-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DXBqehdno5/Oaw6vmGtAw952IqPYc3EXA2RQuX7v/15x3dQd3lVvgYYaDwhzlpj7 C71tqzVr9JJbjKrMZLpUtg== 0000931755-98-000008.txt : 19980330 0000931755-98-000008.hdr.sgml : 19980330 ACCESSION NUMBER: 0000931755-98-000008 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP CENTRAL INDEX KEY: 0000931755 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 411789725 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 033-85076 FILM NUMBER: 98575154 BUSINESS ADDRESS: STREET 1: 1300 MINNESOTA WORLD TRADE CENTER STREET 2: 30 EAST SEVENTH ST CITY: ST PAUL STATE: MN ZIP: 55101 BUSINESS PHONE: 6122277333 MAIL ADDRESS: STREET 1: 1300 MINNESOTA WORLD TRADE CENTER STREET 2: 30 EAST SEVENTH STREET CITY: ST PAUL STATE: MN ZIP: 55101 10KSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB Annual Report Under Section 13 or 15(d) Of The Securities Exchange Act Of 1934 For the Fiscal Year Ended: December 31, 1997 Commission file number: 0-29274 AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP (Name of Small Business Issuer in its Charter) State of Minnesota 41-1789725 (State or other Jurisdiction of (I.R.S. Employer) Incorporation or Organization) Identification No.) 1300 Minnesota World Trade Center, St. Paul, Minnesota 55101 (Address of Principal Executive Offices) (612) 227-7333 (Issuer's telephone number) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered None None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Units (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Check if disclosure of delinquent filers in response to Rule 405 of Regulation S-B is not contained in this Form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] The Issuer's revenues for year ended December 31, 1997 were $1,513,094. As of February 28, 1998, there were 23,794.57 Units of limited partnership interest in the registrant outstanding and owned by nonaffiliates of the registrant, which Units had an aggregate market value (based solely on the price at which they were sold since there is no ready market for such Units) of $23,794,570. DOCUMENTS INCORPORATED BY REFERENCE The registrant has not incorporated any documents by reference into this report. Transitional Small Business Disclosure Format: Yes No [X] PART I ITEM 1. DESCRIPTION OF BUSINESS. AEI Income & Growth Fund XXI Limited Partnership (the "Partnership" or the "Registrant") is a limited partnership which was organized pursuant to the laws of the State of Minnesota on August 31, 1994. The registrant is comprised of AEI Fund Management XXI, Inc. (AFM) as Managing General Partner, Robert P. Johnson as the Individual General Partner, and purchasers of partnership units as Limited Partners. The Partnership offered for sale up to $24,000,000 of limited partnership interests (the "Units") (24,000 Units at $1,000 per Unit) pursuant to a registration statement effective February 1, 1995. The Partnership commenced operations on April 14, 1995 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. On January 31, 1997, the Partnership offering terminated when the maximum subscription limit of 24,000 Limited Partnership Units ($24,000,000) was reached. The Partnership was organized to acquire existing and newly constructed commercial properties located in the United States, to lease such properties to tenants under triple net leases, to hold such properties and to eventually sell such properties. As of December 31, 1997 from subscription proceeds, the Partnership had purchased nine properties including partial interests in six properties, at a total cost of $16,401,184. The properties are commercial, single tenant buildings leased under triple net leases. The Partnership is continuing to review various properties for acquisition until available subscription proceeds are fully committed. The Partnership's properties will be purchased with subscription proceeds without any indebtedness. The Partnership will not finance properties in the future to obtain proceeds for new property acquisitions. If it is required to do so, the Partnership may incur short-term indebtedness, which may be secured by a portion of the Partnership's properties, to finance the day-to-day cash flow requirements of the Partnership (including cash flow necessary to repurchase Units). The amount of borrowings that may be secured by the Partnership's properties is limited in the aggregate to 10% of the purchase price of all Partnership properties. The Partnership will not incur borrowings prior to application of the proceeds from sale of the Units, will not incur borrowings to pay distributions, and will not incur borrowings while there is cash available for distributions. The Partnership will hold its properties until the General Partners determine that the sale or other disposition of the properties is advantageous in view of the Partnership's investment objectives. In deciding whether to sell properties, the General Partners will consider factors such as potential appreciation, net cash flow and income tax considerations. In addition, certain lessees may be granted options to purchase properties after a specified portion of the lease term has elapsed. The Partnership expects to sell some or all of its properties prior to its final liquidation and to reinvest the proceeds from such sales in additional properties. The Partnership reserves the right, at the discretion of the General Partners, to either distribute proceeds from the sale of properties to the Partners or to reinvest such proceeds in additional properties, provided that sufficient proceeds are distributed to the Limited Partners to pay federal and state income taxes related to any taxable gain recognized as a result of the sale. It is anticipated that the Partnership will commence liquidation through the sale of its remaining properties twelve to fifteen years after its formation, although final liquidation may be delayed by a number of circumstances, including market conditions and seller financing of properties. ITEM 1. DESCRIPTION OF BUSINESS. (Continued) Leases Although there are variations in the specific terms of the leases, the following is a summary of the general terms of the Partnership's leases. The properties are leased to various tenants under triple net leases, which are classified as operating leases. Under a triple net lease, the lessee is responsible for all real estate taxes, insurance, maintenance, repairs and operating expenses for the property. The initial lease terms are for 18 to 20 years. The leases provide for base annual rental payments, payable in monthly installments, and contain rent clauses which entitle the Partnership to receive additional rent in future years based on stated rent increases. The leases provide the lessees with two to five five-year renewal options subject to the same terms and conditions as the initial lease. Certain lessees have been granted options to purchase the property. Depending on the lease, the purchase price is either determined by a formula, or is the greater of the fair market value of the property or the amount determined by a formula. In all cases, if the option were to be exercised by the lessee, the purchase price would be greater than the original cost of the property. On May 31, 1995, the Partnership purchased an 87.7193% interest in an Arby's restaurant in Montgomery, Alabama for $754,104. The property is leased to RTM Gulf Coast, Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $77,813. The remaining interest in the property was purchased by AEI Institutional Net Lease Fund '93 Limited Partnership, an affiliate of the Partnership. On December 21, 1995, the Partnership purchased a 34.0% interest in a Media Play retail store in Apple Valley, Minnesota for $1,414,060. The property was leased to The Musicland Group, Inc. (MGI) under a Lease Agreement with a primary term of 18 years and annual rental payments of $139,587. The remaining interest in the property was purchased by AEI Net Lease Income & Growth Fund XIX Limited Partnership and AEI Net Lease Income & Growth Fund XX Limited Partnership, affiliates of the Partnership. In December, 1996, the Partnership and MGI reached an agreement in which MGI would buy out and terminate the Lease Agreement by making a payment of $800,000, which was equal to approximately two years' rent. The Partnership's share of such payment was $272,000. Under the Agreement, MGI remained in possession of the property and performed all of its obligations under the net lease agreement through January 31, 1997 at which time it vacated the property and made it available for re-let to another tenant. MGI was responsible for all maintenance and management costs of the property through January31, 1997 after which date the Partnership became responsible for its share of expenses associated with the property until it is re-let or sold. A specialist in commercial property leasing has been retained to locate a new tenant for the property. As of December 31, 1997, based on an analysis of market conditions in the area, it was determined the fair value of the Partnership's interest in the Media Play was approximately $748,000. In the fourth quarter of 1997, a charge to operations for real estate impairment of $580,200 was recognized, which is the difference between the book value at December 31, 1997 of $1,328,200 and the estimated market value of $748,000. The charge was recorded against the cost of the land, building and equipment. ITEM 1. DESCRIPTION OF BUSINESS. (Continued) On March 28, 1996, the Partnership purchased a 40.75% interest in a Garden Ridge retail store in Pineville, North Carolina for $3,644,391. The property is leased to Garden Ridge, L.P. under a Lease Agreement with a primary term of 20 years and annual rental payments of $383,973. The remaining interest in the property was purchased by AEI Net Lease Income & Growth Fund XIX Limited Partnership and AEI Net Lease Income & Growth Fund XX Limited Partnership, affiliates of the Partnership. On August 29, 1996, the Partnership purchased a 67.8% interest in a Champps Americana restaurant in Columbus, Ohio for $1,808,880. The property is leased to Americana Dining Corporation under a Lease Agreement with a primary term of 20 years and annual rental payments of $191,259. The remaining interest in the property was purchased by AEI Real Estate Fund XVIII Limited Partnership, an affiliate of the Partnership. On March 14, 1997, the Partnership purchased a parcel of land in San Antonio, Texas for $1,032,299. The land is leased to Champps Americana, Inc. (Champps) under a Lease Agreement with a primary term of 20 years and annual rental payments of $83,451. Effective September 9, 1997, the annual rent was increased to $128,156. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective September 9, 1997, the interest rate was increased to 10.75%. On December 23, 1997, after the development was completed, the Lease Agreement was amended to require annual rental payments of $296,023. Total acquisition costs, including the cost of the land, were $2,833,357. On March 19, 1997, the Partnership purchased a Denny's restaurant in Covington, Louisiana for $1,304,949. The property is leased to Huntington Restaurants Group, Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $141,243. On April 21, 1997, the Partnership purchased a 49.6% interest in a parcel of land in Schaumburg, Illinois for $876,387. The land is leased to Champps under a Lease Agreement with a primary term of 20 years and annual rental payments of $66,906. Effective October 17, 1997, the annual rent was increased to $102,749. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective October 17, 1997, the interest rate was increased to 10.75%. On December 31, 1997, after the development was completed, the Lease Agreement was amended to require annual rental payments of $236,479. The Partnership's share of the total acquisition costs, including the cost of the land, was $2,256,462. The remaining interests in the property are owned by AEI Net Lease Income & Growth Fund XX Limited Partnership and Net Lease Income & Growth Fund 84-A Limited Partnership, affiliates of the Partnership. ITEM 1. DESCRIPTION OF BUSINESS. (Continued) On July 8, 1997, the Partnership purchased a parcel of land in Livonia, Michigan for $1,074,384. The land is leased to Champps under a Lease Agreement with a primary term of 20 years and annual rental payments of $75,207. Effective January 3, 1998, the annual rent was increased to $115,496. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership will advance funds to Champps for the construction of a Champps Americana restaurant on the site. Through December 31, 1997, the Partnership had advanced $1,078,108 for the construction of the property and was charging interest on the advances at a rate of 7.0%. Effective January 3, 1998, the interest rate was increased to 10.75%. The total purchase price, including the cost of the land, will be approximately $3,970,000. After the construction is complete, the Lease Agreement will be amended to require annual rental payments of approximately $427,000. On July 31, 1997, the Partnership purchased a 93.1% interest in a Caribou Coffee store in Charlotte, North Carolina for $1,310,598. The property is leased to Caribou Coffee Company, Inc. under a Lease Agreement with a primary term of 18 years and annual rental payments of $146,438. The remaining interest in the property is owned by AEI Institutional Net Lease Fund '93 Limited Partnership, an affiliate of the Partnership. During 1997, the Partnership sold 16.0799% of its interest in the Champps Americana restaurant in Columbus, Ohio, in two separate transactions to unrelated third parties. The Partnership received total net sale proceeds of $520,790 which resulted in a total net gain of $106,551. The total cost and related accumulated depreciation of the interests sold was $429,006 and $14,767, respectively. Subsequent to December 31, 1997, the Partnership sold an additional 12.0528% of its interest in the Champps Americana restaurant in Columbus, Ohio in two separate transactions to unrelated third parties. The Partnership received net sale proceeds of approximately $407,000 which resulted in a net gain of approximately $98,000. Major Tenants During 1997, three of the Partnership's lessees each contributed more than ten percent of the Partnership's total rental revenue. The major tenants in aggregate contributed 85% of the Partnership's total rental revenue in 1997. It is anticipated that, based on minimum rental payments required under the leases, only Garden Ridge L.P. and the Champps Americana Group will contribute more than ten percent of the Partnership's rental income in 1998 and future years. Any failure of these major tenants or business concepts could materially affect the Partnership's net income and cash distributions. Competition The Partnership is a minor factor in the commercial real estate business. There are numerous entities engaged in the commercial real estate business which have greater financial resources than the Partnership. At the time the Partnership elects to dispose of its properties, the Partnership will be in competition with other persons and entities to find buyers for its properties. ITEM 1. DESCRIPTION OF BUSINESS. (Continued) Employees The Partnership has no direct employees. Management services are performed for the Partnership by AEI Fund Management, Inc., an affiliate of AFM. Year 2000 AEI Fund Management, Inc. (AEI) performs all management services for the Partnership. AEI is currently analyzing its computer hardware and software systems to determine what, if any, resources need to be dedicated regarding Year 2000 issues. The Partnership does not anticipate any significant operational impact or incurring material costs as a result of AEI becoming Year 2000 compliant. ITEM 2. DESCRIPTION OF PROPERTIES. Investment Objectives The Partnership's investment objectives are to acquire existing or newly-developed commercial properties throughout the United States that offer the potential for (i) regular cash distributions of lease income; (ii) growth in lease income through rent escalation provisions; (iii) preservation of capital through all-cash sale-leaseback transactions; (iv) capital growth through appreciation in the value of properties; and (v) stable property performance through long-term lease contracts. The Partnership does not have a policy, and there is no limitation, as to the amount or percentage of assets that may be invested in any one property. However, to the extent possible, the General Partners attempt to diversify the type and location of the Partnership's properties. Description of Properties The Partnership's properties are commercial, single tenant buildings. The properties were acquired on a debt-free basis and are leased to various tenants under triple net leases, which are classified as operating leases. The Partnership holds an undivided fee simple interest in the properties. The Partnership's properties are subject to the general competitive conditions incident to the ownership of single tenant investment real estate. Since each property is leased under a long-term lease, there is little competition until the Partnership decides to sell the property. At this time, the Partnership will be competing with other real estate owners, on both a national and local level, in attempting to find buyers for the properties. In the event of a tenant default, the Partnership would be competing with other real estate owners, who have property vacancies, to attract a new tenant to lease the property. The Partnership's tenants operate in industries that are very competitive and can be affected by factors such as changes in regional or local economies, seasonality and changes in consumer preference. ITEM 2. DESCRIPTION OF PROPERTIES. (Continued) The following table is a summary of the properties that the Partnership acquired and owned as of December 31, 1997. Total Property Purchase Acquisition Annual Lease Annual Rent Property Date Costs Lessee Payment Per Sq. Ft. Arby's Restaurant Montgomery, AL RTM Gulf (87.7193%) 5/31/95 $ 754,104 Coast, Inc. $ 80,164 $ 30.82 Media Play Retail Store Apple Valley, MN (34.0%) 12/21/95 $1,414,060 Garden Ridge Retail Store Pineville, NC Garden (40.75%) 3/28/96 $3,644,391 Ridge, L.P. $383,973 $ 6.67 Champps Americana Restaurant Americana Columbus, OH Dining (51.7201%) 8/29/96 $1,379,874 Corporation $145,898 $ 34.53 Huntington Denny's Restaurant Restaurants Covington, LA 3/19/97 $1,304,948 Group, Inc. $141,243 $ 28.94 Caribou Coffee Store Charlotte, NC Caribou Coffee (93.1%) 7/31/97 $1,310,598 Company, Inc. $146,438 $ 35.66 Champps Champps Americana Restaurant Entertainment San Antonio, TX 12/23/97 $2,833,357 of Texas, Inc. $296,023 $ 34.10 Champps Americana Restaurant Schaumburg, IL Champps (49.6%) 12/31/97 $2,256,462 Americana, Inc. $236,479 $ 42.73 Champps Americana Restaurant Livonia, MI Champps (land only) 7/8/97 $1,074,384 Americana, Inc. $ 75,207 $ .72 The property was vacated on January 31, 1997 and listed for sale or lease. Restaurant is under construction as of December 31, 1997. ITEM 2. DESCRIPTION OF PROPERTIES. (Continued) The properties listed above with a partial ownership percentage are owned with affiliates of the Partnership and/or unrelated third parties. The remaining interests in the Arby's and Caribou Coffee store are owned by AEI Institutional Net Lease Fund '93 Limited Partnership. The remaining interests in the Media Play and Garden Ridge retail stores are owned by AEI Net Lease Income & Growth Fund XIX Limited Partnership and AEI Net Lease Income & Growth Fund XX Limited Partnership. The remaining interest in the Champps Americana restaurant in Columbus, Ohio is owned by AEI Real Estate Fund XVIII Limited Partnership and unrelated third parties. The remaining interest in the Champps Americana restaurant in Schaumburg, Illinois is owned by Net Lease Income & Growth Fund 84-A Limited Partnership and AEI Net Lease Income & Growth Fund XX Limited Partnership. The Partnership accounts for properties owned as tenants- in-common with affiliated Partnerships and/or unrelated third parties using the proportionate consolidation method. Each tenant-in-common owns a separate, undivided interest in the properties. Any tenant-in-common that holds more than a 50% interest does not control decisions over the other tenant-in- common interests. The financial statements reflect only this Partnership's percentage share of the properties' land, building and equipment, liabilities, revenues and expenses. The initial Lease terms are 20 years except for the Caribou Coffee store, which is 18 years. The Leases contain renewal options which may extend the Lease term an additional 10 years for the Arby's and Caribou Coffee, an additional 15 years for the Champps and Denny's, and an additional 25 years for the Garden Ridge retail store. Pursuant to the Lease Agreements, the tenants are required to provide proof of adequate insurance coverage on the properties they occupy. The General Partners believe the properties are adequately covered by insurance and consider the properties to be well-maintained and sufficient for the Partnership's operations. For tax purposes, the Partnership's properties are depreciated under the Modified Accelerated Cost Recovery System (MACRS). The largest depreciable component of a property is the building which is depreciated, using the straight-line method, over 40 years. The remaining depreciable components of a property are personal property and land improvements which are depreciated, using an accelerated method, over 5 and 15 years, respectively. Since the Partnership has tax-exempt Partners, the Partnership is subject to the rules of Section 168(h)(6) of the Internal Revenue Code which requires a percentage of the properties' depreciable components to be depreciated over longer lives using the straight-line method. In general the federal tax basis of the properties for tax depreciation purposes is the same as the basis for book depreciation purposes except for properties whose book value was reduced by a real estate impairment loss pursuant to Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The real estate impairment loss, which was recorded against the book cost of the land and depreciable property, was not recognized for tax purposes. Through December 31, 1997, all properties were 100% occupied by the lessees, except the Media Play retail store which has been 100% vacant since January 31, 1997. ITEM 3. LEGAL PROCEEDINGS. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND RELATED SECURITY HOLDER MATTERS. As of December 31, 1997, there were 1,313 holders of record of the registrant's Limited Partnership Units. There is no other class of security outstanding or authorized. The registrant's Units are not a traded security in any market. However, the Partnership may purchase Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership is not obligated to purchase in any year more than 5% of the total number of Units outstanding at the beginning of the year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. During 1997, three Limited Partners redeemed a total of 171.1 Partnership Units for $154,021 in accordance with the Partnership Agreement. The redemptions increase the remaining Limited Partners' ownership interest in the Partnership. Cash distributions of $17,788 and $14,044 were made to the General Partners and $1,761,087 and $1,390,389 were made to the Limited Partners in 1997 and 1996, respectively. The distributions were made on a quarterly basis and represent Net Cash Flow, as defined, and a partial return of contributed capital. These distributions should not be compared with dividends paid on capital stock by corporations. As part of the Limited Partner distributions discussed above, the Partnership distributed $348,489 of proceeds from property sales in 1997. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. Results of Operations For the years ended December 31, 1997 and 1996, the Partnership recognized rental income of $1,005,113 and $847,484, respectively. During the same periods, the Partnership also earned $507,981 and $494,269, respectively, in investment income from subscription proceeds which were invested in short-term money market accounts, commercial paper, federal agency notes and construction and development advances. This investment income constituted 34% and 37%, respectively, of total income. The percentage of total income represented by investment income declines as subscription proceeds are invested in properties. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) Musicland Group, Inc. (MGI), the lessee of the Media Play retail store in Apple Valley, Minnesota experienced financial difficulties and was aggressively restructuring its organization. As part of the restructuring, the Partnership and MGI reached an agreement in December, 1996 in which MGI would buy out and terminate the Lease Agreement by making a payment of $800,000, which is equal to approximately two years' rent. The Partnership's share of such payment was $272,000. Under the Agreement, MGI remained in possession of the property and performed all of its obligations under the net lease agreement through January 31, 1997 at which time it vacated the property and made it available for re-let to another tenant. MGI was responsible for all maintenance and management costs of the property through January 31, 1997 after which date the Partnership became responsible for its share of expenses associated with the property until it is re-let or sold. A specialist in commercial property leasing has been retained to locate a new tenant for the property. In 1997, the Partnership received $127,955 less in base rent than in 1996 from Media Play. As of December 31, 1997, based on an analysis of market conditions in the area, it was determined the fair value of the Partnership's interest in the Media Play was approximately $748,000. In the fourth quarter of 1997, a charge to operations for real estate impairment of $580,200 was recognized, which is the difference between the book value at December 31, 1997 of $1,328,200 and the estimated market value of $748,000. The charge was recorded against the cost of the land, building and equipment. During the years ended December 31, 1997 and 1996, the Partnership paid Partnership administration expenses to affiliated parties of $233,717 and $251,392, respectively. These administration expenses include initial start-up costs and expenses associated with processing distributions, reporting requirements and correspondence to the Limited Partners. The administrative expenses decrease after completion of the offering and acquisition phases of the Partnership's operations. During the same periods, the Partnership incurred Partnership administration and property management expenses from unrelated parties of $115,217 and $27,171, respectively. These expenses represent direct payments to third parties for legal and filing fees, direct administrative costs, outside audit and accounting costs, taxes, insurance and other property costs. The increase in these expenses in 1997, when compared to 1996, is the result of expenses incurred in 1997 related to the Media Play situation discussed above. The Partnership distributes all of its net income during the offering and acquisition phases, and if net income after deductions for depreciation is not sufficient to fund the distributions, the Partnership may distribute other available cash that constitutes capital for accounting purposes. As of December 31, 1997, the Partnership's cash distribution rate was 8.0% on an annualized basis. Distributions of Net Cash Flow to the General Partners were subordinated to the Limited Partners as required in the Partnership Agreement. As a result, 99% of distributions and income were allocated to Limited Partners and 1% to the General Partners. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) Since the Partnership has only recently purchased its real estate, inflation has had a minimal effect on income from operations. The Leases contain cost of living increases which will result in an increase in rental income over the term of the Leases. Inflation also may cause the Partnership's real estate to appreciate in value. However, inflation and changing prices may also have an adverse impact on the operating margins of the properties' tenants which could impair their ability to pay rent and subsequently reduce the Partnership's Net Cash Flow available for distributions. AEI Fund Management, Inc. (AEI) performs all management services for the Partnership. AEI is currently analyzing its computer hardware and software systems to determine what, if any, resources need to be dedicated regarding Year 2000 issues. The Partnership does not anticipate any significant operational impact or incurring material costs as a result of AEI becoming Year 2000 compliant. Liquidity and Capital Resources The Partnership's primary sources of cash are from proceeds from the sale of Units, investment income, rental income and proceeds from the sale of property. Its primary uses of cash are investment in real properties, payment of expenses involved in the sale of units, the organization of the Partnership, the acquisition of properties, the management of properties, the administration of the Partnership, and the payment of distributions. Until the offering of Units was completed, the Partnership's primary source of cash flow was from the sale of Limited Partnership Units. The Partnership offered for sale up to $24,000,000 of limited partnership interests (the "Units") (24,000 Units at $1,000 per Unit) pursuant to a registration statement effective February 1, 1995. From February 1, 1995 to April 14, 1995, the minimum number of Limited Partnership Units (1,500) needed to form the Partnership were sold and on April 14, 1995, a total of 2,937.444 Units ($2,937,444) were transferred into the Partnership. On January 31, 1997, the Partnership offering terminated when the maximum subscription limit of 24,000 Limited Partnership Units ($24,000,000) was reached. From subscription proceeds, the Partnership paid organization and syndication costs (which constitute a reduction of capital) of $3,277,000. Before the acquisition of properties, cash flow from operating activities is not significant. Net income, after adjustment for depreciation, is lower during the first few years of operations as administrative expenses remain high and a large amount of the Partnership's assets remain invested on a short- term basis in lower-yielding cash equivalents. Net income will become the largest component of cash flow from operating activities and the largest component of cash flow after the completion of the acquisition phase. The Partnership Agreement requires that all proceeds from the sale of Units be invested or committed to investment in properties by the later of two years after the date of the Prospectus or six months after termination of the offer and sale of Units. While the Partnership is purchasing properties, cash flow from investing activities (investment in real property) will remain negative and will constitute the principal use of the Partnership's available cash flow. This use of cash flow for investing activities was partially offset by proceeds from the sale of property. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) On March 28, 1996, the Partnership purchased a 40.75% interest in a Garden Ridge retail store in Pineville, North Carolina for $3,644,391. The property is leased to Garden Ridge, L.P. under a Lease Agreement with a primary term of 20 years and annual rental payments of $383,973. The remaining interest in the property was purchased by AEI Net Lease Income & Growth Fund XIX Limited Partnership and AEI Net Lease Income & Growth Fund XX Limited Partnership, affiliates of the Partnership. On August 29, 1996, the Partnership purchased a 67.8% interest in a Champps Americana restaurant in Columbus, Ohio for $1,808,880. The property is leased to Americana Dining Corporation under a Lease Agreement with a primary term of 20 years and annual rental payments of $191,259. The remaining interest in the property was purchased by AEI Real Estate Fund XVIII Limited Partnership, an affiliate of the Partnership. On March 14, 1997, the Partnership purchased a parcel of land in San Antonio, Texas for $1,032,299. The land is leased to Champps Americana, Inc. (Champps) under a Lease Agreement with a primary term of 20 years and annual rental payments of $83,451. Effective September 9, 1997, the annual rent was increased to $128,156. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective September 9, 1997, the interest rate was increased to 10.75%. On December 23, 1997, after the development was completed, the Lease Agreement was amended to require annual rental payments of $296,023. Total acquisition costs, including the cost of the land, were $2,833,357. On March 19, 1997, the Partnership purchased a Denny's restaurant in Covington, Louisiana for $1,304,949. The property is leased to Huntington Restaurants Group, Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $141,243. On April 21, 1997, the Partnership purchased a 49.6% interest in a parcel of land in Schaumburg, Illinois for $876,387. The land is leased to Champps under a Lease Agreement with a primary term of 20 years and annual rental payments of $66,906. Effective October 17, 1997, the annual rent was increased to $102,749. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective October 17, 1997, the interest rate was increased to 10.75%. On December 31, 1997, after the development was completed, the Lease Agreement was amended to require annual rental payments of $236,479. The Partnership's share of the total acquisition costs, including the cost of the land, was $2,256,462. The remaining interests in the property are owned by AEI Net Lease Income & Growth Fund XX Limited Partnership and Net Lease Income & Growth Fund 84-A Limited Partnership, affiliates of the Partnership. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) On July 8, 1997, the Partnership purchased a parcel of land in Livonia, Michigan for $1,074,384. The land is leased to Champps under a Lease Agreement with a primary term of 20 years and annual rental payments of $75,207. Effective January 3, 1998, the annual rent was increased to $115,496. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership will advance funds to Champps for the construction of a Champps Americana restaurant on the site. Through December 31, 1997, the Partnership had advanced $1,078,108 for the construction of the property and was charging interest on the advances at a rate of 7.0%. Effective January 3, 1998, the interest rate was increased to 10.75%. The total purchase price, including the cost of the land, will be approximately $3,970,000. After the construction is complete, the Lease Agreement will be amended to require annual rental payments of approximately $427,000. On July 31, 1997, the Partnership purchased a 93.1% interest in a Caribou Coffee store in Charlotte, North Carolina for $1,310,598. The property is leased to Caribou Coffee Company, Inc. under a Lease Agreement with a primary term of 18 years and annual rental payments of $146,438. The remaining interest in the property is owned by AEI Institutional Net Lease Fund '93 Limited Partnership, an affiliate of the Partnership. During 1997, the Partnership sold 16.0799% of its interest in the Champps Americana restaurant in Columbus, Ohio, in two separate transactions to unrelated third parties. The Partnership received total net sale proceeds of $520,790 which resulted in a total net gain of $106,551. The total cost and related accumulated depreciation of the interests sold was $429,006 and $14,767, respectively. Subsequent to December 31, 1997, the Partnership sold an additional 12.0528% of its interest in the Champps Americana restaurant in Columbus, Ohio in two separate transactions to unrelated third parties. The Partnership received net sale proceeds of approximately $407,000 which resulted in a net gain of approximately $98,000. During 1997, the Partnership distributed net sale proceeds of $352,009 to the Limited and General Partners as part of their regular quarterly distributions which represented a return of capital of $14.57 per Limited Partnership Unit. The remaining net sale proceeds will either be reinvested in additional properties or distributed to the Partners in the future. After completion of the acquisition phase, the Partnership's primary use of cash flow is distribution and redemption payments to Partners. The Partnership declares its regular quarterly distributions before the end of each quarter and pays the distribution in the first week after the end of each quarter. The Partnership attempts to maintain a stable distribution rate from quarter to quarter. Redemption payments are paid to redeeming Partners in the fourth quarter of each year. The Partnership may acquire Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership is not obligated to purchase in any year more than 5% of the number of Units outstanding at the beginning of the year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) During 1997, three Limited Partners redeemed a total of 171.1 Partnership Units for $154,021 in accordance with the Partnership Agreement. The Partnership acquired these Units using Net Cash Flow from operations. The redemptions increase the remaining Limited Partners' ownership interest in the Partnership. Until capital is invested in properties, the Partnership will remain liquid. At December 31, 1997, $2,537,636 or 13% of the Partnership's assets were in cash or cash equivalents (including accrued interest receivable). After completion of property acquisitions, the Partnership will attempt to maintain a cash reserve of only approximately 1% of subscription proceeds. Because properties are purchased for cash and leased under triple- net leases, this is considered adequate to satisfy most contingencies. Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 The foregoing Management's Discussion and Analysis contains various "forward looking statements" within the meaning of federal securities laws which represent management's expectations or beliefs concerning future events, including statements regarding anticipated application of cash, expected returns from rental income, growth in revenue, taxation levels, the sufficiency of cash to meet operating expenses, rates of distribution, and other matters. These, and other forward looking statements made by the Partnership, must be evaluated in the context of a number of factors that may affect the Partnership's financial condition and results of operations, including the following: Market and economic conditions which affect the value of the properties the Partnership owns and the cash from rental income such properties generate; the federal income tax consequences of rental income, deductions, gain on sales and other items and the affects of these consequences for investors; resolution by the General Partners of conflicts with which they may be confronted; the success of the General Partners of locating properties with favorable risk return characteristics; the effect of tenant defaults; and the condition of the industries in which the tenants of properties owned by the Partnership operate. These and other risks to which the Partnership may be subject are discussed in more detail in Exhibit 99 to this Form 10-KSB. ITEM 7. FINANCIAL STATEMENTS. See accompanying index to financial statements. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS Report of Independent Auditors Balance Sheet as of December 31, 1997 and 1996 Statements for the Years Ended December 31, 1997 and 1996: Income Cash Flows Changes in Partners' Capital Notes to Financial Statements REPORT OF INDEPENDENT AUDITORS To the Partners: AEI Income & Growth Fund XXI Limited Partnership St. Paul, Minnesota We have audited the accompanying balance sheet of AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP (a Minnesota limited partnership) as of December 31, 1997 and 1996 and the related statements of income, cash flows and changes in partners' capital for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AEI Income & Growth Fund XXI Limited Partnership as of December 31, 1997 and 1996, and the results of its income and its cash flows for the years then ended, in conformity with generally accepted accounting principles. Minneapolis, Minnesota February 4, 1998 Boulay, Heutmaker, Zibell & Co. P.L.L.P. Certified Public Accountants AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP BALANCE SHEET DECEMBER 31 ASSETS 1997 1996 CURRENT ASSETS: Cash and Cash Equivalents $ 2,506,790 $10,729,033 Receivables 162,677 41,672 ----------- ----------- Total Current Assets 2,669,467 10,770,705 ----------- ----------- INVESTMENTS IN REAL ESTATE: Land 6,612,866 2,541,511 Buildings and Equipment 8,779,112 5,079,924 Construction in Progress 1,078,108 1,621,870 Property Acquisition Costs 88,696 245,726 Accumulated Depreciation (399,150) (162,645) ----------- ----------- Net Investments in Real Estate 16,159,632 9,326,386 ----------- ----------- Total Assets $18,829,099 $20,097,091 =========== =========== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Payable to AEI Fund Management, Inc. $ 56,307 $ 132,900 Distributions Payable 324,841 429,668 ----------- ----------- Total Current Liabilities 381,148 562,568 ----------- ----------- PARTNERS' CAPITAL (DEFICIT): General Partners (24,706) (9,754) Limited Partners, $1,000 Unit Value; 24,000 Units authorized and issued; 23,829 and 23,563 Units outstanding in 1997 and 1996, respectively 18,472,657 19,544,277 ----------- ----------- Total Partners' Capital 18,447,951 19,534,523 ----------- ----------- Total Liabilities and Partners' Capital $18,829,099 $20,097,091 =========== =========== The accompanying notes to financial statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31 1997 1996 INCOME: Rent $ 1,005,113 $ 847,484 Investment Income 507,981 494,269 ----------- ----------- Total Income 1,513,094 1,341,753 ----------- ----------- EXPENSES: Partnership Administration - Affiliates 233,717 251,392 Partnership Administration and Property Management - Unrelated Parties 115,217 27,171 Depreciation 251,272 150,958 Real Estate Impairment 580,200 0 ----------- ----------- Total Expenses 1,180,406 429,521 ----------- ----------- OPERATING INCOME 332,688 912,232 GAIN ON SALE OF REAL ESTATE 106,551 0 ----------- ----------- NET INCOME $ 439,239 $ 912,232 =========== =========== NET INCOME ALLOCATED: General Partners $ 4,392 $ 9,122 Limited Partners 434,847 903,110 ----------- ----------- $ 439,239 $ 912,232 =========== =========== NET INCOME PER LIMITED PARTNERSHIP UNIT (23,921 and 17,439 weighted average Units outstanding in 1997 and 1996, respectively) $ 18.18 $ 51.79 =========== =========== The accompanying notes to financial statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 439,239 $ 912,232 Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Depreciation 251,272 150,958 Real Estate Impairment 580,200 0 Gain on Sale of Real Estate (106,551) 0 Increase in Receivables (121,005) (26,361) (Decrease) Increase in Payable to AEI Fund Management, Inc. (76,593) 62,095 ----------- ----------- Total Adjustments 527,323 186,692 ----------- ----------- Net Cash Provided By Operating Activities 966,562 1,098,924 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in Real Estate (8,078,957) (7,302,962) Proceeds from Sale of Real Estate 520,790 0 ----------- ----------- Net Cash Used For Investing Activities (7,558,167) (7,302,962) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital Contributions from Limited Partners 436,651 11,273,543 Organization and Syndication Costs (28,010) (1,533,338) Increase (Decrease) in Distributions Payable (104,827) 229,839 Distributions to Partners (1,778,875) (1,404,433) Redemption Payments (155,577) 0 ----------- ----------- Net Cash Provided By (Used For) Financing Activities (1,630,638) 8,565,611 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,222,243) 2,361,573 CASH AND CASH EQUIVALENTS, beginning of period 10,729,033 8,367,460 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 2,506,790 $10,729,033 =========== =========== The accompanying notes to financial statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31 Limited Partnership General Limited Units Partners Partners Total Outstanding BALANCE, December 31, 1995 $ (4,832) $10,291,351 $10,286,519 12,289.81 Capital Contributions 0 11,273,543 11,273,543 11,273.54 Organization & Syndication Costs 0 (1,533,338) (1,533,338) Distributions (14,044) (1,390,389) (1,404,433) Net Income 9,122 903,110 912,232 --------- ----------- ----------- ----------- BALANCE, December 31, 1996 (9,754) 19,544,277 19,534,523 23,563.35 Capital Contributions 0 436,651 436,651 436.65 Organization & Syndication Costs 0 (28,010) (28,010) Distributions (17,788) (1,761,087) (1,778,875) Redemption Payments (1,556) (154,021) (155,577) (171.13) Net Income 4,392 434,847 439,239 --------- ----------- ----------- ----------- BALANCE, December 31, 1997 $ (24,706) $18,472,657 $18,447,951 23,828.87 ========= =========== =========== =========== The accompanying notes to financial statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (1) Organization - AEI Income & Growth Fund XXI Limited Partnership (Partnership) was formed to acquire and lease commercial properties to operating tenants. The Partnership's operations are managed by AEI Fund Management XXI, Inc. (AFM), the Managing General Partner of the Partnership. Robert P. Johnson, the President and sole shareholder of AFM, serves as the Individual General Partner of the Partnership. An affiliate of AFM, AEI Fund Management, Inc. (AEI), performs the administrative and operating functions for the Partnership. The terms of the Partnership offering call for a subscription price of $1,000 per Limited Partnership Unit, payable on acceptance of the offer. The Partnership commenced operations on April 14, 1995 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. On January 31, 1997, the Partnership offering terminated when the maximum subscription limit of 24,000 Limited Partnership Units ($24,000,000) was reached. Under the terms of the Limited Partnership Agreement, the Limited Partners and General Partners contributed funds of $24,000,000 and $1,000, respectively. During the operation of the Partnership, any Net Cash Flow, as defined, which the General Partners determine to distribute will be distributed 90% to the Limited Partners and 10% to the General Partners; provided, however, that such distributions to the General Partners will be subordinated to the Limited Partners first receiving an annual, noncumulative distribution of Net Cash Flow equal to 10% of their Adjusted Capital Contribution, as defined, and, provided further, that in no event will the General Partners receive less than 1% of such Net Cash Flow per annum. Distributions to Limited Partners will be made pro rata by Units. Any Net Proceeds of Sale, as defined, from the sale or financing of the Partnership's properties which the General Partners determine to distribute will, after provisions for debts and reserves, be paid in the following manner: (i) first, 99% to the Limited Partners and 1% to the General Partners until the Limited Partners receive an amount equal to: (a) their Adjusted Capital Contribution plus (b) an amount equal to 10% of their Adjusted Capital Contribution per annum, cumulative but not compounded, to the extent not previously distributed from Net Cash Flow; (ii) any remaining balance will be distributed 90% to the Limited Partners and 10% to the General Partners. Distributions to the Limited Partners will be made pro rata by Units. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (1) Organization - (Continued) For tax purposes, profits from operations, other than profits attributable to the sale, exchange, financing, refinancing or other disposition of the Partnership's property, will be allocated first in the same ratio in which, and to the extent, Net Cash Flow is distributed to the Partners for such year. Any additional profits will be allocated in the same ratio as the last dollar of Net Cash Flow is distributed. Net losses from operations will be allocated 99% to the Limited Partners and 1% to the General Partners. For tax purposes, profits arising from the sale, financing, or other disposition of the Partnership's property will be allocated in accordance with the Partnership Agreement as follows: (i) first, to those partners with deficit balances in their capital accounts in an amount equal to the sum of such deficit balances; (ii) second, 99% to the Limited Partners and 1% to the General Partners until the aggregate balance in the Limited Partners' capital accounts equals the sum of the Limited Partners' Adjusted Capital Contributions plus an amount equal to 10% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously allocated; (iii) third, the balance of any remaining gain will then be allocated 90% to the Limited Partners and 10% to the General Partners. Losses will be allocated 98% to the Limited Partners and 2% to the General Partners. The General Partners are not required to currently fund a deficit capital balance. Upon liquidation of the Partnership or withdrawal by a General Partner, the General Partners will contribute to the Partnership an amount equal to the lesser of the deficit balances in their capital accounts or 1% of total Limited Partners' and General Partners' capital contributions. (2) Summary of Significant Accounting Policies - Newly Issued Accounting Standards In June, 1997, Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" was approved for issuance for fiscal years beginning after December 15, 1997. The Partnership adopted this Statement in the fourth quarter of 1997. The effect of this Statement has been determined that net income/loss for financial statements and comprehensive income/loss is primarily the same in all material respects. Financial Statement Presentation The accounts of the Partnership are maintained on the accrual basis of accounting for both federal income tax purposes and financial reporting purposes. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (2) Summary of Significant Accounting Policies - (Continued) Accounting Estimates Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. The Partnership regularly assesses whether market events and conditions indicate that it is reasonably possible to recover the carrying amounts of its investments in real estate from future operations and sales. A change in those market events and conditions could have a material effect on the carrying amount of its real estate Cash Concentrations of Credit Risk At times throughout the year, the Partnership's cash deposited in financial institutions may exceed FDIC insurance limits. Statement of Cash Flows For purposes of reporting cash flows, cash and cash equivalents may include cash in checking, cash invested in money market accounts, certificates of deposit, federal agency notes and commercial paper with a term of three months or less. Income Taxes The income or loss of the Partnership for federal income tax reporting purposes is includable in the income tax returns of the partners. Accordingly, no recognition has been given to income taxes in the accompanying financial statements. The tax return, the qualification of the Partnership as such for tax purposes, and the amount of distributable Partnership income or loss are subject to examination by federal and state taxing authorities. If such an examination results in changes with respect to the Partnership qualification or in changes to distributable Partnership income or loss, the taxable income of the partners would be adjusted accordingly. Real Estate The Partnership's real estate is leased under triple net leases classified as operating leases. The Partnership recognizes rental revenue on the accrual basis according to the terms of the individual leases. For leases which contain cost of living increases, the increases are recognized in the year in which they are effective. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (2) Summary of Significant Accounting Policies - (Continued) Real estate is recorded at the lower of cost or estimated net realizable value. The Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" which was effective for the Partnership's fiscal year ended December 31, 1996. This standard requires the Partnership to compare the carrying amount of its properties to the estimated future cash flows expected to result from the property and its eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the property, the Statement requires the Partnership to recognize an impairment loss by the amount by which the carrying amount of the property exceeds the fair value of the property. The Partnership has capitalized as Investments in Real Estate certain costs incurred in the review and acquisition of the properties. The costs were allocated to the land, buildings and equipment. The buildings and equipment of the Partnership are depreciated using the straight-line method for financial reporting purposes based on estimated useful lives of 25 years and 5 years, respectively. The Partnership accounts for properties owned as tenants- in-common with affiliated Partnerships and/or unrelated third parties using the proportionate consolidation method. Each tenant-in-common owns a separate, undivided interest in the properties. Any tenant-in-common that holds more than a 50% interest does not control decisions over the other tenant-in-common interests. The financial statements reflect only this Partnership's percentage share of the properties' land, building and equipment, liabilities, revenues and expenses. (3) Related Party Transactions - The Partnership owns a 87.7193% interest in an Arby's restaurant and a 93.1% interest in a Caribou Coffee store. The remaining interests in these properties are owned by AEI Institutional Net Lease Fund '93 Limited Partnership, an affiliate of the Partnership. The Partnership owns a 34.0% interest in a Media Play retail store and a 40.75% interest in a Garden Ridge retail store. The remaining interests in these properties are owned by AEI Net Lease Income & Growth Fund XIX Limited Partnership and AEI Net Lease Income & Growth Fund XX Limited Partnership, affiliates of the Partnership. As of December 31, 1997, the Partnership owns a 51.7201% interest in a Champps Americana restaurant in Columbus, Ohio. The remaining interests in this property are owned by AEI Real Estate Fund XVIII Limited Partnership, an affiliate of the Partnership, and unrelated third parties. The Partnership owns a 49.6% interest in a Champps Americana restaurant in Schaumburg, Illinois. The remaining interests in this property are owned by Net Lease Income & Growth Fund 84-A Limited Partnership and AEI Net Lease Income & Growth Fund XX Limited Partnership, affiliates of the Partnership. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (3) Related Party Transactions - (Continued) AEI, AFM and AEI Securities, Inc. (ASI) (formerly AEI Incorporated) received the following compensation and reimbursements for costs and expenses from the Partnership: Total Incurred by the Partnership for the Years Ended December 31 1997 1996 a.AEI and AFM are reimbursed for all costs incurred in connection with managing the Partnership's operations, maintaining the Partnership's books and communicating the results of operations to the Limited Partners. $ 233,717 $ 251,392 ======== ======== b.AEI and AFM are reimbursed for all direct expenses they have paid on the Partnership's behalf to third parties. These expenses included printing costs, legal and filing fees, direct administrative costs, outside audit and accounting costs, taxes, insurance and other property costs. $ 115,217 $ 27,171 ======== ======== c.AEI is reimbursed for all property acquisition costs incurred by it in acquiring properties on behalf of the Partnership. The amounts are net of financing and commitment fees and expense reimbursements received by the Partnership from the lessees in the amount of $112,388 and $144,315 for 1997 and 1996, respectively. $ 65,970 $ 355,817 ======== ======== AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (3) Related Party Transactions - (Continued) Total Incurred by the Partnership for the Years Ended December 31 1997 1996 d.ASI was the underwriter of the Partnership offering. Robert P. Johnson is the sole stockholder of ASI, which is a member of the National Association of Securities Dealers, Inc. ASI received, as underwriting commissions, 8% for sale of certain subscription Units ($80 per unit sold, of which it re-allowed up to $80 per unit to other participating broker/dealers). ASI also received a 2% non-accountable expense allowance for all Units it sold through broker/dealers. These costs are treated as a reduction of partners' capital. $ 43,665 $1,127,354 ======== ========= e.AEI is reimbursed for all costs incurred in connection with managing the Partnership's offering and organization. $ 9,104 $ 211,471 ======== ========= f.AEI is reimbursed for all expenses it has paid on the Partnership's behalf relating to the offering and organization of the Partnership. These expenses included printing costs, legal and filing fees, direct administrative costs, underwriting costs and due diligence fees. $ (24,759) $ 194,513 ========= ========= The payable to AEI Fund Management, Inc. represents the balance due for the services described in 3a, b, c, e and f. This balance is non-interest bearing and unsecured and is to be paid in the normal course of business. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (4) Investments in Real Estate - The Partnership leases its properties to various tenants through triple net leases, which are classified as operating leases. Under a triple net lease, the lessee is responsible for all real estate taxes, insurance, maintenance, repairs and operating expenses of the property. The initial Lease terms are 20 years except for the Caribou Coffee , which is 18 years, and the Media Play retail store discussed below. The Leases contain renewal options which may extend the Lease term an additional 10 years for the Arby's and Caribou Coffee store, an additional 15 years for the Denny's and Champps Americana restaurants and 25 years for the Garden Ridge retail store. The Leases contain rent clauses which entitle the Partnership to receive additional rent in future years based on stated rent increases. Certain lessees have been granted options to purchase the property. Depending on the lease, the purchase price is either determined by a formula, or is the greater of the fair market value of the property or the amount determined by a formula. In all cases, if the option were to be exercised by the lessee, the purchase price would be greater than the original cost of the property. The Partnership's properties are commercial, single-tenant buildings and were constructed and acquired in 1995, 1996 and 1997. There have been no costs capitalized as improvements subsequent to the acquisitions. The cost of the property and related accumulated depreciation at December 31, 1997 are as follows: Buildings and Accumulated Property Land Equipment Total Depreciation Arby's, Montgomery, AL $ 328,310 $ 425,794 $ 754,104 $ 43,999 Media Play, Apple Valley, MN 239,690 594,170 833,860 85,821 Garden Ridge, Pineville, NC 1,181,253 2,463,138 3,644,391 172,420 Champps Americana, Columbus, OH 464,697 915,177 1,379,874 54,915 Denny's, Covington, LA 532,844 772,104 1,304,948 27,819 Caribou Coffee, Charlotte, NC 705,394 605,204 1,310,598 10,832 Champps Americana, San Antonio, TX 1,127,016 1,706,341 2,833,357 3,344 Champps Americana, Schaumburg, IL 959,278 1,297,184 2,256,462 0 Champps Americana, Livonia, MI 1,074,384 0 1,074,384 0 ----------- ----------- ----------- --------- $ 6,612,866 $ 8,779,112 $15,391,978 $ 399,150 =========== =========== =========== ========= AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (4) Investments in Real Estate - (Continued) On December 21, 1995, the Partnership purchased a 34.0% interest in a Media Play retail store in Apple Valley, Minnesota for $1,414,060. The property was leased to The Musicland Group, Inc. (MGI) under a Lease Agreement with a primary term of 18 years and annual rental payments of $139,587. In December, 1996, the Partnership and MGI reached an agreement in which MGI would buy out and terminate the Lease Agreement by making a payment of $800,000, which was equal to approximately two years' rent. The Partnership's share of such payment was $272,000. Under the Agreement, MGI remained in possession of the property and performed all of its obligations under the net lease agreement through January 31, 1997 at which time it vacated the property and made it available for re-let to another tenant. MGI was responsible for all maintenance and management costs of the property through January31, 1997 after which date the Partnership became responsible for its share of expenses associated with the property until it is re-let or sold. A specialist in commercial property leasing has been retained to locate a new tenant for the property. As of December 31, 1997, based on an analysis of market conditions in the area, it was determined the fair value of the Partnership's interest in the Media Play was approximately $748,000. In the fourth quarter of 1997, a charge to operations for real estate impairment of $580,200 was recognized, which is the difference between the book value at December 31, 1997 of $1,328,200 and the estimated market value of $748,000. The charge was recorded against the cost of the land, building and equipment. On March 28, 1996, the Partnership purchased a 40.75% interest in a Garden Ridge retail store in Pineville, North Carolina for $3,644,391. The property is leased to Garden Ridge, L.P. under a Lease Agreement with a primary term of 20 years and annual rental payments of $383,973. On August 29, 1996, the Partnership purchased a 67.8% interest in a Champps Americana restaurant in Columbus, Ohio for $1,808,880. The property is leased to Americana Dining Corporation under a Lease Agreement with a primary term of 20 years and annual rental payments of $191,259. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (4) Investments in Real Estate - (Continued) On March 14, 1997, the Partnership purchased a parcel of land in San Antonio, Texas for $1,032,299. The land is leased to Champps Americana, Inc. (Champps) under a Lease Agreement with a primary term of 20 years and annual rental payments of $83,451. Effective September 9, 1997, the annual rent was increased to $128,156. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective September 9, 1997, the interest rate was increased to 10.75%. On December 23, 1997, after the development was completed, the Lease Agreement was amended to require annual rental payments of $296,023. Total acquisition costs, including the cost of the land, were $2,833,357. On March 19, 1997, the Partnership purchased a Denny's restaurant in Covington, Louisiana for $1,304,949. The property is leased to Huntington Restaurants Group, Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $141,243. On April 21, 1997, the Partnership purchased a 49.6% interest in a parcel of land in Schaumburg, Illinois for $876,387. The land is leased to Champps under a Lease Agreement with a primary term of 20 years and annual rental payments of $66,906. Effective October 17, 1997, the annual rent was increased to $102,749. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective October 17, 1997, the interest rate was increased to 10.75%. On December 31, 1997, after the development was completed, the Lease Agreement was amended to require annual rental payments of $236,479. The Partnership's share of the total acquisition costs, including the cost of the land, was $2,256,462. On July 8, 1997, the Partnership purchased a parcel of land in Livonia, Michigan for $1,074,384. The land is leased to Champps under a Lease Agreement with a primary term of 20 years and annual rental payments of $75,207. Effective January 3, 1998, the annual rent was increased to $115,496. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership will advance funds to Champps for the construction of a Champps Americana restaurant on the site. Through December 31, 1997, the Partnership had advanced $1,078,108 for the construction of the property and was charging interest on the advances at a rate of 7.0%. Effective January 3, 1998, the interest rate was increased to 10.75%. The total purchase price, including the cost of the land, will be approximately $3,970,000. After the construction is complete, the Lease Agreement will be amended to require annual rental payments of approximately $427,000. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (4) Investments in Real Estate - (Continued) On July 31, 1997, the Partnership purchased a 93.1% interest in a Caribou Coffee store in Charlotte, North Carolina for $1,310,598. The property is leased to Caribou Coffee Company, Inc. under a Lease Agreement with a primary term of 18 years and annual rental payments of $146,438. During 1997, the Partnership sold 16.0799% of the interest in the Champps Americana restaurant in Columbus, Ohio, in two separate transactions to unrelated third parties. The Partnership received total net sale proceeds of $520,790 which resulted in a total net gain of $106,551. The total cost and related accumulated depreciation of the interests sold was $429,006 and $14,767, respectively. Subsequent to December 31, 1997, the Partnership sold an additional 12.0528% of its interest in the Champps Americana restaurant in Columbus, Ohio in two separate transactions to unrelated third parties. The Partnership received net sale proceeds of approximately $407,000 which resulted in a net gain of approximately $98,000. During 1997, the Partnership distributed net sale proceeds of $352,009 to the Limited and General Partners as part of their regular quarterly distributions which represented a return of capital of $14.57 per Limited Partnership Unit. The remaining net sale proceeds will either be reinvested in additional properties or distributed to the Partners in the future. The Partnership has incurred net costs of $448,301 relating to the review of potential property acquisitions. Of these costs, $359,605 have been capitalized and allocated to land, building and equipment. The remaining costs of $88,696 have been capitalized and will be allocated to properties acquired subsequent to December 31, 1997. The minimum future rentals on the Leases for years subsequent to December 31, 1997 are as follows: 1998 $ 1,508,165 1999 1,512,136 2000 1,516,178 2001 1,520,293 2002 1,524,482 Thereafter 22,514,670 ----------- $30,095,924 =========== There were no contingent rents recognized in 1997 or 1996. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (5) Major Tenants - The following schedule presents rent revenue from individual tenants, or affiliated groups of tenants, who each contributed more than ten percent of the Partnership's total rent revenue for the years ended December 31: 1997 1996 Tenants Industry Garden Ridge, L.P. Retail $ 383,973 $ 292,109 Champps Americana Group Restaurant 357,559 N/A Huntington Restaurants Group, Inc. Restaurant 110,868 N/A The Musicland Group, Inc. Retail N/A 411,587 --------- --------- Aggregate rent revenue of major tenants $ 852,400 $ 703,696 ========= ========= Aggregate rent revenue of major tenants as a percentage of total rent revenue 85% 83% ========= ========= (6) Partners' Capital - Cash distributions of $17,788 and $14,044 were made to the General Partners and $1,761,087 and $1,390,389 were made to the Limited Partners for the years ended December 31, 1997 and 1996, respectively. The Limited Partners' distributions represent $73.62 and $79.73 per Limited Partnership Unit outstanding using 23,921 and 17,439 weighted average Units in 1997 and 1996, respectively. The distributions represent $11.59 and $51.79 per Unit of Net Income and $62.03 and $27.94 per Unit of return of contributed capital in 1997 and 1996, respectively. As part of the Limited Partner distributions discussed above, the Partnership distributed $348,489 of proceeds from property sales in 1997. Distributions of Net Cash Flow to the General Partners during 1997 and 1996 were subordinated to the Limited Partners as required in the Partnership Agreement. As a result, 99% of distributions and income were allocated to the Limited Partners and 1% to the General Partners. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (6) Partners' Capital - (Continued) The Partnership may acquire Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership is not obligated to purchase in any year more than 5% of the number of Units outstanding at the beginning of the year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. During 1997, three Limited Partners redeemed a total of 171.1 Partnership Units for $154,021 in accordance with the Partnership Agreement. The Partnership acquired these Units using Net Cash Flow from operations. The redemptions increase the remaining Limited Partners' ownership interest in the Partnership. After the effect of redemptions, the Adjusted Capital Contribution, as defined in the Partnership Agreement, is $1,007.18 per original $1,000 invested. (7) Income Taxes - The following is a reconciliation of net income for financial reporting purposes to income reported for federal income tax purposes for the years ended December 31: 1997 1996 Net Income for Financial Reporting Purposes $ 439,239 $ 912,232 Depreciation for Tax Purposes Under Depreciation for Financial Reporting Purposes 74,859 44,454 Capitalized Start-Up Costs Under Section 195 0 190,838 Amortization of Start-Up and Organization Costs (50,373) (12,232) Real Estate Impairment Loss Not Recognized for Tax Purposes 580,200 0 Gain on Sale of Real Estate for Tax Purposes Under Gain for Financial Reporting Purposes (3,952) 0 ---------- ---------- Taxable Income to Partners $1,039,973 $1,135,292 ========== ========== AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (7) Income Taxes - (Continued) The following is a reconciliation of Partners' capital for financial reporting purposes to Partners' capital reported for federal income tax purposes for the years ended December 31: 1997 1996 Partners' Capital for Financial Reporting Purposes $18,447,951 $19,534,523 Adjusted Tax Basis of Investments in Real Estate Over Net Investments in Real Estate for Financial Reporting Purposes 698,524 47,417 Capitalized Start-Up Costs Under Section 195 329,865 329,865 Amortization of Start-Up and Organization Costs (63,631) (13,258) Organization and Syndication Costs Treated as Reduction of Capital for Financial Reporting Purposes 3,214,043 3,186,033 ----------- ----------- Partners' Capital for Tax Reporting Purposes $22,626,752 $23,084,580 =========== =========== AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (8) Fair Value of Financial Instruments - The estimated fair values of the financial instruments, none of which are held for trading purposes, for the years ended December 31: 1997 1996 Carrying Fair Carrying Fair Amount Value Amount Value Cash $ 188 $ 188 $ 544 $ 544 Money Market Funds 267,421 267,421 5,750,781 5,750,781 Commercial Paper (held to maturity) 2,239,181 2,239,181 4,977,708 4,977,708 --------- --------- --------- ---------- Total Cash and Cash Equivalents $2,506,790 $2,506,790 $10,729,033 $10,729,033 ========= ========= ========== ========== The amortized cost basis of the commercial paper is not materially different from its carrying amount or fair value. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. The registrant is a limited partnership and has no officers, directors, or direct employees. The General Partners of the registrant are Robert P. Johnson and AFM. The General Partners manage and control the Partnership's affairs and have general responsibility and the ultimate authority in all matters affecting the Partnership's business. The director and officers of AFM are as follows: Robert P. Johnson, age 53, is Chief Executive Officer, President and Director and has held these positions since the formation of AFM in August, 1994, and has been elected to continue in these positions until August, 1998. From 1970 to the present, he had been employed exclusively in the investment industry, specializing in tax-advantaged limited partnership investments. In that capacity, he has been involved in the development, analysis, marketing and management of public and private investment programs investing in net lease properties as well as public and private investment programs investing in energy development. Since 1971, Mr. Johnson has been the president, a director and a registered principal of AEI Securities, Inc. (formerly AEI Incorporated), which is registered with the Securities and Exchange Commission as a securities broker-dealer, is a member of the National Association of Securities Dealers, Inc. (NASD) and is a member of the Security Investors Protection Corporation (SIPC). Mr. Johnson has been president, a director and the principal shareholder of AEI Fund Management, Inc., a real estate management company founded by him, since 1978. Mr. Johnson is currently a general partner or principal of the general partner in sixteen other limited partnerships. Mark E. Larson, age 45, is Executive Vice President, Secretary, Treasurer and Chief Financial Officer and has held these positions since the formation of AFM in August, 1994, and has been elected to continue in these positions until August, 1998. Mr. Larson has been employed by AEI Fund Management, Inc. and affiliated entities since 1985. From 1979 to 1985, Mr. Larson was with Apache Corporation as manager of Program Accounting responsible for the accounting and reports for approximately 46 public partnerships. Mr. Larson is responsible for supervising the accounting functions of AFM and the registrant. ITEM 10. EXECUTIVE COMPENSATION. The General Partner and affiliates are reimbursed at cost for all services performed on behalf of the registrant and for all third party expenses paid on behalf of the registrant. The cost for services performed on behalf of the registrant is actual time spent performing such services plus an overhead burden. These services include organizing the registrant and arranging for the offer and sale of Units, reviewing properties for acquisition and rendering administrative and management services. