspection and, during the period of such repair or restoration, any increase in operating expenses resulting from) exercise of rights of eminent domain, regardless of whether paid for by condemnation proceeds;
 
(c) costs of correcting any violations of any Legal Requirements, except to the extent of what would have been the cost of compliance in the first instance if such compliance would have been properly included in Operating Expenses under Section 7.2.1;
 
(d) leasing commissions, costs and disbursements and any other cost or expense incurred in connection with negotiations or disputes with Building Occupants, or prospective occupants of the Building;
 
(e) legal fees, costs and disbursements;
 
(f) costs incurred in renovating or otherwise improving or decorating or redecorating space for Building Occupants or vacant space leased or held or designated for lease in the Building or costs related thereto, including any alterations to the Building in connection with, or which are required by reason of, any lease or agreement with any Building Occupant;
 
(g) costs of correcting defects in, or inadequacy of, the design or construction of the Building or the materials used in the construction of the Building (including defects in the Building or the inadequacy of design of the Building pursuant to Sections 2.6, 2.7, 2.8 or 2.9 of Exhibit D , or otherwise) or in the Building equipment or appurtenances thereto, except that, for the purposes of this paragraph (g), conditions (not occasioned by or related to design, materials or construction defects or inadequacies) resulting from ordinary wear and tear and use shall not be deemed defects;
 
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(h) costs of electricity and other services sold to Building Occupants or others for which Landlord is entitled to be reimbursed (whether or not actually collected by Landlord) as a separate additional charge or rental;
 
(i) depreciation and amortization, except the Qualified Capital Improvement Amortization;
 
(j) costs (and reserves therefor) of a capital nature irrespective of the amount thereof, including capital improvements, capital repairs and replacements and capital equipment, except the Qualified Capital Improvement Amortization; provided, that, without limitation to the foregoing, (i) no costs will be expensed based primarily on the amount thereof, unless such amount is less than One Thousand and No/100 Dollars ($1,000.00) in Constant Dollars, and (ii) the amount of any monthly or other fee or charge payable under any maintenance, service or other contract (other than a so-called “full service” elevator maintenance contract generally maintained with respect to high rise office buildings in downtown Minneapolis, Minnesota) which is allocable to capital repairs and replacements shall be excluded from Operating Expenses;
 
(k) costs in connection with services or other benefits of a type which are not, or which are provided at higher levels or greater amounts than, or to a degree which is higher than furnished to Tenant, but which are provided to other Building Occupants;
 
(l) except as specifically provided in Sections 7.1(b), 7.2.1(g) and 7.2.1(h), fees or costs for management of the Building, including any property management fee paid to a property management company for the Building, or any fees, costs or expenses associated with any accounting, bill-paying or management activities;
 
(m) amounts which would otherwise be included in Operating Expenses which are payable to Affiliates of Landlord, for services on or to the Building or the Land to the extent that the costs of such services exceed average competitive costs for such services rendered by persons or entities of similar skill, competence and experience, other than an Affiliate of Landlord;
 
(n) financing and refinancing costs, interest on debt or amortization payments on any mortgage or mortgages, and rental under any ground or underlying leases or lease, together with all costs incidental to the items mentioned in this paragraph (n);
 
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(o) costs of Landlord’s general corporate overhead and general administrative expenses (including costs and expenses paid to third parties to collect rents, prepare tax returns and accounting reports and obtain financing);
 
(p) rentals and other related costs, if any, incurred in leasing air conditioning, security, or other building operation or management systems, elevators or other equipment or facilities which, if purchased and owned by Landlord, would ordinarily be considered to be of a capital nature;
 
(q) costs associated with items and services for which Tenant reimburses Landlord (other than through Tenant paying Tenant’s Additional Rent) or for which Tenant pays third persons;
 
(r) costs of entertaining current or prospective Building Occupants, and costs incurred in advertising in respect of or for the Building or other marketing or promotional activity;
 
(s) costs incurred in respect of, or properly allocable to, the operation and maintenance and any other aspect of the parking and storage facilities located within the Building, including the Parking Garage;
 
(t) costs resulting from the negligence or misconduct of Landlord or its employees, agents or contractors;
 
(u) bad debt expenses or bad debt reserves, whether for rent or otherwise, or any fees or penalties charged to Landlord as a result of not paying any amount constituting costs or expenses when due;
 
(v) costs incurred in connection with or related to the construction of the Building including pursuant to Exhibit D;
 
(w) costs of any repair or damage caused by or resulting from the negligence or wrongful act or omission of Tenant or any other Building Occupant;
 
(x) costs which are paid or payable by third parties other than other Building Occupants through their contribution to Operating Expenses;
 
(y) costs in any manner associated with Hazardous Materials, except that routine fees for disposal of building standard fluorescent lamps and similar items may be included in Operating Expenses;
 
(z) capital costs for sculpture, paintings or other art objects;
 
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(aa) contributions to any organizations, whether professional, political, civic or charitable;
 
(bb) costs incurred in connection with any special events held in the Common Areas, regardless of whether such events are held for profit other than those of a seasonal nature or associated with holidays which are conducted by Landlord in accordance with Section 2.4.2 for the general benefit of all tenants of the Building;
 
(cc) premiums paid to perform work after hours, unless required by the terms of this Lease to be performed after hours or unless approved in advance in writing by Tenant (except as necessary in an emergency);
 
(dd) travel, entertainment and related expenses incurred by Landlord or its personnel; and
 
(ee) accountant and auditor’s fees and expenses.
 
7.2.3 Further Reductions. To the extent the corresponding expense is not already excluded from Operating Expenses under Section 7.2.2, Operating Expenses shall be further reduced by (a) any consideration received by Landlord for the special use by Tenant or other Building Occupant of the Common Areas of the Building in excess of Landlord’s actual out-of-pocket expenses incurred in connection with such use, (b) insurance proceeds or other awards and settlements received by Landlord (after deduction of the reasonable costs of securing the same) representing reimbursement of Operating Expenses incurred by Landlord, (c) the amount of any other refund or discount Landlord receives in connection with any costs or expenditures otherwise included in Operating Expenses, Landlord hereby agreeing to make payments on account of Operating Expenses in such manner as to maximize the amount of such refunds and discounts, (d) the amount of Qualified Capital Improvement Amortization allocable to (i) any portion of an Extension Term unless the related Qualified Capital Improvement was first placed in service or installed subsequent to the Rent Determination Date of such Extension Term, and (ii) any Expansion Space or First Offer Space unless the related Qualified Capital Improvement was first placed in service or installed after the Rent Determination Date for such space, and (e) any Operating Expenses incurred by reason of any retail space being located in the Building which are in excess of those which would be incurred if such space were used for general office purposes. In determining what is included and excluded as Operating Expenses, in calculation of Tenant’s Estimated Operating Expenses Contribution (as defined in Section 7.3.1(a)) and Tenant’s Operating Expense Contribution and the determination of time of payments therefor, Landlord shall not treat Tenant any less favorably than other Building Occupants generally,
 
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except with respect to items of Operating Expenses specifically included in Operating Expenses under Sections 7.l(b) or 7.2.1.
 
7.2.4 Limited Gross-Up. For any period of the Term that less than ninety-five percent (95%) of the Rentable Area of the Building is occupied, Operating Expenses attributable to janitorial services and utilities, and only such expenses, shall be adjusted upward (or downward) to the amount that Landlord demonstrates would have been incurred for such services (taking into account, without limitation, any volume related or other discounts) if ninety-five percent (95%) of the Rentable Area of the Building had been occupied during such period. In no event shall Landlord be entitled to collect a management fee on any amount of Operating Expenses increased pursuant to this Section 7.2.4.
 
7.2.5 Disproportionate Services. In the event any Service is provided disproportionately either to the Premises or to any other premises in the Building, then an increase or decrease, as the case may be, shall be made in the Tenant’s Estimated Operating Expense Contribution and Tenant’s Operating Expense Contribution to reflect the increase or decrease, as the case may be, in Operating Expenses as a result of such disproportionate provision.
 
7.2.6 Obligation to Reduce Operating Expenses. Landlord shall use reasonable efforts to reduce and keep Operating Expenses to the minimum which is reasonably possible, commensurate with the Minimum Building Standards.
 
7.2.7 General. Operating Expenses shall be determined on an accrual basis and, to the extent applicable, in accordance with generally accepted accounting principles consistently applied.
 
7.3 Estimate and Adjustment of Operating Expenses; Payment of Tenant’s Operating Expense Contribution.
 
7.3.1 Statement of Estimated Operating Expenses. On or before November 1 of each calendar year that falls within the Term (and with respect to the partial year commencing on the Rent Commencement Date of this Lease, at least thirty (30) days prior to the Rent Commencement Date), Landlord shall furnish to Tenant a statement providing:
 
(a) Landlord’s reasonable estimate for such calendar year (or portion thereof) of Operating Expenses to be in incurred (“Estimated Operating Expenses”) and Tenant’s Operating Expense Contribution with respect thereto (“Tenant’s Estimated Operating Expense Contribution”);
 
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(b) Those Qualified Capital Improvements as to which Landlord reasonably anticipates expending funds during the following calendar year, and in the case of a Qualified Capital Improvement described in Section 1.62(c)(i), Landlord’s reasonable estimate of the annual savings to be obtained by such Qualified Capital Improvements and the Qualified Capital Improvement Amortization in respect thereof;
 
(c) If Landlord seeks an occupancy-based adjustment pursuant to Section 7.2.4, such statement shall (i) itemize those Operating Expenses that Landlord believes will vary with occupancy and which are subject to such adjustment, and (ii) show the calculation of Landlord’s estimate of such costs at ninety-five percent (95%) occupancy of the Building; and
 
(d) If a level of Service based adjustment is appropriate under Section 7.2.5, such statement shall (i) describe those services provided disproportionately to the Premises or any other portion of the Building, and (ii) itemize those Operating Expenses which have been increased or decreased as a result of such disproportionate Services and the adjustment in Tenant’s Estimated Operating Expense Contribution and Tenant’s Operating Expense Contribution resulting therefrom.
 
7.3.2 Payment by Tenant; Revision of Estimate. Commencing as of the first day of the first month following the Rent Commencement Date and as of the first day of each month thereafter for each calendar year (or portion thereof) during the Term, Tenant shall pay to Landlord, without demand, abatement, counterclaim or set off, except as expressly provided in this Lease to the contrary, at the address provided in Section 6.2, one-twelfth (l/12th) of the amount of Tenant’s Estimated Operating Expense Contribution for such year (or portion thereof), prorated for any fractional month at the beginning or end of the Term. Any such payment shall be deemed to be paid by Tenant upon deposit of the same in the United States Mail or dispatch of the same in any other manner permitted for notices under Section 41.5 (other than facsimile), provided such payment is actually later received by Landlord. Notwithstanding the foregoing, if for any reason Landlord’s statement of Estimated Operating Expenses is furnished after January 1st of a calendar year, Tenant shall not be obligated to pay the portion of Tenant’s Estimated Operating Expense Contribution allocable to portions of such year occurring prior to Tenant’s receipt of Landlord’s statement until the first monthly rent payment date after Tenant’s receipt of Landlord’s statement. Subject to the provisions of Section 7.11, Landlord shall have the right to reasonably revise Landlord’s estimates not more than once during each calendar year to reasonably reflect the then current Estimated Operating Expenses (including adjustments necessary to account for savings or additional expenditures attributable to the previous portion of the year as to which Landlord’s revised estimate relates) and Tenant’s Estimated Operating Expense Contribution shall be adjusted in accordance
 
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with the revised estimate, commencing the first day of the first month occurring at least thirty (30) days following Tenant’s receipt from Landlord of a statement of such revised estimate.
 
7.3.3 Adjustment Based on Actual Operating Expenses. Within ninety (90) days after the expiration of each calendar year, Landlord shall furnish to Tenant a statement certified by Landlord and prepared and certified by Landlord’s certified public accountant, which shall be a nationally or regionally recognized firm of independent certified public accountants, showing: (a) the actual Operating Expenses incurred during the previous calendar year or portion thereof (“Actual Operating Expenses”) on a line item basis; (b) the difference, if any, between the Estimated Operating Expenses and the Actual Operating Expenses on a line item basis; (c) the net amount of any charge or credit to Tenant necessary to adjust Tenant’s Estimated Operating Expense Contributions previously paid by Tenant to Tenant’s Operating Expense Contribution due on account of the Actual Operating Expenses; and (d) the information described in Sections 7.3.l(b) and 7.3.l(c), based on actual experience. Within thirty (30) days after the receipt of said statement by Tenant, Tenant shall, in case of a net charge to Tenant, pay to Landlord an amount equal to such charge, or Landlord shall, in case of a net credit to Tenant, credit the next monthly rental payment of Tenant with an amount equal to such credit (or if credit is due after the expiration of the Term, Landlord shall pay such credit to Tenant in cash contemporaneously with the delivery of such statement). In the event Tenant’s Estimated Operating Expense Contribution paid for such year equals or exceeds one hundred five percent (105%) of Tenant’s Operating Expense Contribution due on account of Actual Operating Expenses, such credit or payment by Landlord to Tenant shall include six (6) months’ of interest on such excess amount at the Agreed Interest Rate. Landlord shall be bound absolutely to said annual statement, and Tenant shall have no liability for any understatement of Actual Operating Expenses, Tenant’s Estimated Operating Expense Contribution or Tenant’s Operating Expense Contribution for the calendar year covered by said statement unless such understatement is expressly reflected and adjustment is requested in such statement.
 
7.3.4 Monthly Statements; Reports and Studies. On or before the fifteenth (15th) day of each month during the Term, Landlord shall furnish to Tenant copies of such statements prepared by or for Landlord showing, to the extent available, for such month and for the calendar year to date estimates of the following: (a) the Actual Operating Expenses incurred; (b) the differences between the Estimated Operating Expenses and the Actual Operating Expenses; and (c) the aggregate amount of any overpayment or underpayment by Tenant with respect to Tenant’s Operating Expense Contribution on account of Actual Operating Expenses incurred to such date. Landlord also shall deliver to Tenant at no charge to Tenant promptly upon generation or receipt by Landlord or its Building manager, copies of any deficiency reports, information regarding permit or other violations of Legal Requirements, tax bills and
 
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valuation notices, and any other statements, studies, notices or similar materials relating to the operation of the Building as Tenant shall from time to time request, provided that Landlord shall not be required to include information on the rent payable by the other Building Occupants. Tenant acknowledges that such information is preliminary and shall not limit or affect the determination of Operating Expenses or the payment of Tenant’s Operating Expense Contribution. Tenant shall use reasonable efforts to keep such monthly statements and deliveries confidential; provided, however, the foregoing shall not limit or restrict Tenant’s right to distribute or disseminate such statements and deliveries (t) if necessary to comply with any Legal Requirements, (u) in connection with Tenant’s financial or tax reporting, audit or similar requirements or procedures, (w) to any proposed assignee with respect to this Lease or Subtenant, (v) in connection with any dispute, litigation or Arbitration under this Lease, (x) to any Affiliate or proposed Affiliates of Tenant, (y) to any of Tenant’s accountants, auditors, attorneys or other advisors, and (z) to any of Tenant’s agents, employees, shareholders, members, partners or directors who have a reasonable need to know the contents thereof.
 
7.3.5 Forms of Statement. Prior to issuance of any statement described in this Section 7.3 and upon any material changes to the form of such statement, Landlord shall submit such forms of the Actual Operating Expenses statement to Tenant for approval, which approval may not be unreasonably withheld.
 
7.3.6 Disputes. If within thirty (30) days after receipt by Tenant of a statement described in this Section 7.3 from Landlord, Tenant gives Landlord notice that Tenant objects to any element or calculation contained in such statement (including whether any proposed Qualifying Capital Improvement will result in a material decrease in Operating Expenses), which notice shall include an explanation of the basis for such objection, such dispute shall be resolved by Arbitration. No failure by Tenant to object as provided in this Section 7.3.6 shall affect any of Tenant’s rights or obligations with respect to such statement, including Tenant’s rights under Section 7.9. Pending the results of such Arbitration, Tenant shall pay its share of Operating Expenses in accordance with such statement of Tenant’s Estimated Operating Expense Contribution or Actual Operating Expenses, as applicable.
 
7.4 Tenant’s Tax Contribution. For purposes of this Lease, “Tenant’s Tax Contribution” shall mean an amount equal to the product obtained by multiplying (a) the amount of Real Property Taxes, by (b) Tenant’s Pro Rata Share (with appropriate adjustment as of the date Rent commences to accrue in respect of any Rentable Area added to or deleted from the Premises during the year in question); provided, however, Tenant shall be responsible for paying Tenant’s Tax Contribution only with respect to those Real Property Taxes which are due and payable during any calendar year included in whole or in part in the Term; and then only to the extent allocable to the Term based on the number of days of such calendar year included in the Term (in the case of the first calendar year, after the Rent
 
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Commencement Date), regardless of the date on which any such Taxes accrue or are assessed or levied.
 
7.5 Real Property Taxes. “Real Property Taxes” shall mean all ad valorem taxes, assessments (special or otherwise) and other governmental imposts payable with respect to the Land or the Building, which are levied or assessed by the United States of America or the State of Minnesota or any political subdivision thereof and are due and payable during any calendar year included in whole or in part in the Term. Real Property Taxes shall also include reasonable legal fees, costs and disbursements incurred in connection with proceedings to contest, determine or reduce Real Property Taxes, but shall exclude (a) any item included in Operating Expenses; (b) any taxes of the nature payable by Tenant under Article 17 hereof; (c) any net income tax, estate tax, gift tax, transfer tax, or inheritance tax; (d) a reasonable allocation of such taxes, assessments and imposts to the Parking Garage (based upon the relative values of (i) the Parking Garage, to (ii) the entire Building, including the Parking Garage); (e) any increased amounts of such taxes, assessments or imposts resulting from any agreement with any governmental authority or unit setting a minimum assessed value for the Building or Land, or otherwise fixing the amount of Real Property Taxes payable with respect thereto, except as expressly provided under Section 7.9; (f) any ad valorem taxes allocable to the improvements existing on the Land as of the date of this Lease; (g) any taxes, assessments or imposts levied, pending or constituting a lien against the Building or Land as of the date of this Lease; and (h) assessments (including special assessments), whenever levied, arising out of or in respect of any capital improvement necessary to, or required by any state or local governmental unit, agency or taxing authority in connection with the initial development or construction of the Building (including any amounts associated with any condemnation proceeding used to obtain control of the Land), or any expansion or enlargement thereof. In the case of Real Property Taxes, such as special assessments, where Landlord has an election, Landlord shall exercise any election available to it to pay the same over the longest period available, in which event only the installment of such Real Property Tax due and payable in any year shall be included in Real Property Taxes for such year, with the installments due and payable in the year the Term commences or ends prorated on a daily basis, provided that in the case of special or area assessments for capital improvements where there is no such election available to Landlord, Tenant may at its election require the same to be treated as if there were such assessment, together with interest thereon at the Amortization Interest Rate, to be amortized on a level payment basis over a period equal to the lesser of (y) twenty (20) years, or (z) the reasonably estimated practical useful life of the improvement.
 
7.6 Payment of Tenant’s Tax Contribution. Commencing on the Rent Commencement Date, Tenant shall pay Tenant’s Tax Contribution for each calendar year during the Term as follows: whenever Landlord shall receive an invoice from the applicable governmental authority for an item that constitutes Real Property Taxes for which Tenant is responsible (including receipt of such invoice after the end of or prior to the beginning of the Term), Landlord shall send Tenant a copy of such invoice and a statement and detailed calculation setting forth Tenant’s Tax Contribution with respect to such items. Tenant shall
 
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pay the same to Landlord, without demand, abatement, counterclaim or setoff, except as otherwise expressly provided in this Lease to the contrary, at the address provided in Section 6.2, on or before the later of (a) ten (10) days after receipt of such invoice, or (b) ten (10) days prior to the date such Taxes are due without penalty, provided that if any penalty or interest is imposed or payable on any Real Property Tax solely by reason of Tenant’s failure to pay Tenant’s Tax Contribution within the time required, Tenant shall upon demand reimburse Landlord for such penalty or interest to the extent allocable to Tenant’s Tax Contribution. Such payments shall be deemed to be paid by Tenant upon deposit of the same in the United States Mail or dispatch of the same in any other manner permitted for notices under Section 41.5 (other than facsimile).
 
7.7 Contest of Real Property Taxes. If Tenant in the exercise of its reasonable judgment believes that Real Property Taxes are excessive because of improper valuations, tax rates or special assessments and should be contested, Tenant shall have the right to contest with reasonable diligence the Real Property Taxes (including an appeal from an initial tax contest determination) and, except as provided below, to deduct all reasonable costs relating to the contest from any refund obtained from such contest or, if no refund is obtained, from payments of Tenant’s Tax Contribution. If either Landlord or Tenant contests the Real Property Taxes and receives a refund, Tenant’s Tax Contribution will be adjusted accordingly. Landlord shall refund to Tenant Tenant’s Pro Rata Share of any refund or rebate received by Landlord with respect to Real Property Taxes for which Tenant made a Tenant Tax Contribution. Landlord or Tenant, as the case may be, shall use reasonable diligence in pursuing any such tax contest, including any settlement thereof; provided, however, (a) Landlord and Tenant agree to consult with the other prior to commencing any such tax contest; and (b) neither Landlord nor Tenant shall settle any such tax contest without the approval of the other, which may be given or withheld in the approving party’s sole discretion. No party other than Landlord and Tenant shall be allowed to contest Real Property Taxes. Landlord shall include such a prohibition in all leases and other occupancy agreements with other Building Occupants.
 
7.8 No Assessment Agreements. Landlord hereby represents, warrants, agrees and covenants that it has not entered, and will not at any time during the Term enter, into any agreement with the City of Minneapolis or any other governmental authority or unit setting a minimum assessed value for the Building or Land, or otherwise fixing the amount of Real Property Taxes payable with respect thereto, except for real estate tax contests and settlements thereof which have been approved by Tenant in its sole discretion.
 
7.9 Audit; Books and Records. Tenant and its agents, employees, auditors and consultants, at Tenant’s expense, shall have the right at all reasonable times within four (4) years after Tenant’s receipt of the annual statement described in Section 7.3.3 to inspect, copy and audit Landlord’s books and records relating to Operating Expenses, Real Property Taxes and other matters arising under this Lease for any calendar year or years (or portions thereof) covered by such statement. While Tenant shall bear the cost of any audit conducted for or by
 
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it, Landlord shall reimburse Tenant for such cost, together with interest thereon at the Agreed Interest Rate, if such audit shall establish that either Actual Operating Expenses or Real Property Taxes for any year within the period of time covered by such audit have been overstated by three percent (3%) or more. Tenant may not request such an audit more than once in any twelve (12) month period. Landlord shall have no liability for any overstatement of Operating Expenses for any calendar year unless Tenant notifies Landlord thereof within fifty (50) months after Tenant’s receipt of the annual statement with respect to such calendar year described in Section 7.3.3, which notice shall describe such overstatement in reasonable detail. Landlord shall keep and maintain true, correct and complete books and records with respect to the operation of the Building and the Land or otherwise related to Operating Expenses and Real Property Taxes and shall retain such books and records at Landlord’s office in Minneapolis for a period of fifty (50) months after the calendar year in which they accrue. The provision of this Section 7.9 shall survive termination or expiration of this Lease.
 
7.10 List of Landlord’s Affiliates. Upon request of Tenant, Landlord shall furnish to Tenant a list of Affiliates of Landlord who are providing Services to the Building and, if requested, such other information reasonably required for Tenant to examine the appropriateness of those Operating Expenses attributable to Affiliates of Landlord.
 
7.11 Cooperation and Budgeting. Landlord agrees to afford Tenant such participation as Tenant shall reasonably request in all aspects of the process involved in the determination of Operating Expenses and Real Property Taxes including the budgeting process, the determination of the level of Services provided to the Building or the Premises under this Lease, the making of any capital improvements, and the preparation of the statements described in Section 7.3.
 
8. Expansion Options
 
8.1 Grant. Subject to the terms and conditions of this Article 8, Landlord hereby grants to Tenant the options (the “Expansion Option(s)”) to add the following expansion space (the “Expansion Space”) to the Premises:
 
(a) Approximately fifty-seven thousand five hundred (57,500) square feet of Rentable Area (or such amount as shall be equal in area to two (2) full Floors) which shall consist of two (2) full, contiguous Floors to be delivered by Landlord on the third (3rd) anniversary of the Commencement Date (the “First Expansion Option”);
 
(b) Approximately fifty-seven thousand five hundred (57,500) square feet of Rentable Area (or such amount as shall be equal in area to two (2) full Floors) which shall consist of two (2) full, contiguous Floors to be delivered by Landlord on the sixth (6th) anniversary of the Commencement Date (the “Second Expansion Option”); and
 
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(c) Approximately seventy-eight thousand (78,000) square feet of Rentable Area (or such amount as shall be equal in area to three (3) full Floors) which shall consist of three (3) full, contiguous Floors to be delivered by Landlord on the ninth (9th) anniversary of the Commencement Date (the “Third Expansion Option”).
 
8.2 Exercise. Tenant may, with respect to each of its Expansion Options, exercise such option with respect to any or all of the applicable Expansion Space, provided that if Tenant shall elect to lease any Expansion Space on a particular Floor, Tenant shall lease either one-half (1/2) or the entire Rentable Area on that Floor or that portion of such Floor which will, when combined with any space already part of the Premises, constitute either one-half (1/2) or the entire Rentable Area on that Floor. Tenant shall exercise an Expansion Option, if at all, as follows: At least eighteen (18), but not more than twenty (20), months prior to the scheduled delivery date of the Expansion Space in question, Landlord shall deliver to Tenant notice of (a) the date upon which Tenant’s right to exercise the subject Expansion Option shall expire, and (b) Landlord’s best estimate of what the Market Base Rental Rate will be at the Rent Determination Date. On or before the later of (y) sixty (60) days after Landlord gives the notice in accordance with the preceding sentence, or (z) twelve (12) months prior to the scheduled delivery date of such Expansion Space, as the case may be, Tenant may give Landlord notice (i) that Tenant elects to exercise the subject Expansion Option, (ii) subject to the other limitations of this Section 8.2, the portion or portions of the Expansion Space as to which Tenant is exercising its Expansion Option, and (iii) whether Tenant agrees with Landlord’s estimate of the Market Base Rental Rate. Failure to give such notice shall constitute a waiver of the subject Expansion Option and failure to expressly agree with Landlord’s estimate shall constitute rejection thereof. If Tenant shall give notice of disagreement with Landlord’s estimate of Market Base Rental Rate in its extension notice or shall be deemed to have rejected the same, as above provided, such rates shall be determined by Arbitration. Tenant shall have the right to rescind its exercise of the previously exercised subject Expansion Option by giving notice thereof to Landlord within thirty (30) days after the determination of the Market Base Rental Rate therefor.
 
8.3 Contiguous Space; Relationship to First Offer Right. The Expansion Space shall be located on the Floor(s) contiguous to the then-existing Initial Premises, whether or not any Expansion Space may have been previously leased by Tenant under Article 9. Notwithstanding the preceding sentence, (a) no Expansion Space shall be located on Floors One (1) or Two (2) or on any Mechanical Floor unless Tenant shall otherwise elect in its sole discretion, and (b) if Tenant does not exercise an Expansion Option as to the entire Expansion Space covered thereby, then the Expansion Space under subsequent Expansion Options need not be located on
Floor(s) contiguous to the then-existing Premises, but shall be located contiguous to the most recently offered Expansion Space with respect to which Tenant did not exercise its Expansion Option. Any failure to duly and timely exercise an Expansion Option shall not otherwise limit subsequent Expansion Options. The Expansion Options are independent of the First Offer Right and shall apply notwithstanding that Tenant at any time
 
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has elected to exercise or has elected not to exercise its First Offer Right with respect to any Expansion Space.
 
8.4 Term; Rental. The Term as applicable to Expansion Space shall commence on the date of delivery of such space to Tenant and shall expire on the same date as the expiration or earlier termination of this Lease. Base Rental with respect to any Expansion Space shall be at the rate provided in Section 6.1.4. All Rent for any Expansion Space shall commence to accrue from and after the earlier of (a) the date occurring one hundred twenty (120) days after the date Landlord delivers such Expansion Space in the condition required pursuant to Section 8.5, and (b) the date Tenant actually occupies the Expansion Space for the operation of Tenant’s business.
 
8.5 Condition of Expansion Space. In the event Tenant exercises an Expansion Option pursuant to the terms hereof, Tenant shall take all leasehold improvements located within such Expansion Space on an “as is” basis as of the date Tenant exercised such Expansion Option, reasonable wear and tear occurring after exercise excepted, and subject to the existing tenant’s rights to remove any personal property and trade fixtures from the Expansion Space (provided that all damage resulting from such removal has been properly repaired prior to the delivery thereof to Tenant), provided that:
 
8.5.1 Unimproved Space. If and to the extent that such Expansion Space has not been improved to at least the Base Building Shell Condition Requirements, Landlord shall pay Tenant, on the date Rent commences to accrue with respect to the Expansion Space, a sum equal to the cost to Tenant of completing such portions of the Floor which have not been improved to the Base Building Shell Condition Requirements.
 
8.5.2 Damaged Space. If, at any time prior to delivery of the Expansion Space, the Expansion Space or any part thereof has been materially damaged or destroyed by fire or other casualty or cause, Landlord, at its expense, shall repair and restore the portion so damaged or destroyed to its condition immediately prior thereto and in compliance with the Base Building Shell Condition Requirements and all Legal Requirements, with such alterations as Tenant may elect, provided that (a) if any such alterations increase the cost of repairing and restoring the Expansion Space, such excess cost shall be paid by Tenant, and (b) all Rent for such Expansion Space shall abate until the earlier of (i) the date provided in Section 8.4, or (ii) in the event such alterations increase the period necessary to repair and restore the Expansion Space by one hundred twenty (120) days or more, the date such repair and restoration work would have been completed but for such alterations. In the event Landlord and Tenant do not agree on the cost or excess time necessary to perform such alterations, the dispute shall be resolved by Arbitration.
 
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8.6 Failure to Deliver Possession.
 
8.6.1 Landlord shall indemnify and hold harmless Tenant from and against any and all Landlord Delay Costs which result from or arise in connection with the failure to deliver any Expansion Space on the scheduled delivery date therefor in accordance with the requirements of this Lease, except to the extent such failure is the result of fire or other casualty; provided, however, in the case of such a failure, Tenant shall not incur any of the Landlord Delay Costs described in the clauses (v) and (w) of the definition thereof unless such failure shall continue for sixty (60) days or more from the schedule delivery date therefor. In addition, in the event Landlord does not, for any reason, including Unavoidable Delay, deliver the Expansion Space within ninety (90) days after the scheduled delivery date therefor, Tenant may, but shall have no obligation to, rescind its exercise of said option by delivering notice thereof to Landlord at any time after the expiration of said ninety (90) day period and prior to the actual delivery of the Expansion Space in the condition required by this Lease.
 
8.6.2 Landlord covenants and agrees that it will use best efforts (including, if requested by Tenant, litigation) to deliver possession of all portions of each Expansion Space to Tenant upon the scheduled delivery date therefor, or, if such is not possible, as soon thereafter as is reasonably possible.
 
8.7 Lease Amendment. Upon exercise of an Expansion Option by Tenant pursuant to the terms hereof and delivery by Landlord of the applicable Expansion Space, Landlord and Tenant shall amend this Lease to confirm the addition of the Expansion Space added to this Lease thereby, the date such Expansion Space was added to this Lease, and the Base Rental rate applicable thereto, but failure to execute such amendment shall not affect the validity of such leasing of the Expansion Space.
 
8.8 Transfer. All of Tenant’s rights under this Article shall apply notwithstanding any assignment of all or any portion of Tenant’s interest in this Lease or any sublease of all or any portion of the Premises, including any Expansion Space.
 
9. Right of First Offer
 
9.1 Grant; Landlord’s Notice. Subject to the terms and conditions of this Article 9 and the limitations in Section 10.6, Tenant shall have a right of first offer (the “First Offer Right”) with respect to any space in the Building which is or shall become available for leasing after the third (3rd) anniversary of the Commencement Date. On or before the third (3rd) anniversary of the Commencement Date, and each subsequent anniversary thereof (but not more than thirty (30) days prior to any such anniversary), Landlord shall notify Tenant of all rentable spaces within the Building which are not leased or which Landlord reasonably anticipates may become not leased within the following eighteen (18) month period, irrespective of whether any such space was previously offered or available to Tenant as
 
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Expansion Space or First Offer Space (any of such Space being “First Offer Space”), which notice shall include on a space by space basis (with no space greater than one (1) Floor): (a) the identity of the First Offer Space, (b) all Superior Rights as to such First Offer Space, if any, (c) Landlord’s best estimate of the Market Base Rental Rate for the First Offer Space, and (d) the date on which Landlord will deliver such First Offer Space to Tenant. In addition, Landlord shall have a continuing obligation to give Tenant prompt notice containing the information described above of any and all space that was not included in the most recent annual notice but which has become available thereafter (including by re-acquisition through subleasing), which space shall also constitute First Offer Space. If requested by Tenant, Landlord shall advise Tenant of the expiration date of any Superior Rights to such First Offer Space and the provisions of the Superior Leases (defined below), relating to Superior Rights, and shall provide to Tenant copies of all lease provisions relevant thereto.
 
9.2 Superior Rights. Tenant’s First Offer Right shall be subject and subordinate only to the Superior Rights of other Building Occupants. “Superior Rights” shall mean all renewal and extension options and expansion options (but not rights of refusal or offer or similar rights) hereafter granted to any Building Occupant under a lease (a) which constitutes the initial lease made for the space in question, or (b) as to which Tenant had the right to, but did not, exercise its First Offer Right (each, a “Superior Lease”). At the time of executing a Superior Lease, Landlord shall give Tenant notice specifying the space affected thereby, the tenant, and the dates during which the First Offer Right may be affected and the Superior Rights granted therein, provided that the failure to give such notice shall not affect the rights or obligations of Landlord or Tenant hereunder. The provisions of this Article 9 shall not limit the parties’ rights to expand the Premises from time to time by a mutual agreement and an amendment to this Lease. Any such agreement and amendment shall be deemed to be have been leased by Tenant pursuant to the First Offer Right for purposes of any expansion option, right of first offer, first refusal or similar right granted to any other Building Occupant.
 
9.3 Exercise. Tenant’s right to lease any First Offer Space shall be on and subject to the following terms and conditions:
 
9.3.1 Tenant’s Notice. On or before thirty (30) days after Landlord gives a notice in accordance with Section 9.1, Tenant may give Landlord notice (a) that Tenant elects to exercise the subject First Offer Right, (b) of the portion or portions of the First Offer Space as to which Tenant in its sole discretion is exercising its First Offer Right (provided that any First Offer Space not elected to be leased by Tenant shall be of a reasonably leasable size and configuration), and (c) whether Tenant agrees with Landlord’s estimate of the Market Base Rental Rate for any of the First Offer Space elected to be leased. Failure to give such notice shall constitute a waiver of the subject First Offer Right and failure to expressly agree with Landlord’s estimate as provided above shall constitute rejection thereof. If Tenant shall give notice of disagreement with Landlord’s estimate of the Market Base Rental Rate for any of the
 
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First Offer Space elected to be leased in its exercise notice or shall be deemed to have rejected the same, as above provided, such rates shall be determined by Arbitration.
 
9.3.2 Tenant’s Failure to Elect. If Tenant fails to elect to lease any First Offer Space included in any Landlord’s notice under Section 9.1, Landlord may, for a period of six (6) months thereafter, lease such space to any third party for a base rental rate not more favorable to the tenant than the Market Base Rental Rate for the space as estimated by Landlord in its notice to Tenant. In the event Landlord does not so lease such space during such period, Landlord shall re-offer all of such space to Tenant in a notice containing the information described in Section 9.1, but for a lesser estimated Market Base Rental Rate than in Landlord’s previous notice under Section 9.1 and the First Offer Right shall apply with respect thereto as provided in this Article 9. If any First Offer Space as to which Tenant has previously declined to exercise its First Offer Right remains or subsequently becomes available at the time of subsequent Landlord notices, Tenant shall have a re-occuring First Offer Right with respect to such space under the terms of this Article 9.
 
9.3.3 Term; Rental. Subject only to the Superior Rights specified in Landlord’s offering notice under Section 9.1, the Term as applicable to First Offer Space shall commence on the date of delivery of such space to Tenant and shall expire on the same date as the expiration or earlier termination of this Lease. Base Rental with respect to First Offer Space shall be at the rate provided in Section 6.1.5. All Rent for any First Offer Space shall commence to accrue from and after the earlier of (a) the date occurring one hundred twenty (120) days after the date Landlord delivers such First Offer Space in the condition required pursuant to Section 9.4, and (b) the date Tenant actually occupies the First Offer Space for the operation of Tenant’s business.
 
9.4 Condition of First Offer Space. In the event Tenant exercises a First Offer Right pursuant to the terms hereof, Tenant shall take all leasehold improvements located within such First Offer Space on an “as is” basis as of the date Tenant exercised such First Offer Right, reasonable wear and tear occurring after exercise excepted, and subject to the existing tenant’s rights to remove any personal property and trade fixtures from the First Offer Space (provided that all damage resulting from such removal has been properly repaired prior to the delivery thereof to Tenant).
 
9.4.1 Unimproved Space. If and to the extent that such First Offer Space has not been improved to at least the Base Building Shell Condition Requirements, Landlord shall pay Tenant, on the date Rent commences to accrue with respect to the First Offer Space, a sum equal to the cost to Tenant of completing such portions of the Floor which have not been improved to the Base Building Shell Condition Requirements.
 
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9.4.2 Damaged Space. If, at any time prior to delivery of the First Offer Space, the First Offer Space or any part thereof has been materially damaged or destroyed by fire or other casualty or cause, Landlord, at its expense, shall repair and restore the portion so damaged or destroyed to its condition immediately prior thereto and in compliance with the Base Building Shell Condition Requirements and all applicable Legal Requirements, with such alterations as Tenant may elect, provided that (a) if any such alterations increase the cost of repairing and restoring the First Offer Space, such excess cost shall be paid by Tenant, and (b) all Rent for such First Offer Space shall abate until the earlier of (i) the date provided in Section 9.3.3, or (ii) in the event such alterations increase the period necessary to repair and restore the First Offer Space by one hundred twenty (120) days or more, the date such repair and restoration work would have been completed but for such alterations. In the event Landlord and Tenant do not agree on the cost or the excess time necessary to perform such alterations, the dispute shall be resolved by Arbitration.
 
9.5 Failure to Deliver Possession.
 
9.5.1 Landlord shall indemnify and hold harmless Tenant from and against any and all Landlord Delay Costs which result from or arise in connection with the failure to deliver any First Offer Space on the scheduled delivery date therefor in accordance with the requirements of this Lease, except to the extent such failure is the result of fire or other casualty; provided, however, in the case of such a failure, Tenant shall not incur any of the Landlord Delay Costs described in the clauses (v) and (w) of the definition thereof unless such failure shall continue for sixty (60) days or more from the schedule delivery date therefor. In addition, in the event Landlord does not, for any reason, including Unavoidable Delay, deliver the First Offer Space within ninety (90) days after the scheduled delivery date therefor, Tenant may, but shall have no obligation to, rescind its exercise of said option by delivering notice thereof to Landlord at any time after the expiration of said ninety (90) day period and prior to actual delivery of the First Offer Space in the condition required by this Lease.
 
9.5.2 Landlord covenants and agrees that it will use best efforts (including, if requested by Tenant, litigation) to deliver possession of all portions of each First Offer Space upon the scheduled delivery date therefor, or, if such is not possible, as soon thereafter as is reasonably possible.
 
9.6 Lease Amendment. Upon exercise of a First Offer Right by Tenant pursuant to the terms hereof and delivery by Landlord of the applicable First Offer Space, Landlord and Tenant shall amend this Lease to confirm the addition of the First Offer Space which Tenant has elected to lease, the date such First Offer Space was added to this Lease, and the Base Rental rate applicable thereto, but failure to execute such amendment shall not affect the validity of such leasing of the First Offer Space.
 
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9.7 Transfer. All of Tenant’s rights under this Article shall apply notwithstanding any assignment of all or any portion of Tenant’s interest in this Lease or any sublease of all or any portion of the Premises, including any First Offer Space.
 
10. Right to Reduce Space
 
10.1 Reduction Options. Subject to the terms and conditions set forth herein, Landlord hereby grants to Tenant the options (the “Reduction Option(s)”) to reduce from time to time the Rentable Area of the Premises (the amount of space available for reduction at any time being referred to herein as the “Reduction Space”) as follows:
 
10.1.1 First Reduction Option. By up to one hundred thousand (100,000) square feet of Rentable Area by notice given to Landlord at any time during the Term on or after the sixth (6th) and prior to the tenth (10th) anniversary of the Commencement Date (the “First Reduction Option”);
 
10.1.2 Second Reduction Option. By up to an amount of Rentable Area equal to the sum of (a) one hundred thousand (100,000) square feet of Rentable Area, plus (b) any amount (not to exceed fifty thousand (50,000) square feet of Rentable Area) of the Reduction Space available under the First Reduction Option which was not exercised by Tenant, by notice given to Landlord at any time during the Term on or after the tenth (10th) anniversary of the Commencement Date (the “Second Reduction Option”);
 
10.1.3 Third Reduction Option. By up to the entire Rentable Area of the Retail Premises by notice given to Landlord at any time during the Term on or after the fourth (4th) and prior to the fifth (5th) anniversary of the Commencement Date (the “Third Reduction Option”); and
 
10.1.4 Fourth Reduction Option. By up to the entire Rentable Area of the Retail Premises by notice given to Landlord at any time during the Term on or after the ninth (9th) and prior to the tenth (10th) anniversary of the Commencement Date (the “Fourth Reduction Option”).
 
10.2 Reduction Space. Tenant may exercise its Reduction Options with respect to any or all of the Reduction Space in any instance, and may exercise such options any number of times during the applicable periods. The size, configuration and location of the portions of the Reduction Space, if any, surrendered by Tenant shall be determined by Tenant in its sole discretion at the time of an exercise of the subject Reduction Option. Without limitation to the foregoing, the Reduction Space surrendered by Tenant may include any space on a number of Floors of the Premises, whether or not contiguous, provided that (a) to the extent Tenant occupies the entire Rentable Area on a particular Floor (other than Floors Two (2), Three (3) or any Mechanical Floor), and Tenant elects to surrender space on such Floor; then
 
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Tenant shall surrender all of the Rentable Area on such Floor, and (b) to the extent (i) Tenant “occupies space on Floors Two (2) or Three (3), (ii) Tenant occupies less than the entire Rentable Area on a particular Floor, or (iii) the amount of Rentable Area of Reduction Space remaining available under either the First Reduction Option or the Second Reduction Option is less than the entire Rentable Area on a particular Floor, Tenant may exercise the subject Reduction Option, if at all, as to all or any portion of the then-existing Premises then-located on such Floor, provided that the space not leased by Tenant on any such partial Floor shall be capable of being configured so as to make the same reasonably leasable.
 
10.3 Exercise. Tenant may exercise the Reduction Options from time to time by giving Landlord written notice of its intent to do so, which notice shall (a) designate the Reduction Space as to which Tenant is exercising its Reduction Option, and (b) state a date (the “Reduction Date”), not sooner than twelve (12) months in the case of the First Reduction Option and the Second Reduction, or eighteen (18) months in the case of the Third Reduction Option and the Fourth Reduction Option, from the date of the notice, on which Tenant will surrender such space to Landlord.
 
10.4 Unamortized Costs of Tenant Work. If Tenant exercises any Reduction Option with respect to any portion of the Initial Premises with a Reduction Date prior to the end of the Initial Term, then Tenant shall pay to Landlord on or before the Reduction Date an amount equal to the unpaid principal balance as of the Reduction Date based on the amortization of the amount paid by Landlord on account of the Tenant Work with respect to the Initial Premises so included in the Reduction Space pursuant to clause (a) or (b), as applicable, of the first sentence of Section 3.6 of  Exhibit D , over the period of the Term commencing on the date Tenant’s obligations to pay Rent with respect to the subject Reduction Space commences and ending with the last month of the original Term provided in Section 4.1, together with interest at an assumed rate of nine percent (9%) per annum, assuming equal monthly installments of principal and interest payable in advance on the first day of each month commencing with the month in which such Rent commencement occurs.
 
10.5 Surrender. On the Reduction Date, Tenant shall surrender the designated Reduction Space to Landlord in the condition required by Section 15.4 of this Lease. In addition, in connection with such surrender Tenant shall (a) construct any walls necessary to separately demise the Reduction Space from the remainder of the Premises (provided that such wall at Tenant’s option may be constructed with metal studs with one (1) layer of five-eighths inch (5/8") gypsum wall board on one (1) side of such wall (facing the Reduction Space) from the finished floor to the ceiling deck), and (b) cut and cap any portion of the Building Systems providing Services exclusively to the applicable Floor so as to physically separate such Building Systems between the Reduction Space and the remainder of the Premises. Except as may be required under the other terms and conditions of this Lease, neither Landlord nor Tenant shall be required to perform any other improvements or work of any kind in connection with such surrender, including any ceiling or other above-the-ceiling work, and shall not be required to reconfigure any Building Systems in any other manner,
 
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including so as to efficiently serve either the Reduction Space or the remainder of the Premises, or to comply with any Legal Requirements. From and after the Reduction Date, the designated Reduction Space shall no longer be included in the Premises, and Tenant shall have no further obligations with respect thereto, including as to the payment of Rent or other fees, charges or costs with respect thereto.
 
10.6 Relation to First Offer Rights. Notwithstanding anything apparently to the contrary in this Lease, any Reduction Space surrendered by Tenant pursuant to this Article 10 shall not be considered First Offer Space under Article 9 for a period of one (1) year after the Reduction Date with respect to such space. During such one (1) year period Landlord may lease such space to any party or parties, and on such terms and conditions, as Landlord may select in its discretion. Except as provided in this Section 10.6, the exercise of any Reduction Option and the surrender of space pursuant thereto shall not have any effect on Tenant’s rights under this Lease, including the First Offer Right and the Expansion Option.
 
10.7 Lease Amendment. Upon exercise of a Reduction Option by Tenant pursuant to the terms hereof, Landlord and Tenant shall amend this Lease to confirm the applicable reduction of the Premises and the date of such reduction, but failure to execute such amendment shall not affect the rights or obligations of the parties under this Article 10.
 
10.8 Transfer. All of Tenant’s rights under this Article shall apply notwithstanding any assignment of all or any portion of Tenant’s interest in this Lease or any sublease of all or any portion of the Premises.
 
11. Parking Rights
 
11.1 Parking Rights. Landlord hereby agrees to make available to Tenant (or, if Tenant elects, Tenant’s designees) from and after the Base Building Completion Date and thereafter through the Term, parking spaces in the private parking (as opposed to transient parking) portion of the Parking Garage upon the terms and conditions provided in this Article 11.
 
11.2 Adjustment; Allocated Spaces. The number of parking spaces from time to time allocated to Tenant shall be the lesser of (a) one (1) parking space for each two thousand three hundred (2,300) square feet of Rentable Area from time to time in the Premises, or (b) three hundred (300) spaces. The number of parking spaces so allocated to Tenant shall be adjusted concurrently with each adjustment to the size of the Premises (including pursuant to Section 2.1 or Articles 8, 9 or 10), such that any enlargement or reduction in the size of the Premises shall result in a corresponding increase or decrease in the number of parking spaces allocated to Tenant, calculated by applying the ratio set forth in clause (a) of the preceding sentence (i.e., one space for each two thousand three hundred (2,300) square feet of Rentable Area) to the number of square feet of Rentable Area in the Premises, as so enlarged or reduced. Tenant’s election to surrender or reduce any parking spaces shall not
 
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affect its right to obtain additional parking spaces in connection with any subsequent enlargement of the Premises. Spaces allocated to Tenant pursuant to this Section 11.2 shall be referred to as “Allocated Spaces”. Notwithstanding anything apparently to the contrary in this Article 11, during the period occurring between the Base Building Completion Date and the Commencement Date, Tenant shall be obligated to take and pay for, and Landlord shall make available to Tenant and its designees upon five (5) days’ prior notice from Tenant, only such portion of the Allocated Spaces (not in excess of the number allocated in Section 11.1) as Tenant in its sole discretion shall from time to time deem necessary for its occupancy and use of the Premises during such period, including in connection with the performance of the Tenant Work. Such “phased-in” use of the Allocated Spaces shall not limit or affect any of Tenant’s allocation or rights under this Article 11 and shall not be deemed to be a surrender of any parking spaces.
 
11.3 Surrender; Additional Spaces. Notwithstanding the allocations of Allocated Spaces pursuant to Section 11.2, Tenant shall have the right at any time and from time to time from and after the Base Building Completion Date upon not less than thirty (30) days’ prior notice to Landlord to surrender its rights to any parking spaces and to add parking spaces on an “as available” basis. If no spaces are available at the time of any request for spaces by Tenant, Tenant shall be placed on a waiting list with other Building Occupants desiring parking spaces which shall be administered on a “first come, first served” basis; except that Tenant shall have first priority over any party other than Building Occupants, and Landlord shall terminate any parking contracts with any such other parties should Tenant desire to add parking spaces. Spaces taken by Tenant pursuant to this Section 11.3 shall be referred to as “Additional Spaces”.
 
11.4 Reserved Spaces. At Tenant’s election, up to twenty percent (20%) of the total of the Allocated Spaces at any time during the Term shall be reserved and posted for particular users in locations reasonably approved by Tenant, and Tenant shall have the first priority as to the location and selection of such reserved spaces. Landlord shall be responsible, at its expense, for posting such spaces (including changing the names of the posted users as from time to time requested by Tenant), and shall use all reasonable efforts to enforce the exclusivity of such spaces (which efforts shall include, at Tenant’s request, moving the offending vehicles without charge to Tenant or the posted user).
 
11.5 Fees. Tenant (or the holder of a particular parking permit) agrees to pay to Landlord on the first day of each calendar month during the Term a monthly fee for each parking space (including each reserved space): (a) in the case of Allocated Spaces, in the gross amount of (i) from the Base Building Completion Date through the day prior to the eighth (8th) anniversary of the Commencement Date, Two Hundred Twenty-Five Dollars ($225) per month (net of sales, use or similar taxes); (ii) from the eighth (8th) anniversary of the Commencement Date through the remainder of the Initial Term, Two Hundred Fifty Dollars ($250) per month (net of sales, use or similar taxes); and (iii) during any Extension Term(s), ninety percent (90%) of market rate; and (b) in the case of Additional Spaces, market
 
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rate. For purposes of this Article 11, “market rate” shall be the current market rates charged for similar parking spaces from time to time by the operators of comparable parking facilities located in the central business district of Minneapolis, Minnesota, but in no event in excess of the lesser of (a) the rental rate generally charged on a contract basis to other Building Occupants (or their designees), or (b) the lowest monthly rate charged to members of the general public for parking spaces in the Parking Garage. In the event Landlord and Tenant do not agree on such market rate, such dispute shall be resolved by Arbitration. Such market rate shall be determined in the manner and in connection with the determination of Market Base Rental Rate for the subject Extension Term, Expansion Space or First Offer Space, if applicable.
 
11.6 Operating Costs. For each full or partial calendar year occurring during the period of the Term occurring from the fifth (5th) anniversary of the Commencement Date through the remainder of the Initial Term (the “Additional Parking Charge Period”), Tenant shall pay to Landlord, in addition to the monthly fees payable under Section 11.5, a contribution on account of the excess costs of operating the Parking Garage (the “Additional Parking Charge”) equal to the product obtained by multiplying (a) Landlord’s actual, documented out-of-pocket costs in operating the Parking Garage and the ad valorem taxes, assessments and other governmental imposts payable with respect thereto (exclusive of any mark-up, or any management or other fees or any item of cost which is of the kind excluded from Operating Expenses or Real Property Taxes under Sections 7.2.2, 7.2.3 or 7.5) for each such calendar year or portion thereof (the “Additional Parking Expenses”), to the extent such Additional Parking Expenses exceed the average total amount of such Additional Parking Expenses incurred during the periods occurring from the third (3rd) anniversary through the fourth (4th) anniversary and from the fourth (4th) anniversary through the fifth (5th) anniversary, by (b) a fraction, the numerator of which is the average number of Allocated Spaces leased by Tenant during the applicable calendar year or portion thereof (which shall be calculated by adding the number of Allocated Spaces leased by Tenant during each month of such year and dividing the total by twelve (12)) and the denominator of which is the total number of parking spaces located in the Parking Garage. Landlord shall deliver Tenant annual statements of Additional Parking Charge for each such calendar year or portion thereof at the time and in the manner provided in Section 7.3 with respect to Actual Operating Expenses, and Tenant shall pay the Additional Parking Charge on an annual basis within thirty (30) days after receipt of such annual statement. Tenant shall have the same dispute and audit rights with respect to the Additional Parking Expenses and such statements of Landlord as provided in Article 7 with respect to Operating Expenses and Real Estate Taxes.
 
11.7 After Hours Parking. In addition to the Allocated Parking and the Additional Parking, Landlord shall provide Tenant with the lesser of (a) one (1) space for each two thousand three hundred (2,300) square feet of Rentable Area from time to time included in the Premises, or (b) three hundred (300) parking spaces, for after hours parking at a rate of Two and No/100 Dollars ($2.00) per space per day (net of sales, use or similar taxes) and/or Twenty-Five and No/100 Dollars ($25.00) per space per month (net of sales, use or similar
 
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taxes) during the entire Term. Such after hours parking shall be available from 4:00 p.m. to 6:00 a.m., Monday through Friday, and all day on Saturdays, Sundays and holidays of the New York Stock Exchange. Tenant shall advise Landlord from time to time upon not less than one (1) business day telephone notice to Landlord’s property manager of the number of such after hours spaces Tenant shall desire for a particular after hours period.
 
11.8 Secure Parking Area. All parking spaces designated for Tenant’s use pursuant to this Article 11 shall be located in a secure area for contract parkers which is separate from any portions of the Parking Garage which are available for the use of the general public or otherwise made available on a transient basis. Access to such area from all areas (including the exterior of the Building Common Areas and other portions of the Parking Garage) shall be controlled by a separate card key or a similar access control system acceptable to Tenant in its discretion.
 
11.9 Permits Independent of Lease. All permits for parking spaces issued pursuant to this Article 11, whether issued to Tenant or its designees, shall constitute an obligation of the holder of each such permit independent of this Lease, and, subject to Section 19.4 as to which Landlord, Tenant and any such designee shall have the benefit, no default thereunder by Landlord or the holder of such permit or liability with respect thereto shall affect this Lease or any of Landlord’s or Tenant’s rights or obligations hereunder, provided that Landlord may terminate any individual permit for default thereunder in accordance with the provisions thereof, provided that it shall first have given notice of such default to Tenant and an opportunity to cure the same (but without obligation to do so) within ten (10) days thereafter. The form of parking contract, if any, utilized by Landlord with respect to such permits shall be subject to Tenant’s approval, which approval shall not be unreasonably withheld so long as such form is consistent with this Lease.
 
11.10 Transfer. All of Tenant’s rights under this Article at Tenant’s option shall be fully or partially transferable in connection with any assignment of all or any portion of Tenant’s interest in this Lease or any sublease of all or any portion of the Premises.
 
11.11 Subleasing. Tenant and its designees shall have the right from time to time to sublease any of its rights to parking spaces on such terms as Tenant shall desire in its discretion.
 
12. Storage Space
 
12.1 Storage Rights. Landlord hereby agrees to make available to Tenant from and after the Base Building Completion Date, and thereafter through the Term, five thousand (5,000) square feet of Usable Area of storage space in a location within the Building reasonably acceptable to Tenant upon the terms and conditions provided in this Article 12.
 
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12.2 Adjustment; Allocated Storage Space. The amount of storage space allocated to Tenant shall be adjusted concurrently with each adjustment in size of the Premises (including pursuant to Section 2.1 or Articles 8, 9 or 10), such that any enlargement or reduction in the size of the Premises shall result in a corresponding increase or decrease in the amount of storage area allocated to Tenant, calculated by applying (a) the ratio of five thousand (5,000) to the number of square feet of Rentable Area in the Premises on the Commencement Date, to (b) the number of square feet of Rentable Area by which the Premises were enlarged or reduced. Tenant’s election not to surrender or reduce any storage space shall not affect its right to obtain additional storage space in connection with any subsequent enlargement of the Premises. Storage space allocated to Tenant pursuant to this Section 12.2 shall be referred to as “Allocated Storage Space”. Notwithstanding anything apparently to the contrary in this Article 12, during the period between the Base Building Completion Date and the Commencement Date, Tenant shall be obligated to take and pay for, and Landlord shall make available to Tenant, only such portion of the Allocated Storage Space (not in excess of the amount provided in Section 12.1) as Tenant in its sole discretion shall from time to time deem necessary for its use and occupancy of the Premises during such period, including in connection with the performance of the Tenant Work. Such “phased-in” use of the Allocated Storage Space shall not limit or affect any of Tenant’s allocation or rights under this Article 12 and shall not be deemed to be a surrender of any storage space.
 
12.3 Surrender; Additional Storage Space. Notwithstanding the allocation of storage space pursuant to Section 12.2, Tenant shall have the right at any time and from time to time from and after the Base Building Completion Date upon not less than ninety (90) days’ prior notice to Landlord to surrender any portion of the leased storage space and upon not less than thirty (30) days’ notice to add to its then-leased storage space on an “as available” basis. If no storage space is available at the time of any request for space by Tenant, Tenant shall be placed on a waiting list which shall be administered on a “first come, first served” basis. Storage space taken by Tenant pursuant to this Section shall be referred to as “Additional Storage Space”.
 
12.4 First Offer Right. Tenant shall have a right of first offer with respect to storage space in the Building, which shall be administered in accordance with the provisions of Article 9. Storage space taken by Tenant pursuant to this Section 12.4 shall be referred to as “First Offer Storage Space”.
 
12.5 Rent. Tenant shall pay as a gross annual rent for Allocated Storage Space and Additional Storage Space: (a) from the Base Building Completion Date through the day prior to the eighth (8th) anniversary of the Commencement Date, Ten and No/100 Dollars ($10.00) per square foot of Usable Area; (b) from the eighth (8th) anniversary of the Commencement Date through the remainder of the Initial Term; Twelve and No/100 Dollars ($12.00) per square foot of Usable Area; and (c) during any Extension Term(s), ninety percent (90%) of the market gross rental rate for such storage space. Tenant shall pay as gross rental for any First Offer Storage Space the market rental rate for such space. Such gross annual rent shall
 
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be payable in twelve (12) equal monthly installments of one-twelfth (1/12) of the gross annual amount on the first day of each calendar month during the Term. For purposes of this Article, “market gross rental rate” shall be determined under the standards and taking into account the factors to be used in determining Market Base Rental Rate, but in no event in excess of the gross rental rate generally charged on a contract basis to other Building Occupants (or their designees). Such market gross rental rate shall be determined in the manner and in connection with the determination of Market Base Rental Rate for the subject Extension Term, if applicable, with any disputes as to such market gross rental rate being resolved by Arbitration.
 
12.6 Size; Condition. Except with respect to First Offer Storage Space, all storage space shall be provided to Tenant in blocks of not less than one thousand (1,000) square feet of Usable Area. All storage space shall be delivered to Tenant with a clear ceiling height of not less than eight feet (8'), walls consisting of one (1) layer of five-eighths inch (5/8") gypsum board on each side of metal studs or cement or masonry, one 36" lockable entry door with lockset and keys for each entry to such storage space, lighting providing approximately fifty (50) foot candles of illumination throughout the space, and incidental HVAC service to prevent freezing, moisture or dampness, and, in any event, all storage space shall be fire-rated and be provided with fire suppression systems sufficient under Legal Requirements for storage to the maximum extent permissible under Legal Requirements of records, files, papers, furniture, equipment and other materials normally associated with general office use. Landlord shall have no further obligation with respect to the construction or build out of such space.
 
12.7 Incorporation of Waiver. The provisions of Section 19.4 shall apply with full force and effect to any storage space leased by Tenant.
 
12.8 Auxiliary Rooms. Landlord hereby agrees to make available to Tenant from, and after the Base Building Completion Date, and thereafter through the Term at no rent, cost or expense to Tenant (except as provided below), rooms consisting of (a) five hundred (500) square feet of Usable Area on Floor Three (3) for the location, installation and use of Tenant’s stand-by generator, (b) seven hundred fifty (750) square feet of Usable Area on Floor Parking Level One (P1) of the Building for the location, installation and use of Tenant’s communications major point of presence, and (c) three hundred twenty-five (325) square feet of Usable Area on Floor Parking Level One (P1) of the Building for the location, installation and use of Tenant’s communications alternate point of presence, each in the locations respectively specified in the Approved Base Building Plans and Specifications. Tenant may also use such rooms for storage space purposes and/or for such other installations relating to Tenant’s use of the Premises as Tenant shall from time to time desire. The provisions of Section 12.3 (with respect to surrender only), 12.5 (with respect to the room described in clause (a) above only), 12.6, 12.7, and 12.9 shall apply to such auxiliary rooms in the same manner as they apply to Allocated Storage Space. Without limitation to the other requirements of this Lease, Landlord also shall provide throughout the Term at no rent, cost
 
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or expense to Tenant, space for Tenant’s fiber optics hub in the communications major point of presence room for the Building on Floor Parking Level One (P1).
 
12.9 Transfer. All of Tenant’s rights under this Article at Tenant’s option shall be fully or partially transferable in connection with any assignment of all or any portion of Tenant’s interest in this Lease or any sublease of all or any portion of the Premises.
 
13. Services
 
13.1 General Services. Landlord shall cause public utilities or other entities to furnish the electricity, gas, steam, water and other utilities utilized in operating any and all Building Systems. In no event shall Landlord (a) grant to any party the exclusive right to provide any service or utility (other than steam) to the Building or to Building Occupants, (b) charge any provider of any service or utility which Landlord is obligated to provide under this Article 13 any fee or sum whatsoever for access to the Building or any portion thereof, or (c) impose upon any provider of any service or utility to the Building or to Building Occupants any other barriers to entry or limitations on competition (including limitations which are not uniformly imposed upon all service or utility providers), in any event without Tenant’s consent, which may be given or withheld in Tenant’s sole discretion. Tenant shall have the right to select the providers of any services and utilities (other than steam) to Tenant or the Premises in its sole discretion. Landlord shall not extend any of the services described in Section 13.2 to any entities or parties whatsoever other than Tenant and other Building Occupants without Tenant’s consent, which may be given or withheld in Tenant’s sole discretion.
 
13.2 Services to the Building and the Office Space. Landlord shall at all times operate, repair, replace and maintain all Building Systems, and shall provide to the Premises and other portions of the Building during such days and hours as shall from time to time be commensurate with the Minimum Building Standards (except as otherwise provided below), at Landlord’s expense (subject to Article 7), the facilities, utilities and services provided in this Section 13.2 (collectively, “the Services”), all in accordance with: (a) the greater specifications and performance standards provided in the Base Building Shell Condition Requirements or the Approved Base Building Plans and Specifications, if applicable, (b) the Minimum Building Standards (subject to Permitted Physical Limitations), (c) such higher standards and additional hours as Tenant from time to time shall reasonably require (subject to Permitted Physical Limitations), and (d) such additional requirements as shall be provided below. In the event (y) Landlord provides Services to a standard higher than, or during hours in addition to, those otherwise required by this Section 13.2 solely as a result and during the continuance of a Tenant requirement under clause (c) above (which requirement Tenant may withdraw from time to time in its sole discretion), and (z) such Services are provided either to the Common Areas or are of the nature that they must be provided to the leased premises of other Building Occupants without the agreement of such other Building Occupant, then for purposes of Section 7.2.5 such Services shall be deemed to have been provided
 
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disproportionately to the Premises and to the premises of any other Building Occupant who has requested or agreed to receive such disproportionate Services.
 
13.2.1 Heating, Ventilating and Air Conditioning. HVAC and related services as follows: central ventilation, heat and air conditioning in season, at such times, and at temperatures and humidity and in amounts described in  Exhibit G  and to the standards provided above (subject, however, to modification in hours of operation, temperatures or otherwise to the extent required to comply with Legal Requirements or the mandatory requirements of the applicable public utility). Landlord shall provide HVAC at times other than Normal Business Hours on request of Tenant, at rates equivalent to Landlord’s actual, documented out-of-pocket costs of providing such service (without any mark-up or management fee). In the event of any interruption or shortfall in such services, Landlord shall provide the services to the extent available to the Premises on a first priority basis.
 
13.2.2 Elevators. Non-exclusive public elevator service by all elevators serving the Floors on which any portion of the Premises are situated during Normal Business Hours (and by at least two (2) passenger elevators after Normal Business Hours), and freight elevator service by at least two (2) freight elevators serving all Floors on which any portion of the Premises are situated during Normal Business Hours (and, without additional expense to Tenant, after Normal Business Hours if scheduled with Landlord). Tenant at its request shall have the exclusive right to use one (1) such freight elevator during Normal Business Hours, and upon such request Tenant shall confine its freight elevator use to the freight elevator dedicated to Tenant’s use. Upon not less than two (2) days’ notice to Landlord, Tenant also shall have the exclusive right to use the freight elevators during the hours of 6:00 a.m. to 8:00 p.m. on any weekends during which Tenant desires to move into or out of the Premises or any portion thereof; provided, however, after Tenant’s initial occupancy of the entire Premises, any such exclusive use shall be subject to any other freight elevator uses previously scheduled by other Building Occupants of which Landlord notifies Tenant promptly following such notice by Tenant.
 
13.2.3 Light Bulbs. Building standard lamps and ballasts and all replacements thereto in the Premises, and all lamps and ballasts and replacements thereof in all portions of the Common Areas (including all Skyways, elevator lobbies, toilet and restroom areas and stairwells). All such lamps, ballasts, and replacements at all times shall be owned by Landlord and shall be in conformance with the Base Building Shell Condition Requirements.

13.2.4 Building Security. Uniformed guards and/or equipment on a twenty-four (24) hour-per-day, seven (7) day-per-week basis to maintain security for the Building to the standards provided above. Building security staff will provide off-site escort services to all locations within a reasonable distance of the Building. Landlord
 
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shall provide as a part of the Base Building Work one (1) common security desk for the Building, at which Tenant may from time to time station a security guard or visitor check-in attendant. Without limitation to Landlord’s obligations, Tenant shall have the right at its expense from time to time (a) to provide its own security personnel within the Premises or within any elevator bank occupied solely by Tenant, (b) to connect to the Building’s security systems its security personnel and any security equipment installed by Tenant in connection with the Tenant Work and, provided there is sufficient capacity, any additional security equipment installed after the Commencement Date, and (c) subject to the requirements of Article 15, to install security equipment and installations in the Common Areas.
 
13.2.5 Cleaning Services; Tenant Right to Provide Own Cleaning Services; Recycling. Janitorial and cleaning services (including garbage collection and removal, cleaning, and supply of restroom facilities, and maintenance and cleaning of kitchen areas and break rooms, on each Floor of the Building on which any part of the Premises is situated and exterior window washing) in accordance with  Exhibit H  and to the standards provided above, except in those portions of the Premises, if any, designated by Tenant from time to time as not requiring janitorial and cleaning services or as only requiring partial janitorial and cleaning services. Tenant shall have the right at any time and from time to time, upon at least sixty (60) days’ prior notice to Landlord (or thirty (30) days’ notice if Tenant agrees to pay any reasonable penalty payable by Landlord to its cleaning contractor which is due and payable as a result of such notice being less than sixty (60) days) to provide its own janitorial and cleaning service to all or any part of the Premises constituting either the entire Rentable Area leased by Tenant on a particular Floor or an area designated by Tenant as a high security area, either through its own employees or through independent contractors of Tenant’s selection. Tenant shall have the further right, upon at least sixty (60) days’ prior notice, to require Landlord to resume providing such service to any part of the portion of the Premises as to which Tenant is then providing such service, whereupon Landlord shall resume furnishing janitorial service to said portion of the Premises. In negotiating with its cleaning contractor Landlord will endeavor to minimize notice periods and penalties, and in the event the cleaning contractor is an Affiliate or a subsidiary of Landlord, the costs for such cleaning services shall be competitive with the then prevailing rates for services rendered by persons or entities of similar skill, competence and experience and, in any event, no penalty shall be payable by Tenant with respect to the election to provide or discontinue Tenant’s own janitorial service. At any time when Tenant is providing its own janitorial service, an appropriate reduction (based on Landlord’s cost savings) shall be made in Tenant’s Estimated Operating Expense Contribution and Tenant’s Operating Expense Contribution. Landlord shall implement and maintain a recycling program for the Building and all Building Occupants, which program shall include, without limitation, providing recycling receptacles for most paper in all private offices and break, computer, conference, copy and other service rooms, as well as receptacles for newspapers, glass,
 
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magazines, plastic and other recyclables in all break rooms and kitchen areas, and removal and recycling of the same. Tenant shall use reasonable efforts to cause its employees to cooperate with such program.
 
13.2.6 General Maintenance. Maintenance and cleaning of the Building, all Common Areas, the Building exterior and landscaped and other areas in and around the Building; and adequate pest control for the Building.
 
13.2.7 Skyways. The Skyways during at least the hours of 6:30 a.m. to 10:00 p.m., Monday through Saturday, and 10:00 a.m. to 6:00 p.m. on Sundays and Holidays, and during such other times of day and on such hours as any of the retail business located on Floors One (1) or Two (2) of the Building are open for business; provided, however, to the extent (a) any skyway agreement entered into prior to the date of this Agreement for a particular Skyway (other than with respect to the LaSalle Passageway) does not require such Skyway to be open to such extent, and (b) the owner of the other Building connected to such Skyway does not keep the passageways of its building open to such extent, Landlord shall be obligated only to keep such Skyway open only to the greater extent of the agreement described in clause (a) or the hours observed by such other owner in clause (b).
 
13.2.8 Electrical Facilities. Electrical capacity (at the risers in the Building’s core) for each Floor within the Premises.
 
13.2.9 Directory. The building directories described in Article 37.
 
13.2.10 Shuttle Service. At Tenant’s direction and expense, a shuttle service for the exclusive use of Tenant, its personnel and employees and other persons designated from time to time by Tenant from the Building to remote parking ramps and other selected locations in downtown Minneapolis shall be made available by Landlord in a manner acceptable to Tenant.
 
13.2.11 Exhaust Duct. The base building general exhaust duct.
 
13.2.12 Building Risers. The general utility and service risers in the Building core and basement levels.
 
13.2.13 Water. Water for lavatory and drinking purposes to be drawn from the public lavatory in the core of each Floor of the Building on which the Premises are located. Landlord agrees to provide two water coolers per Floor in the locations specified in the Approved Base Building Plans and Specifications.
 
13.2.14 Other Common Areas. The other Common Areas from time to time existing at the Building.
 
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13.2.15 Other Services. Such other facilities, utilities and services as shall be (a) required by Base Building Shell Condition Requirements or the other requirements of this Lease, (b) necessary to meet the Minimum Building Standard (subject to Permitted Physical Limitations), and (c) reasonably requested by Tenant from time to time (subject to Permitted Physical Limitations).
 
The facilities, services and utilities shall be in addition, and not by way of limitation, to the utilities and services to be provided by Landlord during the performance of the Tenant Work as provided in  Exhibit D .
 
13.3 Interruption in Services. Except as expressly provided below or as otherwise provided in this Lease, failure by Landlord to furnish any of the facilities, utilities or services required to be provided by Landlord hereunder, or any cessation in the furnishing of same, shall not render Landlord liable in any respect for damages, nor be construed as an eviction by Landlord, nor work an abatement of rent, nor relieve Tenant from fulfillment of any covenant or agreement hereunder; provided that in any such event Landlord shall exercise best efforts to remove the cause of the failure or cessation and restore the service promptly. If for any reason or cause of any kind or nature whatsoever, other than any governmentally mandated energy or utility conservation program or any damage to the Premises or the Building or Building Systems caused by Tenant willfully, the Premises or any part thereof shall become untenantable as a result of any such failure or cessation and such condition shall continue for at least three (3) full consecutive business days after Tenant shall notify Landlord of such condition, then all Rent shall abate as to such untenantable portion from, after and including the later of (a) the inception of such condition, or (b) the date occurring ten (10) days prior to the commencement of such three (3) day period, until such time as the same becomes tenantable again, provided that if Tenant shall, or could without unreasonable adverse effect on Tenant’s operations, continue to occupy and use such untenantable portion of the Premises such Rent shall abate only to the extent fair and equitable under the circumstances. In the event that more than one-fourth (1/4) of the Rentable Area in the Premises is rendered untenantable as a result of any such failure or cessation and such condition shall continue for more than one hundred eighty (180) days for any reason other than any governmentally mandated energy or utility conservation program or damage by fire or other casualty not caused by Landlord or Tenant willfully, Tenant shall have the right to cancel this Lease as to either the entire Premises or the portion rendered untenantable provided notice of such cancellation is given to Landlord prior to the entire Premises being rendered tenantable. Without limiting the generality of the term “untenantable,” any portion of the Premises (y) which is not in whole or in part served with any facilities and services which are required to be provided by Landlord under this Lease and which are reasonably necessary to the operation of Tenant’s business from the Premises, or (z) the practical use and enjoyment of which by Tenant for the purposes set forth in Section 3.1 shall be materially adversely effected by reason of or in connection with the interruption or cessation of any such facilities, utilities,
 
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or services, shall be deemed to be untenantable regardless of whether Tenant continues to occupy and use such Floor or any portion thereof.
 
13.4 Access, Keys and Locks. Landlord will provide as part of Base Building Work equipment acceptable to Tenant to limit access to the Building after Normal Business Hours. Subject to the other terms and conditions of this Lease, Landlord will provide Tenant with access to the Premises, twenty-four (24) hours a day, seven (7) days per week. Landlord shall, without cost to Tenant, also provide to Tenant security cards or other devices necessary to gain access to the Building, Floors on which the Premises are located, the Parking Garage and areas of the Building where any storage space is located, in number not less than the number from time to time of employees of Tenant or its Affiliates. Any lost, stolen or misplaced cards shall be replaced by Landlord at Tenant’s expense. Tenant may install its own locks on any door of the Premises, in which event Tenant shall supply Landlord with a complete set of keys to such locks; provided that with respect to high security areas of the Premises, Landlord shall not have its own keys but may, in an emergency situation where in Landlord’s good faith judgment immediate entry is required to prevent or minimize serious personal injury, death or property damage, use force to gain entry into such areas, and Landlord shall not be liable to Tenant for damages resulting from such use of force. Upon termination of this Lease, Tenant shall surrender to Landlord all keys to any locks on doors entering or within the Premises, and give to Landlord an explanation of the combinations of all locks for safes, safe cabinets and vault doors in the Premises.
 
13.5 Graphics. Without limitation to Tenant’s rights under Section 36.1, at Tenant’s request, Landlord shall provide and install, at Tenant’s cost, all letters (designating the name of Tenant) and/or numerals (designating the suite number) on entrance doors to the Premises, and all such letters and numerals shall be in the Building standard graphics.
 
14. Condition of Premises
 
Tenant acknowledges that, except as provided in this Lease, Landlord and its agents have made no representation or warranty with respect to the suitability or fitness of the Premises or the Building for the conduct of Tenant’s business.
 
15. Alterations; Removal of Trade Fixtures
 
15.1 Alterations, Additions, Modifications. Except as specifically provided in this Lease (including Exhibit D), Tenant may make any alterations, additions or modifications to the Premises, or its leasehold improvements in the Premises, deemed appropriate by Tenant without any consent or approval by Landlord, except that:
 
15.1.1 Costs Over $50,000. For any alterations, additions or modifications costing on an individual basis in excess of Fifty Thousand Dollars ($50,000) in Constant Dollars (other than cosmetic changes to finish work, such as painting, wallpaper, floor coverings and the like), Tenant shall provide to Landlord a prior
 
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written notification of the action contemplated by Tenant (provided that Tenant need not obtain Landlord’s consent for such alterations, additions or modifications unless otherwise required hereunder);
 
15.1.2 Plans and Specifications. For any alteration, addition or modification to be made pursuant to plans and specifications and for which Landlord’s consent is required, Tenant shall deliver to Landlord at least fifteen (15) days prior to commencement of construction, copies of then current plans and specifications; Tenant shall also deliver within a reasonable time after a request from Landlord, copies of then-current plans and specifications of any other alterations, additions or modifications to the extent the same were prepared and are available.
 
15.1.3 Effect on Exterior Appearance of Building. Except as otherwise expressly permitted under the terms of this Lease (e.g., Section 13.2.4, Articles 5, 36, 37, 39 and 40, and  Exhibit D ), Tenant shall not make any improvements, alterations or additions which are visible from the public areas of the Building or alter the exterior appearance of the Building, without Landlord’s prior approval, which approval shall not be unreasonably withheld; and
 
15.1.4 Effect on Structure, Building Systems. Tenant shall not make any alterations, additions or modifications to the Premises which adversely affect the structural integrity of the Building or materially adversely affect the Building Systems, without the prior written consent of Landlord, which consent shall not be unreasonably withheld so long as Tenant shall eliminate or compensate for such adverse effect, at Tenant’s sole cost and expense.
 
If Landlord fails to disapprove such improvement, addition or alteration within fifteen (15) days after receipt of such plans and specifications, such improvement, addition or alteration, shall be deemed approved by Landlord.
 
15.2 General Provisions. Subject to the provisions of Section 15.1, the following provisions shall apply with respect to all alterations, additions or modifications made by Tenant in the Premises or to its leasehold improvements:
 
15.2.1 Manner of Work. Such alterations, additions or modifications shall be constructed and completed in a good and workmanlike manner and in compliance with all Legal Requirements at Tenant’s sole cost and expense, and shall be made, to the extent reasonably practicable, in such manner and at such times as not to materially and unreasonably interfere with the use and enjoyment of other space in the Building by other Building Occupants, and so as not to unreasonably interfere with normal Building operations or any work then being done by Landlord (or its contractors) in or on the Building or parts thereof.
 
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15.2.2 Indemnification. Subject to Section 19.4, Tenant shall indemnify, protect, defend and hold Landlord harmless from (a) any claims, suits, damages, loss, cost or expense, including reasonable attorneys’ fees and costs, incurred by Landlord as a result of any defects in design, materials or workmanship arising from work performed by Tenant under this Article 15 (provided, however, that Tenant shall not be responsible for, and is hereby released from and indemnified against claims resulting from, the use of Tenant’s alterations, improvements or additions by Landlord or any other Building Occupant after the expiration or earlier termination of this Lease), and (b) any mechanic’s or materialmen’s lien or claim thereof arising out of such work. All materialmen, contractors, artisans, mechanics, laborers and other parties hereafter contracting with Tenant for the furnishing of any labor, services, materials, supplies or equipment with respect to any portion of the Premises are hereby charged with notice that they must look solely to Tenant for payment for same. Nothing contained in this Section 15.2.3 shall preclude Tenant from contesting any lien or claim mentioned herein, so long as Tenant shall bond against same or otherwise secure such claim to the reasonable satisfaction of Landlord.
 
15.2.3 Insurance. Tenant will carry and maintain, or cause to be carried and maintained by contractors performing such work, worker’s compensation and liability insurance policies (in amounts and coverage required by statute in the case of worker’s compensation insurance, and in the case of liability insurance in amounts not in excess of Five Million Dollars ($5,000,000) in Constant Dollars (except that no contractor shall be required to carry more than One Million Dollars ($1,000,000) in Constant Dollars)) naming Landlord as an additional insured, and certified copies of all such policies or certificates thereof shall be delivered to Landlord prior to commencement of such work by the contractor in question. Each such policy shall provide that the same may not be canceled except upon at least ten (10) days’ prior written notice to Landlord.
 
15.3 Title at End of Lease Term. Any and all additions, alterations, or improvements to the Premises shall be and remain the property of Tenant at all times during the Term of this Lease, provided that any of the same which are not removed by Tenant shall become the property of Landlord upon the expiration or earlier termination of this Lease.
 
l5.4 Surrender of Premises.
 
15.4.1 Condition. Upon the expiration of the Term of this Lease or the earlier termination hereof, Tenant shall quit and surrender possession of the Premises to Landlord in as good order and condition as the Premises hereafter may be improved by Landlord or Tenant, reasonable wear and tear, repairs which are Landlord’s obligation, and damage or destruction by fire or other casualty or cause or condemnation excepted.
 
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15.4.2 Condition of Premises Upon Expiration of Lease. Notwithstanding the foregoing but subject to the provisions of Article 19, upon the expiration of this Lease Tenant shall not have any obligation, notwithstanding Section 15.4.3, to patch, repair or replace finish work such as wallcoverings, paint, carpeting or to patch, repair or cover holes in the wall, floor or ceiling left by the removal of Trade Fixtures or other property of Tenant, provided such removal is accomplished by reasonable means under the circumstances.
 
15.4.3 Removal of Trade Fixtures, Equipment, etc. Notwithstanding any provisions of this Lease to the contrary but subject to Article 19, at any time during the Term of this Lease, Tenant shall at all times own and retain title to and shall have the right to remove its movable equipment, furniture, furnishings and personal property placed upon or in the Premises by Tenant, as well as any Trade Fixtures (hereinafter defined), provided in each and every case:
 
(a) Such removal is effected without material damage to the Base Building and, with respect to the Trade Fixtures within the Premises, such removal is effected by reasonable means under the circumstances, failing which Tenant, at its expense, promptly repairs any such damage caused by such removal; and
 
(b) Any property not removed by Tenant upon the expiration or sooner termination of the Term and recovery of possession by Landlord shall thereupon become the property of Landlord and its sole responsibility, and Tenant shall have no further obligation in connection therewith, provided that Tenant in any event shall remove all of its unattached personal property from the Premises at the end of the Term.
 
16. Repairs
 
16.1 Repairs by Landlord. Except for Tenant’s obligations specifically set forth in Section 16.2, Landlord shall make all repairs and replacements to and perform necessary maintenance, repair, refurbishing and replacement work upon the Premises (including all elevator lobbies, restrooms and ceiling and above-the-ceiling improvements or work, whether included in the Tenant Work or the Base Building Work) and the Building and all parts thereof, including the footings, foundations, walls, floors, Building Systems and other structures and equipment, Common Areas and facilities, the landscaping and all other exterior improvements, and all other aspects of the Building included in the Base Building Work necessary to keep the same in accordance with Minimum Building Standards (subject to Permitted Physical Limitations). Notwithstanding the foregoing provisions, but subject to the provisions of Section 19.4 and Articles 20 and 21 below, Tenant shall reimburse Landlord for the reasonable, documented out-of-pocket costs incurred by Landlord in making any repairs to the Building which are required as a result of any misuse or neglect of the same by Tenant or
 
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any of its officers, agents, employees, contractors or licensees while in or about the Premises or any other part of the Building.
 
16.2 Repairs by Tenant. Tenant shall make all repairs and replacements to and perform necessary maintenance, repair, refurbishing and replacement work to the aspects of the Premises included in the Tenant Work or in any alterations, improvements or additions to the Premises performed by Tenant (other than any elevator lobbies, restrooms, or ceiling and above-the-ceiling improvements or work which shall be repaired by Landlord pursuant to Section 16.1) necessary to keep the same in a first class order, condition and repair.
 
16.3 Failure by Landlord or Tenant to Repair. If either Landlord or Tenant fails or refuses to make repairs or replacements as required under this Lease within thirty (30) days after notice from the other party (and for such longer period of time as may be reasonably needed to cure such failure or refusal as long as the failing or refusing party shall promptly undertake to cure and shall diligently pursue such cure to completion), then the other party may, at its option but without any obligation to do so, make such repairs or replacements. The party so failing or refusing to make such repairs and replacements shall repay to the other party the reasonable documented out-of-pocket costs thereof (plus ten percent (10%) thereof to cover overhead, (which overhead charge, to the extent applicable to repairs and replacements made by any Building maintenance personnel, if paid by Tenant shall reduce Operating Expenses under Section 7.2.2)) within ten (10) days after receipt of detailed invoices therefor. If Landlord shall fail to make such payment, Tenant shall have the right to deduct such costs and overhead from the Rent coming due under this Lease, in addition to any other right or remedy.
 
16.4 Standards/Code Compliance. Without limitation to any other provision of this Lease (but subject to the provisions of Section 3.3), Landlord shall maintain all components and elements of the Building and Premises over which Landlord has repair responsibility under Section 16.1 (including (but subject to the provision of Section 3.3) all public and quasi-public areas) at all times during the Term in compliance with all Legal Requirements (including the Americans with Disabilities Act), assuming the anticipated density of occupation and relative proportion of private offices to open floor plan space provided in Section 2.2.1 of  Exhibit D ; provided, however, that if any such Legal Requirement shall require a change, alteration or modification to the Building, Landlord may take advantage of any applicable “grandfathering” or similar provision which would allow the Building to operate under the previously existing standard or which would allow Landlord to delay the timing of its compliance therewith, provided that such delay shall be without damage or risk to the person or property of Tenant and consistent with Landlord’s requirements to maintain and operate the Building in a manner consistent with the Minimum Building Standards.
 
16.5 Electro-Magnetic Fields. Landlord shall design, maintain and operate the Building so as to minimize any damage, interruption or disturbance to the Building Systems, the Services or to the Tenant Work, Tenant’s Trade Fixtures and Tenant’s other equipment as
 
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a result of any electro-magentic fields generated by or as a result of any cause other than the Tenant Work, Tenant’s alterations or improvements, or Tenant’s operations. In the event of any such damage, interruption or disturbance, Landlord shall promptly use due diligence (consistent with the Minimum Building Standards, subject to Permitted Physical Limitations) so as to eliminate such condition.
 
17. Tenant’s Personal Property Taxes and Rent Taxes
 
17.1 Payment of Personal Property Taxes. At least ten (10) days prior to delinquency, Tenant shall pay all taxes levied or assessed upon any equipment, furniture and other personal property owned by Tenant and located in or about the Premises.
 
17.2 Rent Taxes. Tenant shall indemnify Landlord for any tax or excise on rents, gross receipts tax, or other tax, however described, which is levied or assessed by the United States of America, the State of Minnesota or any political subdivision thereof, against Landlord in respect to the Rent reserved under this Lease; provided, however, Tenant shall have no obligation to indemnify Landlord for any items included in or excluded from Real Property Taxes pursuant to Section 7.5; further provided, however, in the event any such tax is progressive in nature, Tenant’s liability therefor shall be limited to the amount of such tax which would be imposed on the Rent reserved under this Lease if the only rent earned or payable to Landlord were the rent generated from the Building.
 
17.3 Exclusion from Real Property Taxes. The portion of taxes payable by Tenant pursuant to Sections 17.1 and 17.2 hereof and by other Building Occupants pursuant to similar provisions in their leases shall be excluded from Real Property Taxes for purposes of calculating Operating Expenses pursuant to Article 7 hereof.
 
18. Entry for Repairs and Inspection
 
Tenant shall permit Landlord or its agents or representatives to enter into and upon any part of the Premises at all reasonable hours after giving reasonable prior notice to Tenant (considering the circumstances), giving due attention and consideration to Tenant’s security and in such a manner as to cause as little disturbance as reasonably possible (including to the extent reasonably possible, limiting such entry to other than during Normal Business Hours), to inspect the same, clean or make repairs, alterations or additions thereto or to the Base Building, to show the space to prospective insurers, mortgagees, purchasers, partners, tenants (during the final twelve (12) months of the Term only), or appraisers, to repair adjacent tenant space and to cure defaults of Tenant, as Landlord may deem necessary or desirable, and Tenant shall not, except as otherwise provided in this Article 18 or elsewhere in this Lease, be entitled to any abatement or reduction of rent by reason thereof; provided, however, Landlord shall not interfere with Tenant’s use and enjoyment of the Premises, except to the extent necessary under existing circumstances (in which event, in the cases of repair, alteration or additions other than those necessary to cure Tenant’s default, Tenant shall be entitled to an
 
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abatement of rent on a fair and equitable basis if such interference materially adversely affects Tenant and lasts for more than two (2) consecutive business days). Tenant shall have the right to have a representative of Tenant accompany any parties (including Landlord or its agents or representatives) so entering the Premises. In no event shall Landlord enter into any area of the Premises designated by Tenant as a high security area unless accompanied by a representative of Tenant (who shall be reasonably available upon request of Landlord) or in the event of an emergency in respect of which emergency situation the provisions of Section 13.4 shall apply.
 
19. Insurance; Indemnification; Release
 
19.1 Property Insurance. Landlord shall at all times from and after commencement of construction of the Building and thereafter during the Term maintain “all risk” coverage (which may exclude coverage for earthquake and flood perils) property insurance on the Building (including the Tenant Work and any Tenant alterations, improvements or additions), which insurance shall not exclude coverage for sprinkler damage, vandalism and malicious mischief and shall include a Building Ordinance endorsement and a demolition endorsement, and to the extent boilers or pressure vessels are used at the Building, boiler and pressure vessel explosion coverage. Said insurance shall be maintained with a responsible insurance company qualified to do business in Minnesota, in an amount not less than one hundred percent (100%) of their actual replacement cost from time to time during the Term with a deductible or deductibles which are no greater than those consistent with the Minimum Building Standards, and at the expense of Landlord (but with the same to be included as an Operating Expense to the extent allocable to the period after the Rent Commencement Date), and payments for losses thereunder shall be made to Landlord, if the loss is under Two Hundred Fifty Thousand Dollars ($250,000) in Constant Dollars and otherwise to an insurance trustee or title insurance company reasonably acceptable to Landlord and Tenant, or to the institutional holder of a Mortgage who agrees in writing for Tenant’s benefit to hold and disburse all such payments in accordance with this Lease, for disbursement in accordance with and for the purposes required by this Lease. Said “all risk coverage” insurance policy shall contain no risk of coinsurance by Landlord by reason of the insured value of the Project being less than the actual value of the Project. Tenant may at its own cost and expense, procure and maintain in effect policies of insurance covering all Trade Fixtures, merchandise and other personal property from time to time in, on or upon the Premises (excluding the Tenant Work and any Tenant alterations, improvements or additions). The proceeds of such insurance carried by Landlord shall be applied in accordance with this Lease for the repair or replacement of the property so insured.
 
19.2 Liability Insurance. Landlord and Tenant shall each, at their respective own expense, maintain a policy or policies of commercial general liability insurance with the premiums thereon fully paid on or before the due dates, such insurance to afford minimum protection (which may be effected by primary and/or excess coverage) of not less than, in the case of Landlord, Ten Million Dollars ($10,000,000) in Constant Dollars in respect of personal injury or death in respect of any one occurrence, Ten Million Dollars ($10,000,000)
 
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in Constant Dollars in respect of property damage in any one occurrence, or with a combined single limit of not less than Ten Million Dollars ($10,000,000) in Constant Dollars for any occurrence, and, in the case of Tenant, Five Million Dollars ($5,000,000) in Constant Dollars in respect of personal injury or death in respect of any one occurrence, One Million Dollars ($1,000,000) in Constant Dollars in respect of property damage in any one occurrence, or with a combined single limit of Five Million Dollars ($5,000,000) in Constant Dollars, or such higher or lower amounts as may be reasonably carried from time to time by landlords and tenants in the respective positions of Landlord and Tenant. Landlord shall cause Tenant to be named as an additional insured with respect to the Building and Land (but not the Premises) and Tenant shall cause Landlord to be named as an additional insured with respect to the Premises.
 
19.3 Policy Requirements. All insurance required to be carried by Landlord or Tenant hereunder shall be issued by responsible insurance companies rated A:IX or better by Best’s Insurance Reports, which may legally issue such a policy in the State of Minnesota. Certificates evidencing the existence and amounts of insurance policies required to be carried by Tenant hereunder, or upon the prior request of Landlord, copies of such policies, shall be delivered to Landlord by Tenant at least ten (10) days prior to any Delivery Date. Landlord shall provide Tenant with certificates evidencing the insurance that Landlord is obligated to maintain under this Lease or upon the prior request of Tenant, copies of such policies. Each policy of insurance required to be maintained under this Article 19 shall provide that it shall not be cancellable or subject to reduction of coverage or otherwise subject to modification except after thirty (30) days prior written notice to the parties named as insureds or additional insureds, and with respect to Landlord’s property insurance maintained under Section 19.1, to Tenant. Tenant shall, at least seven (7) days prior to the expiration of any policy, furnish Landlord with certificates of renewal or certificates of replacement policies which fully comply with the requirements of this Lease, or Landlord may order such insurance and charge the cost thereof to Tenant, which amount shall be payable by Tenant upon demand. Landlord shall, at least seven (7) days prior to the expiration of Landlord’s property insurance maintained under Section 19.1, furnish Tenant with a certificate of renewal or certificate of replacement policy. Any policy may be carried under so-called “blanket coverage” form of insurance policies, provided any such blanket policy specifically provides that the amount of insurance coverage required hereunder shall in no way be prejudiced by other losses covered by the policy.
 
19.4 Waiver of Liability and Subrogation Rights. Anything in this Lease (including Exhibit D and Section 19.5) to the contrary notwithstanding, Landlord and Tenant each hereby waive any and all rights of recovery, claim, action or cause of action, against the other, its agents, representatives, members, directors, officers, shareholders, partners or employees, for any loss or damage that may occur to the Premises or the Building, or any improvements thereto, or any personal or other property of such party, by reason of fire, the elements, or any other cause which could be insured against under the terms of the fire and “all risk” coverage insurance policies referred to in Section 19.1 hereof, regardless of cause or origin, including
 
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negligence or intentional acts of the other party hereto, its agents, representatives, members, directors, officers, shareholders, partners or employees.
 
19.5 Hold Harmless. Subject to the express terms of this Lease to the contrary, (a) Tenant hereby agrees to defend, indemnify and hold harmless Landlord from any and all claims, liabilities, causes of action or costs (including reasonable attorneys’ fees and costs of suit) to the extent they arise out of (or are alleged to arise out of) any negligent or otherwise wrongful act or omission of Tenant or its Affiliates or their officers, directors, agents, servants, employees, and representatives acting within the scope of their agency, employment, contract or representation, and (b) Landlord hereby agrees to defend, indemnify and hold harmless Tenant from any and all claims, liabilities, causes of action or costs (including reasonable attorneys’ fees and costs of suit) to the extent they arise out of (or are alleged to arise out of) any negligent or otherwise wrongful act or omission of Landlord or its Affiliates or their officers, directors, agents, servants, employees, and representatives acting within the scope of their agency, employment, contract or representation. Subject to Section 19.4, Landlord hereby agrees to defend, indemnify and hold harmless Tenant from (y) any and all claims, liabilities, causes of action or costs (including reasonable attorneys’ fees and costs of suit) incurred by Tenant as a result of any defects in design, materials or workmanship arising from any repairs, alterations or other work by Landlord in or to the Premises, the Common Areas or any other portion of the Building or the Land, and (z) any mechanic’s or materialmen’s lien or claims thereof arising out of any such work.
 
20. Damage or Destruction
 
20.1 Damage; Determination of Repair Time. In the event of any damage to the Premises or any other portion of the Building by fire or other casualty or any other cause occurring after the Commencement Date (“Damage”), Landlord and Tenant shall attempt to agree on (a) the estimated period (the “Estimated Repair Period”) it will take to substantially complete the repair of the Damage, including the Premises and the Common Areas, necessary to restore the Base Building Work, Tenant Work and Tenant Alterations to the condition in which they existed immediately prior to the Damage with any changes or modifications as may be required by Tenant or under Legal Requirements (such work, the “Landlord Repair Work”), employing normal construction methods without overtime or other premium and considering, without limitation, the estimated period of time reasonably necessary for Landlord to obtain any insurance proceeds payable to Landlord as a result of such Damage (not to exceed in any event thirty (30) days, regardless of when they may actually be payable), (b) the estimated date (the “Estimated Repair Completion Date”) upon which the Landlord Repair Work can reasonably be completed, considering such period and circumstances, and (c) if applicable pursuant to Section 20.3.3, the estimated cost (the “Estimated Repair Cost”) of performing the Landlord Repair Work. If Landlord and Tenant do not agree for any reason on the Estimated Repair Period, Estimated Repair Completion Date and Estimated Repair Cost within fifteen (15) days after such Damage, then Landlord shall, within five (5) days thereafter, select an architect to make such determinations, failing which Tenant may select an
 
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architect. Such architect shall be subject to the reasonable approval of Tenant. The determinations of such architect shall be made within thirty (30) days after the date of such casualty and shall be binding and conclusive. The date on which such agreements are reached or such determinations are received by Landlord and Tenant shall hereafter be referred to as the “Trigger Date”. Landlord agrees to provide to Tenant promptly upon Landlord’s receipt copies of any opinions or reports (including any preliminary or draft reports, whether written or unwritten summaries of any oral opinions or reports) by its engineers, architects or contractors regarding the Estimated Repair Period, Estimated Repair Completion Date and Estimated Repair Cost.
 
20.2 Obligation to Repair. Unless this Lease is terminated pursuant to Section 20.3, Landlord shall commence the Landlord Repair Work as soon as reasonably possible and in any event within ninety (90) days after the date of the Damage and shall thereafter diligently pursue the Landlord Repair Work to completion.
 
20.3 Options to Terminate.
 
20.3.1 Initial Termination Rights. If (a) it is agreed or determined pursuant to Section 20.1 that the Estimated Repair Completion Date occurs more than one (1) year after the date of the Damage, and (b) the Damage is to all or any portion of the Premises, then either Landlord or Tenant may terminate this Lease; provided, however, if the Estimated Repair Period is three (3) years or less, Tenant shall have the right, exercised by notice to Landlord given within forty-five (45) days after the Trigger Date to extend such one (1) year period for an additional period which, together with the unexpired portion of such one (1) year period, if any, equals or exceeds the Estimated Repair Period, thereby negating any termination by Landlord. Notwithstanding the foregoing, if Landlord determines that it can commence and complete the Landlord Repair Work within the times required by this Lease such that Tenant would not have a right to terminate this Lease pursuant to any provision within this Section 20.3.1, then Landlord shall give notice thereof to Tenant and immediately commence and prosecute the Landlord Repair Work to completion with all due diligence and in accordance with all provisions hereof. No such determination by Landlord shall be binding on Tenant and no such commencement or prosecution of the Landlord Repair Work shall affect Tenant’s rights under this Article 20. If (a) the Estimated Repair Period is greater than one (1) year, and (b) such Damage has a material adverse impact on the operation or Tenant’s use of the Common Areas, Parking Garage, or other Building amenities, Tenant may terminate this Lease. Any such termination shall be exercised by the terminating party by giving notice to the other party within thirty (30) days after the Trigger Date, and shall, subject to Section 20.7, be effective not less than thirty (30) nor more than sixty (60) days after such notice of termination is given. Notwithstanding the foregoing, Landlord shall not terminate this Lease pursuant to this Section 20.3.1 unless it also terminates all other leases in the Building which it has the right to terminate.
 
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20.3.2 Additional Tenant Termination Rights. If Landlord fails to commence and proceed with the Landlord Repair Work as provided in Section 20.2, Tenant may give Landlord notice to do so. If Landlord has not commenced the Landlord Repair Work within fifteen (15) days after Tenant’s notice, Tenant may terminate this Lease (at Tenant’s election as to the entire Premises or the Damaged portion only) by notice given to Landlord within thirty (30) days after expiration of such fifteen (15) day period. If Landlord has not substantially completed the Landlord Repair Work within the time period allowed Landlord to do so under Section 20.3.1 (with any extension not in excess of one hundred twenty (120) days, in the aggregate, on account of Unavoidable Delay), Tenant may terminate this Lease by notice given to Landlord within thirty (30) days after the expiration of such period. Such termination shall, subject to Section 20.7, be effective not less than thirty (30) and nor more than sixty (60) days after such notice of termination is given.
 
20.3.3 Damage at End of Term. If (a) the Premises are Damaged (i) after the last date Tenant may, but did not, exercise an Extension Option pursuant to Section 4.3.3, or (ii) during the last twenty-four (24) months of the third Extension Term, and (b) the Estimated Repair Cost exceeds, if such Damage occurs during the first twelve (12) months of the last twenty-four (24) months of the Term, fifty percent (50%), or if such Damage occurs during the last twelve (12) months of the Term, fifteen percent (15%), of the replacement cost of the Building above ground level, then either Landlord or Tenant may terminate this Lease by giving written notice thereof to the other party given within thirty (30) days after the Trigger Date. Such termination shall, subject to Section 20.7, be effective not less than thirty (30) nor more than sixty (60) days after such notice of termination is given.
 
20.4 Business Unit Vacation. If (a) one (1) or more Floors of the Premises is rendered untenantable by Damage, (b) such Floor or Floors were occupied at the time of the Damage by a discrete, identified business unit of Tenant or any Affiliate of Tenant, which business unit also occupied at such time one (1) or more Floors contiguous with the untenantable Floor or Floors (such occupied contiguous space, the “Related Space”), (c) Tenant determines in the exercise of its good faith business judgment that such business unit cannot practicably operate except in a single, contiguous location and cannot practicably be consolidated into other portions of the Premises, and (d) Landlord is obligated under this Article 20 to restore the portion of the Premises so Damaged and rendered untenantable, then Tenant may elect to vacate the Related Space regardless of the number of business units or amount of Related Space affected by the Damage in question. Tenant shall make such election, if at all, by notice to Landlord given within sixty (60) days after the date of the Damage. If Tenant so elects to vacate the Related Space it shall do so within ninety (90) days after it notifies Landlord of such election.
 
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20.5 Abatement. In the event all or part of the Premises or the Building is Damaged, the Rent payable by Tenant hereunder shall be abated (a) in full from the date of such Damage with respect to that portion of the Premises which are thereby rendered untenantable and in which Tenant no longer operates Tenant’s business, (b) to the extent fair and equitable from the date of such Damage with respect to that portion of the Premises which are thereby rendered untenantable but in which Tenant continues to conduct Tenant’s business, and (c) in full from the date Tenant vacates the space with respect to the Related Space as to which Tenant timely makes the election to vacate pursuant to Section 20.4. Such abatement shall continue in either case until the earlier of (a) sixty (60) days after the Landlord Repair Work is completed, or (b) the date Tenant re-occupies and commences business operations in such portion of the Premises. Unless prohibited by Legal Requirements and subject to Landlord’s reasonable requirements in connection with performance of the Landlord Repair Work, Tenant shall have the right to continue to occupy any Damaged portions of the Premises even though the same may be untenantable. Landlord shall be obligated to repair or provide services to such Damaged space only to the extent reasonable under the circumstances. As used in this Article 20, “untenantable” shall include any material adverse effect on the Premises and Tenant’s use thereof or access thereto, including the inability of Tenant to lawfully occupy or use any part of the Premises by reason of any order or direction of any governmental authority, whether or not the Premises or any particular portion thereof are damaged.
 
20.6 Lease Termination; Proration of Rent. Any termination of the Lease by Tenant pursuant to Section 20.3 at Tenant’s election, exercised at the time Tenant gives notice of termination, may be as to all or any portion of the Premises (whether or not Damaged), provided that after the effective date of any partial termination the Premises shall contain not less than two hundred thousand (200,000) square feet of Rentable Area. In the event of a termination pursuant to Section 20.3, the estate and interest of the Tenant in the portion of the Premises so terminated shall terminate and expire on the date specified in the notice of termination and the Rent allocable hereunder shall be prorated as of such date, subject to abatement of Rent (including refund of any prepaid Rent) to the extent provided in Section 20.5 and the parties’ rights and obligations under Section 20.7.
 
20.7 Limited Continuation of Lease. Notwithstanding any other provision of this Article 20, if (a) Landlord terminates this Lease in accordance with Section 20.3, or (b) Tenant terminates this Lease as to all or any portion of the Premises in accordance with Section 20.3 and, in the case of termination by Landlord, Tenant elects by notice given to Landlord within twenty (20) days thereafter, or in the case of termination by Tenant, Tenant in the notice of termination expressly reserves the right pursuant to this Section 20.7, to remain in the portion of the Premises so terminated (the “Retained Premises”), then, unless prohibited by Legal Requirements, (w) this Lease shall continue in effect as to the Retained Premises for a period after the date of the Damage as determined by Tenant not in excess of (i) two (2) years in the event the collective Rentable Area of (A) the Retained Premises, and (B) in the event of a termination by Tenant, the portion of the Premises as to which the Lease is not
 
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terminated, is not less than one hundred thousand (100,000) square feet, and (ii) six (6) months otherwise, (x) Tenant may make such repairs thereto as Tenant may elect in its discretion to make without contribution from Landlord, (y) Tenant shall pay all Rent allocable to the undamaged portions of the Retained Premises for such period without abatement or reduction as a result of such Damage, and with abatement for any untenantable portions of the Retained Premises as provided in this Article 20, and (z) Landlord shall be obligated to perform its obligations under this Lease in respect of the Retained Premises and the Building only to the extent reasonable under the circumstances. Any such continued possession may be terminated by Tenant at any time by giving not less than thirty (30) days’ notice to Landlord.
 
20.8 Base Building Work. Nothing in this Article 20 shall in any manner affect Landlord’s obligations or Tenant’s rights under Article 5 or  Exhibit D .
 
21. Eminent Domain
 
21.1 Termination.
 
21.1.1 Appropriation of Entire Premises. If all or substantially all of the Premises and/or the Building are condemned or taken in any manner for public or quasi-public use under the power of eminent domain or by conveyance in lieu thereof (an “Appropriation”) before or during the Term, this Lease shall automatically terminate as of the date the public authority takes possession pursuant to the Appropriation (the “Appropriation Date”).
 
21.1.2 Partial Appropriation. If during the Term only part of the Building is Appropriated, then:
 
(a) If fifty percent (50%) or more of the Rentable Area of the Building is Appropriated on a permanent basis, whether or not the Premises are or may be affected, Landlord may terminate this Lease;
 
(b) If any such Appropriation materially, permanently or temporarily (for more than sixty (60) days), and adversely interferes with Tenant’s ability to operate its business in the Premises (including access thereto), Tenant may terminate this Lease;
 
(c) If five percent (5%) or more Rentable Area of the Premises is Appropriated permanently or temporarily (for more than sixty (60) days), Tenant may terminate this Lease.
 
Any such termination shall be exercised during the sixty (60) day period commencing on the Appropriation Date by giving at least thirty (30) days’ notice to the other party. If either party
 
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so exercises its right of termination hereunder, this Lease shall terminate on the date stated in the notice.
 
21.2 Termination as to Premises Appropriated. If any part of the Premises is Appropriated, this Lease shall automatically terminate as to the portion of the Premises so Appropriated as of the Appropriation Date whether or not this Lease is terminated pursuant to Section 21.1 above.
 
21.3 Restoration. In the event part of the Building is Appropriated and this Lease is not thereby terminated, Landlord shall proceed expeditiously to restore the Building and the Premises, as the case may be, to as near the condition which existed immediately prior to such Appropriation as is reasonably possible, provided Tenant shall have the additional right to terminate this Lease if such restoration has not been substantially completed within twelve (12) months after such Appropriation by notice given to Landlord within thirty (30) days after the expiration of such twelve (12) month period.
 
21.4 Award. Landlord shall be entitled to the entire award in any proceeding for Appropriation of the Premises or any other portion of the Building, except that Tenant shall be entitled to any award made to Tenant for its relocation expenses or the taking of personal property or Trade Fixtures belonging to Tenant.
 
21.5 Rent Abatement. In the event of a partial Appropriation which does not result in a termination of this Lease as to the entire Premises, Rent shall be abated in proportion to the portion of the Premises rendered untenantable by the Appropriation during the period of such untenantability.
 
21.6 Temporary Appropriation. Notwithstanding any other provision hereof, in the event of a temporary Appropriation for a period of less than sixty (60) days, this Lease shall remain in full force and effect and Tenant shall continue to perform all of the terms, conditions and covenants of this Lease, including the payment of Base Rental and all other amounts required hereunder. Tenant shall be entitled to receive the entire award made in connection with any temporary Appropriation for a limited period of time of the Premises attributable to any period within the Term of this Lease. Landlord shall be entitled to the entire award for any temporary Appropriation of the Premises which relates to a period after the expiration of the Term of this Lease, or which is allocable to the cost of restoration of the Premises. If any such temporary Appropriation terminates prior to the expiration of the Term of this Lease, Tenant at its option may restore the Premises to its condition prior to the temporary Appropriation, at Tenant’s sole cost and expense, provided Tenant receives the portion of the award attributable to such restoration.
 
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22. Assignment and Subletting by Tenant
 
Tenant shall have the unconditional right to assign this Lease (including any or all of the expansion, renewal, space reduction and adjustment options or offer or refusal rights or other rights provided to Tenant herein (collectively, “Adjustment Rights”)) or to sublease all or any portion of the Premises to any person without the need for any consent or approval from Landlord or any other party, provided that no such assignment or sublease shall operate to release Tenant from any liability hereunder. No compensation shall be payable to Landlord in connection with any assignment or sublease; all income and profits arising from any such assignment or sublease shall be retained by Tenant. Tenant shall give Landlord at least ten (10) days’ notice of any such assignment or sublease and the identity of the assignee or sublessee, but failure to do so shall not constitute a default under this Lease.
 
23. Transfer of Landlord’s Interest; Management
 
23.1 Transfer by Landlord. Landlord may sell, assign, convey or otherwise transfer, subject to this Lease, Landlord’s estate, right, title and interest hereunder and in the Land and Building or any portion thereof without the consent of Tenant; provided, however, with the exception of instruments providing security for the financing of the Building for which Tenant has received a non-disturbance agreement as described in Article 25, Landlord shall not sell, assign, convey or otherwise transfer Landlord’s right, title and interest hereunder or in the Land or Building, or any direct or indirect interest in the entity owning or holding said right, title or interest at any time prior to the Commencement Date, the completion of all of Landlord’s obligations with respect to the performance of the Base Building Work and the Tenant Work and the disbursement or application pursuant to Section 3.6 of  Exhibit D  of the entire amount payable by Landlord pursuant to said Section 3.6. If, in compliance with the foregoing provisions of this Section 23.1, Landlord conveys the fee simple title to the Land and the Building and all of its right, title and interest therein, including this Lease and all other leases and agreement affecting the Land and the Building, and if the transferee in a writing for Tenant’s benefit expressly and unqualifiedly (x) assumes this Lease, (y) agrees to pay and perform all obligations of Landlord which arise on and after the date of such conveyance, and (z) agrees to pay and perform all obligations of Landlord which arise prior to the date of such conveyance as shall be in default at the time of conveyance and, if an estoppel certificate is required of Tenant in connection with such conveyance, shall have been described in such certificate, then such conveying Landlord shall be released of liability for any obligations which first arise on or after the date of such conveyance. Nothing in this Article 23 shall be deemed to limit Tenant’s exercise of any of its abatement, offset, self-help or similar rights or remedies provided in this Lease, irrespective of whether any circumstances giving rise to exercise of any such rights or remedies arises or occurs before or after any such conveyance, provided Tenant describes in any estoppel certificate required of Tenant in connection with such a conveyance any such circumstances which exist and of which Tenant has actual knowledge as of the date of such certificate.
 
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23.2 Management. Tenant shall have the right during the Term to approve any managing agent and management personnel for the Building, which approval shall not be unreasonably withheld. Tenant agrees to approve an Affiliate of Landlord as the initial manager of the Building.
 
23.3 Limitation of Liability. Except for Landlord’s obligations under Article 5, Section 23.1 and Exhibit D, from and after the Commencement Date, the completion of all of Landlord’s obligations with respect to the performance of the Base Building Work and the Tenant Work and the disbursement or application pursuant to Section 3.6 of  Exhibit D  of the entire amount payable by Landlord pursuant to Section 3.6, Tenant shall look solely to the Land and Building, together with the proceeds of insurance policies required to be or otherwise maintained by Landlord under Article 19 and the proceeds derived from any sale or transfer of any of Landlord’s interest in the Land and Building, but to no other assets of the Landlord for satisfaction of any liability pursuant to this Lease.
 
24. Default by Landlord or Tenant
 
24.1 Events of Default. The following shall constitute an Event of Default under this Lease:
 
24.1.1 Monetary Default. If default shall be made in the payment of any sum to be paid by Tenant under this Lease when due and such default shall continue for ten (10) days after notice thereof to Tenant; or
 
24.1.2 Nonmonetary Defaults. If default shall be made in the performance of any of the other covenants or conditions which Tenant is required to perform under this Lease and such default shall continue for thirty (30) days after notice thereof to Tenant or, if the default is not reasonably curable within such thirty (30) day period, for such longer period of time as may be reasonably needed to cure such default as long as Tenant shall promptly undertake to cure and shall diligently pursue such cure to completion.
 
24.2 Landlord’s Remedies. Landlord may treat the occurrence of any Event of Default as a breach of this Lease and thereupon, at Landlord’s option but subject to Sections 24.2.5 and 24.2.7, Landlord shall have any one or more of the following described remedies:
 
24.2.1 Termination. Landlord may terminate this Lease and forthwith repossess the Premises by legal process and be entitled to recover, after repossession, as damages a sum of money equal to the total of (a) the cost of recovering the Premises, (b) the unpaid Rent earned at the time of termination, plus interest thereon at the Agreed Interest Rate from the due date, (c) as agreed final damages, the net present value (discounted at the Amortization Interest Rate) of the balance of all Base Rental
 
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due for the remainder of the then Term less the net present value (discounted at the same rate) of the Market Base Rental Rate for the Premises for said period (but only if the difference is a positive number), and (d) any other sum of money (other than those described in (a), (b) or (c) of this Section 24.2.1) owed by Tenant to Landlord.
 
24.2.2 Repossession. Landlord may terminate Tenant’s right of possession and may repossess the Premises by legal process without terminating this Lease, in which event Landlord may relet the same in Landlord’s name but for the account of Tenant for such rent and upon such terms as shall be satisfactory to Landlord acting reasonably. For the purpose of such reletting Landlord is authorized to decorate or to make any repairs, changes, alterations or additions in or to Premises that may be reasonably necessary to relet the Premises, and (a) if Landlord shall fail to relet the Premises, or (b) if the same are relet and a sufficient sum shall not be realized from time to time from such reletting, after deducting on an amortized basis all of the costs and expenses reasonably incurred in making such decorations, repairs, changes, alterations and additions and the expense of such reletting, including leasing commissions, and of the collection of the rent accruing therefrom, and after paying the unpaid Base Rental and other rents due hereunder earned but unpaid at the time of reletting and the cost of recovering possession to satisfy the rent provided for in this Lease to be paid, plus interest on all of the same at the Agreed Interest Rate per annum, then Tenant shall, in the case of clause (a), pay to Landlord as damages a sum equal to the amount of all unpaid Rent provided for in this Lease as and when the same would be due and payable without acceleration and the cost of recovering possession, or in the case of clause (b), Tenant shall satisfy and pay any such deficiency as shall have accrued on a cumulative basis from time to time upon demand therefor from time to time and Tenant agrees that Landlord may file suit to recover any sums falling due under the terms of this Section 24.2.2 from time to time. No delivery to or recovery by Landlord of any sum due Landlord hereunder shall be any defense in any action to recover any amount of money not theretofore recovered by Landlord, nor shall such reletting be construed as an election on the part of Landlord to terminate this Lease unless a written notice of such intention be given to Tenant by Landlord. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach pursuant to Section 24.2.1.
 
24.2.3 Remedies at Law. Landlord may exercise any rights and remedies provided at law or in equity on account of such Event of Default, other than termination of this Lease or Tenant’s right of possession, or other repossession of the Premises or any portion thereof.
 
24.2.4 Mitigation. In connection with any such default or Event of Default and the exercise by Landlord of any of its rights or remedies, Landlord shall use reasonable
 
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efforts to mitigate damages, but in connection with the leasing of space in the Building shall not be required to prefer the Premises over any other space in the Building.
 
24.2.5 Tenant Dispute. Notwithstanding anything to the contrary provided herein, if Tenant disputes any Event of Default (other than the payment of Base Rental or Additional Rent) declared by Landlord pursuant to this Article 24, Tenant may notify Landlord of such dispute within thirty (30) days after receiving Landlord’s initial notice of default given pursuant to Section 24.1, and in such event Landlord shall not exercise any of the remedies provided in this Section 24.2 until Landlord shall have obtained a final, unappealable court judgment establishing such Event of Default. If such judgment establishes such Event of Default, then Tenant may nonetheless cure such Event of Default within the time period provided with respect thereto in Section 24.1 (with the time period for such cure to commence on the date such judgment is final and unappealable), failing which Landlord in its discretion thereafter may exercise its remedies under this Section 24.2 with respect thereto.
 
24.2.6 Agreements Regarding Minn. Stat. Chapter 566 and Section 504.02. Landlord and Tenant agree for purposes of applying Minn. Stat. Chapter 566 and Section 504.02 to this Lease, that “rent” as defined in such subdivision shall mean all Rent payable under this Lease. Tenant waives and releases any right or claim to restoration to the Premises pursuant to Minn. Stat
§ 504.02, Subd. 2(b).
 
24.2.7 Non-Curable Defaults. Notwithstanding any provision of this Lease, Landlord shall not be entitled to terminate this Lease or reenter or recover possession of the Premises for any non-monetary default of Tenant which is not curable.
 
24.3 Landlord’s Right to Perform. Upon any Event of Default, Landlord may, upon giving notice to Tenant, but without obligation, and without waiving or releasing Tenant from any default or obligations of Tenant, proceed in a reasonable manner to make any such payment or perform any such obligation required by this Lease on Tenant’s part to be performed. All sums so reasonably paid by Landlord and all costs reasonably incurred by Landlord including reasonable attorneys’ fees, together with interest thereon at the Agreed Interest Rate, shall be payable to Landlord within ten (10) days after written demand, and Landlord shall have the same rights and remedies in the event of the nonpayment thereof by Tenant as in the case of default by Tenant in the payment of Rent. Any such payment or performance by Landlord shall be deemed to be cure on behalf of Tenant of the applicable Event of Default for all purposes under this Lease and under all Legal Requirements. Notwithstanding anything in this Article 24, if Tenant disputes under Section 24.2.5 any Event of Default with respect to which Landlord has exercised its rights under this Section 24.3, Landlord shall not be entitled to exercise any of its rights or remedies under Section 24.2.1 or 24.2.2 with respect to such Event of Default, including for Tenant’s failure or refusal to pay to Landlord the sums described in this Section 24.3, until (a) Landlord shall have obtained a final, appealable court judgment establishing such Event of Default and the
 
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reasonableness of the manner of Landlord’s performance and the sums so incurred, and (b) Tenant thereafter shall have failed to pay such sums within ten (10) days after the date such judgment is final and unappealable.
 
24.4 Exercise of Rights While in Default. Tenant may exercise and continue to exercise all of its rights under this Lease upon the occurrence and during the continuance of any default and Event of Default under this Lease up to the point of actual repossession of the Premises, including the Expansion Options, First Offer Right and the Extension Options.
 
24.5 Landlord’s Default. In addition to and not in limitation of the provisions of this Lease which grants Tenant an express remedy (including any right to terminate this Lease which is expressly provided for in this Lease), if Landlord should fail to perform or observe any covenant, term, provision or condition of this Lease and such default should continue beyond a period of twenty (20) business days as to a monetary default or thirty (30) days (or such longer period as is reasonably necessary to remedy such default, provided Landlord shall diligently pursue such remedy at all times until such default is cured) as to a nonmonetary default, after in each instance notice thereof is given by Tenant to Landlord (with a copy of said notice sent on the same day to the holders of any Mortgage who has theretofore notified Tenant in writing of its interest and the address to which notices are to be sent for this purpose) then, and in any such event Tenant shall have the right (a) to cure such default and Landlord shall reimburse Tenant (which reimbursement Tenant may effect through the withholding of Rent whether or not otherwise entitled to withhold Rent under this Lease for the item in question) for all sums reasonably expended or incurred (including all reasonable attorney fees) in so curing or attempting to cure said default, (b) to commence such actions at law or in equity to which Tenant may be entitled, and/or (c) in the event such default materially adversely affects Tenant’s use and enjoyment of the Premises for the purpose of the conduct of Tenant’s business therein and the Building and continues for a period of one hundred eighty (180) days after Tenant’s notice, to terminate this Lease in its entirety or to, such portion of the Premises as Tenant may in its sole discretion elect by giving notice thereof to Landlord at any time thereafter, and prior to such cure, which termination shall be effective (regardless of any cure made after such notice is given) on such date as Tenant may select which is not earlier than the date such termination notice is given and not later than twelve (12) months after such notice of termination is given. Notwithstanding the foregoing, the provisions of this Section 24.5 shall not, however, delay or postpone any deadlines or time periods set forth elsewhere in this Lease or in any way affect Tenant’s rights to terminate this Lease.
 
24.6 Non Waiver. The acceptance by either party hereto of any payment from the other party, whether any default by such other party is known to the party receiving the payment at such time, shall not constitute a waiver of any default or other obligation under this Lease. Failure of either party to declare any default immediately upon occurrence thereof, or delay in taking any action in connection therewith, shall not waive such default or right to
 
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take such action, but said party shall have the right to declare any such default or take such action at any time prior to cure.
 
24.7 Attorney’s Fees. In the event either party defaults in the performance of any of the terms, conditions, agreements or conditions contained in this Lease and the other party places the enforcement of this Lease, or any part thereof, or the collection of any sums due, or to become due, hereunder or for the delivery or recovery of the possession of the Premises, in the hands of an attorney who files suit (including Arbitration) upon the same (either by direct action or counterclaim), and should such nondefaulting party prevail in such suit, the defaulting party agrees to pay the other party’s reasonable attorney’s fees.
 
24.8 Interest on Late Payments. If either Landlord or Tenant shall fail to make any payment, including any payment of Rent, when due and payable under this Lease and such failure shall continue for a period of five (5) days after notice from the other party, such past due amount shall bear interest from the date due until paid at the Agreed Interest Rate. The assessment or payment of any such interest, however, shall not excuse or be deemed to cure any default by the delinquent party.
 
25. Subordination and Nondisturbance
 
Landlord may, at its election, upon the request of the holder of any Mortgage, make this Lease superior to such Mortgage by written notice thereof to Tenant. Tenant agrees that, upon the request of Landlord made in writing, Tenant will, conditioned upon the continued effectiveness of the non-disturbance agreement provided for in this Article 25, subordinate this Lease to any mortgage or deed of trust which may now or hereafter encumber the Building and/or the Land, and to all renewals, modifications, consolidations, replacements and extensions thereof (a “Mortgage”); provided, however, that the holder of any such Mortgage shall enter into a binding non-disturbance agreement with Tenant providing that (a) Tenant shall not be disturbed in its possession of the Premises or its rights hereunder terminated or impaired by any mortgagee, purchaser at foreclosure or other such party, (b) this Lease shall continue in full force and effect following any foreclosure thereof or any deed given in lieu thereof (except that this Lease may nonetheless be terminated by mortgagee as successor landlord pursuant to the provisions of this Lease providing for such termination), and (c) all insurance proceeds and condemnation awards payable from time to time in connection with any Damage or Appropriation shall, unless this Lease is terminated as a result thereof pursuant to Article 20 or 21, as the case may be, be held and disbursed in connection with the repair and restoration of the Building and Premises as required by Article 20 or 21, as the case may be. In the event of the enforcement by the trustee or the beneficiary under any such Mortgage of the remedies provided for by law or by such Mortgage, Tenant will automatically become the tenant of and shall be deemed to have attorned to such successor in interest without change in the terms or provisions of this Lease. Upon written request by such successor in interest, Tenant and such successor shall execute and deliver an instrument or instruments whereby Tenant confirms the attornment herein provided for and in which such
 
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successor shall acknowledge its obligations and responsibilities to Tenant under the Lease and, with respect thereto, shall recognize this Lease and the tenancy hereunder of Tenant.
 
26. Estoppel Certificate
 
Within ten (10) days after written request therefor by the other, Tenant and/or Landlord will execute and deliver an estoppel or other certificate certifying to such matters as the other party shall reasonably request (if true) in connection with said party’s financings, sales, assignments or sublettings or other business transactions. The certifying party shall be entitled to revise said certificates in accordance with appropriate practices of parties similarly situated, including limitations to actual knowledge where appropriate. Any such certificate shall act as an estoppel only and shall not constitute an express or implied representation or warranty.
 
27. Arbitration
 
27.1 General. When any provision of this Lease calls for Arbitration, Landlord and Tenant shall initially meet and attempt to agree upon the matter in question. If they have been unable to so agree within the time period specified as to such matter under this Lease, or, if no such time period is specified, within thirty (30) days, then, at the request of either party the matter will be determined by an arbitration board as provided in Section 27.3. Except as provided in Section 27.3, such arbitration will be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Within thirty (30) days after their appointment, the arbitrators so chosen shall hold a hearing at which each party may submit evidence, be heard and cross-examine witnesses, with each party having at least ten (10) days’ advance notice of the hearing. The decision of the arbitrators will be final, binding and non-appealable and judgment thereupon may be rendered and enforced in any court having jurisdiction thereof. Except where specifically provided otherwise in this Lease, each party shall bear its own expenses in connection with the arbitration and the costs of its arbitrator, and the cost of the third arbitrator shall be shared equally by Landlord and Tenant. The costs of all counsel, experts and other representatives that are retained by a party will be paid by such party.
 
27.2 Arbitrators. The arbitration board shall consist of three (3) reputable real estate professionals with experience with first-class high rise office buildings in the Minneapolis-St. Paul metropolitan area and, if the matter in dispute is the Market Base Rental Rate, each appraiser shall be a member in good standing of the Appraisal Institute with the designation “MAI”. Each party shall appoint one (1) arbitrator who shall have no material financial or business interest in common with the party making the selection and shall not have been employed by such party for a period of three (3) years prior to the date of selection. If the first two arbitrators are unable to agree on a third arbitrator within thirty (30) days after the appointment of the second arbitrator, or if either party refuses or neglects to appoint an arbitrator as herein provided within twenty (20) days after the appointment of the first arbitrator, then such third arbitrator or such second arbitrator whose appointment was not made as aforesaid shall be appointed by the American Arbitration Association.
 
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27.3 Procedures. If the matter in question is the determination of Market Base Rental Rate, the parties will submit to the arbitrators the definition of Market Base Rental Rate (including the Full Floor Rate) and each arbitrator shall submit his or her determination in a sealed envelope at the meeting described below, and any determination not submitted by such time shall be disregarded. Where applicable, the determination shall include separate determinations of the Market Base Rental Rate for the entire Premises as a single block of space and for the Full Floor Rate and, if applicable, for the Retail Premises. The parties and the arbitrators shall meet on said thirtieth (30th) day following the hearing provided for in Section 27.1 (or if such thirtieth (30th) day is not a business day, on the first business day thereafter) at 11:00 a.m. at the office of Tenant, or such other place as the parties may agree and the arbitrators shall simultaneously deliver their determinations. If the determinations of at least two (2) of the arbitrators shall be identical in amount, such amount shall be deemed the Market Base Rental Rate. If the determination of the three (3) arbitrators shall be different in amount, the Market Base Rental Rate shall be determined as follows:
 
(a) If neither the highest or lowest determination differs from the middle determination by more than ten (10) percent of such middle determination, then the Market Base Rental Rate shall be deemed to be the average of the three (3) determinations; and
 
(b) If clause (a) does not apply, then the Market Base Rental Rate shall be deemed to be the average of the middle determination and the determination closest in amount to such middle determination.
 
If the matter in question is other than the determination of Market Base Rental Rate, then the decision of any two (2) of the three (3) arbitrators will control, and such decision will be made and delivered to Landlord and Tenant by such arbitrators not later than the thirtieth (30th) day following the hearing provided for in Section 27.1.
 
28. No Merger
 
This Lease shall not terminate by reason of the common ownership of the rights of Landlord and Tenant hereunder.
 
29. Holding Over
 
In the event Tenant holds over after the expiration of the Term of this Lease, with the express or implied consent of Landlord, such tenancy shall be from month-to-month only, and not a renewal hereof or an extension for any further term, and such month-to-month tenancy shall be subject to each and every term, covenant and agreement contained herein; provided, however, that Tenant shall pay as Base Rental during any holding over period an amount equal to one hundred twenty-five percent (125%) of the Base Rental payable immediately
 
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preceding the expiration of the Term of this Lease. Nothing in this Article 29 shall be construed as a consent by Landlord to any holding over by Tenant, and notwithstanding Landlord’s acceptance of any payment hereunder, Landlord expressly reserves the right to require Tenant to surrender possession of the Premises upon the expiration of the Term of this Lease or upon the earlier termination hereof and to assert any remedy in law or equity to evict Tenant and/or collect damages in connection with such holding over.
 
30. Quiet Enjoyment
 
So long as Tenant performs all of its obligations hereunder, Landlord covenants that Tenant shall and may quietly and peacefully have, hold, occupy and enjoy the Premises, and all of its rights and options in this Lease contained, for the Term of this Lease.
 
31. No Operating Covenant
 
Nothing in this Lease shall impose any obligation upon Tenant to construct any improvements (including the Tenant Work), occupy or conduct any business in all or any portion of the Premises or the Building during any period whatsoever.
 
32. Broker
 
Landlord and Tenant represent and warrant to each other that they have not had dealings with any real estate broker or agent other than CB Commercial Real Estate and The Keewaydin Group, Inc. (“Brokers”), (to whom Landlord owes a commission pursuant to separate agreements with each) in connection with the negotiation of this Lease, and that they know of no other real estate broker or agent who is entitled to any commission or finder’s fee in connection with this Lease. Brokers may assign its rights to such commission to Tenant. In the event Landlord fails to pay such commission as and when required by such agreement, Tenant shall have the right to pay such commission (including to itself) and deduct such amounts paid from the Rent payable under this Lease. Landlord and Tenant agree to indemnify each other and to hold each other harmless against all claims, damages, costs or expenses of or for any other such fees or commissions resulting from their actions or agreements regarding the execution or performance of this Lease, and will pay all costs of defending any action or lawsuit brought to recover any such fees or commissions incurred by the other party, including reasonable attorneys’ fees.
 
33. Hazardous Materials
 
33.1 Landlord. Landlord represents and warrants that no Hazardous Materials will be used in the construction or operation of the Building except for those contained in construction materials which are customarily incorporated at the time of installation in or from time to time typically used in the operation of high rise office buildings in compliance with the Minimum Building Standards. Landlord shall at all times keep the Building free of such Hazardous Materials regardless of whether such Hazardous Materials are presently
 
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recognized as Hazardous Materials, and shall indemnify Tenant against any and all claims, liabilities, costs and expenses related to the presence of any Hazardous Materials in, on or about the Building or the Land, except that Landlord shall not be responsible for Hazardous Materials placed in the Building by Tenant.
 
33.2 Tenant. Tenant shall not install or use, or allow any of its Subtenants to install or use, in the Premises any Hazardous Material except for (a) Hazardous Materials customarily used in the ordinary course of uses permitted under Section 3.1 (including reasonable quantities of Hazardous Materials incidental to a printing or reprographic shop in the Premises) so long as Tenant uses such Hazardous Materials in accordance with Legal Requirements, and (b) Hazardous Materials contained in construction materials which are customarily incorporated at the time of installation in or from time to time typically used in the operation of first class high rise office buildings or leased premises in compliance with the Minimum Building Standards. Except for those Hazardous Materials described in clause (b), Tenant shall reimburse Landlord upon demand for any costs which Landlord incurs as a result of Tenant’s or any of its Subtenant’s installation or use of any Hazardous Materials and Tenant shall indemnity Landlord against any and all claims, liabilities, costs and expenses to the extent resulting from Tenant’s or any of its Subtenant’s installation or use of any Hazardous Materials in the Premises.
 
34. Changes in Building
 
34.1 Construction of Building. Landlord covenants and represents that the Building will be designed and constructed in accordance with the Approved Base Building Plans and Specifications and  Exhibit D .
 
34.2 Changes in Building. Landlord reserves the right in its discretion at any time after the Base Building Completion Date, to make changes, alterations, additions, improvements or replacements to the Building and the Common Areas, fixtures and equipment thereof; provided, however, that (a) no such changes shall unreasonably interfere with or have any material adverse impact on the conduct of Tenant’s business at the Premises, and (b) any material changes, alterations, additions, improvements or replacements to the exterior of the Building, the Skyways, Floor One (1) and Floor Two (2) lobbies, elevators, escalators and other vertical transportation systems, truck docks and loading areas, driveways, ramps, entrances, exits, loading and unloading areas, Parking Garage, or any other Common Areas, Building Systems, or Building amenities, and any changes, alterations, additions, improvements or replacements which are reasonably likely to materially increase Operating Expenses, shall be subject to Tenant’s prior written approval, which may be withheld in Tenant’s sole discretion.
 
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35. Name and Address of Building
 
35.1 Building Name. So long as Tenant and its Affiliates lease (including pursuant to any sublease of the Premises to Affiliates of Tenant or any other sublease) not less than two hundred thousand (200,000) square feet of Rentable Area of the Building, Tenant shall have the right to select and from time to time change the name of the Building, provided that if Tenant changes the name of the Building after December 1, 1999, Tenant shall pay all reasonable costs incurred by Landlord in the removal and replacement of Common Area signs containing the name of the Building. At such time as Tenant no longer leases such minimum amount of space, Landlord shall have the right to designate the name of the Building, provided that in no event shall the name of the Building be in any manner associated with any Financial Services Business other than Tenant or any of its Affiliates. Landlord shall have the right to approve any name selected by Tenant, but such approval shall be deemed given if not denied in notice to Tenant given within fifteen (15) days after Tenant’s request for approval, provided that no approval is required if the name selected by Tenant is associated with the Tenant’s name, the name of any Affiliate of Tenant, or marketing strategy of Tenant or any of its Affiliates as determined by Tenant in its sole discretion. Any disapproval by Landlord must be based solely upon the fact that such name is inappropriate for use in connection with a first class office building in Minneapolis, Minnesota. The initial name of the Building shall be “Piper Jaffray Center”. Any change in the name of the Building by Tenant shall be made (a) at any time prior to December 1, 1999, upon not less than five (5) days’ prior written notice to Landlord, and (b) thereafter upon not less than ninety (90) days’ notice to Landlord. At any time prior to or during the Term or after the expiration or termination of this Lease, Tenant shall have the right in its sole discretion to require Landlord to immediately cease use of any name associated with Tenant, any of its Affiliates or any marketing strategy of Tenant or its Affiliates in connection with the Building. The provisions of this Section 35.1 shall survive such expiration or termination.
 
35.2 Building Address. The official address of the Building will be the name of the Building, provided that the street address will also be available for use by Landlord and Building Occupants who so desire or as required by the U.S. Post Office or other governmental authorities.
 
36. Building Signage
 
36.1 Tenant’s Signage. Subject only to applicable codes and ordinances, Tenant shall have the right in its sole discretion to select and from time to time, at its expense, change all Building exterior and Common Area signage (which for purposes of this Article 36 shall include all logo signage and signage on all entrance doors to the Building). The initial signage shall be designed, constructed and installed by Landlord as a part of the Base Building Work in accordance with the terms and conditions of  Exhibit D . Tenant shall have the right to require Landlord from time to time to change any such signage, including to conform to any change in Building name pursuant to Section 35.1, with any such changes
 
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accomplished at Tenant’s reasonable expense. At any time after the expiration or earlier termination of this Lease, Tenant shall have the right in its sole discretion to require Landlord to promptly remove any Building or Common Area signage associated with Tenant, any of its Affiliates or any marketing strategy of Tenant or its Affiliates, with the reasonable cost of such removal payable by Tenant. The provisions of this Section 36.1 shall survive such expiration or termination. Tenant also shall have the right to place anywhere in the Premises and in the Common Area from time to time such signs, placards, pictures, names, notes, door lettering or advertisements (collectively, “Advertisements”) that Tenant may from time to time desire. Landlord shall have the right to approve any such Advertisements, but such approval shall be deemed given if not denied in notice to Tenant given within fifteen (15) days after Tenant’s request for approval. Any disapproval by Landlord must be based solely upon the fact that such Advertisements are inappropriate for use in a first class office building in Minneapolis, Minnesota.
 
36.2 Signage of Other Building Occupants. There will be no exterior or Common Area signage (which for purposes hereof shall include Advertisements and any signs visible from the exterior or Common Areas of the Building for any Building Occupants other than Tenant without Tenant’s approval, which shall not be unreasonably withheld, unless such signage is in any manner associated with any Financial Services Business, in which event Tenant may withhold its approval in its sole discretion; provided, however the foregoing shall not limit Landlord’s right to install for other Building Occupants without Tenant’s consent Building standard listings on the common Building directory described in Section 37 or Building standard entrance door signage on Floors on which no portion of the Premises is located, provided such signs are not visible from other portions of the Common Areas or from the exterior of the Building.
 
37. Building Directories
 
Landlord, as a part of the Base Building Work in accordance with the terms and conditions of Exhibit D and Article 5 (including the Base Building Construction Schedule), shall install two (2) building directories in each of the Floor One (1) and Floor Two (2) lobbies of the Building. One such directory will be for the exclusive use of Tenant for the listing of Tenant’s or any of its Affiliates’ or Subtenants’ departments, functions and operations, and the names of any of Tenant’s or any of its Affiliates’ or Subtenants’ executives, brokers or employees individually. The other such directory on each Floor will be for the common use of all Building Occupants. At Tenant’s request, Landlord shall include on the common Building directory listings of any Subtenant and the departments, functions, operations and names of such Subtenants’ executives or employees. Tenant shall reimburse Landlord for the actual, reasonable, documented out-of-pocket “hard” construction costs (as opposed to architectural, engineering, design, financing, general conditions or other so-called “soft costs”) actually and properly incurred and paid by Landlord in the fabrication of Tenant’s exclusive directory.
 
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38. Building Occupants
 
38.1 Competitive Business. Landlord agrees not to lease space on the Floors One (1) or Two (2) to any Financial Services Business, or to consent (actively or passively) to the occupancy of any such space by any Financial Services Business, without in each instance obtaining the consent of Tenant, which consent may be withheld in Tenant’s sole discretion. Each lease or other occupancy agreement entered into with a Building Occupant with respect to such portions of the Building shall contain a prohibition against use of the applicable premises for any Financial Services Business.
 
38.2 Retail Tenants. The tenants selling retail goods and services on Floors One (1) and Two (2) of the Building, as well as all signage and improvements associated with such tenants which are visible from the exterior of the Building or from the Common Areas, shall be subject to Tenant’s approval, which shall not be unreasonably withheld or delayed except as otherwise provided in Sections 36.2 or 38.1. Such approval shall be deemed given if not denied in a notice to Landlord given within ten (10) days after notice from Landlord identifying a proposed retail tenant, as well as such retail tenant’s proposed use, any such signage and/or improvements and any exclusive uses or rights granted to such retail tenant. Any disapproval shall state Tenant’s reasons in reasonable detail.
 
38.3 Leases. Each lease or occupancy agreement entered into with any Building Occupant with respect to all or any portion of Floor One (1) or Two (2) shall contain the restrictions provided in this Article 38.
 
39. Microwave Dishes, Satellite Dishes and Antennas
 
39.1 Grant. Landlord hereby grants Tenant the right to use the rooftop area of the Building for the purpose of installing microwave, satellite and/or vertical dishes, antennae, and other exterior communications equipment, and associated transmission equipment, shields and other equipment and structures (collectively, “Antennae”) and for the use and operation of such Antennae. The initial location of Tenant’s Antennae shall be in areas on such rooftop reasonably designated by Tenant. Subject to Section 39.4, Tenant shall have the right from time to time to increase the number, size and/or scope of Tenant’s Antennae, or relocate the same, upon reasonable prior notice to Landlord. Tenant shall have free and full access to the roof of the Building for purposes of installing, operating and maintaining said Antennae. Tenant shall have the right to install cables for such equipment in chases within the Building, and shall have free and full access to all such chase-ways on each Floor of the Building. Landlord shall provide, for the exclusive use of Tenant, a heated and air-conditioned room built in accordance with the Approved Base Building Plans and Specifications for the housing of electronic equipment related to such Antennae, which room shall contain not less than three hundred (300) square feet and shall be located in the area provided in the Approved Base Building Plans and Specifications. All of Tenant’s rights under this Article 39 shall be provided at no additional cost to Tenant.
 
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39.2 Installation; Maintenance; Taxes. Tenant shall install such Antennae in accordance with reasonable construction practices. Tenant shall have the responsibility to secure all necessary approvals from state, federal and other governmental authorities to construct, operate and maintain such equipment. All such equipment shall be constructed and maintained by Tenant in accordance with Legal Requirements and in compliance with the reasonable requirements of the insurers of the Building.
 
39.3 Transfer. Tenant may extend all or any portion of its rights hereunder to any Subtenant which subleases not less than twenty thousand (20,000) square feet of Rentable Area, or to any parent, subsidiary or other Affiliate of Tenant.
 
39.4 Other Uses. No Antennae other than Tenant’s Antennae shall be located on the Building except as provided in this Section 39.4. Any other Antennae in addition to Tenant’s Antennae which Landlord shall desire to locate on the Building (“Other Antennae”) shall be subject to Tenant’s approval, which shall not be unreasonably withheld except as provided in this Section 39.4. Landlord shall give Tenant not less than thirty (30) days’ prior notice of any such Other Antennae, which notice shall include reasonable detail, plans and specifications as to such Other Antennae, including the proposed location thereof. In the event Tenant does not notify Landlord within such thirty (30) day period that it does not approve such Other Antennae, Landlord may install such Other Antennae in accordance with such details, plans and specifications. Tenant may withhold its consent in its discretion if in its good faith judgment Tenant believes such Other Antennae will interfere in any manner with the location, use, operation or any other aspect of any of Tenant’s Antennae then located or reasonably anticipated by Tenant in its good faith business judgment to be located on the roof. In the event any such Other Antennae so interferes with any of Tenant’s Antennae Landlord shall cause the offending Other Antennae to be immediately removed or relocated in such manner as to eliminate such interference. No Antennae or other equipment or constructions shall be located or maintained on any parapet, roof or other portion of the Building (e.g., the roof at the point the Building steps back) other than the roof at the top of the Building.
 
40. Electronic Financial Services Equipment
 
40.1 Grant. Subject to the terms and conditions set forth herein, Landlord hereby grants to Tenant and its Affiliates the exclusive and continuing right, at no additional cost, to operate and maintain at locations reasonably acceptable to Landlord in the Floor One (1) and Floor Two (2) lobbies and common areas of the Building, such automated teller machines or other electronic banking or financial services machines and/or outlets (each, an “ATM”) as Tenant or any of its Affiliates shall from time to time in their respective discretion desire.
 
40.2 Exercise. Not later than March 1, 2000, Tenant shall notify Landlord whether Tenant or any of its Affiliates, wishes to place one or more ATMs in the Building as provided in this Article. In the event that Tenant elects not to do so, Landlord may lease space for
 
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ATMs to a single third party under a single lease for a term (including any renewal term) not to exceed five (5) years, provided that no such lease shall operate to prohibit Tenant from locating any ATMs in the Building as provided in this Article, and shall expressly exempt Tenant and its Affiliates from any exclusivity agreement regarding the provision of ATM services. The equipment used by and location provided to such third party shall be subject to Tenant’s prior written approval, which shall not be unreasonably withheld. In the event that Tenant or any of its Affiliates later elects to locate any ATMs in the Building, Landlord shall not, unless otherwise agreed in writing by Tenant, renew such third party lease, and, except for such lease, Tenant’s rights shall be exclusive as provided in this Section 40.2.
 
41. General Provisions
 
41.1 No Waiver. The waiver by either party of any breach of any term, provision, covenant or condition contained in this Lease, or the failure of a party to insist on the strict performance by the other, shall not be deemed to be a waiver of such term, provision, covenant or condition as to any subsequent breach thereof or of any other term, covenant or condition contained in this Lease. The acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any breach or default by Tenant of any term, provision, covenant or condition herein, regardless of Landlord’s knowledge of such breach or default at the time of acceptance of rent.
 
41.2 Terms; Headings. The words “Landlord” and “Tenant” as used herein shall include the plural as well as the singular. The words used in neuter gender include the masculine and feminine genders, and words used in the masculine or feminine gender include the opposite gender as well as the neuter. The headings or titles to the Articles or Sections of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof.
 
41.3 Amendment. This instrument, together with any exhibits and attachments or other documents affixed hereto, or referred to herein, constitutes the entire and exclusive agreement between Landlord and Tenant with respect to the Premises and the estate and interest leased to Tenant hereunder. This Lease and the exhibits and attachments hereto may be altered, amended, modified or revoked only by an agreement in writing signed by both Landlord and Tenant. Landlord and Tenant hereby agree that all prior or contemporaneous oral understandings, agreements or negotiations relative to the leasing of the Premises and all prior written agreements relative to the leasing of the Premises are merged into and revoked by this instrument.
 
41.4 Successors and Assigns. Subject to the provisions of Article 23, this Lease is intended to and does inure to the benefit of and bind the heirs, executors, administrators, successors and assigns of the parties hereto.
 
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41.5 Notices. All notices, consents, approvals, requests, demands and other communications (collectively “notices”) which Landlord or Tenant are required or desire to serve upon, or deliver to, the other shall be in writing and mailed postage prepaid by certified or registered mail, return receipt requested; or deposited in the United States Mail; or sent by reputable overnight delivery service; or sent by facsimile with a copy deposited in the United States Mail on the same day; or delivered by personal delivery, to the appropriate address indicated below, or at such other place or places as either Landlord or Tenant may, from time to time, respectively, designate in a written notice given to the other. Notices shall be deemed sufficiently served or given on the date dispatched in a manner provided above, and periods provided in this Lease for response to any notice shall be deemed to commence on the date of actual receipt thereof. Any notice by Tenant to Landlord shall be addressed to the Landlord at:
 
Ryan 800, LLC
c/o Ryan Properties, Inc.
700 International Centre
900 Second Avenue South
Minneapolis, MN 55402
Attention: Timothy M. Gray
Facsimile (612) 337-5552
 
and, if requested in writing by the Landlord or required under the terms of this Lease, given or served simultaneously to the Landlord’s mortgagee at the address specified in such request. Any request by Landlord to Tenant shall be addressed to:
 
Piper Jaffray Companies Inc.
222 South 9th Street, Suite 1500
Minneapolis, MN 55402
Attention: Manager, Real Estate and Facilities
Facsimile (612) 342-8531
 
Rejection or other refusal to accept a notice, request, communication or demand or the inability to deliver the same because of a changed address of which no notice was given shall be deemed to be receipt of the notice, request, communication or demand sent. All Rent shall be deemed paid by Tenant upon deposit of the same in the United States Mail or dispatch of the same in any other manner permitted for notices under this Section 41.5 (other than facsimile), provided such Rent is actually later received by Landlord.
 
41.6 Severability. If any term or provision of this Lease or any application thereof shall be invalid or unenforceable to any extent, the remainder of this Lease and any other application of such provision shall not be affected thereby.
 
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41.7 Time of Essence. Time is of the essence in every term of this Lease, including Article 5 and Exhibit D.
 
41.8 Governing Law. This Lease shall be interpreted and construed in accordance with the laws of the State of Minnesota.
 
41.9 Interpretation. The language in all parts of this Lease shall in all cases be construed simply according to its generally understood meaning, and not strictly for or against Landlord or Tenant, irrespective of the parties’ respective efforts in drafting the same. Whether or not expressly provided where such term appears in this Lease, the term “include” (and any variation thereof) is not limiting, and the term “in [a party’s] sole discretion” means sole, unqualified and absolute discretion.
 
41.10 Force Majeure. Except as otherwise expressly provided in this Lease, neither Landlord nor Tenant shall be liable to the other for any failure to comply or delay in complying with its obligations hereunder if and to the extent such failure or delay is due to an Unavoidable Delay.
 
41.11 Memorandum of Lease. Either party will, upon the written request of the other party, execute a short form lease (“Short Form Lease”) regarding this Lease, in a form suitable for recording with the Registrar of Titles and/or the County Recorder for Hennepin County, Minnesota. Such Short Form Lease will be dated as of the date of this Lease and will disclose the parties, the Term, descriptions of the Premises, Tenant’s extension, expansion, and first offer rights and such other terms and conditions as the parties agree upon. The party requesting the execution of such Short Form Lease will bear all costs of the Short Form Lease, including any recording fees. Upon the execution of an amendment to this Lease and the written request of either party, the parties shall execute a corresponding amendment to the Memorandum of Lease, but such corresponding amendment shall not be a condition of the effectiveness of any lease amendment.
 
41.12 Recordable Termination. Either party will, following any termination of this Lease and upon the written request of the other party, execute a document setting forth the date of such termination, in a form suitable for recording with the Registrar of Titles and/or the County Recorder for Hennepin County, Minnesota. Failure of a party to execute such a document shall not affect the termination, and in such event the party requesting the document may execute and file an affidavit setting forth the date of termination. The party requesting the execution of such document shall bear all costs thereof, including any recording fees. This Section 41.13 shall survive expiration or earlier termination of this Lease.
 
41.13 Approvals and Consents. In any case where a party may not unreasonably withhold its approval or consent pursuant to the express provisions of this Lease, such approval or consent shall not (whether or not expressly so provided) be unreasonably delayed or conditioned.
 
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the date first set forth above.
 
LANDLORD:	 	 	 	RYAN 800, LLC	
 	 	 	 	 	
 	 	 	 	 	 	By	 	/s/    Timothy M. Gray

	
 	 	 	 	 	 	 	 	Its    Chief Manager	 	 	

	 	 	
 
TENANT:	 	 	 	PIPER JAFFRAY COMPANIES INC.	
 	 	 	 	 	
 	 	 	 	 	 	By	 	/s/     Deborah Roed _______________

	
 	 	 	 	 	 	 	 	Its	 	Chief Financial Officer

	
 
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FIRST AMENDMENT TO LEASE
 
THIS FIRST AMENDMENT TO LEASE is made and entered into as of May 18, 1998, by and between RYAN 800, LLC, a Minnesota limited liability company (“Landlord”), and U.S. BANCORP PIPER JAFFRAY COMPANIES INC., a Delaware corporation (“Tenant”).
 
RECITALS
 
A. Landlord, as landlord, and Tenant, as tenant, entered into that certain Lease Agreement dated as of March 3, 1998 (collectively the “Lease”), relating to certain leased premises in the building to be constructed by Landlord in the City of Minneapolis, Hennepin County, Minnesota, on land legally described on Exhibit A to the Lease.
 
B. Landlord and Tenant now desire to amend the Lease in certain respects as more specifically provided in this First Amendment.
 
Accordingly, Landlord and Tenant agree as follows:
 
1. Additional Initial Premises. Landlord and Tenant acknowledge and agree that Tenant in its sole discretion may, but shall not be obligated to, include in the Additional Initial Premises described in clause (b) of Section 2.1.2 of the Lease all or any portion of the Rentable Area of Floor Three (3) which is not leased by Tenant pursuant to clause (a) of Section 2.1.2 of the Lease.
 
2. Excess Space. Section 2.1.4 of the Lease is hereby amended and restated in its entirety as follows:
 
“2.1.4 Excess Space. Tenant shall have the following rights to decrease the Rentable Area of the Initial Premises as determined under this Section 2.1 as follows:
 
 	(a)	 	By up to the greater of (i) eighty thousand (80,000) square feet of Rentable Area, or (ii) the Rentable Area contained in two (2) full Floors with Rentable Areas equivalent to that of Floor Six (6), by notice given to Landlord not later than July 1, 1998; and	
 
 	(b)	 	By up to the greater of (i) forty thousand (40,000) square feet of Rentable Area, or (ii) the Rentable Area contained in one (1) full Floor with a Rentable Area equivalent to	

 	that of Floor Six (6), by notice given to Landlord not later than February 1, 1999;	
 
provided that the aggregate Rentable Area deleted from the Initial Premises pursuant to clauses (a) and (b) shall not exceed the greater of (i) eighty thousand (80,000) square feet of Rentable Area, or (ii) the Rentable Area contained in two (2) full Floors with Rentable Areas equivalent to that of Floor Six (6). Any such area deleted from the Premises shall hereinafter be referred to as “Excess Space”. The size, location and configuration of the Excess Space shall otherwise be determined by Tenant in its sole discretion, except that (x) the Excess Space shall not consist of any portion of Floors Eleven (11) through Thirteen (13), (y) the Excess Space located on Floors other than Floors Two (2) or Three (3) or any Mechanical Floor, shall, if the uppermost or lowermost Floor of the Initial Premises (other than Floors Two (2), Three (3) or any Mechanical Floor) does not include all of the Rentable Area on such Floor, consist of all or any portion of the then-existing Initial Premises then-located on such Floor, and then the remainder of such Excess Space shall be located on the uppermost and/or lowermost Floor of the Initial Premises, and the uppermost and lowermost Floor of the Initial Premises (other than Floors Two (2), Three (3) or any Mechanical Floor), as so adjusted, shall consist of either one-half (1/2) or the entire Rentable Area on such Floor except to the extent the remaining Excess Space available under either clause (a) or clause (b) above does not equal either one-half (1/2) or the entire Rentable Area of a particular Floor, in which case and subject to the total area limitations provided in clause (a) and clause (b) above, the Excess Space on such Floor may consist of all or any portion of the then-existing Initial Premises then-located on such Floor, and (z) the space not leased by Tenant on any partial Floor shall be capable of being configured so as to make the same reasonably leasable. Notwithstanding the foregoing, Tenant in its sole discretion may elect to have any or all of the Excess Space located on Floor Two (2) or Three (3) or on any Mechanical Floor.”
 
3. Use; General. Section 3.1 of the Lease is hereby amended by adding the following as the final sentence thereof:
 
“Further notwithstanding the foregoing, (x) no portion of the Premises other than the Retail Premises shall be used for any retail uses which are not associated with a Financial Services Business, (y) in the event any Subtenant or assignee of Tenant’s interest in this Lease is a governmental agency or governmental entity, such agency or entity shall not use any portion of the Premises for other than general office purposes, and such office use shall comply with the requirements of clause (c) above and shall be subject to Landlord’s prior approval, which approval shall not be unreasonably withheld or delayed, and (z) no portion of the Premises shall be used as a school or educational center or facility; provided,
 
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however, nothing in this Section 3.1 shall limit Tenant’s right to sublease or allow the use or occupancy of any portion of the Premises for a postal or delivery service center serving the Premises and/or the Building, or for a day care center, school or educational center or facility primarily benefiting Tenant and/or any of its Affiliates or Subtenants, the officers, directors, agents, servants, employees and/or representatives of any thereof, or the families, dependants or wards of any such parties.”
 
4. Services; Heating Ventilation and Air Conditioning. Section 13.2.1 of the Lease is hereby amended by amending and restating the last sentence thereof in its entirety as follows:
 
“In the event of any interruption or shortfall in such services, Landlord shall provide such services to the extent available to the Premises on a first priority basis, provided that Landlord may temporarily allocate such services to the critical areas of other Building Occupants so long as Tenant’s use of the Premises is not materially adversely affected by such temporary allocation.”
 
5. Services; Building Security. Section 13.2.4 of the Lease is hereby amended by adding the following at the conclusion thereof:
 
“To the extent Tenant and its Affiliates do not lease (including pursuant to any sublease of the Premises to Affiliates of Tenant or any other sublease) all of the Rentable Area of the Building served by a particular elevator bank of the Building, Tenant shall cause the additional security measures described in clauses (a), (b) and (c) above to be operated in such manner as to not unreasonably limit the ability of any other Building Occupant leasing all or any portion of the Rentable Area not leased by Tenant and served by such elevator bank, as well as such Building Occupant’s employees and invitees, to access such Building Occupant’s leased premises. Landlord and Tenant acknowledge and agree that the preceding sentence shall require the removal or modification of installations or equipment installed by Tenant pursuant to clause (c) above if and to the extent the same (y) consist of equipment, such as turnstiles, which unreasonably restrict the flow of persons to and from such elevator bank in a manner inconsistent with first class office buildings in Minneapolis, Minnesota, and (z) were not confirmed or deemed confirmed by Landlord as not requiring removal, if Tenant requested such confirmation, pursuant to the following provisions of this Section 13.2.4. At such time as Tenant shall desire to install any such installations and equipment, Tenant at its option may request confirmation that the installations and equipment Tenant desires to install are not of the type which would require removal or modification pursuant to the preceding sentence. Landlord shall not withhold such confirmation to the extent such installations and equipment do not unreasonably restrict the flow of persons to and from such elevator bank in a
 
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manner inconsistent with first class office buildings in Minneapolis, Minnesota. Such confirmation shall be deemed to be given if not denied in a notice to Tenant given within fifteen (15) days after notice from Tenant describing in reasonable detail Tenant’s desired installations and equipment.”
 
6. Alterations; Effect on Exterior Appearance of Building. Section 15.1.3 of the Lease is hereby amended and restated in its entirety as follows:
 
“15.1.3 Effect on Exterior Appearance of Building. Except as otherwise expressly permitted under the terms of this Lease (e.g., Section 13.2.4, Articles 5, 36, 37, 39 and 40, and  Exhibit D ), Tenant shall not make any improvements, alterations or additions which are visible from the public areas of the Building without Landlord’s prior approval, which approval shall not be unreasonably withheld, or alter the exterior appearance of the Building without Landlord’s prior approval.”
 
7. Alterations; Effect on Building Structure, Building Systems. Section 15.1.4 of the Lease is hereby amended and restated in its entirety as follows:
 
“15.1.4 Effect on Structure, Building Systems. Tenant shall not make any alterations, additions or modifications to the Premises which adversely affect the structural integrity of the Building or adversely affect the performance of the Building Systems with respect to space other than the Premises, without the prior written consent of Landlord, which consent shall not be unreasonably withheld.”
 
8. Management. Section 23.2 of the Lease is hereby amended by amending and restating the last sentence thereof in its entirety as follows:
 
“Tenant further agrees to approve an Affiliate of Landlord as the manager of the Building, provided such Affiliate has considerable experience in the management of first class high rise office buildings such as the Building and has a reputation in the real estate industry for performing such management in a manner consistent with the Minimum Building Standards.”
 
9. Hazardous Materials. Section 33.1 of the Lease is hereby amended and restated in its entirety as follows:
 
“33.1 Landlord. Landlord shall not install or use, or allow any Building Occupant to install or use, in or about the Building or the Land any Hazardous Material except for Hazardous Materials contained in construction materials which are customarily incorporated in accordance with Legal Requirements at the time of installation in, or from time to time typically used in the operation of, first class high rise office buildings in compliance with the Minimum Building
 
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Standards and in accordance with Legal Requirements. Landlord shall reimburse Tenant upon demand for any costs which Tenant incurs as a result of, and Landlord shall indemnify Tenant against, any and all claims, liabilities, costs and expenses related to the presence of any Hazardous Materials in, on or about the Building or the Land, except that Landlord shall not be responsible for Hazardous Materials placed in the Building by Tenant or any of its Subtenants.”
 
10. Changes in Building. Section 34.2 of the Lease is hereby amended and restated in its entirety as follows:
 
“34.2 Changes in Building. Landlord reserves the right in its discretion at any time after the Base Building Completion Date, to make changes, alterations, additions, improvements or replacements to the Building and the Common Areas, fixtures and equipment thereof; provided, however, (a) that (i) any change, alteration, addition, improvement or replacement which shall unreasonably interfere with or have any material adverse impact on the conduct of Tenant’s business at the Premises, (ii) any change, alteration, addition, improvement or replacement which is reasonably likely to materially increase Tenant’s Operating Expenses Contribution, and (iii) any material change, alteration, addition, improvement or replacement to or affecting (A) the exterior of the Building or any exterior Building amenities or features, the Skyways, or the Floor One (1) and Floor Two (2) lobbies (including the escalators, elevator lobbies, entrances and exits thereof), (B) the Building Systems serving any portion of the Premises or the Floor One (1) and Floor Two (2) lobbies, or (C) any Common Areas located on a Floor occupied in whole or in part by Tenant (other than reconfiguration of Building Occupant access corridors which are not utilized by Tenant to access any portion of the Premises or any Building amenities or other Common Areas), shall be subject to Tenant’s prior written approval, which may be withheld in Tenant’s sole discretion, and (b) that, except with respect to the changes, alterations, additions, improvements or replacements described in clause (a) above, any material change, alteration, addition, improvement or replacement to the truck docks and loading areas, driveways, ramps, entrances, exits, loading and unloading areas, Parking Garage, or any other Common Areas, Building Systems, or Building amenities, shall be subject to Tenant’s prior written approval, which approval shall not be unreasonably withheld or delayed. Such approval shall be deemed to be given if not denied in a notice to Landlord given within fifteen (15) days after notice from Landlord describing in reasonable detail the proposed change, alteration, addition, improvement or replacement.”
 
11. Building Name. Section 35.1 of the Lease is hereby amended by amending and restating the last sentence thereof in its entirety as follows:
 
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“The provisions of the immediately preceding sentence shall survive such expiration or termination.”
 
12. Building Occupants. The Lease is hereby amended by adding the following as Section 38.4 thereof:
 
“38.4 Prohibited Occupants. Landlord agrees not to lease space in the Building to, or to consent (actively or passively) to the occupancy of any portion of the Building by, any governmental agency or governmental entity for any use other than general office purposes, without in each instance obtaining the consent of Tenant, which consent may be withheld in Tenant’s sole discretion. Each lease or other occupancy agreement entered into with any such governmental Building Occupant with respect to any portion of the Building shall contain a prohibition against any use other than general office purposes (which office use shall comply with the requirements of clause (c) of Section 3.1 and shall be subject to Tenant’s prior approval, which approval shall not be unreasonably withheld or delayed) by any such governmental Building Occupant.”
 
13. Microwave Dishes, Satellite Dishes and Antennas; Grant. Section 39.1 of the Lease is hereby amended by amending and restating the first sentence thereof in its entirety as follows:
 
“Landlord hereby grants Tenant the right to use the rooftop area of the Building for the purpose of installing, maintaining and replacing microwave, satellite and/or vertical dishes, antennae, and other exterior communications equipment, and associated transmission equipment, shields and other equipment and structures (collectively, “Antennae”) and for the use and operation of such Antennae in connection with the business or operation of Tenant and/or any of its Affiliates or Subtenants.”
 
14. Microwave Dishes, Satellite Dishes and Antennas: Installation. Section 39.2 of the Lease is hereby amended by amending and restating the last sentence thereof in its entirety as follows:
 
“All such equipment shall be constructed and maintained by Tenant in accordance with Legal Requirements, in compliance with the reasonable requirements of the insurers of the Building, and shall be of a size and appearance which is not inappropriate for use in connection with a first class office building in Minneapolis, Minnesota.
 
15. Microwave Dishes, Satellite Dishes and Antennas; Transfer. Section 39.3 of the Lease is hereby amended and restated in its entirety as follows:
 
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“39.3 Transfer Tenant may extend all or any portion of it rights hereunder to any parent, subsidiary or other Affiliate of Tenant, and to any other Subtenant which subleases not less than twenty thousand (20,000) square feet of Rentable Area; provided, however, to the extent any such Subtenant is engaged in the business of renting or managing rooftops, such Subtenant shall be entitled to Tenant’s rights under this Article 39 only to the extent necessary to serve its business operations at the Premises other than renting or managing rooftops.”
 
16. Microwave Dishes, Satellite Dishes and Antennas; Other Uses. Section 39.4 of the Lease is hereby amended by amending and restating the penultimate sentence thereof in its entirety as follows:
 
“In the event any such Other Antennae so interferes with any of Tenant’s Antennae which have theretofore been installed at the Building, Landlord shall cause the offending Other Antennae to be immediately removed or relocated in such manner as to eliminate such interference.”
 
17. Application of Lease Terms. Except to the extent inconsistent with this First Amendment and except to the extent that the specific terms of this First Amendment specifically address a topic, the terms and conditions of the Lease shall apply to the Lease and the leased premises as amended by this First Amendment. This First Amendment shall be binding upon and inure to the benefit of Landlord, Tenant and their respective successors and assigns.
 
18. Reaffirmation of Lease. Except as specifically amended herein, the terms and conditions of the Lease remain unchanged and in full force and effect.
 
IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment as of the date first set forth above.
 
LANDLORD:	 	 	 	RYAN 800, LLC	
 	 	 	 	 	
 	 	 	 	 	 	By	 	/s/    Timothy M. Gray

	
 	 	 	 	 	 	 	 	Its    Chief Manager	 	 	

	 	 	
 
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TENANT:	 	 	 	U.S. BANCORP PIPER JAFFRAY COMPANIES INC.	
 	 	 	 	 	
 	 	 	 	 	 	By	 	/s/    Deborah Roed __________

	
 	 	 	 	 	 	 	 	Its    Chief Financial Officer	 	 	

	 	 	
 
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LEASE GUARANTY
 
WHEREAS, RYAN 800, LLC, Minnesota limited liability company, hereinafter referred to as “Landlord” and U.S. BANCORP PIPER JAFFRAY COMPANIES, INC.,  a Delaware corporation, hereinafter referred to as “Tenant”, have simultaneously executed that certain Supplemental Amendment Regarding Expansion Space for additional premises at a building to be constructed in Minneapolis, Minnesota, (the “Amendment”) which amends and supplements that certain Office Lease dated March 3, 1998, as previously amended (said Office Lease, as previously amended, together with the Amendment is herein collectively referred to as the “Lease”).
 
WHEREAS, U.S. Bancorp, hereinafter referred to as “Guarantor”, is the parent company of and has a financial interest in Tenant;
 
WHEREAS, Landlord would not enter into the Amendment with Tenant if Guarantor did not execute and deliver to Landlord this Lease Guaranty (this “ Guaranty ”), and
 
WHEREAS, this Guaranty is being executed and delivered simultaneously with the execution and delivery of the Amendment;
 
NOW THEREFORE, for and in consideration of the execution of the foregoing Amendment by Landlord and as a material inducement to Landlord to execute the Amendment, Guarantor hereby jointly, severally, unconditionally and irrevocably guarantees the prompt payment by Tenant of all rentals and all other sums payable by Tenant under the Lease and the faithful and prompt performance by Tenant of each and every one of the terms, conditions and covenants of the Lease to be kept and performed by Tenant as such are defined in the Lease. The reduction of or limitation on any liabilities of Tenant under the Lease pursuant to any federal or state bankruptcy or insolvency proceeding shall not cause a reduction in or otherwise affect the liabilities or obligations of Guarantor under this Guaranty.
 
It is specifically agreed and understood that the terms of the foregoing Lease may be altered, affected, modified or changed by agreement between Landlord and Tenant, or by a course of conduct, and the Lease may be assigned by Landlord or any assignee of Landlord pursuant to the Lease without consent or notice to Guarantor and that this Guaranty shall thereupon and thereafter guarantee the performance of the Lease as so changed, modified, altered or assigned.
 
This Guaranty shall not be released, modified or affected by failure or delay on the part of Landlord to enforce any of the rights or remedies of the Landlord under the Lease, whether pursuant to the terms thereof or at law or in equity. No notice of default need be given to Guarantor, it being specifically agreed and understood that the guarantee of the undersigned is a continuing guarantee under which Landlord may proceed forthwith and immediately against Tenant or against Guarantor following any Event of Default by Tenant or for the enforcement of any rights which Landlord may have as against Tenant after an Event of Default pursuant to or under the terms of the Lease or at law or in equity.

Landlord shall have the right to proceed against Guarantor hereunder following any Event of Default by Tenant without first proceeding against Tenant and without previous notice to or demand upon either Tenant or Guarantor.
 
Guarantor hereby waives (a) notice of acceptance of this Guaranty, (b) demand of payment, presentation and protest, (c) all right to assert or plead any statute of limitations as to or relating to this Guaranty and the Lease, provided such waiver shall not affect any right which Tenant may have, (d) any right to require the Landlord to proceed against the Tenant or any other Guarantor or any other person or entity liable to Landlord, (e) any right to require Landlord to apply to any default any security deposit or other security it may hold under the Lease, (f) any right to require Landlord to proceed under any other remedy Landlord may have before proceeding against Guarantor and (g) any right of subrogation.
 
The term “Landlord” whenever used in this Guaranty refers to and means the Landlord specifically named in the Lease and also any assignee of the Landlord, whether by outright assignment or by assignment for security, and also any successor to the interest of said Landlord or of any assignee in the Lease or any part thereof pursuant to the Lease, whether by assignment or otherwise. So long as the Landlord’s interest in or to the Premises or the rents, issues and profits therefrom, or in, to or under the said lease, are subject to any mortgage or deed of trust or assignment for security, no acquisition by Guarantor of the Landlord’s interest in the Premises or under the Lease shall affect the continuing obligation of Guarantor under this Guaranty, which shall nevertheless continue in full force and effect for the benefit of the mortgagee, beneficiary, trustee or assignee under such mortgage, deed of trust or assignment, of any purchase at sale by judicial foreclosure or under private power of sale, and of the successors and assigns of any such mortgagee, beneficiary, trustee, assignee or purchaser. The term “Tenant” whenever used in this Guaranty refers to and means the Tenant specifically named in the Lease and also any assignee or sublessee of the Lease and also any successor to the interests of the Tenant, assignee or sublessee of the Lease or any part thereof, whether by assignment, sublease or otherwise.
 
The obligations of the Guarantor hereunder shall include payment to Landlord of all reasonable costs of any successful legal action by Landlord against Guarantor, including reasonable attorneys’ fees.
 
This Guaranty, all acts and transactions hereunder and the rights and obligations of the parties hereto shall be governed by and construed and enforced in accordance with the laws of the State of Minnesota. As part of the consideration for Landlord’s entering into the Lease which this Guaranty is a part, the Guarantor hereby agrees that all actions or proceedings arising directly or indirectly hereunder may, at the option of Landlord, be litigated in courts having situs within the State of Minnesota, and the Guarantor hereby expressly consents to the jurisdiction of any such local, state or federal court, and consents that any service of process in such action or proceeding may be made by personal service upon the Guarantor wherever the Guarantor may then be located, or by certified or registered mail directed to such Guarantor at 601 Second South, Minneapolis, Minnesota 55402, Attention: General Counsel.
 
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IN WITNESS WHEREOF, the Guarantor has executed this Lease Guaranty under seal as of this 29th day of September, 1999.
 
U.S. BANCORP	
 	 	
By:	 	[ILLEGIBLE]

	
Title:	 	EXECUTIVE VICE PRESIDENT

	
 
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SUPPLEMENTAL AMENDMENT REGARDING EXPANSION SPACE
 
THIS SUPPLEMENTAL AMENDMENT REGARDING EXPANSION SPACE (this “Amendment”), made and entered into as of the  29 th  day of September, 1999, by and between  RYAN 800, LLC,  a Minnesota limited liability company (“Landlord”) and  U.S. BANCORP PIPER JAFFRAY COMPANIES INC,  a Delaware corporation (“Tenant”);
 
W I T N E S S E T H    T H A T :
 
WHEREAS, Landlord and Tenant entered into that certain Office Lease dated March 3, 1998, as amended by that certain First Amendment to Lease dated May 18, 1998 and by that certain Second Amendment to Lease dated July 30, 1999 (collectively, the “Lease”) for certain premises (the “Premises”) in the building to be constructed by Landlord in the City of Minneapolis, Hennepin County, Minnesota (the “Building”);
 
WHEREAS, Tenant previously exercised its right to exclude Floors four (4) and five (5) from the Initial Premises pursuant to the terms of the Lease;
 
WHEREAS, prior to the execution of this Amendment, the Premises consisted of Floors Six (6) through Thirteen (13), inclusive, and the Initial Retail Premises, containing approximately 319,584 square feet of Rentable Area;
 
WHEREAS, the Lease contains certain expansion rights in favor of Tenant including, without limitation, the expansion options and rights of first offer pursuant to Sections 8 and 9, respectively, of the Lease;
 
WHEREAS, Tenant has exercised its expansion right to lease additional premises in the Building pursuant to its rights under Sections 8 and 9 of the Lease; and
 
WHEREAS, Landlord and Tenant desire to evidence such expansion of the Premises and to amend certain other terms and conditions of the Lease and evidence their agreements and other matters by means of this Amendment;
 
NOW THEREFORE, in consideration of the mutual covenants contained herein, and other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the Lease is hereby amended and the parties hereto do hereby agree as follows:
 
 	1.	 	Landlord hereby agrees to lease to Tenant and Tenant shall lease from Landlord approximately 350,000 square feet of Rentable Area consisting of the space on , Floors Three (3) through Five (5) inclusive, Floors Fifteen (15) through Twenty-Two (22) inclusive, and approximately 10,261 rentable square feet on Floor Twenty-Three (23), all as shown on  Exhibit A  attached hereto and by this reference made a part hereof (the “Initial Expansion Space”), increasing the total Rentable Area leased pursuant to the Lease to approximately 669,584 square feet. Landlord and Tenant acknowledge and agree that the foregoing expansion is pursuant to an exercise by Tenant of certain of its first offer and expansion rights in Sections 8 and 9 of the Lease.	

 	Tenant may elect, by written notice given to Landlord not later than April 1, 2000, to increase or decrease the Rentable Area of the Initial Expansion Space pursuant to one of the following four options: (i) Tenant may elect to increase the Rentable Area of the Initial Expansion Space to add the remainder of the space on Floor 23 (“Option 1”); (ii) Tenant may elect to increase the Rentable Area of the Initial Expansion Space to add (x) the remainder of the space on Floor 23 and (y) one-half (1/2) of the space on Floor 24, with the location and configuration of such one-half (1/2) of the space on Floor 24 to be determined by Tenant in its sole discretion, provided the space not leased by Tenant on Floor 24 shall be capable of being configured so as to make the same reasonably leaseable (“Option 2”); (iii) Tenant may elect to decrease the Rentable Area of the Initial Expansion Space to delete all of the space on Floor 23 consisting of approximately 10,261 square feet of Rentable Area (“Option 3”); and (iv) Tenant may elect to decrease the Rentable Area of the Initial Expansion Space to delete (x) all of said space on Floor 23 and (y) one-half (1/2) of the space on Floor 22, with the location and configuration of such one-half (1/2) of the space on Floor 22 to be determined by Tenant in its sole discretion, provided the space not leased by Tenant on Floor 22 shall be capable of being configured so as to make the same reasonably leaseable (“Option 4”). Any such space added to the Initial Expansion Space pursuant to either Option 1 or Option 2 above shall hereinafter sometimes be referred to as the “Additional Initial Expansion Space”. All Additional Initial Expansion Space shall be deemed to be part of the Initial Expansion Space for all purposes of this Amendment. Any such area deleted from the Initial Expansion Space pursuant to either Option 3 or Option 4 above shall hereinafter be referred to as “Excess Expansion Space”.	
 
 	2.	 	The Lease is hereby amended by adding the Initial Expansion Space as part of the Premises, subject to the following terms and conditions:	
 
 	a.	 	The Initial Expansion Space shall be added as part of the Initial Premises for all purposes, except as set forth in this Amendment.	
 
 	b.	 	The Commencement Date of the Initial Expansion Space (which shall also be the date for the commencement of the payment of Base Rental and other Rent with respect to the Initial Expansion Space) shall be determined in accordance with the terms and conditions of the Lease as if the Initial Expansion Space constituted a portion of the Initial Premises including, without limitation, the terms and conditions of Section 5.2.2, except as follows: (i) except as otherwise provided in this clause (i), the Commencement Date for the Initial Expansion Space only shall not begin before October 1, 2002; provided, however, if Tenant commences use of all or any part of the Initial Expansion Space for its business purposes (as opposed to for performance of the Tenant Work or installation of Tenant’s furniture, Trade Fixtures and personal property) prior to October 1, 2002, then the Commencement Date with respect to the portion of the Initial	
 
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Expansion Space which Tenant uses shall be the date which Tenant takes beneficial occupancy of the same. Notwithstanding the foregoing, Tenant shall have the right to take occupancy of all or a portion of the Initial Expansion Space for any purpose (including, without limitation, for business purposes) on or after July 1, 2002 without triggering the Commencement Date for the Initial Expansion Space (which shall be October 1, 2002 in such event); (ii) Tenant shall only have the right to commence early occupancy of the Initial Expansion Space for its business purpose in full Floor increments (except with respect to any partial Floor of the Initial Expansion Space); and (iii) the Commencement Date for the original Initial Premises, being Floors six (6) through thirteen (13), inclusive, and the Retail Premises (the “Original Initial Premises”), shall not be affected by the foregoing provisions or the addition of the Initial Expansion Space. The Initial Term of the Lease for the entire Premises (which includes the Original Initial Premises and the Initial Expansion Space) shall expire on the same date on the fourteenth (14 th ) anniversary of the Commencement Date for the Original Initial Premises.
 
 	c.	 	Base Rental with respect to the Initial Expansion Space during the Initial Term shall be Thirteen and No/100 Dollars ($13.00) per square foot of the Rentable Area of the Initial Expansion Space, as determined in accordance with the terms and conditions of Section 5 of this Amendment, and shall be due and payable, together with any other Rent payments for the Initial Expansion Space, on the Commencement Date for the Initial Expansion Space or portion thereof (as described in Section 2b above).	
 
 	d.	 	The provisions of Exhibit D (Work Letter) to the Lease apply to the Original Initial Premises and the Initial Expansion Space, subject to the amendments hereinafter provided. Said  Exhibit D  (Work Letter) to the Lease is hereby amended as follows:	
 
(i) The following is added at the end of the definition of “Approved Base Building Plans and Specifications” on page 1: “Landlord and Tenant acknowledge and agree that the Approved Base Building Plans and Specifications are described on  Exhibit B attached to the Supplemental Amendment Regarding Expansion Space executed by Landlord and Tenant (the “Supplemental Amendment”) and incorporated herein by this reference and reflect change orders approved by Landlord and Tenant through Bulletin 8. The Base Building Work to be performed by Landlord in the Initial Expansion Space is described in the Building Shell Condition Requirements for the Initial Expansion Space attached to the Supplemental Amendment as  Exhibit 1-1  and incorporated herein by this reference, and the Approved Base Building Plans and Specifications shall be revised, if necessary, to reflect the Base Building Work to the Initial Expansion Space described in said  Exhibit 1-1 , subject, however, to the upgrades on Floors
 
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3, 4 and 5 described in Exhibit C attached to the Supplemental Amendment and incorporated herein by this reference.”
 
(ii) The Base Building Construction Schedule attached as Exhibit 5 to the Work Letter is hereby deleted and the Base Building Construction Schedule attached to this Amendment as  Exhibit 5  is substituted in lieu thereof.
 
(iii) The following is added at the end of the definition of “Base Building Scope Documents” on page 4 of the Work Letter: “; provided, however, the Base Building Scope Documents applicable to the Initial Expansion Space are attached to the Supplemental Amendment as  Exhibit 4-1  and incorporated herein by this reference and such Base Building Scope Documents described in  Exhibit 4-1 (and not  Exhibit 4)  shall relate to the Base Building Work to the Initial Expansion Space; further provided, however, Floors 3, 4 and 5 shall be upgraded as described in  Exhibit C  attached to the Supplemental Amendment.”
 
(iv) The following is added at the end of the definition of “Base Building Shell Condition Requirements” on page 4 of the Work Letter: “; provided, however, the Base Building Shell Condition Requirements applicable to the Initial Expansion Space are attached to the Supplemental Amendment as  Exhibit 1-1  and incorporated herein and such Base Building Shell Condition Requirements described in Exhibit 1-1  (and not  Exhibit 1)  shall govern the Base Building Work to the Initial Expansion Space; further provided, however, Floors 3, 4 and 5 shall be upgraded as described in  Exhibit C  attached to the Supplemental Amendment.
 