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth information pertaining to the ownership of the Units by each person known by the Partnership to beneficially own 5% or more of the Units, by each General Partner, and by each officer or director of the Managing General Partner as of February 28, 1998: Name and Address Number of Percent of Beneficial Owner Units Held of Class AEI Fund Management XXI, Inc. 0 0% 1300 Minnesota World Trade Center 30 East 7th Street, St. Paul, Minnesota 55101 AEI Fund Management, Inc. ** 6.3 * 1300 Minnesota World Trade Center 30 East 7th Street, St. Paul, Minnesota 55101 Robert P. Johnson 28 * 1300 Minnesota World Trade Center 30 East 7th Street, St. Paul, Minnesota 55101 Mark E. Larson 0 0% 1300 Minnesota World Trade Center 30 East 7th Street, St. Paul, Minnesota 55101 * Less than 1% **A corporation controlled by Mr. Johnson that provides administrative services to the Partnership. The persons set forth in the preceding table hold sole voting power and power of disposition with respect to all of the Units set forth opposite their names. The General Partners know of no holders of more than 5% of the outstanding Units. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The registrant, AFM and its affiliates have common management and utilize the same facilities. As a result, certain administrative expenses are allocated among these related entities. All of such activities and any other transactions involving the affiliates of the General Partner of the registrant are governed by, and are conducted in conformity with, the limitations set forth in the Limited Partnership Agreement of the registrant. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. (Continued) The following table sets forth the forms of compensation, distributions and cost reimbursements paid by the registrant to the General Partners or their Affiliates in connection with the operation of the Fund and its properties for the period from inception through December 31, 1997. Person or Entity Amount Incurred From Receiving Form and Method Inception (August 31, 1994) Compensation of Compensation To December 31, 1997 AEI Securities, Inc. Selling Commissions equal to 8% of $2,400,000 proceeds plus a 2% nonaccountable expense allowance, most of which was reallowed to Participating Dealers. General Partners and Reimbursement at Cost for other $ 877,000 Affiliates Organization and Offering Costs. General Partners and Reimbursement at Cost for all $ 448,301 Affiliates Acquisition Expenses General Partners 1% of Net Cash Flow in any fiscal $ 33,800 year until the Limited Partners have received annual, non-cumulative distributions of Net Cash Flow equal to 10% of their Adjusted Capital Contributions and 10% of any remaining Net Cash Flow in such fiscal year. General Partners and Reimbursement at Cost for all $ 625,158 Affiliates Adrministrative Expenses attributable to the Fund, including all expenses related to management and disposition of the Fund's properties and all other transfer agency, reporting, partner relations and other administrative functions. General Partners 1% of distributions of Net Proceeds of $ 3,520 Sale until Limited Partners have received an amount equal to (a) their Adjusted Capital Contributions, plus (b) an amount equal to 12% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously distributed. 10% of distributions of Net Proceeds of Sale thereafter. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. (Continued) The limitations included in the Partnership Agreement require that the cumulative reimbursements to the General Partners and their affiliates for administrative expenses not allowed under the NASAA Guidelines ("Guidelines") will not exceed the sum of (i) the front-end fees allowed by the Guidelines less the front-end fees paid, (ii) the cumulative property management fees allowed but not paid, (iii) any real estate commission allowed under the Guidelines, and (iv) 10% of Net Cash Flow less the Net Cash Flow actually distributed. The reimbursements not allowed under the guidelines include a controlling person's salary and fringe benefits, rent and depreciation. As of December 31, 1997, the cumulative reimbursements to the General Partners and their affiliates did not exceed these amounts. PART IV ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. A. Exhibits - Description 3.1 Certificate of Limited Partnership (incorporated by reference to Exhibit 3.1 of the registrant's Registration Statement on Form SB-2 filed with the Commission on October 10, 1994 [File No. 33-85076C]). 3.2 Restated Limited Partnership Agreement to the Prospectus (incorporated by reference to Exhibit A of Amendment No. 2 of the registrant's Registration Statement on Form SB-2 filed with the Commission on January 20, 1995 [File No. 33- 85076C]). 10.1 Net Lease Agreement dated May 31, 1995, between the Partnership and RTM Gulf Coast, Inc., relating to the property at 2719 Zelda Road, Montgomery, Alabama (incorporated by reference to Exhibit A of Form 8-K filed with the Commission on June 14, 1995). 10.2 Net Lease Agreement dated August 2, 1995, between TKC X, LLC and Garden Ridge, Inc. relating to the property at 11415 Carolina Place Parkway, Pineville, North Carolina (incorporated by reference to Exhibit 10.1 of Form 8-K filed with the Commission on April 10, 1996). 10.3 First Amendment to Lease Agreement dated March1, 1996 between TKC X, LLC and Garden Ridge, L.P. relating to the property at 11415 Carolina Place Parkway, Pineville, North Carolina (incorporated by reference to Exhibit 10.2 of Form 8-K filed with the Commission on April 10, 1996). ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued) A. Exhibits - Description 10.4 Assignment and Assumption of Lease dated March28, 1996 between the Partnership, AEI Net Lease Income & Growth Fund XIX Limited Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership, and TKCX, LLC relating to the property at 11415 Carolina Place Parkway, Pineville, North Carolina (incorporated by reference to Exhibit 10.3 of Form 8-K filed with the Commission on April 10, 1996). 10.5 Net Lease Agreement dated August 29, 1996 between the Partnership, AEI Real Estate Fund XVIII Limited Partnership and Americana Dining Corporation relating to the property at 161 E. Campus View Boulevard, Columbus, Ohio (incorporated by reference to Exhibit 10.3 of Form 8-K filed with the Commission on September 12, 1996). 10.6 Construction Loan Commitment dated March 29, 1996 between AEI Fund Management, Inc. and Huntington Restaurants Group, Inc. relating to the construction of a Denny's restaurant in Covington, Louisiana (incorporated by reference to Exhibit 10.11 of Post-Effective Amendment #8 to Form SB-2 Registration Statement filed with the Commission on August 14, 1996). 10.7 Purchase and Leaseback Commitment dated March 29, 1996 between AEI Fund Management, Inc. and Huntington Restaurants Group, Inc. relating to the sale and leaseback of a Denny's restaurant in Covington, Louisiana (incorporated by reference to Exhibit 10.12 of Post- Effective Amendment #8 to Form SB-2 Registration Statement filed with the Commission on August 14, 1996). 10.8 Assignment of Construction Loan Commitment and Sale and Leaseback Financing Commitment dated August 8, 1996, concerning those documents with Huntington Restaurants Group, Inc. and AEI Fund Management, Inc., to the Partnership, relating to the sale and leaseback of a Denny's restaurant in Covington, Louisiana (incorporated by reference to Exhibit 10.13 of Post-Effective Amendment #8 to Form SB-2 Registration Statement filed with the Commission on August 14, 1996). 10.9 Construction Loan Commitment dated June 28, 1996 between AEI Fund Management, Inc. and Caribou Coffee Company, Inc. relating to the construction of a Caribou Coffee store at East Boulevard and Garden Terrace in Charlotte, North Carolina (incorporated by reference to Exhibit 10.14 of Post-Effective Amendment #8 to Form SB-2 Registration Statement filed with the Commission on August 14, 1996). ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued) A. Exhibits - Description 10.10 Sale and Leaseback Financing Commitment dated June 28, 1996 between AEI Fund Management, Inc. and Caribou Coffee Company, Inc. relating to the sale and leaseback of a Caribou Coffee store at East Boulevard and Garden Terrace in Charlotte, North Carolina (incorporated by reference to Exhibit 10.15 of Post- Effective Amendment #8 to Form SB-2 Registration Statement filed with the Commission on August 14, 1996). 10.11 Assignment of Construction Loan Commitment and Sale and Leaseback Financing Commitment dated August 8, 1996, concerning those documents with Caribou Coffee store and AEI Fund Management, Inc. to the Partnership, relating to the sale and leaseback of a Caribou Coffee store at East Boulevard and Garden Terrace in Charlotte, North Carolina (incorporated by reference to Exhibit 10.16 of Post-Effective Amendment #8 to Form SB-2 Registration Statement filed with the Commission on August 14, 1996). 10.12 Surrender and Termination of Lease Agreement dated November22, 1996 between the Partnership, AEI Net Lease Income & Growth Fund XIX Limited Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership and The Musicland Group, Inc. relating to the property at 7370 W. 153rd Street, Apple Valley, Minnesota (incorporated by reference to Exhibit 10.19 of Form 10-KSB filed with the Commission on March 6, 1997). 10.13 Development Financing Agreement dated March 14, 1997 between the Partnership and Champps Entertainment of Texas, Inc. relating to the property at 11440 Interstate Highway 10, San Antonio, Texas (incorporated by reference to Exhibit 10.1 of Form 8-K filed with the Commission March 25, 1997). 10.14 Net Lease Agreement dated March 14, 1997 between the Partnership and Champps Entertainment of Texas, Inc. relating to the property at 11440 Interstate Highway 10, San Antonio, Texas (incorporated by reference to Exhibit 10.2 of Form 8-K filed with the Commission March 25, 1997). 10.15 Net Lease Agreement dated March 19, 1997 between the Partnership and Huntington Restaurants Group, Inc. relating to the property at 720 North Highway 190, Covington, Louisiana (incorporated by reference to Exhibit 10.6 of Form 8-K filed with the Commission March 25, 1997). ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued) A. Exhibits - Description 10.16 Development Financing Agreement dated April 21, 1997 between the Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership, Net Lease Income & Growth Fund 84-A Limited Partnership and Champps Americana, Inc. relating to the property at 955 Golf Road, Schaumburg, Illinois (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed with the Commission on May 13, 1997). 10.17 Net Lease Agreement dated April 21, 1997 between the Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership, Net Lease Income & Growth Fund 84-A Limited Partnership and Champps Americana, Inc. relating to the property at 955 Golf Road, Schaumburg, Illinois (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed with the Commission on May 13, 1997). 10.18 Development Financing Agreement dated July 8, 1997 between the Partnership and Champps Americana, Inc. relating to the property at 19470 Haggerty Road, Livonia, Michigan (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed with the Commission on August 5, 1997). 10.19 Net Lease Agreement dated July 8, 1997 between the Partnership and Champps Americana, Inc. relating to the property at 19470 Haggerty Road, Livonia, Michigan (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed with the Commission on August 5, 1997). 10.20 Net Lease Agreement dated July 31, 1997 between the Partnership and Caribou Coffee Company, Inc. relating to the property at East Boulevard and Garden Terrace, Charlotte, North Carolina (incorporated by reference to Exhibit 10.3 of Form 10-QSB filed with the Commission on August 5, 1997). 10.21 Purchase Agreement dated September 12, 1997 between the Partnership and the Ainslie Living Trust relating to the property at 161 E. Campus View Boulevard, Columbus, Ohio. 10.22 Purchase Agreement dated September 16, 1997 between the Partnership and Richard J. Abbott and Marjory T. Abbott relating to the property at 161 E. Campus View Boulevard, Columbus, Ohio (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed with the Commission on November 4, 1997). ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued) A. Exhibits - Description 10.23 Purchase Agreement dated December 15, 1997 between the Partnership and James Edward Amend relating to the property at 161 E. Campus View Boulevard, Columbus, Ohio. 10.24 First Amendment to Net Lease Agreement dated December 23, 1997 between the Partnership and Champps Entertainment of Texas, Inc. relating to the property at 11440 Interstate Highway 10, San Antonio, Texas (incorporated by reference to Exhibit 10.2 of Form 8-K filed with the Commission on January 5, 1998). 10.25 First Amendment to Net Lease Agreement dated December 31, 1997 between the Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership, Net Lease Income & Growth Fund 84-A, and Champps Americana, Inc. relating to the property at 955 Golf Road, Schaumburg, Illinois (incorporated by reference to Exhibit 10.2 of Form 8-K filed with the Commission on January 5, 1998). 10.26 Purchase Agreement dated February 13, 1998 between the Partnership and Edward C. and Virginia L. Thulin relating to the property at 161 E. Campus View Boulevard, Columbus, Ohio. 27 Financial Data Schedule for year ended December 31, 1997. 99 Forward Looking Statements - Cautionary Statement B. Reports on Form 8-K - None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AEI INCOME & GROWTH FUND XXI Limited Partnership By: AEI Fund Management XXI, Inc. Its Managing General Partner March 16, 1998 By: /s/ Robert P. Johnson Robert P. Johnson, President and Director (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Name Title Date /s/ Robert P. Johnson President (Principal Executive Officer) March 16, 1998 Robert P. Johnson and Sole Director of Managing General Partner /s/ Mark E. Larson Executive Vice President, Treasurer March 16, 1998 Mark E. Larson and Chief Financial Officer (Principal Accounting Officer) EX-10.21 2 PURCHASE AGREEMENT Champps Restaurant - Columbus, OH This AGREEMENT, entered into effective as of the 12 of Sept, 1997. l. Parties. Seller is AEI Income & Growth Fund XXI Limited Partnership which owns an undivided 67.80% interest in the fee title to that certain real property legally described in the attached Exhibit "A" (the "Entire Property") Buyer is Ernest E. Ainslie and Marion B. Ainslie, Trustees of the Ainslie Living Trust dated December 24, 1996, ("Buyer"). Seller wishes to sell and Buyer wishes to buy a portion as Tenant in Common of Seller's interest in the Entire Property. 2. Property. The Property to be sold to Buyer in this transaction consists of an undivided 8.9900 percentage interest (hereinafter, simply the "Property") as Tenant in Common in the Entire Property. 3. Purchase Price . The purchase price for this percentage interest in the Entire Property is $317,000 all cash. 4. Terms. The purchase price for the Property will be paid by Buyer as follows: (a) When this agreement is executed, Buyer will pay $5,000 to Seller (which shall be deposited into escrow according to the terms hereof) (the "First Payment"). The First Payment will be credited against the purchase price when and if escrow closes and the sale is completed. (b) Buyer will deposit the balance of the purchase price, $312,000 (the "Second Payment") into escrow in sufficient time to allow escrow to close on the closing date. 5. Closing Date. Escrow shall close on or before October 6, 1997. 