(v) The existing provisions of Section 2.2.1 of the Work Letter shall apply only to the Original Initial Premises. Therefore, all references to the “Premises” in said Section 2.2.1 shall refer only to the Original Initial Premises. In addition, the following is added at the end of said Section 2.2.1: “Notwithstanding anything to the contrary in this Work Letter, all Base Building Work for the Initial Expansion Space shall be designed at least to accommodate population densities of one (1) person per one hundred forty-four (144) square feet of Usable Area on the Floors of the Initial Expansion Space.”
 
(vi) Notwithstanding anything contained in the Lease or the Work Letter to the contrary, Tenant shall have no right to require Landlord to construct or serve as the general contractor for the Tenant Work, and Landlord shall not have any obligation or liability for the construction of the Tenant Work, except for the payment of Tenant Work Costs up to the amounts described in Section 3.6 of the Work Letter. Notwithstanding the foregoing to the contrary, Tenant may engage Ryan Companies US, Inc., an affiliate of Ryan 800, LLC, the current Landlord, to serve as the general contractor for the Tenant Work in the Original Initial Premises and the Initial Expansion Space pursuant to separate agreements between such parties, and in no way shall Landlord have any liability under such agreements or with respect to the construction of the Tenant Work pursuant
 
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thereto. Therefore, the third sentence of Section 3.3 of the Work Letter is hereby deleted.
 
(vii) Notwithstanding anything contained in Section 3.4 of the Work Letter to the contrary, the provisions set forth in clauses (a) through (h) of said Section 3.4 regarding Landlord’s services during construction shall apply only during the period of the performance of the Tenant Work until the Base Building Completion Date, and after the Base Building Completion Date and during the remainder of the period for the performance of the Tenant Work, Landlord shall not be required to provide the services described in clauses (a) through (h) of said Section 3.4, but shall provide the following services and facilities, all in operational condition and in good order and in accordance with the other requirements of said Section 3.4:
 
(a) HVAC services sufficient to allow the efficient performance of the Tenant Work (e.g., to allow efficient curing of sheet rock, etc.) and electrical and water services;
 
(b) access to and use of truck docks;
 
(c) vertical transportation for passengers and construction purposes;
 
(d) direct vertical transportation for freight and construction materials and tools to all Floors in the Premises, Floor One (1) and all Floors containing facilities described in (b) and (f) hereof, which shall include, without limitation, one (1) freight elevator;
 
(e) an area and, at Tenant’s expense, adequate dumpster service designated for Tenant’s exclusive use for rubbish and trash removal services in the same elevator bank as the Premises; and
 
(f) at Tenant’s expense, temporary toilet facilities for the exclusive use of Tenant’s construction personnel in the same elevator bank as the subject Premises.
 
(viii) Landlord shall pay all costs and expenses incurred in connection with the design, construction and performance of the Tenant Work for the Initial Expansion Space up to a maximum amount of Thirty and no/100 Dollars ($30.00) times the number of square feet or Rentable Area in the Initial Expansion Space. Therefore, the following is added after “Initial Premises” in line six (6) of Section 3.6 of the Work Letter: “(including the Initial Expansion Space)”.
 
(ix) Notwithstanding the provisions of Section 3.7 of the Work Letter to the contrary, the work to be performed by Landlord described in said Section 3.7 to balance the HVAC systems servicing the Initial Expansion Space shall be performed by Landlord, provided the reasonable costs and expenses of such work
 
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for the Initial Expansion Space shall be paid by Tenant. Therefore, the following is added at the end of said Section 3.7: “provided, however, Tenant shall pay the reasonable costs and expense of such work for the HVAC systems servicing the Initial Expansion Space.”
 
(x) Section 4 of the Work Letter is hereby amended by deleting the words “and the Tenant Work” appearing at the end of said Section 4.
 
(xi) The following provisions shall govern and control in the event of any conflict among the Approved Base Building Plans and Specifications, Base Building Scope Documents and Base Building Shell Condition Requirements: (a) in the event of any conflict relating to the Original Initial Premises, the Approved Base Building Plans and Specifications shall control; and (b) in the event of any conflict relating to the Initial Expansion Space, the Base Building Scope Documents for the Initial Expansion Space attached to this Amendment as  Exhibit 4-1  and the Base Building Shell Condition Requirements for the Initial Expansion Space attached to this Amendment as  Exhibit 1-1  shall control.
 
 	3.	 	Section 1.76 of the Lease setting forth the definition of “Tenant Finish Period” is hereby amended by deleting the number “one hundred ninety-six (196)” appearing in line three (3) thereof and substituting the number “one hundred fifty-two (152)” in lieu thereof.	
 
 	4.	 	Section 1.50 of the Lease is hereby amended by inserting: (a) the following provision after the phrase “all pertinent factors” in the tenth (10 th ) line thereof: “(including, without limitation, the net effective rental rates for space then being leased in the Building under leases recently executed and any and all other factors that the parties, in their sole discretion, shall deem relevant); and (b) inserting the following provision after the phrase “ninety percent (90%)” in the fourteenth (14th) and fifteenth (15th) lines thereof: “or ninety-five percent (95%).”	
 
 	5.	 	Section 2.2 of the Lease entitled “Measurement Standards” shall not be applicable to the Initial Expansion Space or to any other space added to the Premises (whether the addition of such space to the Premises is made pursuant to a right contained in the Lease or otherwise), and Landlord and Tenant agree that the standards set forth in Sections 2.2.1 and 2.2.2 shall be inapplicable to such space. The Rentable Area of the Initial Expansion Space and any other space added to the Premises including, without limitation, any space added pursuant to any Expansion Options or First Offer Rights shall be established pursuant to the terms of Section 2.2.3 and 2.2.4, but utilizing the standards hereinafter set forth. The standards set forth in Sections 2.2.1 and 2.2.2 shall continue to be applicable in all respects to the Original Initial Premises. The Rentable Area and Usable Area of the Initial Expansion Space or any other space added to the Premises including, without limitation, any space added pursuant to any Expansion Options or First Offer Rights shall be determined in accordance with “Standard Method for Measuring Floor Area in Office Buildings,” published by the Secretariat,	
 
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 	Buildings Owners and Managers Association International (ANSI/BOMA Z65.1-1996), approved June 7, 1996.	
 
 	6.	 	Section 5.1.3 of the Lease entitled “LaSalle Passageway” is hereby amended by reducing the dollar amount set forth on the eleventh (11 th ) line and thirty eighth (38 th ) line from One Million and No/100 Dollars ($1,000,000.00) to Five Hundred Thousand and No/100 Dollars ($500,000.00).	
 
 	7.	 	Section 6.1.2 of the Lease entitled “Extension Term” is hereby deleted and the following provision inserted in lieu thereof:	
 
“Extension Term. During the first twelve (12) months of the first Extension Term (a) the Base Rental for the Original Initial Premises (other than the Initial Retail Premises) shall be in the amount of Twenty-Two and 40/100 Dollars ($22.40) per square foot of Rentable Area per year, (b) the Base Rental for any Retail Premises then included in the Premises shall continue at the same rate as in effect at the end of the Initial Term and (c) the Base Rental for the “Initial Expansion Space” (as defined in the Supplemental Amendment), any Expansion Space or any First Offer Space then included in the Premises shall be as set forth below. During the remainder of the first Extension Term (and as to the Initial Expansion Space, any Expansion Space or any First Offer Space during the entire first Extension Term) and during each subsequent Extension Term, (a) the Base Rental solely with respect to the Original Initial Premises shall be at a per annum rate equal to the lesser of (x) the product of multiplying (A) the Market Base Rental Rate as of the Rent Determination Date for the Premises in question considered as an aggregate block of space leased to a single tenant by (B) ninety percent (90%), or (y) the product obtained by multiplying (A) the Market Base Rental Rate as of the Rent Determination Date for a single tenant leasing one (1) full floor of the size and design of Floor Six and located on the elevator bank on which Floor Six is located (the “Full Floor Rate”) by ninety percent (90%), (b) the Base Rental for the remainder of the Premises (including the Initial Expansion Space, any Expansion Space and any First Offer Space which is included in the Premises as of the first day of the Extension Term in question, but excluding the Original Initial Premises and any Retail Premises) shall be at a per annum rate equal to the lesser of (i) the product obtained by multiplying (A) the Market Base Rental Rate as of the Rent Determination Date for the Premises in question considered as an aggregate block of space leased to a single tenant by (B) ninety five percent (95%), or (ii) the product obtained by multiplying (A) the Full Floor Rate as of the Rent Determination Date by (B) ninety five percent (95%), and (c) the Base Rental Rate for the Retail Premises, shall be at the per annum rate equal to the product obtained by multiplying (i) the Market Base Rental Rate as of the Rent Determination Date for the Retail Premises in question, by (ii) ninety percent (90%).”
 
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 	8.	 	Section 6.1.4 of the Lease entitled “Expansion Space” is hereby amended by deleting the words “ninety percent (90%)” in the fourth (4 th ) line thereof and inserting in lieu thereof the words “ninety-five percent (95%)”.	
 
 	9.	 	Section 6.1.5 of the Lease entitled “First Offer Space” is hereby amended by deleting the words “ninety percent (90%)” in the fourth (4 th ) line thereof and inserting in lieu thereof the words “ninety-five percent (95%)”.	
 
 	10.	 	Landlord and Tenant acknowledge and agree that (a) the parties have executed simultaneously with the execution of this Amendment, a Lease Amendment, Indemnification and Joint Defense Agreement with respect to certain tax issues (the “Tax Agreement”), (b) the Tax Agreement shall operate as an amendment to the Lease and in the event of an assignment of the Lease by either Landlord or Tenant or both, said Tax Agreement will be assigned to such parties’ assignee and such assignee will expressly assume all of such parties’ obligations and liabilities under the Tax Agreement, (c) in the event that Landlord fails to pay timely any sum to Tenant due and owing under the Tax Agreement, Tenant shall have the right to offset such amount against the Rent due under the Lease until Tenant is fully reimbursed pursuant to the procedures set forth in Section 24.5 of the Lease, but without regard to any cap on offset rights set forth in the Lease with respect to the collection of such amount, and (d) no sum payable by Landlord under the Tax Agreement (or offset by Tenant under this Amendment) shall be considered Real Property Taxes or Operating Expenses under the Lease.	
 
 	11.	 	Landlord and Tenant acknowledge and agree that Tenant’s exercise of its expansion rights with respect to the Initial Expansion Space which is evidenced by this Amendment constitutes both an exercise by Tenant of a First Offer Right and its Expansion Options described in Sections 8 and 9, respectively, of the Lease. Landlord and Tenant acknowledge and agree that Tenant retains its First Offer Rights set forth in Section 9 of the Lease. However, Section 8.1 of the Lease entitled “Grant” is hereby deleted in its entirety and the following inserted in lieu thereof:	
 
“8.1 Grant. Subject to the terms and conditions of this Article 8, Landlord hereby grants to Tenant the options (the “Expansion Options”) to add the following expansion space (the “Expansion Space”) to the Premises:
 
(i) Attached to the Supplemental Amendment as Exhibit D and incorporated herein is a description of the five (5) Expansion Options. The space to be leased under the five (5) Expansion Options (the “Expansion Space”) will depend on whether Tenant elects, on or before April 1, 2000, to increase or decrease the Initial Expansion Space pursuant to Option 1, Option 2, Option 3, or Option 4 described in Section 1 of the Supplemental Amendment. The Expansion Space applicable to each of the five (5) Expansion Options shall be determined on April 1, 2000 depending on which, if any, of said Option 1, Option 2, Option 3, or
 
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Option 4 Tenant exercises and shall be the corresponding Expansion Space descried in Exhibit D under the appropriate column relating thereto.
 
(a) The first Expansion Option (the “First Expansion Option”) shall be effective as of October 1, 2004 and shall relate to the Expansion Space described in said  Exhibit D  (the “First Expansion Space”).
 
(b) The second Expansion Option (the “Second Expansion Option”) shall be effective as of October 1, 2006 and shall relate to the Expansion Space described in said  Exhibit D  (the “Second Expansion Space”).
 
(c) The third Expansion Option (the “Third Expansion Option”) shall be effective as of October 1, 2008 and shall relate to the Expansion Space described in said  Exhibit D  (the “Third Expansion Space”).
 
(d) The fourth Expansion Option (the “Fourth Expansion Option”) shall be effective as of October 1, 2010 and shall, relate to the Expansion Space described in said  Exhibit D  (the “Fourth Expansion Space”).
 
(e) The fifth Expansion Option (the “Fifth Expansion Option” shall be effective as of October 1, 2012 and shall relate to the Expansion Space described in said  Exhibit D  (the “Fifth Expansion Option”).
 
 	12.	 	Section 8.2 of the Lease entitled “Exercise” is hereby amended by deleting the first sentence thereof. Said Section 8.2 of the Lease is hereby further amended by deleting from lines 14-16 thereof the phrase “(ii) subject to the other limitations of this Section 8.2, the portion or portions of the Expansion Space as to which Tenant is exercising its Expansion Option”.	
 
 	13.	 	Section 8.3 of the Lease entitled “Contiguous Space; Relationship to First Offer Right” is hereby deleted and the following provision inserted in lieu thereof:	
 
“8.3 Independent Rights; Relationship to First Offer Right. Any failure to duly and timely exercise an Expansion Option shall not otherwise limit subsequent Expansion Options. If Tenant has previously leased any Expansion Space pursuant to the exercise of a First Offer Right, but subject to any Superior Rights as provided in Section 9 hereof, then the Expansion Option with respect to such Expansion Space shall be deemed independent of the First Offer Right and shall apply and may be exercised notwithstanding that Tenant exercised a First Offer
 
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Right with respect to such Expansion Space. If Tenant has previously leased any Expansion Space pursuant to the exercise of a First Offer Right, but such exercise was not subject to any Superior Rights as provided in Section 9 hereof, then Tenant shall not have the right to exercise an Expansion Option with respect to such Expansion Space (and will continue to lease such Expansion Space pursuant to the exercise of the First Offer Right), but the Expansion Option shall apply to any remaining portion of the Expansion Space. If Tenant at any time elects to exercise its Expansion Option with respect to any First Offer Space, then Tenant’s First Offer Right with respect to such space shall immediately terminate and be of no further force and effect. Notwithstanding anything contained in this Section 8.3 to the contrary, if Tenant exercises a renewal of this Lease for an Extension Term as provided in Section 4.3 hereof for less than the entire Premises but for at least three hundred twenty-five thousand (325,000) square feet of Rentable Area, then Tenant’s First Offer Right described in Section 9 hereof shall continue to apply during the Extension Term and shall relate to any space in the Building which is or shall become available for leasing, including, without limitation, any such space which was originally part of the Premises but not leased by Tenant during such Extension Term, but only to the extent such space is or shall become available for leasing. If Tenant exercises such a renewal of this Lease for an Extension Term for less than three hundred twenty-five thousand (325,000) square feet of Rentable Area, then Tenant shall no longer have the First Offer Right described in Section 9 hereof during the Extension Term.”
 
 	14.	 	Section 10.1.1 of the Lease entitled “First Reduction Option” is hereby deleted from the Lease and shall be void and of no further force or effect as if such provision had not been included in the original Lease.	
 
 	15.	 	Sections 10.1.2, 10.1.3 and 10.1.4 of the Lease entitled “Second Reduction Option”, “Third Reduction Option” and “Fourth Reduction Option”, respectively, are hereby deleted and the following provisions inserted in lieu thereof:	
 
“10.1.2. Second Reduction Option. By up to amount of Rentable Area equal to one hundred fifty thousand (150,000) square feet of Rentable Area by notice given to Landlord at any time during the Term on or after the tenth (10 th ) anniversary of the Commencement Date for such portion of the Premises (the “Second Reduction Option”);
 
“10.1.3 Third Reduction Option. All or any portion of the Retail Premises by notice to Landlord at any time during the Term on or after the fourth (4 th ) and prior to the fifth (5 th ) anniversary of the Commencement Date for the Retail Premises (the “Third Reduction Option”); and
 
10.1.4 Fourth Reduction Option. All or any portion of the Retail Premises by notice to Landlord at any time during the Term on or after the ninth (9 th ) and prior to the tenth (10 th ) anniversary of the Commencement Date for the Retail Premises (the “Fourth Reduction Option”).”
 
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 	16.	 	Section 11.2 of the Lease entitled “Adjustment; Allocated Spaces” is hereby amended by deleting the first two sentences thereof and inserting in lieu thereof the following:	
 
“The number of parking spaces allocated to Tenant (the “Allocated Spaces”) from time to time with respect to the Premises shall equal the following: (i) if the Rentable Area of the Premises is between (x) five hundred seventy-five thousand (575,000) square feet and (y) the Rentable Area within the Original Initial Premises and the Initial Expansion Space (before the exercise of Option 1, Option 2, Option 3 or Option 4 as described in Section 1 of the Supplemental Amendment Regarding Expansion Space), which is approximately 669,584 square feet (the “Initial Rentable Area”), then the Allocated Spaces shall be two hundred fifty (250) parking spaces; (ii) if the Rentable Area of the Premises is greater than the Initial Rentable Area, then the Allocated Spaces shall be the sum of (x) two hundred fifty (250) parking spaces plus (y) one (1) parking space for each three thousand five hundred forty-seven (3,547) square feet of Rentable Area in excess of the Initial Rentable Area; and (iii) if the Rentable Area of the Premises is less than five hundred seventy-five thousand (575,000) square feet, then the Allocated Spaces shall be (x) two hundred fifty (250) parking spaces less (y) one (1) parking space for each two thousand three hundred (2,300) square feet of Rentable Area less than five hundred seventy-five thousand (575,000) square feet. The Rentable Area of the Premises referred to in (i) through (iii) above shall be the Rentable Area of the Premises from time to time as the same may have been increased or decreased pursuant to (1) any of said Option 1, Option 2, Option 3 or Option 4; (2) any Reduction Option described in Section 10 hereof; (3) any Expansion Option described in Section 8 hereof; (4) any First Offer Right described in Section 9 hereof; or (5) any other provision of this Lease.”
 
 	17.	 	Section 11.7 of the Lease entitled “After Hours Parking” is hereby amended by deleting the first sentence thereof and inserting in lieu thereof the following: “In addition to the Allocated Parking and the Additional Parking, Landlord shall provide Tenant with as many parking spaces as then available from time to time in the Parking Garage, for after hours parking at a rate of Two and No/100 Dollars ($2.00) per space per day (net of sales, use or similar taxes) and/or Twenty-five and No/100 Dollars ($25.00) per space per month (net of sales, use or similar taxes) during the entire Term.”	
 
 	18.	 	Section 12.2. of the Lease entitled “Adjustment; Allocated Storage Space” is hereby amended by deleting the first three sentences thereof and inserting in lieu thereof the following sentence: “Storage Space allocated to Tenant pursuant to Section 12.1 shall be referred to as ‘Allocated Storage Space’.”	
 
 	19.	 	Section 22 of the Lease is hereby deleted and the following provision inserted in lieu thereof:	
 
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“22. Assignment and Subletting by Tenant. Except as expressly provided herein, Tenant shall not, by operation of law or otherwise, (a) assign, transfer, mortgage, pledge, hypothecate or otherwise encumber the Lease, the Premises or any part of or interest in the Lease or the Premises, (b) sublet all or any part of the Premises or any right or privilege appurtenant to the Premises, or (c) permit any other party to occupy or use all or any part of the Premises (collectively, a “Transfer”), without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. Further, Tenant hereby agrees that Tenant shall not sublease any portion of the Premises (excluding the Original Initial Premises) to another tenant in the Building.
 
Notwithstanding any provision to the contrary, Tenant may assign this Lease or sublet the Premises without Landlord’s consent (i) to any corporation or other entity that controls, is controlled by or is under common control with Tenant; (ii) to any corporation or other entity resulting from a merger, acquisition, consolidation or reorganization of or with Tenant; (iii) in connection with the sale of all or substantially all of the assets of Tenant; (iv) in connection with a sublease which has a term (including any renewal, option or extension term(s)) of less than eighteen (18) months; (v) in connection with a sublease of less than twenty-five thousand (25,000) square feet of Rentable Area to an entity with whom Tenant has a contractual relationship such that the sublease is for the convenience of Tenant’s business operations in the Premises; or (vi) in connection with a sublease to an entity to whom Tenant has sold a discrete, identified business unit of Tenant or an Affiliate of Tenant. If Tenant elects to so sublease or assign this Lease, Tenant shall notify Landlord in writing within fifteen (15) days after Tenant’s transfer and shall provide to Landlord evidence in writing that such assignment or sublease complies with one or more of the criteria set forth above. Any assignment of this Lease or sublease pursuant to terms of clauses (i), (ii) or (iii) above only, but not (iv), (v) or (vi) above, shall be hereafter known as an “Affiliated Transfer” and any assignment of this Lease or sublease pursuant to the terms of any of the provisions of (i), (ii), (iii), (iv), (v) or (vi) above in this paragraph shall be hereafter known as a “Permitted Transfer”. No such assignment, sublease or transfer, however, shall release Tenant from any covenant, liability or obligation under this Lease. In the event Landlord shall not withhold its approval of the proposed transfer in writing and with specific reasons for said withholding of approval within fifteen (15) days after receipt of Tenant’s written request, including receipt of all information required to be furnished by Tenant hereunder, such approval shall be deemed to be given.
 
Notwithstanding anything to the contrary, Landlord agrees and acknowledges that Tenant may, from time to time, sublease various portions of the Premises to U.S. Bank National Association and/or U.S. Bancorp and that any and all such subleases shall be deemed an Affiliated Transfer for purposes of this Lease.
 
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If Tenant requests Landlord’s consent to any Transfer, then Tenant shall provide Landlord with a written description of all terms and conditions of the proposed Transfer, copies of the proposed documentation, and the following information about the proposed transferee: name and address; its proposed use of the Premises if other than general office use; a copy of the proposed sublease or assignment agreement; if the transferee is a privately held corporation, then any financial information for such transferee obtained by Tenant (which shall be kept confidential by Landlord and only used for the purpose of evaluating such proposed sublease or assignment and the action to be taken by Landlord hereunder); and in the event of an assignment, the proposed change in the name of the Building (if any) that such transferee may elect pursuant to the terms and conditions of Section 35.1 of this Lease. Landlord’s consent to a Transfer shall not release Tenant from performing its obligations under the Lease, but rather Tenant’s transferee shall assume all of Tenant’s obligations under the Lease in a writing reasonably satisfactory to Landlord, and Tenant and its transferee shall be jointly and severally liable therefor. Landlord’s consent to any Transfer shall not waive Landlord’s or Tenant’s rights as to any subsequent Transfer.
 
Notwithstanding anything to the contrary, with respect to any proposed sublease of one (1) Floor or more of the Premises and which has a term of all or substantially all of the then applicable Term of this Lease and to which Landlord’s prior consent is required (the portion of the Premises to be subleased is hereinafter known as the “Sublet Space”), Landlord shall also have the option (i) to sublet the entire Sublet Space from Tenant at the same Base Rental as Tenant is required to pay to Landlord under this Lease for the Sublet Space, or (ii) to terminate this Lease as to the Sublet Space as provided below; provided, however, Landlord’s right in this paragraph to so sublet or transfer shall not apply to a Permitted Transfer and shall not apply to the Original Initial Premises, but Landlord’s right shall apply to the Initial Expansion Space and all other space thereafter leased to Tenant. For purposes of this paragraph, the term “all or substantially all of the then applicable Term” shall mean any sublease which has a term in excess of three (3) years and which will expire within one (1) year of the expiration of the then applicable Term. Landlord’s option to sublet or to terminate, as the case may be, shall be exercisable by Landlord in writing within a period of fifteen (15) calendar days after receipt of Tenant’s notice of its intent to sublease. In the event Landlord exercises the option to sublet the Sublet Space pursuant to Landlord’s option set forth above, the term of the subletting from the Tenant to Landlord shall be the term prescribed in the third party sublease (which shall not be longer than the then current Term of this Lease) and shall be on such terms and conditions as are contained in this Lease (including the Base Rental applicable to the Sublet Space as described in this Lease), except that Landlord shall have the right to further sublet the Sublet Space freely and without any consent or approval from Tenant and for such rent as Landlord shall agree upon in its sole and absolute discretion subject to the following restrictions. If Landlord exercises the option to sublease the Sublet Space or to terminate this Lease as to the Sublet
 
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Space, then (a) Landlord shall not sublease or lease to or allow the occupancy of any portion of Floors 1 and 2 only by any Financial Services Business as described in Section 38.1, but the foregoing restriction shall not apply to any other space in the Premises, and (b) such Sublet Space may be leased or further sublet by Landlord only for a use permitted under Legal Requirements which is not incompatible with a first class office building in downtown Minneapolis, Minnesota. If Landlord elects to terminate this Lease pursuant to Landlord’s option set forth above, then this Lease shall terminate as to the Sublet Space on the date set forth in said third party sublease for commencement. If Landlord exercises its option to terminate this Lease with respect to the Sublet Space, as to that portion of the Premises which is not part of the Sublet Space, this Lease shall remain in full force and effect and the Base Rental for the remaining portion of the Premises which is not a part of the Sublet Space shall continue to be determined and paid in the manner provided in this Lease for such space.
 
Landlord shall also have the right in connection with all subleases (other than an Affiliated Transfer or a sublease of a portion of the Original Initial Premises) to share in any profit from such subleases as hereinafter provided in this paragraph. In the event of such a sublease and (i) if Landlord does not elect to exercise either the option to sublease or to terminate as described in the preceding paragraph (if available to Landlord) and (ii) the aggregate rental or other consideration paid by a transferee with respect to any sublease space (except as provided below) exceeds the sum of (y) Tenant’s Rent to be paid to Landlord for such sublease space during such period and (z) an amount equal to the amortized amount of Tenant’s reasonable costs and expenses actually incurred in connection with such Transfer, including reasonable attorneys fees, brokerage fees, reasonable costs of finishing or renovating the space affected and reasonable cash rental concessions, which costs and expenses shall be amortized over the original term of such sublease at an interest rate equal to eight percent (8%) per annum, then seventy-five percent (75%) of such excess shall be paid to Landlord within fifteen (15) days after, such amount is paid to Tenant. The terms of this paragraph and Landlord’s right to receive such excess rent shall not, however, apply to an Affiliated Transfer and shall not apply to the sublease of a portion of the Original Initial Premises. Tenant authorizes its transferees to make payments of rent and any other sums due and payable, directly to Landlord upon an Event of Default by Tenant under this Lease. Landlord shall have the right, at Landlord’s expense, to audit Tenant’s books and records relating to each such sublease, provided such information shall be kept confidential. Any attempted Transfer by Tenant in violation of the terms and covenants of this Section 22 shall be void and shall constitute a default by Tenant under the Lease.”
 
 	20.	 	Section 24.5 of the Lease entitled “Landlord’s Default” is hereby amended by inserting the following phrase after the word “default” in the fifteenth (15 th ) line of said Section: “(provided, however, in no event shall Tenant have the right to offset or deduct any amount in excess of fifteen percent (15%) of all Rent due	
 
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under this Lease during the next twelve (12) month period and any excess owed to Tenant remaining after such offset will be carried forward to (and, subject to the limitations set forth above, available for offset in) the next succeeding twelve (12) month period(s)).”
 
 	21.	 	Section 35.1 of the Lease entitled “Building Name” is hereby deleted and the following provision inserted in lieu thereof:	
 
“35.1 Building Name. So long as Tenant and its Affiliates lease (including pursuant to any sublease of the Premises to Affiliates of Tenant or which qualify as an Affiliated Transfer) not less than three hundred twenty-five thousand (325,000) square feet of Rentable Area of the Building, Tenant shall have the right to select and from time to time change the name of the Building, provided that if Tenant changes the name of the Building after October 1, 1999, Tenant shall pay all reasonable costs incurred by Landlord in the removal and replacement of all common area signs containing the name of the Building. At such time as Tenant no longer leases such minimum amount of space, Landlord shall have the right to designate the name of the Building, provided that in no event shall the name of the Building be in any manner associated with any Financial Services Business other than Tenant or any of its Affiliates so long as Tenant (or its Affiliates) lease and occupy all or any portion of the then existing Premises. Landlord shall have the right to approve any name selected by Tenant, but such approval shall be deemed given if not denied in notice to Tenant given within fifteen (15) days after Tenant’s request for approval, provided that no approval is required if the name selected by Tenant is associated with the Tenant’s name, the name of any Affiliate of Tenant, or marketing strategy of Tenant or any of its Affiliates as determined by Tenant in its sole discretion. Any disapproval by Landlord must be based solely upon the fact that such name is inappropriate for use in connection with a first class office building in Minneapolis, Minnesota. The initial name of the Building shall be “U.S. Bancorp Center”. Any change in the name of the Building by Tenant shall be made (a) at any time prior to October 1, 1999, upon not less than five (5) days’ prior written notice to Landlord, and (b) thereafter upon not less than ninety (90) days’ notice to Landlord. At any time prior to or during the Term or after the expiration or termination of this Lease, Tenant shall have the right in its sole discretion to require Landlord to immediately cease use of any name associated with Tenant, any of its Affiliates or any marketing strategy of Tenant or its Affiliates in connection with the Building. The provisions of the immediately preceding sentence shall survive such expiration or termination.”
 
 	22.	 	Tenant represents and warrants to Landlord that neither it nor its officers or agents nor anyone acting on its behalf has dealt with any real estate broker other than CB Commercial Real Estate who represented Landlord and Nelson, Tietz & Hoye who represented Tenant in the negotiating or making of this Amendment. Landlord shall be solely responsible for payment of all brokerage commissions	
 
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due to CB Commercial Real Estate and Nelson, Tietz & Hoye pursuant to separate written agreements.
 
 	23.	 	All capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Lease.	
 
 	24.	 	Landlord and Tenant covenant and agree to keep the terms and conditions of this Amendment confidential at all times and neither this Lease nor any of the terms and conditions herein may be given, shown, made available, communicated or disclosed in any way to anyone other than the parties’ attorneys, tax advisors or consultants and real estate agents, and such other persons as the parties hereto mutually consent to in writing. Further, any disclosure or dissemination of this Amendment or the terms and conditions hereof shall be made subject to the foregoing covenant regarding confidentiality. Neither party hereto will issue any press release or make any other public announcement relating to the transactions contemplated by the Lease, as amended by this Amendment, without the prior consent of the other party and Cornerstone Properties Inc. It is anticipated that Landlord, Tenant and Cornerstone Properties Inc. will issue a jointly approved press release.	
 
 	25.	 	Except as set forth in the Lease, this Amendment represents the entire agreement between the parties hereto and Landlord and Tenant agree that there are no collateral or oral agreements or understandings between them with respect to the Premises or the Building. This Amendment supersedes all prior negotiations, agreements, letters or other statements with respect to Tenant’s expansion of the Premises.	
 
 	26.	 	This Amendment is expressly conditioned upon U.S. Bancorp, as guarantor, executing a Lease Guaranty with respect to the Lease in the form attached hereto as  Exhibit E  and by this reference made a part hereof.	
 
 	27.	 	Landlord and Tenant executed and delivered the notice letter regarding the exercise of Expansion Options and First Offer Right dated July 19, 1999. The date. “August 23, 1999” for the execution of this Amendment set forth in Paragraph 7 of said notice letter is hereby extended through the date of this Amendment.	
 
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EXCEPT AS expressly amended and modified hereby, the Lease shall otherwise remain in full force and effect, the parties hereto hereby ratifying and confirming the same. To the extent of any inconsistency between the Lease and this Amendment, the terms of this Amendment shall control.
 
IN WITNESS WHEREOF, the undersigned parties have duly executed this Amendment as of the day and year first above written.
 
TENANT:	 	 	 	LANDLORD:	
 	 	 	
U.S. BANCORP PIPER JAFFRAY	 	 	 	RYAN 800, LLC	
 	 	 	
COMPANIES INC.	 	 	 	 	
 	 	 	 	 	
By:	 	/s/ Susan E. Lester

	 	 	 	By:	 	/s/    Timothy M. Gray

	
 	 	Name:	 	SUSAN E. LESTER

	 	 	 	 	 	Name:	 	Timothy M. Gray

	
 	 	Its:	 	MANAGING DIRECTOR

	 	 	 	 	 	Its:	 	Chief Manager

	
 
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CONSENT
 
The undersigned, as holder of that certain Combination Mortgage, Security Agreement and Fixture Financing Statement dated March 3, 1998 by and between Ryan 800, LLC, Minnesota limited liability company (“Lessor”), and the undersigned, filed on March 5, 1998 as Document No. 2893790 in the Office of the Registrar of Titles, Hennepin County, Minnesota, as amended by that certain Amended and Restated Combination Mortgage, Security Agreement, and Fixture Financing Statement-Bridge Loan dated July 22, 1998, by and between Lessor and undersigned, filed on July 29, 1998 as Document No. 3050507 in the Office of the Registrar of Titles, Hennepin County, Minnesota (collectively, the “Mortgage”), encumbering the Land and the Building (as defined in the Lease) hereby consents to the terms and conditions of the attached Supplemental Amendment Regarding Expansion Space (the “Amendment”) and gives all necessary approvals to the Amendment required by and under the Mortgage and that certain Subordination, Non-Disturbance and Attornment Agreement (Office Loan) dated as of July 22, 1998, by and among the undersigned, Lessor and U.S. Bancorp Piper Jaffray Companies Inc.
 
U.S. BANK NATIONAL ASSOCIATION	
 	 	
By	 	[ILLEGIBLE]

	
 	 	Its	 	Vice President

	

CONSENT
 
The undersigned, as holder of that certain Combination Mortgage, Security Agreement and Fixture Financing Statement dated March 3, 1998 by and between Ryan 800, LLC, Minnesota limited liability company (“Lessor”), and the undersigned, filed on March 5, 1998 as Document No. 2893788 in the Office of the Registrar of Titles, Hennepin County, Minnesota, as amended by that certain Amended and Restated Combination Mortgage, Security Agreement, and Fixture Financing Statement-Bridge Loan dated July 22, 1998, by and between Lessor and undersigned, filed on July 29, 1998 as Document No. 3050505 in the Office of the Registrar of Titles, Hennepin County, Minnesota (collectively, the “Mortgage”), encumbering the Land and the Building (as defined in the Lease) hereby consents to the terms and conditions of the attached Supplemental Amendment Regarding Expansion Space (the “Amendment”) and gives all necessary approvals to the Amendment required by and under the Mortgage and that certain Subordination, Non-Disturbance and Attornment Agreement (Bridge Loan) dated as of July 22, 1998, by and among the undersigned, Lessor and U.S. Bancorp Piper Jaffray Companies Inc.
 
U.S. BANK NATIONAL ASSOCIATION	
 	 	
By	 	[ILLEGIBLE]

	
 	 	Its	 	[ILLEGIBLE]

	

CONFIRMATION OF GUARANTY
AND CONSENT OF GUARANTORS
 
The undersigned Guarantors pursuant to a Completion Guaranty dated March 3, 1998 (the “Guaranty”), in favor of U.S. Bancorp Piper Jaffray Companies, Inc., a Delaware corporation formerly known as Piper Jaffray Companies, Inc. (“Tenant”) with respect to an Office Lease dated March 3, 1998, by and between Ryan 800, LLC, a Minnesota corporation (“Landlord”), as landlord, and Tenant, as tenant, as amended by that certain First Amendment to Lease dated May 18, 1998 and that certain Second Amendment to Lease dated July 30, 1999 (collectively, the “Lease”), hereby consent to the attached Supplemental Amendment: Regarding Expansion Space (the “Agreement”), by and among Landlord and Tenant, (ii) confirm and agree that the Guaranty continues to be valid and binding obligation of the undersigned Guarantors pursuant to its terms guaranteeing the Obligations (as defined in the Guaranty) as the same may be modified by the Agreement, (iii) affirm and ratify in full the Lease and Guaranty, and (iv) agree that they have executed and delivered this Confirmation and Consent although it is not required under Paragraph 7 of the Guaranty and such execution and delivery does not modify said Paragraph 7 and at Tenant’s option no confirmation or consent will be required for any other amendments or modifications of the Lease.
 
IN WITNESS WHEREOF, the undersigned have executed this confirmation of Guaranty and Consent of Guarantors this 29 day of September, 1999.
 
GUARANTORS:	 	 	 	RYAN COMPANIES US, INC., a
Minnesota corporation	
 	 	 	 	 	
 	 	 	 	 	 	By:	 	/s/    Timothy M. Gray

	
 	 	 	 	 	 	 	 	Its:	 	Vice President	

	
 	 	 	
 	 	 	 	RYAN COMPANIES, INC., a
Minnesota corporation	
 	 	 	 	 	
 	 	 	 	 	 	By:	 	/s/     Timothy M. Gray

	
 	 	 	 	 	 	 	 	Its:	 	Vice President	

	
 
1

STATE OF MINNESOTA	 	)	 	 	 	 	
 	 	)	 	ss.	 	 	
COUNTY OF HENNEPIN	 	)	 	 	 	 	
 
The foregoing instrument was acknowledged before me this 29 day of September, 1999 by Timothy M. Gray, the Vice President of Ryan Companies US, Inc., a Minnesota corporation, on behalf of the corporation.
 
 	  	PAMELA K. SHIVES	
 	  	NOTARY PUBLIC—MINNESOTA	
 	  	MY COMM. EXPIRES JAN. 31, 2000	
 	  	/S/    PAMELA K. SHIVES	
 
STATE OF MINNESOTA	 	)	 	 	 	 	
 	 	)	 	ss.	 	 	
COUNTY OF HENNEPIN	 	)	 	 	 	 	
 
The foregoing instrument was acknowledged before me this 29 day of September, 1999 by Timothy M. Gray the Vice President of Ryan Companies US, Inc., a Minnesota corporation, on behalf of the corporation.
 
 	  	PAMELA K. SHIVES	
 	  	NOTARY PUBLIC—MINNESOTA	
 	  	MY COMM. EXPIRES JAN. 31, 2000	
 	  	/S/    PAMELA K. SHIVES	
 
2

Tenant Expansion Amendment
Improvement Allowance
 
FIFTH AMENDMENT
 
THIS FIFTH AMENDMENT (the “Amendment”) is made and entered into as of the 8 day of MAY, 2001, by and between EOP-NICOLLET MALL, L.L.C., a Delaware limited liability company  (“Landlord”), and  U.S. BANCORP PIPER JAFFRAY COMPANIES INC., a Delaware corporation  (“Tenant”).
 
WITNESSETH
 
A.	 	WHEREAS, Landlord (as successor in interest to Ryan 800, LLC, a Minnesota limited liability company) and Tenant (formerly known as Piper Jaffray Companies Inc.) are parties to that certain lease dated the 3 rd  day of March, 1998, for space which contains, or shall contain pursuant to the terms of the Lease (as hereinafter defined), approximately 705,513 square feet of the Rentable Area (the “Original Premises”) on the second (2 nd ) through thirteenth (13 th ) and fifteenth (15 th ) through twenty-fourth (24 th ) Floors of the building commonly known as the U.S. Bancorp Center and the address of which is 800 Nicollet Mall, Minneapolis, Minnesota (the “Building”), a Floor by Floor breakdown of such Rentable Area of the Original Premises being outlined on  Exhibit A  hereto, which lease has been previously amended or assigned by instruments (including, without limitation, letters exercising expansion rights) dated May 18, 1998, July 29, 1999, September 1, 1998 September 29, 1999, November 22, 1999, November 24, 1999 and March 31, 2000 (collectively, the “Lease”); and	
 
B.	 	WHEREAS, Tenant has requested that (i) additional space containing approximately 5,929 square feet of Rentable Area on the second (2nd) Floor of the Building shown on  Exhibit B  hereto (the “Additional Retail Premises”) be added to the Original Premises, (ii) additional space containing approximately 199 square feet of Rentable Area on the first (1 st ) Floor of the Building shown on  Exhibit C  hereto (the “Additional ATM Premises”) be added to the Original Premises and (iii) the Base Rental and Tenant improvement allowance be modified with respect to the Initial Retail Premises (which Initial Retail Premises are stipulated to contain 4,000 square feet of Rentable Area) and, with respect to the foregoing, that the Lease be appropriately amended, and Landlord is willing to do the same on the terms and conditions hereinafter set forth;	
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:
 
I.	 	Expansion, Early Commencement and Effective Dates.	
 
A.	 	Effective as of the earlier of (i) June 1, 2001 and (ii) the date Tenant takes occupancy of the Additional Retail Premises (the “Additional Retail Effective Date”), the Premises, as defined in the Lease, is increased by 5,929 square feet of Rentable Area through the addition of the Additional Retail Premises (and Tenant’s Pro Rata Share is likewise increased), and from and after the Additional Retail Effective Date, the Premises and the Additional Retail Premises, collectively, shall be deemed the Premises, as defined in the Lease. The term for the Additional Retail Premises shall commence on the Additional Retail Effective Date and end on the last day of the Term. The Additional Retail Premises is subject to all the terms and conditions of the Lease except as expressly modified herein and except that Tenant shall not be entitled to receive any allowances, abatements or other financial concessions granted with respect to the Original Premises unless such concessions are expressly provided for herein.	
 
B.	 	Effective as of June 1, 2000 (the “Additional ATM Effective Date”), the Premises, as defined in the Lease, is increased by 199 square feet of Rentable Area through the addition of the Additional ATM Premises (and Tenant’s Pro Rata Share is likewise increased), and from and after the Additional ATM Effective Date, the Premises and the Additional ATM Premises, collectively, shall be deemed the Premises, as defined in the Lease. The term for the Additional ATM Premises shall commence on the Additional ATM Effective Date and end on the last day of the Term. The Additional ATM Premises is subject to all the terms and conditions of the Lease except as expressly modified herein.	

II.	 	Monthly Base Rental.	
 
A.	 	In addition to Tenant’s obligation to pay Base Rental for the Original Premises, Tenant shall pay Landlord Base Rental for the Additional Retail Premises in monthly installments as follows:	
 
 	(i)	 	Twelve Thousand Three Hundred Fifty Two and 08/100 Dollars ($12,352.08) per installment payable on or before the Additional Retail Effective Date and on or before the first day of each month thereafter during the period beginning on the Additional Retail Effective Date and ending on May 31, 2007.	
 
 	(ii)	 	Eighty-four (84) equal installments of Fourteen Thousand Three Hundred Twenty Eight and 42/100 Dollars ($14,328.42) each payable on or before the first day of each month during the period beginning June 1, 2007 and ending May 31, 2014.	
 
B.	 	In addition to Tenant’s obligation to pay Base Rental for the Original Premises and the Additional Retail Premises, Tenant shall pay Landlord Base Rental for the Additional ATM Premises in monthly installments as follows:	
 
 	(i)	 	Eighty-four (84) equal installments of Four Hundred Fourteen and 58/100 Dollars ($414.58) each payable on or before the first day of each month during the period beginning on June 1, 2000 and ending May 31, 2007.	
 
 	(ii)	 	Eighty-four (84) equal installments of Four Hundred Eighty and 92/100 Dollars ($480.92) each payable on or before the first day of each month during the period beginning June 1, 2007 and ending May 31, 2014.	
 
C.	 	In addition to Tenant’s obligation to pay Base Rental for the Original Premises (other than the Initial Retail Premises), the Additional Retail Premises and the Additional ATM Premises, Tenant shall pay Landlord Base Rental with respect to the Initial Retail Premises (which shall be in lieu of the Base Rental set forth in the Lease with respect to the Initial Retail Premises) in monthly installments as follows:	
 
 	(i)	 	Eighty-four (84) equal installments of Eight Thousand Three Hundred Thirty Three and 33/100 Dollars ($8,333.33) each payable on or before the first day of each month during the period beginning June 1, 2000 and ending May 31, 2007.	
 
 	(ii)	 	Eighty-four (84) equal installments of Nine Thousand Six Hundred Sixty Six and 67/100 Dollars ($9,666.67) each payable on or before the first day of each month during the period beginning June 1, 2007 and ending May 31, 2014.	
 
All such Base Rental shall be payable by Tenant in accordance with the terms of Article 6 of the Lease. In the event that the Additional Retail Effective Date is on other than the first day of a calendar month, then Base Rental with respect to the Additional Retail Premises for the month in which the Additional Retail Effective Date occurs shall be prorated based upon the number of days in such month.
 
III.	 	Improvements to Additional Retail Premises, Additional ATM Premises and Initial Retail Premises.	
 
A.	 	Condition of Additional Retail Premises, Additional ATM Premises and Initial Retail Premises. Tenant has inspected the Additional Retail Premises, the Additional ATM Premises and the Initial Retail Premises and agrees to accept the same “as is” without any agreements, representations, understandings or obligations on the part of Landlord to perform any alterations, repairs or improvements, except as may be expressly provided otherwise in the Lease or this Amendment.	
 
B.	 	Cost of Improvements to Additional Retail Premises, Additional ATM Premises and Initial Retail Premises.	
 
 	(i)	 	Provided Tenant is not in default, Tenant shall be entitled to receive an improvement allowance (the “Additional Retail Improvement Allowance”) in an amount not to exceed Two Hundred Seven Thousand Five Hundred Fifteen and No/100 Dollars ($207,515.00) (i.e., $35.00 per square foot of Rentable Area of the Additional Retail Premises) to be applied toward the cost of performing initial construction, alteration or improvement of the Additional Retail Premises, including but not limited to the cost of space planning, design and related architectural and	
 
2

 	engineering services. In the event the total cost of the initial improvements to the Additional Retail Premises exceeds the Additional Retail Improvement Allowance, Tenant shall pay for such excess upon demand. The entire unused balance of the Additional Retail Improvement Allowance, if any, shall accrue to the sole benefit of Landlord. In accordance with the Payment Procedures (as hereinafter defined), Landlord shall pay such Additional Retail Improvement Allowance directly to the contractors, architects, designers, engineers and consultants retained to perform the construction, design or related improvement work to the Additional Retail Premises.	
 
 	(ii)	 	Provided Tenant is not in default, Tenant shall be entitled to receive an improvement allowance (the “Additional ATM Improvement Allowance”) in an amount not to exceed Six Thousand Nine Hundred Sixty Five and No/100 Dollars ($6,965.00) (i.e., $35.00 per square foot of Rentable Area of the Additional ATM Premises) to be applied toward the cost of performing initial construction, alteration or improvement of the Additional ATM Premises, including but not limited to the cost of space planning, design and related architectural and engineering services. In the event the total cost of the initial improvements to the Additional ATM Premises exceeds the Additional ATM Improvement Allowance, Tenant shall pay for such excess upon demand. The entire unused balance of the Additional ATM Improvement Allowance, if any, shall accrue to the sole benefit of Landlord. In accordance with the Payment Procedures (as hereinafter defined), Landlord shall pay such Additional ATM Improvement Allowance directly to the contractors, architects, designers, engineers and consultants retained to perform the construction, design or related improvement work to the Additional ATM Premises.	
 
 	(iii)	 	Provided Tenant is not in default, then, in addition to the $25.10 per square foot of Rentable Area allowance to be provided by Landlord with respect to the Initial Retail Premises (the “Initial Retail Allowance”) pursuant to Section 3.6 of the Work Letter attached to the Lease as Exhibit D (the “Work Letter”), Tenant shall be entitled to receive an improvement allowance (the “Initial Retail Additional Allowance”) in an amount not to exceed Seventy Three Thousand Six Hundred and No/100 Dollars ($73,600.00) (i.e., $18.40 per square foot of Rentable Area of the Initial Retail Premises) to be applied toward the cost of performing initial construction, alteration or improvement of the Initial Retail Premises, including but not limited to the cost of space planning, design and related architectural and engineering services (i.e., Tenant’s total allowance package with respect to the Initial Retail Premises is equal to $43.50 per square foot of Rentable Area of the Initial Retail Premises). In the event the total cost of the initial improvements to the Initial Retail Premises exceeds the sum of the Initial Retail Allowance and the Initial Retail Additional Allowance, Tenant shall pay for such excess upon demand. The entire unused balance of the Initial Retail Additional Allowance, if any, shall accrue to the sole benefit of Landlord. In accordance with the Payment Procedures (as hereinafter defined), Landlord shall pay such Initial Retail Additional Allowance directly to the contractors, architects, designers, engineers and consultants retained to perform the construction, design or related improvement work to the Initial Retail Premises. It is further understood and agreed by Landlord and Tenant that (A) Landlord has not constructed, and shall have no obligation to construct, certain portions of the Base Building Work to the Initial Retail Premises (the “Initial Retail Premises Excluded Work”) and (B) in consideration for Landlord not having to perform or construct the Initial Retail Premises Excluded Work, $34,000.00 (i.e. $8.50 per square foot of Rentable Area of the Initial Retail Premises) of the Initial Retail Additional Allowance is being provided to Tenant (i.e. Landlord would not have provided Tenant such $34,000.00 as part of the Initial Retail Additional Allowance if Landlord had constructed the Initial Retail Premises Excluded Work). Furthermore, Tenant has inspected the Initial Retail Premises and agrees that Landlord has performed all portions of the Base Building Work that Landlord is obligated to perform pursuant to the terms of the Lease.	
 
 	(iv)	 	For purposes hereof, the “Payment Procedures” shall mean that the payment of the Additional Retail Improvement Allowance, the Additional ATM Improvement Allowance and the Initial Retail Additional Allowance by Landlord shall be made on or before the fifteenth (15 th ) day of the month following the month in which Tenant directs Landlord to make the given payment (provided, however, in the event such direction is made after the twenty-fifth [25 th ] day of a month, such payment shall be	
 
3

 	made on or before the fifteenth [15th] day of the second succeeding calendar month), subject to Landlord’s receipt of evidence reasonably demonstrating that the amount to be disbursed is for work which has been completed with respect to the design and construction of the Additional Retail Premises, the Additional ATM Premises or the Initial Retail Premises, as applicable.	
 
 	C.	 	Responsibility for Improvements to Additional Retail Premises, Additional ATM Premises and Initial Retail Premises. Any construction, alterations or improvements to the Additional Retail Premises, the Additional ATM Premises and the Initial Retail Premises shall be performed by Tenant using contractors selected by Tenant and reasonably approved by Landlord and shall be governed in all respects by the provisions of Article 15 of the Lease.	
 
IV.	 	Early Access to Additional Retail Premises. Upon full execution and delivery of this Amendment by Landlord and Tenant, Tenant shall be permitted to enter the Additional Retail Premises to perform alterations or improvements to the Additional Retail Premises; it being further agreed that in connection with such early access to the Additional Retail Premises, Tenant shall comply with all terms and provisions of the Lease, except those provisions requiring payment of Base Rental or Additional Rent as to the Additional Retail Premises. However, if Tenant takes possession of the Additional Retail Premises prior to the Additional Retail Effective Date for any reason whatsoever (other than the performance of work in such space), such possession shall be subject to all the terms and conditions of the Lease and this Amendment, and Tenant shall pay Base Rental and Additional Rent (i.e. Tenant’s Pro Rata Share shall be appropriately increased to account for the same) as applicable to the Additional Retail Premises to Landlord on a per diem basis for each day of occupancy prior to the Additional Retail Effective Date.	
 
V.	 	Other Pertinent Provisions. Landlord and Tenant agree that, effective as of the date hereof (unless different effective date(s) is/are specifically referenced in this Section), the Lease shall be amended in the following additional respects:	
 
 	A.	 	Notice Addresses for Landlord: The notice address for Landlord shall be deleted from Section 41.5, and the following addresses shall be substituted into Section 41.5 as the addresses to which notices and payments of Rent shall be sent to Landlord:	
 
Landlord:
 
EOP-Nicollet Mall, L.L.C.
800 Nicollet Avenue, Suite 2640
Minneapolis, Minnesota 55402
Attention: Property Manager
 
With a copy to:
 
Equity Office Properties
Two North Riverside Plaza
Suite 2200
Chicago, Illinois 60606
Attention: Chicago Regional Counsel
 
Rent (defined in Section 1.64 of the Lease) is payable to the order of Equity Office Properties at the following address:
 
EOP Operating Limited Partnership
As agent for EOP- Nicollet Mall, L.L.C.
File #3806
Collections Center Drive
Chicago, IL 60693-3628
 
 	B.	 	The Second Reduction Option, the Third Reduction Option and the Fourth Reduction Option shall not be applicable to the Additional Retail Premises or the Additional ATM Premises.	
 
 	C.	 	For purposes of the Lease, Landlord and Tenant stipulate and agree that this Amendment accurately sets forth the Rentable Area of the Original Premises, the	
 
4

 	Additional Retail Premises and the Additional ATM Premises, which, in the aggregate, totals 711,641 square feet of Rentable Area.	
 
VI.	 	Miscellaneous.	
 
 	A.	 	This Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. Under no circumstances shall Tenant be entitled to any Rent abatement, improvement allowance, leasehold improvements, or other work to the Premises, or any similar economic incentives that may have been provided Tenant in connection with entering into the Lease, unless specifically set forth in the Lease or this Amendment.	
 
 	B.	 	Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full force and effect.	
 
 	C.	 	In the case of any inconsistency between the provisions of the Lease and this Amendment, the provisions of this Amendment shall govern and control.	
 
 	D.	 	Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offer by Tenant. Neither Landlord nor Tenant shall not be bound by this Amendment until both Landlord and Tenant have executed and delivered the same to the other party.	
 
 	E.	 	The capitalized terms used in this Amendment shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Amendment.	
 
 	F.	 	Tenant hereby represents to Landlord that Tenant has dealt with no broker in connection with this Amendment other than United Properties and Nelson Tietz & Hoye (collectively the “Brokers”). Tenant agrees to indemnify and hold Landlord, its members, principals, beneficiaries, partners, officers, directors, employees, mortgagee(s) and agents, and the respective principals and members of any such agents (collectively, the “Landlord Related Parties”) harmless from all claims of any brokers claiming to have represented Tenant (other than the Brokers) in connection with this Amendment. Landlord hereby represents to Tenant that Landlord has dealt with no broker in connection with this Amendment (other than the Brokers). Landlord agrees to indemnify and hold Tenant, its members, principals, beneficiaries, partners, officers, directors, employees, and agents, and the respective principals and members of any such agents (collectively, the “Tenant Related Parties”) harmless from all claims of any brokers claiming to have represented Landlord (including the Brokers) in connection with this Amendment; it being understood that Landlord shall be solely responsible for payment of all brokerage commissions due to the Brokers with respect to this Amendment pursuant to separate written agreements.	
 
 	G.	 	This Amendment shall be of no force and effect unless and until accepted by any guarantors of the Lease, who by signing below shall agree that their guarantee shall apply to the Lease as amended herein, unless such requirement is waived by Landlord in writing.	
 
5

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment as of the day and year first above written.
 
LANDLORD:	
 	
EOP-NICOLLET MALL, L.L.C.,	
a Delaware limited liability company	
 	 	
By:	 	EOP Operating Limited Partnership,
a Delaware limited partnership,
its sole member	
 	 	 	 	
 	 	By:	 	 	 	Equity Office Properties Trust,
a Maryland real estate investment trust, its general partner	
 	 	 	 	 	
 	 	 	 	 	 	By:	 	/s/ George Kohl

	
 	 	 	 	 	 	Name:	 	GEORGE KOHL	
 	 	 	 	 	 	Title:	 	VICE PRESIDENT LEASING	
 
TENANT:	
 	
U.S. BANCORP PIPER JAFFRAY COMPANIES INC.,	
a Delaware corporation	
 	 	
By:	 	/s/    Bradley Schmidt

	
Name:	 	Bradley Schmidt

	
Title:	 	Senior Vice President

	
 
GUARANTOR:	
 	
U.S. BANCORP	
 	 	
By:	 	/s/    Andrew [Illegible]

	
Name:	 	Andrew [Illegible]

	
Title:	 	Chief Financial Officer

	
 
6

SIXTH AMENDMENT
 
THIS SIXTH AMENDMENT (the “Amendment”) is made and entered into as of the 8 day of AUGUST, 2001, by and between EOP-NICOLLET MALL, L.L.C., a Delaware limited liability company  (“Landlord”), and  U.S. BANCORP PIPER JAFFRAY COMPANIES INC., a Delaware corporation  (“Tenant”).
 
WITNESSETH
 
A.	 	WHEREAS, Landlord (as successor in interest to Ryan 800, LLC, a Minnesota limited liability company) and Tenant (formerly known as Piper Jaffray Companies Inc.) are parties to that certain lease dated the 3 rd  day of March, 1998, for space which contains, or shall contain pursuant to the terms of the Lease (as hereinafter defined), approximately 711,641 square feet of the Rentable Area (the “Original Premises”) on the first (1 st ) through thirteenth (13 th ) and fifteenth (15 th ) through twenty-fourth (24 th ) Floors of the building commonly known as the U.S. Bancorp Center and the address of which is 800 Nicollet Mall, Minneapolis, Minnesota (the “Building”), which lease has been previously amended or assigned by instruments (including, without limitation, letters exercising expansion rights) dated May 18, 1998, July 29, 1999, September 1, 1998 September 29, 1999, November 22, 1999. November 24, 1999, March 31, 2000 and May 8, 2001 (collectively, the “Lease”); and	
 
B.	 	WHEREAS, Tenant has requested that the Commencement Date be accelerated solely with respect to (i) the portion of the Initial Expansion Space located on Floor five (5) containing approximately 41,294 square feet of Rentable Area (the “First Early Initial Expansion Space”) and (ii) the portion of the Initial Expansion Space located on Floors eighteen (18) and nineteen (19) containing approximately 55,052 square feet of Rentable Area (the “Second Early Initial Expansion Space”; the First Early Initial Expansion Space and the Second Early Initial Expansion Space are sometimes collectively referred to herein as the “Early Initial Expansion Space”), and, with respect to the foregoing, that the Lease be appropriately amended, and Landlord is willing to do the same on the terms and conditions hereinafter set forth;	
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:
 
I.	 	Expansion, Early Commencement and Effective Dates.	
 
A.	 	Effective as of October 1, 2001 (the “First Early Initial Expansion Effective Date”), the Premises, as defined in the Lease, is increased by 41,294 square feet of Rentable Area through the addition of the First Early Initial Expansion Space (and Tenant’s Pro Rata Share is likewise increased), and from and after the First Early Initial Expansion Effective Date, the Premises and the First Early Initial Expansion Space, collectively, shall be deemed the Premises, as defined in the Lease. The term for the First Early Initial Expansion Space shall commence on the First Early Initial Expansion Effective Date and end on the last day of the Term. The First Early Initial Expansion Space is subject to all the terms and conditions of the Lease except as expressly modified herein. Notwithstanding the foregoing but subject to the provisions of Section IV of this Amendment hereinbelow, at any time following the completion of Tenant’s build-out of the same, Tenant may take early occupancy of the First Early Initial Expansion Space. The First Early Initial Expansion Effective Date shall be delayed to the extent that Landlord fails for any reason to deliver possession of the First Early Initial Expansion Space within the timeframe set forth in Section IV below, including, but not limited to, Unavoidable Delay. Any such delay in the First Early Initial Expansion Effective Date by reason of Unavoidable Delay shall not subject Landlord to any liability for any loss or damage resulting therefrom. If the First Early Initial Expansion Effective Date is delayed, the expiration date under the Lease shall not be similarly extended.	
 
B.	 	Effective as of November 1, 2001 (the “Second Early Initial Expansion Effective Date”), the Premises, as defined in the Lease, is increased by 55,052 square feet of Rentable Area through the addition of the Second Early Initial Expansion Space (and Tenant’s Pro Rata Share is likewise increased), and from and after the Second Early Initial Expansion Effective Date, the Premises and the Second Early Initial Expansion Space, collectively, shall be deemed the Premises, as defined in the Lease. The term for the Second Early Initial Expansion Space shall commence on the Second Early Initial Expansion Effective	

 	Date and end on the last day of the Term. The Second Early Initial Expansion Space is subject to all the terms and conditions of the Lease except as expressly modified herein. Notwithstanding the foregoing but subject to the provisions of Section IV of this Amendment hereinbelow, at any time following the completion of Tenant’s build-out of the same. Tenant may take early occupancy of one or more of the Floors comprising the Second Early Initial Expansion Space. The Second Early Initial Expansion Effective Date shall be delayed to the extent that Landlord fails for any reason to deliver possession of the Second Early Initial Expansion Space within the timeframe set forth in Section IV below, including, but not limited to, Unavoidable Delay. Any such delay in the Second Early Initial Expansion Effective Date by reason of Unavoidable Delay shall not subject Landlord to any liability for any loss or damage resulting therefrom. If the Second Early Initial Expansion Effective Date is delayed, the expiration date under the Lease shall not be similarly extended.	
 
C.	 	The First Early Initial Expansion Effective Date and the Second Early Initial Expansion Effective Date are each sometimes referred to herein singularly as an “Effective Date.”	
 
II.	 	Monthly Base Rental.	
 
A.	 	In addition to Tenant’s obligation to pay Base Rental for the Original Premises (other than the First Early Initial Expansion Space), Tenant shall pay Landlord Base Rental with respect to the First Early Initial Expansion Space (which shall be in lieu of the Base Rental set forth in the Lease with respect to the First Early Initial Expansion Space) in monthly installments as follows:	
 
 	(i)	 	Twelve (12) equal installments of Seventeen Thousand Two Hundred Five and 83/100 Dollars ($17,205.83) each payable on or before the first day of each month during the period beginning October 1, 2001 and ending September 30, 2002.	
 
 	(ii)	 	One Hundred Forty (140) equal installments of Forty Four Thousand Seven Hundred Thirty Five and 17/100 Dollars ($44,735.17) each payable on or before the first day of each month during the period beginning October 1, 2002 and ending May 31, 2014.	
 
B.	 	In addition to Tenant’s obligation to pay Base Rental for the Original Premises (other than the Second Early Initial Expansion Space), Tenant shall pay Landlord Base Rental with respect to the Second Early Initial Expansion Space (which shall be in lieu of the Base Rental set forth in the Lease with respect to the Second Early Initial Expansion Space) in monthly installments as follows:	
 
 	(i)	 	Eleven (11) equal installments of Twenty Two Thousand Nine Hundred Thirty Eight and 33/100 Dollars ($22,938.33) each payable on or before the first (1 st ) day of each month during the period beginning November 1, 2001 and ending September 30, 2002; provided, however, that, so long as Tenant is not then in default under the terms and provisions of the Lease, Tenant shall have the right to defer payment of Base Rental and Tenant’s Estimated Operating Expense Contribution solely with respect to the Second Early Initial Expansion Space for the months of November 2001 and December 2001 until January 1, 2002 (i.e. Tenant may pay Base Rental and Tenant’s Estimated Operating Expense Contribution with respect to the Second Early Initial Expansion Space for the months of November 2001 and December 2001 at the same time that it pays the same for the month of January 2002).	
 
 	(ii)	 	One Hundred Forty (140) equal installments of Fifty Nine Thousand Six Hundred Thirty Nine and 66/100 Dollars ($59,639.66) each payable on or before the first day of each month during the period beginning October 1, 2002 and ending May 31, 2014.	
 
All such Base Rental shall be payable by Tenant in accordance with the terms of Article 6 of the Lease.
 
III.	 	Improvements to Early Initial Expansion Space.	
 
A.	 	Condition of Early Initial Expansion Space. Tenant has inspected the Early Initial Expansion Space and agrees to accept the same “as is” without any agreements, representations, understandings or obligations on the part of Landlord to perform any	

 	alterations, repairs or improvements, except as may be expressly provided otherwise in the Lease or this Amendment.	
 
B.	 	Cost of Improvements to Early Initial Expansion Space. Landlord and Tenant acknowledge and confirm that, subject to the terms and conditions of the Lease, Tenant is entitled to an improvement allowance with respect to the Early Initial Expansion Space, which allowance is part of the overall allowance set forth in Section 3.6 of the Work Letter.	
 
C.	 	Responsibility for Improvements to Early Initial Expansion Space. Any construction, alterations or improvements to the Early Initial Expansion Space shall be performed by Tenant using contractors selected by Tenant and reasonably approved by Landlord and shall be governed in all respects by the provisions of Article 15 of the Lease.	
 
IV.	 	Early Access to Early Initial Expansion Space. Landlord shall deliver the Early Initial Expansion Space to Tenant on the first business day following full and final execution of this Amendment by Landlord and Tenant, so that Tenant may perform alterations and improvements thereto. In connection with any entry by Tenant to any portion of the Early Initial Expansion Space prior to the pertinent Effective Date (e.g., to perform alterations or improvements, if any), Tenant shall comply with all terms and provisions of the Lease, except those provisions requiring payment of Base Rental or Additional Rent as to the First Early Initial Expansion Space or the Second Early Initial Expansion Space, as the case may be. If Tenant takes possession of any portion of the Early Initial Expansion Space prior to the pertinent Effective Date for any reason whatsoever (other than the performance of work in such space), such possession, on a Floor by Floor basis as space is occupied by Tenant, shall be subject to all the terms and conditions of the Lease and this Amendment, and Tenant shall pay Base Rental and Additional Rent (i.e. Tenant’s ProRata Share shall be appropriately increased to account for the same) as applicable to the pertinent Floor or Floors of the First Early Initial Expansion Space or the Second Early Initial Expansion Space, as the case may be, to Landlord on a per diem basis for each day of occupancy prior to the pertinent Effective Date.	
 
V.	 	Other Pertinent Provisions. Landlord and Tenant agree that, effective as of the date hereof (unless different effective date(s) is/are specifically referenced in this Section), the Lease shall be amended in the following additional respects:	
 
 	A.	 	Temporary Premises. During the period beginning on the first business day after full and final execution of this Amendment by Landlord and Tenant and ending on the Second Early Initial Expansion Effective Date or, if Tenant exercises its option pursuant to Section V.B below, the Third Early Initial Expansion Effective Date (as hereinafter defined) (the “Temporary Premises Term”), Landlord shall allow Tenant to use the rentable area of the fourth (4 th ) Floor (the “Temporary Premises”) solely as a staging area in connection with Tenant’s build-out of the Early Initial Expansion Space or the Third Early Initial Expansion Effective Date, if applicable, and for no other purpose. Such Temporary Premises shall be accepted by Tenant in its as-is condition and configuration, it being agreed that Landlord shall be under no obligation to perform any work in the Temporary Premises or to incur any costs in connection with Tenant move in, move out or use of the Temporary Premises. All costs in connection with making the Temporary Premises ready for use by Tenant shall be the sole responsibility of Tenant. Tenant’s right to use the Temporary Premises shall be subject to all of the terms and conditions of the Lease, provided that Tenant shall not be required to pay Base Rental or Additional Rental for the Temporary Premises during the Temporary Space Term.	
 
 	B.	 	Acceleration of Expansion Space Commencement Date. Tenant shall have the option to accelerate the Commencement Date solely with respect to the entire portion of Initial Expansion Space located on the sixteenth (16 th ) Floor containing approximately 27,526 square feet of Rentable Area and/or the seventeenth (17 th ) Floor containing approximately 27,565 square feet of Rentable Area (the “Third Early Initial Expansion Space”) to the Third Early Initial Expansion Effective Date (as hereinafter defined) by notifying Landlord of the same (which notice shall specify whether the Third Early Initial Expansion Space is comprised of the entire 16 th  Floor, the 17 th  Floor or both) on or prior to September 15, 2001 (the “Acceleration Option”), time being of the essence. If Tenant timely exercises the Acceleration Option, (i) all of the terms and provisions with respect to the Initial Expansion Space set forth in the Lease shall apply to the Third Early Initial	

 	Expansion Space from and after the Third Early Initial Expansion Effective Date, including, without limitation, the obligation to pay Base Rental and Additional Rental with respect to the Third Early Initial Expansion Space at the same rates provided for in the Lease (except that [a] Base Rental shall be calculated at the rate of $5.00 per square foot of Rentable Area of the Third Early Initial Expansion Space for the period from and after the Third Early Initial Expansion Effective Date through and including September 30, 2002 and [b] Tenant shall accept the Third Early Initial Space in its then “as is” condition as of the Third Early Initial Expansion Effective Date) and (iii) Landlord shall prepare an amendment (the “Acceleration Amendment”) to reflect the Third Early Initial Expansion Effective Date and the changes in Base Rental, Rentable Area of the Premises, Tenant’s Pro Rata Share and other appropriate terms. A copy of the Acceleration Amendment shall be (i) sent to Tenant within a reasonable time after Tenant exercises the Acceleration Option and (ii) if reasonably approved by Tenant, executed by Tenant and returned to Landlord within fifteen (15) days thereafter, but an otherwise valid exercise of the Acceleration Option shall be fully effective whether or not the Acceleration Amendment is executed. The Third Early Initial Expansion Effective Date shall be delayed to the extent that Landlord fails for any reason to deliver possession of the Third Early Initial Expansion Space by the “target” Third Early Initial Expansion Effective Date, including, but not limited to, Unavoidable Delay. Any such delay in the Third Early Initial Expansion Effective Date by reason of Unavoidable Delay shall not subject Landlord to any liability for any loss or damage resulting therefrom. If the Third Early Initial Expansion Effective Date is delayed, the expiration date under the Lease shall not be similarly extended. For purposes hereof, “Third Early Initial Expansion Effective Date” shall mean the earlier of (i) February 1, 2002 and (ii) the date falling fourteen (14) days after Tenant notifies Landlord that it desires to take occupancy of the Third Early Initial Expansion Space (however, any such notice pursuant to this clause [ii] may not be given by Tenant to Landlord until after Landlord has notified Tenant that Floors sixteen (16) and/or seventeen (17) are available for occupancy by Tenant).	
 
 	C.	 	Stipulated Base Rental for Early Occupancy of Other Initial Expansion Space. If Landlord and Tenant mutually agree to accelerate the Commencement Date with respect to any portion of the Initial Expansion Space (other than the First Initial Expansion Space, Second Early Initial Expansion Space or the Third Early Initial Expansion Space) to a date between January 1, 2002 and September 30, 2002, the parties hereby stipulate that the rate of Base Rental for the given portion of the Initial Expansion Space for the period from the accelerated Commencement Date through and including September 30, 2002, shall be in accordance with the following schedule:	
 
Month in which Accelerated
Commencement Date Occurs

	  	Base Rent

	
January	  	$	7.00	
February	  	$	8.00	
March	  	$	9.00	
April	  	$	10.00	
May	  	$	11.00	
June	  	$	12.00	
July - September	  	$	13.00	
 
 	D.	 	Retail Lease Approval. So long as (i) the build-out of the Men’s Wearhouse space is similar in design to the photographs of the Men’s Wearhouse prototype store given by Landlord to Tenant and (ii) the layout of such Men’s Wearhouse space in the Building does not (a) require Tenant to move any of Tenant’s existing ATM machines in the Building or (b) materially and adversely affect access to or visibility of such ATM machines, Tenant agrees that within fifteen (15) days following full and final execution of this Amendment, Tenant shall provide Landlord with approval in writing of Landlord’s right to lease space on the first (1 st ) Floor of the Building to the Men’s Wearhouse.	
 
VI. Miscellaneous.
 
 	A.	 	This Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. Under no circumstances shall Tenant be entitled to any Rent abatement, improvement allowance, leasehold improvements, or other work to the Premises, or any similar economic incentives that may have been	

 	provided Tenant in connection with entering into the Lease, unless specifically set forth in the Lease or this Amendment.	
 
 	B.	 	Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full force and effect.	
 
 	C.	 	In the case of any inconsistency between the provisions of the Lease and this Amendment, the provisions of this Amendment shall govern and control.	
 
 	D.	 	Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offer by Tenant. Neither Landlord nor Tenant shall not be bound by this Amendment until both Landlord and Tenant have executed and delivered the same to the other party.	
 
 	E.	 	The capitalized terms used in this Amendment shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Amendment.	
 
 	F.	 	Tenant hereby represents to Landlord that Tenant has dealt with no broker in connection with this Amendment other than Nelson Tietz & Hoye (the “Broker”). Tenant agrees to indemnify and hold Landlord, its members, principals, beneficiaries, partners, officers, directors, employees, mortgagee(s) and agents, and the respective principals and members of any such agents (collectively, the “Landlord Related Parties”) harmless from all claims of any brokers claiming to have represented Tenant (other than the Broker) in connection with this Amendment. Landlord hereby represents to Tenant that Landlord has dealt with no broker in connection with this Amendment (other than the Broker). Landlord agrees to indemnify and hold Tenant, its members, principals, beneficiaries, partners, officers, directors, employees, and agents, and the respective principals and members of any such agents (collectively, the “Tenant Related Parties”) harmless from all claims of any brokers claiming to have represented Landlord (including the Broker) in connection with this Amendment; it being understood that Landlord shall be solely responsible for payment of all brokerage commissions due to the Broker with respect to this Amendment pursuant to separate written agreements.	
 
 	G.	 	This Amendment shall be of no force and effect unless and until accepted by any guarantors of the Lease, who by signing below shall agree that their guarantee shall apply to the Lease as amended herein, unless such requirement is waived by Landlord in writing.	

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment as of the day and year first above written.
 
LANDLORD:	
 	
EOP-NICOLLET MALL, L.L.C.,	
a Delaware limited liability company	
 	 	 	
 	 	By:	 	EOP Operating Limited Partnership,
a Delaware limited partnership,
its sole member	
 	 	 	 	
 	 	 	 	By:	 	Equity Office Properties Trust,
a Maryland real estate investment trust,
its general partner	
 	 	 	 	 	
 	 	 	 	 	 	By:	 	/s/ Arvid Povilaitis       

	
 	 	 	 	 	 	Name:	 	Arvid Povilaitis   	
 	 	 	 	 	 	Title:	 	Senior Vice President - Chicago Region	
 
TENANT:	
 	
U.S. BANCORP PIPER JAFFRAY COMPANIES INC.,	
a Delaware corporation	
 	 	
By:	 	/s/    David K. Wright

	
Name:	 	David K. Wright

	
Title:	 	Vice President

	
 
GUARANTOR:	
 	
U.S. BANCORP	
 	 	
By:	 	/s/    Bradley Schmidt

	
Name:	 	Bradley Schmidt

	
Title:	 	Senior Vice President

	

SEVENTH AMENDMENT
 
THIS SEVENTH AMENDMENT (the “Amendment”) is made and entered into as of the 28 day of MAY, 2002, by and between EOP-NICOLLET MALL, L.L.C., a Delaware limited liability company  (“Landlord”), and  U.S. BANCORP PIPER JAFFRAY COMPANIES INC., a Delaware corporation  (“Tenant”).
 
WITNESSETH
 
A.	 	WHEREAS, Landlord (as successor in interest to Ryan 800, LLC, a Minnesota limited liability company) and Tenant (formerly known as Piper Jaffray Companies Inc.) are parties to that certain lease dated the 3 rd  day of March, 1998, for space which contains, or shall contain pursuant to the terms of the Lease (as hereinafter defined), approximately 711,641 square feet of the Rentable Area (the “Original Premises”) on the first (1 st ) through thirteenth (13 th ) and fifteenth (15 th ) through twenty-fourth (24 th ) Floors of the building commonly known as the U.S. Bancorp Center and the address of which is 800 Nicollet Mall, Minneapolis, Minnesota ( the “Building”), which lease has been previously amended or assigned by instruments (including, without limitation, letters exercising expansion rights) dated May 18, 1998, July 29, 1999, September 1, 1998 September 29, 1999, November 22, 1999, November 24, 1999, March 31, 2000, May 8, 2001 and August 8, 2001 (collectively, the “Lease”); and	
 
B.	 	WHEREAS, Tenant has requested that the Commencement Date be accelerated solely with respect to (i) the portion of the Initial Expansion Space located on Floor sixteen (16) containing approximately 27,526 square feet of Rentable Area and (ii) the portion of the Initial Expansion Space located on Floor seventeen (17) containing approximately 27,565 square feet of Rentable Area (together, the “Third Early Initial Expansion Space”), and, with respect to the foregoing, that the Lease be appropriately amended, and Landlord is willing to do the same on the terms and conditions hereinafter set forth; and	
 
C.	 	WHEREAS, Tenant has requested that additional space containing approximately 1,615 square feet of Rentable Area on the first (1st) Floor of the Building shown on Exhibit A hereto (the “Second Additional Retail Premises”) be added to the Original Premises, and, with respect to the foregoing, that the Lease be appropriately amended, and Landlord is willing to do the same on the terms and conditions hereinafter set forth;	
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows;
 
I.	 	Expansion, Early Commencement and Effective Dates.	
 
 	A.	 	Effective as of February 1, 2002 (the “Third Early Initial Expansion Effective Date”), the Premises, as defined in the Lease, is increased by 55,091 square feet of Rentable Area through the addition of the Third Early Initial Expansion Space (and Tenant’s Pro Rata Share is likewise increased), and from and after the Third Early Initial Expansion Effective Date, the Premises and the Third Early Initial Expansion Space, collectively, shall be deemed the Premises, as defined in the Lease. The term for the Third Early Initial Expansion Space shall commence on the Third Early Initial Expansion Effective Date and end on the last day of the Term. The Third Early Initial Expansion Space is subject to all the terms and conditions of the Lease except as expressly modified herein. The Third Early Initial Expansion Effective Date shall be delayed to the extent that Landlord fails for any reason to deliver possession of the Third Early Initial Expansion Space within the timeframe set forth in Section IV below, including, but not limited to, Unavoidable Delay. Any such delay in the Third Early Initial Expansion Effective Date by reason of Unavoidable Delay shall not subject Landlord to any liability for any loss or damage resulting therefrom. If the Third Early Initial Expansion Effective Date is delayed, the expiration date under the Lease shall not be similarly extended.	
 
 	B.	 	Effective as of June 1, 2002 (the “Second Additional Retail Effective Date”) the Premises, as defined in the Lease, is increased by 1,615 square feet of Rentable Area through the addition of the Second Additional Retail Premises (and Tenant’s Pro Rata Share is likewise increased), and from and after the Second Additional Retail Effective Date, the Premises and the Second Additional Retail Premises, collectively, shall be deemed the Premises, as defined in the Lease. The term for	

 	the Second Additional Retail Premises shall commence on the Second Additional Retail Effective Date and end on the last day of the Term. The Second Additional Retail Premises is subject to all the terms and conditions of the Lease except as expressly modified herein and except that Tenant shall not be entitled to receive any allowances, abatements or other financial concessions granted with respect to the Original Premises unless such concessions are expressly provided for herein.	
 
II.	 	Monthly Base Rental.	
 
 	A.	 	In addition to Tenant’s obligation to pay Base Rental for the Original Premises (other than the Third Early Initial Expansion Space), Tenant shall pay Landlord Base Rental with respect to the Third Early Initial Expansion Space (which shall be in lieu of the Base Rental set forth in the Lease with respect to the Third Early Initial Expansion Space) in monthly installments as follows:	
 
 	(i)	 	Eight (8) equal installments of Twenty Two Thousand Nine Hundred Fifty Four and 58/100 Dollars ($22,954.58) each payable on or before the first day of each month during the period beginning February 1, 2002 and ending September 30, 2002.	
 
 	(ii)	 	One Hundred Forty (140) equal installments of Fifty Nine Thousand Six Hundred Eighty One and 92/100 Dollars ($59,681.92) each payable on or before the first day of each month during the period beginning October 1, 2002 and ending May 31, 2014.	
 
 	B.	 	In addition to Tenant’s obligation to pay Base Rental for the Original Premises, Tenant shall pay Landlord Base Rental for the Second Additional Retail Premises in monthly installments as follows:	
 
 	(i)	 	One Thousand Nine Hundred Fifty One and 46/100 Dollars ($1,951.46) per installment payable on or before the Second Additional Retail Effective Date and on or before the first day of each month thereafter during the period beginning on the Second Additional Retail Effective Date and ending on May 31, 2007.	
 
 	(ii)	 	Eighty-four (84) equal installments of Two Thousand Two Hundred Twenty and 63/100 Dollars ($2,220.63) each payable on or before the first day of each month during the period beginning June 1, 2007 and ending May 31, 2014.	
 
All such Base Rental shall be payable by Tenant in accordance with the terms of Article 6 of the Lease.
 
III.	 	Improvements to Third Early Initial Expansion Space and Second Additional Retail Premises.	
 
 	A.	 	Condition of Third Early Initial Expansion Space and Second Additional Retail Premises. Tenant has inspected the Third Early Initial Expansion Space and the Second Additional Retail Premises and agrees to accept the same “as is ”without any agreements, representations, understandings or obligations on the part of Landlord to perform any alterations, repairs or improvements.	
 
 	B.	 	Cost of Improvements to Third Early Initial Expansion Space and Second Additional Retail Premises.	
 
 	(i)	 	Landlord and Tenant acknowledge and confirm that, subject to the terms and conditions of the Lease, Tenant is entitled to an improvement allowance with respect to the Third Early Initial Expansion Space, which allowance is part of the overall allowance set forth in Section 3.6 of the Work Letter.	
 
 	(ii)	 	Provided Tenant is not n default, Tenant shall be entitled to receive an improvement allowance (the “Second Additional Retail Improvement Allowance”) in an amount not to exceed Thirty Seven Thousand One Hundred Forty Five and No/100 Dollars ($37,145.00) (i.e., $23.00 per square foot of Rentable Area of the Second Additional Retail Premises) to be applied toward the cost of performing initial construction, alteration or	
 
2

 	improvement of the Second Additional Retail Premises, including but not limited to the cost of space planning, design and related architectural and engineering services. In the event the total cost of the initial improvements to the Second Additional Retail Premises exceeds the Second Additional Retail Improvement Allowance, Tenant shall pay for such excess upon demand. The entire unused balance of the Second Additional Retail Improvement Allowance, if any, shall accrue to the sole benefit of Landlord. In accordance with the Payment Procedures (as defined in the Fifth Amendment to the Lease dated May 8, 2001), Landlord shall pay such Second Additional Retail Improvement Allowance directly to the contractors, architects, designers, engineers and consultants retained to perform the construction, design or related improvement work to the Second Additional Retail Premises.	
 
 	C.	 	Responsibility for Improvements to Third Early Initial Expansion Space and Second Additional Retail Premises. Any construction, alterations or improvements to the Third Early Initial Expansion Space shall be performed by Tenant using contractors selected by Tenant and reasonably approved by Landlord and shall be governed in all respects by the provisions of Article 15 of the Lease. Landlord acknowledges that Tenant is leasing the Second Additional Retail Premises for purposes of installing and operating a bank vault (the “Vault”). Notwithstanding anything contained in the Lease to the contrary, Landlord and Tenant agree that (i) the plans and specifications for the Vault and storefront design for the Second Additional Retail Premises shall be subject to Landlord’s prior written approval, (ii) Tenant shall remove the Vault prior to the expiration or earlier termination of the Term and shall repair any damage caused by installation or removal of the Vault and (iii) if the installation or removal of the Vault requires the temporary closure of any parking spaces in the Building’s parking garage and such closure exceeds 7 days in the aggregate, Tenant shall pay Landlord $9.50 per day per space as additional rent for each day that such space(s) are closed as a result of such installation or removal of the Vault.	
 
IV.	 	Miscellaneous.	
 
 	A.	 	This Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. Under no circumstances shall Tenant be entitled to any Rent abatement, improvement allowance, leasehold improvements, or other work to the Premises, or any similar economic incentives that may have been provided Tenant in connection with entering into the Lease, unless specifically set forth in the Lease or this Amendment.	
 
 	B.	 	Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full force and effect.	
 
 	C.	 	In the case of any inconsistency between the provisions of the Lease and this Amendment, the provisions of this Amendment shall govern and control.	
 
 	D.	 	Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offer by Tenant. Neither Landlord nor Tenant shall not be bound by this Amendment until both Landlord and Tenant have executed and delivered the same to the other party.	
 
 	E.	 	The capitalized terms used in this Amendment shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Amendment.	
 
 	F.	 	Tenant hereby represents to Landlord that Tenant has dealt with no broker in connection with this Amendment other than Nelson Tietz & Hoye (the “Broker”). Tenant agrees to indemnify and hold Landlord, its members, principals, beneficiaries, partners, officers, directors, employees, mortgagee(s) and agents, and the respective principals and members of any such agents harmless from all claims of any brokers claiming to have represented Tenant (other than the Broker) in connection with this Amendment. Landlord hereby represents to Tenant that Landlord has dealt with no broker in connection with this Amendment (other than the Broker). Landlord agrees to indemnify and hold Tenant, its members, principals, beneficiaries, partners, officers, directors, employees, and agents, and	
 
3

 	the respective principals and members of any such agents harmless from all claims of any brokers claiming to have represented Landlord (including the Broker) in connection with this Amendment; it being understood that Landlord shall be solely responsible for payment of all brokerage commissions due to the Broker with respect to this Amendment pursuant to separate written agreements.	
 
 	G.	 	This Amendment shall be of no force and effect unless and until accepted by any guarantors of the Lease, who by signing below shall agree that their guarantee shall apply to the Lease as amended herein, unless such requirement is waived by Landlord in writing.	
 
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment as of the day and year first above written.
 
LANDLORD:	
 	
EOP-NICOLLET MALL, L.L.C.,
a Delaware limited liability company	
 	 	
By:	 	EOP Operating Limited Partnership,
a Delaware limited partnership,
its sole member	
 	 	 	
 	 	By:	 	Equity Office Properties Trust, a Maryland real estate investment trust,
its general partner	
 	 	 	 	
 	 	 	 	By:	 	/s/       ARVID POVILAITIS

	
 	 	 	 	Name:	 	ARVID POVILAITIS	
 	 	 	 	Title:	 	SENIOR VICE PRESIDENT	
 
TENANT:	
 	
U.S. BANCORP PIPER JAFFRAY COMPANIES INC.,
a Delaware corporation	
 	 	
By:	 	 
/s/    David K. Wright

	
Name:	 	David K.Wright

	
Title:	 	Vice President

	
 	 	 	
GUARANTOR:	
 	
U.S. BANCORP	
 	 	
By:	 	/s/    Bradley Schmidt

	
Name:	 	Bradley Schmidt

 	
Title:	 	Senior Vice President

	

 
4

EIGHTH AMENDMENT
 
THIS EIGHTH AMENDMENT (the “Amendment”) is made and entered into as of the 30th day of December, 2002, by and between EOP-NICOLLET MALL, L.L.C., a Delaware limited liability company  (“Landlord”), and  U.S. BANCORP PIPER JAFFRAY COMPANIES INC., a Delaware corporation  (“Tenant”).
 
WITNESSETH
 
A.	 	WHEREAS, Landlord (as successor in interest to Ryan 800, LLC, a Minnesota limited liability company) and Tenant (formerly known as Piper Jaffray Companies Inc.) are parties to that certain lease dated the 3 rd  day of March, 1998, for space which contains, or shall contain pursuant to the terms of the Lease (as hereinafter defined), approximately 711,641 square feet of the Rentable Area (the “Original Premises”) on the first (1 st ) through thirteenth (13 th ) and fifteenth (15 th ) through twenty-fourth (24 th ) Floors of the building commonly known as the U.S. Bancorp Center and the address of which is 800 Nicollet Mall, Minneapolis, Minnesota (the “Building”), which lease has been previously amended or assigned by instruments (including, without limitation, letters exercising expansion rights) dated May 18, 1998, July 29, 1999, September 1, 1998, September 29, 1999, November 22, 1999, November 24, 1999, March 31, 2000, May 8, 2001, August 8, 2001 and May 28, 2002 (collectively, the “Lease”); and	
 
B.	 	WHEREAS, Tenant has requested that the Commencement Date be accelerated solely with respect to (i) the portion of the Initial Expansion Space located on Floor twenty-four (24) containing approximately 2,915 square feet of Rentable Area (the “Fourth Early Initial Expansion Space”) to be known as Suite 2430 and as depicted on  Exhibit A  attached hereto, and (ii) the portion of the Initial Expansion Space located on Floor twenty-four (24) containing approximately 1,821 square feet of Rentable Area (the “Fifth Early Initial Expansion Space”) to be known as Suite 2440 and as depicted on  Exhibit B  attached hereto, and, with respect to the foregoing, that the Lease be appropriately amended, and Landlord is willing to do the same on the terms and conditions hereinafter set forth.	
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:
 
I.	 	Expansion, Early Commencement and Effective Dates.	
 
 	A.	 	Effective as of sixty (60) days after the date this Amendment is fully executed and delivered by Landlord and Tenant1 (the “Fourth Early Initial Expansion Effective Date”), the Premises, as defined in the Lease, is increased by 2,915 square feet of Rentable Area through the addition of the Fourth Early Initial Expansion Space (and Tenant’s Pro Rata Share is likewise increased), and from and after the Fourth Early Initial Expansion Effective Date, the Premises and the Fourth Early Initial Expansion Space, collectively, shall be deemed the Premises, as defined in the Lease. The term for the Fourth Early Initial Expansion Space shall commence on the Fourth Early Initial Expansion Effective Date and end on the last day of the Term. The Fourth Early Initial Expansion Space is subject to all the terms and conditions of the Lease except as expressly modified herein. The Fourth Early Initial Expansion Effective Date shall be delayed to the extent that Landlord fails for any reason to deliver possession of the Fourth Early Initial Expansion Space within the timeframe set forth in Section IV below, including, but not limited to, Unavoidable Delay. Any such delay in the Fourth Early Initial Expansion Effective Date by reason of Unavoidable Delay shall not subject Landlord to any liability for any loss or damage resulting therefrom. If the Fourth Early Initial Expansion Effective Date is delayed, the expiration date under the Lease shall not be similarly extended.	
 
 	B.	 	Effective as of the earlier of (i) August 1, 2003, or (ii) 60 days after the Early Delivery Date (as defined in Section IV.B. below) (the “Fifth Early Initial Expansion Effective Date”), the Premises, as defined in the Lease, is increased by 1,821 square feet of Rentable Area through the addition of the Fifth Early Initial Expansion Space (and Tenant’s Pro Rata Share is likewise increased), and from and after the Fifth Early Initial Expansion Effective Date, the Premises and the Fifth Early Initial Expansion Space, collectively, shall be deemed the Premises, as defined in the Lease. The term for the Fifth Early Initial Expansion Space shall	

 	commence on the Fifth Early Initial Expansion Effective Date and end on the last day of the Term. The Fifth Early Initial Expansion Space is subject to all the terms and conditions of the Lease except as expressly modified herein. The Fifth Early Initial Expansion Effective Date shall be delayed to the extent that Landlord fails for any reason to deliver possession of the Fifth Early Initial Expansion Space within the timeframe set forth in Section IV below, including, but not limited to, Unavoidable Delay. Any such delay in the Fifth Early Initial Expansion Effective Date by reason of Unavoidable Delay shall not subject Landlord to any liability for any loss or damage resulting therefrom. If the Fifth Early Initial Expansion Effective Date is delayed, the expiration date under the Lease shall not be similarly extended.	
 
II.	 	Monthly Base Rental.	
 
 	A.	 	In addition to Tenant’s obligation to pay Base Rental for the Original Premises (other than the Fourth Early Initial Expansion Space), Tenant shall pay Landlord Base Rental with respect to the Fourth Early Initial Expansion Space (which shall be in lieu of the Base Rental set forth in the Lease with respect to the Fourth Early Initial Expansion Space) in monthly installments as follows:	
 
 	(i)	 	Equal installments of Three Thousand Five Hundred Twenty Two and 29/100 Dollars ($3,522.29) each payable on or before the first day of each month during the period beginning on the Fourth Early Expansion Date and ending December 31, 2007.	
 
 	(ii)	 	Sixty (60) equal installments of Four Thousand Eight and 13/100 Dollars ($4,008.13) each payable on or before the first day of each month during the period beginning January 1, 2008 and ending December 31, 2012.	
 
 	(iii)	 	Seventeen (17) equal installments of Four Thousand Three Hundred Seventy Two and 50/100 Dollars ($4,372.50) each payable on or before the first day of each month during the period beginning January 1, 2013 and ending May 31, 2014.	
 
 	B.	 	In addition to Tenant’s obligation to pay Base Rental for the Original Premises (other than the Fifth Early Initial Expansion Space), Tenant shall pay Landlord Base Rental with respect to the Fifth Early Initial Expansion Space (which shall be in lieu of the Base Rental set forth in the Lease with respect to the Fifth Early Initial Expansion Space) in monthly installments as follows:	
 
 	(i)	 	Equal installments of Two Thousand Two Hundred and 38/100 Dollars ($2,200.38) each payable on or before the first day of each month during the period beginning on the Fifth Early Expansion Date and ending December 31, 2007.	
 
 	(ii)	 	Sixty (60) equal installments of Two Thousand Five Hundred Three and 88/100 Dollars ($2,503.88) each payable on or before the first day of each month during the period beginning January 1, 2008 and ending December 31, 2012.	
 
 	(iii)	 	Seventeen (17) equal installments of Two Thousand Seven Hundred Thirty One and 50/100 Dollars ($2,731.50) each payable on or before the first day of each month during the period beginning January 1, 2013 and ending May 31, 2014.	
 
All such Base Rental shall be payable by Tenant in accordance with the terms of Article 6 of the Lease.
 
III.	 	Improvements to Fourth Early Initial Expansion Space and Fifth Early Initial Expansion Space.	
 
 	A.	 	Condition of Fourth Early Initial Expansion Space and Fifth Early Initial Expansion Space. Tenant has inspected the Fourth Early Initial Expansion Space and the Fifth Early Initial Expansion Space and agrees to accept the same “as is” without any agreements, representations, understandings or obligations on the part of Landlord to perform any alterations, repairs or improvements, except that	
 
2

 	Landlord shall deliver the Fourth Early Initial Expansion Space and the Fifth Early Initial Expansion Space to Tenant in broom clean condition.	
 
 	B.	 	Cost of Improvements to Fourth Early Initial Expansion Space and Fifth Early Initial Expansion Space.	
 
 	(i)	 	Notwithstanding anything to the contrary set forth in the Lease, including the provisions of Section 3.6 of the Work Letter attached thereto, and provided Tenant is not in default, Tenant shall be entitled to receive an improvement allowance (the “Fourth Early initial Expansion Space Improvement Allowance”) in an amount not to exceed Fifty Two Thousand Four Hundred Seventy and No/100 Dollars ($52,470.00) (i.e., $18.00 per square foot of Rentable Area of the Fourth Early Initial Expansion Space) to be applied toward the cost of performing initial construction, alteration or improvement of the Fourth Early Initial Expansion Space, including but not limited to the cost of space planning, design and related architectural and engineering services. In the event the total cost of the initial improvements to the Fourth Early Initial Expansion Space exceeds the Fourth Early Initial Expansion Space Improvement Allowance, Tenant shall pay for such excess upon demand. The entire unused balance of the Fourth Early Initial Expansion Space Improvement Allowance if any, shall accrue to the sole benefit of Landlord. In accordance with the Payment Procedures (as defined in the Fifth Amendment to the Lease dated May 8, 2001), Landlord shall pay such Fourth Early Initial Expansion Space Improvement Allowance directly to the contractors, architects, designers, engineers and consultants retained to perform the construction, design or related improvement work to the Fourth Early Initial Expansion Space.	
 
 	(ii)	 	Notwithstanding anything to the contrary set forth in the Lease, including the provisions of Section 3.6 of the Work Letter attached thereto, and provided Tenant is not in default, Tenant shall be entitled to receive an improvement allowance (the “Fifth Early initial Expansion Space Improvement Allowance”) in an amount not to exceed Thirty Two Thousand Seven Hundred Seventy Eight and No/100 Dollars ($32,778.00) (i.e., $18.00 per square foot of Rentable Area of the Fifth Early Initial Expansion Space) to be applied toward the cost of performing initial construction, alteration or improvement of the Fifth Early Initial Expansion Space, including but not limited to the cost of space planning, design and related architectural and engineering services. In the event the total cost of the initial improvements to the Fifth Early Initial Expansion Space exceeds the Fifth Early Initial Expansion Space Improvement Allowance, Tenant shall pay for such excess upon demand. The entire unused balance of the Fifth Early Initial Expansion Space Improvement Allowance, if any, shall accrue to the sole benefit of Landlord. In accordance with the Payment Procedures (as defined in the Fifth Amendment to the Lease dated May 8, 2001), Landlord shall pay such Fifth Early Initial Expansion Space Improvement Allowance directly to the contractors, architects, designers, engineers and consultants retained to perform the construction, design or related improvement work to the Fifth Early Initial Expansion Space.	
 
 	C.	 	Responsibility for Improvements to Fourth Early Initial Expansion Space and Fifth Early Initial Expansion Space. Any construction, alterations or improvements to the Fourth Early Initial Expansion Space and/or the Fifth Early initial Expansion Space shall be performed by Tenant using contractors selected by Tenant and reasonably approved by Landlord and shall be governed in all respects by the provisions of Article 15 of the Lease.	
 
IV.	 	Early Access to Fourth Early Initial Expansion Space and Fifth Early Initial Expansion Space.	
 
 	A.	 	Tenant shall be permitted to enter the Fourth Early Initial Expansion Space upon full execution and delivery of this Amendment by Landlord and Tenant to perform alterations or improvements to the Fourth Early Initial Expansion Space; it being further agreed that in connection with such early access to the Fourth Early Initial Expansion Space, Tenant shall comply with all terms and provisions of the Lease	
 
3

 	except those provisions requiring payment of Base Rental or Additional Rent as to the Fourth Early Initial Expansion Space. However, if Tenant takes possession of the Fourth Early Initial Expansion Space prior to the Fourth Early Initial Expansion Effective Date for any reason whatsoever (other than the performance of work in such space), such possession shall be subject to all the terms and conditions of the Lease and this Amendment, and Tenant shall pay Base Rental and Additional Rent (i.e. Tenant’s Pro Rata Share shall be appropriately increased to account for the same) as applicable to the Fourth Early Initial Expansion Space to Landlord on a per diem basis for each day of occupancy prior to the Fourth Early Initial Expansion Effective Date.	
 
 	B.	 	Tenant shall be permitted to enter the Fifth Early Initial Expansion Space on or after the earlier of June 1, 2003 or the Early Delivery Date (as defined below) to perform alterations or improvements to the Fifth Early Initial Expansion Space; it being further agreed that in connection with such early access to the Fifth Early Initial Expansion Space, Tenant shall comply with all terms and provisions of the Lease except those provisions requiring payment of Base Rental or Additional Rent as to the Fifth Early Initial Expansion Space. However, if Tenant takes possession of the Fifth Early Initial Expansion Space prior to the Fifth Early Initial Expansion Effective Date for any reason whatsoever (other than the performance of work in such space), such possession shall be subject to all the terms and conditions of the Lease and this Amendment, and Tenant shall pay Base Rental and Additional Rent (i.e. Tenant’s Pro Rata Share shall be appropriately increased to account for the same) as applicable to the Fifth Early Initial Expansion Space to Landlord on a per diem basis for each day of occupancy prior to the Fifth Early Initial Expansion Effective Date. While the Fifth Early Initial Expansion Space is currently under lease to another tenant and such other tenant’s occupancy and possession of the Fifth Early Initial Expansion Space is expected to last until May 31, 2003, if for any reason the Fifth Early Initial Expansion Space is surrendered to Landlord prior to May 31, 2003 (i) within 48 hours of such date of surrender (the “Early Delivery Date”), Landlord shall make the Fifth Early Initial Expansion Space available to Tenant pursuant to the terms and conditions of this Section, and (ii) Landlord shall use commercially reasonable efforts to notify Tenant of the anticipated Early Delivery Date at least 30 days in advance.	
 
V.	 	Miscellaneous.	
 
 	A.	 	This Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. Under no circumstances shall Tenant be entitled to any Rent abatement, improvement allowance, leasehold improvements, or other work to the Premises, or any similar economic incentives that may have been provided Tenant in connection with entering into the Lease, unless specifically set forth in the Lease or this Amendment.	
 
 	B.	 	Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full force and effect.	
 
 	C.	 	In the case of any inconsistency between the provisions of the Lease and this Amendment, the provisions of this Amendment shall govern and control.	
 
 	D.	 	Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offer by Tenant. Neither Landlord nor Tenant shall not be bound by this Amendment until both Landlord and Tenant have executed and delivered the same to the other party.	
 
 	E.	 	The capitalized terms used in this Amendment shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Amendment.	
 
 	F.	 	Tenant hereby represents to Landlord that Tenant has dealt with no broker in connection with this Amendment other than Nelson Tietz & Hoye (“Broker”). Tenant agrees to indemnify and hold Landlord, its members, principals, beneficiaries, partners, officers, directors, employees, mortgagee(s) and agents, and the respective principals and members of any such agents harmless from all claims of any brokers claiming to have represented Tenant (other than Broker) in connection with this Amendment. Landlord hereby represents to Tenant that	
 
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 	Landlord has dealt with no broker in connection with this Amendment (other than Broker). Landlord agrees to indemnify and hold Tenant, its members, principals, beneficiaries, partners, officers, directors, employees, and agents, and the respective principals and members of any such agents harmless from all claims of any brokers claiming to have represented Landlord (including Broker) in connection with this Amendment; it being understood that Landlord shall be solely responsible for payment of all brokerage commissions due to Broker with respect to this Amendment pursuant to separate written agreements.	
 
 	G.	 	This Amendment shall be of no force and effect unless and until accepted by any guarantors of the Lease, who by signing below shall agree that their guarantee shall apply to the Lease as amended herein, unless such requirement is waived by Landlord in writing.	
 
SIGNATURES ARE SET FORTH ON THE FOLLOWING PAGE
 
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment as of the day and year first above written.
 
LANDLORD:	
 	
EOP-NICOLLET MALL, L.L.C.,
a Delaware limited liability company	

By:	 	EOP Operating Limited Partnership,
a Delaware limited partnership,
its sole member	
 	 	 	
 	 	By:	 	Equity Office Properties Trust,
a Maryland real estate investment trust,
its general partner	
 	 	 	 	
 	 	 	 	By:	 	/s/       Kim J Koehn

	
 	 	 	 	Name:	 	Kim J. Koehn

	
 	 	 	 	Title:	 	Senior Vice President-Denver Region

	
 
TENANT:	
 	
U.S. BANCORP PIPER JAFFRAY COMPANIES INC.,
a Delaware corporation	
 	 	
By:	 	/s/ Bradley J. Schmidt

	
Name:	 	Bradley J. Schmidt

	
Title:	 	Sr Vice President

	
 
GUARANTOR:	
 	
U.S. BANCORP	
 	 	
By:	 	/s/    David K. Wright

	
Name:	 	David K. Wright

	
Title:	 	Vice President

	
 
5

NINTH AMENDMENT
 
THIS NINTH AMENDMENT (the “Amendment”) is made and entered into as of the day              of             , 2003, by and between MN - NICOLLET MALL, L.L.C.,  a Delaware limited liability company (“Landlord”), and  U.S. BANCORP PIPER JAFFRAY COMPANIES INC.,  a Delaware corporation (“Tenant”).
 
RECITALS
 
A.	 	Landlord (as successor in interest to EOP – Nicollet Mall, L.L.C., a Delaware limited liability company, successor in interest to Ryan 800, LLC, a Minnesota limited liability company) and Tenant (formerly known as Piper Jaffray Companies Inc.) are parties to that certain lease dated March 3, 1998, for space which contains, or shall contain pursuant to the terms of the Lease (as hereinafter defined), approximately 711,641 square feet of the Rentable Area (the “Original Premises”) on the first (1 st ) through thirteenth (13 th ) and the fifteenth (15 th ) through twenty-fourth (24 th ) Floors of the building commonly known as the U.S. Bancorp Center and the address of which is 800 Nicollet Mall, Minneapolis, Minnesota (the “Building”), which lease has been previously amended or assigned by instruments (including, without limitation, letters exercising expansion rights) dated May 18, 1998, July 29, 1999, September 1, 1998, September 29, 1999, November 22, 1999, November 24, 1999, March 31, 2000, May 8, 2001, August 8, 2001, May 28, 2002, and December 30, 2002 (collectively, the “Lease”).	
 
B.	 	In addition to the Original Premises, pursuant to Section 12.8 of the Lease, Tenant has possession of 350 square feet of Usable Area on Floor Parking Level One (P1) of the Building for the location and use of Tenant’s communications major point of presence (the “MPOP Space”). Landlord has requested, and Tenant has agreed to, surrender 77 square feet of Usable Area of the MPOP (the “MPOP Reduction Space”) to accommodate Landlord’s expansion of the parking facilities appurtenant to the Building on the following terms and conditions. The MPOP Reduction Space is shown on  Exhibit A  hereto.	
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:
 
I.	 	Reduction.	
 
 	A.	 	Tenant shall vacate the MPOP Reduction Space in accordance with the terms of the Lease on or prior to January 31, 2003, which is the date immediately preceding the Reduction Effective Date (defined in I.B. below) and Tenant shall fully comply with all obligations under the Lease respecting the MPOP Reduction Space up to the Reduction Effective Date.	
 
 	B.	 	Effective as of February 1, 2003 (the “Reduction Effective Date”), the MPOP Space is decreased from 350 square feet of Usable Space on Floor P1 of the Building to 273 square feet of Usable Space on Floor P1 of the Building by the elimination of the MPOP Reduction Space. As of the Reduction Effective Date, the MPOP Reduction Space shall be deemed surrendered by Tenant to Landlord, the Lease shall be deemed terminated with respect to the MPOP Reduction Space, and Landlord’s obligation under the Lease with respect to paragraph (b) of Section 12.8 shall be deemed to mean the MPOP Space less the MPOP Reduction Space.	
 
II.	 	Miscellaneous.	
 
 	A.	 	This Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. Under no circumstances shall Tenant be entitled to any Rent abatement, improvement allowance, leasehold improvements, or other work to the Premises, or any similar economic incentives that may have been provided Tenant in connection with entering into the Lease, unless specifically set forth in this Amendment.	
 
 	B.	 	Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full force and effect.	
 
 	C.	 	In the case of any inconsistency between the provisions of the Lease and this Amendment, the provisions of this Amendment shall govern and control.	

 	D.	 	Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offer by Tenant. Landlord shall not be bound by this Amendment until Landlord has executed and delivered the same to Tenant.	
 
 	E.	 	The capitalized terms used in this Amendment shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Amendment.	
 
 	F.	 	Tenant hereby represents to Landlord that Tenant has dealt with no broker in connection with this Amendment. Tenant agrees to indemnify and hold Landlord, its members, principals, beneficiaries, partners, officers, directors, employees, mortgagee(s) and agents, and the respective principals and members of any such agents, harmless from all claims of any brokers claiming to have represented Tenant in connection with this Amendment. Landlord hereby represents to Tenant that Landlord has dealt with no broker in connection with this Amendment. Landlord agrees to indemnify and hold Tenant, its members, principals, beneficiaries, partners, officers, directors, employees, and agents, and the respective principals and members of any such agents, harmless from all claims of any brokers claiming to have represented Landlord in connection with this Amendment.	
 
 	G.	 	At Landlord’s option, this Amendment shall be of no force and effect unless and until accepted by any guarantors of the Lease, who by signing below shall agree that their guaranty shall apply to the Lease as amended herein, unless such requirement is waived by Landlord in writing.	
 
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment as of the day and year first above written.
 
LANDLORD:	
 	
MN - NICOLLET MALL, L.L.C.,	
a Delaware limited liability company	
 	 	
By:	 	Equity Office Management, L.L.C., a Delaware limited liability company,
its non-member manager	
 	 	 	
 	 	By:	 	 

	
 	 	Name:	 	 

	
 	 	Title:	 	 

	
 
TENANT:	
 	
U.S. BANCORP PIPER JAFFRAY COMPANIES INC.,	
a Delaware corporation	
 	 	
By:	 	/s/    David K. Wright

	
Name:	 	David K. Wright

	
Title:	 	Vice President

	

GUARANTOR:	
 	
U.S. BANCORP	
 	 	
By:	 	/s/    Bradley J. Schmidt

	
Name:	 	Bradley J. Schmidt

	
Title:	 	Sr Vice President

	
 
2

TENTH AMENDMENT
 
THIS TENTH AMENDMENT (the “Amendment”) is made and entered into as of      the day of             , 2003, by and between MN-NICOLLET MALL, L.L.C., a Delaware limited liability company  (“Landlord”), and  U.S. BANCORP PIPER JAFFRAY COMPANIES INC., a Delaware corporation  (“Tenant”).
 
WITNESSETH
 
A.	 	WHEREAS, Landlord (formerly known as EOP-Nicollet Mall, L.L.C., as successor in interest to Ryan 800, LLC. a Minnesota limited liability company) and Tenant (formerly known as Piper Jaffray Companies Inc.) are parties to that certain lease (collectively with the amendments hereafter described, the “Lease”) dated the 3 rd  day of March, 1998, for space which contains approximately 716,171 square feet of the Rentable Area (the “Original Premises”) on the first (1 st ) through thirteenth (13 th ) and fifteenth (15 th ) through twenty-fourth (24 th ) Floors of the building commonly known as the U.S. Bancorp Center and the address of which is 800 Nicollet Mall, Minneapolis, Minnesota (the “Building”), which lease has been previously amended or assigned by instruments (including, without limitation, letters exercising expansion rights) dated May 18, 1998, July 29, 1999, September 1, 1998 (exercise letter), September 29, 1999, September 29, 1999, November 22,1999, November 24, 1999, March 31, 2000, May 8, 2001, August 8, 2001, May 28, 2002, December 30, 2002 (the “Eighth Amendment”), and March 27, 2003.	
 
B.	 	WHEREAS, pursuant to the Eighth Amendment, the Commencement Date with respect to space therein referred to as the Fourth Early Initial Expansion Space and the Fifth Early Initial Expansion Space (as defined in the Eighth Amendment) was accelerated; and	
 
C.	 	WHEREAS, Landlord and Tenant have determined that the space demised as the Fourth Early Initial Expansion Space and the Fifth Early Initial Expansion Space was inaccurately described as Initial Expansion Space (as defined in the Lease) and should have within the Eighth Amendment been referred to as additional expansion space and, therefore, no “acceleration” of the Commencement Date was appropriate, but rather the Commencement Date for the Fourth Early Initial Expansion Space and the Fifth Early Initial Expansion Space should have been the dates determined by the parties absent any acceleration; and	
 
D.	 	WHEREAS, Tenant has requested a further modification to the Commencement Date for the Fifth Early Initial Expansion Space, and Landlord is willing to do the same on the terms and conditions hereinafter set forth; and	
 
E.	 	WHEREAS, for clarification purposes, Landlord and Tenant desire to amend and restate the Eighth Amendment to accurately describe the expansion space demised therein and to restate the commencement date for the Fifth Early Initial Expansion Space, as such space is re-described herein.	
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:
 
I.	 	Restatement. This Amendment is a restatement of the Eighth Amendment. The Eighth Amendment is hereby deleted in its entirety and the terms and conditions of this Amendment substituted in lieu thereof.	
 
II.	 	Redefinition. For purposes of this Amendment and the Lease, (a) the portion of the Building located on Floor twenty-four containing approximately 2,915 square feet of Rentable Area to be known as Suite 2430 and depicted on  Exhibit A  attached hereto shall hereinafter be referred to as the “First Additional Expansion Space”, and (b) the portion of the Building located on Floor twenty-four containing approximately 1,821 square feet of Rentable Area to be known as Suite 2440 and depicted on  Exhibit B  attached hereto shall hereinafter be referred to as the “Second Additional Expansion Space.”	

II.	 	Expansion and Effective Date.	
 
 	A.	 	Effective as of April 1, 2003 (the “First Additional Expansion Effective Date”), the Premises, as defined in the Lease, is increased by the addition of the First Additional Expansion Space (and Tenant’s Pro Rata Share is likewise increased), and from and after the First Additional Expansion Effective Date, the Original Premises and the First Additional Expansion Space, collectively, shall be deemed the Premises, as defined in the Lease. The Term for the First Additional Expansion Space shall commence on the First Additional Expansion Effective Date and end on the last day of the Term, which, unless sooner terminated in accordance with the Lease, shall mean May 31, 2014 (such date, for purposes of this Amendment and the Lease, is referred to as the “Termination Date”). The First Additional Expansion Space is subject to all the terms and conditions of the Lease except as expressly modified herein and except that Tenant shall not be entitled to receive any allowances, abatements or other financial concessions granted with respect to the Original Premises unless such concessions are expressly provided for herein with respect to the First Additional Expansion Space. The First Additional Expansion Effective Date shall be delayed to the extent that Landlord fails for any reason to deliver possession of the First Additional Expansion Space on or before April 1, 2003, for any reason, including but not limited to, Unavoidable Delay. Any such delay in the First Additional Expansion Effective Date shall not subject Landlord to any liability for any loss or damage resulting therefrom. If the First Additional Expansion Effective Date is delayed, the Termination Date under the Lease shall not be similarly extended.	
 
 	B.	 	Effective as of October 1, 2004 (the “Second Additional Expansion Effective Date”), the Premises, as defined in the Lease, is increased by the addition of the Second Additional Expansion Space (and Tenant’s Pro Rata Share is likewise increased), and from and after the Second Additional Expansion Effective Date, the Original Premises (as previously increased by the First Additional Expansion Space) and the Second Additional Expansion Space, collectively, shall be deemed the Premises, as defined in the Lease. The Term for the Second Additional Expansion Space shall commence on the Second Additional Expansion Effective Date and end on the Termination Date. The Second Additional Expansion Space is subject to all the terms and conditions of the Lease except as expressly modified herein and except that Tenant shall not be entitled to receive any allowances, abatements or other financial concessions granted with respect to the Original Premises unless such concessions are expressly provided for herein with respect to the Second Additional Expansion Space. The Second Additional Expansion Effective Date shall be delayed to the extent that Landlord fails for any reason to deliver possession of the Second Additional Expansion Space for any reason on or before October 1, 2004, including but not limited to, Unavoidable Delay. Any such delay in the Second Additional Expansion Effective Date shall not subject Landlord to any liability for any loss or damage resulting therefrom. If the Second Additional Expansion Effective Date is delayed, the Termination Date under the Lease shall not be similarly extended.	
 
IV. Monthly Base Rental .
 
 	A.	 	In addition to Tenant’s obligation to pay Base Rental for the Original Premises, Tenant shall pay Landlord Base Rental with respect to the First Additional Expansion Space in monthly instalments as follows;	
 
 	(i)	 	Equal installments of Three Thousand Five Hundred Twenty Two and 29/100 Dollars ($3,522.29) each payable on or before the first day of each month during the period beginning on the First Additional Expansion Effective Date and ending December 31, 2007.	
 
 	(ii)	 	Sixty (60) equal installments of Four Thousand Eight and 13/100 Dollars ($4,008.13) each payable on or before the first day of each month during the period beginning January 1, 2008 and ending December 31, 2012.	
 
 	(iii)	 	Seventeen (17) equal installments of Four Thousand Three Hundred Seventy Two and 50/100 Dollars ($4,372.50) each payable on or before the first day of each month during the period beginning January 1, 2013 and ending May 31, 2014.	
 
2

 	B.	 	In addition to Tenant’s obligation to pay Base Rental for the Original Premises, Tenant shall pay Landlord Base Rental with respect to the Second Additional Expansion Space in monthly installments as follows:	
 
 	(i)	 	Equal installments of Two Thousand Two Hundred and 38/100 Dollars ($2,200.38) each payable on or before the first day of each month during the period beginning on the Second Additional Expansion Effective Date and ending December 31, 2007.	
 
 	(ii)	 	Sixty (60) equal installments of Two Thousand Five Hundred Three and 88/100 Dollars ($2,503.88) each payable on or before the first day of each month during the period beginning January 1, 2008 and ending December 31, 2012.	
 
 	(iii)	 	Seventeen (17) equal installments of Two Thousand Seven Hundred Thirty One and 50/100 Dollars ($2,731.50) each payable on or before the first day of each month during the period beginning January 1, 2013 and ending May 31, 2014.	
 
All such Base Rental shall be payable by Tenant in accordance with the terms of Article 6 of the Lease.
 
V.	 	Improvements to First Additional Expansion Space and Second Additional Expansion Space.	
 
 	A.	 	Condition of First Additional Expansion Space and Second Additional Expansion Space. Tenant has inspected the First Additional Expansion Space and the Second Additional Expansion Space and agrees to accept the same “as is” without any agreements, representations, understandings or obligations on the part of Landlord to perform any alterations, repairs or improvements, except that Landlord shall deliver the First Additional Expansion Space and the Second Additional Expansion Space to Tenant in broom clean condition.	
 
 	B.	 	Cost of Improvements to First Additional Expansion Space and Second Additional Expansion Space.	
 
 	(i)	 	Provided Tenant is not in default, Tenant shall be entitled to receive an improvement allowance (the “First Additional Expansion Space Improvement Allowance”) in an amount not to exceed Fifty Two Thousand Four Hundred Seventy and No/100 Dollars ($52,470.00) (i.e., $18.00 per square foot of Rentable Area of the First Additional Expansion Space) to be applied toward the cost of performing initial construction, alteration or improvement of the First Additional Expansion Space, including but not limited to the cost of space planning, design and related architectural and engineering services. In the event the total cost of the initial improvements to the First Additional Expansion Space exceeds the First Additional Expansion Space Improvement Allowance, Tenant shall pay for such excess upon demand. The entire unused balance of the First Additional Expansion Space Improvement Allowance, if any, shall accrue to the sole benefit of Landlord. In accordance with the Payment Procedures (as defined in the Fifth Amendment to the Lease dated May 8, 2001), Landlord shall pay such First Additional Expansion Space Improvement Allowance directly to the contractors, architects, designers, engineers and consultants retained to perform the construction, design or related improvement work to the First Additional Expansion Space.	
 
 	(ii)	 	Provided Tenant is not in default, Tenant shall be entitled to receive an improvement allowance (the “Second Additional Expansion Space Improvement Allowance”) in an amount not to exceed Thirty Two Thousand Seven Hundred Seventy Eight and No/100 Dollars ($32,778.00) (i.e., $18.00 per square foot of Rentable Area of the Second Additional Expansion Space) to be applied toward the cost of performing initial construction, alteration or improvement of the Second Additional Expansion Space, including but not limited to the cost of space planning, design and related architectural and engineering services. In the event the total cost of the initial improvements to the Second Additional Expansion Space exceeds the Second Additional Expansion Space	
 
3

 	Improvement Allowance, Tenant shall pay for such excess upon demand. The entire unused balance of the Second Additional Expansion Space Improvement Allowance, if any, shall accrue to the sole benefit of Landlord. In accordance with the Payment Procedures (as defined in the Fifth Amendment to the Lease dated May 8, 2001), Landlord shall pay such Second Additional Expansion Space Improvement Allowance directly to the contractors, architects, designers, engineers and consultants retained to perform the construction, design or related improvement work to the Second Additional Expansion Space.	
 
 	C.	 	Responsibility for Improvements to First Additional Expansion Space and Second Additional Expansion Space. Any construction, alterations or improvements to the First Additional Expansion Space and/or the Second Additional Expansion Space shall be performed by Tenant using contractors selected by Tenant and reasonably approved by Landlord and shall be governed in all respects by the provisions of Article 15 of the Lease.	
 
VI.	 	Early Access to First Additional Expansion Space and Second Additional Expansion Space. During any period that Tenant shall be permitted to enter the First Additional Expansion Space or Second Additional Expansion Space prior to the applicable First Additional Expansion Effective Date or Second Additional Expansion Effective Date (e.g., to perform alterations or improvements, if any), Tenant shall comply with all terms and provisions of the Lease, except those provisions requiring payment of Base Rental or Additional Rent as to such space. If Tenant takes possession of the First Additional Expansion Space or the Second Additional Expansion Space prior to the First Additional Expansion Effective Date or Second Additional Expansion Effective Date, as applicable, for any reason whatsoever (other than the performance of work in such space), such possession shall be subject to all the terms and conditions of the Lease and this Amendment, and Tenant shall pay Base Rental and Additional Rent (i.e. Tenant’s Pro Rata Share shall be appropriately increased to account for the same) as applicable to the First Additional Expansion Space or Second Additional Expansion Space, as applicable, to Landlord on a per diem basis for each day of occupancy prior to the applicable First Additional Expansion Effective Date or Second Additional Expansion Effective Date.	
 
VII.	 	Miscellaneous.	
 
 	A.	 	This Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. Under no circumstances shall Tenant be entitled to any Rent abatement, improvement allowance, leasehold improvements, or other work to the Premises, or any similar economic incentives that may have been provided Tenant in connection with entering into the Lease, unless specifically set forth in the Lease or this Amendment.	
 
 	B.	 	Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full force and effect.	
 
 	C.	 	In the case of any inconsistency between the provisions of the Lease and this Amendment, the provisions of this Amendment shall govern and control.	
 
 	D.	 	Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offer by Tenant. Neither Landlord nor Tenant shall not be bound by this Amendment until both Landlord and Tenant have executed and delivered the same to the other party.	
 
 	E.	 	The capitalized terms used in this Amendment shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Amendment.	
 
 	F.	 	Tenant hereby represents to Landlord that Tenant has dealt with no broker in connection with this Amendment other than Nelson Tietz & Hoye (“Broker”). Tenant agrees to indemnify and hold Landlord, its members, principals, beneficiaries, partners, officers, directors, employees, mortgagee(s) and agents, and the respective principals and members of any such agents harmless from all claims of any brokers claiming to have represented Tenant (other than Broker) in connection with this Amendment. Landlord hereby represents to Tenant that Landlord has dealt with no broker in connection with this Amendment (other than	
 
4

 	Broker). Landlord agrees to indemnify and hold Tenant, its members, principals, beneficiaries, partners, officers, directors, employees, and agents, and the respective principals and members of any such agents harmless from all claims of any brokers claiming to have represented Landlord (including Broker) in connection with this Amendment; it being understood that Landlord shall be solely responsible for payment of all brokerage commissions due to Broker with respect to this Amendment pursuant to separate written agreements.	
 
 	G.	 	This Amendment shall be of no force and effect unless and until accepted by any guarantors of the Lease, who by signing below shall agree that their guarantee shall apply to the Lease as amended herein, unless such requirement is waived by Landlord in writing.	
 
IN WITNESS WHEREOF, Landlord, Tenant and Guarantor have duly executed this Amendment as of the day and year first above written.
 
LANDLORD:	
 	
MN-NICOLLET MALL, L.L.C.,
a Delaware limited liability company	
By:	 	Equity Office Management, L.L.C.,
a Delaware limited liability company,
its non-member manager	
 	 	 	
 	 	By:	 	/s/ Kim J Koehn

	
 	 	Name:	 	Kim J Koehn

	
 	 	Title:	 	Senior Vice President-Denver Region

	
 
TENANT:	
 	
U.S. BANCORP PIPER JAFFRAY COMPANIES INC.,
a Delaware corporation	
 	 	
By:	 	/s/    David K. Wright

	
Name:	 	David K. Wright

	
Title:	 	VICE PRESIDENT

	
 
GUARANTOR:	
 	
U.S. BANCORP	
 	 	
By:	 	/s/    Bradley J. Schmidt

	
Name:	 	Bradley J. Schmidt

	
Title:	 	Sr Vice President

	
 
5

EXHIBIT 10.101
 
AGREEMENT OF PURCHASE AND SALE
FOR AON CENTER CHICAGO BUILDING

AGREEMENT OF PURCHASE AND SALE
 
between
 
BRE/RANDOLPH DRIVE L.L.C., Seller
 
and
 
WELLS OPERATING PARTNERSHIP, L.P., Buyer
 
Dated as of April 3, 2003

Table of Contents

 	  	Page

	
 	 	
ARTICLE I DEFINITIONS	  	1	
 	 	 	
SECTION 1.1.	  	Defined Terms	  	1	
 	 	
ARTICLE II SALE, PURCHASE PRICE AND CLOSING	  	7	
 	 	 	
SECTION 2.1.	  	Sale of Asset	  	7	
 	 	 	
SECTION 2.2.	  	Purchase Price	  	8	
 	 	 	
SECTION 2.3.	  	Earnest Money	  	8	
 	 	 	
SECTION 2.4.	  	The Closing	  	8	
 	 	
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER	  	9	
 	 	 	
SECTION 3.1.	  	General Seller Representations and Warranties	  	9	
 	 	 	
SECTION 3.2.	  	Representations and Warranties of Seller as to the Asset	  	10	
 	 	 	
SECTION 3.3.	  	Limitations on Representations and Warranties of Seller	  	11	
 	 	 	
SECTION 3.4.	  	Covenants of Seller Prior to Closing	  	11	
 	 	 	
SECTION 3.5.	  	Bulk Sales Notice to Illinois Department of Revenue	  	14	
 	 	 	
SECTION 3.6.	  	Bulk Sales Notice to Chicago Department of Revenue	  	15	
 	 	
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER	  	15	
 	 	 	
SECTION 4.1.	  	Representations and Warranties of Buyer	  	15	
 	 	
ARTICLE V CONDITIONS PRECEDENT TO CLOSING	  	16	
 	 	 	
SECTION 5.1.	  	Conditions Precedent To Seller’s Obligations	  	16	
 	 	 	
SECTION 5.2.	  	Conditions to Buyer’s Obligations	  	17	
 	 	
ARTICLE VI CLOSING DELIVERIES	  	18	
 	 	 	
SECTION 6.1.	  	Buyer Closing Deliveries	  	18	
 	 	 	
SECTION 6.2.	  	Seller Closing Deliveries	  	19	
 	 	
ARTICLE VII INSPECTIONS; RELEASE	  	21	
 	 	 	
SECTION 7.1.	  	Right of Inspection	  	2l	
 	 	 	
SECTION 7.2.	  	Examination; No Contingencies	  	22	
 
i

 	 	 	 	
 	  	 	  	 	  	Page

	
 	 	 	 	
 	  	SECTION 7.3.	  	Release	  	24	
 	 	
ARTICLE VIII TITLE AND PERMITTED EXCEPTIONS	  	25	
 	 	 	 	
 	  	SECTION 8.1.	  	Permitted Exceptions	  	25	
 	 	 	 	
 	  	SECTION 8.2.	  	Title Commitment; Survey	  	25	
 	 	 	 	
 	  	SECTION 8.3.	  	Delivery of Title	  	25	
 	 	 	 	
 	  	SECTION 8.4.	  	Buyer’s Right to Accept Title	  	26	
 	 	 	 	
 	  	SECTION 8.5.	  	Cooperation	  	26	
 	 	
ARTICLE IX TRANSACTION COSTS; RISK OF LOSS	  	26	
 	 	 	 	
 	  	SECTION 9.1.	  	Transaction Costs	  	26	
 	 	 	 	
 	  	SECTION 9.2.	  	Risk of Loss	  	27	
 	 	
ARTICLE X ADJUSTMENTS	  	28	
 	 	 	 	
 	  	SECTION 10.1.	  	Fixed Rents and Additional Rents	  	28	
 	 	 	 	
 	  	SECTION 10.2.	  	Taxes and Assessments	  	30	
 	 	 	 	
 	  	SECTION 10.3.	  	Water and Sewer Charges	  	30	
 	 	 	 	
 	  	SECTION 10.4.	  	Utility Charges	  	30	
 	 	 	 	
 	  	SECTION 10.5.	  	Material Contracts	  	31	
 	 	 	 	
 	  	SECTION 10.6.	  	Miscellaneous Revenues	  	31	
 	 	 	 	
 	  	SECTION 10.7.	  	Security Deposits	  	31	
 	 	 	 	
 	  	SECTION 10.8.	  	Leasing Costs	  	31	
 	 	 	 	
 	  	SECTION 10.9.	  	Other	  	32	
 	 	 	 	
 	  	SECTION 10.10.	  	Re-Adjustment	  	32	
 	 	
ARTICLE XI INDEMNIFICATION	  	32	
 	 	 	 	
 	  	SECTION 11.1.	  	Indemnification by Seller	  	32	
 	 	 	 	
 	  	SECTION 11.2.	  	Indemnification by Buyer	  	32	
 	 	 	 	
 	  	SECTION 11.3.	  	Limitations on Indemnification	  	32	
 	 	 	 	
 	  	SECTION 11.4.	  	Survival	  	33	
 	 	 	 	
 	  	SECTION 11.5.	  	Indemnification as Sole Remedy	  	33	
 	 	
ARTICLE XII TAX CERTIORARI PROCEEDINGS	  	33	
 	 	 	 	
 	  	SECTION 12.1.	  	Prosecution and Settlement of Proceedings	  	33	
 	 	 	 	
 	  	SECTION 12.2.	  	Application of Refunds or Savings	  	33	
 
ii

 	 	 	 	
 	  	 	  	 	  	Page

	
 	 	 	 	
 	  	SECTION 12.3.	  	Survival	  	34	
 	 	
ARTICLE XIII DEFAULT	  	34	
 	 	 	 	
 	  	SECTION 13.1.	  	Buyer’s Default	  	34	
 	 	 	 	
 	  	SECTION 13.2.	  	Seller’s Default	  	34	
 	 	
ARTICLE XIV MISCELLANEOUS	  	35	
 	 	 	 	
 	  	SECTION 14.1.	  	Use of Blackstone Name and Address	  	35	
 	 	 	 	
 	  	SECTION 14.2.	  	Brokers	  	35	
 	 	 	 	
 	  	SECTION 14.3.	  	Confidentiality; Press Release; IRS Reporting Requirements	  	36	
 	 	 	 	
 	  	SECTION 14.4.	  	Escrow Provisions	  	37	
 	 	 	 	
 	  	SECTION 14.5.	  	Successors and Assigns; No Third-Party Beneficiaries	  	37	
 	 	 	 	
 	  	SECTION 14.6.	  	Assignment	  	38	
 	 	 	 	
 	  	SECTION 14.7.	  	Further Assurances	  	38	
 	 	 	 	
 	  	SECTION 14.8.	  	Notices	  	38	
 	 	 	 	
 	  	SECTION 14.9.	  	Entire Agreement	  	39	
 	 	 	 	
 	  	SECTION 14.10.	  	Amendments	  	39	
 	 	 	 	
 	  	SECTION 14.11.	  	No Waiver	  	39	
 	 	 	 	
 	  	SECTION 14.12.	  	Governing Law	  	39	
 	 	 	 	
 	  	SECTION 14.13.	  	Submission to Jurisdiction	  	39	
 	 	 	 	
 	  	SECTION 14.14.	  	Severability	  	40	
 	 	 	 	
 	  	SECTION 14.15.	  	Section Headings	  	40	
 	 	 	 	
 	  	SECTION 14.16.	  	Counterparts	  	40	
 	 	 	 	
 	  	SECTION 14.17.	  	Acceptance of Deed	  	40	
 	 	 	 	
 	  	SECTION 14.18.	  	Construction	  	40	
 	 	 	 	
 	  	SECTION 14.19.	  	Recordation	  	40	
 	 	 	 	
 	  	SECTION 14.20.	  	Time is of the Essence	  	40	
 
iii

Exhibits

	 	 	  	 	
Exhibit A-1	 	-	  	Form of Tenant Estoppel Certificate	
Exhibit A-2	 	-	  	Form of Seller Estoppel Certificate	
Exhibit B	 	-	  	Form of Assignment of Leases	
Exhibit C	 	-	  	Form of Assignment of Contracts	
Exhibit D	 	-	  	Form of Tenant Notices	
Exhibit E	 	-	  	Form of Deed	
Exhibit F	 	-	  	Form of Bill of Sale	
Exhibit G	 	-	  	Form of FIRPTA Certificate	
Exhibit H	 	-	  	Form of Sublessee Estoppel Certificate	
Exhibit I	 	-	  	Form of Seller Note	
Exhibit J	 	-	  	Form of Seller Mortgage	
Exhibit K	 	-	  	Form of Guaranty	
Exhibit L	 	-	  	Form of Management Agreement	

Schedules

	 	 	  	 	
Schedule A	 	-	  	Land	
Schedule B-1	 	-	  	Personal Property	
Schedule B-2	 	-	  	Excluded Personal Property	
Schedule C-1	 	-	  	Endorsements	
Schedule C-2	 	-	  	Reinsurance Allocations	
Schedule 3.1(f)	 	-	  	Labor Agreements	
Schedule 3.2(a)	 	-	  	Material Contracts	
Schedule 3.2(b)	 	-	  	Space Leases	
Schedule 3.2(c)	 	-	  	Brokerage Commissions	
Schedule 3.2(e)	 	-	  	Litigation	
Schedule 3.2(f)	 	-	  	Schedule of Tax Proceedings	
Schedule 3.2(g)	 	-	  	Violations	
Schedule 3.2(h)	 	-	  	Rent Delinquency Report	
Schedule 3.2(i)	 	-	  	Security Deposits Held by Seller	
Schedule 3.4(c)	 	-	  	New Space Leases	
Schedule 3.4(j)	 	-	  	Form of Accounting Letter	
Schedule 8.3(a)	 	-	  	Financing Documents to be Released	
 
iv

AGREEMENT OF PURCHASE AND SALE
 
AGREEMENT OF PURCHASE AND SALE (this “Agreement”), made as of the 3rd day of April, 2003 between BRE/RANDOLPH DRIVE L.L.C., a Delaware limited liability company (“ Seller ”) and WELLS OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (“ Buyer ”).
 
Background
 
A. Seller is the owner of those certain parcels of land located in Chicago, Illinois as more particularly described on Schedule A attached hereto (the “ Land ”) together with the buildings and other improvements located on the Land commonly known as the AON Center. The Land, the Improvements (as defined below) and the Asset-Related Property (as defined below) shall be referred to herein, collectively, as the “ Asset ”.
 
B. Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, the Asset on the terms and conditions hereinafter set forth.
 
AGREEMENT
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
 
ARTICLE I
 
DEFINITIONS
 
SECTION 1.1. Defined Terms.
 
The capitalized terms used herein will have the following meanings.
 
“Additional Rent” shall have the meaning assigned thereto in subsection 10.1 (a).
 
“Agreement” shall mean this Agreement of Purchase and Sale, together with the exhibits and schedules attached hereto, as the same may be amended, restated, supplemented or otherwise modified.
 
“Asset” shall have the meaning assigned thereto in “Background” paragraph A.
 
“Asset File” shall mean the materials with respect to the Property previously delivered to Buyer or its representatives by or on behalf of Seller.
 
“Asset-Related Property” shall have the meaning assigned thereto in subsection 2.1(b).
 
“Assignment of Contracts” shall have the meaning assigned thereto in subparagraph 6.1(a)(i)(B).

“Assignment of Leases” shall have the meaning assigned thereto in subparagraph 6.1(a)(i)(A).
 
“Basket Limitation” shall mean an amount equal to $500,000.
 
“Bill of Sale” shall have the meaning assigned thereto in subparagraph 6.2(a)(i)(C).
 
“BP/DDB Downgrade” shall mean any downgrading of two levels or more by either Standard & Poor’s or Moody’s Investors Service, Inc. of the long-term unsecured senior debt credit rating of either BP Corporation North America Inc. or DDB & Needham from the credit rating existing as of the date of this Agreement.
 
“Business Day” shall mean any day other than a Saturday, Sunday or other day on which banks are authorized or required by law to be closed in New York City, New York.
 
“Buyer” shall have the meaning assigned thereto in the Preamble to this Agreement.
 
“Buyer-Related Entities” shall have the meaning assigned thereto in Section 11.1.
 
“Buyer Waived Breach” shall have the meaning assigned thereto in Section 11.3. 
 
“Buyer’s Leasing Costs” shall have the meaning assigned thereto in Section 10.8.
 
“Cap Limitation” shall mean an amount equal to $20,000,000.
 
“CDR” shall have the meaning assigned thereto in Section 3.6.
 
“CDR Notice” shall have the meaning assigned thereto in Section 3.6.
 
“Claims” shall have the meaning assigned thereto in Section 7.3.
 
“Closing” shall have the meaning assigned thereto in subsection 2.4(a).
 
“Closing Date” shall have the meaning assigned thereto in subsection 2.4(a).
 
“Closing Payment” shall have the meaning assigned thereto in Section 2.2.
 
“Closing Documents” shall mean any, certificate, instrument or other document delivered pursuant to this Agreement.
 
“Condition of the Asset” shall have the meaning assigned thereto in subsection 7 2(b).
 
“Conforming Estoppels” shall mean the Tenant Estoppels substantially in the form attached hereto as Exhibit A-1 or a tenant estoppel certificate in a form which otherwise certifies as to those matters which are specifically required to be certified by the applicable tenant pursuant to the provisions of such tenant’s Space Lease, in each case dated not earlier than
 
2

April 1, 2003 and without material modifications, without disclosed rental delinquencies except for the month in which the Tenant Estoppel is delivered or as shown on  Schedule 3.2(h),  and without any material defaults or materially adverse matters,
 
“Deed” shall have the meaning assigned thereto in subparagraph 6.2(a)(i)(A).
 
“Department” shall have the meaning assigned thereto in Section 3.5.
 
“Earnest Money” shall have the meaning assigned thereto in subsection 2.3(a).
 
“Environmental Law” shall mean any law, ordinance, rule, regulation, order, judgment, injunction or decree relating to pollution or substances or materials which are considered to be Hazardous Materials.
 
“Escrow Account” shall have the meaning assigned thereto in subsection 14.4(a).
 
“Escrow Agent” shall have the meaning assigned thereto in subsection 2.3(a).
 
“Excluded Personal Property” shall mean the items listed on Schedule B-2 attached hereto.
 
“Existing Survey” shall mean that certain survey dated December 9, 2002, prepared by Chicago Guarantee Survey Company, as updated on April 1, 2003.
 
“Fixed Rents” shall have the meaning assigned thereto in subsection 10.1 (a).
 
“Guaranty” shall have the meaning specified in subparagraph 6.1(a)(ii)(G). 
 
“Hazardous Materials” shall have the meaning assigned thereto in subsection 7.2(b)(i).
 
“Improvements” shall mean the buildings and improvements located on the Land, including the structured parking facility, elevators, escalators, built-in appliances, pumps, machinery, plumbing, heating, air conditioning and electrical and other fixtures located on the Land.
 
“IRS” shall mean the Internal Revenue Service.
 
“IRS Reporting Requirements” shall have the meaning assigned thereto in subsection 14.4(c).
 
“Labor Agreements” shall mean the agreements and contracts listed on Schedule 3.1(f).
 
“Land” shall have the meaning assigned thereto in “Background” paragraph A.
 
“Leasing Costs” shall mean, with respect to a particular Space Lease, all capital costs, expenses incurred for capital improvements, equipment, painting, decorating, partitioning and other items to satisfy the initial construction obligations of the landlord under such Space
 
3

Lease (including any expenses incurred for architectural or engineering services in respect of the foregoing), “tenant allowances” in lieu of or as reimbursements for the foregoing items, payments made for purposes of satisfying or terminating the obligations of the tenant under such Space Lease to the landlord under another lease (i.e., lease buyout costs), costs of base building work, relocation costs, temporary leasing costs, leasing commissions, brokerage commissions, legal, design and other professional fees and costs, in each case, to the extent the landlord is responsible for the payment of such cost or expense under the relevant Space Lease or any other agreement relating to such Space Lease.
 
“Losses” shall have the meaning assigned thereto in Section 11.1.
 
“Major Tenants” shall mean BP Corporation North America Inc., Kirkland & Ellis, DDB & Needham, Pricewaterhouse Coopers, Deloitte Touche Tohmatsu, Jones Lang LaSalle, and Edelman Worldwide.
 
“Management Agreement” shall mean that certain Management Agreement in the form of Exhibit L attached hereto between Buyer and Manager.
 
“Manager” shall mean BREA Property Management of Illinois L.L.C., a Delaware limited liability company.
 
“Material Casualty” shall have the meaning assigned thereto in subsection 9.2(b).
 
“Material Condemnation” shall have the meaning assigned thereto in subsection 9.2(b).
 
“Material Contracts” shall have the meaning assigned thereto in subsection 3.2(a).
 
“New Space Leases” shall have the meaning assigned thereto in Section 10.8.
 
“Ordinance” shall have the meaning assigned thereto in Section 3.6.
 
“Pedestrian Easements” shall mean the instruments referenced as exceptions 16, 20 and 24 on Schedule B of the Title Commitment.
 
“Permitted Exceptions” shall mean (i) the matters set forth in Schedule B of the Title Commitment or on the Existing Survey, but excluding any exceptions for the first installment of 2002 taxes, (ii) the Space Leases, (iii) liens for current real estate taxes which are not yet due and payable, and (iv) any title exception which is waived by Buyer pursuant to subsection 8.3(b).
 
“Person” shall mean a natural person, partnership, limited partnership, limited liability company, corporation, trust, estate, association, unincorporated association or other entity.
 
“Personal Property” shall have the meaning ascribed thereto in subsection 2.1(b)(ii).
 
4

“Property” shall mean the collective reference to the Land and Improvements.
 
“Purchase Price” shall have the meaning assigned thereto in Section 2.2.
 
“Releasees” shall have the meaning assigned thereto in Section 7.3.
 
“Rents” shall have the meaning assigned thereto in subsection 10.1 (a). 
 
“Replacement Estoppel” shall have the meaning assigned thereto in subparagraph 6.2(a)(i)(G).
 
“Reporting Person” shall have the meaning assigned thereto in subsection 14.3(c).
 
“Required Estoppels” shall have the meaning assigned thereto in subparagraph 6.2(a)(i)(G).
 
“SEC” shall have the meaning assigned thereto in subsection 3.4(j).
 
“Section 120/5j” shall have the meaning assigned thereto in Section 3.5.
 
“Seller” shall have the meaning assigned thereto in the Preamble to this Agreement.
 
“Seller Estoppels” shall have the meaning assigned thereto in subparagraph 6.2(a)(i)(G).
 
“Seller Loan Documents” shall mean the Seller Note, the Seller Mortgage and the Guaranty.
 
“Seller Mortgage” shall have the meaning assigned thereto in Section 2.2.
 
“Seller Mortgage Policy” shall have the meaning assigned thereto in subparagraph 6.1(a)(ii)(F).
 
“Seller Note” shall have the meaning assigned thereto in Section 2.2.
 
“Seller-Related Entities” shall have the meaning assigned thereto in Section 11.2.
 
“Seller’s Knowledge” shall mean the actual knowledge of Seller based upon the actual knowledge of Marshall Findley, Steven E. Orbuch, Roxanne Osborne and Michael Corbin without any duty on the part of any such officers or other Persons to conduct any independent investigation or make any inquiry of any Person.
 
“Seller’s Leasing Costs” shall have the meaning assigned thereto in Section 10.8.
 
“Space Lease” shall have the meaning assigned thereto in subsection 3.2(b).
 
“stop order” shall have the meaning assigned thereto in Section 3.5.
 
5

“Sublessee Estoppel” shall have the meaning assigned thereto in subsection 3.4(l).
 
“Tenant Estoppel” shall have the meaning assigned thereto in subsection 3.4(h).
 
“Tenant Material Adverse Change” means any material adverse change (as compared to conditions existing as of the date of this Agreement) affecting (a) the financial condition of any Major Tenant and its subsidiaries, taken as a whole, and (b) the ability of any Major Tenant to perform its obligations under its Space Lease; provided, however, that this definition shall exclude any material adverse change attributable to or resulting from:
 
(i) any generally applicable change in law or accounting standards or any interpretation thereof;
 
(ii) conditions generally affecting the business or industry in which such Major Tenant operates (including economic, legal and regulatory changes);
 
(iii) general economic or political conditions, events or circumstances affecting the U.S. or global financial markets generally;
 
(iv) any outbreak or escalation of hostilities or act of terrorism;
 
(v) any declaration of war, or any other international calamity or emergency or any escalation thereof; and
 
(vi) any qualification of such Major Tenant’s auditors report on such Major Tenant’s financial statements flowing from any of the foregoing.
 
“Tenant Notices” shall have the meaning assigned thereto in subparagraph 6.1(a)(i)(C).
 
“Title Commitment” shall mean that certain pro forma title policy issued by the Title Company on March 25, 2003 and referred to as order number 1401 008065343.
 
“Title Company” shall mean Chicago Title Insurance Company acting through its authorized agent Title Associates, Inc.
 
“Title Policy” shall mean an owner’s title insurance policy issued by the Title Company insuring Buyer’s title to the Property subject only to the Permitted Exceptions, in an amount equal to the Purchase Price, providing for extended coverage, containing the endorsements set forth on Schedule  C-1  attached hereto, and including reinsurance from the title insurance companies and in the amounts specified on Schedule C-2  attached hereto, pursuant to ALTA facultative reinsurance agreements permitting direct access by the insured to the reinsurers.
 
“UCC” shall mean the Uniform Commercial Code.
 
6

ARTICLE II
 
SALE, PURCHASE PRICE AND CLOSING
 
SECTION 2.1. Sale of Asset.
 
(a) On the Closing Date and pursuant to the terms and subject to the conditions set forth in this Agreement, Seller shall sell to Buyer, and Buyer shall purchase from Seller, the Asset.
 
(b) The transfer of the Asset to Buyer shall include the transfer of all Asset-Related Property. For purposes of this Agreement, “ Asset-Related Property ” shall mean all of Seller’s right, title and interest in and to the following:
 
(i) all easements, covenants and other rights appurtenant to the Property, including all water rights, mineral rights, development rights, air rights and reversions, and all right, title and interest of Seller, if any, in and to any land lying in the bed of any street, road, avenue or alley, open or closed, in front of or adjoining the Property and to the center line thereof;
 
(ii) all personal property listed on the attached Schedule B-1 and all furniture, fixtures, equipment, tools, supplies, artwork, plants, furnishings and other personal property owned by Seller which are now, or may hereafter prior to the Closing Date be, placed in or attached to the Property and are used in connection with the operation of the Property (but not including items owned or leased by tenants or which are leased by Seller) (collectively, the “ Personal Property ”) provided however, that the Personal Property shall not include the Excluded Personal Property;
 
(iii) to the extent they may be transferred under applicable law, all licenses, permits, certificates of occupancy and authorizations presently issued in connection with the construction, occupancy, use and operation of all or any part of the Property and Personal Property;
 
(iv) to the extent assignable, all warranties, if any, issued to Seller by any manufacturer or contractor (or otherwise assigned to Seller by any Person) in connection with (A) the Personal Property and (B) the construction or installation of equipment or any component of the improvements included as part of the Property;
 
(v) to the extent assignable, all service, supply and maintenance contracts, if any, held by Seller with respect to the Property and its mechanical equipment, elevators and other elements, but excluding any employment or collective bargaining agreement, if any;
 
(vi) all leases, licenses, contracts and other agreements, to the extent transferable, for the use and occupancy of all or any part of the Property, including any guarantees thereof, and all security and escrow deposits held by Seller in connection with any such leases, licenses, contracts and other agreements;
 
7

(vii) all books and records, tenant files, tenant lists and tenant marketing information relating to the Property;
 
(viii) the plans and specifications, engineering drawings and prints with respect to the Improvements, all operating manuals, and all books, data and records regarding the physical components systems of the Improvements; and
 
(ix) all other intangibles associated with the Property, including, without limitation, goodwill, all logos, designs, trademarks and tradenames related to the Property (expressly excluding the name “AON”), and all telephone exchange numbers identified with the Property.
 
SECTION 2.2. Purchase Price.
 
Subject to adjustments as provided in Article X, the consideration for the purchase of the Asset shall be $465,150,000 (the “Purchase Price ”), which shall be paid by Buyer at the Closing as follows: (a) by payment of $350,000,000 (the “ Closing Payment ”) in immediately available funds by wire transfer to such accounts or accounts that Seller shall designate to Buyer and Escrow Agent, provided that such amount shall be reduced by the Earnest Money, (b) by execution and delivery of a promissory note in the form of Exhibit I attached hereto (the “ Seller Note ”), in the principal amount of $115,150,000. The Seller Note shall be secured by a mortgage on the Property pursuant to the terms of the Seller Mortgage in the form of Exhibit J attached hereto (the “ Seller Mortgage ”). The Purchase Price shall be subject to no adjustment of any kind except as expressly set forth herein.
 
SECTION 2.3. Earnest Money.
 
(a) Upon execution of this Agreement, Buyer shall deposit with Chicago Title Insurance Company, as escrow agent (in such capacity, “ Escrow Agent ”), an amount equal to $5,000,000 (together with all accrued interest thereon, the “ Earnest Money ”) in immediately available funds by wire transfer to such account as Escrow Agent shall designate to Buyer.
 
(b) The Earnest Money, upon delivery by Buyer to Escrow Agent, will be deposited by Escrow Agent in an interest-bearing account acceptable to Buyer and Seller and shall be held in escrow in accordance with the provisions of Section 14.4. All interest earned on the Earnest Money while held by Escrow Agent shall be paid to the party to whom the Earnest Money is paid, except that if the Closing occurs, Buyer shall receive a credit for such interest in accordance with Section 2.2.
 
SECTION 2.4. The Closing.
 
(a) The closing of the sale and purchase of the Asset (the “Closing”) shall take place on April 30, 2003 (the “Closing Date ”).
 
(b) The Closing shall be held on the Closing Date at 10:00 A.M. at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York, or at such other location agreed upon by the parties hereto.
 
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(c) Notwithstanding the foregoing, there shall be no requirement that Seller and Buyer physically attend the Closing, and all funds and documents to be delivered at the Closing may be delivered to Escrow Agent unless the parties hereto mutually agree otherwise. Buyer and Seller hereby authorize their respective attorneys to execute and deliver to Escrow Agent any additional or supplementary instructions as may be necessary or convenient to implement the terms of this Agreement and facilitate the closing of the transactions contemplated hereby, provided that such instructions are consistent with and merely supplement this Agreement and shall not in any way modify, amend or supersede this Agreement.
 
ARTICLE III
 
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
 
SECTION 3.1. General Seller Representations and Warranties. Seller hereby represents and warrants to Buyer as follows:
 
(a) Formation; Existence. It is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Delaware.
 
(b) Power and Authority. It has all requisite power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement, the sale of the Asset, and the consummation of the transactions provided for in this Agreement have been duly authorized by all necessary action on its part. This Agreement has been duly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights and by general principles of equity (whether applied in a proceeding at law or in equity).
 
(c) No Consents. Except for any consent, license, approval, order, permit, authorization, registration, filing or declaration, the failure of which to obtain will not materially adversely effect (i) Seller’s ability to consummate the transactions contemplated by this Agreement, (ii) the ownership of the Asset or (iii) the operation of the Property, no consent, license, approval, order, permit or authorization of, or registration, filing or declaration with, any court, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, is required to be obtained or made in connection with the execution, delivery and performance of this Agreement or any of the transactions required or contemplated hereby.
 
(d) No Conflicts. The execution, delivery and compliance with, and performance of the terms and provisions of, this Agreement, and the sale of the Asset, will not (i) conflict with or result in any violation of its organizational documents, (ii) conflict with or result in any violation of any provision of any bond, note or other instrument of indebtedness, contract, indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party in its individual capacity, or (iii) violate any existing term or provision of any order, writ, judgment, injunction, decree, statute, law, rule or regulation applicable to it or its assets or properties.
 
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(e) Foreign Person. Seller is not a “foreign person” as defined in Internal Revenue Code Section 1445 and the regulations issued thereunder.
 
(f) Employees. There are no employment, collective bargaining or similar agreements or arrangements between Seller and any of its employees or between Seller and any labor union. Manager is a party to the collective bargaining or similar agreements or arrangements set forth on Schedule 3.1(f) .
 
SECTION 3.2. Representations and Warranties of Seller as to the Asset. Seller hereby represents and warrants to Buyer as follows:
 
(a) Material Contracts. To Seller’s Knowledge, Schedule 3.2(a) attached hereto, together with Schedule 3.1(f), contains a complete and accurate list and description of all material maintenance, supply, construction, development, management and service agreements which are in effect, except to the extent set forth on  Schedule 3.2(a)  or  Schedule 3.1(f) , and which relate to the operation, maintenance, management, construction or development of the Property (the “ Material Contracts ”). Seller has not received any written notice of Seller’s or Manager’s default or failure to comply with the terms and provisions of the Material Contracts. True and complete copies of the Material Contracts have been delivered to Buyer.
 
(b) Space Leases. As of the date hereof, the leases listed on Schedule 3.2(b) attached hereto (the “Space Leases”), (i) constitute all the leases relating to the Property under which Seller is the holder of the landlord’s interest, (ii) have not been modified except as stated in Schedule 3.2(b) , (iii) contain the entire agreement between the relevant landlord and the tenants named therein and (iv) except as set forth in  Schedule 3.2(b) , fixed rent and additional rent are currently being collected under such Space Leases without offset, counterclaim or deduction. Except for Seller’s assignment of the Space Leases for the benefit of the holder(s) of the existing mortgage encumbering the Property, if any, which mortgage shall be cancelled by Seller at Closing, Seller has not assigned, conveyed, pledged or encumbered any of Seller’s interest in the Space Leases or right to receive rents payable thereunder to any Person. Seller has not received any written notice of Seller’s default or failure to comply with the terms and provisions of the Space Leases which remain uncured. True and complete copies of the Space Leases have been delivered to Buyer. If any Space Lease, so delivered, contains provisions that are inconsistent with the foregoing representations and warranties, such representations and warranties shall be deemed modified to the extent necessary to eliminate such inconsistencies and to conform such representations and warranties to the provisions of the Space Leases.
 
(c) Brokerage Commissions. There are no unpaid brokerage commissions or finders’ fees payable by the landlord with respect to the current or any renewal term of any of the Space Leases other than those set forth on  Schedule 3.2(c)  attached hereto and Seller has no agreement with any broker with respect to any renewal term of any Space Lease or expansion of space leased thereunder except as set forth in  Schedule 3.2(c) .
 
(d) Condemnation. As of the date hereof, Seller has not received any written notices of any pending condemnation or similar proceedings affecting the Property, and, to Seller’s knowledge, no such action is threatened or contemplated.
 
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(e) Litigation. As of the date of this Agreement, except for an audit being conducted of Seller’s federal income tax returns for the tax year ending December 31, 1998 and as disclosed in  Schedules 3.2(e)-(g)  attached hereto, there are no actions, suits or proceedings pending against or affecting the Asset or Seller’s interest therein in any court or before or by an arbitration tribunal or regulatory commission, department or agency. All of the matters set forth on  Schedule 3.2(e)  have been tendered by Seller to its insurance carrier and Seller has not received any denial of coverage claims with respect thereto from such carriers.
 
(f) Taxes and Assessments. Except as disclosed in Schedule 3.2(f) attached hereto, and except with respect to matters which have been resolved or dropped, Seller has not filed, and has not retained anyone to file, notices of protest against, or to commence action to review, protest or contest real property tax assessments against the Property or the Personal Property.
 
(g) Compliance with Governmental Requirements. Except as disclosed in Schedule 3.2(g) attached hereto, Seller has not received any written notice alleging any violations of law (including Environmental Laws), municipal or county ordinances, or other legal requirements with respect to the Asset that have not heretofore been corrected.
 
(h) Delinquency Report. Attached hereto as Schedule 3.2(h) is a true and complete report setting forth as of the date of this Agreement, all arrearages in excess of 30 days under the Space Leases.
 
(i) Security Deposits. Attached hereto as Schedule 3.2(i) is a true and complete list of the security deposits (whether in the form of cash, letters of credit or otherwise) under the Space Leases being held by Seller.
 
(j) Permitted Exceptions. Seller has not received any written notice of a violation or breach by Seller of any of the obligations of Seller under the Pedestrian Easements or the instruments referenced as exceptions 21 and 25 on Schedule B of the Title Commitment which violation or breach remains uncured or outstanding.
 
SECTION 3.3. Limitations on Representations and Warranties of Seller. Except as set forth in subsection 5.2(g), if the representations or warranties relating to the Space Leases set forth in subsection 3.2(b) and the status of the tenants thereunder contained herein were true and correct as of the date of this Agreement, no change in circumstances or status of the tenants (e.g., tenant defaults, bankruptcies, or other adverse matters relating to a tenant) occurring after the date hereof, shall permit Buyer to terminate this Agreement or constitute grounds for Buyer’s failure to close.
 
SECTION 3.4. Covenants of Seller Prior to Closing. From the date hereof until Closing or earlier termination of this Agreement, Seller or Seller’s agents shall:
 
(a) Operation. Own, operate and maintain the Asset substantially in accordance with Seller’s past practices with respect to the Asset.
 
(b) New Contracts. Without the prior written consent of Buyer, which consent shall not be unreasonably withheld or delayed, not enter into any third party contracts;

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provided that Seller may enter into third party contracts without Buyer’s consent if such contract (i) is necessary as a result of an emergency at the Property, (ii) does not require the payment of more than $10,000 in any calendar year and is terminable by Seller or its successor-in-interest upon not more than 30 days notice to the contractor or (iii) is entered into in the course of customary maintenance and repairs at the Property and is terminable by Seller or its successor-in-interest upon not more than 30 days notice to the contractor. If Seller enters into any third party contracts after the date of this Agreement, then Seller shall promptly provide written notice and a copy thereof to Buyer and unless such contract required Buyer’s approval pursuant to this paragraph and such approval was not obtained, Buyer shall assume at Closing the Seller’s obligations first arising or accruing under such contracts after the Closing, and the schedule of contracts attached to the Assignment of Contracts shall be so modified, and such contract shall be deemed added to  Schedule 3.2(a)  attached hereto and  Schedule 3.2(a)  shall be deemed amended at the Closing to include such contracts. If a new contract requires Buyer’s approval and Buyer does not object within seven days after receipt of a copy of such contract and a request for approval thereof (stating that Buyer’s failure to object will be deemed to be its approval of the contract), then Buyer shall be deemed to have approved such contract.
 
(c) New Space Leases.
 
(i) Continue its present rental program and efforts at the Property to rent vacant space, provided that, without the prior consent of Buyer, Seller shall not execute any new lease or amend, terminate or accept the surrender of any existing tenancies or approve any subleases except that Seller is authorized to (A) accept the termination of Space Leases at the end of their existing terms, (B) enter into any leases listed on  Schedule 3.4(c)  and (C) amend, extend, renew, or terminate or take an assignment of any Space Lease listed on  Schedule 3.4(c) ; provided that in the case of clauses (B) and (C) such leases, or amendments, extensions, renewals, terminations, or assignments of such Space Leases, are on the same material terms, for the specified space in the Property, with the same tenants as listed on  Schedule 3.4(c) . If a new lease or an amendment, renewal or extension of an existing Space Lease requires Buyer’s consent and Buyer does not object within seven days after receipt of a copy of such lease, amendment, extension or renewal and a request for approval thereof (stating that Buyer’s failure to object will be deemed to be its approval of such lease or amendment), then Buyer shall be deemed to have approved such lease or amendment.
 
(ii) If Seller enters into any leases after the date of this Agreement, then unless such lease required Buyer’s approval pursuant to this paragraph and such approval was not obtained, Buyer shall assume at Closing, Seller’s obligations first arising or accruing under such lease after the Closing and the schedule of Space Leases attached to the Assignment of Leases shall be so modified, and such lease shall be deemed added to  Schedule 3.2(b)  attached hereto and  Schedule 3.2(b)  shall be deemed amended at the Closing to include such lease.
 
(d) Litigation. Advise Buyer of any litigation, arbitration proceeding or administrative hearing (including condemnation) before any governmental agency which affects the Asset in any material respect, which is instituted after the date of this Agreement promptly
 
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after becoming aware of the same and make available to Buyer, upon request, any pleadings with respect to the matters set forth on Schedule 3.2(e).
 
(e) Insurance. Keep the Property and Personal Property insured against fire and other hazards in such amounts and under such terms as Seller deems advisable, but in any event with scope of coverage and limits of liability at least equal to Seller’s insurance currently in force as of the date of this Agreement.
 
(f) Sale of Personal Property. Not transfer or dispose of, or permit to be sold, transferred or otherwise disposed of, any item or group of items constituting Personal Property, except for the use and consumption of inventory, office and other supplies and spare parts, and the replacement of worn out, obsolete and defective tools, equipment and appliances, in the ordinary course of business. Seller will maintain its levels of inventory, office and other supplies and spare parts consistent with its past practices with respect to the Asset.
 
(g) Performance Under Space Leases and Material Contracts. Perform, or cause its agents to perform, in all material respects, all obligations of landlord or lessor under the Space Leases and all obligations of owner (or lessee in the case of equipment leases) under the Material Contracts. Seller shall not credit any portion of the security deposits against defaults or delinquencies of the tenants under the Space Leases. Seller also shall not draw upon any letters of credit given to Seller by any tenants under the Space Leases without the prior written consent of Buyer, which consent shall not be unreasonably withheld.
 
(h) Tenant Estoppels. Within seven Business Days following the date hereof, prepare and deliver to all tenants under the Space Leases, an estoppel certificate in the form of  Exhibit A-1  attached hereto (the “ Tenant Estoppel ”) and request each such tenant to execute and deliver the Tenant Estoppel to Seller. Seller shall use commercially reasonable efforts to obtain the executed Tenant Estoppels in substantially the same form as Exhibit A-1  from such tenants (without the obligation to incur any material cost or liability in connection with such efforts or making any payments or granting any concessions under the Space Leases and without the obligation to declare any tenants in default under the Space Leases or to initiate any proceeding thereunder). Other than as set forth in subparagraph 6.2(a)(i)(G), the receipt of any Tenant Estoppel or any matter raised in any Tenant Estoppel shall not be a condition to Buyer’s obligation to close and shall not constitute grounds to refuse to close;  provided ,  however  the foregoing shall not be deemed a waiver of the condition precedent set forth in Section 5.2(a). If a tenant returns an executed Tenant Estoppel to Seller, Seller shall deliver to Buyer a copy of such executed Tenant Estoppel promptly following Seller’s receipt of such Tenant Estoppel.
 
(i) Further Encumbrance. Not grant or otherwise create or consent to the creation of any easement, restriction, lien or encumbrance without the prior written consent of Buyer.
 
(j) Cooperation with Buyer’s Auditors and SEC Filing Requirements. Cooperate (at no cost to Seller) with Buyer to provide Buyer access to such factual information concerning the operation of the Property as may be reasonably requested by Buyer, and in the possession or control of Seller, or its property manager or accountants, to enable Buyer (or Wells Real Estate Investment Trust, Inc.) to file its or their Form 8-K, if, as and when such filing may

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be required by the Securities and Exchange Commission (“SEC”). At Buyer’s sole cost and expense, Seller shall allow Buyer’s auditor (Ernst & Young or any successor auditor selected by Buyer) to conduct an audit of the income statements of the Property for the year of Closing (to the date of Closing) and the two prior years, and shall cooperate (at no cost to Seller) with Buyer’s auditor in the conduct of such audit and in connection with such audit deliver to Buyer’s auditor a representation letter in the form attached hereto as  Schedule 3.4(j) . Without limiting the foregoing, Buyer or its designated independent or other auditor may audit Seller’s operating statements of the Property, at Buyer’s expense; provided, however, that the foregoing obligations of Seller under this subsection shall be limited to providing such information or documentation as may be in the possession of, or reasonably obtainable by, Seller, its property manager or accountants, at no cost to Seller, and in the format that Seller (or its property manager or accountants) have maintained such information. The obligations of Seller under this subsection 3.4(j) shall survive the Closing.
 
(k) Pedestrian Easement Estoppels. Cooperate with Buyer to obtain estoppel certificates from the parties other than Seller to the Pedestrian Easements in a form prepared by Buyer;  provided ,  however  the receipt of any such estoppel certificates shall not be a condition to Buyer’s obligation to close and the failure to obtain such estoppels shall not constitute grounds to refuse to close.
 
(l) Aon Estoppel. Within seven Business Days following the date hereof, prepare and deliver to Aon Corporation, as sublessee under a Sublease Agreement between BP Amoco Corporation and Aon Corporation, an estoppel certificate in the form of  Exhibit H  attached hereto (the “ Sublessee Estoppel ”) and request Aon Corporation to execute and deliver the Sublessee Estoppel to Seller. Seller shall use commercially reasonable efforts to obtain the executed Sublessee Estoppel in substantially the form of  Exhibit H  from Aon Corporation (without the obligation to incur any material costs or liability in connection with such efforts or making any payments or granting any concessions to BP Corporation North America Inc. or Aon Corporation and without the obligation to declare any default or to initiate any proceeding under the Space Lease with BP Corporation North America Inc.). The receipt of the Sublessee Estoppel from Aon Corporation or any matter raised in the Sublessee Estoppel shall not be a condition to Buyer’s obligation to close and shall not constitute grounds to refuse to close. If Aon Corporation returns the executed Sublessee Estoppel to Seller, Seller shall deliver to Buyer a copy of such executed Sublessee Estoppel promptly following Seller’s receipt of such Sublessee Estoppel.
 
SECTION 3.5. Bulk Sales Notice to Illinois Department of Revenue. Within ten days after the date hereof, Seller shall give written notice to the Illinois Department of Revenue (“ Department ”) of the intended sale of the Property and request the Department to make a determination as to whether Seller has an assessed, but unpaid, amount of tax, penalties, or interest under the Illinois Retailer’s Occupation Tax Act, Section 120/5j (“ Section 120/5j ”). At Closing, Seller shall furnish to Buyer either (a) a copy of the stop order from the Department setting forth the amount, if any, to be withheld (“ stop order ”) or (b) reasonable evidence that Seller gave the notice herein required within the time period required by Section 120/5j and a certificate from Seller that no response to such notice was received within the time period required by Section 120/5j. Seller agrees that Buyer may, at Closing, deduct and withhold from the proceeds that are due Seller the amount necessary to comply with the withholding

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requirements imposed by Section 120/5j. At Closing, Buyer shall deposit the amount so withheld in escrow with the Escrow Agent pursuant to terms and conditions reasonably acceptable to Seller and Buyer, but in any event, complying with Section 120/5j. When Seller delivers to Buyer and the Escrow Agent a letter, certificate or receipts from the Department showing (a) all taxes, penalties and interest have been paid by Seller, (b) no such taxes, penalties and interest are due from Seller, or (c) 60 days has passed after the issuance of the initial stop order to withhold and the Department has failed to provide the written notice to Buyer as required by Section 120/5j, then the amount, if any, withheld at Closing shall be immediately paid to Seller.
 
SECTION 3.6. Bulk Sales Notice to Chicago Department of Revenue. Within ten days after the date hereof, Seller shall give written notice to the City of Chicago Department of Revenue (“ CDR ”) of the intended sale of the Property setting forth all of the information required pursuant to Chicago Municipal Code Section 3-4-140 (the “ Ordinance ”). At Closing, Seller shall furnish to Buyer either (a) a copy of the notice from the CDR setting forth the amount, if any, required to be withheld “ CDR Notice ”) or (b) a statement that the CDR Notice has not been received. Seller agrees that, if the CDR Notice has been received, Buyer may, at Closing, deduct and withhold from the proceeds that are due Seller the amount necessary to comply with the withholding requirements imposed by the Ordinance. At Closing, Buyer shall deposit the amount so withheld in escrow with the Escrow Agent pursuant to terms and conditions acceptable to Seller and Buyer, but in any event, complying with the Ordinance. When Seller delivers to Buyer and the Escrow Agent a letter, certificate or receipts from the CDR showing (a) all taxes, penalties and interest have been paid by Seller or (b) no such taxes, penalties and interest are due from Seller, then the amount, if any, withheld at Closing shall be immediately paid to Seller.
 
Notwithstanding the foregoing, issuance of a CDR Notice from the CDR shall not be a condition precedent to Closing. If Seller does not provide the CDR Notice at Closing, Seller agrees to indemnify and hold Buyer harmless from and against any and all losses, costs, claims, causes of action, damages, and expenses including court costs and reasonable attorney’s fees, which directly arise out of (i) Seller’s failure to give the notice of sale as required in this Section 3.6 to the CDR informing them of the transactions contemplated herein within the time period required under the Ordinance or (ii) the failure to withhold any amounts that would have been required to be withheld pursuant to any CDR Notice issued after Closing. The indemnification provision of this Section 3.6 shall survive the Closing until the earlier of (a) receipt of the CDR Notice not furnished at Closing and deposit by Seller of the amount, if any, required to be withheld pursuant thereto with the Escrow Agent, (b) the time period for the CDR to provide a CDR Notice has passed, or (c) Seller furnishes evidence from the CDR of payment of the liabilities required to be paid by Seller pursuant to the Ordinance.
 
ARTICLE IV
 
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER
 
SECTION 4.1. Representations and Warranties of Buyer. Buyer hereby represents and warrants to Seller as follows:
 
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(a) Formation; Existence. Buyer is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware.
 
(b) Power; Authority. Buyer has all requisite power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement, the purchase of the Asset and the consummation of the transactions provided for herein have been duly authorized by all necessary action on the part of Buyer. This Agreement has been duly executed and delivered by Buyer and constitutes the legal, valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights and by general principles of equity (whether applied in a proceeding at law or in equity).
 
(c) No Consents. No consent, license, approval, order, permit or authorization of, or registration, filing or declaration with, any court, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, is required to be obtained or made in connection with the execution, delivery and performance of this Agreement or any of the transactions required or contemplated hereby.
 
(d) No Conflicts. The execution, delivery and compliance with, and performance of the terms and provisions of, this Agreement, and the purchase of the Asset, will not (i) conflict with or result in any violation of its organizational documents, (ii) conflict with or result in any violation of any provision of any bond, note or other instrument of indebtedness, contract, indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party in its individual capacity, or (iii) violate any existing term or provision of any order, writ, judgment, injunction, decree, statute, law, rule or regulation applicable to it or its assets or properties.
 
ARTICLE V
 
CONDITIONS PRECEDENT TO CLOSING
 
SECTION 5.1. Conditions Precedent To Seller’s Obligations. The obligation of Seller to consummate the transfer of the Asset to Buyer on the Closing Date is subject to the satisfaction (or waiver) by Seller as of the Closing of the following conditions:
 
(a) Each of the representations and warranties made by Buyer in this Agreement shall be true and correct in all material respects when made and on and as of the Closing Date as though such representations and warranties were made on and as of the Closing Date.
 
(b) Buyer shall have performed or complied in all material respects with each obligation and covenant required by this Agreement to be performed or complied with by Buyer on or before the Closing.
 
(c) No order or injunction of any court or administrative agency of competent jurisdiction nor any statute, rule, regulation or executive order promulgated by any governmental
 
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authority of competent jurisdiction shall be in effect as of the Closing which restrains or prohibits the transfer of the Asset or the consummation of any other transaction contemplated hereby.
 
(d) No action, suit or other proceeding shall be pending which shall have been brought by any Person (other than the parties hereto and their affiliates) (i) to restrain, prohibit or change in any material respect the purchase and sale of the Asset or the consummation of any other transaction contemplated hereby or (ii) seeking material damages with respect to such purchase and sale or any other transaction contemplated hereby.
 
(e) Seller shall have received all of the documents required to be delivered by Buyer under subsection 6.1(a).
 
(f) Seller shall have received the Purchase Price in accordance with Section 2.2 and all other amounts then due to Seller hereunder.
 
SECTION 5.2. Conditions to Buyer’s Obligations. The obligation of Buyer to purchase and pay for the Asset is subject to the satisfaction (or waiver by Buyer) as of the Closing of the following conditions:
 
(a) Each of the representations and warranties made by Seller in this Agreement shall be true and correct in all material respects when made and on and as of the Closing Date as though such representations and warranties were made on and as of Closing Date.
 
(b) Seller shall have performed or complied in all material respects with each obligation and covenant required by this Agreement to be performed or complied with by Seller on or before the Closing.
 
(c) No order or injunction of any court or administrative agency of competent jurisdiction nor any statute, rule, regulation or executive order promulgated by any governmental authority of competent jurisdiction shall be in effect as of the Closing which restrains or prohibits the transfer of the Asset or the consummation of any other transaction contemplated hereby.
 
(d) No action, suit or other proceeding shall be pending which shall have been brought by any Person (other than the parties hereto and their affiliates) (i) to restrain, prohibit or change in any material respect the purchase and sale of the Asset or the consummation of any other transaction contemplated hereby or (ii) seeking material damages with respect to such purchase and sale or any other transaction contemplated hereby.
 
(e) Title to the Property shall be delivered to Buyer in the manner required under Section 8.1 and the Title Company is prepared, upon payment of the policy premium (including the premiums for endorsements set forth on Schedule C-1 attached hereto), to issue to Buyer upon the Closing the Title Policy.
 
(f) Buyer shall have received all of the documents required to be delivered by Seller under subsection 6.2(a).
 
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(g) There shall have been no Tenant Material Adverse Change or BP/DDB Downgrade.
 
ARTICLE VI
 
CLOSING DELIVERIES
 
SECTION 6.1. Buyer Closing Deliveries.
 
(a) Buyer shall deliver the following documents at Closing:
 
(i) with respect to the Asset:
 
(A) an assignment and assumption of Seller’s interest in the leases (an “Assignment of Leases”) duly executed by Buyer in substantially the form of  Exhibit B  attached hereto;
 
(B) an assignment and assumption of the contracts (an “Assignment of Contracts”) duly executed by Buyer in substantially the form of  Exhibit C  attached hereto;
 
(C) notice letters (“Tenant Notices”) duly executed by Buyer, in substantially the form of Exhibit D attached hereto; and
 
(D) the Management Agreement duly executed by Buyer.
 
(ii) with respect to the transactions contemplated hereunder:
 
(A) such other assignments, instruments of transfer, and other documents as Seller may reasonably require in order to complete the transactions contemplated hereunder or to evidence compliance by Buyer with the covenants, agreements, representations and warranties made by it hereunder, in each case, duly executed by Buyer;
 
(B) a duly executed and sworn Secretary’s Certificate from Buyer (or the general partners of Buyer, where appropriate) certifying that Buyer has taken all necessary action to authorize the execution of all documents being delivered hereunder (including the Seller Loan Documents) and the consummation of all of the transactions contemplated hereby and that such authorization has not been revoked, modified or amended;
 
(C) an executed and acknowledged incumbency certificate from Buyer (or the general partners of Buyer, where appropriate) certifying the authority of the officers of Buyer (or the general partner of Buyer, where appropriate) to execute this Agreement and the other documents delivered by Buyer to Seller at the Closing;
 
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(D) all transfer tax returns which are required by law and the regulations issued pursuant thereto in connection with the payment of all state or local real property transfer taxes that are payable or arise as a result of the consummation of the transactions contemplated by this Agreement, in each case, as prepared by Seller and duly executed by Buyer;
 
(E) the Seller Note and the Seller Mortgage, duly executed by Buyer and evidence that a counterpart of the Seller Mortgage has been delivered to the Title Company, in the reasonable judgment of Seller, so as to effectively create upon recording a valid and enforceable lien upon the Property, of the requisite priority in favor of Seller, subject only to the matters set forth in the Title Commitment;
 
(F) a lender’s title insurance policy issued by the Title Company dated as of the Closing Date, in the same form and containing such affirmation coverages and endorsements as the pro forma lender’s policy issued by the Title Company on March 25, 2003 and referred to as order number 1401 008065343, insuring Seller’s interest in the Seller Mortgage (the “ Seller Mortgage Policy ”) together with evidence that all premiums of such Seller Mortgage Policy have been paid;
 
(G) the Guaranty, in the form of Exhibit K attached hereto (the “Guaranty”) duly executed by Wells Operating Partnership, L.P.;
 
(H) opinions of Buyer’s counsel with respect to due execution, authority, enforceability of the Seller Loan Documents and such other matters as Seller may require, all such opinions in form, scope and substance reasonably satisfactory to Seller and Seller’s counsel; and
 
(I) such other and further approvals, opinions, documents and information as Seller or its counsel may have reasonably requested in connection with the Seller Loan Documents (e.g. insurance certificates).
 
SECTION 6.2. Seller Closing Deliveries.
 
(a) Seller shall deliver the following documents at Closing:
 
(i) with respect to the Asset:
 
(A) a special warranty deed (a “Deed”) in substantially the form of Exhibit E duly executed by Seller. In the event the legal description set forth in the updated survey differs from the legal description set forth on  Schedule A  attached hereto, Seller shall also execute and deliver to Buyer a quitclaim deed containing a legal description based upon such updated survey;
 
(B) an Assignment of Leases duly executed by Seller;

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(C) a bill of sale (a “Bill of Sale”) duly executed by Seller in substantially the form of Exhibit F hereto, relating to the Personal Property, together with such documents as required by Illinois law necessary to transfer title to the van listed on Schedule B-1;
 
(D) an Assignment of Contracts duly executed by Seller;
 
(E) the Tenant Notices duly executed by Seller; such Tenant Notices shall be delivered by Buyer to each tenant and other such entity promptly following Closing;
 
(F) an affidavit that Seller is not a “foreign person” within the meaning of the Foreign Investment in Real Property Tax Act of 1980, as amended, in substantially the form of  Exhibit G  hereto;
 
(G) Conforming Estoppels from (i) each of the Major Tenants and (ii) tenants which, together with the Major Tenants, occupy at least 85%, in the aggregate, of the leased floor area in the Improvements (collectively, the “ Required Estoppels ”); provided however , in the event that Seller is unable to deliver all of the Required Estoppels at the Closing, Seller shall have the right (in its sole and absolute discretion, with no obligation) to deliver certificates executed by Seller substantially in the form attached as Exhibit A-2  hereto (the “ Seller Estoppels ”), which shall be dated as of the Closing Date and shall count towards the Required Estoppels;  provided  further that Seller shall not be entitled to deliver Seller Estoppels for the Major Tenants or for tenants occupying more than 10% of the leased floor area of the Improvements; and  provided  further that if at any time, on or after the Closing, Seller delivers a Conforming Estoppel with respect to a Space Lease for which Seller previously delivered a Seller Estoppel (a “ Replacement Estoppel ”), the Replacement Estoppel shall supersede and replace the Seller Estoppel and Seller shall have no further liability under the applicable Seller Estoppel. Buyer’s closing condition as set forth in this subparagraph shall be deemed satisfied and irrevocably waived by Buyer with respect to a Required Estoppel from a particular tenant if an estoppel certificate from such tenant has been delivered to Buyer and Buyer does not object in a written notice to Seller specifying Buyer’s objections to the form of such estoppel certificate within five Business Days after receipt thereof by Buyer;
 
(H) copies and if available, originals of the Space Leases referred to in the Assignment of Leases, together with all guarantees thereof, any letters of credit issued with respect to such Space Leases, and all tenant files, tenant lists and tenant marketing information relating to the Property and all of the keys to doors or locks on the Property, which delivery may be satisfied by delivery of the on-site property management office at the Property to the extent such items are locate therein;
 
(I) a rent delinquency report updated to the date of Closing;
 
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(J) a settlement statement prepared by Seller setting forth the amounts paid by or on behalf of or credited to each of Buyer and Seller pursuant to this Agreement, together with such other information as may be provided by Buyer with respect to other expenses of Buyer which are being paid through the escrow established for Closing;
 
(K) the seller certification and plat act affidavit required by the Title Company; and
 
(L) the Management Agreement duly executed by Manager.
 
(ii) with respect to the transactions contemplated hereunder:
 
(A) such other assignments, instruments of transfer, and other documents as Buyer may reasonably require in order to complete the transactions contemplated hereunder or to evidence compliance by Seller with the covenants, agreements, representations and warranties made by it hereunder, in each case, duly executed by Seller;
 
(B) a duly executed and sworn Secretary’s Certificate from Seller certifying that Seller has taken all necessary action to authorize the execution of all documents being delivered hereunder and the consummation of all of the transactions contemplated hereby and that such authorization has not been revoked, modified or amended;
 
(C) an executed and acknowledged incumbency certificate from Seller certifying the authority of the officers of Seller to execute this Agreement and the other documents delivered by Seller to Buyer at the Closing; and
 
(D) all transfer tax returns which are required by law and the regulations issued pursuant thereto in connection with the payment of all state or local real property transfer taxes that are payable or arise as a result of the consummation of the transactions contemplated by this Agreement, in each case, as prepared and duly executed by Seller.
 
(iii) In the event any Asset Related Property is not assignable (such as a letter of credit that is not transferable), Seller shall use commercially reasonable efforts to provide Buyer, at no cost to Seller, with the economic benefits of such property by enforcing such property (solely at Buyer’s direction) for the benefit and at the expense of Buyer. The obligation so Seller under this subsection 6.2(a)(iii) shall survive the Closing for so long as such property remains enforceable.
 