6. Due Diligence. Buyer will have until the expiration of the fifth business day (The "Review Period") after delivery of each of following items, to be supplied by Seller, to conduct all of its inspections and due diligence and satisfy itself regarding each item, the Property, and this transaction. Buyer agrees to indemnify and hold Seller harmless for any loss or damage to the Entire Property or persons caused by Buyer or its agents arising out of such physical inspections of the Entire Property. (a) The original and one copy of a title insurance commitment for an Owner's Title insurance policy (see paragraph 8 below). (b) Copies of a Certificate of Occupancy or other such document certifying completion and granting permission to permanently occupy the improvements on the Entire Property as are in Seller's possession. (c) Copies of an "as built" survey of the Entire Property done concurrent with Seller's acquisition of the Property. (d) Lease (as further set forth in paragraph 11(a) below) of the Entire Property showing occupancy date, lease expiration date, rent, and Guarantys, if any, accompanied by such tenant financial statements as may have been provided most recently to Seller by the Tenant and/or Guarantors. Buyer Initial: /s/ EEA Purchase Agreement for Champps - Columbus, OH It is a contingency upon Seller's obligations hereunder that two (2) copies of Co-Tenancy Agreement in the form attached hereto duly executed by Buyer and Seller and dated on escrow closing date be delivered to the Seller on the closing date. Buyer may cancel this agreement for ANY REASON in its sole discretion by delivering a cancellation notice, return receipt requested, to Seller and escrow holder before the expiration of the Review Period. Such notice shall be deemed effective only upon receipt by Seller. If this Agreement is not cancelled as set forth above, the First Payment shall be non-refundable unless Seller shall default hereunder. If Buyer cancels this Agreement as permitted under this Section, except for any escrow cancellation fees and any liabilities under sections 15(a) of this agreement (which will survive), Buyer (after execution of such documents reasonably requested by Seller to evidence the termination hereof) shall be returned its First Payment, and Buyer will have absolutely no rights, claims or interest of any type in connection with the Property or this transaction, regardless of any alleged conduct by Seller or anyone else. Unless this Agreement is canceled by Buyer pursuant to the terms hereof, if Buyer fails to make the Second Payment, Seller shall be entitled to retain the First Payment and Buyer irrevocably will be deemed to be in default under this Agreement. Seller may, at its option, retain the First Payment and declare this Agreement null and void, in which event Buyer will be deemed to have canceled this Agreement and relinquish all rights in and to the Property or Seller may exercise its rights under Section 14 hereof. If this Agreement is not canceled and the Second Payment is made when required, all of Buyer's conditions and contingencies will be deemed satisfied. 7. Escrow. Escrow shall be opened by Seller and funds deposited in escrow upon acceptance of this agreement by both parties. The escrow holder will be a nationally-recognized escrow company selected by Seller. A copy of this Agreement will be delivered to the escrow holder and will serve as escrow instructions together with the escrow holder's standard instructions and any additional instructions required by the escrow holder to clarify its rights and duties (and the parties agree to sign these additional instructions). If there is any conflict between these other instructions and this Agreement, this Agreement will control. 8. Title. Closing will be conditioned on the agreement of a title company selected by Seller to issue an Owner's policy of title insurance, dated as of the close of escrow, in an amount equal to the purchase price, insuring that Buyer will own insurable title to the Property subject only to: the title company's standard exceptions; current real property taxes and assessments; survey exceptions; the rights of parties in possession pursuant to the lease definded in paragraph 11 below; and other items of record disclosed to Buyer during the Review Period. Buyer shall be allowed five (5) days after receipt of said commitment for examination and the making of any objections to marketability thereto, said objections to be made in writing or deemed waived. If any objections are so made, the Seller shall be allowed eighty (80) days to make such title marketable or in the alternative to obtain a commitment for insurable title insuring over Buyer's objections. If Seller shall decide to make no efforts to make title marketable, or is unable to make title marketable or obtain insurable title, (after execution by Buyer of such documents reasonably requested by Seller to evidence the termination hereof) Buyer's First Payment shall be returned and this Agreement shall be null and void and of no further force and effect. Pending correction of title, the payments hereunder required shall be postponed, but upon correction of title and within ten (10) days after written notice of correction to the Buyer, the parties shall perform this Agreement according to its terms. Buyer Initial: /s/ MBA Purchase Agreement for Champps - Columbus, OH 9. Closing Costs. Seller will pay one-half of escrow fees, the cost of the title commitment and any brokerage commissions payable. The Buyer will pay the cost of issuing a Standard Owners Title Insurance Policy in the full amount of the purchase price, if Buyer shall decide to purchase the same. Buyer will pay all recording fees, one-half of the escrow fees, and the cost of an update to the Survey in Sellers possession (if an update is required by Buyer.) Each party will pay its own attorney's fees and costs to document and close this transaction. 10. Real Estate Taxes, Special Assessments and Prorations. (a) Because the Entire Property (of which the Property is a part) is subject to a triple net lease (as further set forth in paragraph 11(a)(i), the parties acknowledge that there shall be no need for a real estate tax proration. However, Seller represents that to the best of its knowledge, all real estate taxes and installments of special assessments due and payable in all years prior to the year of Closing have been paid in full. Unpaid real estate taxes and unpaid levied and pending special assessments existing on the date of Closing shall be the responsibility of Buyer and Seller in proportion to their respective Tenant in Common interests, pro-rated, however, to the date of closing for the period prior to closing, which shall be the responsibility of Seller if Tenant shall not pay the same. Seller and Buyer shall likewise pay all taxes due and payable in the year after Closing and any unpaid installments of special assessments payable therewith and thereafter, if such unpaid levied and pending special assessments and real estate taxes are not paid by any tenant of the Entire Property. (b) All income and all operating expenses from the Entire Property shall be prorated between the parties and adjusted by them as of the date of Closing. Seller shall be entitled to all income earned and shall be responsible for all expenses incurred prior to the date of Closing, and Buyer shall be entitled to its proportionate share of all income earned and shall be responsible for its proportionate share of all operating expenses of the Entire Property incurred on and after the date of closing. 11. Seller's Representation and Agreements. (a) Seller represents and warrants as of this date that: (i) Except for the lease in existence between AEI Income & Growth Fund XXI Limited Partnership and AEI Real Estate Fund XVIII Limited Partnership and Americana Dining Corporation, dated August 29, 1996, Seller is not aware of any leases of the Property. The above referenced lease agreement also has a first right of refusal in favor of the Tenant as set forth in Article 34 of said lease agreement, which right shall apply to any attempted disposition of the Property by Buyer after this transaction. (ii) It is not aware of any pending litigation or condemnation proceedings against the Property or Seller's interest in the Property. (iii) Except as previously disclosed to Buyer and as set forth in paragraph (b) below, Seller is not aware of any contracts Seller has executed that would be binding on Buyer after the closing date. (b) Provided that Buyer performs its obligations when required, Seller agrees that it will not enter into any new contracts that would materially affect the Property and be binding on Buyer after the Closing Date without Buyer's prior consent, which will not be unreasonably withheld. However, Buyer acknowledges that Seller retains the right both prior to and after the Closing Date to freely transfer all or a portion of Seller's remaining undivided interest in the Entire Property, provided such sale shall not encumber the Property being purchased by Buyer Initial: /s/ MBA /s/ EEA Purchase Agreement for Champps - Columbus, OH Buyer in violation of the terms hereof or the contemplated Co-Tenancy Agreement. 12. Disclosures. (a) To the best of Seller's knowledge: there are now, and at the Closing there will be, no material, physical or mechanical defects of the Property, including, without limitation, the plumbing, heating, air conditioning, ventilating, electrical systems, and all such items are in good operating condition and repair and in compliance with all applicable governmental , zoning and land use laws, ordinances, regulations and requirements. (b) To the best of Seller's knowledge: the use and operation of the Property now is, and at the time of Closing will be, in full compliance with applicable building codes, safety, fire, zoning, and land use laws, and other applicable local, state and federal laws, ordinances, regulations and requirements. (c) Seller knows of no facts nor has Seller failed to disclose to Buyer any fact known to Seller which would prevent Buyer from using and operating the Property after the Closing in the manner in which the Property has been used and operated prior to the date of this Agreement. (d) To the best of Seller's knowledge: the Property is not, and as of the Closing will not be, in violation of any federal, state or local law, ordinance or regulations relating to industrial hygiene or to the environmental conditions on, under, or about the Property including, but not limited to, soil and groundwater conditions. To the best of Seller's knowledge: there is no proceeding or inquiry by any governmental authority with respect to the presence of Hazardous Materials on the Property or the migration of Hazardous Materials from or to other property. Buyer agrees that Seller will have no liability of any type to Buyer or Buyer's successors, assigns, or affiliates in connection with any Hazardous Materials on or in connection with the Property either before or after the Closing Date, except such Hazardous Materials on or in connection with the Property arising out of Seller's gross negligence or intentional misconduct. (e) Buyer agrees that it shall be purchasing the Property in its then present condition, as is, where is, and Seller has no obligations to construct or repair any improvements thereon or to perform any other act regarding the Property, except as expressly provided herein. (f) Buyer acknowledges that, having been given the opportunity to inspect the Property and such financial information on the Lessee and Guarantors of the Lease as Buyer or its advisors shall request, Buyer is relying solely on its own investigation of the Property and not on any information provided by Seller or to be provided except as set forth herein. Buyer further acknowledges that the information provided and to be provided by Seller with respect to the Property and to the Lessee and Guarantors of Lease was obtained from a variety of sources and Seller neither (a) has made independent investigation or verification of such information, or (b) makes any representations as to the accuracy or completeness of such information. The sale of the Property as provided for herein is made on an "AS IS" basis, and Buyer expressly acknowledges that, in consideration of the agreements of Seller herein, except as otherwise specified herein, Seller makes no Warranty or representation, Express or Implied, or arising by operation of law, including, but not limited to, any warranty or condition, habitability, tenantability, suitability for commercial purposes, merchantability, or fitness for a particular purpose, in respect of the Property. The provisions (d) - (f) above shall survive closing. Buyer Initial: /s/ MBA /s/ EEA Purchase Agreement for Champps - Columbus, OH 13. Closing. (a) Before the closing date, Seller will deposit into escrow an executed limited warranty deed conveying insurable title of the Property to Buyer, subject to the encumbrances contained in paragraph 8 above. (b) On or before the closing date, Buyer will deposit into escrow: the balance of the purchase price when required under Section 4; any additional funds required of Buyer, (pursuant to this agreement or any other agreement executed by Buyer) to close escrow. Both parties will sign and deliver to the escrow holder any other documents reasonably required by the escrow holder to close escrow. (c) On the closing date, if escrow is in a position to close, the escrow holder will: record the deed in the official records of the county where the Property is located; cause the title company to commit to issue the title policy; immediately deliver to Seller the portion of the purchase price deposited into escrow by cashier's check or wire transfer (less debits and prorations, if any); deliver to Seller and Buyer a signed counterpart of the escrow holder's certified closing statement and take all other actions necessary to close escrow. 14. Defaults. If Buyer defaults, Buyer will forfeit all rights and claims and Seller will be relieved of all obligations and will be entitled to retain all monies heretofore paid by the Buyer. In addition, Seller shall retain all remedies available to Seller at law or in equity. If Seller shall default, Buyer irrevocably waives any rights to file a lis pendens, a specific performance action or any other claim, action or proceeding of any type in connection with the Property or this or any other transaction involving the Property, and will not do anything to affect title to the Property or hinder, delay or prevent any other sale, lease or other transaction involving the Property (any and all of which will be null and void), unless: it has paid the First Payment, deposited the balance of the Second Payment for the purchase price into escrow, performed all of its other obligations and satisfied all conditions under this Agreement, and unconditionally notified Seller that it stands ready to tender full performance, purchase the Property and close escrow as per this Agreement, regardless of any alleged default or misconduct by Seller. Provided, however, that in no event shall Seller be liable for any actual, punitive, consequential or speculative damages arising out of any default by Seller hereunder. 15. Buyer's Representations and Warranties. a. Buyer represents and warrants to Seller as follows: (i) In addition to the acts and deeds recited herein and contemplated to be performed, executed, and delivered by Buyer, Buyer shall perform, execute and deliver or cause to be performed, executed, and delivered at the Closing or after the Closing, any and all further acts, deeds and assurances as Seller or the Title Company may require and be reasonable in order to consummate the transactions contemplated herein. (ii) Buyer has all requisite power and authority to consummate the transaction contemplated by this Agreement and has by proper proceedings duly authorized the execution and delivery of this Agreement and the consummation of the transaction contemplated hereby. (iii) To Buyer's knowledge, neither the execution and delivery of this Agreement nor the consummation of the transaction contemplated hereby will violate or be in conflict with (a) any applicable provisions of law, (b) any order of any court or other agency of government having Buyer Initial: /s/ MBA /s/ EEA Purchase Agreement for Champps - Columbus, OH jurisdiction hereof, or (c) any agreement or instrument to which Buyer is a party or by which Buyer is bound. 16. Damages, Destruction and Eminent Domain. (a) If, prior to closing, the Property or any part thereof should be destroyed or further damaged by fire, the elements, or any cause, due to events occurring subsequent to the date of this Agreement to the extent that the cost of repair exceeds $10,000.00, this Agreement shall become null and void, at Buyer's option exercised, if at all, by written notice to Seller within ten (10) days after Buyer has received written notice from Seller of said destruction or damage. Seller, however, shall have the right to adjust or settle any insured loss until (i) all contingencies set forth in Paragraph 6 hereof have been satisfied, or waived; and (ii) any ten-day period provided for above in this Subparagraph 16a for Buyer to elect to terminate this Agreement has expired or Buyer has, by written notice to Seller, waived Buyer's right to terminate this Agreement. If Buyer elects to proceed and to consummate the purchase despite said damage or destruction, there shall be no reduction in or abatement of the purchase price, and Seller shall assign to Buyer the Seller's right, title, and interest in and to all insurance proceeds (pro-rata in relation to the Entire Property) resulting from said damage or destruction to the extent that the same are payable with respect to damage to the Property, subject to rights of any Tenant of the Entire Property. If the cost of repair is less than $10,000.00, Buyer shall be obligated to otherwise perform hereinunder with no adjustment to the Purchase Price, reduction or abatement, and Seller shall assign Seller's right, title and interest in and to all insurance proceeds pro-rata in relation to the Entire Property, subject to rights of any Tenant of the Entire Property. (b) If, prior to closing, the Property, or any part thereof, is taken by eminent domain, this Agreement shall become null and void, at Buyer's option. If Buyer elects to proceed and to consummate the purchase despite said taking, there shall be no reduction in, or abatement of, the purchase price, and Seller shall assign to Buyer the Seller's right, title, and interest in and to any award made, or to be made, in the condemnation proceeding pro-rata in relation to the Entire Property, subject to rights of any Tenant of the Entire Property. In the event that this Agreement is terminated by Buyer as provided above in Subparagraph 16a or 16b, the First Payment shall be immediately returned to Buyer (after execution by Buyer of such documents reasonably requested by Seller to evidence the termination hereof). 