ARTICLE VII
 
INSPECTIONS; RELEASE
 
SECTION 7.1. Right of Inspection. Prior to the Closing, Buyer and its agents or authorized representatives, shall have the right, upon reasonable prior written notice to Seller
 
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(which shall in any event be at least 24 hours in advance) and at Buyer’s sole cost, risk and expense to inspect the Property during business hours on Business Days, provided that any such inspection shall not unreasonably impede the normal day-to-day business operation of the Property, and provided further that Seller shall be entitled to accompany Buyer and its agents on such inspection. Notwithstanding the foregoing, Buyer shall not have the right to interview the tenants under Space Leases without providing Seller with an opportunity to jointly conduct such interview, and Buyer shall not have the right to do any invasive testing of the Property without the prior written consent of Seller in its sole discretion. Prior to any such inspection, Buyer shall deliver to Seller certificates reasonably satisfactory to Seller evidencing that Buyer’s consultants and agents carry and maintain such general liability insurance policies with limits of liability of not less than $1,000,000 and with such companies and in such scope as are acceptable to Seller in its reasonable discretion, in all cases naming Seller as an additional insured thereunder. Buyer hereby indemnifies and agrees to defend and hold Seller harmless from all loss, cost (including, without limitation, reasonable attorneys’ fees), claim or damage arising out of, resulting from relating to or in connection with or from any such inspection by Buyer or its agents. The provisions of this Article shall survive the Closing or the termination of this Agreement.
 
SECTION 7.2. Examination; No Contingencies.
 
(a) In entering into this Agreement, Buyer has not been induced by and has not relied upon any written or oral representations, warranties or statements, whether express or implied, made by Seller, any partner of Seller, or any affiliate, agent, employee, or other representative of any of the foregoing or by any broker or any other person representing or purporting to represent Seller, with respect to the Asset, the Condition of the Asset or any other matter affecting or relating to the transactions contemplated hereby, other than those expressly set forth in this Agreement. Buyer’s obligations under this Agreement shall not be subject to any contingencies, diligence or conditions except as expressly set forth in this Agreement. Buyer acknowledges and agrees that, except as expressly set forth herein and the Seller’s Closing Documents, Seller makes no representations or warranties whatsoever, whether express or implied or arising by operation of law, with respect to the Asset or the Condition of the Asset. BUYER AGREES THAT THE ASSET WILL BE SOLD AND CONVEYED TO (AND ACCEPTED BY) BUYER AT THE CLOSING IN THE THEN EXISTING CONDITION OF THE ASSET, AS IS, WHERE IS, WITH ALL FAULTS, AND WITHOUT ANY WRITTEN OR VERBAL REPRESENTATIONS OR WARRANTIES WHATSOEVER, WHETHER EXPRESS OR IMPLIED OR ARISING BY OPERATION OF LAW, other than representations and warranties of Seller expressly set forth in this Agreement and the Seller’s Closing Documents. Without limiting the generality of the foregoing, except for the representations and warranties of Seller contained in this Agreement and the Seller’s Closing Documents, the transactions contemplated by this Agreement are without statutory, express or implied warranty, representation, agreement, statement or expression of opinion of or with respect to the Condition of the Asset or any aspect thereof, including, without limitation, (i) any and all statutory, express or implied representations or warranties related to the suitability for habitation, merchantability, or fitness for a particular purpose, (ii) any statutory, express or implied representations or warranties created by any affirmation of fact or promise, by any description of the Asset or by operation of law, and (iii) all other statutory, express or implied representations or warranties by Seller whatsoever. Buyer acknowledges that Buyer has knowledge and expertise in financial and

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business matters that enable Buyer to evaluate the merits and risks of the transactions contemplated by this Agreement.
 
(b) For purposes of this Agreement, the term “Condition of the Asset” means the following matters:
 
(i) Physical Condition of the Property. The quality, nature and adequacy of the physical condition of the Property, including, without limitation, the quality of the design, labor and materials used to construct the improvements included in the Property; the condition of structural elements, foundations, roofs, glass, mechanical, plumbing, electrical, HVAC, sewage, and utility components and systems; the capacity or availability of sewer, water, or other utilities; the geology, flora, fauna, soils, subsurface conditions, groundwater, landscaping, and irrigation of or with respect to the Property, the location of the Property in or near any special taxing district, flood hazard zone, wetlands area, protected habitat, geological fault or subsidence zone, hazardous waste disposal or clean-up site, or other special area, the existence, location, or condition of ingress, egress, access, and parking; the condition of the Personal Property and any fixtures; and the presence of any asbestos or other Hazardous Materials, dangerous, or toxic substance, material or waste in, on, under or about the Property and the improvements located thereon. “ Hazardous Materials ” means (A) those substances included within the definitions of any one or more of the terms “hazardous substances,” “toxic pollutants”, “hazardous materials”, “toxic substances”, and “hazardous waste” in the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq. (as amended), the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Sections 1801 et seq., the Resource Conservation and Recovery Act of 1976 as amended, 42 U.S.C. Section 6901 et seq. and Section 311 of the Clean Water Act and the regulations and publications issued under any such laws and (B) petroleum, radon gas, lead based paint, asbestos or asbestos containing material and polychlorinated biphenyls.
 
(ii) Adequacy of the Asset. The economic feasibility, cash flow and expenses of the Asset, and habitability, merchantability, fitness, suitability and adequacy of the Property for any particular use or purpose.
 
(iii) Legal Compliance of the Asset. The compliance or non-compliance of Seller or the operation of the Property or any part thereof in accordance with, and the contents of, (i) all codes, laws, ordinances, regulations, agreements, licenses, permits, approvals and applications of or with any governmental authorities asserting jurisdiction over the Property, including, without limitation, those relating to zoning, building, public works, parking, fire and police access, handicap access, life safety, subdivision and subdivision sales, and Hazardous Materials, dangerous, and toxic substances, materials, conditions or waste, including, without limitation, the presence of Hazardous Materials in, on, under or about the Property that would cause state or federal agencies to order a clean up of the Property under any applicable legal requirements and (ii) all agreements, covenants, conditions, restrictions (public or private), development agreements, site plans, building permits, building rules, and other instruments and documents governing or affecting the use, management, and operation of the Property.
 
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(iv) Insurance. The availability, cost, terms and coverage of liability, hazard, comprehensive and any other insurance of or with respect to the Property.
 
(v) Condition of Title. The condition of title to the Property, including, without limitation, vesting, legal description, matters affecting title, title defects, liens, encumbrances, boundaries, encroachments, mineral rights, options, easements, and access; violations of restrictive covenants, zoning ordinances, setback lines, or development agreements; the availability, cost, and coverage of title insurance; leases, rental agreements, occupancy agreements, rights of parties in possession of, using, or occupying the Property; and standby fees, taxes, bonds and assessments.
 
SECTION 7.3. Release. Buyer hereby agrees that Seller, and each of its partners, members, trustees, directors, officers, employees, representatives, property managers, asset managers, agents, attorneys, affiliates and related entities, heirs, successors, and assigns (collectively, the “ Releasees ”) shall be, and are hereby, fully and forever released and discharged from any and all liabilities, losses, claims (including third party claims), demands, damages (of any nature whatsoever), causes of action, costs, penalties, fines, judgments, reasonably attorneys’ fees, consultants’ fees and costs and experts’ fees (collectively, the “ Claims ”) with respect to any and all Claims, whether direct or indirect, known or unknown, foreseen or unforeseen, that may arise on account of or in any way be connected with the Asset or the Property including, without limitation, the physical, environmental and structural condition of the Property or any law or regulation applicable thereto, including, without limitation, any Claim or matter (regardless of when it first appeared) relating to or arising from (i) the presence of any environmental problems, or the use, presence, storage, release, discharge, or migration of Hazardous Materials on, in, under or around the Property regardless of when such Hazardous Materials were first introduced in, on or about the Property, (ii) any patent or latent defects or deficiencies with respect to the Property, (iii) any and all matters related to the Property or any portion thereof, including without limitation, the condition and/or operation of the Property and each part thereof, and (iv) the presence, release and/or remediation of asbestos and asbestos containing materials in, on or about the Property regardless of when such asbestos and asbestos containing materials were first introduced in, on or about the Property;  provided ,  however , that in no event shall Releasees be released from any Claims arising pursuant to the provisions of this Agreement or Seller’s obligations, if any, under the Closing Documents. Buyer hereby waives and agrees not to commence any action, legal proceeding, cause of action or suits in law or equity, of whatever kind or nature, including, but not limited to, a private right of action under the federal Superfund laws, 42 U.S.C. Sections 9601 et seq. (as such laws and statutes may be amended, supplemented or replaced from time to time), directly or indirectly, against the Releasees or their agents in connection with Claims described above and which are released pursuant to this Section 7.3. In this connection and to the greatest extent permitted by law, Buyer hereby agrees, represents and warrants that Buyer realizes and acknowledges that factual matters now known to it may have given or may hereafter give rise to causes of action, claims, demands, debts, controversies, damage, costs, losses and expenses which are presently unknown, unanticipated and unsuspected, and Buyer further agrees, represents and warrants that the waivers and releases herein have been negotiated and agreed upon in light of that realization and that Buyer nevertheless hereby intends to release, discharge and acquit Seller from any such unknown Claims, debts, and controversies which might in any way be included as a material portion of the consideration given to Seller by Buyer in exchange for Seller’s performance hereunder.
 
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Seller has given Buyer material concessions regarding this transaction in exchange for Buyer agreeing to the provisions of this Section 7.3. Seller and Buyer have each initialed this Section 7.3 to further indicate their awareness and acceptance of each and every provision hereof. The provisions of this Section 7.3 shall survive the Closing and shall not be deemed merged into any instrument or conveyance delivered at the Closing.
 
ARTICLE VIII
 
TITLE AND PERMITTED EXCEPTIONS
 
SECTION 8.1. Permitted Exceptions. The Property shall be sold and is to be conveyed, and Buyer agrees to purchase the Property, subject to the Permitted Exceptions.
 
SECTION 8.2. Title Commitment; Survey. Buyer has received and reviewed a copy of the Title Commitment and the Existing Survey. Except as expressly set forth in subsection 8.3(a), all title exceptions and matters set forth in Schedule B of the Title Commitment (excluding any exception for the first installment of 2002 taxes) and on the Existing Survey shall be deemed Permitted Exceptions and are hereby approved by Buyer.
 
SECTION 8.3. Delivery of Title.
 
(a) At the Closing, Seller shall obtain releases of (i) the mortgage and other current financing items listed on Schedule 8.3(a) attached hereto, and (ii) any liens affirmatively placed on the Property after the effective date of the Title Commitment by Seller. Other than as set forth above, Seller shall not be required to take or bring any action or proceeding or any other steps to remove any title exception or to expend any moneys therefor, nor shall Buyer have any right of action against Seller, at law or in equity, for Seller’s inability to convey title subject only to the Permitted Exceptions.
 
(b) Notwithstanding the foregoing, in the event that Seller is unable to convey title subject only to the Permitted Exceptions, and Buyer has not, prior to the Closing Date, given written notice to Seller that Buyer is willing to waive objection to each title exception which is not a Permitted Exception, Seller shall have the right, in Seller’s sole and absolute discretion, to (i) take such action as Seller shall deem advisable to attempt to discharge each such title exception which is not a Permitted Exception or (ii) terminate this Agreement. In the event that Seller shall elect to attempt to discharge such title exceptions which are not Permitted Exceptions, Seller shall be entitled to one or more adjournments of the Closing Date for a period not to exceed 30 days in the aggregate. If, for any reason whatsoever, Seller has not discharged such title exceptions which are not Permitted Exceptions prior to the expiration of the last of such adjournments, and if Buyer is not willing to waive objection to such title exceptions, this Agreement shall be terminated as of the expiration of the last of such adjournments. In the event of a termination of this Agreement pursuant to this subsection 8.3(b), the Earnest Money shall be refunded to Buyer and neither party shall have any further rights or obligations hereunder except for those that expressly survive the termination of this Agreement. Nothing in this clause (b) shall require Seller, despite any election by Seller to attempt to discharge any title exceptions, to take or bring any action or proceeding or any other steps to remove any title exception or to expend any moneys therefor. Nothing in this clause (b) shall limit or qualify Seller’s obligations
 
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under clause (a) of this Section 8.3 or give Seller the right to adjourn the Closing Date or to terminate this Agreement as a result of Seller’s failure or refusal to discharge title exceptions as to which Seller is required to obtain releases as provided in clause (a) of this Section 8.3.
 
SECTION 8.4. Buyer’s Right to Accept Title. Notwithstanding the foregoing provisions of this Article VIII, Buyer may, by written notice given to Seller at any time prior to the earlier of (x) the Closing Date and (y) the termination of this Agreement, elect to accept such title as Seller can convey, notwithstanding the existence of any title exceptions which are not Permitted Exceptions. In such event, this Agreement shall remain in effect and the parties shall proceed to Closing but Buyer shall not be entitled to any abatement of the Purchase Price, any credit or allowance of any kind or any claim or right of action against Seller for damages or otherwise by reason of the existence of any title exceptions which are not Permitted Exceptions, except for title exceptions as to which Seller has an obligation to obtain releases as provided in Section 8.3(a).
 
SECTION 8.5. Cooperation. In connection with obtaining the Title Policy, Buyer and Seller, as applicable, and to the extent requested by the Title Company, will deliver the Title Company (a) evidence sufficient to establish (i) the legal existence of Buyer and Seller and (ii) the authority of the respective signatories of Seller and Buyer to bind Seller and Buyer, as the case may be, and (b) a certificate of good standing of Seller.
 
ARTICLE IX
 
TRANSACTION COSTS; RISK OF LOSS
 
SECTION 9.1. Transaction Costs.
 
(a) Buyer and Seller agree to comply with all real estate transfer tax laws applicable to the sale of the Asset. At Closing, real property transfer taxes payable to the State of Illinois and Cook County as a result of the conveyance of the Asset to Buyer pursuant to this Agreement shall be paid by Seller and real property transfer taxes payable to the City of Chicago as a result of the conveyance of the Asset to Buyer pursuant to this Agreement shall be paid by Buyer. In addition to the foregoing and their respective apportionment obligations hereunder, (i) Seller and Buyer shall each be responsible for the payment of the costs of their respective legal counsel, advisors and other professionals employed thereby in connection with the sale of the Asset, (ii) Seller shall be responsible for (1) the policy premiums in respect of the Title Policy (except as set forth in clause (iv) below), (2) the cost of the Existing Survey, (3) the cost to cause the transfer to Buyer of any transferable letters of credit if such costs are not the responsibility of the tenant under the associated Space Lease, and (4) the cost, not to exceed $2,000, to update the Existing Survey and cause the surveyor to upgrade same to the standards of an ALTA survey and to recertify same to Seller, Buyer, Buyer’s lender and the Title Company, (iii) Buyer shall be responsible for all costs and expenses associated with (1) Buyer’s due diligence, (2) search costs with respect to the Property and updates related thereto, in each case commissioned by Buyer, (3) the policy premiums in respect of any mortgage title insurance including the Seller Mortgage Policy, (4) payment, at the Closing, of the recording charges and fees and recordation taxes for the documents necessary to transfer the Asset, (5) all costs and expenses of obtaining any financing Buyer may elect to obtain (including any fees, financing
 
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costs, transfer taxes, mortgage and recordation taxes and intangible taxes in connection therewith), and (6) all other costs which are the responsibility under applicable law for Buyer to pay, and (iv) Seller and Buyer shall each pay one-half of all costs and expenses associated with any reinsurance obtained by Buyer as set forth on  Schedule C-2  with respect to the Title Policy.
 
(b) Each party to this Agreement shall indemnify the other parties and their respective successors and assigns from and against any and all loss, damage, cost, charge, liability or expense (including court costs and reasonable attorneys’ fees) which such other party may sustain or incur as a result of the failure of either party to timely pay any of the aforementioned taxes, fees or other charges for which it has assumed responsibility under this Section. The provisions of this Article IX shall survive the Closing or the termination of this Agreement.
 
SECTION 9.2. Risk of Loss.
 
(a) If, on or before the Closing Date, the Property or any portion thereof shall be (i) damaged or destroyed by fire or other casualty or (ii) taken as a result of any condemnation or eminent domain proceeding, Seller shall promptly notify Buyer and, at Closing, Seller will credit against the principal amount of the Seller Note to be delivered by Buyer at the Closing an amount equal to the sum of (x) the applicable deductible, if any, with respect to such casualty and (y) the net proceeds (other than on account of business or rental interruption), if any, received by Seller as a result of such casualty or condemnation less any amounts spent to restore. If as of the Closing Date, Seller has not received any such insurance or condemnation proceeds, then the parties shall nevertheless consummate on the Closing Date the conveyance of the Asset (without any credit for such insurance or condemnation proceeds) and Seller will at Closing assign to Buyer all rights of Seller, if any, to the insurance or condemnation proceeds (other than on account of business or rental interruption attributable to the period prior to the Closing Date) and to all other rights or claims arising out of or in connection with such casualty or condemnation.
 
(b) Notwithstanding the provisions of subsection 9.2(a), if, on or before the Closing Date, the Property or any portion thereof shall be (i) damaged or destroyed by a Material Casualty or (ii) taken as a result of a Material Condemnation, Buyer shall have the right, exercised by notice to Seller no more than 10 days after Buyer has received notice of such Material Casualty or Material Condemnation, to terminate this Agreement, in which event the Earnest Money shall be refunded to Buyer and neither party shall have any further rights or obligations hereunder other than those which expressly survive the termination of this Agreement. If Buyer fails to timely terminate this Agreement in accordance with this subsection 9.2(b), the provisions of subsection 9.2(a) shall apply. As used in this subsection 9.2(b), a “ Material Casualty ” shall mean any damage to the Property or any portion thereof by fire or other casualty that either (a) results in the termination of a Space Lease with a Major Tenant or any other tenants leasing, in the aggregate, more than 100,000 square feet of rentable floor area, (b) entitles a Major Tenant or other tenants leasing, in the aggregate, more than 100,000 square feet of rentable floor area to terminate its Space Lease, (c) may be expected to cost in excess of $15,000,000 to repair or (d) results in a loss not covered by insurance, if such uncovered loss exceeds the deductible of $100,000, unless Seller elects to give Buyer a credit at Closing against the principal amount of the Seller Note equal to the amount of such excess above $100,000. As
 
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used in this subsection 9.2(b), a “Material Condemnation” shall mean a taking of the Property or any material portion thereof as a result or a condemnation or eminent domain proceedings that either (a) results in the termination of a Space Lease with a Major Tenant or other tenants, leasing in the aggregate, more than 100,000 square feet of rentable floor area, or (b) entitles a Major Tenant or other tenants leasing, in the aggregate, more than 100,000 square feet of rentable floor area to terminate its Space Lease, or (c) permanently and materially impairs the use and value of the Property, and which can not be restored to substantially the same use and value as before the taking.
 
ARTICLE X
 
ADJUSTMENTS
 
Unless otherwise provided below, the following are to be adjusted and prorated between Seller and Buyer as of 11:59 P.M. on the day preceding the Closing, based upon a 365 day year; provided, however, if the Closing occurs on the last day of the month, the following are to be adjusted and prorated between Seller and Buyer as of 11:59 p.m. on the day of the Closing, and in such case, the Purchase Price shall be reduced by $93,000, which shall cause the principal amount of the Seller Note to be delivered by Buyer at the Closing to be reduced by such amount. The net amount of adjustments under Section 10.1 shall be paid to Buyer at Closing. The net amount of all other items to be adjusted and prorated under the other Sections of this Article X shall be added to (if such net amount is in Seller’s favor) or deducted from (if such net amount is in Buyer’s favor) the principal amount of the Seller Note to be executed and delivered at Closing.
 
SECTION 10.1. Fixed Rents and Additional Rents.
 
(a) Fixed rents (collectively, “Fixed Rents”) and Additional Rents (as hereinafter defined; Fixed Rents and Additional Rents being together referred to herein as “ Rents ”) paid or payable by tenants under the Space Leases in connection with their occupancy of the Property shall be adjusted and prorated on an if, as and when collected basis. Any Rents collected by Buyer or Seller after the Closing from any tenant who owes Rents for periods prior to the Closing, shall be applied (i) first, in payment of Rents owed by such tenant for the month in which the Closing occurs, provided such payment is received no later than the tenth day of the next succeeding calendar month, (ii) second, in payment of Rents then owed by such tenant for any period after the Closing occurs, and (iii) third, in payment of any remaining Rents then owed by such tenant. Each such amount, less any costs of collection (including reasonable counsel fees) reasonably allocable thereto, shall be adjusted and prorated as provided above, and the party who receives such amount shall promptly pay over to the other party the portion thereof to which it is so entitled. For the purposes of this provision, the term “ Additional Rent ” shall mean amounts payable under any Space Lease for (i) the payment of additional rent based upon a percentage of the tenant’s business during a specified annual or other period (sometimes referred to as “percentage rent”), (ii) so-called common area maintenance or “CAM” charges, and (iii) so-called “escalation rent” or additional rent based upon such tenant’s share of real estate taxes or operating expenses or labor costs or cost of living or porter’s wages or otherwise.
 
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(b) Buyer shall bill tenants who owe Rents for periods prior to the Closing on a monthly basis following the Closing and use commercially reasonable efforts to attempt to collect such past due Rents, but shall not be obligated to expend any sum of money, declare a default in any lease, engage a collection agency or take legal action to collect such amount. Notwithstanding the foregoing, if Buyer shall be unable to collect such past due Rents, Seller shall have the right to pursue such tenant to collect such delinquencies (including, without limitation, the prosecution of one or more lawsuits); provided Buyer shall not initiate a lawsuit against any then current tenant in the Property (i) within 90 days of Closing, (ii) unless the aggregate delinquencies owed to Seller from all tenants in the Property are in excess of $100,000 and (iii) Seller indemnifies Buyer for any claims relating to periods prior to Closing under the lease with such tenant. Seller shall furnish to Buyer all information relating to the period prior to the Closing that is reasonably necessary for the billing of such Rent and Buyer will deliver to Seller, concurrently with the delivery to tenants, copies of all statements relating to Rent for a period prior to the Closing. Buyer shall bill tenants for Rents for accounting periods prior to the Closing in accordance with and on the basis of such information furnished by Seller.
 
(c) To the extent that any portion of Additional Rent is required to be paid monthly by tenants on account of estimated amounts for any calendar year (or, if applicable, any lease year or tax year or any other applicable accounting period), and at the end of such calendar year (or lease year, tax year or other applicable accounting period, as the case may be), such estimated amounts are to be recalculated based upon the actual expenses, taxes and other relevant factors for that calendar (lease or tax) year or other applicable accounting period, with the appropriate adjustments being made with such tenants, then such portion of the Additional Rent shall be prorated between Seller and Buyer at the Closing based on such estimated payments actually paid by tenants (i.e., with Seller entitled to retain all monthly or other periodic installments of such amounts paid by tenants with respect to periods prior to the calendar month or other applicable installment period in which the Closing occurs (on a pro-rata basis for any partial months), Seller to pay to Buyer at the Closing all monthly or other periodic installments of such amounts theretofore received by Seller with respect to periods following the calendar month or other applicable installment period in which the Closing occurs and Seller and Buyer to apportion as of the Closing all monthly or other periodic installments of such amounts paid by tenants with respect to the calendar month or other applicable installment period in which the Closing occurs). At the time(s) of final calculation and collection from (or refund to) each tenant of the amounts in reconciliation of actual Additional Rent for a period for which estimated amounts paid by such tenant have been prorated, there shall be a re-proration between Seller and Buyer. If, with respect to any tenant, the recalculated Additional Rent exceeds the estimated amount paid by such tenant, upon collection from the tenant, such excess shall be apportioned between Seller and Buyer as of the Closing in accordance with paragraph (a), (b) and (c) of this Section 10.1. If, with respect to any tenant, the recalculated Additional Rent is less than the estimated amount paid by such tenant, such shortfall shall be apportioned between Seller and Buyer as of the Closing, with Seller paying to Buyer the portion of such shortfall so allocable to Seller.
 
(d) Until such time as all amounts required to be paid to Seller by Buyer pursuant to this Section 10.1 shall have been paid in full, Buyer shall furnish to Seller, upon Seller’s request, a reporting of rents which have been collected by Buyer after the Closing with respect to Space Leases with delinquent Rents as of the Closing. Seller shall also have the right
 
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from time to time following the Closing, upon reasonable prior notice to Buyer and during ordinary business hours on Business Days, to review Buyer’s rental records with respect to such Space Leases.
 
SECTION 10.2. Taxes and Assessments. Seller shall be responsible for the payment of real estate (ad valorem) and personal property taxes and assessments which become due and payable with respect to the Property and Personal Property prior to the date of Closing, including, without limitation, the first installment of the 2002 real estate taxes with respect to the Property, and Buyer shall be responsible for the payment of real estate (ad valorem) and personal property taxes and assessments which become due and payable with respect to the Property and Personal Property after the date of Closing, including, without limitation, the second installment of the 2002 real estate taxes with respect to the Property. In the event the Property or any part thereof shall be or shall have been affected by an assessment or assessments, whether or not the same become payable in annual installments, Seller shall, at the Closing, be responsible for any installments becoming due and payable prior to the Closing and Buyer shall be responsible for any installments becoming due and payable on or after the Closing. There shall be no other adjustment or proration for real estate (ad valorem) and personal property taxes and assessments allocable to the Property and the Personal Property.
 
SECTION 10.3. Water and Sewer Charges. Water rates, water meter charges, sewer rents and vault charges, if any (other than any such charges, rates or rents which are the direct responsibility of the tenants of the Property to the applicable public or private utilities supplier, for which no adjustment shall be made), shall be adjusted and prorated on the basis of the fiscal period for which assessed. If there be a water meter, or meters, on the Property, Seller agrees that Seller shall at the Closing furnish a reading of same to a date not more than 30 days prior to the Closing and the unfixed meter charges and the unfixed sewer rent thereon for the time intervening from the date of the last reading shall be apportioned on the basis of such last reading, and shall be appropriately readjusted after the Closing on the basis of the next subsequent bills. Unmetered water charges shall be apportioned on the basis of the charges therefor for the same period of the preceding calendar year, but applying the current rate thereto.
 
SECTION 10.4. Utility Charges. Gas, steam, electricity and other public utility charges (other than any such charges which are the direct responsibility of the tenants of the Property to the applicable public or private utilities supplier, for which no adjustment will be made) will be paid by Seller to the utility company to the Closing Date. Seller shall arrange for a final reading of all utility meters (covering gas, water, steam and electricity) as of the Closing, except meters the charges of which are the direct responsibility of the tenants of the Property to the applicable public or private utilities supplier. Seller and Buyer shall jointly execute a letter to each of such utility companies advising such utility companies of the termination of Seller’s responsibility for such charges for utilities furnished to the Property as of the date of the Closing and commencement of Buyer’s responsibilities therefor from and after such date. If a bill is obtained from any such utility company as of the Closing, Seller shall pay such bill on or before the Closing. If such bill shall not have been obtained on or before the Closing, Seller shall, upon receipt of such bill, pay all such utility charges as evidenced by such bill or bills pertaining to the period prior to the Closing, and Buyer shall pay all such utility charges pertaining to the period thereafter. Any bill which shall be rendered which shall cover a period both before and after the date of Closing shall be apportioned between Buyer and Seller as of the Closing.
 
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SECTION 10.5. Material Contracts. Charges and payments under all Material Contracts. Notwithstanding anything in this Section 10.5 to the contrary, upon Closing Buyer shall be responsible for all fees and expenses paid or payable under the utility consulting services agreement between Manager and The Cornerstone Energy Group, Inc. for the purpose of procuring electric and natural gas suppliers at the Property for the period of May 2003 through May 2004.
 
SECTION 10.6. Miscellaneous Revenues. Revenues, if any, arising out of telephone booths, vending machines, parking, or other income-producing agreements.
 
SECTION 10.7. Security Deposits. The actual amounts of the security deposits under the Space Leases being held by Seller as set forth on Schedule 3.2(i)  shall be a credit to Buyer against the balance of the Purchase Price. Any such security deposits in form other than cash (including letters of credit) shall be transferred to Buyer by way of appropriate instruments of transfer or assignment, subject to subsection 6.2(a)(iii).
 
SECTION 10.8. Leasing Costs. Subject to the provisions of this Section 10.8, Seller shall be responsible for all Leasing Costs relating to Space Leases or renewals, amendments, expansions and extensions of Space Leases, entered into or which first become binding, prior to the date of this Agreement and all Leasing Costs relating to Space Leases or renewals, amendments, expansions and extensions of Space Leases entered into or which first become binding, after the date of this Agreement if same was not approved or deemed approved by Buyer in accordance with and to the extent required by subsection 3.4(c) (“ Seller’s Leasing Costs ”). Except as set forth in this Section 10.8, Buyer shall be responsible for the Leasing Costs set forth on  Schedule 3.4(c)  and all other Leasing Costs other than Seller’s Leasing Costs (“ Buyer’s Leasing Costs ”), and shall assume the economic effect of any “free rent” or other rent credit or other concessions pertaining to the period from and after the Closing Date and expressly disclosed in the Space Leases. If prior to Closing, Seller has paid any of Buyer’s Leasing Costs, Seller shall receive a credit to be added to the Purchase Price equal to the amount so paid by Seller but not in an amount in excess of the projected expenses set forth on Schedule 3.4(c). To the extent that prior to Closing Seller enters into, amends, extends, or renews any of the leases set forth on Schedule 3.4(c)  (the “New Space Leases”) and Buyer’s Leasing Costs for brokerage commissions, tenant improvements allowances, free rent or other economic concessions for any such New Space Lease are (i) in excess of the amounts set forth on  Schedule 3.4(c),  then if Seller has not already paid such expenses Buyer will get a credit to the extent that such expenses exceed the amounts on Schedule 3.4(c) and (ii) less than the amounts set forth on Schedule 3.4(c), Seller will get a credit to the extent that such expenses are less than the amounts on  Schedule 3.4(c). Notwithstanding anything in this Section 10.8 to the contrary, but subject to the preceding sentence relating to New Space Lease, Buyer shall be responsible for all Leasing Costs relating to renewals, amendments, expansions and extensions of Space Leases, in each case to the extent such Leasing Costs relate to renewal, expansion or extension rights of tenants under such Space Leases that are exercised or amendments that are entered into, after the date of this Agreement.
 
To the extent any Seller’s Leasing Costs have not been fully paid as of the Closing Date, Buyer shall receive a credit at Closing against the Purchase Price in the amount of the balance of the Seller’s Leasing Costs remaining to be paid and Buyer shall assume all
 
31

obligations of Seller to pay the balance of the Seller’s Leasing Costs as to which Buyer shall have received such credit and to perform the obligations associated with the same. The obligations of Buyer under this Section 10.8 shall survive the Closing.
 
SECTION 10.9. Other. If applicable, the Purchase Price shall be adjusted at Closing to reflect the adjustment of any other item which, under the explicit terms of this Agreement, is to be apportioned at Closing.
 
SECTION 10.10. Re-Adjustment. If any items to be adjusted pursuant to this Article X are not determinable at the Closing, the adjustment shall be made subsequent to the Closing when the charge is determined. Any errors or omissions in computing adjustments or readjustments at the Closing or thereafter shall be promptly corrected or made, provided that the party seeking to correct such error or omission or to make such readjustment shall have notified the other party of such error, omission or readjustment on or prior to the date that is 455 days following the Closing. The provisions of this Article X and the obligations of Seller and Buyer hereunder shall survive the Closing for 455 days.
 
ARTICLE XI
 
INDEMNIFICATION
 
SECTION 11.1. Indemnification by Seller. Following the Closing and subject to Sections 11.3 and 11.4, Seller shall indemnify and hold Buyer, its affiliates, members and partners, and the partners, shareholders, officers, directors, employees, representatives and agents of each of the foregoing (collectively, “ Buyer-Related Entities ”) harmless from and against any and all costs, fees, expenses, damages, deficiencies, interest and penalties (including, without limitation, reasonable attorneys’ fees and disbursements) suffered or incurred by any such indemnified party in connection with any and all losses, liabilities, claims, damages and expenses (“ Losses ”), arising out of, or in any way relating to, (a) any breach of any representation or warranty of Seller contained in this Agreement or in any Closing Document and (b) any breach of any covenant of Seller contained in this Agreement which survives the Closing or in any Closing Document.
 
SECTION 11.2. Indemnification by Buyer. Following the Closing and subject to Sections 11.3 and 11.4, Buyer shall indemnify and hold Seller, its affiliates, members and partners, and the partners, shareholders, officers, directors, employees, representatives and agents of each of the foregoing (collectively, “ Seller-Related Entities ”) harmless from any and all Losses arising out of, or in any way relating to, (a) any breach of any representation or warranty by Buyer contained in this Agreement or in any Closing Document and (b) any breach of any covenant of Buyer contained in this Agreement which survives the Closing or in any Closing Documents.
 
SECTION 11.3. Limitations on Indemnification. Notwithstanding the foregoing provisions of Section 11.1, (a) Seller shall not be required to indemnify Buyer or any Buyer-Related Entities under this Agreement unless the aggregate of all amounts for which an indemnity would otherwise be payable by Seller under Section 11.1 above exceeds the Basket Limitation and, in such event Seller shall be responsible for only the amount in excess of the
 
32

Basket Limitation, (b) in no event shall the liability of Seller with respect to the indemnification provided for in Section 11.1 above exceed in the aggregate the Cap Limitation, (c) if prior to the Closing, Buyer obtains knowledge of any inaccuracy or breach of any representation, warranty or covenant of Seller contained in this Agreement (a “ Buyer Waived Breach ”) and nonetheless proceeds with and consummates the Closing, then Buyer and any Buyer-Related Entities shall be deemed to have waived and forever renounced any right to assert a claim for indemnification under this Article XI for, or any other claim or cause of action under this Agreement, at law or in equity on account of any such Buyer Waived Breach, and (d) notwithstanding anything herein to the contrary, the Basket Limitation and the Cap Limitation shall not apply with respect to Losses suffered or incurred as a result of breaches of any covenant or agreement of Seller set forth in Section 3.5, Section 3.6, Article X or Section 14.2 of this Agreement. After the Closing, Buyer shall not be entitled to any offsets or deductions against any amount owing under the Seller Note for Seller’s obligations under Section 11.1 above or elsewhere in this Agreement, or otherwise.
 
SECTION 11.4. Survival. The representations, warranties and covenants contained in this Agreement and the Closing Documents shall survive for a period of 270 days after the Closing unless a longer or shorter survival period is expressly provided for in this Agreement.
 
SECTION 11.5. Indemnification as Sole Remedy. If the Closing has occurred, the sole and exclusive remedy available to a party in the event of a breach by the other party to this Agreement of any representation, warranty, or covenant or other provision of this Agreement or any Closing Document which survives the Closing shall be the indemnifications provided for under this Article XI.
 
ARTICLE XII
 
TAX CERTIORARI PROCEEDINGS
 
SECTION 12.1. Prosecution and Settlement of Proceedings. If any tax reduction or assessed valuation proceedings in respect of the Property, relating to any fiscal years ending prior to the fiscal year in which the Closing occurs, are pending at the time of the Closing, Seller reserves and shall have the right to continue to prosecute and/or settle the same. If any tax or assessed valuation reduction proceedings in respect of the Property, relating to the fiscal year in which the Closing occurs, are pending at the time of Closing, then Seller reserves and shall have the right to continue to prosecute and/or settle the same; provided, however, that Seller shall not settle any such proceeding without Buyer’s prior written consent, which consent shall not be unreasonably withheld or delayed. Buyer shall reasonably cooperate with Seller in connection with the prosecution of any such tax reduction or assessed valuation proceedings.
 
SECTION 12.2. Application of Refunds or Savings. Any refunds or savings in the payment of taxes resulting from such tax reduction or assessed valuation proceedings applicable to taxes relating to any fiscal years ending prior to the fiscal year in which the Closing occurs shall belong to and be the property of Seller, and any refunds or savings in the payment of taxes applicable to taxes relating to the fiscal year in which the Closing occurs shall be prorated between Seller and Buyer; provided, however, that if any such refund creates an obligation to reimburse any tenants under Space Leases for any rents or additional rents paid or to be paid, that
 
33

portion of such refund equal to the amount of such required reimbursement (after deduction of allocable expenses as may be provided in the Space Lease to such tenant) shall, at Seller’s election, either (a) be paid to Buyer and Buyer shall disburse the same to such tenants or (b) be paid by Seller directly to the tenants entitled thereto. All attorneys’ fees and other expenses incurred in obtaining such refunds or savings shall be apportioned between Seller and Buyer in proportion to the gross amount of such refunds or savings payable to Seller and Buyer, respectively (without regard to any amounts reimbursable to tenants); provided, however, that neither Seller nor Buyer shall have any liability for any such fees or expenses in excess of the refund or savings paid to such party unless such party initiated such proceeding.
 
SECTION 12.3. Survival. The provisions of this Article XII shall survive the Closing until expiration of the applicable statute of limitations.
 
ARTICLE XIII
 
DEFAULT
 
SECTION 13.1. Buyer’s Default.
 
(a) This Agreement may be terminated by Seller prior to Closing if (i) any of the conditions precedent to Seller’s obligations set forth in Section 5.1 have not been satisfied or waived by Seller on or prior to the Closing Date or (ii) there is a material breach or default by Buyer in the performance of any of its obligations under this Agreement.
 
(b) In the event this Agreement is terminated pursuant to subsection 13.1(a), this Agreement shall be null and void and of no further force or effect and neither party shall have any rights or obligations against or to the other except (i) for those provisions hereof which by their terms expressly survive the termination of this Agreement and (ii) as set forth in subsection 13.1(c).
 
(c) In the event Seller terminates this Agreement, as a result of a breach or default by Buyer in any of its obligations under this Agreement, the Escrow Agent shall immediately disburse the Earnest Money to Seller, and upon such disbursement Seller and Buyer shall have no further obligations under this Agreement, except those which expressly survive such termination. Buyer and Seller hereby acknowledge and agree that it would be impractical and/or extremely difficult to fix or establish the actual damage sustained by Seller as a result of a default by Buyer, and agree that the Earnest Money is a reasonable approximation thereof. Accordingly, the Earnest Money shall constitute and be deemed to be the agreed and liquidated damages of Seller, and shall be paid by the Escrow Agent to Seller as Seller’s sole and exclusive remedy hereunder;  provided ,  however , the foregoing shall not limit Buyer’s obligation to pay to Seller all attorneys’ fees and costs of Seller to enforce the provisions of this Section 13.1. The payment of the Earnest Money as liquidated damages is not intended to be a forfeiture or penalty, but is intended to constitute liquidated damages to Seller.
 
SECTION 13.2. Seller’s Default.
 
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(a) This Agreement may be terminated by Buyer prior to Closing if (i) any of the conditions precedent to Buyer’s obligations set forth in Section 5.2 have not been satisfied or waived by Buyer on or prior to the Closing Date, (ii) there is a material breach or default by Seller in the performance of its obligations under this Agreement to cause the sale of the Asset on the Closing Date.
 
(b) Upon termination of this Agreement by Buyer pursuant to subsection 13.2(a), as Buyer’s sole and exclusive remedy, the Escrow Agent shall immediately disburse the Earnest Money to Buyer, and upon such disbursement Seller and Buyer shall have no further obligations under this Agreement, except those which expressly survive such termination.
 
(c) Buyer agrees to, and does hereby, waive all other remedies against Seller which Buyer might otherwise have at law or in equity by reason of any default or breach by Seller of any of its representations, warranties or covenants or obligations under this Agreement prior to Closing. Notwithstanding anything herein to the contrary, in the event the material breach or default by Seller in the performance of its obligations to cause the sale of the Asset on the Closing Date is intentional and willful, (i) in addition to terminating this Agreement and receiving the Earnest Money, Buyer can seek reimbursement of its actual out-of-pocket expenses incurred in negotiating this Agreement and conducting due diligence activities contemplated hereunder and arranging for and documenting its mortgage financing (but specifically excluding all commitment or financing fees in connection with obtaining any mortgage financing) not to exceed $500,000 or (ii) in lieu of terminating this Agreement, Buyer may seek to specifically enforce the terms and conditions of this Agreement. In the event this Agreement is terminated pursuant to subsection 13.2(a), this Agreement shall be null and void and of no further force or effect and neither party shall have any rights or obligations against or to the other except (i) for those provisions hereof which by their terms expressly survive the termination of this Agreement and (ii) as set forth in subsection 13.2(b) and this subsection 13.2(c).
 
ARTICLE XIV
 
MISCELLANEOUS
 
SECTION 14.1. Use of Blackstone Name and Address. Buyer hereby acknowledges and agrees that neither Buyer nor any affiliate, successor, assignee or designee of Buyer shall be entitled to use the name “Blackstone” in any way whatsoever.
 
SECTION 14.2. Brokers.
 
(a) Seller shall be solely responsible for the real estate commission payable to Secured Capital Corp and CB Richard Ellis in connection with this Agreement, and Seller shall pay such commission pursuant to separate agreements between Seller and Secured Capital Corp and CB Richard Ellis. Seller represents and warrants to Buyer that it has dealt with no broker, salesman, finder or consultant with respect to this Agreement or the transactions contemplated hereby other than Secured Capital Corp and CB Richard Ellis. Seller agrees to indemnify, protect, defend and hold Buyer harmless from and against all claims, losses, damages, liabilities, costs, expenses (including reasonable attorneys’ fees and disbursements) and charges resulting from Seller’s breach of the foregoing covenant and representation in this subsection 14.2(a). The
 
35

provisions of this subsection 14.2(a) shall survive the Closing until expiration of any statute of limitations and shall survive any termination of this Agreement.
 
(b) Buyer represents and warrants to Seller that it has dealt with no broker, salesman, finder or consultant with respect to this Agreement or the transactions contemplated hereby other than Secured Capital Corp and CB Richard Ellis. Buyer agrees to indemnify, protect, defend and hold Seller harmless from and against all claims, losses, damages, liabilities, costs, expenses (including reasonable attorneys’ fees and disbursements) and charges resulting from Buyer’s breach of the foregoing representations in this subsection 14.2(b). The provisions of this subsection 14.2(b) shall survive the Closing until expiration of any statute of limitations and shall survive any termination of this Agreement.
 
SECTION 14.3. Confidentiality; Press Release; IRS Reporting Requirements.
 
(a) Prior to Closing, Buyer and Seller shall hold as confidential all information disclosed in connection with the transaction contemplated hereby and concerning each other, the Asset, this Agreement and the transactions contemplated hereby and shall not release any such information to third parties without the prior written consent of the other parties hereto, except (i) any information which was previously or is hereafter publicly disclosed (other than in violation of this Agreement or other confidentiality agreements to which affiliates of Buyer are parties), (ii) to their partners, advisers, underwriters, analysts, employees, affiliates, officers, directors, consultants, lenders, accountants, legal counsel, title companies or other advisors of any of the foregoing, provided that they are advised as to the confidential nature of such information and are instructed to maintain such confidentiality, (iii) to comply with any law, rule or regulation and (iv) in any legal proceeding between Seller and Buyer in connection with this Agreement. The foregoing shall constitute a modification of any prior confidentiality agreement that may have been entered into by the parties. The provisions of this subsection shall survive the termination of this Agreement.
 
(b) Seller or Buyer may issue a press release at the Closing with respect to this Agreement and the transactions contemplated hereby, provided that the content of any such press release shall be subject to the prior written consent of the other party hereto and in no event shall any such press release issued by Buyer disclose the identity of Seller’s direct or indirect beneficial owners by name or the consideration paid to Seller for the Asset. Neither Seller nor Buyer shall issue any such press release or other publicity prior to Closing without the prior written consent of the other party. The provisions of this subsection shall survive the Closing for sixty days and shall survive any termination of this Agreement.
 
(c) For the purpose of complying with any information reporting requirements or other rules and regulations of the IRS that are or may become applicable as a result of or in connection with the transaction contemplated by this Agreement, including, but not limited to, any requirements set forth in proposed Income Tax Regulation Section 1.6045-4 and any final or successor version thereof (collectively, the “ IRS Reporting Requirements ”), Seller and Buyer hereby designate and appoint Seller to act as the “ Reporting Person ” (as that term is defined in the IRS Reporting Requirements) to be responsible for complying with any IRS Reporting Requirements. Seller hereby acknowledges and accepts such designation and appointment and agrees to fully comply with any IRS Reporting Requirements that are or may become applicable
 
36

as a result of or in connection with the transaction contemplated by this Agreement. Without limiting the responsibility and obligations of Seller as the Reporting Person, Seller and Buyer hereby agree to comply with any provisions of the IRS Reporting Requirements that are not identified therein as the responsibility of the Reporting Person, including, but not limited to, the requirement that Seller and Buyer each retain an original counterpart of this Agreement for at least four years following the calendar year of the Closing. The provisions of this subsection shall survive the Closing for four years.
 
SECTION 14.4. Escrow Provisions.
 
(a) The Escrow Agent shall hold the Earnest Money in escrow in an interest-bearing bank account at Citibank, N.A. (the “Escrow Account ”).
 
(b) The Escrow Agent shall hold the Earnest Money in escrow in the Escrow Account until the Closing or sooner termination of this Agreement and shall hold or apply such proceeds in accordance with the terms of this subsection 14.4(b). Seller and Buyer understand that no interest is earned on the Earnest Money during the time it takes to transfer into and out of the Escrow Account. At the Closing, the Earnest Money shall be paid by the Escrow Agent to Seller, as confirmed in a joint written direction from Seller and Buyer. If for any reason the Closing does not occur and either party makes a written demand upon the Escrow Agent for payment of such amount, the Escrow Agent shall, within 24 hours give written notice to the other party of such demand. If the Escrow Agent does not receive a written objection within seven Business Days after the giving of such notice, the Escrow Agent is hereby authorized to make such payment. If the Escrow Agent does receive such written objection within such seven Business Day period or if for any other reason the Escrow Agent in good faith shall elect not to make such payment, the Escrow Agent shall continue to hold such amount until otherwise directed by joint written instructions from the parties to this Agreement or a final judgment of a court of competent jurisdiction. However, the Escrow Agent shall have the right at any time to deposit the Earnest Money with any court of competent jurisdiction in Cook County, Illinois, together with such legal pleadings as it may deem appropriate. The Escrow Agent shall give written notice of such deposit to Seller and Buyer. Upon such deposit the Escrow Agent shall be relieved and discharged of all further obligations and responsibilities hereunder.
 
(c) The parties acknowledge that the Escrow Agent is acting solely as a stakeholder at their request and for their convenience, that the Escrow Agent shall not be deemed to be the agent of either of the parties, and the Escrow Agent shall not be liable to either of the parties for any act or omission on its part, other than for its gross negligence or willful misconduct. Seller and Buyer shall jointly and severally indemnify and hold the Escrow Agent harmless from and against all costs, claims and expenses, including attorneys’ fees and disbursements, incurred in connection with the performance of the Escrow Agent’s duties hereunder.
 
(d) The Escrow Agent has acknowledged its agreement to these provisions by signing this Agreement in the place indicated following the signatures of Seller and Buyer.
 
SECTION 14.5. Successors and Assigns; No Third-Party Beneficiaries. The stipulations, terms, covenants and agreements contained in this Agreement shall inure to the
 
37

benefit of, and shall be binding upon, the parties hereto and their respective permitted successors and assigns (including any successor entity after a public offering of stock, merger, consolidation, purchase or other similar transaction involving a party hereto) and nothing herein expressed or implied shall give or be construed to give to any person or entity, other than the parties hereto and such assigns, any legal or equitable rights hereunder.
 
SECTION 14.6. Assignment. Except as set forth in this Section 14.6, this Agreement may not be assigned by Buyer without the prior written consent of Seller. Prior to Closing, Buyer shall assign this Agreement to Wells Reit—Chicago Center, Chicago, LLC, a Delaware limited liability company. Wells Operating Partnership, L.P., will continue to remain primarily liable under this Agreement notwithstanding such assignment.
 
SECTION 14.7. Further Assurances. From time to time, as and when requested by any party hereto, the other party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions as such other party may reasonably deem necessary or desirable to consummate the transactions contemplated by this Agreement.
 
SECTION 14.8. Notices. All notices, demands or requests made pursuant to, under or by virtue of this Agreement must be in writing and shall be (i) personally delivered, (ii) delivered by express mail, Federal Express or other comparable overnight courier service, (iii) telecopied, with telephone confirmation within one Business Day or (iv) mailed to the party to which the notice, demand or request is being made by certified or registered mail, postage prepaid, return receipt requested, as follows:
 
 	(a)	 	To Seller:	
 
c/o Blackstone Real Estate Acquisitions III L.L.C.
345 Park Avenue
32nd Floor
New York, New York 10154
Attention: Steven E. Orbuch
Facsimile: 212-583-5726
Telephone: 212-583-5838
 
with copies thereof to:
 
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Gregory J. Ressa, Esq.
Facsimile: 212-455-2502
Telephone: 212-455-7430
 
 	(b)	 	To Buyer:	
 
Wells Operating Partnership, L.P.
c/o Wells Capital, Inc.
 
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6200 The Corners Parkway
Suite 250
Atlanta, Georgia 30092
Attention: Jeffrey A. Gilder
Facsimile: 770-243-8510
 
with copies thereof to:
 
Troutman Sanders LLP
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308
Attention: John W. Griffin, Esq.
Facsimile: 404-962-6577
 
All notices (i) shall be deemed to have been given on the date that the same shall have been delivered in accordance with the provisions of this Section and (ii) may be given either by a party or by such party’s attorneys. Any party may, from time to time, specify as its address for purposes of this Agreement any other address upon the giving of 10 days’ prior notice thereof to the other parties.
 
SECTION 14.9. Entire Agreement. This Agreement, along with the Exhibits and Schedules hereto contains all of the terms agreed upon between the parties hereto with respect to the subject matter hereof, and all understandings and agreements heretofore had or made among the parties hereto are merged in this Agreement which alone fully and completely expresses the agreement of the parties hereto.
 
SECTION 14.10. Amendments. This Agreement may not be amended, modified, supplemented or terminated, nor may any of the obligations of Seller or Buyer hereunder be waived, except by written agreement executed by the party or parties to be charged.
 
SECTION 14.11. No Waiver. No waiver by either party of any failure or refusal by the other party to comply with its obligations hereunder shall be deemed a waiver of any other or subsequent failure or refusal to so comply.
 
SECTION 14.12. Governing Law. This Agreement shall be governed by, interpreted under, and construed and enforced in accordance with, the laws of the State of Illinois.
 
SECTION 14.13. Submission to Jurisdiction. Each of Buyer and Seller irrevocably submits to the jurisdiction of (a) the Circuit Court of Cook County, Illinois located at the Daley Center, Chicago, Illinois and (b) the United States District Court for the Northern District of Illinois for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each of Buyer and Seller further agrees that service of any process, summons, notice or document by U.S. registered mail to such party’s respective address set forth above shall be effective service of process for any action, suit or proceeding in Illinois with respect to any matters to which it has submitted to jurisdiction as set forth above in the immediately preceding sentence. Each of Buyer and Seller irrevocably and
 
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unconditionally waives trial by jury and irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (a) the Circuit Court of Cook County, Illinois located at the Daley Center, Chicago, Illinois and (b) the United States District Court for the Northern District of Illinois, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.
 
SECTION 14.14. Severability. If any term or provision of this Agreement or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.
 
SECTION 14.15. Section Headings. The headings of the various Sections of this Agreement have been inserted only for purposes of convenience, are not part of this Agreement and shall not be deemed in any manner to modify, explain, expand or restrict any of the provisions of this Agreement.
 
SECTION 14.16. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart.
 
SECTION 14.17. Acceptance of Deed. The acceptance of the Deed by Buyer shall be deemed full compliance by Seller of all of Seller’s obligations under this Agreement except for those obligations of Seller which are specifically stated to survive the Closing or the delivery of the Deed hereunder.
 
SECTION 14.18. Construction. The parties acknowledge that the parties and their counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any exhibits or amendments hereto.
 
SECTION 14.19. Recordation. Neither this Agreement nor any memorandum or notice of this Agreement may be recorded by any party hereto without the prior written consent of the other party hereto. The provisions of this Section shall survive the Closing or any termination of this Agreement.
 
SECTION 14.20. Time is of the Essence. Time is of the essence with respect to the obligations of Buyer under this Agreement.
 
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IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the day and year first above written.
 
SELLER:	
 	
BRE/RANDOLPH DRIVE L.L.C, a Delaware
limited liability company	
 	 	
By:	 	/s/ Steven Orbuch

	
 	 	Name:	 	Steven Orbuch	
 	 	Title:	 	Vice President	

BUYER:	
 	
WELLS OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership	
 	 	
By:	 	Wells Real Estate Investment Trust, Inc., a Maryland corporation, its general partner	
 	 	 	
 	 	By:	 	 

	
 	 	 	 	Name:	 	 	
 	 	 	 	Title:	 	 	

IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the day and year first above written.
 
SELLER:	
 	
BRE/RANDOLPH DRIVE L.L.C, a Delaware
limited liability company	
 	 	
By:	 	 

	
 	 	Name:	 	 	
 	 	Title:	 	 	

BUYER:	
 	
WELLS OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership	
 	 	
By:	 	Wells Real Estate Investment Trust, Inc., a Maryland corporation, its general partner	
 	 	 	
 	 	By:	 	/s/ Douglas P. Williams

	
 	 	 	 	Name:	 	Douglas P. Williams	
 	 	 	 	Title:	 	Executive Vice President	

JOINDER BY ESCROW AGENT
Aon Center @ 200 East Randolph St, Chicago (Cook), IL
 
Chicago Title Insurance Company, referred to in this Agreement as the “Escrow Agent,” hereby acknowledges that it received this Agreement executed by Seller and Buyer as of the 3rd day of April, 2003, and accepts the obligations of the Escrow Agent as set forth herein. Escrow Agent further acknowledges that it received the Earnest Money on the 4th day of April, 2003. The Escrow Agent hereby agrees to hold and distribute the Earnest Money in accordance with the terms and provisions of the Agreement.
 
Chicago Title Insurance Company	
 	 	
By:	 	/s/ Janet Johnson-West

	
 	 	Janet Johnson-West, Escrow Officer	
 	 	Chicago Title Insurance Company	
 	 	171 N. Clark St, Chicago, IL 60601	
 	 	(312) 223-2713 / 223-5888 (Fax)	
 	 	File #1401-008065343	

EXHIBIT 10.102
 
AGREEMENT WITH BP CORPORATION NORTH AMERICA, INC. AND AMENDMENTS
THERETO FOR A PORTION OF THE AON CENTER CHICAGO BUILDING

AMOCO BUILDING
200 EAST RANDOLPH DRIVE
CHICAGO, ILLINOIS
 
OFFICE LEASE
 
BETWEEN
 
BRE/RANDOLPH DRIVE L.L.C.,
a Delaware limited liability company
 
LANDLORD
 
AND
 
AMOCO CORPORATION
an Indiana corporation
 
TENANT
 
DATED: As of December 11, 1998

TABLE OF CONTENTS
 
SECTIONS:
 
1.	  	Premises; Renewal Options	  	14	
2.	  	Rent	  	18	
3.	  	Use of Premises	  	34	
4.	  	Contraction Option	  	34	
5.	  	Leasing Restrictions	  	36	
6.	  	Alterations	  	37	
7.	  	Services	  	38	
8.	  	Condition and Care of Premises	  	48	
9.	  	Return of Premises	  	49	
10.	  	Holding Over	  	50	
11.	  	Rules and Regulations	  	51	
12.	  	Rights Reserved to Landlord	  	52	
13.	  	Assignment and Subletting	  	54	
14.	  	Waiver of Certain Claims; Indemnification Provisions	  	58	
15.	  	Damage or Destruction by Casualty	  	59	
16.	  	Eminent Domain	  	61	
17.	  	Default; Landlord’s Rights and Remedies	  	62	
18.	  	Default by Landlord; Tenant’s Remedies; Self-Help	  	66	
19.	  	Subordination and Attornment	  	69	
20.	  	Time is of the Essence	  	70	
21.	  	Subrogation and Insurance	  	70	
22.	  	Nonwaiver	  	71	
23.	  	Estoppel Certificate	  	72	
24.	  	Authority to Execute Lease	  	73	
25.	  	Real Estate Brokers	  	73	
26.	  	Notices	  	74	
27.	  	Miscellaneous	  	74	
28.	  	Landlord’s Authority and Quiet Enjoyment	  	76	
29.	  	Landlord	  	76	
30.	  	Title and Covenant Against Liens	  	76	
31.	  	Relocation of Tenant	  	77	
32.	  	Easements	  	77	
33.	  	WAIVER OF TRIAL BY JURY; VENUE	  	77	
34.	  	No Representations by Landlord	  	78	
35.	  	Successors and Assigns	  	78	
36.	  	Building and Tenant Identity	  	78	
37.	  	Rooftop Communications Equipment	  	80	
38.	  	Expansion Space	  	81	
39.	  	Tenant’s Right of First Offer For Additional Space	  	83	
40.	  	Arbitration	  	84	
 
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41.	  	Sale of Building; Right of First Offer	  	88	
42.	  	79th Floor Cancellation Right	  	90	
43.	  	Parking	  	90	
44.	  	Press Releases; Confidentiality	  	91	
45.	  	Environmental Covenants	  	92	
46.	  	Building Plaza	  	92	
47.	  	Other Agreements; Release of Tenant	  	93	
 
EXHIBITS

	  	 	
Exhibit A	  	Land Description	
Exhibit B	  	Initial Premises	
Exhibit C	  	Rent Schedule	
Exhibit D	  	Loading Docks	
Exhibit E	  	Main Lobby	
Exhibit F	  	Plaza Use Policy	
Exhibit G	  	Comparable Buildings	
Exhibit H	  	Temporary Premises	
Exhibit I	  	Cleaning Specifications	
Exhibit J	  	Monument Location	
Exhibit K	  	Intentionally Omitted	
Exhibit L	  	HVAC Specifications	
Exhibit M	  	Base Building and Tenant’s Fixtures	
Exhibit N	  	Electrical Service Specifications	
Exhibit O	  	Trademark License Agreement	
Exhibit P	  	Rules and Regulations	
Exhibit Q	  	Non-Disturbance and Attornment Agreement (Sub-Tenant)	
Exhibit R	  	Service Notice	
Exhibit S	  	Self-Help Repair Notice	
Exhibit T	  	Subordination, Non-Disturbance and Attornment Agreement (Lender)	
Exhibit U	  	Short Form of Lease	
Exhibit V	  	Workletter	
Exhibit W	  	Building Rentable Square Feet	
Exhibit X	  	Security System Integration	
Exhibit Y	  	Calculation of HVAC Rate	
 
ii

LEASE with AMOCO CORPORATION,
an Indiana corporation
 
on Premises at the Amoco Building at
200 East Randolph Drive
Chicago, Illinois
 
This Lease, made as of the 11th day of December, 1998 (“Commencement Date”), by and between BRE/Randolph Drive L.L.C., a Delaware limited liability company (“ Landlord ”) and the Tenant identified immediately above (as hereinafter defined).
 
DEFINITIONS
 
“79th Floor Premises” shall mean the Three Thousand Five Hundred Eleven (3,511) Rentable Square Feet of Space on the 79th floor of the Building leased by Tenant on the Commencement Date, as designated on Exhibit B .
 
“1989 BOMA” shall mean the Standard Method for Measuring Floor Area adopted by Building Owners and Managers Association, International that was in effect in 1989 (ANSI Z65.l-1980)(Reaffirmed 1989).
 
“AAA” shall mean the American Arbitration Association or any successor organization.
 
“Acceptable Cleaning Service” shall have the meaning set forth in Section 7(a)(iii)(B).
 
“Acceptance Notice” shall have the meaning set forth in Section 41.
 
“Additional Rent” shall have the meaning set forth in Section 2(b).
 
“Additional Rent Progress Payment” shall have the meaning set forth in Section 2(d).
 
“Adjustment Date” shall have the meaning set forth in Section 2(b)(i).
 
“Adjustment Year” shall have the meaning set forth in Section 2(b)(ii).
 
“Affiliate(s)” shall mean, with respect to any person or entity, any corporation or other entity which shall control, be under the control of, or be under common control with, such person or entity. The term “control” as used herein shall be deemed to mean the possession, direct or indirect, of the power to direct or cause the direction of the management
 
1

and policies of such entity, whether through the ownership of voting securities, by contract or otherwise
 
“Alteration Notice” shall have the meaning set forth in Section 6(c).
 
“Americans with Disabilities Act” shall mean the Americans With Disabilities Act of 1990 (42 U.S.C. §§12-101 etseq), as amended, and the regulations promulgated thereunder.
 
“Antennae” shall have the meaning set forth in Section 37(a).
 
“Antennae Sites” shall have the meaning set forth in Section 37(a).
 
“Appointment Date” shall have the meaning set forth in Section 40(c)(i).
 
“Approved Architect” shall mean an architect chosen by Landlord and reasonably acceptable to Tenant.
 
“Arbitration” shall have the meaning set forth in Section 40(a).
 
“Arbitration Notice” shall have the meaning set forth in Section 40(c)(i).
 
“Arbitrator” shall have the meaning set forth in Section 40(c)(i).
 
“Bankruptcy Code” shall mean 11 U.S.C. Section 101 et seq., or any statute of similar nature and purpose.
 
“Base Building” shall mean the core, shell and Building Systems, and the improvements to the common areas inside and outside the Building, including the items set forth in Exhibit M , but specifically excluding the Tenant’s Property.
 
“Base Rent” shall have the meaning set forth in Section 2(a) hereof.
 
“Building” shall mean all of the real property improvements located on the Land, including collectively the office space, Garage, podium building, Retail Space, Building plaza, mechanical, common and public areas.
 
“Building Systems” shall mean the mechanical, electrical, sanitary, HVAC Systems, elevator, plumbing, fiber optic cabling, life-safety (including sprinkler), security and other systems of the Building.
 
“Building’s Proprietary Card Access System” shall mean any master card system used by Landlord in the Building from time to time during the Term to restrict or control entry into the Building, the use of the elevators or entry into other tenant spaces.
 
“Business Days” shall mean all days, excluding Saturdays, Sundays and all Holidays.
 
2

“Business Hours” shall have the meaning set forth in Section 7(a)(i) hereof.
 
“Casualty Damage” shall have the meaning set forth in Section 15(a).
 
“Chauffeur’s Lounge” shall mean the lounge for use by the Tenant’s chauffeur(s) at the location identified on Exhibit B attached hereto.
 
“Cleaning Specifications” shall mean the cleaning specifications set forth inExhibit I attached hereto, as such specifications shall be revised from time to time by Landlord consistent with the operation of the Building as a first-class office building in downtown Chicago. Any material changes made by Landlord to the Cleaning Specifications shall require the prior consent of Tenant, which consent may not be unreasonably withheld; provided, however, that it shall not be unreasonable for Tenant to withhold its consent if Tenant believes in Tenant’s reasonable judgment that the proposed change would result in a material reduction in the quality or quantity of the services provided to Tenant.
 
“Code” shall mean the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
 
“Commencement Date” shall have the meaning set forth in the heading of this Lease.
 
“Comparable Buildings” shall mean the first-class office buildings in downtown Chicago identified onExhibit G attached hereto. The Comparable Buildings initially agreed upon shall be updated annually by mutual written agreement between Landlord and Tenant, provided that if in any year no such update occurs, the most recently agreed upon Comparable Buildings shall remain in place until such time as the parties agree upon a new list of such first-class office buildings. With respect to any calendar year, if Landlord and Tenant cannot mutually agree upon any such update by January 1 of such calendar year, either Landlord or Tenant may submit the matter to Arbitration.
 
“Consolidated Shareholder’s Equity” shall mean, with respect to the Tenant or any proposed assignee of this Lease, as of any date of determination, the total assets of such entity on a consolidated basis, less the total liabilities of such entity.
 
“Contested Matters” shall have the meaning set forth in Section 2(f).
 
“Contraction Notice” shall have the meaning set forth in Section 4(a).
 
“Contraction Rights” shall have the meaning set forth in Section 4(a).
 
“Contribution Agreement” shall mean that certain Contribution and Sale Agreement among AmProp Finance Company, Blackstone Real Estate Randolph Drive L.L.C. and Landlord.
 
3

“Cosmetic Alterations” shall have the meaning set forth in Section 6(b).
 
“Critical Area” shall mean any LAN room, telephone PBX room or other area that is critical for the operation by Tenant of its daily business in the Premises, the aggregate area of which constitutes approximately 20,000 Rentable Square Feet on the date of this Lease and which is as identified on  Exhibit B  attached hereto. To the extent Tenant intends to relocate the functions then being utilized in any Critical Area to a different portion of the Premises, then, upon written notice from Tenant to Landlord, such different portion of the Premises shall be deemed replacement Critical Area; provided, however, that the aggregate amount of Critical Area shall not exceed 25,000 Rentable Square Feet (including after any expansion). Tenant may expand the size of the Critical Area up to but not more than 5,000 Rentable Square Feet without Landlord’s prior written approval.
 
“Default” shall have the meaning set forth in Section 17(a).
 
“Default Rate” shall mean the Prime Rate plus two percent (2%).
 
“Delivery Window” shall have the meaning set forth in Section 38(a).
 
“Designated Arbitrator” shall have the meaning set forth in Section 40(b)(i).
 
“Determination” shall have the meaning set forth in Section 40(c)(ii)(D).
 
“Environmental Laws” shall have the meaning set forth in Section 45(a).
 
“Estoppel Certificate” shall have the meaning set forth in Section 23(a).
 
“Exhibit W Standard(s)” for each floor of the Building shall mean the square footage shown under the column marked “Building Standard” on  Exhibit W  attached hereto.
 
“Expansion Option” shall have the meaning set forth in Section 38(a). 
 
“Expansion Space” shall have the meaning set forth in Section 38(a).
 
“Expansion Space Delivery Date” shall have the meaning set forth in Section 38(b).
 
“Expense Adjustment” shall have the meaning set forth in Section 2(c)(i).
 
“Expenses” shall have the meaning set forth in Section 2(b)(iii).
 
“Expiration Date” shall mean the fifteenth (15th) anniversary of the Commencement Date of the Lease or if this Lease is renewed pursuant to  Section 1  hereof,
 
4

then the last day of any renewal period as to which Tenant shall have exercised its rights then hereunder.
 
“Fair Market Rental Value” shall have the meaning set forth in Section 1(b)(iii).
 
“Final Holdover Period” shall have the meaning set forth in Section 10(c).
 
“Final Holdover Rent” shall have the meaning set forth in Section 10(c).
 
“Final Plans” shall have the meaning set forth in the Workletter.
 
“First Holdover Period” shall have the meaning set forth in Section 10(a).
 
“First Holdover Rent” shall have the meaning set forth in Section 10(a).
 
“First Lease Termination Date” shall have the meaning set forth in Section 38(a).
 
“FMRV Arbitrator” shall have the meaning set forth in Section 40(c)(i).
 
“Force Majeure” shall mean, with respect to either Landlord’s or Tenant’s performance obligations hereunder, any national strike, national lockout, national labor trouble, civil disorder, riots, insurrections, war, fuel shortages, accidents, fire or other casualties (not caused by the party claiming Force Majeure), and acts of God.
 
“Freight Elevator Expenses” shall have the meaning set forth in Section 7(a)(iv).
 
“Freight Hours” shall have the meaning set forth in Section 7(a)(iv).
 
“GAAP” shall mean generally accepted accounting principles consistently applied.
 
“Garage” shall mean the parking garage and all other parking structures located on the Land (including the Monthly Parking Area).
 
“Governmental Authority(ies)” shall mean any nation or government, any federal, state, local or other political subdivision thereto and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, to the extent each of the foregoing has jurisdiction over the Real Property or over Landlord or Tenant with respect to the Real Property.
 
“Hazardous Substances” shall mean those substances included within the definitions of any one or more of the terms “hazardous substances,” “hazardous materials,” “toxic substances,” and “hazardous waste” in the Comprehensive Environmental Response,
 
5

Compensation and Liability Act, 42 U.S.C. § 9601 et seq., (as amended) and any other similar term in any other similar Environmental Law in effect from time to time during the Term and applicable to the Real Property.
 
“Holidays” shall have the meaning set forth in Section 7(a)(i).
 
“HVAC Systems” shall mean heating, ventilation and air conditioning systems serving the Building, other than any supplemental systems owned by Tenant.
 
“Illinois Uniform Arbitration Act” shall mean 111. Rev. Stat. ch. 10, 101 et seq.
 
“including or include” shall mean “including, without limitation.”
 
“Incremental Leased Premises” shall have the meaning set forth in Section 2(b)(vii).
 
“Independent Contractor” shall have the meaning set forth in Section 2(b)(iii)(B).
 
“Indiana Room” shall mean the meeting room commonly known as the “Indiana Room” located on Lower Level One (LLl) of the Building.
 
“Initial Cure Period” shall have the meaning set forth in Section 18(f)(ii).
 
“Initial Premises” shall mean the space located on the floors 3 through 26, 29 through 32, 34 and 35 inclusive of the Building leased by Tenant on the Commencement Date, the 79th Floor Premises and the Podium Space (but not including the Temporary Premises), all as more specifically identified on  Exhibit B  attached hereto and made a part hereof, which Initial Premises shall in the aggregate contain 963,511 Rentable Square Feet.
 
“Initial Term” shall mean the period beginning with the Commencement Date and ending on the day immediately preceding the fifteenth (15th) anniversary of the Commencement Date, unless earlier terminated as provided herein.
 
“Labor Costs” shall have the meaning set forth in Section 2(b)(iii)(B).
 
“Land” shall mean the land which is legally described in Exhibit A attached hereto.
 
“Landlord” shall have the meaning set forth in Section 29.
 
“Landlord Default” shall have the meaning set forth in Section 18(a).
 
6

“Landlord Indemnitee(s)” shall mean Landlord and Manager and their Affiliates and any partners, shareholders, officers, directors, employees, principals, agents, consultants, servants and contractors, directly or indirectly, of such party.
 
“Landlord’s Accountant” shall have the meaning set forth in Section 2(e)(i).
 
“Landlord’s Actual Cost(s)” shall mean any and all reasonable direct out-of-pocket costs and expenses reasonably incurred by Landlord in performing certain services set forth in this Lease, including the hiring of any consultants (which consultants may include Manager or an Affiliate of either Landlord or Manager, provided that the amount paid to any such Affiliate does not exceed the amount that would have been incurred by Landlord in the absence of such relationship.) Landlord will minimize Landlord’s Actual Costs in a manner consistent with first-class office buildings in downtown Chicago. Landlord’s Actual Cost shall not include any mark-up for administrative costs for work performed by employees of either Landlord or its Affiliates. Before utilizing any third party, Landlord shall first seek to use the employees of Landlord, Landlord’s Affiliates or Manager, whose salaries are included in Expenses, to the extent any of such employees are or would have been capable of performing the review or work at issue, provided that Landlord may use third parties for emergency situations in the event such employees are not available due to their other duties at the Building.
 
“Landlord’s Expenses Statement” shall have the meaning set forth in Section 2(e)(i).
 
“Landlord’s Leasing Notice” shall have the meaning set forth in Section 39.
 
“Landlord’s Statement” shall mean a Landlord’s Expenses Statement and/or a Landlord’s Taxes Statement.
 
“Landlord’s Taxes Statement” shall have the meaning set forth in Section 2(e)(ii).
 
“Late Hours” shall have the meaning set forth in Section 7(a)(iv).
 
“Lease” shall mean this lease and all Exhibits and Schedules attached hereto and all amendments, modifications, supplements and restatements thereto, whether or not such Exhibits or Schedules are specifically referred to when the term “Lease” is used herein.
 
“Leasehold Mortgage” shall have the meaning set forth in Section 13(f).
 
“Lease Year” shall mean each twelve (12) month period occurring during the Term, commencing with the Commencement Date, provided that if the Commencement Date occurs on other than the first day of a month, the first Lease Year shall include the partial month in which the Commencement Date occurs and the next twelve (12) full months and
 
7

succeeding Lease Years shall commence on the respective anniversaries of the first day of the first full month after the Commencement Date.
 
“LLC Agreement” shall mean that certain BRE/Randolph Drive L.L.C. Amended and Restated Limited Liability Company Agreement between Blackstone Real Estate Randolph Drive L.L.C. and AmProp Randolph LLC, dated as of the date hereof, as the same may be amended, restated, supplemented or otherwise modified from time to time.
 
“Loading Dock(s)” shall mean the loading dock or load docks and related area as identified on Exhibit D .
 
“Major Accounting Firm” shall have the meaning set forth in Section 2(f).
 
“Main Lobby” shall mean that portion of the Building identified on Exhibit E attached hereto.
 
“Manager” shall mean the manager of the Building or any replacement or additional manager designated in writing to Tenant by Landlord.
 
“Material Default” shall mean the occurrence and continuance of any monetary Default or any other material Default, in each such case after the expiration of any applicable notice and cure period.
 
“Monetary Landlord Default” shall have the meaning set forth in Section 18(a).
 
“Monthly Base Rent” shall have the meaning set forth in Section 2(a).
 
“Monthly Parking Area” shall mean that portion of the Garage designated as of the date hereof as the monthly parking area and for which access cannot be gained without a monthly parking pass.
 
“Monthly Tax Deposits” shall have the meaning set forth in Section 2(d)(C).
 
“Mortgage(s)” shall mean any trust indenture or mortgage which may now or hereafter affect Landlord’s interest in the Real Property, or any Superior Lease and the leasehold interest created thereby, and all renewals, extensions, supplements, amendments, modifications, consolidations and replacements thereof or thereto, substitutions therefor, and advances made thereunder.
 
“Mortgagee(s)” shall mean any ground lessor, trustee, mortgagee or holder of a Mortgage.
 
“Most Favored Tenant Rate” shall mean the lowest rate given to any other tenant of the Building, excluding rates which are granted to tenants under the terms of the Building leases in effect on the Commencement Date (“Existing Leases”), but specifically
 
8

including any rates granted in any New Area Leases and any amendments, modifications, supplements, addenda and/or restatements of any of the Existing Leases that are entered into after the Commencement Date.
 
“New Area Lease(s)” shall have the meaning set forth in Section 2(b)(vii).
 
“Net Sublease Proceeds” shall have the meaning set forth in Section 13(d)(i).
 
“Net Worth” shall mean, with respect to any person or entity, the excess of total assets of such person or entity over the total liabilities of such person or entity.
 
“Nondisturbance Agreement” shall have the meaning set forth in Section 19(c).
 
“Non-Renewed Premises” shall have the meaning set forth in Section 1(b)(i)(C).
 
“Nonstructural Alterations” shall have the meaning set forth in Section 6(b).
 
“Occupancy,” “Occupies,” “Occupy” or “Occupied” shall mean that Tenant is physically occupying space and operating its business in such space for its intended use as set forth in the Lease.
 
“Offer to Purchase” shall have the meaning set forth in Section 41.
 
“Office Area(s)” shall mean the area(s) where a tenant normally houses personnel and/or furniture.
 
“OTP Offer Period” shall have the meaning set forth in Section 41.
 
“OTP Response Period” shall have the meaning set forth in Section 41.
 
“PBX Space” shall mean those portions of the 25th and 26th floors of the Building (and the wiring, cabling, conduits and/or other equipment located outside of the space shown on  Exhibit B  which are necessary to the use of the PBX Equipment) consisting of approximately 2,400 Rentable Square Feet and identified on  Exhibit B  which contain Tenant’s PBX equipment.
 
“Permitted Expenses” shall have the meaning set forth in Section 1(b)(i)(C).
 
“Podium Space” shall mean the space identified as the “Podium Space” on Exhibit B attached hereto, which shall include the Chauffeur’s Lounge and which shall initially be deemed to consist of 48,000 Rentable Square Feet.
 
9

“Possession” or “Possess” shall mean, with respect to the Premises, the right to enter any space to be added to the Premises for the purpose of planning, performing, or preparing for, the construction of Tenant Improvements, as opposed to the use of such space as the Premises as set forth in  Section 3  hereof which would constitute Occupancy of the Premises.
 
“Premises” shall mean the Initial Premises as expanded or reduced pursuant to the terms of this Lease.
 
“Prime Rate” shall mean the then current “prime lending rate” as published from time to time in the WallStreetJournal or successor publication.
 
“Proceedings” shall have the meaning set forth in Section 2(j). 
 
“Projection Notice” shall have the meaning set forth in Section 2(d)(A).
 
“Projections” shall have the meaning set forth in Section 2(d)(A). 
 
“Proposed Plans” shall have the meaning set forth in the Workletter.
 
“Prudential Easement” shall mean that certain Cross Easement and Operating Agreement between AmProp Finance Company, an Indiana corporation (whose interest has been assigned to Landlord as of the date hereof), and Prudential Plaza Associates, an Illinois general partnership, dated as of May 16, 1991, a memorandum of which was recorded in the Cook County, Illinois records May 24, 1991 as Document No. 91248078.
 
“Real Property” shall mean the Land and the Building.
 
“Recapture Portion” shall have the meaning set forth in Section 13(c).
 
“Reduction of Services” shall mean with respect to the Premises or any portion thereof a condition deemed to be a Reduction of Services as specifically set forth in this Lease.
 
“Rejection Notice” shall have the meaning set forth in Section 41. 
 
“Renewal Allowance” shall have the meaning set forth in Section 1(b)(iv).
 
“Rent” shall have the meaning set forth in Section 2(a).
 
“Rent Per Square Foot” shall have the meaning set forth in Section 13(d)(iii).
 
“Rentable Square Feet (Foot or Footage)” and “RSF” shall mean (i) with respect to any portion of the Premises or Temporary Space that constitutes a full floor, the number set forth for the applicable floor on Exhibit B , Exhibit H  or  Exhibit W  and (ii) with respect to
 
10

any portion of the Premises or Temporary Space that constitutes any partial floor, a proportionate amount of the total Rentable Square Feet of such floor.
 
“Requirement(s)” shall mean all laws, court orders, ordinances, regulations, statutes, requirements and codes of all Governmental Authorities now existing or hereafter created.
 
“Retail Space” shall mean the space in the Building which is or may be rented to tenants for retail purposes.
 
“Right of First Offer Space” shall have the meaning set forth in Section 39.
 
“Roof” shall have the meaning set forth in Section 37(a).
 
“Rules and Regulations” shall have the meaning set forth in Section 11.
 
“Sale Notice” shall have the meaning set forth in Section 41.
 
“Second Holdover Period” shall have the meaning set forth in Section 10(b).
 
“Second Holdover Rent” shall have the meaning set forth in Section 10(b).
 
“Self-Help Repair Notice” shall have the meaning set forth in Section 18(f)(ii).
 
“Self-Help Repairs” shall have the meaning set forth in Section 18(f)(iii).
 
“Service Notice” shall have the meaning set forth in Section 18(f)(i).
 
“Service Representative” shall have the meaning set forth in Section 18(f)(i).
 
“Structural Alterations” shall have the meaning set forth in Section 6(a).
 
“Sublease Proceeds” shall have the meaning set forth in Section 13(d)(iv).
 
“Sublease Rent” shall have the meaning set forth in Section 13(d)(v).
 
“Sublease Rent Per Square Foot” shall have the meaning set forth in Section13(d)(vi).
 
“Submission Date” shall have the meaning set forth in Section 40(c)(ii)(E).
 
“Superior Lease(s)” shall mean all ground or underlying leases of the Building hereafter made by Landlord.
 
“Surrendered Space” shall have the meaning set forth in Section 4(a).
 
11

“Taxes” shall have the meaning set forth in Section 2(b)(iv).
 
“Tax Adjustment” shall have the meaning set forth in Section 2(c)(ii).
 
“Temporary Premises” shall mean the thirty-third (33rd) floor and that portion of the Building located above the thirty-fifth (35th) floor that is Occupied by Tenant on the Commencement Date but is not part of the Initial Premises and not leased by Tenant pursuant to separate leases, all as more specifically identified on  Exhibit H ,  which Temporary Premises shall in the aggregate be deemed to contain 63,130 Rentable Square Feet.
 
“Temporary Premises Period” shall have the meaning set forth in Section 1(a).
 
“Temporary Sublet Premises” shall have the meaning set forth in Section 13(c).
 
“Tenant” shall, on the Commencement Date, mean Amoco Corporation. Thereafter, “Tenant” shall mean only the tenant under this Lease at the time in question.
 
“Tenant Improvements” shall mean the Tenant’s leasehold improvements and other improvements made by Tenant or its agents or contractors to the Premises which are of a nature and character that they may be depreciated during the Term, excluding Tenant’s furniture, fixtures and equipment.
 
“Tenant Indemnitee(s)” shall mean Tenant and its Affiliates and any partners, shareholders, officers, directors, employees, principals, agents, consultants, servants and contractors, directly or indirectly, of Tenant or its Affiliates.
 
“Tenant Leasing Requirement” shall mean the requirement that Tenant be liable to Landlord under this Lease for no less than four hundred thousand (400,000) Rentable Square Feet of space in the Building, provided that such number shall be reduced by the number of Rentable Square Feet of space recaptured by Landlord pursuant to the terms of Section 13(c) hereof, but in no event shall the Tenant Leasing Requirement be reduced below three hundred thousand (300,000) Rentable Square Feet.
 
“Tenant Occupancy Requirement” shall mean the requirement that Tenant occupy no less than four hundred thousand (400,000) Rentable Square Feet of space in the Building, provided that such number shall be reduced by the number of Rentable Square Feet of Space recaptured by Landlord pursuant to the terms of Section 13(c) hereof, but in no event shall the Tenant Occupancy Requirement be reduced below three hundred thousand (300,000) Rentable Square Feet.
 
“Tenant’s Actual Cost(s)” shall mean any and all reasonable direct out-of-pocket costs and expenses reasonably incurred by Tenant in connection with the exercise of Tenant’s self-help rights in accordance with  Section 18 , including the hiring of any consultants (which consultants may include Tenant’s Affiliates, provided the amount paid to any such Affiliate does not exceed the amount that would have been incurred by Tenant in the absence of such
 
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relationship). Tenant will always use reasonable efforts to minimize Tenant’s Actual Cost. Tenant’s Actual Cost shall not include any mark-up for administrative costs for work performed by employees of either Tenant or its Affiliates.
 
“Tenant’s Address for Notices” shall mean the Premises, Attention Facilities and Services, Chicago Regional Manager (Mail Code 2203) and Manager of Regional Administration, Facilities and Services, Chicago Region (Mail Code 2203), with a copy to Manager of Real Estate (Mail Code 4N), 28100 Torch Parkway, Warrenville, Illinois 60555.
 
“Tenant’s Construction” shall mean any construction by Tenant and Tenant’s Contractors of Tenant Improvements.
 
“Tenant’s Contractors” shall mean collectively, all general, mechanical and electrical contractors, subcontractors, sub-subcontractors engaged by or proposed to be engaged by Tenant, its agents and representatives.
 
“Tenant’s Emergency Representative” shall mean the Manager Facilities and Services, Chicago Regional Manager for Tenant, or such other person or persons as Tenant may designate from time to time by written notice to Landlord.
 
“Tenant’s Expansion Notice” shall have the meaning set forth in Section 38(a).
 
“Tenant’s Fixtures” shall mean those items identified as Tenant’s Fixtures onExhibit M attached hereto.
 
“Tenant’s Freight Elevator” shall mean freight elevator number 43, or such other of the freight elevators located in the Building as Landlord and Tenant may agree from time to time.
 
“Tenant’s Loading Dock” shall mean that certain loading dock number 3 comprising part of the Loading Docks (as designated on Exhibit D ), or such other loading dock comprising a part of the Loading Docks as Landlord and Tenant may agree from time to time, and the associated truck bays and immediately adjacent areas necessary for loading and unloading.
 
“Tenant’s Plans” shall mean Tenant’s construction drawings, including mechanical, electrical, structural and architectural.
 
“Tenant’s Property” shall mean all personal property, furniture, equipment, moveable partitions, Tenant Improvements, Tenant’s Fixtures, and all other items contained in the Premises or forming a part thereof as of the Commencement Date, including, without limitation, those items identified on  Exhibit M  (excluding Base Building) which are not included as part of Base Building (including, without limitation, all of the floor readers, panels and related wiring used in Tenant’s card access system for the Premises and any other item that, if altered, would qualify as a Nonstructural Alteration), regardless of whether or not such items of Tenant’s Property are attached or otherwise affixed to the Building. In the event any
 
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additional space is added to the Premises after the Commencement Date, Landlord shall convey to Tenant any items actually located within such additional space on the date such space is delivered by Landlord to Tenant that would fall within the definition of “Tenant’s Property” by bill of sale, effective as of the date the additional space is added to the Premises.
 
“Tenant’s Proportionate Share for Expenses” shall have the meaning set forth in Section 2(b)(v), as modified from time to time by the provisions of  Section 2(b)(vii) .
 
“Tenant’s Proportionate Share for Taxes” shall have the meaning set forth in Section 2(b)(vi), as modified from time to time by the provisions of  Section 2(b)(vii) .
 
“Tenant’s Secure Area(s)” shall mean those areas of the Premises identified on Exhibit B attached hereto, as such areas may, upon written notice to Landlord from Tenant, be revised by Tenant from time to time during the Term.
 
“Term” shall mean the Initial Term as extended by any renewal periods or shortened (by earlier termination or otherwise) pursuant to the terms of this Lease.
 
“Third Party Lease” shall have the meaning set forth in Section 39(b).
 
“Unresolved Contested Matters” shall have the meaning set forth in Section 2(f).
 
“Untenantable” and “Untenantability” shall mean that the Premises, or any portion thereof, cannot reasonably be (i) Occupied by Tenant (including Occupancy for supporting and ancillary uses), and is not so occupied by Tenant or (ii) accessed by Tenant, and, in either case, such condition was not primarily caused by Tenant or its employees. The Premises, or any portion thereof, may be determined to be Untenantable, regardless of whether or not a Reduction of Services has occurred.
 
“Workletter” shall mean the Workletter attached hereto as Exhibit V. The terms and provisions of the Workletter are hereby incorporated into this Lease by this reference.
 
WITNESSETH:
 
1. Premises; Renewal Options.
 
(a) Subject to the terms and conditions set forth herein, Landlord hereby agrees to lease the Premises to Tenant, and Tenant hereby agrees to accept the Premises for the Term, paying as Rent therefore the sums hereinafter provided, without any setoff, abatement, counterclaim, recoupment or deduction whatsoever, except as otherwise set forth herein. Tenant shall also have the non-exclusive right to use the common areas of the Building for ingress and egress subject to the terms and conditions set forth herein. In addition, Landlord
 
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shall lease to Tenant, and Tenant agrees to lease from Landlord, the Temporary Premises for a period (“Temporary Premises Period”) beginning with the Commencement Date and ending upon the earlier of (i) a date specified by Tenant in written notice to Landlord delivered at least ninety (90) days prior to such date and (ii) the date which is one calendar year after the Commencement Date. The leasing of the Temporary Premises shall be subject and pursuant to the terms and conditions set forth herein, including, without limitation, the payment of Base Rent and Additional Rent with respect to the Temporary Space, and all calculations of Tenant’s Proportionate Share of Expenses and Tenant’s Proportionate Share of Taxes shall include the Temporary Premises. During such time as Tenant retains possession of all or any portion of the Temporary Premises, such Temporary Premises shall be considered to be part of the Premises for purposes of this Lease. Upon the end of the Temporary Premises Period, Tenant shall vacate the Temporary Premises and surrender the space to Landlord in an “AS IS” “WHERE IS” condition, without any requirement to remove any of Tenant’s Property or any other property of Tenant located outside of the Temporary Premises or to perform repairs, improvements or other work (other than repairs requested by Landlord within five (5) days after the date upon which Tenant vacates the Temporary Premises and which are necessary to repair any damage to the Building (other than to the paint, carpeting or wall coverings) caused by the removal of Tenant’s Property), regardless of whether or not such space, upon delivery to Landlord, complies with the Requirements, provided that Tenant shall not intentionally commit waste in the Temporary Premises.
 
(b) Provided that this Lease shall be in full force and effect and Tenant shall not be in Material Default at the time of exercise of any right of renewal or as of the date set for commencement of the renewal term, Tenant shall have the right to renew the Initial Term for four (4) successive periods of five (5) years each, on the following terms and provisions:
 
(i) Each such renewal term shall be upon the same terms, covenants and conditions as provided in this Lease except as follows:
 
(A) the annual Base Rent rate for the renewal terms shall be equal to ninety-five percent (95 %) of the anticipated Fair Market Rental Value as of the date of the commencement of the relevant renewal term. Upon determination of the Base Rent, the parties shall promptly execute an amendment to this Lease to establish and evidence such Base Rent;
 
(B) there shall be no further rights to renew beyond the four (4) renewal terms specified herein; and
 
(C) Tenant shall have the right to renew for all or any portion of the Premises, provided that Tenant’s renewal of space in the office tower portion of the Building shall be in full floor increments (except that Tenant may renew the 79th Floor Premises and for any amount of space on the highest floor other than the 79th floor that is renewed so long as Tenant renews at least approximately one-half of the Rentable Square Feet on such highest floor, and Tenant shall be permitted on the 25th and 26th floors to renew only the PBX
 
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Space). Notwithstanding the foregoing, the office tower portion of the Premises with respect to which Tenant elects not to renew this Lease (the “ Non-Renewed Premises ”) shall be limited to full contiguous floors of the Premises prior to the renewal (not including the 79th floor, the highest floor that is renewed or any space that has been recaptured by Landlord pursuant to  Section 13(c))  which constitute the highest floors contained in the office tower portion of the Premises prior to the renewal; provided, however that in no event shall Tenant be required to delete floors 29-31 nor shall Tenant be required to delete the PBX Space on the 25th and 26th floors.
 
(ii) Tenant shall exercise its right to the renewal terms provided herein, if at all, by notifying Landlord in writing of its election to exercise the right to renew the Term for each additional five (5) year period not less than eighteen (18) months prior to the then current expiration of the Term, and a failure to give such a notice on or before such date shall constitute a waiver of Tenant’s right to renew. On or before the date that is fourteen (14) months prior to the then current expiration of the Term, Landlord shall notify Tenant in writing of the Landlord’s determination of the Fair Market Rental Value for the applicable renewal period. If the Tenant objects to such determination, then the parties agree to negotiate in good faith to resolve the dispute. If Landlord and Tenant are unable to resolve the dispute on or before the date that is twelve (12) months prior to the then current expiration of the Term, then the Fair Market Rental Value shall be determined by Arbitration, and Landlord and Tenant shall within ten (10) Business Days thereafter give each other notice of the proposed Fair Market Rental Values that they intend to use in the Arbitration; provided that Tenant shall have the right to rescind its election to renew upon written notice to Landlord within thirty (30) days after Landlord has notified Tenant of the proposed Fair Market Rental Value which Landlord will offer in the Arbitration. If Tenant does not notify Landlord within such thirty-day period that Tenant is rescinding its election to renew, Tenant shall have no further right to rescind such election and the Arbitration shall proceed with both parties agreeing to be bound by the Fair Market Rental Value determined thereby. If for any reason a renewal period begins and the Fair Market Rental Value of the Premises has not yet been determined, then Tenant shall pay rent to Landlord for the Premises equal to the Base Rent and Additional Rent that Tenant was paying in the last month of the Term immediately prior to the applicable renewal period until the Arbitration is resolved. Once the amount of Fair Market Rental Value for the Premises for such renewal period has been determined by the FMRV Arbitrators, Tenant shall immediately begin paying 95% of the Fair Market Rental Value so determined. If the amount of rent Tenant had been paying is less than the Fair Market Rental Value so determined, Tenant shall pay such difference to Landlord within fifteen (15) days after such determination. If, however, the amount of rent Tenant had been paying is greater than 95% of the Fair Market Rental Value so determined, Landlord shall refund such difference to Tenant within fifteen (15) days after such determination.
 
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(iii) “Fair Market Rental Value” shall mean the anticipated base rent as of the commencement of the relevant renewal term at which the Premises, or applicable portion thereof to be renewed, would be leased for the renewal term or for the Expansion Space, in its then-existing condition, in an arms-length transaction between a willing landlord and tenant in the office space market existing for comparable first-class buildings in the central business district of Chicago, Illinois (taking into account the location of the Building in the central business district), taking into account all relevant facts and considerations, including base rents, rent escalations, rent abatements, allowances (such as tenant improvement, space planning, working drawing and moving allowances), commencement date of the comparable leases, commissions, operating expenses, real estate taxes and other economic terms and relevant non-economic terms (including, without limitation, the provision of special services and rights to Tenant) contained in the Lease and in recently signed leases for premises of similar size, location and configuration in comparable first-class buildings in the central business district of Chicago (taking into account the location of the Building in the central business district and the location of the Premises within the Building). The Landlord and Tenant hereby agree that the creditworthiness of tenants shall be a relevant factor in determining Fair Market Rental Value hereunder.
 
(iv) In connection with the first (1st) and third (3rd) of Tenant’s renewals of the Term after the Initial Term, Landlord shall, upon written request of Tenant, provide Tenant, prior to the beginning of the applicable renewal term, with a tenant improvement allowance as requested by Tenant, but in any event, which for each renewal shall not exceed the amount equal to the product of (A) the number of Rentable Square Feet contained in the portion of the Premises being renewed (renewals on partial floors shall be determined in accordance with the Exhibit W Standard) and (B) $30.00 (the “ Renewal Allowance ”). Disbursement of the Renewal Allowance shall be subject to all of the terms and conditions of this Lease and the Workletter (including, without limitation, any rent credit or offset rights granted to Tenant for Landlord’s failure to comply with the provisions hereof). If Tenant elects to receive a Renewal Allowance for the first and/or third renewal period, the Fair Market Rental Value for such renewal period shall take into account that such Renewal Allowance is to be amortized over the term of such renewal period at a rate equal to one percent (1 %) per annum plus the Prime Rate.
 
(v) Notwithstanding anything to the contrary contained herein, in the event the amount of space in the Building being leased by Tenant falls below three hundred thousand (300,000) Rentable Square Feet, (i) Tenant shall only be permitted to renew the Initial Term for two (2) additional successive five (5) year periods, and (ii) if Tenant elects to renew, Tenant must renew for all of the space comprising the Premises on the date of the commencement of the relevant renewal term.
 
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2. Rent.
 
(a) Tenant shall pay an annual base rent (herein called “Base Rent”) to Landlord for the Premises in the amount stipulated in Exhibit C  payable in monthly installments (herein called “ Monthly Base Rent ”) in the amount stipulated in Exhibit C , in advance beginning on the Commencement Date and on the first day of each calendar month thereafter of the Term (subject to any rent abatement set forth herein), and at the same rate prorated for fractions of a month if the Term shall begin on any date except the first day, or shall end on any day except the last day of a calendar month. Base Rent, Additional Rent (as hereinafter defined), Additional Rent Progress Payments (as hereinafter defined) and all other amounts becoming due from Tenant to Landlord herein (herein collectively called the “Rent”) shall be paid in lawful money of the United States of America in immediately available funds to Landlord. Landlord hereby authorizes Tenant to pay Rent and all other sums due and owing to Landlord hereunder, either by wire transfer or check, to Landlord at the office of the Building, or to such other person, entity or address as otherwise designated from time to time by written notice from Landlord to Tenant. The obligation to pay Rent hereunder is independent of each and every other covenant and agreement contained in this Lease and shall, except as otherwise set forth herein, be paid without any setoff, abatement, counterclaim, recoupment or deduction; provided, however, notwithstanding anything contained in this Lease to the contrary, Tenant shall be entitled to: (i) offset against Rent (and any other amounts owed by Tenant to Landlord pursuant to this Lease), any overpayments of the estimated payments made by Tenant with respect to Additional Rent (including, without limitation, any Additional Rent Progress Payments), as disclosed on the applicable Landlord’s Expense Statement or Landlord’s Taxes Statement (if any) or determined pursuant to a contest as provided in  Section 2(f) , any other unappealable final judgment amounts determined by a court or arbitrator of competent jurisdiction to be owed by Landlord to Tenant under this Lease, if the same are not paid when due, and any amounts incurred by Tenant pursuant to Tenant’s self-help rights in accordance with  Section 18  and/or (ii) cure any Landlord Default as permitted under  Section 18  or elsewhere under this Lease.
 
(b) Additional Rent. In addition to paying the Base Rent specified in Subsection (a) hereof Tenant shall pay as Additional Rent the amounts determined in accordance with the following provisions of this  Subsection (b)  (herein called “ Additional Rent ”).
 
Definitions. As used in this Lease:
 
(i) “Adjustment Date” shall mean the first day of the Term and each January 1 thereafter falling within the Term.
 
(ii) “Adjustment Year” shall mean each calendar year during which an Adjustment Date falls.
 
(iii) “Expenses” shall mean and include, except as limited or excluded as set forth below, those costs and expenses paid or incurred by Landlord in
 
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connection with the operation, management, and maintenance of the Building and the Land in accordance with GAAP and which are included in the operating expenses of other first-class office buildings in downtown Chicago, including the following:
 
(A) All costs and expenses directly related to the Real Property for operating and cleaning tenant, common and public areas, and for water and utilities therefor, and for removing snow, ice, and debris;
 
(B) Salaries and fringe benefits (“Labor Costs”) (including social security taxes, unemployment insurance taxes, the cost of providing coverage for disability benefits, the cost of any pensions, hospitalization, welfare or retirement plans or any other similar or like expenses incurred under the provisions of any collective bargaining agreement, or any other reasonable and customary cost or expense paid or incurred to provide benefits) for any employee at or below the grade of the Building manager or the charges of any independent contractor who performs the functions of a typical building owner or manager or any of their employees (“Independent Contractor”);
 
(C) Subject to the provision set forth below, all costs and expenses of repairing or replacing paving, curbs, walkways, landscaping (including replanting and replacing flowers and other plantings), common area and public lighting facilities located on the Real Property;
 
(D) All utilities, costs and expenses directly related to the Real Property, including, without limitation, electricity for lighting the common and public areas, and for running the elevators and other Building equipment and systems (but excluding electricity for the lights and outlets of any tenant in the Building), fuel and water used in the HVAC System and chilled water made available to tenants of the Building using such chilled water, excluding therefrom any chilled water which has been separately metered or otherwise specifically charged to tenants;
 
(E) Maintenance and repair of mechanical and electrical equipment, including the HVAC System, but excluding expenditures (except as set forth in (H) below) which under GAAP are required to be capitalized;
 
(F) Window cleaning and janitor and cleaning service, including janitor and cleaning equipment and supplies for tenant, common and public areas;
 
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(G) Maintenance, repair and, where applicable, decoration of elevators, alarm and security systems, restrooms, sprinklers, plumbing systems, lobbies and hallways located in the common areas of the Building, and other common and public areas of the Building and Land;
 
(H) A management fee for the managing agent of the Building at actual cost, including, without limitation, the charges of any Independent Contractor hired by Landlord to manage the Building, not to exceed two percent (2%) of Landlord’s gross receipts from the operation of the Building;
 
(I) The cost of any capital improvement made to the Building at any time after the Commencement Date: (i) that is made for the purpose of reducing some of the costs included within Expenses, provided the cost of such improvements to Tenant does not exceed the Expense savings to Tenant, (ii) in compliance with any Requirement that is mandatory or advisory (regardless of the validity thereof) which was not applicable to the Building at any time prior to the Commencement Date, or (iii) for the purpose of reducing the risks to the life, safety or health of the occupants of the Building, in each case, such cost being amortized on an annual straight line basis over the useful economic life of such improvement, together with interest at a rate equivalent to the Prime Rate in effect on the date such capital improvement is completed,  provided  that: Expenses shall not include (x) any cost to comply with the Americans with Disabilities Act (as in effect on the date of this Lease) or to effect a required phase out or replacement, if any, of Chloro Fluoro Carbons from the Building, (y) any costs of any equipment lease that is intended to avoid any of the limitations on the inclusion of capital expenditures in this definition of Expenses or (z) any of the costs incurred in connection with any changes to the Building that are necessary in order to permit the Building elevators to stop on the 2nd floor;
 
(J) Legal, accounting and other professional expenses incurred in respect of the operation, use, occupation, or maintenance of the Building and incurred in seeking or obtaining reductions in and refunds of Taxes, provided any such expenses may only be included to the extent they are incurred in connection with expenditures that may be included in Expenses;
 
(K) Supplies, equipment and sundries in connection with the services listed above, together with sales or use taxes on such supplies, equipment, sundries or services;
 
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(L) Premiums paid by Landlord for property, liability, elevator, rent loss, worker’s compensation and other commercially reasonable insurance carried by Landlord in connection with the operation of the Building, provided that such insurance is consistent with the types and amounts of insurance maintained with respect to other comparable office buildings in downtown Chicago and any brokerage costs paid by Landlord in connection with the foregoing insurance; and
 
(M) Notwithstanding the foregoing, Expenses shall not include the following:
 
 	(1)	 	Taxes (as hereinafter defined) and the taxes and other items mentioned in the definition of but excluded from Taxes;	
 
 	(2)	 	expenditures which, under GAAP, could be capitalized (except to the extent included in Subsection (I) above);	
 
 	(3)	 	depreciation;	
 
 	(4)	 	all costs and expenses incurred in leasing or procuring tenants for the Building (including, without limitation, lease commissions, professional fees, office space provided for leasing agents, advertising and promotional expenses, relocation and build out allowances and expenses of renovating space for tenants);	
 
 	(5)	 	interest or amortization payments on any mortgage loan or other debt (including, without limitation, any Mortgage) and any financing or refinancing costs in connection therewith;	
 
 	(6)	 	rental under any ground or underlying lease (including, without limitation, any Superior Lease) and any costs in connection therewith;	
 
 	(7)	 	all Labor Costs of any employee above the grade of the building manager and, if any employee shall devote less than all of their time to the operation, management, repair and maintenance of the Building, the Labor Costs allocable to the portion of their time not so devoted;	
 
 	(8)	 	all Labor Costs of clerks or attendants employed to work in any concessions, newsstands or messenger services operated by Landlord;	
 
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 	(9)	 	all costs, expenses, utilities, equipment and services allocable to the operation, management, repair and maintenance of the Garage or any Retail Space, other than the Landlord’s Actual Cost of furnishing security to the Garage or such Retail Space;	
 
 	(10)	 	all costs and expenses of correcting defects in the construction of the Building, except that conditions (not occasioned by construction defects) resulting from ordinary wear and tear shall not be deemed defects;	
 
 	(11)	 	any cost or expense (or portion thereof) paid to a related entity of Landlord which is in excess of the amount which would be paid in the absence of such relationship;	
 
 	(12)	 	all costs and expenses for which Landlord has been reimbursed or is entitled to reimbursement therefor (other than pursuant to rent adjustment, escalation or other additional rent provisions in leases);	
 
 	(13)	 	all costs and expenses allocable to the operation, management, repair and maintenance of any antennae or similar devices located in or on the Building which are not generally available to all tenants of the Building without additional charge;	
 
 	(14)	 	all costs and expenses of complying with any Requirement enacted on or prior to the Commencement Date (including, without limitation, the Americans with Disabilities Act (as in effect on the date of this Lease)) and any costs and expenses incurred by Landlord by reason of non-compliance with such Requirements (or claim of non-compliance with such Requirements), including fines, penalties and professional fees;	
 
 	(15)	 	all fines, interest, charges, penalties, damages, costs and expenses incurred by Landlord by reason of any default (or claim of default) or late payment by it under any lease of space in the Building or other contract or instrument (regardless of whether or not the payment itself is allowed to be included in Expenses) with which Landlord is required to comply, including, without limitation, any legal and other professional fees in connection therewith;	
 
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 	(16)	 	painting or decorating costs and expenses, other than reasonable costs and expenses incurred by Landlord to paint or decorate the common or public areas of the Building as required to maintain the Building as a first-class office building;	
 
 	(17)	 	“takeover expenses” (i.e., expenses incurred by Landlord with respect to space located in another building of any kind or nature in connection with the leasing of space in the Building);	
 
 	(18)	 	all costs and expenses for clean-up, repair or rebuilding, in each case, by reason of fire or other casualty insurable under an “all-risk” policy of insurance, regardless of whether Landlord is so insured;	
 
 	(19)	 	all damages or other costs and expenses for bodily injury, personal injury or property damage (other than ordinary repairs and maintenance);	
 
 	(20)	 	all costs and expenses for repairs and maintenance required as a result of any negligence or willful misconduct by Landlord, Manager or any of Landlord’s Affiliates, any tenant (or any other occupant of the Building) of any space in the Building or any of their respective agents, employees or contractors;	
 
 	(21)	 	all costs and expenses relating to any Hazardous Substances or any removal, treatment, clean-up or remediation thereof, other than those Hazardous Substances that Landlord or Manager is required to use in connection with the normal operation and maintenance of the Building or that Landlord is required to remove, treat, clean-up or remediate as the result of Requirements enacted after the date of this Lease;	
 
 	(22)	 	all costs and expenses relating to (i) any repairs and replacements in or to the Building, and (ii) compliance with Requirements, if and to the extent, the costs and expenses identified in clauses (i) and (ii) above are not, and would not be, required because of Tenant’s use or Occupancy of the Premises, but are required because of the particular manner of the use or occupancy of space by another tenant in the Building;	
 
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 	(23)	 	any costs and expenses relating to overtime work performed by or on behalf of Landlord to cure a default of Landlord under this Lease or any other lease or occupancy agreement for the Real Property or under any Requirements;	
 
 	(24)	 	Legal, accounting and other professional fees and expenses incurred in the collection of rent, eviction of tenants, resolution of disputes with tenants and enforcement of leases;	
 
 	(25)	 	management fees, including, without limitation, the charges of any Independent Contractor hired by Landlord to manage the Building, in excess of two percent (2 %) of gross receipts from the Building;	
 
 	(26)	 	costs of any disputes between Landlord, any employee or agent of Landlord, and any mortgagees or ground lessors of Landlord;	
 
 	(27)	 	overtime HVAC costs, chilled water that is separately metered or otherwise specifically charged to tenants using such chilled water, electricity costs or other overtime charges for other Building tenants;	
 
 	(28)	 	the cost of performing additional services or installation to or for tenants to the extent that such service exceeds that provided by Landlord to Tenant without charge (other than as Additional Rent) hereunder;	
 
 	(29)	 	any cost or expenses of any capital improvements which is not specifically permitted under the terms of Subsection (I) above;	
 
 	(30)	 	contributions to reserves for Expenses to be incurred after the applicable Adjustment Year, including, without limitation, reserves for future Expenses and capital improvements to the Building;	
 
 	(31)	 	expenses resulting from increased insurance premiums attributable to insuring alterations, improvements, rehabilitation, repairs or construction performed for the benefit of tenants of the Building (other than Tenant);	
 
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 	(32)	 	the costs, expenses, fees or other charges paid or incurred in connection with any pedways or connections to the pedway system or other buildings which are constructed after the Commencement Date;	
 
 	(33)	 	all costs and expenses allocable to the operation, management, repair and maintenance of any cafeteria or restaurant, concierge desk, shuttle service or similar facilities located on the Real Property which are available for use by the public or other tenants in the Building and the operating costs of which are covered through fees charged users or patrons of such facilities;	
 
 	(34)	 	all costs and expenses allocable to the operation, management, repair and maintenance of the Indiana Room to the extent covered through fees charged users or patrons of such facilities; provided, however, that if the Indiana Room ever becomes unavailable for Tenant’s use for an extended period of time, costs and expenses related thereto shall be excluded from Expenses for such period regardless of whether covered through fees;	
 
 	(35)	 	contribution to political or charitable organizations;	
 
 	(36)	 	costs of acquiring, installing, moving or restoring objects of art and insurance premiums thereon that are in the aggregate in excess of $5,000 per annum; and	
 
 	(37)	 	any cost associated with Landlord’s relocation, or attempted relocation, of any tenant in the Building.	
 
In addition, Tenant shall not be charged (and shall receive a credit on that portion of the Premises that is vacant, which amount per Rentable Square Foot shall be subject to adjustment from time to time by Landlord based upon Landlord’s contract with the janitorial service) for janitorial services for any portion of the Premises that is vacant, provided that (i) such portion is either an entire floor or is a partial floor which is separately partitioned, (ii) Landlord is not currently performing janitorial services in such space pursuant to Tenant’s request, (iii) said portion of the Premises is not being used in Tenant’s business operations, other than as storage space and (iv) such exclusion shall commence only upon the first day of a calendar month after written request from Tenant as set forth in  Section 7  hereof. In the event and to the extent Tenant is providing its own janitorial services for the entire Premises in compliance with the terms of  Section 7  hereof, then Expenses shall not
 
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include the cost of such janitorial services for other tenants in the Building but shall continue to include the cost of janitorial services with respect to common areas in the Building. In addition, if Tenant elects not to use the Building cleaning contractor to clean any portion of the Premises (including, without limitation, any computer room, kitchen and similar types of special use areas), then Tenant shall receive a credit for the Landlord’s Actual Cost of providing basic cleaning service to those areas, provided that the amount of such credit shall in no event exceed the amount of credit, if any, Landlord receives from the Building cleaning contractor.
 
Landlord agrees that it shall use its good faith efforts to incur Expenses in maintaining and operating the Building at a level that is comparable to and consistent with other first-class office buildings in downtown Chicago, in particular the Comparable Buildings. Upon written request from Tenant, Landlord shall use good faith efforts to cooperate with Tenant in obtaining expense and tax information on the Comparable Buildings in sufficient detail to be used by Tenant as a comparison of the Expenses and Taxes for the Building.
 
For any Adjustment Year in which the aggregate Rentable Square Footage of the office space of the Building has not been ninety-five percent (95%) occupied during all or any portion of such Adjustment Year, Expenses shall, except to the extent Tenant has elected to perform its own janitorial services for all or a portion of the Premises, include expenses which Landlord shall reasonably determine would have been incurred had the Building been ninety-five percent (95%) occupied for all or the applicable portion of such Adjustment Year provided, however, that (i) Landlord shall not collect more than 100% of the actual costs incurred in operating the Building from the tenants of the Building and (ii) in no event shall Tenant be liable for more than Tenant’s Proportionate Share for Expenses (excluding additional costs or charges properly allocable to Tenant which are not common to all of the Tenants in the Building generally).
 
Notwithstanding anything to the contrary contained in this Lease, in no event shall Landlord collect and retain more than 100% of the actual costs incurred in operating the Building from the tenants of the Building.
 
(iv) “Taxes” shall mean all real estate taxes, assessments (whether they be general or special), sewer rents, rates and charges, transit taxes, taxes based upon the receipt of rent and all other federal, state or local governmental taxes, general, special, ordinary or extraordinary (but not including, income taxes, franchise, capital or stock taxes, gift or inheritance taxes, or any other tax imposed upon or measured by Landlord’s income or profits (unless the same
 
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shall be imposed in lieu of real estate taxes) or any penalties or interest on any Taxes resulting from the late payment thereof) which is now or hereafter levied, imposed or assessed against the Building or the Land or both and which become due and payable during the Term. Taxes shall also include any personal property taxes imposed upon the furniture, fixtures, machinery, equipment, apparatus, systems and appurtenances used by Landlord in connection with the Building or the Land for the operation thereof which are due and payable during the Term.
 
Notwithstanding the foregoing provisions of this Subsection 2(b)(iv):
 
(A) If at any time during the Term of this Lease the method of taxation then prevailing shall be altered so that any new tax, license fee, assessment, levy, imposition or charge or any part thereof shall be imposed upon Landlord in place or partly in place of any such Taxes, and shall be measured by or be based in whole or in part upon the Real Property or the rents or other income therefrom, then all such new taxes, license fee, assessments, levies, impositions or charges or part thereof, to the extent that they are so measured or based, shall be included in Taxes levied, imposed, or assessed against Real Property to the extent that such items would be payable if the Real Property were the only property of Landlord subject thereto and the income received by Landlord from the Real Property were the only income of Landlord.
 
(B) Notwithstanding the year for which any such taxes or assessments are levied, in the case of special taxes or special assessments which may be payable in installments, the amount of each installment due and payable during a calendar year shall be included in Taxes for that year. Except as provided in the preceding sentence, for purposes of this  Section 2 , all references to Taxes “for” a particular year shall be deemed to refer to Taxes payable in such year notwithstanding that in each case the assessments for such Taxes may have been made for a different year or years than the year in which such Taxes are payable.
 
(C) The rights of Landlord and Tenant with respect to Tax contests are as set forth in Section 2(j).
 
(v) “Tenant’s Proportionate Share for Expenses” shall, subject to the adjustments provided for in (vii) below, mean the percentage obtained by dividing the number of Rentable Square Feet contained in the Premises by 2,332,000, the Rentable Square Footage of the office tower portion of the Building.
 
(vi) “Tenant’s Proportionate Share for Taxes” shall, subject to the adjustments provided for in (vii) below, mean the percentage obtained by
 
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dividing the number of Rentable Square Feet contained in the Premises by 2,442,000 square feet, the Rentable Square Footage of the entire Building.
 
(vii) Landlord and Tenant acknowledge that although the Premises is measured pursuant to the Exhibit W Standard, the leases with respect to the remainder of the Building contain rentable square foot measurements determined by 1989 BOMA. The numbers set forth in subsections (v) and (vi) above that comprise the denominators for determining the two Tenant’s Proportionate Share ratios are the aggregate rentable square feet contained in the office tower portion and the Building, respectively, as agreed to between Landlord and Tenant, which reflects the Rentable Square Feet contained in the Initial Premises (calculated on Exhibit W Standard) and in each other lease of space in the Building in effect as of the Commencement Date (calculated pursuant to 1989 BOMA). Landlord agrees that with respect to all leases of space in the Building entered into after the Commencement Date (including amendments, modifications, supplements, addenda or restatements of existing leases where existing tenants are leasing new space) (“New Area Leases”), for purposes of recalculating the denominators set forth in subsections (v) and (vi) above, the rentable square feet of the new or additional area (“Incremental Leased Premises”) demised under the New Area Leases shall be the  Exhibit W  Standard (regardless of the actual terms of the New Area Leases). As the space in the Building (other than the Premises) is leased under the New Area Leases, the denominators in subsections (v) and (vi) representing the aggregate rentable square feet contained in the office tower portion and the entire Building, respectively, shall be increased by the positive difference between (x) the number of rentable square feet contained in the Incremental Leased Premises pursuant to the  Exhibit W  Standard (as reflected on Exhibit W ) , and (y) the rentable square feet contained in the Incremental Leased Premises pursuant to 1989 BOMA (as reflected on Exhibit W) .
 
As an example of the foregoing, if a lease in effect on the Commencement Date demises 20,000 rentable square feet of space on a floor of the Building to a particular tenant and the Exhibit W Standard for such space is 22,000 rentable square feet, when a New Area Lease is executed for such space, the aggregate rentable square footage numbers in subsections (v) and (vi) above shall be increased by 2,000 rentable square feet.
 
As a further example, if a tenant under a lease in effect on the Commencement Date amends such lease to add an additional floor to its premises, such amendment shall be a New Area Lease and such additional floor shall constitute Incremental Leased Premises, and the positive difference between the  Exhibit W  Standard and the 1989 BOMA measurement for such Incremental Leased Premises shall be added to the rentable square foot numbers in subsections (v) and (vi) above.
 
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Upon written request of Tenant, not more often than quarterly, Landlord and Tenant shall meet in order to determine any adjustments to the Additional Rent Progress Payments that may be appropriate as the result of any New Area Leases. Landlord shall indicate on each Landlord’s Expenses Statements and Landlord’s Taxes Statement delivered to Tenant the cumulative effect on and the timing of changes in the denominators in subsections (v) and (vi) above as a result of all New Area Leases and renewals and amendments increasing the rentable square feet of the applicable premises entered into during the applicable Adjustment Year.
 
(c) Computation of Additional Rent. Tenant shall pay Additional Rent for each Adjustment Year determined as hereinafter set forth. Additional Rent payable by Tenant with respect to each Adjustment Year during which an Adjustment Date falls shall be the following amounts:
 
(i) the product of Tenant’s Proportionate Share for Expenses multiplied by the Expenses for such Adjustment Year (herein called the “ Expense Adjustment ”), plus
 
(ii) the product of Tenant’s Proportionate Share for Taxes multiplied by the Taxes for such Adjustment Year (herein called the “ Tax Adjustment ”).
 
(d) Payments of Additional Rent; Projections. Tenant shall pay Additional Rent to Landlord in the manner hereinafter provided. Landlord shall use reasonable efforts to provide Tenant with a statement prior to the beginning of each month showing the amount of Rent, but any failure of Landlord to provide such a statement prior to the beginning of any month shall in no way excuse or delay any payment of Additional Rent from Tenant required herein. If Landlord fails to provide such statement, Tenant shall pay Rent based on the previous month’s statement until Tenant receives the new statement.
 
Subject to Subsection (C) below, Tenant shall make payments on account of the Expense Adjustment and Tax Adjustment (such payments with respect to any Adjustment Year being called an “ Additional Rent Progress Payment ” and, in the aggregate, the “ Additional Rent Progress Payments ”) effective as of the Adjustment Date for each Adjustment Year as follows:
 
(A) Landlord may, prior to each Adjustment Date or from time to time during the Adjustment Year in which such Adjustment Date falls (but not more than two times each for Taxes and Expenses each Adjustment Year, including the initial Projection Notice), deliver to Tenant a written notice or notices (“ Projection Notice ”) setting forth (1) Landlord’s reasonable estimates, forecasts or projections (collectively, the “ Projections ”) of Expenses and Taxes for such Adjustment Year based on Landlord’s budgets of Expenses and estimate of Taxes, and (2) Tenant’s Additional Rent Progress Payments with respect to
 
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each component of Additional Rent for such Adjustment Year based upon the Projections.
 
(B) With respect to Expenses, until such time as Landlord furnishes a Projection Notice for an Adjustment Year, Tenant shall, at the time of each payment of Monthly Base Rent, pay to Landlord a monthly installment of an Additional Rent Progress Payment with respect to the Expenses component of Additional Rent equal to the greater of the latest monthly installment of an Additional Rent Progress Payment for Expenses or one-twelfth (1/12) of Tenant’s latest determined Expense Adjustment. On or before the first day of the first calendar month following Landlord’s service of a Projection Notice (or if the Projection Notice is delivered after the fifteenth day of a month, then the second calendar month following service of such Projection Notice), and on or before the first day of each month thereafter, Tenant shall pay to Landlord one-twelfth (1/12) of the Expenses component of the Additional Rent Progress Payments shown in the Projection Notice. Within thirty (30) days following Landlord’s service of a Projection Notice, if the Projection Notice indicates an increase in the Expenses component of the Projection for the Adjustment Year, then Tenant shall also pay Landlord a lump sum equal to the Expenses component of the Additional Rent Progress Payments which, according to the Projection Notice, should have been paid to date less any previous payments on account of the Expenses component of Additional Rent Progress Payment made during such Adjustment Year.
 
(C) Except as provided below, Tenant shall not be obligated to make monthly Additional Rent Progress Payments with respect to Tenant’s obligation hereunder to pay Tenant’s Proportionate Share for Taxes. Tenant shall, therefore, pay to Landlord (or as directed by Landlord in writing), beginning with Taxes due and payable in the Spring of 1999, Tenant’s Proportionate Share for Taxes of each installment of Taxes within two (2) weeks after receipt of a bill from Landlord relating to such installment of Taxes. During such time as a Material Default exists and is continuing, Tenant shall, at the time of each payment of Monthly Base Rent, pay to Landlord a monthly installment of Additional Rent Progress Payment with respect to the Taxes component of Additional Rent equal to one-twelfth (1/12) of the Tenant’s latest determined portion of Taxes for the applicable Adjustment Year (“ Monthly Tax Deposits ”). Tenant shall in no event be required to make any payments with respect to Taxes that become due and payable outside of the Term of this Lease.
 
By way of example based on current real estate billing procedures, provided no Material Default exists, Tenant’s first payment toward Taxes shall be with respect to the first installment of 1998 Taxes payable in 1999, at which time Tenant shall pay Tenant’s Proportionate Share for Taxes of the entire amount of such installment. Likewise, assuming the Term ends on November 30, Tenant’s last payment toward Taxes shall be for the second
 
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installment payable in the last calendar year of the Term, at which time Tenant shall pay Tenant’s Proportionate Share for Taxes of the entire amount of such installment.
 
(e) Readjustments. The following readjustments with regard to the Tax Adjustment and Expense Adjustment shall be made by Landlord and Tenant:
 
(i) Following the end of each Adjustment Year and after Landlord shall have determined the amounts of Expenses to be used in calculating the Expense Adjustment for such Adjustment Year, Landlord shall notify Tenant in writing (“ Landlord’s Expenses Statement ”) of such Expenses for such Adjustment Year. The Landlord’s Expenses Statement shall be prepared by Landlord, with audit by PricewaterhouseCoopers, or such other nationally recognized public accounting firm used by Landlord, which is reasonably acceptable to Tenant (“ Landlord’s Accountant ”). Landlord agrees to use reasonable efforts to deliver the Landlord’s Expenses Statement to Tenant by May 1 of any Lease Year and will deliver such statement in any event by June 1. If the Expense Adjustment owed for such Adjustment Year exceeds the Expense Adjustment component of the Additional Rent Progress Payment paid by Tenant during such Adjustment Year, then Tenant shall, within thirty (30) days after the date of Landlord’s Expenses Statement, pay to Landlord an amount equal to the excess of the Expense Adjustment over the Expense Adjustment component of the Additional Progress Payment paid by Tenant during such Adjustment Year. If the Expense Adjustment component of the Additional Rent Progress Payment paid by Tenant during such Adjustment Year exceeds the Expense Adjustment owed for such Adjustment Year, then at Tenant’s election, Landlord shall either credit such excess (plus, if such excess is greater than ten percent (10%) of the Expense Adjustment component of the Additional Rent Progress Payment paid by Tenant, interest at the Prime Rate for the amount of each monthly deposit of Additional Rent that was in excess of 1/12th of the actual Expense Adjustment) against the next Rent coming due hereunder or, within thirty (30) days after the date of Landlord’s Expenses Statement, pay to Tenant an amount equal to such excess (including such interest, if applicable), provided that if Landlord fails to make such payment when due, Tenant shall have a right of setoff for such amount against the next Rent coming due hereunder.
 
(ii) To the extent Tenant is paying Additional Rent Progress Payments with respect to Taxes, following the end of each Adjustment Year and after Landlord shall have determined the actual amounts of Taxes to be used in calculating the Tax Adjustment for such Adjustment Year, Landlord shall notify Tenant in writing (“ Landlord’s Taxes Statement ”) of such Taxes for such Adjustment Year. If the Tax Adjustment owed for such Adjustment Year exceeds the Tax Adjustment component of the Additional Rent Progress Payment paid by Tenant during such Adjustment Year, then Tenant shall, within two (2) weeks after the date of Landlord’s Taxes Statement, pay to Landlord an amount equal to the excess of the Tax Adjustment over the Tax Adjustment
 
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component of the Additional Rent Progress Payment paid by Tenant during such Adjustment Year. If the Tax Adjustment component of the Additional Rent Progress Payment paid by Tenant during such Adjustment Year exceeds the Tax Adjustment owed for such Adjustment Year, then at Tenant’s election, Landlord shall either credit such excess against the next Rent coming due hereunder or, within thirty (30) days after the date of Landlord’s Taxes Statement, pay to Tenant an amount equal to such excess.
 
(iii) In the event either party hereunder owes the other party amounts pursuant to this Subsection 2(e) and such amounts due are not paid within the time periods specified, then the party owing such amount shall pay interest to the other party at the Prime Rate on the amount remaining unpaid from the date such payment is due until such amounts are paid.
 
(f) Books and Records. Landlord shall maintain books and records showing Expenses and Taxes and the payments and/or reimbursements received by or owed to Landlord with respect thereto in accordance with sound accounting and management practices. Tenant may examine such books and records at reasonable times upon reasonable prior written notice within one hundred twenty (120) days after the delivery of a Landlord’s Expense Statement. In addition, Landlord shall, simultaneously with the delivery of each bill relating to an installment of Taxes or Landlord’s Taxes Statement, provide Tenant with copies of the applicable real estate tax bills and assessment notices received by Landlord with respect to the Building and such other information and data related to Taxes as Landlord may receive from the tax assessor or other governmental authority, provided Landlord shall not be required to provide Tenant with copies of any leases of other tenants in the Building, nor any of the other economic terms or confidential information contained in said leases. If Tenant does not object in writing to any Landlord’s Statement within twelve (12) calendar months after its delivery to Tenant, then the determination of Expenses and Taxes set forth therein shall be deemed correct and not subject to review by either party. In the event Tenant takes exception to any item or items set forth in either Landlord’s Expense Statement or Landlord’s Taxes Statement (“ Contested Matters ”) and gives Landlord written notice thereof within said twelve (12) month period, then, within thirty (30) days after Landlord’s receipt of such notice from Tenant, Landlord and Tenant shall work in good faith toward resolving the Contested Matters. If, after the expiration of such thirty (30) day period, any of the Contested Matters remain unresolved (the “ Unresolved Contested Matters ”) the Landlord and Tenant shall agree on a mutually acceptable major national public accounting firm other than Landlord’s Accountant (“ Major Accounting Firm ”) to resolve the dispute between Landlord and Tenant solely with respect to the Unresolved Contested Matters. Landlord and Tenant agree to be bound by the decision of said Major Accounting Firm with respect to the Unresolved Contested Matters. Tenant shall pay the charges of the Major Accounting Firm unless the Major Accounting Firm determines that Tenant was overcharged in excess of three percent (3%) of the amount set forth as actually due from Tenant on the relevant Landlord’s Statement, in which event Landlord shall pay the charges of the Major Accounting Firm.
 
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If any Contested Matter is resolved by settlement in favor of Tenant, or if any Unresolved Contested Matter is resolved by settlement or by the Major Accounting Firm in favor of Tenant, then, in addition to a prompt refund of the overcharge, Tenant shall be entitled to interest on the amount of such overcharge in excess of ten percent (10%) of the amount set forth on the applicable Landlord’s Statement from the date such charges were paid to the date of Landlord’s refund at a rate per annum equal to two percent (2%) per annum plus the Prime Rate. Tenant shall have the right to credit the amount of such refund, and such interest, against the next Rent coming due hereunder.
 
(g) Proration and Survival. With respect to any Adjustment Year which does not fall entirely within the Term, Tenant shall be obligated to pay as Additional Rent for such Adjustment Year only a pro rata share of Additional Rent as hereinabove determined, based upon the number of days of the Term falling within the Adjustment Year. Following expiration or termination of this Lease, Tenant shall pay any Additional Rent due to the Landlord, or Landlord shall refund to Tenant any excess Additional Rent paid to Landlord, within thirty (30) days after the date of Landlord’s Statement sent to Tenant (or with respect to Taxes within thirty (30) days after the date Landlord receives a refund of any portion of Taxes for a prior Adjustment Year). Without limitation on other obligations of Landlord and Tenant which shall survive the expiration of the Term, the obligations of Landlord to refund any Additional Rent and the obligations of Tenant to pay Additional Rent provided for in this  Section 2  shall survive the expiration or termination of this Lease. Each Landlord’s Statement upon delivery to Tenant shall, with respect to Landlord, be deemed to be final and Landlord shall not thereafter charge or attempt to charge Tenant with any loss, cost, damage or expense incurred in any Adjustment Year for which Landlord has previously issued a Landlord’s Statement; provided, however, Landlord may issue a correction to a Landlord’s Statement within twelve (12) months after delivery of the relevant Landlord’s Statement, and the period within which Tenant may contest a matter which is the subject of such a correction statement shall be the twelve (12) month period after receipt of such correction statement.
 
(h) No Decrease in Base Rent. In no event shall any Additional Rent result in a decrease of the Base Rent payable hereunder as set forth in Section 2  hereof.
 
(i) Additional Rent. All amounts payable by Tenant as or on account of Additional Rent shall be deemed to be Additional Rent becoming due under this Lease.
 
(j) Right to Contest Taxes. (i) Landlord shall contest the Taxes imposed for each calendar year all or any portion of which falls within the Term. Landlord shall diligently pursue each such contest until a final, non-appealable decision is rendered; provided, however, that if Landlord believes in its commercially reasonable judgement that it is in the best interest of the Building and its tenants to settle or terminate any contest then Landlord may do so in its sole determination. Landlord shall at all times keep Tenant informed of the progress of each such contest. If the Building is sold during the Term, Landlord shall use reasonable efforts to minimize any increase in Taxes resulting from such sale.
 
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(ii) In the event Landlord does not protest the Taxes for any calendar year, as provided in Section 2(j)(i) above, so long as Tenant satisfies the Tenant Leasing Requirement, Tenant, at Tenant’s sole cost and expense, may pursue such contest on its own behalf and on behalf of the Building; provided, however, that Tenant shall at all times in connection with any such Proceedings act in good faith and shall use reasonable efforts to achieve an outcome that is reasonably acceptable to both Landlord and Tenant. In addition to Tenant’s obligation to act reasonably and in good faith, Tenant may not settle any contest without the prior written approval of Landlord, which may be withheld in Landlord’s sole discretion. Landlord hereby authorizes Tenant to appear in such Proceedings on behalf of Landlord and, if necessary, Landlord shall execute any such reasonable documents or statements to evidence such authority. If Landlord’s participation in the Proceedings shall be required, Tenant shall provide Landlord with written notice of such fact instructing Landlord to undertake jointly with Tenant the desired Proceedings. All reasonable costs and expenses incurred by Landlord as a result of such participation, including reasonable attorney’s fees, shall be included in Expenses for such calendar year. Any costs and expenses incurred by Tenant in contesting Taxes shall, to the extent such Taxes are actually reduced, be reimbursed by Landlord and Landlord may include such reimbursement in Expenses for the Adjustment Year in which such reimbursement is made.
 
(iii) In the event Tenant shall contest the Taxes, as set forth above, Landlord shall provide Tenant and Tenant’s attorneys with all necessary books, records and other relevant information to properly and effectively conduct the contest including, without limitation, information for the applicable calendar year concerning income from the Building and the amount of vacant space during such calendar year.
 
(iv) In the event any refund or reduction in Taxes is achieved, whether by Landlord or Tenant, Landlord shall within thirty (30) days after receipt of a refund (or if Landlord has not paid and therefore is not entitled to a refund of the contested Taxes, the date of such determination) either pay to Tenant Tenant’s Proportionate Share for Taxes thereof or allow Tenant to credit the same against future payments of Rent coming due under this Lease.
 
3. Use of Premises. Tenant shall use and occupy the Premises for executive and general offices, for such related purposes, provided that such purposes are permitted under applicable zoning ordinances and are not inconsistent with a first class office building and for no other purpose. Tenant shall not use or occupy the Premises or permit the use or occupancy of the Premises for any purpose or in any manner which (a) is unlawful or in violation of any applicable Requirement or (b) invalidates, increases or clearly will invalidate or increase the amount of premiums for any policy of insurance affecting the Building, unless any additional amounts of insurance premiums so incurred, are paid by Tenant to Landlord.
 
4. Contraction Option. (a) Tenant shall have several contraction options with respect to the Premises on the terms set forth below. Provided that Tenant is not in Material Default under this Lease, Tenant shall have the right, exercisable in each instance upon not less than twelve (12) months prior written notice to Landlord (the “ Contraction Notice ”), to
 
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reduce the size of the Premises (the “Contraction Right(s)”) by surrendering portions thereof (the “Surrendered Space”) to Landlord effective as set forth below:
 
Contraction Space Allowed

	 	Effective Date of Contraction

	
180,000 (or less) RSF	 	December 11, 2001	
180,000 (or less) RSF	 	December 11, 2003	
130,000 (or less) RSF	 	December 11, 2005	
 
In addition to the foregoing Contraction Rights, in the event Tenant has exercised at least two (2) of the foregoing three (3) Contraction Rights, Tenant shall have one (1) additional Contraction Right which shall be, if exercised, effective on December 11, 2007, upon the terms set forth in this  Section 4 , provided however that (i) the maximum amount of space by which Tenant may contract the Premises with this additional Contraction Right shall be 120,000 Rentable Square Feet and (ii) the amount of space by which Tenant contracts the Premises pursuant to this additional Contraction right shall in no event cause the Premises to contain less than 300,000 Rentable Square Feet.
 
The exercise by Tenant of the foregoing Contraction Rights shall be subject to the following conditions: (i) the Premises may only be contracted by up to the number of Rentable Square Feet set forth above in the specified year and, to the extent Tenant does not exercise its Contraction Rights in any of the above-specified years with respect to the permitted amount of space, Tenant will have waived its right with respect to the balance of such space for that year and in no event may the amount of unexercised contraction space be carried over to the next contraction option, (ii) the space in the office tower portion of the Building which may be deleted from the Premises as a result of the exercise of Tenant’s contraction options shall (A) be deleted in full floor increments (except that Tenant may delete any amount of space from the highest floor of the remaining office tower portion of the Premises so long as Tenant retains at least approximately one-half of the Rentable Square Feet on such floor, and Tenant may delete all of the 79th Floor Premises and all of the 25th and 26th floors other than the PBX Space), (B) be located on contiguous floors of the Premises prior to the contraction (not including the 79th Floor Premises, or any space that has been recaptured by Landlord pursuant to  Section 13(c))  so that the remaining office tower portion of the Premises, after giving effect to such contraction, shall be located on contiguous floors (except the 79th Floor Premises, the 29th through 31st floors and the PBX Space on the 25th and 26th floors and not considering any space recaptured by Landlord pursuant to Section 13(b)), and (C) constitute the highest floors contained in the office tower portion of the Premises prior to the contraction (not including the 79th Floor Premises); provided, however that in no event shall Tenant be required to delete floors 29-31 as part of the contraction nor shall Tenant be required to delete the PBX Space on the 25th and 26th floors.
 
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The Contraction Notice shall specify the size, location and configuration of the Surrendered Space. The size of the Surrendered Space shall be determined, subject to the limitations set forth above, in Tenant’s sole discretion. The Surrendered Space shall be in a legally leasable configuration, provided that to the extent the Tenant elects to contract the Premises on only a portion of a floor, the space contracted from the Premises shall have reasonable access to the elevator lobbies and bathrooms on that floor.
 
(b) In the event that the Surrendered Space constitutes less than all of the space occupied by Tenant on a given floor or floors of the Building, then Tenant shall pay to Landlord, upon demand, one-half of Landlord’s Actual Costs of the construction of the demising walls necessary to segregate and demise the portion of the Premises remaining on such floor and to provide access for such Surrendered Space to the elevator lobbies and bathrooms on that floor and Tenant shall be responsible for no other costs or expenses.
 
(c) Except as otherwise provided in Section 6 or Section 9 hereof, Tenant shall deliver the Surrendered Space to Landlord in an “AS IS” “WHERE IS” condition, without any requirement to remove Tenant’s Property or to perform repairs, improvements or other work, regardless of whether or not such space, upon delivery to Landlord, complies with Requirements, provided that Tenant shall repair any damage to the Building (other than to the paint, carpeting or wall covering) caused by the removal of Tenant’s Property upon request of Landlord delivered within five (5) days after Tenant has vacated the Surrendered Space and shall remove the Structural Alterations that Landlord required Tenant to remove as a part of Landlord’s consent to such Structural Alterations pursuant to  Section 6(d) . Except as expressly set forth in this  Section 4 , Tenant shall not be liable for any fee, charge or other payment because of such contraction, including, without limitation, a fee to reimburse Landlord for its unamortized costs associated with this Lease (e.g., brokerage costs).
 
(d) Following the Effective Date of Contraction (if any), the term “Premises” under the Lease shall no longer consist of the Surrendered Space, and Landlord and Tenant shall execute a modification to the Lease to reflect such surrender and to amend such other terms and provisions of the Lease which are affected by a reduction in the size of the Premises, including, but not limited to, the Base Rent, Tenant’s Proportionate Share for Expenses and Tenant’s Proportionate Share for Taxes.
 
5. Leasing Restrictions.
 
(a) Landlord shall not, without the express written consent of Tenant (which consent may be withheld in Tenant’s sole discretion), lease any portion of the Building to any foreign consulates or any agency, department or bureau of any foreign government or any political subdivision thereof.
 
(b) Landlord shall only lease space in the Building to tenants which are consistent with a first-class office building in downtown Chicago.
 
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6. Alterations.
 
(a) Tenant shall not, without the prior written consent of the Landlord in each instance (which consent shall not be unreasonably withheld or delayed), make any alterations, improvements or additions to the Premises which: (i) affect the structural integrity of the Building or (ii) affect the Building Systems, load bearing structures or facade of the Building (herein collectively referred to as, “ Structural Alterations ”); and
 
(b) Notwithstanding anything to the contrary in Section 6(a), Tenant may (i) make cosmetic or decorative type changes to the Premises, including, without limitation, painting, wallcovering, carpeting or other floor covering and installation or movement of moveable work stations (“ Cosmetic Alterations ”), or (ii) other alterations, improvements or additions that do not constitute Structural Alterations (collectively with Cosmetic Alterations, the “ Nonstructural Alterations ”) including, without limitation, the construction, relocation or removal of all interior non-load bearing walls, sheetrock partitions, doors, doorways, electrical wiring, conduit (including, without limitation any floor coring), light fixtures, electrical/power/voice/data outlets, air diffusers, ducts, VAV boxes, all carpentry and such other items of Tenant’s Property, in each case to the extent the same do not constitute Structural Alterations.
 
(c) Tenant shall, prior to commencing any Structural Alterations: (i) notify the building manager in writing of Tenant’s intent to make such alterations (“ Alteration Notice ”), and (ii) comply with all other requirements of this  Section 6 . Concurrently with the delivery of an Alteration Notice, Tenant shall deliver to Landlord the plans and specifications required to be delivered pursuant to the terms of the Workletter.
 
(d) Landlord may impose such conditions to the making of Structural Alterations as Landlord deems appropriate in its sole discretion. Landlord may, as part of Landlord’s consent, require Tenant in writing to remove and restore at the end of the Term any Structural Alterations Tenant makes, provided that Landlord may not impose any additional requirements on Tenant to remove such Structural Alterations after Landlord has granted its consent. Additionally, Tenant shall secure permits necessary for such work and, subject to the terms hereof, schedule the use of elevators and the timing of such alterations so as to minimize interference with other tenants in the Building and the use of Building Systems. Notwithstanding the foregoing, in no event shall Landlord require Tenant to obtain payment or performance bonds from the contractors or subcontractors performing the alterations.
 
(e) The work necessary to make any Structural Alterations to the Premises shall be done at Tenant’s expense by employees of, or contractors hired by, Tenant and approved by Landlord, which approval shall not be unreasonably withheld or delayed. With respect to Nonstructural Alterations, the work shall be done at Tenant’s expense and Tenant shall use contractors that will not interfere with labor relations at the Building and shall cause such Nonstructural Alterations to be performed in a manner which will not unreasonably interfere with Building operations. Tenant shall be responsible, at Tenant’s sole cost and expense, for obtaining all proper permits and licenses for all Structural and Nonstructural Alterations,
 
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provided that Landlord agrees that it shall cooperate and assist Tenant and its contractors in any reasonable manner to obtain such permits and licenses, as set forth in the Workletter. Tenant shall promptly pay to its contractors the cost of all such work and of all decorating required by reason thereof. All work done by Tenant or its contractors pursuant to this  Section 6  shall be done in a first-class workmanlike manner using only good grades of materials and shall comply with all insurance requirements (to the extent Landlord has notified Tenant of such insurance requirements prior to commencement of such work) and all Requirements. Notwithstanding anything to the contrary contained herein, the terms of the Workletter shall only apply to (i) the initial buildout of space added to the Premises pursuant to Tenant’s exercise of the Expansion Option described in  Section 38  or the right of first offer described in  Section 39 , (ii) to any work for which Landlord provides Tenant a tenant improvement allowance and (iii) Structural Alterations.
 
7. Services. (a) The Landlord, subject at all times to Subsection 7(c), shall furnish throughout the Term:
 
(i)(A) Air-conditioning and heat when necessary to provide a temperature condition required to meet the performance standards set forth in  Exhibit L  attached hereto and made a part hereof in the Premises during normal business operations, daily from 7:00 a.m. to 6:00 p.m. (Saturdays 8:00 a.m. to 1:00 p.m.), Sundays and Holidays (as hereinafter defined) excepted (“Business Hours”). The furnishing of extra or additional air-conditioning and heat at other times shall be subject to the terms of  Subsection (vii) . The term “ Holidays ” currently means the following days: New Year’s Day, Memorial Day, July 4th, Labor Day, Thanksgiving Day, and Christmas Day;
 
(B) Notwithstanding anything to the contrary contained in this Lease, in the event Landlord fails to maintain the temperatures required pursuant to this  Section 7(a)  such that the actual average temperature in the Premises during Business Hours varies from the temperature required to be maintained during Business Hours as set forth in this  Section 7(a)  by at least three (3) degrees Fahrenheit, then such condition shall be deemed to be a Reduction of Services. If Landlord fails to meet the performance standards set forth in  Exhibit L  as aforesaid, then in addition to Tenant’s remedies, if any, for interruption of services set forth elsewhere in this Lease, Landlord agrees that within twenty-four (24) hours of Landlord’s receipt of a written notice from Tenant, Landlord, at Landlord’s sole cost and expense, shall extend the operating hours of the HVAC System if such extension would either correct or mitigate any failure to meet the temperature specifications and deliver service from the HVAC System that is in compliance with the standards set forth in this  Section 7(a).
 
If due to a change in Tenant’s density of personnel or equipment from the concentration in existence on the date of this Lease, the temperature or humidity in the Premises or the Building is adversely affected, Landlord may send written notice to Tenant to cure such condition, whereupon Tenant shall, at Tenant’s
 
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sole cost and within a reasonable time thereafter, either (1) restore Tenant’s use of the Premises to its prior condition or, (2) upon prior notice to and approval by Landlord (which approval shall not be unreasonably withheld or delayed) install supplementary air conditioning units or cooling equipment within the Premises sufficient to cure the condition. If Tenant fails to effect the cure described in clause (1) or clause (2) of the foregoing sentence within thirty (30) days after receipt of Landlord’s notice, Landlord may thereafter install supplementary air conditioning units or cooling equipment in the Premises. If supplementary air conditioning units or cooling equipment are so installed within the Premises (whether by Tenant or Landlord), Tenant shall pay all costs of installation, operation and maintenance thereof. Tenant acknowledges that Landlord’s ability to provide air-conditioning to the Critical Area in a manner which meets the specifications set forth in  Section 7(a)  is dependent upon supplemental air-conditioning units and cooling equipment which were installed and shall be maintained and operated by Tenant at its sole expense, provided that Landlord shall be responsible for providing chilled water and electricity to such supplementary units and equipment in accordance with the terms of this Lease.
 
(ii) (A) Cold water in common with other tenants from City of Chicago mains for drinking, lavatory, and toilet purposes, drawn through fixtures installed by the Landlord, or by Tenant in the Premises with Landlord’s written consent (which consent will not be unreasonably withheld), from the regular Building supply. Landlord will supply the lavatory sinks with warm water. In addition, Tenant, at its sole cost and expense, may install, maintain and operate its own hot water heaters in compliance with Requirements. Tenant shall pay Landlord in accordance with Landlord’s then current rate schedule (but in no event higher than the Most Favored Tenant Rate) for water furnished for any other purpose. Tenant shall not waste or permit the waste of water.
 
(B) In the event no water is provided to the Premises or if the water service provided to the Premises would not permit Tenant, without violating the Requirements, to allow employees to use the Premises or the affected portions thereof, then such conditions shall be deemed a Reduction of Services.
 
(iii) (A) Janitor service and customary cleaning provided nightly in and about the Premises, Saturdays, Sundays, and Holidays excepted, in accordance with the Cleaning Specifications. Landlord shall not be required to provide any additional cleaning service beyond the Cleaning Specifications for any portions of the Premises used for preparation, serving or consumption of food or beverages, training rooms data processing and reproducing operations, data center, private lavatories or toilets or other special purposes requiring greater or more difficult cleaning work than office areas or to provide additional janitorial service and Tenant agrees, at Tenant’s expense, to do the cleaning itself or retain Landlord’s cleaning contractor or an Acceptable Cleaning Service (as
 
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hereinafter defined) to perform such cleaning and Landlord shall not charge any fees in connection therewith. Landlord shall use reasonable efforts to cause its cleaning contractor to schedule the order of cleaning of each floor of the Premises according to Tenant’s written request, subject to Section 12(e), provided that Landlord shall not be required to provide such scheduling if it would increase Landlord’s costs in connection with the provision of janitorial services unless Tenant agrees to pay such increased costs.
 
(B) In the event Tenant shall elect to use a separate janitorial or cleaning service to clean the Premises, then, subject to the terms and conditions set forth below, Tenant shall have the right upon at least three (3) months’ prior written notice to Landlord to provide its own janitorial services for cleaning of the interior office space of the Premises. The janitorial or cleaning service employed by Tenant shall be (x) a reputable company with experience in cleaning first-class office buildings in downtown Chicago, and (y) licensed and bonded and shall employ members of a recognized labor union to perform such janitorial services, or (z) such other janitorial or cleaning service that is reasonably acceptable to Landlord (“ Acceptable Cleaning Service ”), provided that the cleaning contractor for the Building at the time qualifies as an Acceptable Cleaning Service. If the cleaning contractor for the Building does not so qualify, Tenant shall only be obligated to employ a janitorial or cleaning service which meets the same criteria as the Building cleaning contractor. In addition, the performance of such janitorial services shall not adversely affect the operations of the Building. Landlord and Tenant in such case shall use good faith efforts to cause their cleaning contractors to work in harmony. If Tenant elects to use a separate cleaning service (or its own employees) then Tenant and/or Tenant’s cleaning contractor shall have (1) the exclusive use of all janitorial closets located on floors on which the Premises comprise the full floor and (2) the use in common with Landlord’s cleaning contractor of the locker room facilities located on the Lower Level One (LL1) (or such separate but similar facilities as Landlord shall provide) and all janitorial closets located on floors on which the Premises comprise a portion of the floor, provided such use by Tenant or its cleaning contractor shall not result in any additional rent or other charges to Tenant or its contractor and such spaces or facilities shall not be deemed to be a part of the Premises;
 
(iv) The use of all passenger elevators (and all elevator cabs) servicing the Premises as of the Commencement Date, which use shall be in common with Landlord and other tenants in the Building, which elevators servicing the Premises shall be in operation twenty-four (24) hours each day, seven days each week, Holidays excepted, and freight elevator service in common with Landlord and other tenants, daily from 7:00 a.m. to 6:00 p.m., Saturdays, Sundays and Holidays excepted Except with respect to the twentieth (20th) floor, throughout the Term, the floors Occupied by Tenant will not be used by other tenants of the Building as designated elevator transfer floors between elevator
 
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banks. Subject to prior reservations of other tenants in the Building and the Rules and Regulations, Tenant may use the freight elevators in the Building on a daily basis from 7:00 a.m. to 6:00 p.m. (“ Freight Hours ”) at no additional charge on a reservation basis. In addition, Tenant may use the freight elevators for deliveries before or after such hours so long as an employee of Tenant is present to receive the delivery or as otherwise agreed by Landlord and Tenant. Notwithstanding the foregoing, so long as Tenant satisfies the Tenant Occupancy Requirement, Tenant shall have the sole and exclusive use of the Tenant’s Freight Elevator twenty-four (24) hours a day, seven days per week (including Holidays), without prior notice, but otherwise on the terms set forth herein. Tenant, however, shall, except as otherwise set forth herein, be obligated to reimburse Landlord in accordance with Landlord’s Actual Cost incurred in operating Tenant’s Freight Elevator (or, if applicable, any of the other freight elevators) (“ Freight Elevator Expenses ”) during weekends, Holidays and after Freight Hours (“ Late Hours ”) if Landlord is required, as a result of Tenant’s use, to incur any additional expense for an elevator operator to operate the freight elevator. In the event Tenant or Tenant’s Contractors and Landlord or other tenants in the Building also reserve the use of any of the freight elevators during the Late Hours, or if it is a combination of Tenant’s use and the use by other tenants or Landlord in the Building that results in the need for an elevator operator, then the Freight Elevator Expenses shall be equitably allocated by Landlord among Landlord, Tenant and all such tenants. In addition, Landlord shall daily during the Late Hours provide to Tenant all passenger elevators with access to the Premises for use by Tenant or Tenant’s Contractors as freight elevator service, provided that Tenant properly pads and otherwise protects the interior of such elevator cabs and repairs any damage caused by Tenant’s use thereof. Subject to Tenant’s schedule for using Tenant’s Freight Elevator, Tenant shall permit Landlord and other tenants in the Building, upon at least twenty-four (24) hours request (other than in the event of an emergency), to use Tenant’s Freight Elevator when freight requirements for the Building exceed the capacity of the other Building freight elevators or when the other Building freight elevators are unavailable as a result of repairs. Landlord shall reimburse Tenant, or shall cause Tenant to be reimbursed, for any costs incurred by Tenant in connection with such use. Regardless of whether Tenant has exclusive use of Tenant’s Freight Elevator, Landlord agrees that, throughout the Term, Tenant may use and Landlord will not remove or impair the medical phone line located in Tenant’s Freight Elevator.
 
In the event Landlord provides four (4) or fewer passenger elevators (each with two elevator cabs) to service each floor of each elevator bank servicing the Premises, such failure shall be deemed to be a Reduction of Services;
 
(v) (A) Electricity shall not be furnished by Landlord, but shall be furnished by an approved electric utility company serving the area. Landlord
 
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shall permit the Tenant to receive such service direct from such utility company at Tenant’s cost, and shall permit Landlord’s wire and conduits, to the extent available, suitable, and safely capable, to be used for such purposes. Subject to Section 7(a)(v)(B), Landlord shall continuously during the entire Term provide electrical service to the Premises equal to the electrical service set forth on Exhibit N. In addition, Landlord covenants that the Building’s wires and conduits shall continue to be available, suitable and safe to carry such electrical service set forth on  Exhibit N  during the Term. Tenant shall pay for all charges for electric current consumed on the Premises during Tenant’s occupancy thereof; provided, however, electric current consumed on the Premises in connection with any Building Systems, including, without limitation, emergency lighting, exit lights, fire alarms, fire sprinklers and other alarms and detectors, shall not be billed directly to Tenant, but shall be included in the Expenses of the Building. The electricity used during the operation of any special air conditioning systems which may be required for data processing equipment or for other special equipment or machinery installed by Tenant or the data center, shall be paid for by Tenant. Tenant shall be permitted, at its sole cost and expense, to upgrade the electrical service to the Premises above that provided on  Exhibit N , with the prior written consent of the Landlord, which consent shall not be unreasonably withheld or delayed, provided that Landlord may impose conditions upon the performance of the upgrade as Landlord deems appropriate in its sole discretion; provided, further, that in no event may such upgrade of service exceed the existing Building capacity pursuant to the existing Building specifications unless Tenant agrees to pay all costs of such Building upgrade, in which event Landlord shall cause such upgrade to be completed but shall not be required to commence such upgrade until Tenant and Landlord have agreed upon the actual costs to be incurred by Landlord in connection with such upgrade. All alterations or additions to the electrical system permitted to be made by Tenant must conform to all Requirements. Electricity used during janitorial services, alterations and repairs in and to the Premises shall be paid by Tenant.
 
(B) Landlord shall not in any way be liable or responsible to Tenant for any loss, damage or expense that Tenant may sustain or incur solely as a result of the electricity provider to the Building failing to supply Tenant’s required quantity of electricity, and, except as otherwise expressly set forth in this Lease, such discontinuance or failure shall not in any way affect this Lease or the liability of Tenant hereunder or cause a diminution of Base Rent or Additional Rent and the same shall not be deemed to be a lessening or diminution of services within the meaning of any law, rule or regulation now or hereafter enacted, promulgated or issued or a Reduction of Services under this Lease.
 
(C) Subject to Section 7(a)(v)(B), in the event that the level of electrical service set forth on Exhibit N is not provided to the Premises, such condition shall be deemed a Reduction of Services.
 
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(vi) Landlord shall: (A) maintain the Building in compliance with all Requirements, provided that Tenant shall not have the right to require Landlord to remedy any non-compliance with Requirements enacted prior to the Commencement Date; (B) provide and maintain the Base Building and Tenant’s Fixtures during the entire Term in a manner consistent with the operation of a first-class office building in downtown Chicago; (C) maintain the Building finishes in a quality and design consistent with the existing Building design and in a manner consistent with the operation of a first-class office building in downtown Chicago; (D) make available to Tenant and Tenant’s Contractor for their review, at times reasonably acceptable to Landlord and upon reasonable notice to Landlord, Landlord’s working drawings and specifications of the Building; (E) maintain the landscaping on the Land to be consistent with a first-class office building in downtown Chicago, but in no event in less of a condition or less of a quality than the condition and quality existing as of the Commencement Date; (F) cause the Building and common areas, including adjacent walkways (whether or not part of the Real Property) to be maintained in first-class condition and reasonably free from debris, snow, and ice consistent with the operation of a first-class office building in the downtown Chicago; and (G) prohibit smoking in the common areas of the Building;
 
(vii) Unless otherwise specified herein Tenant shall, for any extra or additional services provided by Landlord or its agents, pay in accordance with the Landlord’s current rates therefor. All charges for such extra or additional services shall be due and payable at the same time as the installment of Rent with which they are billed. Any such billings for extra or additional services shall include an itemization of the extra or additional services rendered, and the charge for each such service. Landlord’s rates for certain extra or additional services will be made known to Tenant at its request on or before each January 1 during the Term hereof; provided, however, that on the Commencement Date such rates shall be equal to those charged to Building tenants in calendar year 1998 and at no time shall be more than the Most Favored Tenant Rate. Such schedule shall be subject to change during the Term on ten (10) days’ notice as a result of any increase in Landlord’s Actual Costs provided that such increase shall not apply retroactively to any service which has begun or been contracted for by Tenant. Notwithstanding anything to the contrary contained in this  Subsection 7(a) (vii) , Landlord shall provide after-hours HVAC Services to Tenant provided Tenant shall give Landlord thirty (30) minutes advance notice of its need for such extra or additional HVAC Services and shall pay in accordance with the methodology set forth on Exhibit Y  (but in no event higher than the Most Favored Tenant Rate) for such services. If Tenant requires continuous 24-hour HVAC Services for any portion of the Premises, Landlord will provide such service to Tenant upon written request without the need for daily notice and shall charge Tenant in accordance with the methodology set forth on  Exhibit Y  (but in no event higher than the Most Favored Tenant Rate) for such service. In the event Tenant installs its own supplemental air
 
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conditioning units, Tenant may request and Landlord shall provide chilled water, provided that in no event shall Landlord be required to reduce the current consumption by any tenant of the Building on the date of this Lease in order to provide Tenant chilled water. Subject to the foregoing, Tenant shall be entitled to its pro rata share of the chilled water and, subject to the needs of other tenants, Landlord will provide additional chilled water as required by Tenant. Chilled water supplied to Tenant shall be at no direct cost to Tenant, however, the cost of providing chilled water to Building tenants shall be included in Expenses. If Tenant’s needs for additional chilled water require any modification to the Building Systems, Landlord shall not be required to provide such additional chilled water until Tenant and Landlord have agreed upon the actual costs that will be incurred by Landlord (for which Landlord will be reimbursed by Tenant) in connection with the completion of such modification. In no event will Tenant be charged a hook-up fee. If Landlord fails to supply Tenant’s allocable share of chilled water to the Premises or to any Critical Area as required above, then such conditions shall be deemed a Reduction of Services.
 
If Tenant fails to pay for any extra or additional services within the time period required hereunder after being properly invoiced by Landlord, then Landlord may, in addition to other remedies available to it hereunder, cease the provision of such extra or additional services, and in no event shall the cessation of such services be deemed to be a lessening or diminution of services within the meaning of any law or regulation now or hereafter enacted, promulgated or issued or a Reduction of Services for such extra or additional services. Upon proper payment by Tenant, Landlord shall resume providing such extra or additional services.
 
(viii) Safety and security for the entire Real Property to protect the safety and possessions of Tenant’s employees, guests, invitees and such other persons as may enter upon the Real Property, it being acknowledged by Landlord that the safety of Tenant, and its employees, guests and invitees and the security of Tenant ‘s businesses is of paramount importance. In furtherance thereof, each day Landlord shall provide a minimum of twenty-four (24) security attendants on site in the Main Lobby and elsewhere in the common areas monitoring ingress and egress to and from the Real Property and activities in the common areas of the Building in a manner consistent with other first-class office buildings in downtown Chicago. If Landlord can reasonably demonstrate that a reduction in the number of security attendants does not materially impair the safety of the Real Property and/or persons entering thereon, Landlord may reduce the number of security attendants required pursuant to this Section. If Tenant determines that Landlord has not adequately demonstrated that a proposed reduction of security attendants will not materially impair the safety of the Real Property and/or persons entering thereon, and Landlord and Tenant are unable to come to agreement on such issue within thirty (30) days after the date
 
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that Tenant provides Landlord with notice of its determination, then such matter shall be resolved by Arbitration (with no reduction in the number of security attendants being made until such Arbitration is concluded). In addition, Landlord shall provide security equipment and personnel to monitor and secure the Loading Docks and freight elevator areas in a manner consistent with other first-class office building located in downtown Chicago. In addition, either Landlord or the operator of the Garage shall provide surveillance for the Garage in accordance with that provided by other first-class garages in downtown Chicago, provided if the surveillance in other first-class garages changes during the term of any operating agreement or lease for the Garage, the surveillance for the Garage shall not have to be changed until the end of such operating agreement or lease. Nothing in this  Subsection 7(a)(viii)  is intended to increase Landlord’s liability for injury to persons or property occurring in the Garage beyond that otherwise expressly set forth in this Lease.
 
(ix) Loading Docks and adjacent areas in common with Landlord and other tenants, daily from 7:00 a.m. to 6:00 p.m., Saturdays, Sundays and Holidays excepted. Tenant shall have the right to use the Loading Docks at other times and on Saturdays, Sundays and Holidays in accordance with Landlord’s Actual Costs for such usage, provided Tenant shall give Landlord at least four (4) hours prior notice of such need for the Loading Docks on Saturday, Sunday and Holidays, though Landlord agrees to use reasonable efforts, if necessary, to accommodate Tenant upon shorter notice. Notwithstanding the foregoing, during the Term, Tenant shall have the sole and exclusive use of the Tenant’s Loading Dock twenty-four (24) hours a day, seven days per week (including Holidays), without prior notice, but otherwise on the terms set forth herein.
 
(x) Tenant shall have the right at any time during the Term, at no charge or expense to Landlord (except that the guard provided by Landlord to monitor the Building’s Proprietary Card Access System shall also monitor the lobby console connected to Tenant’s security system), upon written request of Tenant, to integrate Tenant’s security system with the Building’s Proprietary Card Access System (which is part of the Building Security System) in accordance with  Exhibit X .  In such case, Tenant may purchase the hardware and software for the Premises’ system and its installation from either Landlord, Landlord’s vendor or, if compatible, another vendor. If from Landlord, the purchase price of any equipment will not exceed one hundred fifteen percent (115%) of Landlord’s Actual Cost unless no other vendor is able to supply such hardware and/or software, in which case the purchase price shall be Landlord’s Actual Cost. Also at Tenant’s option, Tenant may enter into a maintenance agreement for such system with any third party capable of providing such maintenance or may request Landlord to maintain the system. In the latter case, Landlord shall provide maintenance to Tenant in accordance with the maintenance contract for the Building’s Proprietary Card Access System at an amount not to exceed one
 
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hundred fifteen percent (115%) of Landlord’s Actual Cost, unless no other third party is capable of maintaining such system, in which event Tenant shall pay Landlord’s Actual Cost. The installation and maintenance of such system shall be subject to the provisions of this Lease governing alterations to the Premises and standards for Tenant’s self-maintenance. If Tenant does not connect the card access system for the Premises to the Building’s Proprietary Card Access System, then Tenant, working in conjunction with Landlord, may install a stand alone card access system for the Premises, and if Landlord installs any security device at the Building’s entrances, the elevators or any other area necessary for ingress to and egress from the Premises, Tenant shall be permitted, at its cost and expense, to install its own device next to or in the vicinity of each of Landlord’s devices. In addition, Tenant, at its sole election, shall have the right to use the fire stairs within the Premises on a regular basis, subject to compliance with Requirements and the Rules and Regulations.
 
(xi) Reasonable access to the Garage and the Premises twenty-four (24) hours per day, every day; and
 
(xii) Use of the Garage in accordance with Section 43; and
 
(xiii) Use of the Indiana Room, to the extent Landlord permits such use by other tenants of the Building on a non-exclusive basis, at the Most Favored Tenant Rate, unless Landlord elects to lease the Indiana Room on an exclusive basis to one or more third parties.
 
(b) Landlord shall also (i) provide use of the Base Building telephone lines (including Tenant’s proportionate share on any partial floor Tenant Occupies) and the right to hook up at the terminal block on each floor, (ii) at Tenant’s request, purchase and install, light bulbs, ballasts and starters to be paid for by Tenant at an amount not to exceed one hundred fifteen percent (115%) of Landlord’s Actual Cost, unless no other vendor is able to supply such bulbs, ballasts and starters, in which case Tenant shall pay Landlord’s Actual Cost, and (iii) at Landlord’s option, provide additional services reasonably requested by Tenant and paid for by Tenant in accordance with  Section 7(a) (vii) , provided that Tenant shall have the right to independently purchase all bulbs, lamps and ballasts for use in the Premises. In addition, Tenant shall have the right, at its sole option, to contract with other telecommunications and electronic data transmission providers and, if necessary, Landlord shall make available to such providers the use of the Building risers, core and other areas reasonably required to connect Tenant with such service provider. The performance of the work to cause such connection shall be subject to the provisions of the Lease governing alterations or to the provisions of the Workletter if such work is performed in connection with the addition of space to the Premises. Furthermore, within thirty (30) days after the Commencement Date, Tenant shall, at Tenant’s sole cost and expense, separate the phone lines servicing the Premises from those servicing any other parts of the Building.
 
(c) Notwithstanding anything in this Section 7 to the contrary:
 
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Tenant agrees that, except as otherwise set forth in this Lease, Landlord and its beneficiaries and their agents shall not be liable in damages, or otherwise, for failure to furnish or delay in furnishing any service when such failure or delay is occasioned, in whole or in part, as a result of any Requirement, or by any Force Majeure; Landlord reserves the right to stop any service provided for under this Lease, when necessary, by reason of accident or emergency, or for repairs or replacements to Building Systems and services necessary to maintain the Building as a first class office building, provided that Landlord shall use good faith efforts to conduct such activities to minimize any disruption or inconvenience to Tenant and shall only conduct such repairs or replacements during Business Hours when it is not commercially reasonable for Landlord to perform such activities after Business Hours. Tenant shall promptly notify Landlord if any service shall be stopped, whereupon Landlord will proceed diligently to restore such service as soon as reasonably possible. Notwithstanding the foregoing, provided that no Material Default by Tenant is ongoing, in the event that any such failure or delay renders any portion of the Premises Untenantable for a period of at least three (3) consecutive Business Days after Tenant has provided notice to Landlord of such Untenantability, then Rent shall abate commencing on the day such notice of such Untenantability has been given for the portion of the Premises affected thereby and for the period of such Untenantability. If any Critical Area is affected and it results in all or a portion of the Premises being Untenantable (e.g., telephones and/or computer systems are unavailable and Tenant has ceased Occupying all or any portion of the Premises), then for purposes of this Lease, the affected portion of the Premises, and not merely the Critical Area, shall be considered Untenantable, provided, however, Tenant agrees that Landlord may, at Landlord’s sole cost and expense, cure such Untenantability by relocating the Critical Area, including any equipment located in the Critical Area, to a different location within the Premises or such other space in the Building as Landlord and Tenant may reasonably and mutually agree and connecting the necessary wiring and/or cabling for the operations on the Critical Area to be relocated. Provided that no Material Default by Tenant is ongoing, if twenty-five percent (25%) or more of the Premises is Untenantable for more than one hundred fifty (150) days in any one hundred ninety (190) day period, then, upon thirty (30) days prior written notice to Landlord, Tenant shall have the right to terminate this Lease, at Tenant’s sole option, for either the portion of the Premises affected or for the entire Premises. Notwithstanding anything else contained herein to the contrary, this Section 7(c) shall not be applicable (x) in the event of damage or destruction to the Premises or the Building that is covered by the terms and provisions of Section 15 hereof, or (y) in the event of a condemnation of the Premises, the Building or the Project which is covered by the terms and provisions of  Section 16  hereof.
 
(d) Tenant agrees to cooperate fully, at all times, with Landlord in abiding by all Requirements and all Rules and Regulations for the proper functioning and protection of all utilities and services reasonably necessary for the operation of the Premises and the Building.
 
(e) Except as otherwise restricted (including, without limitation, as set forth in Section 12), Landlord, throughout the Term of this Lease, shall have reasonable access to any and all Base Building mechanical installations located in the Premises or electrical closets contained in the Premises. Except as otherwise expressly permitted herein, Tenant further agrees that neither Tenant, nor its servants, employees, agents, visitors, licensees, or
 
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contractors shall at any time tamper with, adjust, or otherwise in any manner affect Landlord’s mechanical installations, without Landlord’s prior written consent, which consent shall not be unreasonably withheld or delayed, provided that Landlord may impose conditions to how Tenant affects such mechanical installations as Landlord deems appropriate in its sole discretion.
 
8. Condition and Care of Premises.
 
(a) Except as otherwise set forth herein, (i) no promises of the Landlord to alter, remodel, improve, repair, decorate, or clean the Premises or any part thereof have been made, and (ii) no representation respecting the condition of the Premises, the Building, or the Land, has been made to Tenant by or on behalf of Landlord (except to the extent otherwise set forth herein or in the Workletter); provided, however, Landlord agrees it will maintain and repair the Building to the extent such repairs are required and shall maintain, repair or replace, in a manner consistent with first-class office buildings in downtown Chicago, any fixtures, appurtenances or equipment necessary or proper to maintain the Building and the Building Systems, Tenant’s Fixtures, common areas (including, without limitation, the Building Plaza) and appurtenances, Land, structural components of the Building, elevator lobbies and bathrooms on each floor of the Premises (consistent with elevator lobbies and bathrooms on multi-tenant floors) and Building facade, regardless of whether or not such items are located within the Premises, provided that Landlord shall not be responsible for defects arising from or repairs and replacements necessitated by work contracted for directly by Tenant or designated by Tenant’s architect. Landlord shall promptly make any repairs or replacements necessary to satisfy Landlord’s obligations under this  Section 8 . Furthermore, Landlord shall maintain the Building Plaza, the facade and the Retail Space in a manner consistent with other first-class office buildings in downtown Chicago. This Lease does not grant any rights to light or air over or about the property of Landlord, provided, however, that, so long as Tenant satisfies the Tenant Leasing Requirement. Landlord shall not construct on the Land any new structure or improvement which is higher in elevation than the second floor of the Building.
 
(b) Except for any damage to the Premises resulting from any act of Landlord or its employees and agents, and subject to the provisions of Section 15  hereof, to the extent not required of Landlord under  Section 8(a)  above, Tenant shall, at its own expense, keep the Premises in good repair and condition, subject to reasonable wear and tear, and shall promptly and adequately repair all damage to the Premises caused by Tenant or any of its employees, agents, or invitees, including replacing or repairing all damaged or broken glass (except for exterior windows), fixtures, and appurtenances resulting from any such damage, and within any reasonable period of time specified by Landlord. If Tenant does not reasonably promptly and adequately comply with the terms of this  Section 8(b) , Landlord may, but need not, after twenty (20)-days prior written notice to Tenant make such repairs and replacements and Tenant shall pay Landlord’s Actual Cost. Landlord, however, will make any repairs and replacements, at Tenant’s sole cost and expense at Landlord’s Actual Cost, if Tenant so requests. Tenant shall take special care to keep all areas of the Premises which are visible by or accessible to the public, such as elevator lobbies and corridors, in good order and appearance consistent with a first-class office building. Nothing in this  Section 8  shall
 
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increase any of Tenant’s obligations with respect to the return of the Premises as set forth in Section 9. Upon twenty-four (24) hours prior written notice (except in the case of an emergency, when no prior notice shall be required) to Tenant, Landlord may, but shall not be required to, enter the Premises (other than any Tenant Secure Area) at all reasonable times to make such necessary repairs, alterations, improvements and additions, including ducts and all other facilities for air conditioning service as Landlord shall reasonably deem necessary, to the premises or to the Building or to any equipment located in the Building or as Landlord may be required to do by the City of Chicago or by order or decree of any court or by any other governmental authority. Except in the case of an emergency. Landlord may not enter any Tenant Secure Area without Tenant’s prior written approval, which approval may be withheld in Tenant’s sole discretion, and, if such approval is granted, Landlord shall be accompanied by a representative of Tenant at all times while in a Tenant’s Secure Area. If the work described in this subsection cannot be performed during Business Hours without materially disrupting the conduct of Tenant’s business in the affected portion of the Premises, such work shall be performed after-hours at no cost to Tenant. If the work can be performed during Business Hours without materially disrupting the conduct of Tenant’s business but Tenant requests that the work be done after-hours, Tenant shall pay the additional costs incurred by Landlord in performing such after-hours work. Landlord shall be permitted to take onto the Premises and, to the extent reasonably necessary, to store in an area adjacent to the area in which the work is being performed all materials that may be required in connection with the work being performed under this subsection; provided, however, Landlord shall in no event materially interfere with the conduct of Tenant’s business in the Premises.
 
(c) Landlord hereby accepts and approves the layout of the Premises and the location and configuration of the Tenant’s Property as it exists on the Commencement Date.
 
9. Return of Premises.
 
(a) At the termination of this Lease by lapse of time or otherwise or upon termination of Tenant’s right of possession without terminating this Lease, Tenant shall surrender possession of the Premises to Landlord and deliver all keys to the Premises to Landlord and make known to the Landlord the combination of all locks of vaults Tenant elects to leave in the Premises. At the time Tenant surrenders the Premises, except as otherwise required by Landlord with respect to a Structural Alteration as set forth in Section 6 hereof, Tenant shall have no obligation to remove Tenant’s Property or any other property of Tenant in the Building but outside of the Premises or to repair or restore the Premises or other area of the Building, except as otherwise expressly set forth in  Section 9(b) , but shall not intentionally commit waste to the Premises.
 
(b) Subject to the terms hereof, Tenant may remove any item of Tenant’s Property (other than Tenant’s Fixtures and Tenant Improvements) or other property of Tenant in the Building but outside the Premises upon Tenant’s vacation of the Premises. Tenant shall, within thirty (30) days after Landlord’s written request, repair any damage to the Premises (other than the paint, carpeting or wall coverings) or other areas of the Building caused by the
 
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removal of Tenant’s Property. Tenant shall not (i) intentionally commit waste to the Premises or (ii) cause a condition resulting in a violation of the building code or other applicable Requirements, provided Tenant shall have no obligation to correct any such violations which are necessary to permit the Premises to be occupied. Except as otherwise set forth herein, in no event shall Tenant be required to remove any improvements at the end of the Term, including, without limitation, staircases, vaults, raised computer floors, wiring, cabling or Antennae. All of Tenant’s Property remaining in the Premises or other property of Tenant remaining in the Building after Tenant vacates the entire Premises shall become Landlord’s property and Tenant shall be deemed to have conveyed title to such property to Landlord as if by bill of sale. Landlord shall in no event be responsible for the value, accounting, preservation or safekeeping of such property. Landlord’s inventory of abandoned or stored property shall be final, conclusive and incontestable. If Tenant fails to remove any Tenant’s Property that Tenant is required under  Section 6  to remove within thirty (30) days after receipt of written notice from Landlord, and Landlord thereafter removes and stores such Tenant’s Property, Tenant shall pay Landlord, within twenty (20) days of demand, any and all reasonable expenses incurred by Landlord in such removal and storage plus fifteen percent (15%) of such expenses incurred.
 
10. Holding Over. Should Tenant continue in possession of the Premises after the end of the Term, such holding over shall be construed to be a tenancy from month to month only, and such monthly tenancy shall be subject to the covenants, conditions, Rules and Regulations contained or referred to in this Lease. Such tenancy may be terminated by thirty (30) days prior written notice given by either party to the other. Tenant’s rent obligations for any period of holding over shall be as follows:
 
(a) For the first thirty (30) days that Tenant shall hold over after the expiration of the Term (the “First Holdover Period”), subject to Section 10(d)  below, Tenant shall be obligated to pay rent at a monthly rental rate equal to one hundred twenty-five percent (125%) of the Base Rent and Additional Rent due from Tenant for the last month of the Term (“ First Holdover Rent ”).
 
(b) For the second thirty (30) days that Tenant shall hold over after the expiration of the Term (the “Second Holdover Period”), subject to  Section 10(d)  below, Tenant shall be obligated to pay rent at a monthly rental rate equal to one hundred fifty percent (150%) of the Base Rent and Additional Rent due from Tenant for the last month of the Term (“ Second Holdover Rent ”).
 
(c) Beginning on the first (1st) day after the Second Holdover Period and continuing for so long as Tenant retains possession of all or a portion of the Premises (the “ Final Holdover Period ”), subject to  Section 10(d)  below, Tenant shall be obligated to pay rent at a monthly rental rate equal to two hundred percent (200%) of the Base Rent and Additional Rent due from Tenant for the last month of the Term (“ Final Holdover Rent ”).
 
(d) Notwithstanding anything in this Section 10 to the contrary, to the extent Tenant is holding over with respect to 75,000 Rentable Square Feet of the Premises or less,
 
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both Base Rent and Additional Rent shall be calculated during the Holdover Period solely on the number of Rentable Square Feet for which Tenant continues to retain possession. If Tenant is holding over with respect to greater than 75,000 Rentable Square Feet of the Premises, both Base Rent and Additional Rent shall be calculated on the entire number of Rentable Square Feet in the Premises on the last day of the Term.
 
(e) Landlord and Tenant agree and acknowledge that the rent payable by Tenant for holding over during the First Holdover Period shall represent liquidated damages for such holding over, and shall be deemed a fair and equitable measure of damages for Tenant’s holding over. Beginning on the first (1st) day of the Second Holdover Period, Tenant shall also be responsible for any Actual Damages incurred by Landlord as a direct result of Tenant’s holding over. In no event shall Tenant ever be responsible for consequential damages. Nothing contained in this Section 10 shall be deemed to limit Landlord’s rights to commence and prosecute proceedings to obtain possession of the Premises, including forcible entry and detainer proceedings.
 
(f) Notwithstanding the provisions of this Section 10 set forth above, if an event of Force Majeure shall occur prior to the end of the First Holdover Period or the Second Holdover Period which prevents Tenant from vacating the Premises and Landlord from moving a new tenant into the Building, the First Holdover Period or the Second Holdover Period, as applicable (and Tenant’s obligation to pay First Holdover Rent or Second Holdover Rent, as applicable, thereunder), shall be extended by a number of days equal to the number of days that the event of Force Majeure shall continue, but in no event shall either the First Holdover Period or the Second Holdover Period be extended by more than sixty (60) days.
 
11. Rules and Regulations. Tenant agrees to observe the rights reserved to Landlord contained in Section 12 hereof and agrees, for itself, its employees, agents, clients, customers, invitees and guests, to comply with the Rules and Regulations set forth in  Exhibit P  and such other reasonable Rules and Regulations adopted by Landlord (“ Rules and Regulations ”). Tenant’s prior written consent, which shall not be unreasonably withheld or delayed, shall be required for any new regulation which will materially or adversely affect Tenant’s use and enjoyment of the Premises. Landlord shall give Tenant at least thirty (30) days notice of any new Rules and Regulations. Landlord shall use commercially reasonable efforts to enforce the Rules and Regulations against the other tenants in the Building and shall not otherwise discriminate against Tenant in the enforcement of such Rules and Regulations. Except for the exercise of commercially reasonable efforts with respect to the enforcement of the Rules and Regulations, nothing contained in this Lease shall be construed to impose upon Landlord any duty or obligation to enforce the terms, covenants and conditions of any other lease against any other tenant or any other persons, and Landlord and its beneficiary shall not be liable to Tenant for violation of the same by any other tenant, its employees, agents, invitees, or by any other person. In the event of a conflict between the terms of the main Sections of this Lease and the terms of the Rules and Regulations, the terms of the main Sections of this Lease shall control.
 
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12. Rights Reserved to Landlord. Landlord, in addition to any other rights set forth herein, reserves the following rights, exercisable without notice and without liability to Tenant for damage or injury to property, person or business and without effecting an eviction, constructive or actual, or disturbance of Tenant’s use or possession or giving rise to any claim for setoff or abatement of Rent or affecting any of Tenant’s obligations under this Lease:
 
(a) Subject to Section 36, to change the street address of the Building, provided, however, that Landlord’s right to change the street address of the Building shall be conditioned upon Landlord paying any and all reasonable costs associated with any such address change, including, without limitation, the cost of new stationery, new signage and any other changes to comply with Requirements.
 
(b) To retain at all times, and to use in appropriate instances, pass keys to the Premises, except that Landlord shall not have keys for, nor shall it enter, any Tenant’s Secure Area without Tenant’s prior consent, which consent may be withheld in Tenant’s sole discretion, unless, because of an emergency, Landlord is unable to obtain such consent and must have access to such areas. If Tenant re-keys all or any portion of the Premises, such re-keying shall continue to fall within Tenant’s current master-key system.
 
(c) Subject to Section 5, to grant to anyone the right to conduct any business or render any service in the Building, whether or not it is the same as or similar to the use expressly permitted to Tenant by  Section 3 ; provided such business or service is consistent with the operation of a first-class office building in downtown Chicago.
 
(d) To exhibit the Premises during the last twelve (12) months of the Term at reasonable hours upon reasonable notice, provided Landlord shall place no signs on the Premises.
 
(e) To enter the Premises at reasonable hours upon reasonable advance notice (except in the case of an emergency) for inspection and supplying janitor service or other services to be provided to Tenant hereunder, provided that, except in the event of an emergency, upon reasonable advance request from Tenant, Landlord shall, at no expense to Tenant, enter the Premises at a reasonably alternative time, including after Business Hours, if Landlord’s proposed entry into the Premises would materially interfere with Tenant’s use of the Premises. If such entry would not materially interfere with Tenant’s use of the Premises but Tenant requests that such entry be made after Business Hours, Tenant shall pay any additional costs incurred by Landlord as a result of such after-hours entry.
 
(f) To restrict access to the Building and implement certain security procedures after Business Hours, which may include requiring all persons entering or leaving the Building during such hours as Landlord may from time to time reasonably determine to identify themselves to watchmen by registration or otherwise, and to establish their right to enter or leave in accordance with the provisions of applicable Rules and Regulations adopted by Landlord. Except as a result of its negligence or wilful misconduct, Landlord shall not be
 
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liable to Tenant (or any subtenant) in damages for any error with respect to admission to or eviction or exclusion from the Building of any person. In case of fire, invasion, insurrection, mob, riot, civil disorder, public excitement or other commotion, or threat thereof, Landlord reserves the right to limit or prevent access to the Building during the continuance of the same, shut down elevator service, activate elevator emergency controls, or otherwise take such action or preventive measures deemed reasonably necessary by Landlord for the safety of the tenants or other occupants of the Building or the protection of the Building and the property in the Building. Landlord and Tenant each agrees to cooperate, and coordinate with each other with respect to any reasonable safety program developed by the other, provided that such cooperation and coordination shall be at no cost or expense to the cooperating party.
 
(g) To reasonably regulate access to common areas and to prevent access to the non-general public areas pursuant to the provisions of applicable Rules and Regulations.
 
(h) To run wires, conduits and similar items in existence on the date of this Lease through the core areas of the Premises or the electrical closets contained therein.
 