17. Buyer's 1031 Tax Free Exchange. While Seller acknowledges that Buyer is purchasing the Property as "replacement property" to accomplish a tax free exchange, Buyer acknowledges that Seller has made no representations, warranties, or agreements to Buyer or Buyer's agents that the transaction contemplated by the Agreement will qualify for such tax treatment, nor has there been any reliance thereon by Buyer respecting the legal or tax implications of the transactions contemplated hereby. Buyer further represents that it has sought and obtained such third party advice and counsel as it deems necessary in regards to the tax implications of this transaction. Buyer wishes to novate/assign the ownership rights and interest of this Purchase Agreement to National 1031 Exchange Corporation who will act as Accommodator to perfect the 1031 exchange by preparing an agreement of exchange of Real Property whereby National 1031 Exchange Corporationwill be an independent third party purchasing the ownership interest in subject property from Seller and selling the ownership interest in subject property to Buyer under the same terms and conditions as documented in this Purchase Agreement. Buyer asks the Seller, and Seller agrees to cooperate in the perfection of such an exchange if at no additional cost or expense to Seller or delay in Buyer Initial: /s/ MBA /s/ EEA Purchase Agreement for Champps - Columbus, OH time. Buyer hereby indemnifies and holds Seller harmless from any claims and/or actions resulting from said exchange. Pursuant to the direction of National 1031 Exchange Corporation, Seller will deed the property to Buyer. 18. Cancellation If any party elects to cancel this Contract because of any breach by another party or because escrow fails to close by the agreed date, the party electing to cancel shall deliver to escrow agent a notice containing the address of the party in breach and stating that this Contract shall be cancelled unless the breach is cured within 13 days following the delivery of the notice to the escrow agent. Within three days after receipt of such notice, the escrow agent shall send it by United States Mail to the party in breach at the address contained in the Notice and no further notice shall be required. If the breach is not cured within the 13 days following the delivery of the notice to the escrow agent, this Contract shall be cancelled. 19. Miscellaneous. (a) This Agreement may be amended only by written agreement signed by both Seller and Buyer, and all waivers must be in writing and signed by the waiving party. Time is of the essence. This Agreement will not be construed for or against a party whether or not that party has drafted this Agreement. If there is any action or proceeding between the parties relating to this Agreement the prevailing party will be entitled to recover attorney's fees and costs. This is an integrated agreement containing all agreements of the parties about the Property and the other matters described, and it supersedes any other agreements or understandings. Exhibits attached to this Agreement are incorporated into this Agreement. (b) If this escrow has not closed by October 6, 1997, through no fault of Seller, Seller may either, at its election, extend the closing date or exercise any remedy available to it by law, including terminating this Agreement. (c) Funds to be deposited or paid by Buyer must be good and clear funds in the form of cash, cashier's checks or wire transfers. (d) All notices from either of the parties hereto to the other shall be in writing and shall be considered to have been duly given or served if sent by first class certified mail, return receipt requested, postage prepaid, or by a nationally recognized courier service guaranteeing overnight delivery to the party at his or its address set forth below, or to such other address as such party may hereafter designate by written notice to the other party. If to Seller: Attention: Robert P. Johnson AEI Real Estate Fund XVIII Limited Partnership 1300 Minnesota World Trade Center 30 E. 7th Street St. Paul, MN 55101 Buyer Initial: /s/ MBA /s/ EEA Purchase Agreement for Champps - Columbus, OH If to Buyer: Ernest E. and Marion B. Ainslie, Trustees When accepted, this offer will be a binding agreement for valid and sufficient consideration which will bind and benefit Buyer, Seller and their respective successors and assigns. Buyer is submitting this offer by signing a copy of this offer and delivering it to Seller. Seller has five (5) business days from receipt within which to accept this offer. IN WITNESS WHEREOF, the Seller and Buyer have executed this Agreement effective as of the day and year above first written. BUYER: THE AINSLIE LIVING TRUST /s/ EEA /s/ RPJ By: /s/ Ernest E Ainslie, Turstee Ernest E. Ainslie, Trustee WITNESS: /s/ Susan Parks Susan Parks (Print Name) WITNESS: /s/ Rachelle Santos Rachelle Santos (Print Name) By:/s/ Marion B Ainslie, Trustee Marion B. Ainslie, Trustee WITNESS: /s/ Susan Parks Susan Parks (Print Name) WITNESS: /s/ Rachelle Santos Rachelle Santos (Print Name) Buyer Initial: /s/ MBA /s/ EEA Purchase Agreement for Champps - Columbus, OH SELLER: AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP a Minnesota limited partnership By: AEI Fund Management XXI Inc., its corporate general partner By: /s/ Robert P Johnson Robert P. Johnson, President WITNESS: /s/ Dawn E Campbell Dawn E Campbell (Print Name) WITNESS: /s/ Jennifer Seck Jennifer Seck (Print Name) Buyer Initial: /s/ MBA /s/ EEA Purchase Agreement for Champps - Columbus, OH LEGAL DESCRIPTION Situated in the State of Ohio, County of Franklin, City of Columbus, being located in Section 2, Township 2, Range 18, United States Military Lands, and being part of a 43. 161 acre tract of land (Parcel No. 610-146452) conveyed to Forty- One Corporation (the Grantor), by deed of record in Official Record 15500 A-G, all references being to records in the Recorder's Office, Franklin County Ohio, and being more particularly described as follows: Beginning for reference at the intersection of North High Street (US 23) and East Campus View Boulevard (80.00 feet in width) as shown in Plat Book 60, Page 26: thence S 86 49' 53" E, along the centerline of said East Campus View Boulevard, a distance of 900.00 feet to a point of curvature, thence along the centerline of said East Campus View Boulevard, with a curve tot he left having a radius of 1350.00 feet, a chord bearing of N 89 27' 50" E, and a chord distance of 174.45 feet to the intersection with centerline of High Cross Boulevard (80.00 feet in width); thence S 1 53'32" E, along the centerline of said High cross Boulevard a distance of 74.72 feet to a point; thence N 88 06'28" E, a distance of 40.00 feet to an iron pin set in the easterly right of way line of said High Cross Boulevard, said point being the True Point of Beginning of herein described tract; thence along the easterly right of way line of said High Cross Boulevard, with a curve to the right, having a radius of 40.00 feet, a chord bearing of N 40 23'34" E, and a chord distance of 53.83 feet to an iron pin set in the southerly right of way line of said East Campus View Boulevard; thence along the southerly right of way line of said East Campus View Boulevard and the northerly line of herein described tract, with a curve to the left, having a radius of 1390.00 feet, a chord bearing of N 82 25'24" E, and a chord distance of 12.36 feet to an iron pin set; thence N 82 10' 07" E, along the southerly right of way line of said East Campus View boulevard and the northerly line of herein described tract, a distance of 209.28 feet to an iron pin set at the northeasterly corner of herein described tract; thence s 7 49' 49" E, along the easterly line of herein described tract, a distance of 312.60 feet to an iron pin set at the southeasterly corner of herein described tract; thence S 82 10'11" W, along the southerly line of herein described tract, a distance of 318.01 feet to an iron pin set in the easterly right of way line of said High Cross Boulevard at the southwesterly corner of herein described tract; thence along the easterly right of way line of said High Cross Boulevard and the westerly line of herein described tract, with a curve to the right, having a radius of 2960.00 feet, a chord bearing of N 9 21' 59" E, and a chord distance of 10/.64 feet to an iron pin set; thence N 9 28'10" E, along the easterly right of way line of said High Cross Boulevard and the westerly line of herein described tract a distance of 89.24 feet to an iron pin set; thence along the easterly right of way line of said High Cross Boulevard and the westerly line of herein described tract, with a curve to the left, having a radius of 390.00 feet, a chord bearing at N 3 47' 19" E, and a chord distance of 77.21 feet to an iron pin set; thence N 53' 32" W, along the easterly right of way line of said High Cross Boulevard and the westerly line of herein described tract a distance of 106/36 feet to the True Point of Beginning containing 2,005 acres, more or less, and subject to any rights of way, easements, and restrictions of record. The Basis of Bearing in this description is the centerline of East Campus View Boulevard, being S 86 49' 53" E, as shown in Plat Book 61, Page 79, Recorder's Office, Franklin County, Ohio. EX-10.23 3 PURCHASE AGREEMENT Champps Restaurant - Columbus, OH This AGREEMENT, entered into effective as of the 15th of December, 1997 . l. Parties. Seller is AEI Income & Growth Fund XXI Limited Partnership which owns an undivided 51.7201% interest in the fee title to that certain real property legally described in the attached Exhibit "A" (the "Entire Property") Buyer is James Edward Amend, ("Buyer"). Seller wishes to sell and Buyer wishes to buy a portion as Tenant in Common of Seller's interest in the Entire Property. 2. Property. The Property to be sold to Buyer in this transaction consists of an undivided 7.0899 percentage interest (hereinafter, simply the "Property") as Tenant in Common in the Entire Property. 3. Purchase Price . The purchase price for this percentage interest in the Entire Property is $250,000 all cash. 4. Terms. The purchase price for the Property will be paid by Buyer as follows: (a) When this agreement is executed, Buyer will pay $5,000 to Seller (which shall be deposited into escrow according to the terms hereof) (the "First Payment"). The First Payment will be credited against the purchase price when and if escrow closes and the sale is completed. (b) Buyer will deposit the balance of the purchase price, $245,000 (the "Second Payment") into escrow in sufficient time to allow escrow to close on the closing date. 5. Closing Date. Escrow shall close on or before January 9, 1998. 6. Due Diligence. Buyer will have until the expiration of the fifth business day (The "Review Period") after delivery of each of following items, to be supplied by Seller, to conduct all of its inspections and due diligence and satisfy itself regarding each item, the Property, and this transaction. Buyer agrees to indemnify and hold Seller harmless for any loss or damage to the Entire Property or persons caused by Buyer or its agents arising out of such physical inspections of the Entire Property. (a) The original and one copy of a title insurance commitment for an Owner's Title insurance policy (see paragraph 8 below). (b) Copies of a Certificate of Occupancy or other such document certifying completion and granting permission to permanently occupy the improvements on the Entire Property as are in Seller's possession. (c) Copies of an "as built" survey of the Entire Property done concurrent with Seller's acquisition of the Property. (d) Lease (as further set forth in paragraph 11(a) below) of the Entire Property showing occupancy date, lease expiration date, rent, and Guarantys, if any, accompanied by such tenant financial statements as may have been provided most recently to Seller by the Tenant and/or Guarantors. Buyer Initial: /s/ JEA Purchase Agreement for Champps - Columbus, OH It is a contingency upon Seller's obligations hereunder that two (2) copies of Co-Tenancy Agreement in the form attached hereto duly executed by Buyer and Seller and dated on escrow closing date be delivered to the Seller on the closing date. Buyer may cancel this agreement for ANY REASON in its sole discretion by delivering a cancellation notice, return receipt requested, to Seller and escrow holder before the expiration of the Review Period. Such notice shall be deemed effective only upon receipt by Seller. If this Agreement is not cancelled as set forth above, the First Payment shall be non-refundable unless Seller shall default hereunder. If Buyer cancels this Agreement as permitted under this Section, except for any escrow cancellation fees and any liabilities under sections 15(a) of this agreement (which will survive), Buyer (after execution of such documents reasonably requested by Seller to evidence the termination hereof) shall be returned its First Payment, and Buyer will have absolutely no rights, claims or interest of any type in connection with the Property or this transaction, regardless of any alleged conduct by Seller or anyone else. Unless this Agreement is canceled by Buyer pursuant to the terms hereof, if Buyer fails to make the Second Payment, Seller shall be entitled to retain the First Payment and Buyer irrevocably will be deemed to be in default under this Agreement. Seller may, at its option, retain the First Payment and declare this Agreement null and void, in which event Buyer will be deemed to have canceled this Agreement and relinquish all rights in and to the Property or Seller may exercise its rights under Section 14 hereof. If this Agreement is not canceled and the Second Payment is made when required, all of Buyer's conditions and contingencies will be deemed satisfied. 7. Escrow. Escrow shall be opened by Seller and funds deposited in escrow upon acceptance of this agreement by both parties. The escrow holder will be a nationally-recognized escrow company selected by Seller. A copy of this Agreement will be delivered to the escrow holder and will serve as escrow instructions together with the escrow holder's standard instructions and any additional instructions required by the escrow holder to clarify its rights and duties (and the parties agree to sign these additional instructions). If there is any conflict between these other instructions and this Agreement, this Agreement will control. 8. Title. Closing will be conditioned on the agreement of a title company selected by Seller to issue an Owner's policy of title insurance, dated as of the close of escrow, in an amount equal to the purchase price, insuring that Buyer will own insurable title to the Property subject only to: the title company's standard exceptions; current real property taxes and assessments; survey exceptions; the rights of parties in possession pursuant to the lease defined in paragraph 11 below; and other items of record disclosed to Buyer during the Review Period. Buyer shall be allowed five (5) days after receipt of said commitment for examination and the making of any objections to marketability thereto, said objections to be made in writing or deemed waived. If any objections are so made, the Seller shall be allowed eighty (80) days to make such title marketable or in the alternative to obtain a commitment for insurable title insuring over Buyer's objections. If Seller shall decide to make no efforts to make title marketable, or is unable to make title marketable or obtain insurable title, (after execution by Buyer of such documents reasonably requested by Seller to evidence the termination hereof) Buyer's First Payment shall be returned and this Agreement shall be null and void and of no further force and effect. Pending correction of title, the payments hereunder required shall be postponed, but upon correction of title and within ten (10) days after written notice of correction to the Buyer, the parties shall perform this Agreement according to its terms. Buyer Initial: /s/ JEA Purchase Agreement for Champps - Columbus, OH 9. Closing Costs. Seller will pay one-half of escrow fees, the cost of the title commitment and any brokerage commissions payable. The Buyer will pay the cost of issuing a Standard Owners Title Insurance Policy in the full amount of the purchase price, if Buyer shall decide to purchase the same. Buyer will pay all recording fees, one-half of the escrow fees, and the cost of an update to the Survey in Sellers possession (if an update is required by Buyer.) Each party will pay its own attorney's fees and costs to document and close this transaction. 10. Real Estate Taxes, Special Assessments and Prorations. (a) Because the Entire Property (of which the Property is a part) is subject to a triple net lease (as further set forth in paragraph 11(a)(i), the parties acknowledge that there shall be no need for a real estate tax proration. However, Seller represents that to the best of its knowledge, all real estate taxes and installments of special assessments due and payable in all years prior to the year of Closing have been paid in full. Unpaid real estate taxes and unpaid levied and pending special assessments existing on the date of Closing shall be the responsibility of Buyer and Seller in proportion to their respective Tenant in Common interests, pro-rated, however, to the date of closing for the period prior to closing, which shall be the responsibility of Seller if Tenant shall not pay the same. Seller and Buyer shall likewise pay all taxes due and payable in the year after Closing and any unpaid installments of special assessments payable therewith and thereafter, if such unpaid levied and pending special assessments and real estate taxes are not paid by any tenant of the Entire Property. (b) All income and all operating expenses from the Entire Property shall be prorated between the parties and adjusted by them as of the date of Closing. Seller shall be entitled to all income earned and shall be responsible for all expenses incurred prior to the date of Closing, and Buyer shall be entitled to its proportionate share of all income earned and shall be responsible for its proportionate share of all operating expenses of the Entire Property incurred on and after the date of closing. 