(i) Except as otherwise set forth in this Lease, Landlord reserves the right to relocate, enlarge, reduce or change exits or entrances in or to the Building and to decorate and to make, at its own expense, repairs, alterations, additions and improvements, structural or otherwise, in or to the Building or any part thereof, and any adjacent building, land, street or alley, including for the purpose of connection with or entrance into or use of the Building; provided, however, Landlord shall maintain the first-class image of the Building. Landlord may for such purposes temporarily erect scaffolding and other structures reasonably required by the character of the work to be performed, and during such operations may enter upon the Premises (other than any Tenant Secure Area), with reasonable prior notice (as set forth in  Section 12(e) ), and take into and upon or through any part of the Building, including, to the extent reasonably necessary, the Premises, all materials that may be required to make such repairs, alterations, improvements, or additions, and in that connection Landlord may temporarily close some (but not all) public entry ways, other public spaces, stairways or corridors and, except as otherwise set forth herein, interrupt or temporarily suspend any services or facilities agreed to be furnished by Landlord, provided that if, as a result of such activities, the Premises, or any portion thereof, becomes Untenantable, Tenant shall have such rights as are provided in  Section 7(c) . Except to the extent such activities materially interfere with Tenant’s use of the Premises, Landlord may at its option make any repairs, alterations, improvements and additions in and about the Building and the Premises during Business Hours, and if Tenant desires to have such work performed during other than Business Hours, Tenant shall pay Landlord’s Actual Cost (including any reasonable overtime expenses for the employees of Manager) resulting therefrom. To the extent such activities materially interfere with Tenant’s use of the Premises, such activities shall be performed after Business Hours at Landlord’s sole cost and expense. Notwithstanding anything to the contrary contained in this  Section 12(i)  Landlord agrees that it will neither (i) change the number of passenger elevators or elevator cabs servicing the Premises, or increase the number of floors serviced by such elevators (provided that Landlord may permit up to four (4) passenger elevators (8 cabs) that service the Premises to stop at the second floor of the Building, provided that the initial capital
 
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charges required to permit such stops shall be at Landlord’s sole cost and expense and shall not be included in Expenses, but the costs of continued operation of the elevators stopping at such floors shall be included in Expenses), nor (ii) modify or add to the current floor arrangement for elevator banks A and B nor make one of the floors Occupied by Tenant, other than the 20th floor, a transfer floor.
 
(j) Any entry into the Premises by Landlord or its agents in compliance with the terms and provisions of this Lease shall not constitute an eviction of Tenant in whole or in part nor cause any abatement of the Rent (other than as may be provided herein) or render Landlord or its agents liable solely by reason of such entry.
 
13. Assignment and Subletting.
 
(a) Except as otherwise provided herein, Tenant shall not, without the prior written consent of Landlord in each instance, (i) mortgage, pledge, hypothecate, or encumber, or subject to or permit to exist upon or be subjected to any lien or charge, this Lease or any interest under it, (ii) allow to exist or occur any transfer of or lien upon this Lease or Tenant’s interest herein by operation of law (provided mechanic liens shall not be a default hereunder as long as Tenant is complying with the terms of this Lease and as long as no transfer of Tenant’s interest under this Lease occurs as a result of such liens), (iii) convey or assign this Lease or any of Tenant’s rights hereunder, (iv) sublet the Premises or any part thereof, or (v) permit the use and occupancy of the Premises or any part thereof for any purpose not provided for under Section 3 of this Lease or by anyone other than the Tenant and Tenant’s employees; provided that in the case of the matters described in clauses (iii) and (iv) above, Landlord’s consent may not be unreasonably withheld or delayed.
 
(b) Notwithstanding anything to the contrary contained in this Lease but subject to Subsection 13(j), provided Tenant is not in Material Default, Tenant shall, without the prior written consent of Landlord, have the right to enter into subleases for all or any part of the Premises and grant to such subtenants such rights as Tenant may have under the terms of this Lease with respect to parking, use of the Roof (so long as any subtenant using a portion of the Roof pays Landlord the current market rent being charged by Landlord therefor), and, for subtenants subleasing at least two (2) full floors, renewal. Tenant shall provide Landlord with notice and copies of all subleases entered into by Tenant.
 
(c) Notwithstanding the foregoing, in the event that Tenant wishes to enter into a sublease (other than with an Affiliate) which would cause the aggregate portion of the Premises being sublet by Tenant (pursuant to the proposed sublease and all other subleases then in effect) to equal or exceed two (2) full floors, then Tenant shall give Landlord prior written notice of such proposed sublease stating either (i) that Landlord may, by written notice to Tenant delivered within ten (10) Business Days after receipt of Tenant’s notice with respect to the proposed sublease, elect to recapture that portion (“ Recapture Portion ”) of the Premises to be included in the proposed sublease, effective as of the date that such proposed sublease would have become effective or (ii) that, in the case of a sublet for less than four (4) years, Tenant, prior to the end of the Term, intends to reoccupy the portion (“ Temporary Sublet
 
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Premises”) of the Premises to be included in the proposed sublease and such reoccupancy will be for a period of at least twenty-four (24) months and, therefore, Landlord may not recapture such portion of the Premises.
 
If Tenant delivers the notice under (i) above, and Landlord notifies Tenant of its intent to recapture within the aforesaid ten (10) Business Days, this Lease shall terminate with respect to the Recapture Portion as of the effective date of such recapture by Landlord, and Landlord and Tenant shall promptly enter into an amendment to this Lease to reflect such recapture of the Recapture Portion by Landlord (including the effective date thereof) and to amend such other terms and provisions of the Lease which are affected thereby, including, but not limited to, a pro-rata reduction of Base Rent, Tenant’s Proportionate Share for Expenses and Tenant’s Proportionate Share for Taxes. If Landlord fails to notify Tenant of its intent to recapture within the aforesaid ten (10) Business Days, Landlord shall be deemed to have elected not to recapture the Recapture Portion. If Landlord does not elect to recapture the Recapture Portion as set forth above, Tenant may thereafter enter into the proposed sublease and Tenant shall pay to Landlord a share of the Net Sublease Proceeds in accordance with  Section 13(d) .
 
(d) If Tenant delivers a notice under (c)(i) above and Landlord does not exercise its right of recapture or under (c)(ii) above, Landlord shall be entitled to receive fifty percent (50%) of the Net Sublease Proceeds. Except to the extent Tenant is entitled to retain Net Sublease Proceeds, Net Sublease Proceeds shall be deemed to be Additional Rent and shall be paid to Landlord on the first day of each month during the term of any such sublease. As used herein:
 
(i) “Net Sublease Proceeds” shall mean Sublease Proceeds less Permitted Expenses. For purposes of determining the Net Sublease Proceeds, the Permitted Expenses shall be deducted as and when paid by Tenant and the Net Sublease Proceeds shall be deemed received as and when paid by such assignee or subtenant, provided that Tenant shall be entitled to be reimbursed for all Permitted Expenses before Net Sublease Proceeds are determined.
 
(ii) “Permitted Expenses” shall mean the aggregate of (1) broker commissions and legal fees incurred by Tenant in connection with any such sublease of Temporary Sublet Premises, (2) the actual out-of-pocket cost of leasehold improvements installed by Tenant at its expense to make the Temporary Sublet Premises suitable for occupancy by the subtenant, including the cost of constructing demising walls, corridors and separating mechanical systems, and (3) any advertising expenses or financial concessions, rent concessions or credits granted by Tenant.
 
(iii) “Rent Per Square Foot” shall mean the sum of the Base Rent and Additional Rent divided by the number of Rentable Square Feet comprising the Premises at the time such calculation is made.
 
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(iv) “Sublease Proceeds” shall mean the product of (x) the Sublease Rent per Square Foot less the Rent Per Square Foot, multiplied by (y) the number of Rentable Square Feet constituting the sublet portion of the Premises.
 
(v) “Sublease Rent” shall mean any rent or other consideration paid to Tenant, directly or indirectly, by any subtenant or any other amount received by Tenant from or in connection with any subletting.
 
(vi) “Sublease Rent per Square Foot” shall mean the Sublease Rent divided by the Rentable Square Feet of space demised under a sublease.
 
Net Sublease Proceeds, Sublease Proceeds and/or Sublease Rent shall be recalculated from time to time to reflect any correction in the prior calculation thereof due to (x) subsequent payments received by Tenant, (y) the final adjustment of payments to be made to or by Tenant or (z) mistake discovered within one (1) year of the error. Promptly upon the receipt of any such payment, the making of any such adjustment or the discovery of any such mistake, Tenant shall submit to Landlord a recalculation of the Net Sublease Proceeds, Sublease Proceeds and/or Sublease Rent, and an adjustment shall be made between Landlord and Tenant, if applicable with respect thereto on account of prior payments made pursuant to this  Section 13(d) .
 
(e) If Tenant has procured an assignee, Tenant shall, by written notice to Landlord, given not less than thirty (30) days prior to the proposed effective date of such assignment, advise Landlord of its intention from, on and after a stated date to assign this Lease to such proposed assignee, and, Tenant’s notice given pursuant to this  Subsection 13(e)  shall include (1) the name and address of the proposed assignee, (2) sufficient information to permit Landlord to determine the nature and character of the business of the proposed assignee and (3) such other information as Landlord shall reasonably request that is readily available to Tenant (excluding financial information of such assignee, except to the extent required in connection with Section 13(h) ).
 
(f) In the event Tenant enters into a sublease for a portion of the Premises that is in excess of one full floor of the Building with an entity that is not an Affiliate of Tenant, Landlord agrees that, provided such sublease grants Landlord the right, in a manner satisfactory to Landlord in its sole discretion, to substitute space and relocate such subtenant upon the termination of this Lease or Tenant’s right to possession under this Lease, it shall, within thirty (30) days after Tenant’s request, enter into a Non-Disturbance and Attornment Agreement (Sub-Tenant) substantially similar to the form of agreement attached hereto as  Exhibit Q . Tenant shall provide Landlord with such information as Landlord may reasonably request with respect to a proposed subtenant requesting a Non-Disturbance and Attornment Agreement.
 
(g) For the purposes of this Section 13, any merger, consolidation, reorganization or other similar corporate, partnership or limited liability company transaction of Tenant or any change of control of Tenant shall not be deemed to constitute an assignment
 
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of this Lease and shall not require the Landlord’s consent. Notwithstanding anything in this Section 13 to the contrary, Tenant may, without the prior consent of Landlord, assign this Lease to an Affiliate of Tenant.
 
(h) No such assignment, subletting, occupancy or use, whether with or without Landlord’s prior consent, nor any such collection or application of Rent or fee for use and occupancy, shall be deemed a waiver by Landlord of any term, covenant or condition of this Lease or, except as required under  Section 13(b) , the acceptance by Landlord of such assignee, subtenant, occupant or user as tenant hereunder. The consent by Landlord of any assignment shall not relieve Tenant from its obligation to obtain the express prior consent of Landlord to any further assignment in accordance with and to the extent required under the terms of this Lease. Except as expressly provided in this  Section 13(h) , neither any assignment of Tenant’s interest in this Lease nor any subletting, occupancy or use of the Premises or any part thereof by any person other than Tenant, nor any collection of Rent by Landlord from any person shall, in any circumstances, relieve Tenant of its obligations under this Lease on Tenant’s part to be observed and performed and, other than as set forth below, each assignment of this Lease shall be conditioned upon confirmation from Tenant of its continuing primary liability under this Lease. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed without further act or deed to have assumed all of the obligations arising under this Lease on and after the date of such assignment. Any such assignee shall execute and deliver to Landlord upon demand an instrument confirming such assumption. Notwithstanding anything to the contrary contained in this Section 13,  in the event Tenant assigns this Lease, Tenant may request in writing that the Landlord consent to the release of the assignor Tenant from all liability arising under this Lease from and after the date of the assignment. Such request shall be accompanied by current financial statements for the assignee and a written agreement executed by the assignee assuming all of the obligations of Tenant from and after the assignment date. Tenant shall promptly provide Landlord with such additional information concerning the assignee as Landlord may reasonably request. Within fifteen (15) days after receipt of all information and documents required to be delivered to the Landlord with respect to the assignee, Landlord shall notify Tenant of whether Landlord consents to the release of the assignor Tenant, which consent may be withheld in Landlord’s sole discretion;  provided ,  however  if the request for release of the assignor tenant is accompanied by evidence establishing to Landlord’s satisfaction that the assignee Tenant after the transfer has a Consolidated Shareholder’s Equity that is equal to or greater than the greater of (x) two billion dollars ($2,000,000,000) and (y) Tenant’s Consolidated Shareholder’s Equity on the date immediately prior to the assignment, then Landlord may not unreasonably withhold its consent to the release of the assignor Tenant.
 
(i) Notwithstanding anything to the contrary contained in this Section 13, Tenant may not mortgage, pledge, hypothecate or encumber its leasehold interest in the Premises (“ Leasehold Mortgage ”) without obtaining Landlord’s prior written approval. Landlord agrees to give the holder of a Leasehold Mortgage approved by Landlord, by registered or certified mail, copies of all notices of default served upon Tenant by Landlord, provided that prior to such notice Landlord has been notified in writing of the address of such Leasehold Mortgage holder. Landlord agrees that if Tenant has failed to cure such default
 
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within the applicable grace period, then the holder of the Leasehold Mortgage shall have an additional thirty (30) days within which to cure or correct such default; provided, however, that such additional thirty (30) day period shall not apply in the case of a default which can be cured by the payment of money. Any such holder shall be subject to all of the terms, provisions and covenants of this Lease. Any such holder shall agree to give to Landlord notice of any default by Tenant under any such Leasehold Mortgage.
 
(j) Notwithstanding anything to the contrary contained in this Section 13, Tenant shall be permitted to enter into a sublease with any then current tenant of the Building, unless Landlord reasonably determines that Landlord can, within a time frame acceptable to the proposed subtenant, provide space reasonably acceptable to or suitable for the proposed subtenant. Landlord shall notify Tenant of whether it has made such determination within five (5) days after receipt of written inquiry from Tenant.
 
14. Waiver of Certain Claims; Indemnification Provisions.
 
(a) Subject to Section 21(a) and the last sentence of this Subsection 14(a), to the extent not expressly prohibited by any Requirements and except with respect to matters which are damaged by perils that are required to be insured as set forth in  Section 21  hereof, Tenant releases Landlord Indemnitees from and waives all claims for damages to property or for the interruption of Tenant’s business sustained by the Tenant resulting directly or indirectly from fire or other casualty, cause, or any existing or future condition, defect, matter, or thing in or about the Premises, the Building or any part of it, or from any equipment or appurtenance therein, or from any accident in or about the Building, or from any act or neglect of any tenant or other occupant of the Building or any part thereof or of any other person. The foregoing release shall not operate as a release of Landlord from liability for any negligent act or wilful misconduct of the Landlord Indemnitees. This  Section 14  shall apply especially, but not exclusively, to damage caused by water, snow, frost, steam, excessive heat or cold, sewerage, gas, odors, or noise, or the bursting or leaking of pipes or plumbing fixtures, broken glass, sprinkling or air conditioning devices or equipment, or flooding of basements, or from any other thing or circumstance, whether of a like nature or of a wholly different nature. Subject to the last sentence of this  Subsection 14(a) , all personal property belonging to the Tenant or any occupant of the Premises that is in the Building, the Garage or the Premises shall be there at the risk of the Tenant or other person only and, except to the extent arising out of Landlord’s negligence or wilful misconduct, Landlord shall not be liable for damage thereto or theft or misappropriation thereof. Notwithstanding the foregoing, with respect to any damage to Tenant’s Property which is caused by the act or neglect of Landlord Indemnitees, Landlord shall reimburse Tenant for the reasonable cost of repairing such damage.
 
(b) Subject to Section 21(a), to the extent not expressly prohibited by any Requirements and except with respect to matters which are damaged by perils that are required to be insured as set forth in  Section 21  hereof, Landlord releases Tenant Indemnitees from and waives all claims for damages to property or for any loss of rents sustained by Landlord
 
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resulting directly or indirectly from fire or other casualty, cause or any existing or future condition, defect, matter or thing in or about the Premises, the Building or any part of it, or from any equipment or appurtenance therein, or from any accident in or about the Building, or from any act or neglect of any Tenant Indemnitee or other person. The foregoing release shall not operate as a release of Tenant from liability for any negligence or wilful misconduct of the Tenant Indemnitees.
 
(c) To the extent not expressly prohibited by any Requirements, Tenant agrees to hold the Landlord Indemnitees, harmless and to indemnify each of them from and against all third party claims of whatever nature against the Landlord Indemnitees arising from any act, omission or negligence of any Tenant Indemnitees, and their licensees, invitees or visitors occurring anywhere within or about, or in connection with, the Building or surrounding property, where such accident, injury or damage results from an act, omission or negligence of Tenant Indemnitees or their licensees, invitees or visitors, except to the extent arising out of any negligence or wilful misconduct of such Landlord Indemnitees. This indemnity and hold harmless agreement shall include indemnity from and against any and all liability, fines, suits, demands, costs and expenses of any kind or nature (including, without limitation, reasonable attorneys’ fees and disbursements) incurred in or in connection with any such third party claim or proceeding brought thereon, and the defense thereof. In the event Landlord makes a claim upon Tenant under this  Section 14(c)  and such claim was unfounded or resulted from the negligence or wilful misconduct of any Landlord Indemnitee, then Landlord shall indemnify and hold harmless the Tenant for any expenses incurred by Tenant as a result of such claim.
 
(d) To the extent not expressly prohibited by any Requirements, Landlord agrees to hold Tenant Indemnitees, harmless and to indemnify each of them from and against all third party claims of whatever nature against the Tenant Indemnitees arising from any act, omission or negligence of any Landlord Indemnitees, and their licensees, invitees or visitors occurring anywhere within or about, or in connection with, the Building or surrounding property, where such accident, injury or damage results from an act, omission or negligence of Tenant Indemnitees or their licensees, invitees or visitors, except to the extent arising out of any negligence or wilful misconduct of such Tenant Indemnitees. This indemnity and hold harmless agreement shall include indemnity from and against any and all liability, fines, suits, demands, costs and expenses of any kind or nature (including, without limitation, reasonable attorneys’ fees and disbursements) incurred in or in connection with any such third party claim or proceeding brought thereon, and the defense thereof. In the event Tenant makes a claim upon Landlord under this  Section 14(d)  and such claim was unfounded or resulted from the negligence or wilful misconduct of any Tenant Indemnitee, then Tenant shall indemnify and hold harmless the Landlord for any expenses incurred by Landlord as a result of such claim.
 
15. Damage or Destruction by Casualty.
 
(a) If the Premises or any part of the Building shall be damaged by fire or other casualty (“Casualty Damage”), then, except as set forth below, Landlord shall proceed to repair and restore the same (other than the Tenant’s Property) to its prior existing condition with reasonable promptness, subject to reasonable delays for insurance adjustments and delays
 
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caused by Force Majeure and Requirements then in effect. Landlord shall, with reasonable promptness after the occurrence of such Casualty Damage direct an Approved Architect to estimate the length of time that will be required to substantially complete the repair and restoration of the Casualty Damage including the restoration of the Base Building and Tenant’s Property and shall by notice advise Tenant of such estimate, which estimate shall be given no later than sixty (60) days after such occurrence. If the Casualty Damage is to (1) twenty-five percent (25%) or more of the Premises, (2) prohibits all reasonable means of access to at least twenty-five percent (25%) of the Premises or (3) is to any portion of a Critical Area and renders at least twenty-five percent (25%) of the Premises Untenantable (e.g., telephones and/or computer systems are unavailable and Tenant has ceased Occupying the affected portion of the Premises) and it is so estimated that the amount of time required to substantially complete the repair and restoration of (i) the Base Building portion of the entire Premises will exceed two hundred seventy (270) days or (ii) the Base Building and Tenant’s Property for the entire Premises will exceed three hundred sixty (360) days, both calculated from the earlier to occur of (x) the date Landlord receives insurance proceeds for restoration of the Base Building or (y) the date that is ninety (90) days after the date of such fire or casualty, then, in either case, each of Landlord and Tenant shall have the right to terminate this Lease as of the date of such Casualty Damage upon giving notice to the other at any time within forty-five (45) days after Landlord gives Tenant the notice containing said estimate; provided that Landlord may only terminate this Lease if Landlord is also terminating all other leases directly affected by such casualty. Landlord shall have no liability to Tenant and Tenant shall not be entitled to terminate this Lease if such Landlord’s repairs and restoration are not in fact completed within the time period estimated by the Approved Architect for the repairs and restoration other than the Tenant’s Property, as aforesaid, or within said two hundred seventy (270) days, provided that Tenant shall be entitled to terminate this Lease (but Landlord shall not be liable for any damages) if such repairs and restoration are not completed within ninety (90) days (plus an additional ninety (90) days for Force Majeure) after the estimated time period or such 270-day period, whichever is longer, so long as Landlord shall proceed with reasonable promptness and due diligence. Notwithstanding anything to the contrary herein set forth, (i) if any Casualty Damage requiring, in the Approved Architect’s reasonable estimate, more than one hundred eighty (180) days to repair both the Base Building portion of the Building and the Tenant’s Property occurs during the last twenty-four (24) months of the Term, then each of Landlord and Tenant shall have the option to terminate such affected portion of the Premises as of the date of the Casualty Damage by written notice to the other within forty-five (45) days after the date Landlord delivers its estimate of the time required to repair and (ii) if more than twenty-five percent (25%) of the Premises is so damaged or unavailable (as described above) or any Critical Area is so damaged or unavailable (as described above) such that at least twenty-five percent (25%) of the Premises is rendered Untenantable, then each of Landlord and Tenant shall have the option to terminate this Lease as of the date of the Casualty Damage by written notice to the other within such 45-day period. Landlord shall have no duty pursuant to this  Section 15  to repair or restore any portion of the Tenant’s Property.
 
(b) In the event any such Casualty Damage (1) is to twenty-five percent (25%) or more of the Premises, (2) prohibits all reasonable means of access to at least twenty-five percent (25%) of the Premises or (3) is to any portion of a Critical Area and renders at least
 
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twenty-five percent (25%) of the Premises Untenantable and if the Lease is not terminated pursuant to the foregoing provisions of this Section 15, then Rent for that portion of the Premises in which Tenant cannot conduct normal operations shall abate during the period beginning with the date of such Casualty Damage and ending, with respect to each portion of the Premises, on the earlier to occur of Tenant’s commencement of normal operations on such portion of the Premise or one hundred twenty (120) days after the date when Landlord, to the extent required under this  Section 15 , substantially completes the repair and restoration work of the Casualty Damage, provided that if Tenant’s repair or restoration of the Tenant’s Property is delayed by reason of Force Majeure or Requirements, then such 120-day period after which Tenant’s shall be obligated to resume paying Rent shall be extended one day for each day Tenant’s repair or restoration is so delayed; subject to a maximum extension of ninety (90) days. Such abatement shall be in an amount bearing the same ratio to the total amount of Rent for such period as the Rentable Square Footage of that portion of the Premises in which Tenant cannot conduct normal operations bears to the Rentable Square Footage of the entire Premises. Subject to all applicable Requirements, upon the request of Tenant, Landlord agrees that Landlord will use reasonable efforts (and shall cause its contractors to use reasonable efforts) to allow Tenant to promptly commence the restoration of the Tenant’s Property as soon as possible on a floor-by-floor basis, regardless of whether or not Landlord has substantially completed the repair or restoration of such portion of the Premises, provided that such commencement will not interfere with Landlord’s completion of its restoration work. In the event of termination of this Lease pursuant to this  Section 15 , Rent shall be apportioned on a per diem basis and be paid to the date of such fire or other casualty. If the Untenantability results from Casualty Damage to a Critical Area, Tenant agrees that Landlord may, at Landlord’s sole cost and expense, cure such Untenantability by relocating the Critical Area, including any equipment located in the Critical Area, to a different location within the Premises or such other space in the Building as Landlord and Tenant may reasonably and mutually agree and connecting the necessary wiring and/or cabling for the operations in the Critical Area to be relocated.
 
(c) In the event that neither Landlord nor Tenant has terminated the Lease pursuant to Subsection 15(a), Landlord shall proceed to repair and restore the portions of the Casualty Damage other than the Tenant’s Property in accordance with  Subsection 15(a) , and Tenant shall repair and restore to a safe condition in compliance with all Requirements such portion of the Tenant’s Property that Tenant deems prudent or necessary to restore.
 
16. Eminent Domain.
 
(a) If all or any portion of the Premises shall be permanently taken or condemned by any competent authority for any public or quasi-public use or purpose, the Term with respect to the affected portion of the Premises shall end upon and not before the earlier of the date when the possession of the part so taken shall be required for such use or purpose or the effective date of such taking, and without apportionment of the award to or for the benefit of Tenant (except as specifically set forth below). If such taking affects all or a substantial portion of the Building, or any part thereof which includes at least twenty-five percent (25%) of the Premises or any Critical Area that renders at least twenty-five percent
 
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(25%) of the Premises Untenantable (e.g., telephones and/or computer systems are unavailable and Tenant has ceased Occupying the affected portion of the Premises), or if any portion of the Building which would prevent all reasonable means of access to at least twenty-five percent of the Premises, shall be taken or condemned by any competent authority for any public or quasi-public use or purpose, then each of Landlord and Tenant shall have the option of terminating this Lease as of the effective date of such taking by written notice to Landlord, such notice of termination to be delivered within sixty (60) days after the effective date of such taking. If the Untenantability results from a taking of a Critical Area, Tenant agrees that Landlord may, at Landlord’s sole cost and expense, cure such Untenantability by relocating the Critical Area, including any equipment located in the Critical Area, to a different location within the Premises or such other space in the Building as Landlord and Tenant may reasonably and mutually agree and connecting the necessary wiring and/or cabling for operations in the Critical Area to be relocated. Current Rent shall be apportioned as of the date of such termination.
 
(b) If this Lease is for any reason not terminated pursuant to Subsection 16(a), Landlord shall as soon as possible restore the Building to a condition as close as possible to its prior condition, subject to delays caused by Force Majeure and also subject to zoning laws, building codes and other Requirements applicable thereto then in effect, using the award received by Landlord (but not in excess thereof); in such event this Lease shall continue in force at the square foot rental rates and adjustments herein provided for the Premises applied to the Rentable Square Feet of the Premises existing in the Building as restored, but Rent shall abate for the affected portion of the Premises as to the periods when the Premises or portion thereof is Untenantable as a result of such taking and work of restoration.
 
(c) In the event of any such taking, Landlord shall be entitled to receive the entire award for such taking, provided that Landlord shall not be entitled to make or receive any award for Tenant’s Property. Tenant shall have no claim against Landlord or the condemning authority for the value of any expired portion of the Term and Tenant hereby expressly assigns to Landlord all of its rights in and to any such award. Nothing contained herein shall be deemed to prevent Tenant from making a separate claim in any condemnation proceedings for business interruption, damage to Tenant’s Property and any moving or relocation expenses; provided, however, such claim shall not in any way reduce the amount of the award that Landlord would otherwise receive pursuant to this  Section 16(c) .
 
17. Default; Landlord’s Rights and Remedies.
 
(a) The occurrence of any one or more of the following constitutes a “Default” by Tenant under this Lease:
 
(i) Failure by Tenant to pay any Rent or installment thereof when due and the continuance of such failure for ten (10) Business Days after written notice thereof from Landlord to Tenant (provided that interest shall begin to accrue on the unpaid sum at the Default Rate beginning on the first day after the date due);
 
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(ii) Failure by Tenant to pay any money due to Landlord hereunder (other than Rent) when due and the continuance of such failure for twenty (20) Business Days after written notice thereof from Landlord to Tenant (provided that interest shall begin to accrue on the unpaid sum at the Default Rate beginning on the first day after the date due);
 
(iii) Failure by Tenant to observe or perform any other covenant, agreement, condition or provision of this Lease and the continuance of such failure for thirty (30) days after notice thereof from Landlord to Tenant; provided, however, that if such failure cannot reasonably be cured within thirty (30) days and if Tenant commences such cure within such thirty (30) days, then such period shall be extended for so long as Tenant is prosecuting such cure with diligence and continuity, provided that Tenant shall not be entitled to an extension of this cure period if the default is of a nature that it is incapable of being cured. Notwithstanding the foregoing, in no event shall Tenant be entitled to any additional notice or cure period if Tenant fails to affect a cure under Section 30 within the time periods set forth therein.
 
(iv) Tenant becomes insolvent or bankrupt or admits in writing its inability to pay its debts as they mature, or makes an assignment for the benefit of creditors, or applies for or consents to the appointment of a trustee or receiver for Tenant or for the major part of its property;
 
(v) A trustee or receiver is appointed for Tenant or for the major part of its property and is not discharged within sixty (60) days after such appointment; and/or
 
(vi) All or a material portion of Tenant’s assets are levied upon under execution or attached by process of law and the proceedings are not dismissed within sixty (60) days; and/or
 
(vii) Tenant abandons the entire Premises; and/or
 
(viii) Bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings for relief under any bankruptcy law, or similar law for the relief of debtors, are instituted by or against Tenant and, if instituted against Tenant, are allowed against it or are consented to by it or are not dismissed within ninety (90) days after such institution.
 
(b) Upon the occurrence of any Default, Landlord shall, to the extent permitted by law, have the rights and remedies hereinafter set forth, which shall be distinct, separate and cumulative and shall not operate to exclude or deprive Landlord of, but shall be in addition to, any other right or remedy allowed it by law or by other provisions of this Lease:
 
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(i) Landlord, by notice to Tenant given on the occurrence or during the continuance of such Default, may terminate this Lease, in which event the Term of this Lease shall end, and all right, title and interest of Tenant hereunder shall expire, on the date stated in such notice (which shall be no earlier than 10 days after the giving thereof);
 
(ii) Landlord, by notice to Tenant given on the occurrence or during the continuance of such Default, may terminate the right of Tenant to possession of the Premises without terminating this Lease, in which event the right of Tenant to possession of the Premises or any part thereof shall cease on the date stated in such notice (which shall be no earlier than 10 days after the giving thereof); and/or
 
(iii) Landlord shall enforce the provisions of this Lease pursuant to the terms of Section 40 of this Lease.
 
(c) If Landlord exercises either the remedies provided for in Subsections (i) or (ii) of the foregoing Section 17(b), Tenant shall surrender possession and vacate the Premises immediately and deliver possession thereof to Landlord, and Tenant hereby grants Landlord full and free license to enter into and upon the Premises in such event and take peaceful possession of the Premises, with due process of law, and Landlord may, by legal means, remove all occupants and property therefrom without being deemed in any manner guilty of trespass, eviction or forcible entry and detainer and without relinquishing Landlord’s right to rent or any other right given to Landlord hereunder or by operation of law.
 
(d) If Landlord, pursuant to the provisions of Section 17(b)(ii) hereof, terminates the right of Tenant to possession of the Premises without terminating this Lease, such termination of possession shall not release Tenant, in whole or in part, from Tenant’s obligation to pay the Rent hereunder for the full Term. Landlord shall have the right, from time to time, to recover from Tenant, and Tenant shall remain liable for, all Rent and any other sums thereafter accruing as they become due under this Lease during the period from the date of such notice of termination of possession to the stated end of the Term. In any such case, Landlord shall exercise reasonable efforts to mitigate damages to the extent required under Illinois law, but this obligation shall not require Landlord to divert any prospective tenants from any other portion of the Building. Also in any such case Landlord may make repairs, alterations and additions in or to the Premises and redecorate the same to the extent deemed by Landlord reasonably necessary or desirable and in connection therewith change the locks to the Premises and Tenant shall, upon demand, pay the cost thereof together with Landlord’s expenses of reletting (including leasing commissions and reasonable attorneys fees) provided that all such expenses shall be equitably prorated if the term of the new lease extends beyond the scheduled expiration of this Lease. Landlord may collect the rents from any such reletting and apply the same first to the payment of the expenses of reentry, redecoration, repair and alterations and the expenses of reletting (including, without limitation, leasing commissions and reasonable attorneys fees) and second to the payment of Rent herein provided to be paid by Tenant, and any excess or residue shall operate only as an offsetting credit
 
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against the amount of Rent as the same thereafter becomes due and payable hereunder, but the use of such offsetting credit to reduce the amount of Rent due Landlord, if any, shall not be deemed to give Tenant any right, title or interest in or to such excess or residue and any such excess or residue shall belong to Landlord solely; provided that in no event shall Tenant be entitled to a credit on its indebtedness to Landlord in excess of the aggregate sum (including Base Rent and Additional Rent) which would have been paid by Tenant for the period for which the credit to Tenant is being determined, had no Default occurred. No such re-entry or repossession, repairs, alterations and additions, or reletting shall be construed as an eviction or ouster of Tenant or as an election on Landlord’s part to terminate this Lease unless a written notice of such intention be given to Tenant or shall operate to release Tenant in whole or in part from any of Tenant’s obligations hereunder, and Landlord may, at any time and from time to time, sue and recover judgment for any deficiencies from time to time remaining after the application from time to time of the proceeds of any such reletting.
 
(e) In the event of the termination of this Lease by Landlord as provided for by Subsection (i) of Section 17(b), Landlord shall be entitled to recover from Tenant all the Rent accrued and unpaid for the period up to and including such termination date, as well as all other additional sums payable by Tenant, or for which Tenant is liable or in respect of which Tenant has agreed to indemnify Landlord under any of the provisions of this Lease which may be then owing and unpaid, and all costs and expenses, including court costs and reasonable attorneys’ fees incurred by Landlord in the enforcement of its rights and remedies hereunder, and in addition Landlord shall be entitled to recover as damages for loss of the bargain and not as a penalty (x) the aggregate sum which at the time of such termination represents the excess, if any, of the present value of the Rent (including any Rent or portion thereof for which Tenant has otherwise received a credit or abatement) for the remainder of the Term pursuant to the applicable provisions of Sections 1 and 2 , over the then present value of the then aggregate fair rental value of the Premises for the balance of the Term, such present worth to be computed in each case on the basis of a per annum discount equal to the Prime Rate in effect from the respective dates upon which such rentals would have been payable hereunder had this Lease not been terminated and (y) any damages in addition thereto, including reasonable attorneys’ fees and court costs, which Landlord shall have sustained by reason of the breach of any of the covenants of this Lease other than for the payment of Rent.
 
(f) All property removed from the Premises by Landlord pursuant to any provision of this Lease or of law may, at Landlord’s option, be stored by Landlord at the cost and expense of Tenant, and Landlord shall in no event be responsible for the value, preservation or safekeeping thereof. Tenant shall pay Landlord for all expenses incurred by Landlord in such removal and storage charges against such property so long as the same shall be in Landlord’s possession or under Landlord’s control. If the Lease or Tenant’s right of possession is terminated prior to the Expiration Date, then all property not removed from the Premises or not retaken from storage by Tenant within sixty (60) days after the earlier of (i) Tenant ceasing operations at the Property and (ii) a final unappealable determination by a court or arbitrator of competent jurisdiction that the Lease or Tenant’s right of possession has been terminated shall be conclusively deemed to have been conveyed by Tenant to Landlord as by
 
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bill of sale without further payment or credit by Landlord to Tenant, unless and to the extent Landlord elects in writing not to accept title to any such property.
 
(g) If any action for breach of or to enforce any provision of this Lease is commenced by Landlord against Tenant, the court in such action shall award to the party in whose favor judgment is entered, a reasonable sum as attorneys’ fees, which attorneys’ fees shall be paid by the losing party in such action. Tenant shall pay all of Landlord’s costs, charges, and expenses, including court costs and reasonable attorneys’ fees, incurred by Landlord in any litigation in which Tenant causes Landlord, without Landlord’s fault, to become involved or concerned.
 
(h) In the event that Tenant shall file for protection under any Chapter of the Bankruptcy Code now or hereafter in effect, Landlord and Tenant agree, to the extent permitted by all Requirements, to request that the debtor-in-possession or trustee-in-bankruptcy, if one is appointed, assume or reject this Lease within sixty (60) days thereafter.
 
18. Default by Landlord; Tenant’s Remedies; Self-Help.
 
(a) The occurrence of any of the following events shall constitute a “Landlord Default” under this Lease by Landlord:
 
(i) Landlord fails at the time when due to make payments or credit any sums to be paid or credited under this Lease by Landlord to or for the benefit of Tenant, or fails to reimburse Tenant for Self-Help Repairs and such failure continues for twenty (20) Business Days after written notice thereof to Landlord (a “ Monetary Landlord Default ”) (provided that interest shall begin to accrue on the unpaid or uncredited sum at the Default Rate beginning on the first day after the date due); or
 
(ii) Landlord fails to perform or observe any other covenant or condition to be performed or complied with by Landlord under this Lease, and such failure continues for thirty (30) days after written notice thereof to Landlord, provided that if such failure cannot reasonably be cured within thirty (30) days, then such period shall be extended for so long as Landlord is prosecuting such cure with diligence and continuity, provided that Landlord shall not be entitled to an extension of the cure period if the default is of a nature that is incapable of being cured.
 
(b) In the event of a Landlord Default or other failure which entitles Tenant to invoke its self-help rights under this Lease, Tenant shall have all of the other rights and/or remedies granted to Tenant under any other provisions of this Lease, as well as such other remedies as may now or hereafter exist at law or in equity.
 
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(c) Tenant shall have the right to offset any expenses incurred in exercising its self-help rights, as permitted under this Lease, against Rent and any other charges, fees, payments or reimbursements due from Tenant to Landlord.
 
(d) Tenant’s self-help rights and other remedies set forth in this Lease may be exercised at the option of Tenant, and are expressly intended as alternatives to, and not a substitute for, Tenant’s rights and remedies at law or in equity or as set forth in this  Section 18 .
 
(e) Provided the terms of this Lease expressly permit Tenant to remedy a failure by Landlord in the case of an emergency, then, upon twenty-four (24) hours prior notice (telephonic or oral) to Building management, Tenant may remedy such failure, unless within such twenty-four (24) hour period Landlord has begun taking action to remedy such failure and continues proceeding diligently with respect thereto. Landlord shall reimburse the actual out-of-pocket reasonable cost thereof within thirty (30) days following Tenant’s delivery of: (i) a written notice describing in reasonable detail the action taken by the Tenant; (ii) reasonably satisfactory evidence of the cost of such remedy; and (iii) such sworn contractor’s statements, waivers of lien and other applicable documentation as are reasonably necessary to protect Landlord’s title to the Building. All work performed by Tenant pursuant to this  Section 18(e)  shall be deemed to be an Alteration.
 
(f) Provided that no Material Default by Tenant is ongoing, Tenant may elect the following remedies in the event of a Reduction of Services that is not otherwise subject to  Section 18(e) :
 
(i) If the Reduction of Services has occurred and is ongoing (A) pursuant to Sections 7(a)(i)(B) or 7(a)(iv) either (1) for a period of at least five (5) consecutive Business Days or (2) for at least twelve (12) separate Business Days during any twelve (12) consecutive month period, or (B) pursuant to Sections 7(a)(ii)(B), 7(a)(v)(C) or 7(a)(vii) either (1) for two (2) consecutive Business Days or (2) for at least six (6) Business Days in any twelve (12) consecutive month period then any of the parties designated to receive notices for Tenant pursuant to this Lease may give written notice (the “ Service Notice ”) to Landlord substantially in the form attached hereto as Exhibit R : (1) describing the Reduction of Services, (2) providing a detailed explanation and reasonable evidence thereof, and (3) identifying the representative(s) of Tenant (the “ Service Representative(s) ”) with the requisite authority and expertise who will work with Landlord to correct the Reduction of Services.
 
(ii) Upon Landlord’s receipt of the Service Notice, Landlord and Tenant’s Service Representative(s) shall work together diligently and in good faith to identify and resolve the cause of the Reduction of Services within (A) with respect to a Reduction of Services pursuant to Sections 7(a)(i)(B) or 7(a)(iv), the thirty (30) days following Landlord’s receipt of the Service Notice or (B) with respect to a Reduction of Services pursuant to Sections 7(a)(ii)(B),
 
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7(a)(v)(C) or 7(a)(vii), the three (3) Business Days following Landlord’s receipt of the Service Notice (in each case, the “Initial Cure Period ”). The Initial Cure Period shall be extended to the extent necessary to resolve the cause of the Reduction of Services, provided that (Y) Landlord has commenced and is thereafter diligently pursuing such cure, and (Z) the Initial Cure Period shall not be extended by more than sixty (60) additional days with respect to Section 18(f)(ii)(A) or five (5) Business Days with respect to Section 18(f)(ii)(B).
 
(iii) If, after the end of the Initial Cure Period, the Reduction of Services has not been cured so as to comply with the terms and provisions of this Lease, then Tenant may deliver a second written notice (the “ Self-Help Repair Notice ”) substantially in the form attached hereto as  Exhibit S  to Landlord containing (A) a statement that within five (5) Business Days after Landlord’s receipt of the Self-Help Repair Notice, Tenant intends to commence its own repairs, (B) a reasonable description of the procedures and repairs that Tenant intends to undertake on the Real Property and the proposed cost thereof (the “ Self-Help Repairs ”) and (C) the names of the parties Tenant intends to use to perform the Self-Help Repairs.
 
(iv) If, prior to Tenant’s commencement of repairs, as set forth in the Self-Help Repair Notice, Landlord commences the Self-Help Repairs, then Tenant shall not undertake the Self-Help Repairs, provided that Landlord diligently pursues the Self-Help Repairs to completion.
 
(v) If Landlord does not commence the Self-Help Repairs within the five (5) Business Day period set forth in Section l8(f)(iii)(A) and diligently pursue the Self-Help Repairs to completion, then Tenant may commence and complete said Self-Help Repairs, in which event, the Self-Help Repairs shall be performed in accordance with the applicable provisions of  Section 6  of this Lease, except that Landlord’s prior approval shall not be required, and Tenant shall pursue such Self-Help Repairs diligently to completion.
 
(vi) In the event Tenant commences and completes the Self-Help Repairs, Landlord shall reimburse Tenant for Tenant’s Actual Cost thereof (but in no event in excess of the cost set forth in the Self-Help Repair Notice plus ten percent (10%)), within thirty (30) days following Tenant’s delivery to Landlord of: (A) a written notice describing in reasonable detail the action taken by Tenant, (B) reasonably satisfactory evidence of the cost of the Self-Help Repairs, and (C) sworn contractors’ statements, waivers of lien (or equivalent documentation) and other applicable documentation reasonably necessary to protect Landlord’s title to the Building.
 
(g) Notwithstanding anything else contained herein to the contrary, this Section 18 shall not be applicable (i) in the event of damage or destruction to the Premises or the Building
 
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which is covered by the terms and provisions of Section 15 of this Lease or (ii) in the event of a condemnation of the Premises, the Building or the Project which is covered by the terms and provisions of  Section 16  of this Lease. Determination of whether Tenant has acted reasonably in exercising its rights under this  Section 18  shall be subject to Arbitration.
 
Whenever Tenant shall deliver a notice to Landlord pursuant to this Section 18, Tenant shall deliver a copy of such notice to a first Mortgagee, provided that Landlord has provided Tenant with current names and addresses for such first Mortgagee.
 
19. Subordination and Attornment.
 
(a) Landlord has heretofore and may hereafter from time to time execute and deliver a Mortgage. Subject to Section 19(c), if requested by Landlord, Tenant will either (i) subordinate its interest in this Lease to any Mortgage (except to the extent that the first Mortgagee shall prohibit Tenant from subordinating to any subordinate Mortgages), and to any and all advances thereunder and to the interest thereon, and all renewals, replacements, amendments, modifications, and extensions thereof, or (ii) make Tenant’s interest in this Lease or certain of Tenant’s rights hereunder superior thereto; and Tenant will promptly execute and deliver such agreement or agreements as may be reasonably required by Landlord or the holder of such Mortgage.
 
(b) It is further agreed that if the interests of Landlord under this Lease are transferred by reason of, or assigned in lieu of, foreclosure or other proceeding for enforcement of any Mortgage, or if any Superior Lease is terminated, or if the holder of any Mortgage or any ground lessor acquires a lease in substitution therefor, then Tenant under this Lease will, if the holder of any such Mortgage or any purchaser or assignee, as the case may be, or ground lessor shall so elect in writing in its sole discretion, either (i) attorn to it and will perform for its benefit all the terms, covenants and conditions of this Lease on Tenant’s part to be performed with the same force and effect as if it were Landlord originally named in this Lease, or (ii) enter into a new lease with it for the remaining Term of this Lease and otherwise on the same terms and conditions and with the same options, if any, then remaining. The provisions of the second sentence of paragraph (a) above and of clause (i) of this  Section 19(b)  shall inure to the benefit of such holder of such Mortgage, purchaser or assignee or ground lessor and shall be self-operative unless the option in (ii) of either paragraph (a) above or this paragraph (b) is exercised, and no further instrument shall be required to give effect to such clause, and no further instrument shall be required to give effect to said provisions. Tenant, however, upon demand of any such holder of such Mortgage, purchaser, or assignee or ground lessor, agrees to enter into a written agreement containing provisions consistent with the relevant foregoing provisions of this  Section 19 , satisfactory to any such holder of such Mortgage, purchaser, or assignee or ground lessor acknowledging such attornment and setting forth the terms and conditions of its tenancy.
 
(c) Anything in this Section 19 notwithstanding, Tenant’s obligation to subordinate this Lease as provided in this Section shall be contingent upon Tenant receiving a
 
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subordination, nondisturbance and attornment agreement in substantially the form attached hereto and made a part hereof as Exhibit T (“ Nondisturbance Agreement ”) from the Mortgagee. Landlord also agrees to obtain a Nondisturbance Agreement from the current Mortgagee prior to the execution of this Lease by Tenant.
 
20. Time is of the Essence. Time is of the essence of this Lease and each of its provisions; provided, however, that wherever under the terms and provisions of this Lease the time for payment or performance falls upon a Saturday, Sunday or Holiday, such time for payment or performance shall be extended to the next Business Day.
 
21. Subrogation and Insurance.
 
(a) Anything in this Lease to the contrary notwithstanding, Landlord and Tenant each waives all rights of recovery, claim, action, or cause of action against the other, its agents (including partners, both general and limited), trustees, officers, directors and employees, for (i) any loss or damage that may occur to the Premises or the Real Property or any personal property of such party therein, by reason or any peril required to be insured against under this Lease (and whether or not actually insured) by the waiving party, or (ii) business interruption and losses (and any other consequential losses) occasioned thereby sustained by such party as a result of the damage to the Premises or Real Property, regardless of cause or origin, including negligence of the other party. Tenant and Landlord covenant that, to the fullest extent permitted by all Requirements, no insurer shall hold any right of subrogation against the other. Landlord and Tenant shall advise their respective insurers of the foregoing and such waiver shall be permitted under any policies maintained by Landlord and Tenant pursuant to the terms of this Lease.
 
(b) Notwithstanding anything in this Lease to the contrary, so long as the Tenant is Amoco Corporation or one of its Affiliates, Tenant may, subject to the terms of this  Section 21(b) , fulfill its insurance obligations under this Lease through its alternative risk management programs, including self-insurance and Landlord hereby consents thereto. If Tenant elects to self-insure, upon Landlord’s written request, Tenant shall provide Landlord with a letter of self-insurance. Tenant shall not be allowed to self-insure under this Lease for any portion of the Term during which Tenant’s Net Worth (including, without limitation, the aggregate Net Worth of those Affiliated with Tenant) is less than Two Hundred Million and No/l00ths Dollars ($200,000,000.00). In the event, however, Tenant’s Consolidated Shareholder’s Equity is less than or equal to $200,000,000, then until Landlord receives satisfactory evidence that such condition no longer exists Tenant shall carry (i) “all risk” property damage insurance on a replacement cost basis covering the Tenant’s Property and (ii) commercial general liability insurance (including contractual liability insuring the indemnification provisions contained in this Lease), in an amount not less than $10,000,000.00, in any combination of primary and excess liability coverage as Tenant may select, subject to a deductible that shall not exceed $100,000.00 insuring Tenant, Landlord, Manager, Landlord’s agents and beneficiaries and any partners, directly or indirectly of such party, all such policies to be with terms, coverages, and issued by companies that are commercially reasonable in Tenant’s industry. As a condition of allowing Tenant to self-
 
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insure and/or utilize a deductible and/or self-insured retention. Tenant agrees to provide a legal defense for Landlord and its agents in the same manner as if insurance had been provided and Landlord and its agents were named as additional insureds.
 
(c) To the extent Tenant is not self-insured as provided in Subsection 21(b) above, Tenant shall, prior to the commencement of the Term and thereafter during the Term, furnish to Landlord certificates issued by the respective carriers evidencing such coverage or replacements and renewals thereof, which policies or certificates shall state that such insurance coverage may not be canceled without at least thirty (30) days’ prior written notice to Landlord and Tenant.
 
(d) Landlord shall at all times during the Term comply with and cause the Real Property to comply with all applicable Requirements (including, without limitation, the Americans with Disabilities Act); provided, however, that Tenant shall not require Landlord to remedy any non-compliance with Requirements enacted on or prior to the Commencement Date. Landlord shall indemnify Tenant against any loss, cost, claim, damage or expense suffered or incurred by Tenant to the extent arising out of any non-compliance by Landlord of this obligation (including reasonable attorneys fees).
 
(e) At all times during the Term Landlord shall carry (i) “all risk” property damage insurance on a one hundred percent (100%) replacement cost basis covering the Building, excluding Tenant’s Property and (ii) commercial general liability insurance (including contractual liability insuring the indemnification provisions contained in this Lease) naming Tenant as an additional insured, in an amount not less than the greater of (X) $50,000,000.00 or (Y) such other amount that is commercially reasonably available to owners of comparable first-class office buildings, in any combination of primary and excess liability coverage as Landlord may select, provided that the insurance required under clauses (i) and (ii) above may be subject to a deductible that shall not exceed $100,000.00 or such greater deductible as permitted by the Mortgagee and (iii) rent loss insurance (including a reasonable deductible) insuring Landlord and any partners, directly or indirectly of such party, all such policies to be with terms, coverages, and issued by companies that are commercially reasonable for owners of first-class office buildings in downtown Chicago. Landlord shall, prior to the commencement of the Term and thereafter during the Term, furnish to Tenant certificates issued by the respective carriers evidencing such coverage or replacements and renewals thereof, which policies or certificates shall state that such insurance coverage may not be canceled without at least thirty (30) days’ prior written notice to Landlord and Tenant.
 
22. Nonwaiver. Except to the extent specifically provided herein, no waiver of any condition expressed in this Lease shall be implied by any neglect of either party to enforce any remedy on account of the violation of such condition whether or not such violation be continued or repeated subsequently, and no express waiver shall affect any condition other than the one specified in such waiver and only for the time and in the manner specifically stated. Without limiting the provisions of  Section 10 , it is agreed that no receipt of moneys by Landlord from Tenant after the termination in any way of the Term or of Tenant’s right of possession hereunder or after the giving of any notice shall reinstate, continue or extend the
 
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Term or affect any notice given to Tenant prior to the receipt of such moneys. It is also agreed that after the service of notice or the commencement of a suit or after final judgment for possession of the Premises, Landlord may receive and collect any moneys due, and the payment of said moneys shall not waive or affect said notice, suit or judgment. No payment by Tenant or receipt by Landlord of a lesser amount than any installment or payment of Base Rent or Additional Rent or other amounts due, unless such lesser amount is a result of a credit given by Landlord to Tenant or Tenant’s exercise of the rights to offset specifically provided for herein, shall be deemed other than a payment on account of the amount due and no endorsement or statement on any check or any transmittal document accompanying any check or payment of any amount due shall be deemed an accord and satisfaction. Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of any amount due or pursue any other remedies available to Landlord.
 
No act or thing done by Landlord or Landlord’s agents during the Term shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept such surrender shall be valid unless in writing signed by Landlord. No employee of Landlord or of Landlord’s agents shall have any power to accept the keys of the Premises prior to the termination of this Lease. The delivery of keys to any employee of Landlord or of Landlord’s agents shall not operate as a termination of this Lease or a surrender of the Premises. In the event Tenant at any time desires to have Landlord sublet the Premises for Tenant’s account, Landlord or Landlord’s agents are authorized to receive said keys for such purpose without releasing Tenant from any of the obligations under this Lease.
 
23. Estoppel Certificate. (a) The Tenant agrees that from time to time (but in no event more than two times within any twelve-month period) upon not less than thirty (30) days’ prior written request by Landlord or the Mortgagee, which shall be delivered in accordance with  Section 26 , the Tenant (and/or any permitted assignee, subtenant, licensee, concessionaire, or other occupant of the Premises claiming by, through, or under Tenant) will deliver to Landlord or to the Mortgagee, a statement in writing signed by Tenant or such other party certifying (i) that this Lease is unmodified and in full force and effect (or if there have been modifications, that the Lease as modified is in full force and effect and identifying the modifications); (ii) the date upon which Tenant began paying Rent and the dates to which the Rent and other charges have been paid; (iii) that, to Tenant’s knowledge, the Landlord is not in default under any provision of this Lease, or, if in default, the nature thereof in detail; (iv) Tenant is paying Rent on a current basis with no rental offsets currently outstanding or, to Tenant’s knowledge, anticipated to be outstanding as a result of an event that has already occurred, except as set forth in such estoppel certificate; (v) that there has been no prepayment of Rent other than that provided for in the Lease; (vi) that there are no actions, whether voluntary or otherwise, pending against Tenant under the bankruptcy laws of the United States or any State thereof; (vii) that Tenant is not in default under any provision of this Lease, or to Tenant’s knowledge, no event that with notice or the passing of time would become a default exists, or, if such an event or default exists, the nature thereof in detail; (viii) that there are no outstanding obligations of Landlord to construct or perform capital improvements in the Premises, other than as may be specified in such certificate; and (ix) such other matters as may be reasonably required by the Mortgagee (“ Estoppel Certificate ”).
 
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(b) The Landlord agrees that from time to time (but in no event more than two times within any twelve-month period) upon not less than thirty (30) days’ prior request by Tenant, the Landlord will deliver to Tenant a statement in writing signed by Landlord certifying (i) that this Lease is unmodified and in full force and effect (or if there have been modifications, that the Lease as modified is in full force and effect and identifying the modifications); (ii) the date upon which Tenant began paying Rent and the dates to which the Rent and other charges have been paid; (iii) that, to Landlord’s knowledge, the Tenant is not in default under any provision of this Lease, or, if in default, the nature thereof in detail; (iv) that, to Landlord’s knowledge, the Tenant is paying Rent on a current basis and that Landlord has no claims against Tenant which are outstanding or, to Landlord’s knowledge, anticipated to be outstanding as a result of an event that has already occurred, except as set forth in such estoppel certificate; (v) that there has been no prepayment of Rent other than that provided for in the Lease; (vi) that there are no actions, whether voluntary or otherwise, pending against Landlord under the bankruptcy laws of the United States or any State thereof; (vii) that Landlord is not in default under any provision of this Lease, or to Landlord’s knowledge, no event that with notice or the passing of time would become a default exists, or if a default exists, the nature thereof in detail; and (viii) such other matters as may be reasonably required by the Tenant.
 
24. Authority to Execute Lease. (a) Tenant (i) represents and warrants that this Lease has been duly authorized, executed, and delivered by and on behalf of the Tenant and constitutes the valid, binding and enforceable agreement of the Tenant in accordance with the terms hereof and (ii) Tenant shall deliver to Landlord or its agent, concurrently with the delivery of this Lease, (A) certified resolutions of the board of directors authorizing Tenant’s execution and delivery of this Lease and the performance of Tenant obligations hereunder and (B) an opinion of counsel confirming the due authorization and execution of this Lease.
 
(b) Landlord (i) represents and warrants that this Lease has been duly authorized, executed, and delivered by and on behalf of the Landlord and constitutes the valid and binding agreement of the Landlord in accordance with the terms hereof and (ii) Landlord shall deliver to Tenant or its agent, concurrently with the delivery of this Lease, (A) certified resolutions of the board of directors or other appropriate organizational authority documents authorizing Landlord’s execution and delivery of this Lease and the performance of Landlord obligations hereunder and (B) an opinion of counsel confirming the due authorization and execution of this Lease.
 
25. Real Estate Brokers. (a) Tenant represents that Tenant has dealt with no broker, agent or finder in connection with this Lease and agrees to indemnify and hold the Landlord Indemnitees harmless from all damages, liability, and expense (including reasonable attorneys’ fees) arising from any claims or demands of any broker, agent or finder for any commission alleged to be due such broker, agent or finder in connection with its participating in the negotiation with Tenant of this Lease.
 
(b) Landlord represents that Landlord has dealt with no broker, agent or finder in connection with this Lease and agrees to indemnify and hold the Tenant harmless from all
 
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damages, liability and expense (including reasonable attorneys’ fees) arising from any claims or demands of any broker, agent or finder for any commission alleged to be due such broker, agent or finder in connection with its participating in the negotiation with Landlord of this Lease.
 
26. Notices. (a) In every instance where it shall be necessary or desirable for Landlord to serve any notice or demand upon Tenant, it shall be sufficient to send a written or printed copy of such notice or demand, addressed to Tenant at Tenant’s Address for Notices, with a copy to its general counsel at the same address, by United States registered or certified mail, postage prepaid, or to serve any such notice or demand personally or by Federal Express or similar overnight express service. All notices from Landlord shall be deemed served upon actual receipt by Tenant; provided, however, that rejection or other refusal to accept a notice, request or demand, or the inability to deliver the same because of a changed address of which no notice was given shall be deemed to be a receipt of the notice, request or demand sent. Notwithstanding the foregoing, notices served with respect to emergency matters may be served by telephone communication to Tenant’s Emergency Representative or if such person is unavailable, then to an attorney in the general counsel’s office of Tenant, such telephone communication to be followed by a written notice to the parties required herein, to be delivered by hand or a nationally recognized over-night delivery service as soon as reasonably practical. Tenant acknowledges and agrees that all notices to be given by Landlord may be given by Manager and such notices shall be deemed to be from or on behalf of Landlord, unless otherwise specified in the notice.
 
(b) Any such notice or demand to be given by Tenant to Landlord shall, be served personally or sent by United States registered or certified mail, postage prepaid, or by Federal Express or similar overnight express service providing proof of delivery, to BRE/Randolph Drive L.L.C., c/o Blackstone Real Estate Advisors L.P., 345 Park Avenue, New York, New York 10154, Attention: Gary Sumers with copies (i) to Manager, at the office of the Building and (ii) Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017-3954, Attention: Gregory J. Ressa. All notices from Tenant to Landlord shall be deemed served upon actual receipt by Landlord; provided, however, that rejection or other refusal to accept a notice, request or demand, or the inability to deliver the same because of a changed address of which no notice was given shall be deemed receipt of the notice, request or demand sent. Notwithstanding the foregoing, notices served with respect to emergency matters may be served by telephone communication to the building manager or if such person is unavailable then to the assistant building manager, such telephone communication to be followed by a written notice telecopied to the parties required herein as soon as reasonably practical.
 
(c) Both Landlord and Tenant may from time to time upon notice given hereunder designate other persons to receive notices hereunder and/or other addresses to which notices shall be sent.
 
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27. Miscellaneous.
 
(a) No modification, waiver or amendment of this Lease or of any of its conditions or provisions shall be binding upon Landlord or Tenant unless in writing and signed by Landlord and Tenant.
 
(b) Submission of this instrument for examination shall not constitute a reservation of or option for the Premises or in any manner bind Landlord or Tenant and no lease or obligation of Landlord or Tenant shall arise until this instrument is signed and delivered by Landlord and Tenant.
 
(c) The headings of Sections are for convenience only and do not limit, expand, or construe the contents of the Sections. Reference to a Section shall mean that Section of this Lease unless the context specifically indicates another document.
 
(d) The Exhibits and any other clauses, plats and riders endorsed on or affixed to this Lease are a part hereof.
 
(e) Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer, or any association between Landlord and Tenant, it being expressly understood and agreed that neither the method of computation of Rent nor any other provisions contained in this Lease nor any act of the parties hereto shall be deemed to create any relationship between Landlord and Tenant other than the relationship of landlord and tenant.
 
(f) The legal invalidity of any provision of this Lease shall not impair or affect in any manner the validity, enforceability, or effect of the rest of this Lease.
 
(g) All understandings and agreements, oral or written, heretofore made between the parties hereto are merged in this Lease, which alone fully and completely expresses the agreement between Landlord and Tenant.
 
(h) All obligations of Landlord and Tenant hereunder shall survive the expiration of the Term.
 
(i) This Lease may not be filed on the public record by Landlord or Tenant, however, within thirty (30) days after the Commencement Date, the parties agree to record in the Office of the Recorder of Cook County, Illinois a short form of this lease in the form attached hereto and made a part hereof as Exhibit U . The cost of recording shall be paid by Tenant.
 
(j) Except to the extent specifically provided otherwise herein, each of Landlord and Tenant agrees that in any situation where such party’s consent, approval or waiver is required hereunder, it will be reasonable in its determination of whether to grant such consent, approval or waiver.
 
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(k) Notwithstanding anything to the contrary contained herein, in any case under this Lease where either Landlord or Tenant is required to do any act (other than any act relating to the payment of money), failure to perform shall not be deemed a breach hereunder to the extent such failure is due to Force Majeure, and, except as otherwise specifically set forth in this Lease, the time period to perform such act shall be extended by a time period equal to the duration of the Force Majeure.
 
28. Landlord’s Authority and Quiet Enjoyment. Landlord covenants and represents that it has full and complete authority to enter into this Lease under all of the terms, conditions, and provisions set forth herein, and Landlord further covenants that, subject to the terms, provisions, and conditions hereof, so long as Tenant is not in Default hereunder, Tenant shall, during the Term hereof, peacefully and quietly enjoy the Premises without hindrance or molestation.
 
29. Landlord. The term “Landlord” as used in this Lease means only the owner or owners at the time being of the Building so that in the event of any assignment, conveyance, or sale, once or successively, of the Building, or any assignment of this Lease by Landlord, said Landlord making such sale, conveyance, or assignment shall be and hereby is entirely freed and relieved of all covenants and obligations of Landlord hereunder accruing after such sale, conveyance, or assignment, and, except as expressly set forth in the Nondisturbance Agreement, Tenant agrees to look solely to such purchaser, grantee, or assignee with respect thereto, provided such purchaser, grantee or assignee has assumed Landlord’s obligations hereunder after the date of such transfer. This Lease shall not be affected by any such assignment, conveyance, or sale, and Tenant agrees to attorn to the purchaser, grantee, or assignee. Any liability of Landlord under this Lease shall be limited solely to the interest of Landlord in the Building, and in no event shall any personal liability be asserted against Landlord or any member or partner thereof in connection with this Lease nor shall any recourse be had to any other property or assets of Landlord.
 
30. Title and Covenant Against Liens. The Landlord’s title is and always shall be paramount to the title of the Tenant and nothing in this Lease contained shall empower the Tenant to do any act which can, shall, or may encumber the title of the Landlord. Tenant covenants and agrees not to suffer or permit any lien of mechanics or materialmen to be placed upon or against the Real Property or against the Tenant’s leasehold interest in the Premises arising out of the acts of Tenant and, in case of any such lien attaching to Landlord’s interest in the Real Property, as opposed to Tenant’s leasehold interest, to pay and remove the same within thirty (30) days unless Tenant is in good faith disputing such lien in which event Tenant shall (i) indemnify Landlord and the first Mortgagee from all loss in connection with such lien, (ii) if requested by the first Mortgagee, either insure over such lien on Landlord’s and/or the first Mortgagee’s title insurance policy or bond over such lien or otherwise provide, in Landlord’s reasonable judgment, adequate security to Landlord and/or the first Mortgagee and (iii) commence and diligently pursue an action to obtain a release of such lien; provided, however, in any event, subject to the provisions of this  Section 30 , Tenant shall obtain a release of such lien if (A) Landlord is in danger of losing title to the Building as reasonably determined by Landlord or, (B) such lien is in excess of five million dollars ($5,000,000), if
 
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(y) the existence of such lien causes a default under the Mortgage or (z) the existence of such lien will give a purchaser under contract to purchase the Building the right to terminate such contract. In the event of (y) or (z) above, Landlord shall promptly notify Tenant of the lien giving rise to the default or right to terminate, the time period provided under the applicable document to remove or otherwise provide assurances with respect to such lien and the name and phone number of the appropriate person with the lender or purchaser for Tenant to contact. After receipt of such notice from Landlord, Tenant shall have the right to negotiate with such lender or purchaser regarding the actions that Tenant may take with respect to such lien and Landlord agrees to cooperate with Tenant in connection therewith. Tenant acknowledges that Tenant has no authority or power to cause or permit any lien or encumbrance of any kind whatsoever, whether created by act of Tenant, operation of law, or otherwise, to attach to or be placed upon the Real Property, and any and all liens and encumbrances created by Tenant shall attach only to Tenant’s leasehold interest in the Premises.
 
31. Relocation of Tenant. Landlord shall not, without the express written consent of Tenant, substitute for the Premises other premises, which consent may be withheld in Tenant’s sole discretion.
 
32. Easements. Landlord hereby grants Tenant an easement over such portions of the Building as are necessary in order for Tenant (i) to use, operate and maintain the Translogic vertical mail conveyor system owned by Tenant and located in the Premises, (ii) to run conduits, wires and other like items to and from and to use, operate, maintain and test the generator owned by Tenant located in the generator room of the Building, (iii) to use the conduits, wires and other like items in existence on the date of this Lease that are used by Tenant in connection with the Prudential Easement and (iv) to run conduits, wires and other like items through the core areas of the Building, including the core areas contained in other tenants’ premises, to the extent necessary for Tenant’s operations. This easement shall expire on the expiration or earlier termination of this Lease or Tenant’s right to possession hereunder. In addition to the foregoing, Landlord agrees that Tenant shall have the exclusive right, throughout the Term, to utilize the Prudential Easement.
 
33. WAIVER OF TRIAL BY JURY; VENUE. IF, FOR ANY REASON, THE PARTIES HERETO MUTUALLY AGREE NOT TO UTILIZE THE PROVISIONS OF  SECTION 40  HEREOF OR A DISPUTE IS NOT SUBJECT TO  SECTION 40 , AS PROVIDED THEREIN, THEN WITH RESPECT TO ANY ACTION BROUGHT IN COURT, THE FOLLOWING TERMS SHALL APPLY:
 
(a) THE RESPECTIVE PARTIES HERETO SHALL AND THEY HEREBY DO WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER IN CONNECTION WITH ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, ANY RENT DISPUTE UNDER THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT’S USE OR OCCUPANCY OF THE PREMISES OR ANY EMERGENCY OR STATUTORY REMEDY.
 
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(b) IF EITHER LANDLORD OR TENANT DESIRES TO BRING AN ACTION AGAINST THE OTHER IN CONNECTION WITH THIS LEASE, SUCH ACTION SHALL BE BROUGHT IN THE FEDERAL OR STATE COURTS LOCATED IN CHICAGO, ILLINOIS. LANDLORD AND TENANT CONSENT TO THE JURISDICTION OF SUCH COURTS AND WAIVE ANY RIGHT TO HAVE SUCH ACTION TRANSFERRED FROM SUCH COURTS ON THE GROUNDS OF IMPROPER VENUE OR INCONVENIENT FORUM.
 
34. No Representations by Landlord. Landlord, Manager, and Landlord’s agents have made no promise to alter, remodel, decorate, clean or improve the Premises or the Building and no representations, warranties or promises, express or implied with respect to the condition of the Building, the Real Property, the Premises, the existing fixtures or the Building Systems or as to any other thing or fact related thereto except as herein expressly set forth, and no rights, easements or licenses are acquired by Tenant by implication or otherwise except as expressly set forth herein. Tenant’s execution of this Lease shall be conclusive evidence as against Tenant that the Premises were in good order and satisfactory condition as of the Commencement Date.
 
35. Successors and Assigns. Except as otherwise expressly set forth herein, each provision of this Lease shall extend to and shall bind and inure to the benefit not only of Landlord and Tenant, but also their respective heirs, legal representatives, successors, and assigns, but this provision shall not operate to permit any transfer, assignment, mortgage, encumbrance, lien, charge, or subletting contrary to the provisions of  Section 13 .
 
36. Building and Tenant Identity.
 
(a) So long as Landlord has not terminated Tenant’s possession of the Premises or terminated this Lease pursuant to Section 17 hereof and Tenant satisfies the Tenant Leasing Requirement, then the Building shall be called “The Amoco Building,” “The BP Amoco Building,” or, subject to Landlord’s approval (not to be unreasonably withheld or delayed) such other name as Tenant may elect from time to time during the Term. So long as Landlord has not terminated Tenant’s possession of the Premises or terminated this Lease pursuant to Section 17 hereof, and Tenant satisfies the Tenant Leasing Requirement, if Tenant changes its corporate name, then the name of the Building, upon written request from Tenant and without the prior consent of Landlord, shall be changed to be consistent with the corporate name change of the Tenant. If the Tenant requests a change in the name of the Building, such request shall be made in writing at least ninety (90) days prior to the effective date of the new Building name. The Tenant’s right to change the name of the Building to other than “The Amoco Building” or “The BP Amoco Building” shall be conditioned upon the Tenant paying any and all reasonable Landlord’s Actual Costs (and the costs of other tenants in the Building to the extent Landlord is responsible for such costs) associated with any name change that it has requested, including, without limitation, the cost of new stationery, new signage and any changes to comply with Requirements. In the event Tenant does not satisfy the Tenant Leasing Requirement, Landlord shall no longer have the right to use the name “Amoco” (or such new name as Tenant may acquire) in the Building’s name. Tenant’s rights under this
 
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paragraph shall be subject to any limitations on the name or identity of the Building contained in other leases in effect on the Commencement Date. Landlord shall on even date herewith enter into a Trademark License Agreement with Amoco Oil Company in the form attached hereto as  Exhibit O . In the event Tenant elects to change the name of the Building as provided above, the Trademark License Agreement shall be supplemented, replaced or revised to grant Landlord rights with respect to such name on terms comparable to  Exhibit O .
 
(b) At all times during the Term, Landlord agrees to maintain the main Building directory and the computerized Building directory (or any replacement directories thereto) in the Main Lobby and provide Tenant (and Tenant’s subtenants) with a sufficient number of lines on such computer directory in order to list Tenant’s name and all of Tenant’s personnel (and the names and personnel of Tenant’s subtenants). Landlord shall not be entitled to charge Tenant any fee during the Term for installing Tenant’s initial listings or any additions or changes to any such directories. In addition, Landlord shall during the Term, identify Tenant on the main Building directory by providing Tenant with six (6) lines on such directory, one to identify the portion of the Building occupied by Tenant and five (5) lines to use as subheadings to indicate the location of various departments, as indicated by Tenant from time to time.
 
(c) Subject to subparagraph (a) above, Landlord shall maintain Tenant’s exterior signage existing on the Commencement Date. Provided Tenant is satisfying the Tenant Occupancy Requirement at the time such sign rights are proposed, after the Commencement Date Landlord shall not grant any exterior signage rights (including monument signs) to any other tenant in the Building nor shall Landlord or any tenant place any signage, advertisements, monuments, symbols, emblems or announcements on the exterior of the Real Property. Notwithstanding the foregoing, Landlord may place non-illuminated signs on one exterior monument for any tenant in the Building so long as such monument (i) is to be located as set forth on Exhibit J , (ii) is no larger than twenty (20) square feet of total combined surface area (excluding the top), and (iii) is of a design, character, color and material consistent with that of the exterior of the Building; and (iv) Tenant is given the right to display its name most prominently on such monument (so long as Tenant has the right to name the Building). Tenant may withhold its approval in its sole discretion with respect to exterior signs not satisfying the conditions set forth in the foregoing sentence. All exterior signage shall be in compliance with all applicable Requirements. Tenant’s rights under this  Section 36(c)  shall be subject to limitations contained in leases in existence on the Commencement Date.
 
(d) So long as Tenant satisfies the Tenant Occupancy Requirement, there shall be no signage, advertisements, monuments, symbols, emblems or announcements in the Main Lobby (excluding the directory and any portion of the Main Lobby consisting of the Retail Space) except those signs or other items that exist as of the Commencement Date or are otherwise approved in writing by Tenant in its reasonable discretion. Tenant’s rights under this  Section 36(d)  shall be subject to limitations contained in leases in existence on the Commencement Date.
 
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(e) Tenant shall have the right, at Tenant’s sole cost and expense, to install appropriate signage in Tenant’s (or its subtenant’s) standard graphics identifying Tenant (or its subtenants) in materials and sizes acceptable to Tenant on the walls of the elevator lobbies and on or by the doors on each full floor it leases. On the floors Tenant partially leases, Tenant may elect to either (i) put its name or the name of its subtenant on the door to the Premises in its (or its subtenant’s) standard graphics or (ii) have Landlord install Tenant’s (or its subtenant’s) name in building standard graphics on a building standard plaque by the door to the Premises. In addition, Landlord will install building standard directional signs for Tenant (or its subtenants) in the elevator lobbies of any partial floors leased by Tenant. The building standard plaques and directional signs shall be installed by Landlord as often as Tenant elects but only the first two times on each floor shall be at Landlord’s expense, and any time thereafter Tenant shall reimburse Landlord for Landlord’s Actual Cost of such plaques and signs. Tenant shall also have the right to install, at its sole cost and expense, intra-office telephones in the elevator lobbies on each floor of the Building which it leases in whole or in part at a location selected by Tenant, provided such location shall be subject to Landlord’s reasonable approval.
 
(f) Tenant shall have the right, at Tenant’s sole cost and expense, to place temporary signs in the Building lobby identifying Tenant’s current or upcoming corporate events. All such signs shall be tastefully designed and shall be placed in such locations as to not impair the flow of pedestrian traffic through the Building. Upon the completion of an event, Tenant shall promptly remove any signage related thereto.
 
(g) Tenant shall, throughout the Term, have the right to use the image of the Building in connection with Tenant’s business as Tenant deems appropriate (but in no case for a profit) so long as such image is always displayed in a tasteful manner.
 
37. Rooftop Communications Equipment.
 
(a) Subject to the terms of this Section 37 and the rights of other tenants in the Building in existence on the Commencement Date, Tenant shall have the right, but not the obligation, at no additional charge, during the Term to install, maintain and operate, for the exclusive use by tenant or its subtenants (subject to  Section 13(b) ), satellite dish antennae or similar rooftop antennae or other devices together with the related cabling, wiring and equipment (collectively, the “ Antenna(e) ”) on up to fifteen percent (15%) of the Building’s roof (the “ Roof ”) and through the Building’s core areas; any such antennae to be installed, maintained or operated on the Roof and through the Building’s core areas shall be of a size, power, frequency and other specifications as Tenant shall reasonably designate. Landlord hereby consents to Tenant’s continued use and operation of the Antennae in place as of the Commencement Date in their locations as of the Commencement Date. Any Antennae that Tenant may desire to put on the roof after the Commencement Date shall be placed in locations within Tenant’s fifteen percent (15%) of the Roof and through the Building core as reasonably designated by Landlord (the “ Antennae Sites ”) which Tenant shall, subject to Requirements, be permitted to operate continuously upon the terms set forth in this Lease.
 
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Tenant may not sublet any space on the Roof other than in connection with subleases of portions of the Premises.
 
(b) Subject to the rights of other tenants in the Building, Landlord shall have the right to use the remainder of the Roof for any purpose including permitting other tenants in the Building to lease space on the Roof; provided, that (a) Tenant continues to have reasonable access to the Antennae Sites and the Antennae and (b) any other equipment installed on the Roof pursuant to leases or other agreements entered into after the date of this Lease will not block the ability of the existing Antenna to receive signals or reduce Tenant’s ability to use its existing Antenna. The Antennae (including, without limitation, all related cables and equipment) installed by Tenant in the Antennae Sites shall remain the property of Tenant.
 
(c) Tenant shall install, maintain and operate the Antennae at its sole cost and expense. Tenant shall have access to the Antennae Sites and a license to enter all portions of the Building necessary to access the Antennae Sites at all times, subject to the Rules and Regulations. At the end of the Term, Tenant may, at Tenant’s sole election, remove the Antennae from the Building, in which event Tenant shall restore the Antennae Sites to their condition prior to installation of the Antennae. Tenant shall otherwise comply with the terms set forth in  Section 9  hereof with respect to the return of the Antennae Sites.
 
(d) Tenant shall comply with all applicable Requirements governing the installation, maintenance and operation of the Antennae. Tenant shall be responsible for obtaining, if required in connection with its Antennae, any building permits and any licenses or permits required by the Federal Communication Commission, the Federal Aviation Administration or any other governmental agency having jurisdiction over the Building. If required by any such governmental agencies or by Landlord, Tenant shall paint the dish portion of the Antenna. Landlord agrees at Tenant’s cost to reasonably assist and cooperate with Tenant to obtain any appropriate licenses or permits.
 
38. Expansion Space. (a) Provided Tenant is not in Material Default, satisfies the Tenant Leasing Requirement and has given Landlord written notice (“ Tenant’s Expansion Notice ”) of the exercise of each option specified below on the terms and conditions specified below for each option, Tenant will have the option (“ Expansion Option ”), subject to the terms of this  Section 38  to lease additional space in the Building.
 
Provided that Tenant shall have properly exercised its option for the first and second renewal periods in accordance with the terms of Section 1 and so long as Tenant is satisfying the Tenant Occupancy Requirement, upon the expiration of the first renewal period and no later than the last day of the third (3rd) full month following the end of the first renewal period (“ Delivery Window ”), Tenant shall have the option to lease one full floor located in the office portion of the Building (“Expansion Space”). To exercise its option under this  Section 38 , Tenant must deliver to Landlord, at least twelve (12) calendar months prior to the commencement date of the Delivery Window, written notification of Tenant’s non-binding intention to expand the Premises. Within ten (10) Business Days after receipt of Tenant’s notification, Landlord shall notify Tenant in writing of the termination date (“ First Lease
 
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Termination Date”) of the earliest to expire of the leases then in effect that would provide Tenant with the Expansion Space. On or before the later to occur of (i) twelve (12) calendar months prior to the First Lease Termination Date or (ii) thirty (30) days after Landlord notifies Tenant of the First Lease Termination Date, Tenant must deliver Tenant’s Expansion Notice to Landlord of Tenant’s election to exercise the Expansion Option, which election shall be irrevocable.
 
(b) Within fifteen (15) Business Days after delivery of the Tenant’s Expansion Notice, Landlord shall notify Tenant of (i) Landlord’s determination of the Fair Market Rental Value for the Expansion Space, (ii) the date (“ Expansion Space Delivery Date ”) during the Delivery Window when Landlord anticipates the Expansion Space is available and (iii) the location of the Expansion Space Landlord is prepared to deliver. If Tenant objects to Landlord’s determination of Fair Market Rental Value for the Expansion Space, the parties agree to negotiate in good faith to resolve the dispute. If Landlord and Tenant are unable to resolve the dispute on or before the date that is six (6) months prior to the Expansion Space Delivery Date, then the Fair Market Rental Value shall be determined by Arbitration.
 
Except with respect to Base Rent, Tenant shall take such Expansion Space on the same terms and conditions as are contained in this Lease, including without limitation, a term coterminous with the Term. Base Rent for the Expansion Space shall be ninety-five percent (95%) of the annual Fair Market Rental Value. Rent on the Expansion Space that is leased by Tenant pursuant to this  Section 38 , shall commence on the earlier to occur of (x) the date Tenant has substantially completed its tenant improvements for such Expansion Space, subject to punch list items, or (y) the date that is 120 days after the date Landlord has delivered possession of such Expansion Space to Tenant. The term of this Lease with respect to the Expansion Space shall commence upon the delivery of possession of such space to Tenant and shall be coterminous with the Term. Landlord agrees that Tenant shall have the right to construct tenant improvements in the Expansion Space in accordance with the terms of this Lease (including the Workletter) and Occupy it prior to the finalization of any Arbitration; provided Tenant shall pay rent on such Expansion Space equal to the Base Rent and Additional Rent until the Arbitration is resolved. If Tenant has been paying rent on the Expansion Space and the amount of ninety-five percent (95%) of the Fair Market Rental Value for the Expansion Space as determined by the FMRV Arbitrators is greater or less than the rent Tenant has been so paying, then Tenant shall immediately begin paying ninety-five (95%) of the Fair Market Rental Value so determined. If the amount of rent Tenant had been paying is less than ninety-five (95%) of the Fair Market Rental Value so determined, Tenant, within fifteen (15) days after such determination, shall pay such difference to Landlord. If, however, the amount of rent Tenant had been paying is greater than the Fair Market Rental Value so determined, Landlord, within fifteen (15) days after such determination, shall refund such difference to Tenant or give Tenant a credit against the next installment of Rent due hereunder.
 
(c) If Tenant requests in writing, Landlord shall provide Tenant with an Expansion Space construction allowance for the Expansion Space equal to construction allowances provided to similar tenants leasing similar space in first-class office buildings in
 
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downtown Chicago and the determination of the Fair Market Rental Value of the Expansion Space shall provide for the amortization of the amount, if any, of the construction allowance provided by Landlord at the rate of ten percent (10%) per annum. All tenant improvements in the Expansion Space shall be constructed, and such allowance shall be paid, in conformance with the provisions set forth in this Lease (including the Workletter). All Expansion Space shall be delivered to Tenant in Base Building condition and in an “as-is” condition as to any portion that has been previously improved with tenant improvements as of the Expansion Space Delivery Date.
 
39. Tenant’s Right of First Offer For Additional Space. (a) Subject to any rights of first refusal or first offer in favor of tenants under other leases in the Building in effect on the Commencement Date or renewal or expansion rights (but not first refusal or first offer rights) granted to tenants in leases entered into after the Commencement Date, provided Tenant is not in Material Default under this Lease and as long as the Tenant Occupancy Requirement is satisfied, and subject to the terms and conditions set forth in this  Section 39 , Tenant shall have a right of first offer with respect to any office space located on the floors currently serviced by elevator banks “A” and “B” of the Building in excess of one half (1/2) of a floor which is available for leasing (“ Right of First Offer Space ”). Landlord shall, prior to engaging in serious leasing negotiations with a prospective tenant for any Right of First Offer Space, notify Tenant in writing (“ Landlord’s Leasing Notice ”) that Landlord intends to lease the Right of First Offer Space. Tenant shall have a period of ten (10) Business Days from the date of delivery of Landlord’s Leasing Notice to notify Landlord in writing whether Tenant is interested in the subject Right of First Offer Space.
 
(a) If Tenant does notify Landlord that it is interested in leasing the subject Right of First Offer Space, then Tenant shall lease the Right of First Offer Space described in Landlord’s Leasing Notice on the same terms and conditions as are contained in this Lease except (i) Base Rent shall be equal to the annual Fair Market Rental Value, as determined pursuant to the procedures set forth in  Section 40 , calculated to include a then-market tenant work allowance which shall be amortized over the remaining term of the Lease at a rate equal to the Prime Rate plus one percent (1 %) per annum. Rent on the Right of First Offer Space shall commence on the later of the date such space is delivered to Tenant and the date of availability set forth in the Landlord’s Leasing Notice. The term of this Lease with respect to the Right of First Offer Space shall commence upon delivery of possession of such space to Tenant and shall be co-terminus with the Term. Landlord agrees that Tenant shall have the right to construct tenant improvements in the First Offer Space in accordance with the terms of this Lease (including the Workletter) and Occupy it prior to the finalization of any Arbitration; provided Tenant shall pay Base Rent on such First Offer Space at the rate being paid with respect to the remainder of the Premises at the time Rent on the Right of First Offer Space commences until the Arbitration is resolved. If Tenant has been paying Base Rent on the Right of First Offer Space and the amount of the Fair Market Rental Value for the Right of First Offer Space as determined by the FMRV Arbitrators is greater or less than the Base Rent Tenant has been so paying, then Tenant shall immediately begin paying the Fair Market Rental Value so determined. If the amount of Base Rent Tenant had been paying is less than the Fair Market Rental Value so determined, Tenant, within fifteen (15) Business Days after
 
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such determination, shall pay such difference to Landlord. If, however, the amount of Base Rent Tenant had been paying is greater than the Fair Market Rental Value so determined, Landlord, within fifteen (15) Business Days after such determination, shall refund such difference to Tenant or give Tenant a credit against the next installment of Rent due hereunder.
 
(b) If Tenant (i) has not responded to Landlord’s Leasing Notice within the aforementioned ten (10) Business Days or (ii) Tenant has rejected such Right of First Offer Space then in all such events it shall be conclusively presumed that Tenant shall have rejected its right of first offer with respect to such Right of First Offer Space and Tenant’s rights under this  Section 39  shall terminate as to such space and Landlord may enter into a lease with any third party (“ Third Party Lease ”).
 
Subject to the terms set forth above, Tenant’s right of first offer for the Right of First Offer Space shall be continuous throughout the Term and upon the expiration of the Third Party Lease (including any renewals), Tenant shall again have a right of first offer on the terms set forth in this Section 39  with respect to the space covered thereby. Notwithstanding anything to the contrary in the foregoing, this right of first offer shall not apply with respect to the first lease of any space that was part of the Initial Premises but has been given back to Landlord pursuant to Tenant’s exercise of a Contraction Right. Further, Tenant shall have no rights of first offer with respect to space that becomes available (y) after the expiration of the tenth (10th) anniversary of the Commencement Date and (z) after Tenant has assigned the Lease (other than to an Affiliate).
 
40. Arbitration.
 
(a) Any dispute arising out of the following matters under this Lease, upon written notice from one party to the other, shall be resolved by arbitration (“ Arbitration ”):
 
 	(i)	 	services to be provided by Landlord;	
 
 	(ii)	 	Landlord’s and Tenant’s respective maintenance obligations;	
 
 	(iii)	 	the existence of a Reduction of Services or Untenantability and the applicable abatement or termination right therefore, if any;	
 
 	(iv)	 	the exercise by Tenant of any self-help remedies;	
 
 	(v)	 	the amount and duration of any Rent abatement;	
 
 	(vi)	 	the existence of any non-monetary defaults;	
 
 	(vii)	 	the calculation of Additional Rent;	
 
 	(viii)	 	the reasonableness of any refusal to consent to the making of a Structural Alteration by Tenant or to an assignment or subletting;	
 
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 	(ix)	 	a reduction in the number of security attendants; and	
 
 	(x)	 	the determination of Comparable Buildings.	
 
Arbitration shall be binding upon the parties unless expressly set forth to the contrary herein. The party desiring Arbitration shall give written notice (“ Arbitration Notice ”) that it is invoking Arbitration to resolve a dispute, in which event the following terms and conditions shall apply and the matter shall be submitted to Arbitration pursuant to the Expedited Procedures of the AAA Arbitration Rules for the Real Estate Industry. Unless otherwise mutually agreed to by the parties, all Arbitration proceedings shall be conducted in downtown Chicago, Illinois.
 
(b) With respect to issues or disputes arising under the terms of this Lease other than the determination of Fair Market Rental Value, the parties hereto agree that:
 
(i) The number of arbitrators (“Designated Arbitrator(s)”) shall be three (3), unless no disclosed claim or counterclaim in the dispute exceeds $50,000, in which case there shall be a single Designated Arbitrator. The parties shall request that the AAA select each Designated Arbitrator. Each Designated Arbitrator shall be a person who shall have had at least ten (10) years’ experience in the real estate business in Chicago, Illinois which is directly relevant to the subject matter of the dispute, shall be impartial and shall be independent of Landlord and Tenant. The AAA’s decision that a Designated Arbitrator meets these requirements shall be final and binding. The Designated Arbitrators shall not be changed unless both Landlord and Tenant jointly approve a replacement arbitrator, who shall in all respects meet the qualifications of a Designated Arbitrator as set forth above.
 
(ii) The Arbitration shall be conducted, to the extent consistent with this Section 40, in accordance with the then prevailing rules of the AAA. To the extent that the Illinois Uniform Arbitration Act or any successor statute imposes requirements different than those of the AAA in order for the decision of the Designated Arbitrators to be enforceable in the courts of the State of Illinois, such requirements shall be complied with in the Arbitration. The Designated Arbitrators shall render their decision and award in writing within thirty (30) days after the date the dispute is referred to them. Landlord and Tenant agree to respond expeditiously to discovery requests and agree to bring the Arbitration proceedings to a close as quickly as is reasonably possible. Such decision and award shall be binding and conclusive on the parties, shall constitute an “award” by the Designated Arbitrators within the meaning of the AAA rules and applicable Requirements, and counterpart copies thereof shall be delivered to each of the parties. In rendering such
 
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decision and award, the Designated Arbitrators shall not add to, subtract from or otherwise modify the provisions of this Lease.
 
(iii) All expenses and fees of the Arbitration (other than the fees and disbursements of attorneys or witnesses for each party) shall be borne by the losing party, which party shall be designated by the Designated Arbitrators.
 
(c) When so required by the provisions of this Lease, the annual Fair Market Rental Value of the Premises shall be determined in accordance with the following provisions:
 
(i) If Landlord or Tenant desires to invoke the Arbitration procedure set forth in this Section 40, the party invoking the Arbitration procedure shall give an Arbitration Notice to the other party, stating that the party sending the Arbitration Notice desires to meet within ten (10) days to attempt to agree on a single arbitrator to determine the annual Fair Market Rental Value of the Premises (the “ FMRV Arbitrator ”). If Landlord and Tenant have not agreed on the Arbitrator within thirty (30) days after the giving of the Arbitration Notice, then either Landlord or Tenant, on behalf of both, may apply to the Chicago office of the AAA for appointment of the FMRV Arbitrator in accordance with the requirements set forth in  Subsection (c)(ii)(B) . The date on which the FMRV Arbitrator is appointed, by the agreement of the parties or by appointment by the AAA is referred to herein as the “ Appointment Date ”. If any FMRV Arbitrator appointed hereunder shall be unwilling or unable, for any reason, to serve, or continue to serve, a replacement arbitrator shall be appointed in the manner set forth above.
 
(ii) The Arbitration shall be conducted in accordance with the then prevailing rules of the AAA, modified as follows:
 
(A) To the extent that the Illinois Uniform Arbitration Act or any successor statute imposes requirements different than those of the AAA in order for the decision of the FMRV Arbitrator to be enforceable in the courts of the State of Illinois, such requirements shall be complied with in the Arbitration.
 
(B) The FMRV Arbitrator shall be impartial, shall not be affiliated with Landlord or Tenant and shall be a leasing broker with at least ten (10) years’ experience in the valuation of fair market rentals for comparable size leases in comparable office buildings in downtown Chicago.
 
(C) Before hearing any testimony or receiving any evidence, the FMRV Arbitrator shall be sworn to hear and decide
 
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the controversy faithfully and fairly by an officer authorized to administer an oath and a written copy thereof shall be delivered to Landlord and Tenant.
 
(D) Within thirty (30) days after the Appointment Date, Landlord and Tenant shall deliver to the FMRV Arbitrator two (2) copies of their respective written determinations of the annual Fair Market Rental Value of the Premises (each, a “ Determination ”), together with such affidavits, appraisals, reports and other written evidence relating thereto as the submitting party deems appropriate. After the submission of its Determination, neither party may make any additions to or deletions from, or otherwise change, its Determination. If either party fails to so deliver its Determination within such time period, time being of the essence with respect thereto, such party shall be deemed to have irrevocably waived its right to deliver a Determination and the FMRV Arbitrator, without holding a hearing, shall accept the Determination of the submitting party as the annual Fair Market Rental Value of the Premises. If each party submits a Determination with respect to the annual Fair Market Rental Value of the Premises within the thirty (30) day period described above, the FMRV Arbitrator shall, promptly after its receipt of the second Determination, deliver a copy of each party’s Determination to the other party, together with copies of all materials submitted therewith. If the higher of the Determinations so submitted by the parties exceeds the lower of such Determinations by not more than five percent (5%) of the lower Determination, then the FMRV Arbitrator, without holding a hearing, shall determine that the annual Fair Market Rental Value of the Premises is the mathematical average of the two Determinations thereof.
 
(E) If the annual Fair Market Rental Value of the Premises has not been determined pursuant to clause (D) of this subparagraph, then not less than fifteen (15) days nor more than thirty (30) days after the earlier to occur of (A) the expiration of the thirty (30) day period provided for in clause (D) of this subparagraph or (B) the FMRV Arbitrator’s receipt of both of the Determinations from the parties (such earlier date is referred to herein as the “ Submission Date ”), and upon not less than ten (10) days’ notice to the parties, the FMRV Arbitrator shall hold one or more hearings with respect to the determination of the annual Fair Market Rental Value of the Premises. The hearings shall be held in downtown Chicago at such location and time as shall be specified by the FMRV Arbitrator. Each of the parties shall be entitled to present all relevant evidence and to cross examine witnesses at the hearings. The FMRV Arbitrator shall have the
 
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authority to adjourn any hearing to such later date as the FMRV Arbitrator shall specify, providedthat in all events all hearings with respect to the determination of the annual Fair Market Rental Value of the Premises shall be concluded not later than forty-five (45) days after the Submission Date.
 
(F) Except as otherwise provided in clause (D) of this subsection, the FMRV Arbitrator shall be instructed, and shall be empowered only, to select as the annual Fair Market Rental Value of the Premises that one of the Determinations which the FMRV Arbitrator believes is the more accurate determination of the annual Fair Market Rental Value of the Premises. Without limiting the generality of the foregoing, in rendering his or her decision, the FMRV Arbitrator shall not compromise between the two Determinations nor add to, subtract from or otherwise modify the provisions of this Lease or either of the Determinations.
 
(G) The FMRV Arbitrator shall render his or her determination as to the selection of a Determination in a signed and acknowledged written instrument, original counterparts of which shall be sent simultaneously to Landlord and Tenant, within ten (10) days after the earlier to occur of (A) his or her determination of the annual Fair Market Rental Value of the Premises pursuant to clause (D) of this subparagraph or (B) the conclusion of the hearing(s) required by clause (E) of this subparagraph.
 
(iv) This provision shall constitute a written agreement to submit any dispute regarding the determination of annual Fair Market Rental Value of the Premises to Arbitration.
 
(v) The Arbitration decision, determined as provided in this Section 40(c), shall be conclusive and binding on the parties, shall constitute an “award” by the Arbitrator within the meaning of the AAA rules and applicable Requirements and judgment may be entered thereon in any court of competent jurisdiction.
 
(vi) All expenses and fees of the Arbitration (other than the fees and disbursements of attorneys or witnesses for each party) shall be borne by the losing party, which party shall be designated by the FMRV Arbitrators unless the annual Fair Market Rental Value of the Premises was determined in accordance with clause (D) of this Section 40(c) in which event such expenses and fees shall be split equally between Landlord and Tenant.
 
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41. Sale of Building; Right of First Offer. (a) If at any time Landlord desires to sell the Building or the Building and the Land, then it shall deliver a notice (a “ Sale Notice ”) to Tenant stating that it desires to sell the Building or the Building and the Land. At any time within thirty (30) days after receipt of the Sale Notice (the “ OTP Offer Period ”), Tenant may give Landlord a written notice (an “ Offer to Purchase ”) containing an offer by Tenant to purchase the Building or the Building and the Land (as indicated in the Sale Notice) for a specified purchase price, payable entirely in cash at closing, and setting forth the other material terms of such offer (other than the proposed closing date which shall be as set forth below). At any time within thirty (30) days after receipt of the Offer to Purchase (the “ OTP Response Period ”), Landlord, in its discretion shall either:
 
(i) give Tenant written notice advising Tenant that Landlord has accepted the Offer to Purchase (the “Acceptance Notice”), in which event Landlord and Tenant shall diligently proceed in good faith to satisfy any conditions set forth in such Offer to Purchase and complete such sale of, and transfer of title to, the Building or the Building and the Land, as applicable, on the thirtieth (30th) Business Day after the date on which the Acceptance Notice was received by Tenant (or on such other day as Landlord and Tenant may agree). If Landlord and Tenant are unable, after exercising good faith efforts, to satisfy such conditions and complete the sale of, and transfer of title to, the Building or the Building and the Land, as applicable, within sixty (60) Business Days after Tenant’s receipt of the Acceptance Notice, Landlord shall, subject to  Section 41(e) , have the right to sell the Building or the Building and the Land, as applicable, to a third party free and clear of the rights of Tenant under this  Section 41 ; or
 
(ii) give Tenant written notice advising Tenant that Landlord has rejected the Offer to Purchase (the “Rejection Notice”). If a Rejection Notice is given, Landlord shall not sell the Building or the Building and the Land, as applicable, for a price equal to less than ninety-five percent (95%) of the price specified in the Offer to Purchase, without first delivering a new Sale Notice to Tenant and following the procedures set forth above.
 
If Landlord fails to give an Acceptance Notice or a Rejection Notice prior to the expiration of the OTP Response Period, then Landlord shall be deemed to have given a Rejection Notice as of the date of expiration of the OTP Response Period.
 
(b) If Tenant fails to send an Offer to Purchase within the OTP Offer Period, then Tenant shall, within ten (10) Business Days of request by Landlord, deliver a certificate confirming that Tenant has waived its right of first offer with respect to the Sale Notice (subject to the provisions of paragraph (e) below).
 
(c) Notwithstanding anything to the contrary contained herein, the delivery of the Offer to Purchase or the Acceptance Notice shall not be deemed to constitute a contract between Landlord and Tenant with respect to the matters set forth therein and neither party
 
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shall be legally bound in connection therewith until such time as both parties execute a sale contract.
 
(d) Tenant’s right of first offer under this Section 41 shall not apply to any Sale (i) to an Affiliate of Landlord or (ii) completed or committed to during any period that (y) Tenant is in Material Default or (z) the Tenant Occupancy Requirement is not satisfied. In addition, Tenant’s right of first offer under this  Section 41  shall specifically not apply to an acquisition by a lender through foreclosure, or deed in lieu of foreclosure, or purchaser therefrom, provided such transaction is a bona fide financing arrangement and not intended to transfer all or any portion of the ownership or control rights of the Building or the Building and the Land whether directly or indirectly or by operation of law.
 
(e) If Landlord has not consummated a sale of the Building within eighteen (18) months after the delivery of the Sale Notice, Landlord shall again be required to offer the Building or the Building and the Land to Tenant under the procedures set forth herein. If a sale of the Building to a third party is consummated within eighteen (18) months after the delivery of the Sale Notice, then Tenant shall have no further rights under this Lease to receive a first offer on any future sales of the Building or the Building and the Land.
 
42. 79th Floor Cancellation Right. (a) Tenant shall have the right, exercisable upon not less than six (6) months prior written notice to Landlord, to terminate this Lease with respect to the 79th Floor Premises only, effective on the date specified in Tenant’s notice. Tenant shall not be liable for any fee, charge or other payment because of such termination, including, without limitation, any fee to reimburse Landlord for its unamortized costs associated with this Lease (e.g., brokerage costs).
 
(b) In the event of such a termination, Tenant shall deliver the 79th Floor Premises to Landlord in an “AS IS” “WHERE IS” condition, without any requirement to remove Tenant’s Property or to perform repairs, improvements or other work, and otherwise in accordance with  Section 9 .
 
(c) Following the effective date of such a termination (if any), the term “Premises” under the Lease shall no longer include of the 79th Floor Premises, and Landlord and Tenant shall execute a modification to the Lease to reflect such surrender and to amend such other terms and provisions of the Lease which are affected by a reduction in the size of the Premises, including, but not limited to, the amount of the Base Rent, Tenant’s Proportionate Share for Expenses and Tenant’s Proportionate Share for Taxes.
 
(d) Notwithstanding anything to the contrary contained in Section 1(b)(i)(c), Tenant shall be permitted to exclude the 79th Floor Premises from the exercise of the renewal rights provided for hereunder.
 
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43. Parking.
 
(a) Landlord shall, subject to all applicable Requirements, provide Tenant (or its subtenants), at Tenant’s option, with the following parking spaces in the Garage at the following costs during the entire Term:
 
(i) eighteen (18) reserved spaces in the Parking Area 1A, as designated onExhibit B, the current size of which shall not be changed throughout the Term without Tenant’s reasonable consent, at a monthly cost equal to rates competitive with other comparable parking facilities in comparable locations in downtown Chicago;
 
(ii) twenty (20) reserved spaces in the Monthly Parking Area, at a monthly cost equal to rates competitive with other comparable parking facilities in comparable locations in downtown Chicago;
 
(iii) up to fifty (50) parking spaces in the Monthly Parking Area at a monthly cost equal to rates competitive with other comparable parking facilities in comparable locations in downtown Chicago; and
 
(iv) up to an additional one hundred (100) parking spaces, which may be located in any portion of the Garage, at a monthly cost equal to rates competitive with other comparable parking facilities in comparable locations in downtown Chicago; provided, however, the number of parking spaces provided to Tenant pursuant to this  Section 43(a)(iv)  shall be proportionately reduced in the event Tenant exercises any of the Contraction Rights or Landlord exercises its recapture rights.
 
Tenant shall have the aforementioned parking rights at all times during the Term, regardless of whether or not Tenant uses or leases such spaces at all times during the Term. Landlord or the owner of the Garage shall have the right to adjust the published monthly rates from time to time provided they are competitive with the rates for comparable parking facilities in comparable locations in downtown Chicago, but in no event shall such rates be in excess of the Most Favored Tenant Rate (with the exception of free parking). Landlord agrees to use reasonable efforts to accommodate Tenant’s additional parking needs during the entire Term. Subject to the Requirements, the Garage will be accessible twenty-four (24) hours a day, every day of the year during the Term. Tenant’s employees using parking spaces leased monthly shall be permitted to enter and exit the Garage an unlimited number of times per day at no additional charge.
 
(b) Landlord, at its sole cost and expense, shall maintain, or cause to be maintained, the Chauffeur’s Lounge existing as of the Commencement Date, which office/lounge shall be heated and cooled to reasonable levels for occupancy by the chauffeur(s) of Tenant or its employees, have electric service and have a telephone line available for
 
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Tenant’s use. Tenant (and Tenant’s subtenants) shall have exclusive use of the Chauffeur’s Lounge.
 
44. Press Releases; Confidentiality. (a) All press releases concerning Landlord’s and Tenant’s execution of this Lease, the length of the Lease, size of Premises, location of Premises and the individuals involved, shall be subject to the prior approval of Tenant and Landlord.
 
(b) Notwithstanding the foregoing, it is expressly understood and agreed to by the Landlord and Tenant that the terms and conditions set forth in this Lease and the related negotiations contain information which the parties desire to remain strictly confidential. Therefore, except as otherwise set forth herein, the parties hereto agree that they shall each use their reasonable efforts to restrict the circulation of this Lease, the Workletter and other attached exhibits and all term sheets and letters of intent relating to this Lease and the information contained in each of the foregoing, only to persons who are then in the employment of such party without first obtaining the prior written consent of the other party, provided that both Landlord and Tenant may disclose portions of the Lease or related information to their attorneys, accountants and consultants (including real estate brokers and agents and, in the case of Landlord, all employees of Manager or any other entity managing the Building) in connection with their work on or administration of this Lease or the Premises or with respect to either such party’s business affairs, provided that Landlord and Tenant further agree to inform such parties of the terms of this  Section 44  and use their reasonable efforts to cause such parties to keep such information confidential. In addition, Tenant may provide a copy of this Lease to potential subtenants and assignees and their brokers, agents and consultants; and Landlord may disclose this Lease and its terms to its partners, investors, agents, consultants, affiliates, potential transferees of all or any partial interest in the Land and/or Building, whether direct or indirect, and potential Mortgagees and each of their brokers, agents and consultants.
 
45. Environmental Covenants. (a) From and after the Commencement Date and during the remainder of the Term, Landlord shall at its sole cost and expense comply with all Requirements that regulate environmental matters (“ Environmental Laws ”) relating to the Real Property. Landlord is responsible for, and agrees to hold harmless, indemnify and defend Tenant from and against any and all claims, damages, costs and liabilities related to the presence of any Hazardous Substances in or on the Premises or the Real Property that were brought onto the Real Property by Landlord (or its agents or contractors), except to the extent caused by either (i) by Tenant (or its agents or contractors) or (ii) a condition or occurrence that existed on the Real Property on or prior to the Commencement Date.
 
(b) Tenant shall comply, and take all necessary actions to cause its operations on the Premises to comply, with all applicable Environmental Laws. Tenant agrees to hold harmless, indemnify and defend Landlord from and against any and all claims, damages, costs and liabilities related to the presence of any Hazardous Substances brought into or placed in the Premises or the Real Property after the Commencement Date by Tenant or, its agents, employees, contractors), or Tenant’s Affiliates.
 
92

46. Building Plaza. Tenant shall have the right, upon reasonable notice to Landlord, to utilize the Building plaza for Tenant’s corporate and charitable events. Tenant’s use of the Building plaza shall in no event prevent access to and from the Building and shall at all times be in compliance with the Plaza Use Policy, a copy of which is attached hereto and made a part hereof as  Exhibit F .  Landlord agrees that all Building tenants making use of the Building plaza shall be required to comply with a policy which is the same or substantially similar to the Plaza Use Policy.
 
47. Other Agreements; Release of Tenant.
 
(a) Notwithstanding anything to the contrary contained in this Lease, Landlord and Tenant acknowledge and agree that neither Landlord nor Tenant shall have any right to set-off, apply or appropriate (x) any distribution or other amounts due to the other party or one of its Affiliates under the Contribution Agreement, the LLC Agreement or any other contract or agreement (other than this Lease and documents directly relating hereto, including, without limitation, the Subordination, Non-Disturbance and Attornment Agreement (Lender) and the Non-Disturbance and Attornment Agreement (Sub-Tenant), forms of which are attached hereto) to which one or more of Landlord, Tenant and/or any of their respective Affiliates is a party against (y) any amounts due to Landlord or Tenant hereunder.
 
(b) Landlord acknowledges that Tenant and one or more Affiliates constructed, owned and managed the Property prior to Landlord’s acquiring title thereto and that Landlord does not and will not make or raise any claims, defenses, demands, causes of action, losses, damages or liabilities against Tenant under this Lease on the basis of such prior construction, ownership and/or management or any other acts or omissions occurring prior to the Commencement Date.
 
93

IN A WITNESS WHEREOF, the parties have caused this Lease to be executed on the date first above written.
 
LANDLORD:	
 	
BRE/RANDOLPH DRIVE L.L.C.,
a Delaware limited liability company	
 	 	
By:	 	Blackstone Real Estate Randolph Drive L.L.C., a Delaware limited liability company,
its managing member	
 	 	 	
 	 	By:	 	/s/ Steven Orbuch

	
 	 	 	
 	 	Its:	 	VICE PRESIDENT

	

TENANT:	
 	
AMOCO CORPORATION, an Indiana corporation	
 	 	
By:	 	[ILLEGIBLE]

	
Its:	 	AGENT AND ATTORNEY-IN-FACT

	

 
94

FIRST AMENDMENT TO OFFICE LEASE
 
THIS FIRST AMENDMENT TO OFFICE LEASE (“Amendment”) is made and entered into as of July    , 1999, by and between BRE/RANDOLPH DRIVE L.L.C., a Delaware limited liability company (“Landlord”), and BP AMOCO CORPORATION, an Indiana corporation (formerly known as Amoco Corporation) (“Tenant”).
 
WITNESSETH:
 
WHEREAS, Landlord, as landlord, and Tenant, as tenant, entered into a certain Office Lease dated as of December 11, 1998 (the “Original Lease”) with respect to (among other things) Tenant’s lease of certain premises located at The Amoco Building, 200 E. Randolph Drive, Chicago, Illinois; and
 
WHEREAS, Landlord and Tenant desire to amend the Original Lease upon the terms and provisions set forth in this Amendment.
 
NOW, THEREFORE, in consideration of the sum of Ten and no/100 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant do hereby agree as follows:
 
1. Definitions. All capitalized terms used herein but not defined herein shall have the meanings ascribed to such terms in the Original Lease. The term “Lease”, as used in the Original Lease and this Amendment, shall mean the Original Lease as amended by this Amendment.
 
2. Modification of Section 4. Section 4 of the Original Lease is hereby deleted in its entirety and replaced with the following:
 
“4. Contraction Option.
 
(a) Tenant shall have one (1) contraction option with respect to the Premises on the terms set forth below. Provided that Tenant is not in Material Default under this Lease, Tenant shall have the right, exercisable upon not less than twelve (12) months prior written notice to Landlord (the “Contraction Notice”), to reduce the size of the Premises (the “Contraction Right”) by surrendering a portion thereof (the “Surrendered Space”) to Landlord

effective as set forth below:
 
Contraction Space Allowed

	 	Effective Date of Contraction

	
The space depicted onExhibit A-1 attached hereto and made a part hereof (the “Contraction Space”)	 	December 11, 2001 (the “Contraction Date”)	
 
The exercise by Tenant of the foregoing Contraction Right shall be subject to the following conditions:
 
(i) To the extent Tenant does not exercise its Contraction Right with respect to any portion of the Contraction Space effective on the Contraction Date, Tenant will be deemed to have waived its Contraction Right with respect to such portion of the Contraction Space; and
 
(ii) Tenant may elect to exercise the Contraction Right with respect to less than all of the Contraction Space provided that the portion of the Premises to be deleted as a result of the exercise of Tenant’s Contraction Right shall:
 
(A) be full floors (except that the Surrendered Space may include only a portion of the highest floor of the Contraction Space so long as Tenant retains at least approximately one-half of the Rentable Square Feet on such floor), not including any space that has been recaptured by Landlord pursuant to Section 13(c),
 
(B) if the Surrendered Space is located on more than one (1) floor of the Building, such Surrendered Space shall be located on contiguous floors (not including the space located on the 33rd floor of the Building, any space that has been recaptured by Landlord pursuant to  Section 13(c))  so that the remaining portion of the Contraction Space, after giving effect to such contraction, shall be located on contiguous floors (not considering the space located on the 33rd floor of the Building, any space recaptured by Landlord pursuant to  Section 13(c)) , and
 
(C) constitute the highest floors contained in the Contraction Space which are then leased by Tenant.

The Contraction Notice shall specify the size, location and configuration of the Surrendered Space. The size of the Surrendered Space shall be determined, subject to the limitations set forth above, in Tenant’s sole discretion. The Surrendered Space shall be in a legally leasable configuration, and to the extent the Tenant elects to contract the Premises on only a portion of a floor, the space to be deleted from the Premises on such floor shall have reasonable access to the elevator lobbies and bathrooms on that floor.
 
(b) In the event that the Surrendered Space constitutes less than all of the space occupied by Tenant on a given floor or floors of the Building, then Tenant shall pay to Landlord, upon demand, one-half of Landlord’s Actual Costs of the construction of the demising walls necessary to segregate and demise the portion of the Premises remaining on such floor and to provide access for such Surrendered Space to the elevator lobbies and bathrooms on that floor and Tenant shall be responsible for no other costs or expenses.
 
(c) Except as otherwise provided in Section 6 or Section 9 hereof, Tenant shall deliver the Surrendered Space to Landlord in an “AS IS” “WHERE IS” condition, without any requirement to remove Tenant’s Property or to perform repairs, improvements or other work, regardless of whether or not such space, upon delivery to Landlord, complies with Requirements, provided that Tenant shall repair any damage to the Building (other than to the paint, carpeting or wall covering) caused by the removal of Tenant’s Property upon request of Landlord delivered within five (5) days after Tenant has vacated the Surrendered Space and shall remove the Structural Alterations in the Surrendered Space that Landlord required Tenant to remove as a part of Landlord’s consent to such Structural Alterations pursuant to  Section 6(d) . Except as expressly set forth in this  Section 4 . Tenant shall not be liable to Landlord for any fee, charge or other payment because of such contraction, including, without limitation, a fee to reimburse Landlord for its unamortized costs associated with this Lease (e.g., brokerage costs).
 
(d) If Tenant shall have exercised its Contraction Right, then, following the Contraction Date, the term “Premises” under the Lease shall no longer consist of the Surrendered Space, and Landlord and Tenant shall execute a modification to the Lease to reflect such surrender and to amend such other terms and provisions of the Lease which are affected by a reduction in the size of the Premises, including, but not limited to, the Base Rent, Tenant’s Proportionate Share for Expenses and Tenant’s Proportionate Share for Taxes.
 
(e) Tenant’s Contraction Right shall not apply to any space within the Contraction Space with respect to which Landlord has properly exercised its Contraction Space Recapture Right (as hereinafter defined) (and with respect to which all of the Contraction

Space Recapture Conditions (as hereinafter defined) have been satisfied); provided, that no such exercise of the Contraction Space Recapture Right (or satisfaction of the Contraction Space Recapture Conditions) shall have any effect whatsoever on the Tenant’s exercise of its Contraction Right with respect to any portion of the Contraction Space with respect to which Landlord has not properly exercised the Contraction Space Recapture Right (or any portion of the Contraction Space with respect to which all of the Contraction Space Recapture Conditions have not been satisfied). Tenant’s Contraction Right described above shall not apply to any Contraction Sublease Space (as hereinafter defined).”
 
3. Addition of Section 4A. The following Section 4A of is hereby added to the Lease:
 
“4A. Landlord’s Right to Recapture Contraction Space.
 
(a) Subject to the terms of this Section 4A, Landlord shall have the right (“Contraction Space Recapture Right”), from time to time on or prior to the Contraction Date, to recapture all or portions of the Contraction Space from Tenant prior to the Contraction Date, provided that each and all of the following requirements and conditions (the “Contraction Space Recapture Conditions) have been satisfied:
 
(i) Landlord shall exercise the Contraction Space Recapture Right with respect to all (and not less than all) of the space leased by Tenant on any floor located within the Contraction Space. In no event may the Contraction Space Recapture Right be exercised with respect to only a portion of the space leased by Tenant on any floor of the Contraction Space;
 
(ii) The floor(s) of the Contraction Space with respect to which Landlord exercises the Contraction Space Recapture Right shall be contiguous floors of the Contraction Space (not including the space located on the 33rd floor of the Building, any Contraction Sublease Space (as hereinafter defined), or any space that has been recaptured by Landlord pursuant to  Section 13(c)  of the Lease), so that the remaining portion of the Contraction Space, after giving effect to such recapture, shall be located on contiguous floors (not considering the space located on the 33rd floor of the Building, any Contraction Sublease Space (as hereinafter defined) or any space recaptured by Landlord pursuant to  Section 13(c)  of the Lease);
 
(iii) The floor(s) of the Contraction Space with respect to which Landlord exercises the Contraction Space Recapture Right shall constitute the highest floors contained in the Contraction Space (not including any Contraction Sublease Space (as

hereinafter defined));
 
(iv) Landlord shall have notified Tenant (which notification shall be irrevocable) in writing (a “Contraction Space Recapture Notice”) of its exercise of the Contraction Space Recapture Right, which notice shall specify the floor(s) of the Contraction Space which (subject to the terms hereof) Landlord desires to recapture from Tenant, and the date (the “Contraction Space Recapture Date”) on which Landlord desires to recapture such floor(s) of the Contraction Space from Tenant;  provided , that, notwithstanding anything to the contrary herein, in no event shall any Contraction Space Recapture Date be:
 
(w) later than the Contraction Date for any Contraction Space whatsoever,
 
(x) earlier than thirty (30) days after the date on which the applicable Contraction Space Recapture Notice is received by Tenant, with respect to any portion of the Contraction Space identified in such Contraction Space Recapture Notice which is substantially vacant and unoccupied by Tenant (and any other person or entity entitled to occupy such space) on the date on which such Contraction Space Recapture Notice is received by Tenant,
 
(y) earlier than sixty (60) days after the date on which the applicable Contraction Space Recapture Notice is received by Tenant, with respect to any portion of the Contraction Space identified in such Contraction Space Recapture Notice which. is not substantially vacant or which is substantially occupied by Tenant (or any other person or entity entitled to occupy such space);  provided , that, at the time such Contraction Space Recapture Notice is received by Tenant, there exists other space in the Building which is leased by Tenant and which can reasonably accommodate the activities then being conducted in such Contraction Space, or
 
(z) earlier than one hundred twenty (120) days after the date on which the applicable Contraction Space Recapture Notice is received by Tenant, with respect to any portion of the Contraction Space which is not subject to the conditions or criteria specified in clauses (x) or (y) above; and
 
(v) subject to Section 13 of the Lease, Tenant shall have the right to notify Landlord from time to time (a “Contraction Space Sublease Notice”) that Tenant intends to sublease (or to confer expansion rights, rights of first offer, or similar rights
 
99

or options to sublease) all or any portion of the Contraction Space to any person or entity (any such portion of the Contraction Space identified in any such Contraction Space Sublease Notice being referred to herein as “Contraction Sublease Space”). In the event that Tenant delivers any such Contraction Space Sublease Notice identifying any such Contraction Sublease Space, and Landlord has not, prior to such delivery of such Contraction Space Sublease Notice, delivered to Tenant a Contraction Space Recapture Notice with respect to such Contraction Sublease Space, then, from and after the delivery of any such Contraction Space Sublease Notice by Tenant to Landlord, the Contraction Sublease Space described in such Contraction Space Sublease Notice shall no longer constitute a portion of the Contraction Space for purposes of Sections 4 and 4A of the Lease and, accordingly, neither the Tenant’s Contraction Right set forth in Section 4, nor the Landlord’s Contraction Space Recapture Right set forth in Section 4A, shall apply to such Contraction Sublease Space.
 
(b) In the event that Landlord properly exercises the Contraction Space Recapture Right with respect to any floor(s) of the Contraction Space in accordance with and subject to this Section 4A (any such floor(s) of the Contraction Space being referred to herein as “Recaptured Contraction Space”), then:
 
(A) Tenant shall deliver to Landlord such Recaptured Contraction Space on the applicable Contraction Space Recapture Date in “AS IS” “WHERE IS” condition, without any requirement to remove Tenant’s Property or to perform repairs, improvements or other work, regardless of whether or not such space, upon delivery to Landlord, complies with Requirements;  provided  that Tenant shall (x) repair any damage to the Building (other than to the paint, carpeting or wall covering) caused by the removal of Tenant’s Property upon request of Landlord delivered within five (5) days after Tenant has vacated the applicable Recaptured Contraction Space, and (y) remove the Structural Alterations in the Recaptured Contraction Space that Landlord required Tenant to remove as a part of Landlord’s consent to such Structural Alterations pursuant to Section 6(d) of the Lease;
 
(B) Tenant shall pay to Landlord, no later than the date (each, a “Recapture Payment Date”) which is the earlier of (i) 90 days after Tenant’s receipt of the applicable Contraction Space Recapture Notice, and (ii) the applicable Contraction Space Recapture Date, an amount equal to the product of (x) sixty-five percent (65%), multiplied by (y) the aggregate amount of Base Rent which accrues under the Lease with respect to the applicable Recaptured Contraction Space within the period (the “Recapture Rent Period”) which commences on the applicable Contraction Space
 
100

Recapture Date and terminates on the Contraction Date;
 
(C) Tenant shall pay to Landlord, no later than the applicable Recapture Payment Date, an amount equal to the product of:
 
(x) sixty-five percent (65%), multiplied by
 
(y) the aggregate amount of Additional Rent which is estimated to accrue under the Lease within such Recapture Rent Period, as reasonably determined by Landlord based on the most recent Landlord’s Statements, which amount shall be subject to reconciliation upon final determination of the actual Additional Rent (in accordance with, and subject to the terms and provisions of the Lease (including, without limitation, Section 2 thereof, and any and all rights of Tenant to object to, challenge, audit and/or protest the amount of such Additional Rent)) which has accrued during such Recapture Rent Period;
 
(D) Notwithstanding anything to the contrary contained in the foregoing, in the event that a Monetary Landlord Default exists and is continuing on any Recapture Payment Date, then (in addition to, and not in lieu of, each and all of the other rights and remedies to which Tenant is entitled under the Lease) Tenant shall have the right to offset the amount of any such Monetary Landlord Default against any payment or amount due under Subsections (B) and/or (C) above from Tenant to Landlord; and
 
(E) Following the applicable Contraction Space Recapture Date, the term “Premises” under the Lease shall no longer consist of the applicable Recaptured Contraction Space, and Landlord and Tenant shall execute a modification to the Lease to reflect such reduction in the size of the Premises, and to amend such other terms and provisions of the Lease which are affected by such a reduction in the size of the Premises, including, but not limited to, the Base Rent, Tenant’s Proportionate Share for Expenses and Tenant’s Proportionate Share for Taxes.
 
Except as expressly set forth in this Section 4A, Tenant shall not be liable to Landlord for any fee, charge or other payment as a result of, or arising from, any exercise by Landlord of the Contraction Space Recapture Right, including, without limitation, any fee to reimburse Landlord for its unamortized costs associated with the Lease (e.g., brokerage costs).”
 
4. Governing Law. The Original Lease and this Amendment shall be governed by, and construed in accordance with, the laws of the State of Illinois.
 
101

5. No Other Modification. Except as modified herein, the Original Agreement remains unmodified, in full force and effect, and is hereby ratified by the parties hereto.
 
6. Counterparts. This Amendment may be executed in any number of counterparts, and by separate parties hereon on separate counterparts, and all of such counterparts taken together shall constitute one and the same Amendment.

102

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.
 
LANDLORD:	
 	
BRE/RANDOLPH DRIVE L.L.C., a Delaware limited liability company	
 	 	
By:	 	Blackstone Real Estate Randolph Drive L.L.C., a Delaware limited liability company, its Managing Member	
 	 	 	
 	 	By:	 	/s/ Steven Orbuch

	
 	 	 	
 	 	    Its:	 	Vice President

	
 
TENANT:	
 	
BP AMOCO CORPORATION, an Indiana corporation	
 	 	
By:	 	 

	
    Its:	 	

	
 
CONSENT OF MORTGAGEE / LENDER
 
The undersigned, the “Mortgagee” under the Lease and the “Lender” under that certain Subordination, Nondisturbance and Attornment Agreement dated as of December 11, 1998 among Landlord, Tenant and the undersigned, does hereby consent to the execution, delivery and performance of the terms and provisions of this Amendment by Landlord and Tenant.
 
CMF CAPITAL COMPANY, L.L.C., a Delaware limited liability company	
 	 	
By:	 	 

	
    Its:	 	

	

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.
 
LANDLORD:	
 	
BRE/RANDOLPH DRIVE L.L.C., a Delaware limited liability company	
 	 	
By:	 	Blackstone Real Estate Randolph Drive L.L.C., a Delaware limited liability company, its Managing Member	
 	 	 	
 	 	By:	 	 

	
 	 	 	
 	 	    Its:	 	

	

TENANT:	
 	
BP AMOCO CORPORATION, an Indiana corporation	
 	 	
By:	 	[ILLEGBILE]

	
    Its:	 	[ILLEGIBLE]

	
 
CONSENT OF MORTGAGEE / LENDER
 
The undersigned, the “Mortgagee” under the Lease and the “Lender” under that certain Subordination, Nondisturbance and Attornment Agreement dated as of December 11, 1998 among Landlord, Tenant and the undersigned, does hereby consent to the execution, delivery and performance of the terms and provisions of this Amendment by Landlord and Tenant.
 
CMF CAPITAL COMPANY, L.L.C., a Delaware limited liability company	
 	 	
By:	 	 

	
Its:	 	

	

[GRAPHIC APPEARS HERE]	 	 	
 	 	Jordan O. Hemphill
Manager, Real Estate	
 	 	
 	 	BP Amoco Corporation
Real Estate Department
28100 Torch Parkway 4N
Warrenville, Illinois 60555	
 	 	
 	 	Phone: (630) 420-5430	
 	 	Fax: (630) 420-5519	
 	 	E-Mail: jordan_o_hemphill@amoco.com	

July 15, 1999
 
BRE/Randolph Drive, L.L.C.
c/o Blackstone Real Estate Advisors L.P.
345 Park Avenue
New York, New York 10154
Attention: Gary Sumers
 
 	Re:	 	Office Lease dated as of December 11, 1998 (as amended from time to time, the “Lease”) between BRE/Randolph Drive L.L.C., a Delaware limited liability company, as landlord (“Landlord”), and BP Amoco Corporation, an Indiana corporation (formerly known as Amoco Corporation), as tenant (“Tenant”) .	
 
Dear Mr. Sumers:
 
Reference is made to the Lease described above. All initially capitalized terms used in this letter and not otherwise defined in this letter shall have the meanings ascribed to such terms as set forth in the Lease.
 
This letter will serve to notify the Landlord that Tenant, as sublessor, intends to enter into a sublease with Aon Corporation, a Delaware corporation, as sublessee (“Sublessee”), for that portion of the Premises located on floors 3 through 20 (inclusive) of the Building, together with approximately 12,000 rentable square feet located within the Podium Space (collectively, the “Sublease Premises”). Pursuant to Section 13(c) of the Lease, the Landlord has the right to recapture from the Tenant the space which comprises Sublease Premises by delivering notice of such recapture within ten (10) Business Days after the Landlord’s receipt of this letter.
 
The Tenant hereby requests that the Landlord inform the Tenant and Sublessee that Landlord does not intend to exercise its recapture right with respect to the Sublease Premises (or any portion thereof) by signing this letter in the space indicated below and returning the same to the Tenant at the above address. Pursuant to said Section 13(c) of the Lease, if Tenant is not notified of a response to this letter within ten (10) Business Days after the Landlord’s of the same, the Landlord will be deemed to have elected not to recapture the Sublease Premises.
 
Sincerely,

BP AMOCO CORPORATION	
 	 	
By:	 	J.O. Hemphill

	
    Name:	 	J.O. Hemphill	
    Its:	 	Manager, Real Estate	
 
cc:	  	Simpson Thacher & Bartlett
425 Lexingon Avenue
New York, New York 10017-3954
Attention: Gregory J. Ressa	  	Manager of the Building
200 E. Randolph Drive
Chicago, Illinois 60601	

The undersigned, as Landlord under the Lease, hereby notifies BP Amoco Corporation and Aon Corporation that the Landlord has elected not to recapture the Sublease Premises (or any portion thereof) pursuant to Section 13(c) of the Lease.

BRE/RANDOLPH DRIVE L.L.C., a Delaware
limited liability company	
 	 	
By:	 	Blackstone Real Estate Randolph Drive L.L.C., a Delaware limited liability company, its Managing Member	
 	 	
By:	 	/s/ Steven Orbuch

	
    Name:	 	Steven Orbuch	
    Its:	 	Vice President	
 
Date: July 19 1999
 
2

[GRAPHIC APPEARS HERE]	  	 	
 	  	Jordan O. Hemphill
Manager, Real Estate	
 	 	
 	  	BP Amoco Corporation
Real Estate Department
28100 Torch Parkway 4N
Warrenville, Illinois 60555	
 	 	
 	  	Phone: (630) 420-5430	
 	  	Fax: (630) 420-5519	
 	  	E-Mail: jordan_o_hemphill@amoco.com	
 
July 15, 1999
 
BRE/Randolph Drive, L.L.C.
c/o Blackstone Real Estate Advisors L.P.
345 Park Avenue
New York, New York 10154
Attention: Gary Sumers
 
 	Re:	 	Office Lease dated as of December 11, 1998 (as amended from time to time, the“Lease”) between BRE/Randolph Drive L.L.C., a Delaware limited liability company, as landlord (“Landlord”), and BP Amoco Corporation, an Indiana corporation (formerly known as Amoco Corporation), as tenant (“Tenant”) .	
 
Dear Mr. Sumers:
 
Reference is made to the Lease described above. All initially capitalized terms used in this letter and not otherwise defined in this letter shall have the meanings ascribed to such terms as set forth in the Lease.
 
This letter will serve to notify Landlord that, pursuant to Section 36(a) of the Lease, the Tenant hereby elects to change the name of the Building from “The Amoco Building” to “Aon Center”, which change shall become effective beginning on January 1, 2001. We have enclosed, for the Landlord’s execution and delivery, a letter which contemplates the Landlord’s consent and agreement to the foregoing change of the name of the Building.
 
Tenant therefore requests that Landlord, in accordance with Section 36(a) of the Lease, consent and agree to the foregoing change to the name of the Building (and the other matters described in the enclosed letter) by signing the enclosed letter in the space indicated, and returning the same to the Tenant at the above address.

Sincerely,

BP AMOCO CORPORATION	
 	 	
By:	 	/s/ J.O. Hemphill

	
Name:	 	J.O. Hemphill

	
Its:	 	Mgr. Real Estate

	
 
cc:	 	Simpson Thacher & Bartlett	
425 Lexingon Avenue
New York, New York 10017-3954
Attention: Gregory J. Ressa
 
Manager of the Building
200 E. Randolph Drive
Chicago, Illinois 60601

BRE/RANDOLPH DRIVE L.L.C.
345 Park Avenue, 32nd Floor
New York, NY 10154
 
July 15, 1999
 
BP Amoco Corporation
200 East Randolph Drive
Mail Code 2203
Chicago, Illinois 60601
 
Attention: Facilities and Services,
Chicago Regional Manager
 
 	Re:	 	Amoco Building Office Lease (as amended, the “Lease”) dated as of December 11, 1998 between BRE/Randolph Drive L.L.C. (“Landlord”) and BP Amoco  Corporation (formerly known as Amoco Corporation) (“Tenant”)	
 
Gentlemen:
 
In response to your request under Section 36(a) of the Lease, the Landlord hereby approves the use of the name “Aon Center” as the new name of the Building commencing January 1, 2001, subject to (i) Tenant’s payment of all reasonable Landlord’s Actual Costs (and the costs of other tenants in the Building to the extent Landlord is responsible for such costs) associated with such name change, including without limitation, the cost of new stationery, new signage (including all locations in which the name “Amoco Building” is currently used) and any changes to comply with Requirements; (ii) the terms and conditions of Section 36 of the Lease on the continued use of such new name; and (iii) the execution of a new Trademark License Agreement with Aon Corporation in the form attached hereto with respect to such new name.
 
All capitalized terms used herein shall have the meanings given to them in the Lease.
 
BRE/Randolph Drive L.L.C., a Delaware limited liability company	
 	 	
By:	 	Blackstone Real Estate Randolph Drive L.L.C., a Delaware limited liability company, its managing member	
 	 	 	
 	 	By:	 	/s/ Steven Orbuch

	
 	 	 	
 	 	Its:	 	Vice President

	

Blackstone Real Estate Advisors L.P.
BREM L.L.C., General Partner
 
October 28, 1999
 
BP Amoco Corporation
200 East Randolph Drive
Mail Code 2203
Chicago, IL 60601
 
Attention:
 
 	Re:	 	Office Lease dated as of December 11, 1998 between BRE/Randolph Drive L.L.C. (“Landlord”) and BP Amoco Corporation (formerly known as Amoco Corporation, “Tenant”), as amended by that certain First Amendment to Office Lease dated as of July 30, 1999 between Landlord and Tenant (as so amended, the “Lease”)	
 
Ladies and Gentlemen:
 
Reference is made herein to the above-captioned Lease. Any capitalized term used and not otherwise defined herein shall be as defined in the Lease.
 
Landlord hereby gives notice of intent to recapture the entire 35th floor of the Building in accordance with its Contraction Space Recapture Right as described in section 4A. of the First Amendment of the Lease dated July 30, 1999. Per Landlord’s conversations with Tenant regarding the timing of the delivery of the floor, Tenant agrees to deliver to Landlord the 35 th  floor by December 1, 1999. In addition, Landlord agrees not to exercise its recapture rights with regard to the 34 th floor before September 1, 2000 in order to accommodate Tenant’s occupancy requirement on this floor.
 
Notwithstanding anything to the contrary contained in the Lease, Landlord and Tenant each agrees that Landlord shall have the right to exercise its Contraction Space Recapture Right with respect to space located below the 34 th  floor of the Building prior to the exercise of its Contraction Space Recapture Right with respect to space located on the 34 th  floor of the Building.
 
Please execute where indicated below to acknowledge your agreement with the forgoing.
 
Sincerely,
 
BRE/RANDOLPH DRIVE L.L.C.
 
By:	 	/s/ Marshall Findley

	
 	 	Marshall Findley	
 	 	Vice President	
 
_____________________
345 Park Avenue
New York, NY 10154
212 583-5000

Contraction Space Recapture Notice
Page 2
October 28, 1999
 
THE ABOVE TERMS ARE
ACKNOWLEDGE AND
ACCEPTED THIS              DAY
OF OCTOBER 1999 BY:
 
BP AMOCO CORPORATION	
 	 	
By:	 	 

	
 	 	Name:	
 	 	Title:	
 
_____________________
345 Park Avenue
New York, NY 10154
212 583-5000

Diane C. Walsh-Madden
Senior Real Estate Attorney
BP Amoco Corporation
Mail Code 0304
200 East Randolph Drive
Chicago, IL 60601-7126
 
[GRAPHIC APPEARS HERE]

Phone: 312-856-4682
Fax: 312-856-6852
E-Mail: Walshdc@bp.com
 
VIA HAND DELIVERY
 
November 30, 1999
 
BRE/Randolph Drive L.L.C.
c/o BREA Property Management
Office of the Building
200 East Randolph Drive
Chicago, Illinois 60601
 
Re: Office Lease (“Lease”) dated December 11,1998 between BRE/Randolph Drive L.L.C. (“Landlord”) and BP Amoco Corporation (formerly known as Amoco Corporation) (“Tenant”) / Payment of Recapture Payment covering Landlord Recapture of the 35 th  Floor of the Amoco Building
 
Ladies and Gentlemen:
 
Please refer to that certain Lease as amended covering space in the Amoco Building. Pursuant to correspondence dated October 28,1999 from Landlord to Tenant, Landlord exercised its Contraction Space Recapture Right for the 35 th  Floor as described in Section 4A of the First Amendment to Lease (“First Amendment”) dated July 30,1999.
 
In accordance with the terms set forth in the First Amendment, Tenant hereby tenders a check in the amount of $1,451,694.40 representing the fee associated with such Contraction Space Recapture of the 35 th  Floor.
 
Please contact me should you have any questions.
 
Very truly yours,
 
/s/ Diane C. Walsh-Madden
Diane C. Walsh-Madden

Blackstone Real Estate Advisors L.P.
BREM L.L.C., General Partner
 
BP Amoco Corporation
200 East Randolph Drive
Mail Code 2203
Chicago, IL 60601
 
April 17, 2000
 
Re: Office Lease dated as of December 11, 1998 between BRE/Randolph Drive L.L.C. (“Landlord”) and BP Amoco Corporation (formerly know as Amoco Corporation, “Tenant”), as amended by that certain First Amendment to Office Lease dated as of July 30, 1999 between Landlord and Tenant (as so amended, the “Lease”)
 
Ladies and Gentlemen::
 
Reference is made herein to the above-captioned Lease. Any capitalized term used and not otherwise defined herein shall be as defined in the Lease.
 
Landlord hereby gives notice of intent to recapture the entire 29th floor of the Building in accordance with its Contraction Space Recapture Right as described in section 4A. of the First Amendment of the Lease dated July 30, 1999. Per Landlord’s conversations with Tenant regarding the timing of the delivery of the floor, Tenant agrees to deliver to Landlord the 29 th floor by July 1, 2000.
 
Please execute where indicated below to acknowledge your agreement with the forgoing.
 
Sincerely,

BRE/RANDOLPH DRIVE L.L.C.	
 	 	
By:	 	/s/ Marshall Findley

	
 	 	Marshall Findley	
 	 	Vice President	

Agreed To And Acknowledged:	
 	 	
By:	 	 

	
Name:	 	 	
Title:	 	 	
 
345 Park Avenue
New York, NY 10154
212 583-5000

[GRAPHIC APPEARS HERE]
 
VIA HAND DELIVERY
 
June 30, 2000
 
BRE/Randolph Drive L.L.C.
c/o BREA Property Management
Office of the Building
200 East Randolph Drive
Chicago, Illinois 60601
 
Re: Office Lease (“Lease”) dated December 11, 1998 between BRE/Randolph Drive L.L.C., as Landlord (“Landlord”) and BP Amoco Corporation (formerly known as Amoco Corporation), as tenant (“ Amoco”) / Payment of Recapture Payment covering Landlord Recapture of the 29 th  Floor of the Aon Center
 
Ladies and Gentlemen:
 
Please refer to that certain Lease as amended covering space in the Aon Center. Pursuant to correspondence dated April 17, 2000 from Landlord to Amoco, Landlord exercised its Contraction Space Recapture Right for the 29 th  Floor as described in Section 4A of the First Amendment to Lease (“First Amendment”) dated July 30, 1999.
 
Despite repeated requests by Amoco to both Landlord’s New York and Chicago offices, no estimate of the recapture fee for the 29th Floor was communicated to Amoco. As such, Amoco made a good faith estimate of the applicable recapture fee and tenders a check for same herewith in the amount of $994,749.60, in accordance with the terms set forth in the First Amendment.
 
Please contact me should you have any questions.
 
Very truly yours,

/s/ Dee A. Chigas

 
 
cc: Jordan Hemphill
      Diane Walsh-Madden	 	 	

Blackstone Real Estate Advisors L.P.
BREM L.L.C., General Partner
 
BP Amoco Corporation
200 East Randolph Drive
Mail Code 2203
Chicago, IL 60601
 
October 3, 2000
 
Re: Office Lease dated as of December 11, 1998 between BRE/Randolph Drive L.L.C. (“Landlord) and BP Amoco Corporation (formerly know as Amoco Corporation. “Tenant”), as amended by that certain First Amendment to Office Lease dated as of July 30, 1999 between Landlord and Tenant (as so amended, the “Lease”)
 
Ladies and Gentlemen::
 
Reference is made herein to the above-captioned Lease. Any capitalized term used and not otherwise defined herein shall be as defined in the Lease.
 
Landlord hereby gives notice of intent to recapture the entire 32nd floor of the Building in accordance with its Contraction Space Recapture Right as described in section 4A. of the First Amendment of the Lease dated July 30, 1999. Per Landlord’s conversations with Tenant regarding the timing of the delivery of the floor, Tenant agrees to deliver to Landlord the 32 nd floor by November 1, 2000.
 
Please execute where indicated below to acknowledge your agreement with the forgoing.
 
Sincerely,

BRE/RANDOLPH DRIVE L.L.C.	
 	 	
By:	 	/s/ Marshall Findley

	
 	 	Marshall Findley	
 	 	Vice President	

Agreed To And Acknowledged:	
 	 	
By:	 	/s/ Jordan O. Hemphill

	
Name:	 	Jordan O. Hemphill	
Title:	 	Manager-Corporate Real Estate	
 
345 Park Avenue
New York, NY 10154
212 583-5000

Blackstone Real Estate Advisors L.P.
BREM L.L.C., General Partner
 
BP Amoco Corporation
200 East Randolph Drive
Mail Code 2203
Chicago, IL 60601
 
October 3, 2000
 
Re: Office Lease dated as of December 11, 1998 between BRE/Randolph Drive L.L.C. (“Landlord) and BP Amoco Corporation (formerly know as Amoco Corporation. “Tenant”), as amended by that certain First Amendment to Office Lease dated as of July 30, 1999 between Landlord and Tenant (as so amended, the “Lease”)
 
Ladies and Gentlemen::
 
Reference is made herein to the above-captioned Lease. Any capitalized term used and not otherwise defined herein shall be as defined in the Lease.
 
Landlord hereby gives notice of intent to recapture the entire 30th and 31st floors of the Building in accordance with its Contraction Space Recapture Right as described in section 4A. of the First Amendment of the Lease dated July 30, 1999. Per Landlord’s conversations with Tenant regarding the timing of the delivery of the floor, Tenant agrees to deliver to Landlord the 30 th  and 31 st  floors by April 1, 2001.
 
Please execute where indicated below to acknowledge your agreement with the forgoing.
 
Sincerely,

BRE/RANDOLPH DRIVE L.L.C.	
 	 	
By:	 	/s/  Marshall Findley

	
 	 	Marshall Findley	
 	 	Vice President	

Agreed To And Acknowledged:	
 	 	
By:	 	/s/  Jordan O. Hemphill

	
Name:	 	Jordan O. Hemphill	
Title:	 	Manager-Corporate Real Estate	
 
345 Park Avenue
New York, NY 10154
212 583-5000

[GRAPHIC APPEARS HERE]
 
VIA HAND DELIVERY
 
November 2, 2000
 
BRE/Randolph Drive LLC
200 East Randolph Drive
Chicago, IL 60601
 
Re: Office Lease dated December 11, 1998 between BRE/Randolph Drive L.L.C., as landlord (“Landlord”) and BP Amoco Corporation (formerly known as Amoco Corporation), as tenant (“Tenant”), as amended by that certain First Amendment to Office Lease dated July 30, 1999 (as amended “Lease”) / Payment of Recapture Payment covering Landlord Recapture of the 32nd Floor of the Aon Center
 
Gentlemen:
 
Please refer to that certain Lease covering space in the Aon Center (formerly, the Amoco Building). By letter dated October 3, 2000, Landlord exercised its Contraction Space Recapture Right for the 32 nd  floor. In accordance with the terms of Section 4 of the Lease, Tenant hereby submits a check in the amount of $780,036 representing the Recapture Payment to be paid by Tenant.
 
In addition, kindly reissue a correct invoice for Tenant’s Rent for the month of November which reflects the recapture of the 32nd floor.
 
Please contact me should you have any questions.
 
Very truly yours,
 
/s/ Diane C. Walsh-Madden
Diane C. Walsh-Madden
 
cc: Dee Chigas
      Jordan Hemphill

[GRAPHIC APPEARS HERE]	[GRAPHIC APPEARS HERE]	
 
Jordan O. Hemphill
Manager, Corporate Real Estate
 
BP Amoco Corporation
28301 Ferry Road
Mail Code 2W
Warrenville, Illinois 60555
 
VIA OVERNIGHT COURIER
 
December 7, 2000
 
BRE/Randolph Drive LLC	 	Simpson Thacher & Bartlett	
C/o Blackstone Real Estate Advisors LP	 	425 Lexington Avenue	
345 Park Avenue	 	New York, NY 10017-3954	
New York, NY 10154	 	Attention: Gregory J. Ressa	
Attention: Gary Summers	 	 	
 
Direct 630 836 4253
Fax 630 836 4266
nempnijo@bp.com
 
Office of the Building
Aon Center
200 East Randolph Drive
Chicago, IL 60601
Attention: Manager
 
Re: Contraction Notice covering that certain Office Lease (“Office Lease”) dated December 11, 1998 between BRE/Randolph Drive LLC, as landlord (“Landlord”) and BP Amoco Corporation (formerly known as Amoco Corporation), as tenant (“Tenant”), as amended by that certain First Amendment to Office Lease (“First Amendment”) dated July 30, 1999 between Landlord and Tenant, covering space situated in the Aon Center (formerly known as the Amoco Building), Chicago, Illinois
 
Gentlemen:
 
Please refer to the terms of the Office Lease and First Amendment. All capitalized terms shall be defined as set forth in such agreements.
 
Pursuant to the terms of Section 4 of the First Amendment, Tenant hereby notifies Landlord of the exercise of its Contraction Option covering all remaining Contraction Space subject to the Contraction Option, specifically, the entire 34 th  floor containing 31,576 rsf.
 
In the event that Landlord’s Contraction Space Recapture Right is found to be defective in some form, Tenant hereby notifies Landlord of the exercise of its Contraction Option covering the entire 30 th  floor (containing 30,576 rsf) and the entire 31 st  floor (containing 30,574 rsf).
 
Landlord has previously exercised it Contraction Space Recapture Right and taken possession of floors 29, 32, 34 and 35.

Should you have any questions, please contact Diane Walsh-Madden at (630) 836-4257.
 
Very truly yours,
 
/S/    J. O. HEMPHILL
 
Jordan O. Hemphill
 
Murray Air
Russ Cancilla
Dee Chigas
Neal Horowitz
Diane Walsh-Madden

[GRAPHIC APPEARS HERE]
 
VIA HAND DELIVERY
 
March 30, 2001
 
BRE/Randolph Drive LLC
c/o BREA
200 East Randolph Drive
Chicago, IL 60601
 
Re: Recapture Payment for Floors 30 and 31 / Office Lease dated as of December 11, 1998 between BRE/Randolph Drive LLC (“Landlord”) and BP Amoco Corporation (formerly known as Amoco Corporation) (“Tenant”) as amended by that certain First Amendment to Office Lease dated as of July 30, 1999 between Landlord and Tenant covering space situated at the Aon Center, 200 East Randolph Drive, Chicago, Illinois (as so amended, the “Lease”)
 
Dear Sir or Madam:
 
Reference is made herein to the above-referenced Lease. Any capitalized term not defined herein shall be as defined in the Lease.
 
Pursuant to letter dated October 3, 2000, Landlord exercised its Recapture Right for floors 30 and 31 in the Building, such recapture to be effective April 1 , 2001. Attached is a check in the amount of $868,096.87 representing the Recapture Payment as set forth in Section 4A of the Lease. See attached worksheet.
 
Additionally, Tenant hereby tenders possession of the 30th and 31st floors to Landlord, effective April 1, 2001.
 
Please contact Diane Walsh-Madden at (630) 836-4257 should you have any questions.
 
Very truly yours,
 
/s/ Dee A. Chigas
Dee A. Chigas

SECOND AMENDMENT TO OFFICE LEASE
 
THIS SECOND AMENDMENT TO OFFICE LEASE (“Second Amendment”) is made and entered into as of December 1, 2002 (the “Effective Date”) by and between  BRE/RANDOLPH DRIVE, L.L.C. , a Delaware limited liability company (“Landlord”), and  BP CORPORATION NORTH AMERICA INC. , an Indiana corporation (formerly known as BP Amoco Corporation and Amoco Corporation) (“Tenant”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Original Lease (as defined below).
 
W I T N E S S E T H:
 
WHEREAS, Landlord, as landlord, and Tenant, as tenant, entered into a certain Office Lease dated as of December 11, 1998 (the “Unmodified Lease”) with respect to (among other things) Tenant’s lease of certain premises located at The Amoco Building (now known as The Aon Center), 200 East Randolph Drive, Chicago, Illinois; and
 
WHEREAS, the Unmodified Lease was amended by that certain First Amendment to Office Lease between Landlord and Tenant dated as of July 30, 1999 (the Unmodified Lease, as so amended, is sometimes referred to as the “Original Lease”); and
 
WHEREAS, Landlord and Tenant desire to amend the Original Lease upon the terms, provisions and conditions set forth in this Second Amendment.
 
NOW, THEREFORE, in consideration of the sum of Ten and no/100 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant do hereby agree as follows:
 
1. Definitions. All capitalized terms used herein but not defined herein shall have the meanings ascribed to such terms in the Original Lease. The term “Lease”, as used in the Original Lease and this Second Amendment, shall mean the Original Lease as amended by this Second Amendment.
 
2.Modification of Podium Space. Landlord and Tenant hereby agree that, effective as of the Effective Date, 2,246 Rentable Square Feet of space located on L101B, as further identified as the Substitution Podium Space on Exhibit B-1  attached hereto and incorporated herein by this reference (the “Substitution Podium Space”), shall be substituted for that portion of the Podium Space specifically identified on Exhibit A  attached hereto, consisting of 4,492 Rentable Square Feet (the “Former Podium Space”), such that, from and after the Effective Date, the Podium Space shall include the Substitution Podium Space and exclude the Former Podium Space. Effective as of the Effective Date, Landlord and Tenant further agree as follows:
 
(a) The term “Podium Space”, as set forth in the Definitions Section of the Original Lease, is deleted and replaced with the following:
 
“Podium Space” shall mean the space identified as the “Podium Space” on Exhibit B-1 attached to this Second Amendment, which shall include the Chauffeur’s

Lounge and which shall as of the Effective Date be deemed to consist of 45,754 Rentable Square Feet;
 
(b) Pages 32 and 33 of Exhibit B attached to the Original Lease are modified and amended to include the Substitution Podium Space, as shown on  Exhibit B-1  attached to this Second Amendment, and to exclude the Former Podium Space shown on Exhibit A  attached to this Second Amendment;
 
(c) Effective as of the Effective Date, Rent payable with respect to the Podium Space shall be the amounts indicated on the Podium Space Rent Schedule set forth below, it being understood that the Podium Space is located in lower level, below grade space and is currently used primarily as storage space. That portion of Exhibit C attached to the Original Lease which sets forth the Base Rent payable with respect to the Podium Space is hereby deleted in its entirety and replaced by the following:
 
Podium Space Rent Schedule:
 
Period

	  	Annual Rent

	  	Monthly Rent

	  	Rent
Sq/ft

	  	Additional Rent

	 	
 	  	 	  	 	  	 	  	Exp. Adj.

	  	Tax Adj.

	 	 	 	 	 	
Effective Date—December 10, 2002	  	$	835,468.04	  	$	69,622.34	  	$	18.26	  	None	  	None	 	 	 	 	 	
December 11, 2002—December 10, 2003	  	 	852,397.08	  	 	71,033.09	  	 	18.63	  	None	  	None	 	 	 	 	 	
December 11, 2003—December 10, 2004	  	 	869,325.96	  	 	72,443.83	  	 	19.00	  	None	  	None	 	 	 	 	 	
December 11, 2004—December 10, 2005	  	 	886,712.52	  	 	73,892.71	  	 	19.38	  	None	  	None	 	 	 	 	 	
December 11, 2005—December 10, 2006	  	 	904,556.64	  	 	75,379.72	  	 	19.77	  	None	  	None	 	 	 	 	 	
December 11, 2006—December 10, 2007	  	 	922,858.20	  	 	76,904.85	  	 	20.17	  	None	  	None	 	 	 	 	 	
December 11, 2007—December 10, 2008	  	 	941,159.76	  	 	78,429.98	  	 	20.57	  	None	  	None	 	 	 	 	 	
December 11, 2008—December 10, 2009	  	 	959,918.88	  	 	79,993.24	  	 	20.98	  	None	  	None	 	 	 	 	 	
December 11, 2009—December 10, 2010	  	 	979,135.56	  	 	81,594.63	  	 	21.40	  	None	  	None	 	 	 	 	 	
December 11, 2010—December 10, 2011	  	 	998,809.80	  	 	83,234.15	  	 	21.83	  	None	  	None	 	 	 	 	 	
December 11, 2011—December 10, 2012	  	 	1,018,941.40	  	 	84,911.79	  	 	22.27	  	None	  	None	 	 	 	 	 	
December 11, 2012—December 10, 2013	  	 	1,039,530.80	  	 	86,627.57	  	 	22.72	  	None	  	None	 	 	 	 	 	
 
From and after the Effective Date, no Additional Rent for Tenant’s Proportionate Share for Taxes and Tenant’s Proportionate Share for Expenses shall be due with respect to the Podium Space but Tenant shall continue to be liable for all additional/special services and utilities provided to the Podium Space to the extent provided in the Original Lease.
 
(d) Provided Tenant is not in Default under the Lease, Landlord agrees to give Tenant a credit against Monthly Rent for the Podium Space in the amount of One Hundred Fifty-Five Thousand Eight Hundred and Thirty-Six Dollars and 16/100 ($155,836.16), which credit shall be applied against the installments of Monthly Rent for the Podium Space first coming due after the Effective Date (in order of payment). This credit is in full settlement of all claims by Tenant for overpayment of Rent with respect to the Former Podium Space.
 
(e) Tenant shall cause the consumption of electricity within the Former Podium Space to be subtracted from the meter which measures the consumption of electricity in the Podium Space and, upon notice to Landlord that Tenant has completed such subtraction, Landlord shall cause the consumption of electricity within the Former
 
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Podium Space to be metered to Landlord. Tenant agrees to reimburse Landlord for one-half of the direct, actual third party reasonable expenses to install the new meter within thirty (30) days after written request or, at Tenant’s option, together with its payment of its next installment of Rent.
 
(f) Within sixty (60) days after the Effective Date, Landlord shall, at Landlord’s cost, separately demise the Substitution Podium Space (such that such space is separated from all other space in the Building other than other Podium Space leased by Tenant), and install a door in a reasonable location at the Substitution Podium Space providing reasonable access to and from such Substitution Podium Space.
 
3.Relocation of 79th Floor Premises.
 
(a) At the request of Landlord and at Landlord’s sole cost and expense, Tenant has agreed to relocate from the 79th Floor Premises to two separate office spaces, located on the 69 th  floor of the Building, and known as Suite 6952 (consisting of approximately Two Thousand Four Hundred Ninety (2,490) rentable square feet) and known as Suite 6948 (consisting of approximately Two Thousand Thirty-Five (2,035) rentable square feet) (collectively, the “69 th  Floor Premises”), each suite as further depicted on Exhibit C  attached hereto and incorporated herein by this reference. Tenant hereby acknowledges that, with Tenant’s prior review and approval of the space plan and specifications therefor, Landlord has improved the 69 th  Floor Premises in a manner substantially similar to the 79 th  Floor Premises, and that the 69 th  Floor Premises are ready for occupancy. Tenant has inspected the 69 th  Floor Premises and agrees to accept the same “as is” without any agreements, representations, understandings or obligations on the part of Landlord to perform any alterations, repairs or improvements and no representations respecting the condition of the 69 th  Floor Premises, except as expressly provided herein.
 
(b) Tenant agrees to take occupancy of the 69th Floor Premises on or before the date that is thirty (30) days after the Effective Date (the “Occupancy Date”) and Tenant agrees to cooperate fully and promptly with Landlord in connection with the physical relocation to the 69 th  Floor Premises. Tenant shall, at such times and in such manner as mutually agreed with Landlord, vacate and surrender to Landlord the 79 th Floor Premises and relocate to the 69 th  Floor Premises no later than the Occupancy Date. At Landlord’s expense, Landlord shall cause Tenant’s personal property and equipment located in the 79 th  Floor Premises to be moved to the 69 th  Floor Premises no later than the Occupancy Date (“Landlord Move”). Prior to the Landlord Move, Tenant shall require its personnel to pack items of personal property typically found on desktops and in desk drawers and Tenant shall tag any items which Tenant intends to move itself. With respect to those items of personal property and equipment which Tenant prefers to move itself, Tenant shall identify such items to Landlord in writing prior to the date upon which the Landlord Move is scheduled to occur and Tenant shall be responsible for moving such items to the 69 th  Floor Premises prior to the Occupancy Date (“Tenant Move”). Tenant shall be permitted to conduct the Tenant Move at such times during or after normal business hours and on the weekend as Tenant shall reasonably determine. Tenant shall be responsible for reinstalling and re-connecting its computer and telecommunications equipment in the 69 th  Floor Premises and Tenant shall coordinate
 
3

such work with the Landlord Move to avoid interference with or delay in the completion of the Landlord Move. Any items remaining in the 79th Floor Premises after the Occupancy Date shall be deemed abandoned, and can be disposed of by Landlord at Landlord’s discretion, with no further liability or responsibility to Tenant therefor. Landlord agrees to pay or, within thirty (30) days after Tenant’s request, reimburse to Tenant, (at Tenant’s election) the direct, actual third party reasonable expenses of Tenant for (i) the Tenant Move from the 79 th  Floor Premises to the 69 th  Floor Premises, (ii) reinstallation of the Tenant’s computers and telecommunications equipment in the 69 th Floor Premises, and (iii) replacement of stationery and business cards rendered unusable by such relocation. Landlord agrees to repair damage to ( or replace if necessary) any personal property or equipment of Tenant damaged in the course of the Landlord Move except if such damage is caused by Tenant, or any of Tenant’s employees, agents or contractors.
 
(c) Effective as of the Occupancy Date, the 69th Floor Premises shall be substituted for 79th Floor Premises, and become a part of the Premises, pursuant to and subject to all of the terms, provisions and conditions set forth in the Original Lease, except as otherwise modified herein and except that Tenant shall not be entitled to receive any allowances, abatements or other financial concessions granted with respect to the Initial Premises. Exhibit C ,  attached hereto and incorporated in this Amendment by this reference, shall be substituted for page 31 of Exhibit “B” attached to the Original Lease.
 
(d) Landlord and Tenant hereby acknowledge that the rentable square footage of the 69th Floor Premises has been determined to be Four Thousand Five Hundred Twenty-Five (4,525) rentable square feet. The foregoing notwithstanding, Tenant’s Base Rent and Additional Rent with respect to the 69 th  Floor Premises as it exists on the date hereof shall continue to be as set forth in  Exhibit C  attached to the Original Lease and calculated on the basis of Three Thousand five Hundred Eleven (3,511) Rentable Square Feet and shall not increase as a result of the relocation from the 79 th  floor to the 69 th  floor (but shall continue to increase or decrease as set forth in the Lease).
 
(e) Section 42 of the Original Lease, entitled “79th Floor Cancellation Rights”, shall be applicable to the 69th Floor Premises.
 
(f) The parenthetical set forth in the first sentence of Section 1(b)(i)(C) is hereby modified and amended by deleting the reference to “79 th  Floor Premises”  and substituting therefor the words  “69 th  Floor Premises”;  and
 
(g) The parenthetical set forth in the second sentence of Section 1(b)(i)(C) is hereby modified and amended by deleting the words “the 79 th  floor,”  and substituting therefor the words  “69 th  floor”.
 
4.Intentionally Omitted
 
5.Aon Sublease. Reference is made to that certain Sublease dated as of July 30, 1999 between Tenant, as Sublessor, and Aon Corporation, a Delaware corporation
 
4

(“Aon”), as Sublessee (as the same may be amended, supplemented, renewed and/or restated from time to time, the “Aon Sublease”). The portion of the Premises which Aon subleases from Tenant under the Aon Sublease from time to time is referred to herein as the “Aon Premises”. Landlord and Tenant hereby agree as follows with respect to the Aon Sublease and the Aon Premises.
 
(i) Landlord will provide those services which Landlord is required to perform under the Lease with respect to the Aon Premises directly to Aon (any such services are referred to herein as “Aon Services”); and
 
(ii) Landlord will provide bills and invoices for Aon Services directly to Aon (at such address as Tenant shall provide), and simultaneously forward copies of the same to Tenant (in accordance with the notice provisions of the Lease);
 
(iii) Landlord will accept payment of bills and invoices for Aon Services directly from either Aon or Tenant;
 
(iv) Landlord will provide copies of any notices of failure to pay any bill or invoice for Aon Services simultaneously to Aon (at the address specified by Tenant pursuant to clause (ii) above) and Tenant (pursuant to the notice provisions of the Lease); and
 
(v) If neither Aon nor Tenant pays for the cost of any Aon Services as required under the Lease, such failure shall be deemed to be a failure of Tenant to pay for extra or additional services under the Lease.
 
6. Donation of Art Work. Landlord agrees to donate to the City of Chicago or such other governmental entity or not-for-profit- corporation as directed by Tenant the portion of that certain piece of art work, known by the parties as the Bertoia structure (the “Bertoia”), which is located in the southeast and southwest corners of the plaza of the Building, provided that Tenant donates the portions of the Bertoia that it or any of its affiliates own to the same governmental entity or not-for-profit corporation to which it directs Landlord to donate. Upon Tenant’s written request, which request shall include details of the arrangements with the City of Chicago regarding the physical relocation of the Bertoia from the plaza of the Building to its new location, Landlord shall remove, or cause to be removed, those portions of the Bertoia from the plaza of the Building at Tenant’s expense and Tenant agrees to reimburse to Landlord, upon thirty (30) days prior written notice, the costs incurred by Landlord to remove the Bertoia from the Plaza and to restore and landscape the area of the plaza where the Bertoia was formerly located, including the surrounding area, in a manner consistent with the rest of the plaza. Tenant shall be responsible for relocating the Bertoia from the plaza to the City’s designated location.
 
7. Landlord’s Expenses Statement. Landlord shall mail the Landlord’s Expenses Statement to Tenant at the following address: 28301 Ferry Road, Mail Code MC2W, Warrenville, Illinois 60555, Attention: Mary Hartkopp. Tenant may from time to time upon written notice to Landlord designate a different address to which the Landlord’s Expenses Statement shall be sent.
 
5

8.Real Estate Brokers. Landlord and Tenant each represent and warrant to the other that it has not dealt with any broker, agent or finder in connection with this Second Amendment, and that insofar as it knows, no other broker negotiated this Second Amendment or is entitled to any commission in connection therewith. Landlord and Tenant each agree to indemnify and hold the other, and its employees, agents and affiliates harmless from all damages, judgments, liabilities and expenses (including reasonable attorneys’ fees) arising from any claims or demands of any other broker, agent or finder with whom it has dealt for any commission or fee alleged to be due in connection with this Second Amendment.
 
9.Consent. Landlord and Tenant represent and warrant to each other that it has obtained all of authorizations and consents necessary to execute and deliver this Second Amendment and that this Second Amendment constitutes the valid, legal and binding obligations of Tenant and Landlord, subject to Tenant obtaining the consent of Aon.
 
10.No Offer. The submission and negotiation of this Second Amendment shall not be deemed an offer to enter the same by Landlord. This Second Amendment shall not be binding until executed by both parties; provided that the execution and delivery of this Second Amendment by Tenant shall constitute an irrevocable offer by Tenant to amend the Original Lease on the terms and conditions herein contained, which offer may not be withdrawn or revoked for ten (10) days after the execution and delivery of this Second Amendment by Tenant to Landlord.
 
11.Miscellaneous. This Second Amendment shall be binding upon and shall muré to the benefit of Landlord and Tenant and their respective beneficiaries, legal representatives, heirs, successors and assigns. Except to the extent amended or modified by this Second Amendment, all other terms, conditions and provisions of the Lease are, and shall remain, in full force and effect and are hereby ratified and confirmed. This Second Amendment, together with the Original Lease, sets forth the entire agreement between the parties with respect to the subject matter set forth herein and therein and may not be modified, amended or altered except by subsequent written agreement between the parties. There have been no additional oral or written representations or agreements. In the event that any provision of this Second Amendment shall be held invalid or unenforceable, such provision shall be severable from, and such invalidity or unenforceability shall not be construed to have any effect on, the remaining provisions of this Second Amendment. In case of any inconsistency between the provisions of the Original Lease and this Second Amendment, the latter provisions shall govern and control. This Second Amendment may be executed in one (1) or more counterparts, all of which taken together shall constitute one (1) original document.
 
6

IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as of the date first above written.
 
LANDLORD:	 	 	 	TENANT:	
 	 	 	
BRE/RANDOLPH DRIVE, L.L.C., a
Delaware limited liability company	 	 	 	BP CORPORATION NORTH
AMERICA INC., an Indiana corporation	
 	 	 	 	 	
By:	 	Blackstone Real Estate Randolph Drive
L.L.C., a Delaware limited liability	 	 	 	By:

	
 	 	 	 	 	 	Its:	 	 

	
 	 	 	 	 	 	
 	 	By:
 	 	[ILLEGIBLE]

	 	 	 	 	 	 	
 	 	Its:	 	V.P

	 	 	 	 	 	 	
 
CONSENT OF MORTGAGEE / LENDER
 
The undersigned, the “Mortgagee” under the Lease and the “Lender” under that certain Subordination, Nondisturbance and Attornment Agreement dated as of December 11, 1998 among Landlord, Tenant and the undersigned, does hereby consent to the execution, delivery and performance of the terms and provisions of this Second Amendment by Landlord and Tenant.
 
CMF CAPITAL COMPANY, L.L.C., a Delaware
limited liability company	
 	 	
By:	 	[ILLEGIBLE]

	
Its:	 	Authorized Signatory

	

CONSENT OF AON CORPORATION
 
The undersigned, the “Sublessee” under the Aon Sublease does hereby consent to the execution, delivery and performance of the terms and provisions of this Second Amendment by Tenant.
 
AON CORPORATION, a Delaware corporation	
 	 	
By:	 	 

	
Its:	 	 

	
 
7

IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as of the date first above written.
 
LANDLORD:	 	 	 	TENANT:	
 	 	 	
BRE/RANDOLPH DRIVE, L.L.C., a
Delaware limited liability company	 	 	 	BP CORPORATION NORTH
AMERICA INC., an Indiana corporation	
 	 	 	 	 	
By:	 	Blackstone Real Estate Randolph Drive
L.L.C., a Delaware limited liability	 	 	 	By:
 	 	[ILLEGIBLE]

	
 	 	 	 	 	 	Its:	 	Vice President

	
 	 	 	 	 	 	
 	 	By:

	 	 	 	 	 	 	
 	 	Its:	 	 

	 	 	 	 	 	 	
 
CONSENT OF MORTGAGEE / LENDER
 
The undersigned, the “Mortgagee” under the Lease and the “Lender” under that certain Subordination, Nondisturbance and Attornment Agreement dated as of December 11, 1998 among Landlord, Tenant and the undersigned, does hereby consent to the execution, delivery and performance of the terms and provisions of this Second Amendment by Landlord and Tenant.
 
CMF CAPITAL COMPANY, L.L.C., a Delaware
limited liability company	
 	 	
By:	 	 

	
Its:	 	 

	
 
CONSENT OF AON CORPORATION
 
The undersigned, the “Sublessee” under the Aon Sublease does hereby consent to the execution, delivery and performance of the terms and provisions of this Second Amendment by Tenant.
 
AON CORPORATION, a Delaware corporation	
 	 	
By:	 	 

	
Its:	 	 

	
 
7

IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as of the date first above written.
 
LANDLORD:	 	 	 	TENANT:	
 	 	 	
BRE/RANDOLPH DRIVE, L.L.C., a
Delaware limited liability company	 	 	 	BP CORPORATION NORTH
AMERICA INC., an Indiana corporation	
 	 	 	 	 	
By:	 	Blackstone Real Estate Randolph Drive
L.L.C., a Delaware limited liability	 	 	 	By:

	
 	 	 	 	 	 	Its:	 	 

	
 	 	 	 	 	 	
 	 	By:

	 	 	 	 	 	 	
 	 	Its:	 	 

	 	 	 	 	 	 	
 
CONSENT OF MORTGAGEE / LENDER
 
The undersigned, the “Mortgagee” under the Lease and the “Lender” under that certain Subordination, Nondisturbance and Attornment Agreement dated as of December 11, [1998 among Landlord, Tenant and the undersigned, does hereby consent to the execution, delivery and performance of the terms and provisions of this Second Amendment by Landlord and Tenant.
 
CMF CAPITAL COMPANY, L.L.C., a Delaware
limited liability company	
 	 	
By:	 	 

	
Its:	 	 

	
 
CONSENT OF AON CORPORATION
 
The undersigned, the “Sublessee” under the Aon Sublease does hereby consent to the execution, delivery and performance of the terms and provisions of this Second Amendment by Tenant.
 
AON CORPORATION, a Delaware corporation	
 	 	
By:	 	/s/ Harvey N. Medvin

	
Its:	 	Harvey N. Medvin

	
 	 	Executive Vice President and
Chjef Financial Officer	
 
7

BRE/RANDOLPH DRIVE L.L.C.
 
VIA FEDERAL EXPRESS	February 19, 2003	
 
 	Re:	 	Office Lease between BRE/Randolph Drive L.L.C.	
 	    	 	(“Landlord”) and BP Amoco Corporation (“Tenant”), dated as	
 	    	 	of December 11, 1998 (as amended, supplemented or	
 	    	 	modified from time to time, the “Lease”)	
 
BP Amoco Corporation
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Facilities and Service, Chicago Regional Manager
(Mail Code 2203) and
Manager of Regional Administration
Facilities and Services, Chicago Region
(Mail Code 2203)
 
Ladies and Gentlemen:
 
Reference is made to the Lease. All terms used herein, but otherwise not defined, shall have the meaning given to them in the Lease.
 
This letter is to inform you that Landlord desires to sell the Building and the Land. Pursuant to Section 41 of the Lease, this letter shall constitute a Sale Notice to Tenant. If you do not deliver to us an Offer to Purchase the Building and the Land in the next 30 days, you have no further rights under Section 41 of the Lease. Therefore, in the event that you do not intend to deliver an Offer to Purchase within the next 30 days, we request that you execute and deliver to us the enclosed waiver immediately. Should you have any questions in connection with this letter, please contact me at (212) 583-5854 or Marshall Findley at (212) 583-5876.
 
Sincerely,
 
/s/ Karen Sprogis
 
Karen Sprogis
Managing Director
 
cc:	 	General Counsel	
    	 	Manager of Real Estate	
    	 	Diane Walsh-Madden	

WAIVEROF RIGHTOF OFFER
 
Reference is made to that Office Lease between BRE/Randolph Drive L.L.C. (“Landlord”) and BP Amoco Corporation (“ Tenant ”), dated as of December 11, 1998 (as amended, supplemented or modified from time to time, the “ Lease ”). Capitalized terms used in this waiver but otherwise not defined shall have the meaning given to them in the Lease. Tenant acknowledges receipt of a Sale Notice dated February 19, 2003 (the “ Sale Notice ”) from Landlord. Tenant hereby waives any and all rights, now and in the future, to deliver to Landlord an Offer to Purchase in connection with the Sale Notice or claim any rights of first offer pursuant to Section 41 of the Lease.
 
Tenant:	
 	
BP AMOCO CORPORATION	
 	 	
By:	 	 

	
Name:
Title:	
 
Dated:                     , 2003

BRE/RANDOLPH DRIVE, L.L.C.
 
VIA FEDERAL EXPRESS	February 21, 2003	
 
 	Re:	 	Office Lease between BRE/Randolph Drive L.L.C.	
 	    	 	(“Landlord”) and BP Amoco Corporation (“Tenant”), dated as	
 	    	 	of December 11, 1998 (as amended, supplemented or	
 	    	 	modified from time to time, the “Lease”)	
 
BP Amoco Corporation
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Facilities and Service, Chicago Regional
Manager (Mail Code 2203) and
Manager of Regional Administration
Facilities and Services, Chicago Region
(Mail Code 2203)
 
Ladies and Gentlemen:
 
Reference is made to the Lease. All terms used herein, but otherwise not defined, shall have the meaning given to them in the Lease.
 
Landlord sent to you a letter dated February 19, 2003 (the “Notice Letter”), informing you that Landlord intends to sell the Land and the Building and requesting that you waive any right of first offer you might have under the Lease. Upon further review of the Lease, it has become evident that Tenant’s right of first offer under Section 41 of the Lease is applicable only if the Tenant Occupancy Requirement is satisfied. As you know, Tenant’s current occupancy is substantially below this required threshold. Therefore, Landlord has no obligations to Tenant at this time under Section 41 of the Lease and intends to sell the Land and the Building in the near future without further reference to Section 41 of the Lease. As a courtesy to Landlord, we would still appreciate your execution and delivery of the waiver certificate delivered to you in the Notice Letter.

February 21, 2003
 
If you have any questions in connection with this letter, please contact Steven Orbuch at 212-583-5358.
 
Sincerely,
 
/s/ Karen Sprogis
 
Karen Sprogis
Managing Director
 
cc:	 	General Counsel	
    	 	Manager of Real Estate	
    	 	Diane Walsh-Madden	
 
2

[GRAPHIC APPEARS HERE]
 
February 26, 2003
 
BP Corporation North America Inc.
200 East Randolph Drive
Mail Code 2203
Chicago, Illinois 60601
Attention:	 	Facilities and Services,	
    	 	Chicago Regional Manager	
 
 	Re:	 	Sublease dated as of July 30, 1999 between BP North America Inc. (successor by name change to BP Amoco Corporation), as sublessor (“Sublessor”), and Aon Corporation, as sublessee (“Sublessee”), for Certain Subleased Premises located at Aon Center, 200 East Randolph Drive, Chicago, Illinois (the “Sublease”) .	
 
Ladies and Gentlemen:
 
Reference is made to the Sublease described above. Initially capitalized terms used in this letter which are not otherwise defined in this letter shall have the meanings ascribed thereto as set forth in the Sublease.
 
This letter will confirm that the address for notices for the Sublessee, as set forth in Section 19 of the Sublease, is hereby modified as follows:
 
If to Sublessee:
 
Aon Corporation
200 E. Randolph Drive
Chicago, Illinois 60601
Attn: Brian Egan
 
This letter will further confirm that either Sublessee or Sublessor may hereafter change its address from time to time for purposes of notices under the Sublease, by written notice to the other party in the manner specified in Section 19 of the Sublease. This letter may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement, and facsimile copies of this letter shall constitute originals hereof.
 
Sincerely,	
 	
AON CORPORATION, a Delaware corporation	
 	 	
By:	 	/s/ Harvey N. Medvin

	
Its:	 	Harvey N. Medvin

	
 	 	Executive Vice President and
Chief Financial Officer	

AGREED AND ACCEPTED,
as of the date set forth above
 
BP CORPORATION NORTH AMERICA
INC., an Indiana corporation

By:	 	/S/    DIANE C. WALSH MADDEN

	
Its:	 	Sr. Real Estate Attorney

	
 
ACKNOWLEDGMENT OF LANDLORD
 
The undersigned, as Landlord under the Prime Lease, hereby acknowledges receipt of this letter, and further acknowledges and agrees that any notices to be sent by the Landlord to the Sublessee pursuant to Section 5 of that certain Second Amendment to the Prime Lease dated as of December 1, 2002 shall be sent to the Sublessee at its addresses set forth above in this letter.
 
BRE/RANDOLPH DRIVE, L.L.C., a
Delaware limited liability company	
 	 	
By:	 	Blackstone Real Estate Randolph
Drive L.L.C., a Delaware limited
liability company	
 	 	 	
 	 	By:	 	[ILLEGIBLE]

	
 	 	Its:	 	VP

	
 
cc:	 	BP Corporation North America Inc.	
    	 	28100 Torch Parkway	
    	 	Mail Code 4N	
    	 	Warrenville, IL 60555	
    	 	Attention: Manager of Real Estate	
 
    	 	Sidley Austin Brown & Wood	
    	 	Bank One Plaza	
    	 	10 South Dearborn	
    	 	Chicago, Illinois 60603	
    	 	Attention: Anthony J. Aiello, Esq.	

AGREED AND ACCEPTED,
as of the date set forth above
 
BP CORPORATION NORTH AMERICA
INC., an Indiana corporation

By:	 	 

	
Its:	 	 

	
 
ACKNOWLEDGMENT OF LANDLORD
 
The undersigned, as Landlord under the Prime Lease, hereby acknowledges receipt of this letter, and further acknowledges and agrees that any notices to be sent by the Landlord to the Sublessee pursuant to Section 5 of that certain Second Amendment to the Prime Lease dated as of December 1, 2002 shall be sent to the Sublessee at its addresses set forth above in this letter.
 
BRE/RANDOLPH DRIVE, L.L.C., a
Delaware limited liability company	
 	 	
By:	 	Blackstone Real Estate Randolph
Drive L.L.C., a Delaware limited
liability company	
 	 	 	
 	 	By:	 	[ILLEGIBLE]

	
 	 	Its:	 	VP

	
 
cc:	 	BP Corporation North America Inc.	
    	 	28100 Torch Parkway	
    	 	Mail Code 4N	
    	 	Warrenville, IL 60555	
    	 	Attention: Manager of Real Estate	
 
    	 	Sidley Austin Brown & Wood	
    	 	Bank One Plaza	
    	 	10 South Dearborn	
    	 	Chicago, Illinois 60603	
    	 	Attention: Anthony J. Aiello, Esq.	
 
2

BP CORPORATION NORTH AMERICA INC.
28301 Ferry Road
Warresville, Illinois 60555
 
March 14, 2003
 
BRE/Randolph Drive L.L.C.
c/o Blackstone Real Estate Advisors L.P.
345, Park Avenue,
New York, New York 10154
 
 	Re:	 	200 East Randolph Drive, Chicago, Illinois—Second Amendment to Office Lease dated as of December 1, 2002 (the “Amendment”) .	
 
Ladies and Gentlemen:
 
Reference is made to the Amendment described above. All initially capitalized terms used in this letter that are not otherwise defined in this letter shall have the meanings described thereto as set forth in the Amendment.
 
This letter will confirm that the term “Occupancy Date”, as used in Section 3 of the Amendment, shall mean the date that is thirty (30) days after the date of this letter, rather than the date that is thirty (30) days after the Effective Date (as set forth in said Section 3 of the Amendment). Except as modified hereby, the Amendment remains modified, is in full force and effect, and is hereby justified by the parties.
 
Please sign this letter in the space below indicating the Landlord’s agreement to the foregoing. This letter may be signed in multiple counterparts, all of which, when taken together, shall constitute a single agreement, and facsimile copies of this letter shall constitute originals hereof.
 
Sincerely,	
 	
BP CORPORATION NORTH AMERICA INC.	
 	 	
By:	 	/S/    DIANE C. WALSH MADDEN

	
Its:	 	Sr. Real Estate Attorney

	
 
AGREED AND ACCEPTED
as of the date set forth above
 
BRE/RANDOLPH DRIVE, L.L.C., a
Delaware limited liability company
 
By:	 	Blackstone Real Estate Randolph Drive 
L.L.C., a Delaware limited liability	
 	 	 	
 	 	By:	 	[ILLEGIBLE]

	
 	 	Its:	 	VP

	

EXHIBIT 23.3
 
CONSENT OF ERNST & YOUNG LLP

Consent of Independent Auditors
 
We consent to the reference to our firm under the captions “Financial Statements” and to the use of our reports dated January 24, 2003 on the consolidated financial statements and schedule of Wells Real Estate Investment Trust, Inc.; dated September 26, 2002 on the Statement of Revenues over Certain Operating Expenses for the IRS Long Island Buildings; dated October 21, 2002 on the Statement of Revenues over Certain Operating Expenses for the Harcourt Austin Building; dated November 26, 2002 on the Statement of Revenues over Certain Operating Expenses for the NASA Buildings; dated November 26, 2002 on the Statement of Revenues over Certain Operating Expenses for the Caterpillar Nashville Building; dated January 21, 2003 on the Statement of Revenues over Certain Operating Expenses for the Nestle Building; dated May 5, 2003 on the Statement of Revenues over Certain Operating Expenses for the US Bancorp Minneapolis Building: and dated May 9, 2003 on the Statement of Revenues over Certain Operating Expenses for the Aon Center Chicago Building in Post-Effective Amendment No. 4 to the Registration Statement (Form S-11 No. 333-85848) and related Prospectus of Wells Real Estate Investment Trust, Inc. for the registration of 330,000,000 shares of its common stock.
 
/s/ Ernst & Young LLP
 
Atlanta, Georgia
June 17, 2003

EXHIBIT 23.4
 
CONSENT OF ERNST & YOUNG LLP

Consent of Independent Auditors
 
We consent to the reference to our firm under the caption “Financial Statements” and to the use of our report dated January 31, 2002 on the Statement of Revenues over Certain Operating Expenses for the KeyBank Parsippany Building, in Post Effective Amendment No. 4 to the Registration Statement (Form S-11 No. 333-85848) and related Prospectus of Wells Real Estate Investment Trust, Inc. for the registration of 330,000,000 shares of its common stock.
 
/s/ Ernst & Young LLP
 
New York, New York
June 17, 2003

EXHIBIT 24.1
 
POWER OF ATTORNEY

POWER OF ATTORNEY
 
Each person whose signature appears below hereby constitutes and appoints Leo F. Wells, III and Douglas P. Williams, or either of them acting singly, as his true and lawful attorney-in-fact, for him and in his name, place and stead, to execute and sign any and all amendments, including any post-effective amendments, to the Registration Statement on Form S-11 of Wells Real Estate Investment Trust, Inc. or any additional Registration Statement filed pursuant to Rule 462 and to cause the same to be filed with the Securities and Exchange Commission hereby granting to said attorneys-in-fact and each of them full power and authority to do and perform all and every act and thing whatsoever requisite or desirable to be done in and about the premises as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all acts and things that said attorneys-in-fact or either of them may do or cause to be done by virtue of these presents.
 
Pursuant to the requirements of the Securities Act of 1933, as amended, this Power of Attorney has been signed below, effective as of April 20, 2003, by the following persons and in the capacities indicated below.
 
Signatures

	  	Title

	

Leo F. Wells, III	  	President and Director
(Principal Executive Officer)	

Douglas P. Williams	  	Executive Vice President and Director
(Principal Financial and Accounting Officer)	

John L. Bell	  	Director	

Michael R. Buchanan	  	Director	

Richard W. Carpenter	  	Director	

Bud Carter	  	Director	

William H. Keogler, Jr.	  	Director	

Donald S. Moss	  	Director	

Walter W. Sessoms	  	Director	

Neil H. Strickland	  	Director