11. Seller's Representation and Agreements. (a) Seller represents and warrants as of this date that: (i) Except for the lease in existence between AEI Income & Growth Fund XXI Limited Partnership and AEI Real Estate Fund XVIII Limited Partnership and Americana Dining Corporation, dated August 29, 1996, Seller is not aware of any leases of the Property. The above referenced lease agreement also has a first right of refusal in favor of the Tenant as set forth in Article 34 of said lease agreement, which right shall apply to any attempted disposition of the Property by Buyer after this transaction. (ii) It is not aware of any pending litigation or condemnation proceedings against the Property or Seller's interest in the Property. (iii) Except as previously disclosed to Buyer and as set forth in paragraph (b) below, Seller is not aware of any contracts Seller has executed that would be binding on Buyer after the closing date. (b) Provided that Buyer performs its obligations when required, Seller agrees that it will not enter into any new contracts that would materially affect the Property and be binding on Buyer after the Closing Date without Buyer's prior consent, which will not be unreasonably withheld. However, Buyer acknowledges that Seller retains the right both prior to and after the Closing Date to freely transfer all or a portion of Seller's remaining undivided interest in the Entire Property, provided such sale shall not encumber the Property being purchased by Buyer Initial: /s/ JEA Purchase Agreement for Champps - Columbus, OH Buyer in violation of the terms hereof or the contemplated Co-Tenancy Agreement. 12. Disclosures. (a) To the best of Seller's knowledge: there are now, and at the Closing there will be, no material, physical or mechanical defects of the Property, including, without limitation, the plumbing, heating, air conditioning, ventilating, electrical systems, and all such items are in good operating condition and repair and in compliance with all applicable governmental , zoning and land use laws, ordinances, regulations and requirements. (b) To the best of Seller's knowledge: the use and operation of the Property now is, and at the time of Closing will be, in full compliance with applicable building codes, safety, fire, zoning, and land use laws, and other applicable local, state and federal laws, ordinances, regulations and requirements. (c) Seller knows of no facts nor has Seller failed to disclose to Buyer any fact known to Seller which would prevent Buyer from using and operating the Property after the Closing in the manner in which the Property has been used and operated prior to the date of this Agreement. (d) To the best of Seller's knowledge: the Property is not, and as of the Closing will not be, in violation of any federal, state or local law, ordinance or regulations relating to industrial hygiene or to the environmental conditions on, under, or about the Property including, but not limited to, soil and groundwater conditions. To the best of Seller's knowledge: there is no proceeding or inquiry by any governmental authority with respect to the presence of Hazardous Materials on the Property or the migration of Hazardous Materials from or to other property. Buyer agrees that Seller will have no liability of any type to Buyer or Buyer's successors, assigns, or affiliates in connection with any Hazardous Materials on or in connection with the Property either before or after the Closing Date, except such Hazardous Materials on or in connection with the Property arising out of Seller's gross negligence or intentional misconduct. (e) Buyer agrees that it shall be purchasing the Property in its then present condition, as is, where is, and Seller has no obligations to construct or repair any improvements thereon or to perform any other act regarding the Property, except as expressly provided herein. (f) Buyer acknowledges that, having been given the opportunity to inspect the Property and such financial information on the Lessee and Guarantors of the Lease as Buyer or its advisors shall request, Buyer is relying solely on its own investigation of the Property and not on any information provided by Seller or to be provided except as set forth herein. Buyer further acknowledges that the information provided and to be provided by Seller with respect to the Property and to the Lessee and Guarantors of Lease was obtained from a variety of sources and Seller neither (a) has made independent investigation or verification of such information, or (b) makes any representations as to the accuracy or completeness of such information. The sale of the Property as provided for herein is made on an "AS IS" basis, and Buyer expressly acknowledges that, in consideration of the agreements of Seller herein, except as otherwise specified herein, Seller makes no Warranty or representation, Express or Implied, or arising by operation of law, including, but not limited to, any warranty or condition, habitability, tenantability, suitability for commercial purposes, merchantability, or fitness for a particular purpose, in respect of the Property. The provisions (d) - (f) above shall survive closing. Buyer Initial: /s/ JEA Purchase Agreement for Champps - Columbus, OH 13. Closing. (a) Before the closing date, Seller will deposit into escrow an executed limited warranty deed conveying insurable title of the Property to Buyer, subject to the encumbrances contained in paragraph 8 above. (b) On or before the closing date, Buyer will deposit into escrow: the balance of the purchase price when required under Section 4; any additional funds required of Buyer, (pursuant to this agreement or any other agreement executed by Buyer) to close escrow. Both parties will sign and deliver to the escrow holder any other documents reasonably required by the escrow holder to close escrow. (c) On the closing date, if escrow is in a position to close, the escrow holder will: record the deed in the official records of the county where the Property is located; cause the title company to commit to issue the title policy; immediately deliver to Seller the portion of the purchase price deposited into escrow by cashier's check or wire transfer (less debits and prorations, if any); deliver to Seller and Buyer a signed counterpart of the escrow holder's certified closing statement and take all other actions necessary to close escrow. 14. Defaults. If Buyer defaults, Buyer will forfeit all rights and claims and Seller will be relieved of all obligations and will be entitled to retain all monies heretofore paid by the Buyer. In addition, Seller shall retain all remedies available to Seller at law or in equity. If Seller shall default, Buyer irrevocably waives any rights to file a lis pendens, a specific performance action or any other claim, action or proceeding of any type in connection with the Property or this or any other transaction involving the Property, and will not do anything to affect title to the Property or hinder, delay or prevent any other sale, lease or other transaction involving the Property (any and all of which will be null and void), unless: it has paid the First Payment, deposited the balance of the Second Payment for the purchase price into escrow, performed all of its other obligations and satisfied all conditions under this Agreement, and unconditionally notified Seller that it stands ready to tender full performance, purchase the Property and close escrow as per this Agreement, regardless of any alleged default or misconduct by Seller. Provided, however, that in no event shall Seller be liable for any actual, punitive, consequential or speculative damages arising out of any default by Seller hereunder. 15. Buyer's Representations and Warranties. a. Buyer represents and warrants to Seller as follows: (i) In addition to the acts and deeds recited herein and contemplated to be performed, executed, and delivered by Buyer, Buyer shall perform, execute and deliver or cause to be performed, executed, and delivered at the Closing or after the Closing, any and all further acts, deeds and assurances as Seller or the Title Company may require and be reasonable in order to consummate the transactions contemplated herein. (ii) Buyer has all requisite power and authority to consummate the transaction contemplated by this Agreement and has by proper proceedings duly authorized the execution and delivery of this Agreement and the consummation of the transaction contemplated hereby. (iii) To Buyer's knowledge, neither the execution and delivery of this Agreement nor the consummation of the transaction contemplated hereby will violate or be in conflict with (a) any applicable provisions of law, (b) any order of any court or other agency of government having Buyer Initial: /s/ JEA Purchase Agreement for Champps - Columbus, OH jurisdiction hereof, or (c) any agreement or instrument to which Buyer is a party or by which Buyer is bound. 16. Damages, Destruction and Eminent Domain. (a) If, prior to closing, the Property or any part thereof should be destroyed or further damaged by fire, the elements, or any cause, due to events occurring subsequent to the date of this Agreement to the extent that the cost of repair exceeds $10,000.00, this Agreement shall become null and void, at Buyer's option exercised, if at all, by written notice to Seller within ten (10) days after Buyer has received written notice from Seller of said destruction or damage. Seller, however, shall have the right to adjust or settle any insured loss until (i) all contingencies set forth in Paragraph 6 hereof have been satisfied, or waived; and (ii) any ten-day period provided for above in this Subparagraph 16a for Buyer to elect to terminate this Agreement has expired or Buyer has, by written notice to Seller, waived Buyer's right to terminate this Agreement. If Buyer elects to proceed and to consummate the purchase despite said damage or destruction, there shall be no reduction in or abatement of the purchase price, and Seller shall assign to Buyer the Seller's right, title, and interest in and to all insurance proceeds (pro-rata in relation to the Entire Property) resulting from said damage or destruction to the extent that the same are payable with respect to damage to the Property, subject to rights of any Tenant of the Entire Property. If the cost of repair is less than $10,000.00, Buyer shall be obligated to otherwise perform hereinunder with no adjustment to the Purchase Price, reduction or abatement, and Seller shall assign Seller's right, title and interest in and to all insurance proceeds pro-rata in relation to the Entire Property, subject to rights of any Tenant of the Entire Property. (b) If, prior to closing, the Property, or any part thereof, is taken by eminent domain, this Agreement shall become null and void, at Buyer's option. If Buyer elects to proceed and to consummate the purchase despite said taking, there shall be no reduction in, or abatement of, the purchase price, and Seller shall assign to Buyer the Seller's right, title, and interest in and to any award made, or to be made, in the condemnation proceeding pro-rata in relation to the Entire Property, subject to rights of any Tenant of the Entire Property. In the event that this Agreement is terminated by Buyer as provided above in Subparagraph 16a or 16b, the First Payment shall be immediately returned to Buyer (after execution by Buyer of such documents reasonably requested by Seller to evidence the termination hereof). 17. Buyer's 1031 Tax Free Exchange. While Seller acknowledges that Buyer is purchasing the Property as "replacement property" to accomplish a tax free exchange, Buyer acknowledges that Seller has made no representations, warranties, or agreements to Buyer or Buyer's agents that the transaction contemplated by the Agreement will qualify for such tax treatment, nor has there been any reliance thereon by Buyer respecting the legal or tax implications of the transactions contemplated hereby. Buyer further represents that it has sought and obtained such third party advice and counsel as it deems necessary in regards to the tax implications of this transaction. Buyer wishes to novate/assign the ownership rights and interest of this Purchase Agreement to Boatman's Bank who will act as Accommodator to perfect the 1031 exchange by preparing an agreement of exchange of Real Property whereby Boatman's Bank will be an independent third party purchasing the ownership interest in subject property from Seller and selling the ownership interest in subject property to Buyer under the same terms and conditions as documented in this Purchase Agreement. Buyer asks the Seller, and Seller agrees to cooperate in the perfection of such an exchange if at no additional cost or expense to Seller or delay in time. Buyer hereby indemnifies and Buyer Initial: /s/ JEA Purchase Agreement for Champps - Columbus, OH holds Seller harmless from any claims and/or actions resulting from said exchange. Pursuant to the direction of Boatman's Bank, Seller will deed the property to Buyer. 18. Cancellation If any party elects to cancel this Contract because of any breach by another party or because escrow fails to close by the agreed date, the party electing to cancel shall deliver to escrow agent a notice containing the address of the party in breach and stating that this Contract shall be cancelled unless the breach is cured within 13 days following the delivery of the notice to the escrow agent. Within three days after receipt of such notice, the escrow agent shall send it by United States Mail to the party in breach at the address contained in the Notice and no further notice shall be required. If the breach is not cured within the 13 days following the delivery of the notice to the escrow agent, this Contract shall be cancelled. 19. Miscellaneous. (a) This Agreement may be amended only by written agreement signed by both Seller and Buyer, and all waivers must be in writing and signed by the waiving party. Time is of the essence. This Agreement will not be construed for or against a party whether or not that party has drafted this Agreement. If there is any action or proceeding between the parties relating to this Agreement the prevailing party will be entitled to recover attorney's fees and costs. This is an integrated agreement containing all agreements of the parties about the Property and the other matters described, and it supersedes any other agreements or understandings. Exhibits attached to this Agreement are incorporated into this Agreement. (b) If this escrow has not closed by January 9, 1998, through no fault of Seller, Seller may either, at its election, extend the closing date or exercise any remedy available to it by law, including terminating this Agreement. (c) Funds to be deposited or paid by Buyer must be good and clear funds in the form of cash, cashier's checks or wire transfers. (d) All notices from either of the parties hereto to the other shall be in writing and shall be considered to have been duly given or served if sent by first class certified mail, return receipt requested, postage prepaid, or by a nationally recognized courier service guaranteeing overnight delivery to the party at his or its address set forth below, or to such other address as such party may hereafter designate by written notice to the other party. If to Seller: Attention: Robert P. Johnson AEI Real Estate Fund XVIII Limited Partnership 1300 Minnesota World Trade Center 30 E. 7th Street St. Paul, MN 55101 Buyer Initial: /s/ JEA Purchase Agreement for Champps - Columbus, OH If to Buyer: James Edward Amend PO Box 261 Amarillo, TX 79105 When accepted, this offer will be a binding agreement for valid and sufficient consideration which will bind and benefit Buyer, Seller and their respective successors and assigns. Buyer is submitting this offer by signing a copy of this offer and delivering it to Seller. Seller has five (5) business days from receipt within which to accept this offer. IN WITNESS WHEREOF, the Seller and Buyer have executed this Agreement effective as of the day and year above first written. BUYER: JAMES EDWARD AMEND By: /s/ James Edward Amend James Edward Amend WITNESS: /s/ Sherrie L Slayton Sherrie L Slayton (Print Name) WITNESS: /s/ Letha Anderson Letha Anderson (Print Name) Buyer Initial: /s/ JEA Purchase Agreement for Champps - Columbus, OH SELLER: AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP a Minnesota limited partnership By: AEI Fund Management XXI Inc., its corporate general partner By: /s/ Robert P Johnson Robert P. Johnson, President WITNESS: /s/ Laura M Steidl Laura M Steidl (Print Name) WITNESS: /s/ Laurie J Fredregill Laurie J Fredregill (Print Name) Buyer Initial: /s/ JEA Purchase Agreement for Champps - Columbus, OH LEGAL DESCRIPTION Situated in the State of Ohio, County of Franklin, City of Columbus, being located in Section 2, Township 2, Range 18, United States Military Lands, and being part of a 43. 161 acre tract of land (Parcel No. 610-146452) conveyed to Forty- One Corporation (the Grantor), by deed of record in Official Record 15500 A-G, all references being to records in the Recorder's Office, Franklin County Ohio, and being more particularly described as follows: Beginning for reference at the intersection of North High Street (US 23) and East Campus View Boulevard (80.00 feet in width) as shown in Plat Book 60, Page 26: thence S 86 49' 53" E, along the centerline of said East Campus View Boulevard, a distance of 900.00 feet to a point of curvature, thence along the centerline of said East Campus View Boulevard, with a curve tot he left having a radius of 1350.00 feet, a chord bearing of N 89 27' 50" E, and a chord distance of 174.45 feet to the intersection with centerline of High Cross Boulevard (80.00 feet in width); thence S 1 53'32" E, along the centerline of said High cross Boulevard a distance of 74.72 feet to a point; thence N 88 06'28" E, a distance of 40.00 feet to an iron pin set in the easterly right of way line of said High Cross Boulevard, said point being the True Point of Beginning of herein described tract; thence along the easterly right of way line of said High Cross Boulevard, with a curve to the right, having a radius of 40.00 feet, a chord bearing of N 40 23'34" E, and a chord distance of 53.83 feet to an iron pin set in the southerly right of way line of said East Campus View Boulevard; thence along the southerly right of way line of said East Campus View Boulevard and the northerly line of herein described tract, with a curve to the left, having a radius of 1390.00 feet, a chord bearing of N 82 25'24" E, and a chord distance of 12.36 feet to an iron pin set; thence N 82 10' 07" E, along the southerly right of way line of said East Campus View boulevard and the northerly line of herein described tract, a distance of 209.28 feet to an iron pin set at the northeasterly corner of herein described tract; thence s 7 49' 49" E, along the easterly line of herein described tract, a distance of 312.60 feet to an iron pin set at the southeasterly corner of herein described tract; thence S 82 10'11" W, along the southerly line of herein described tract, a distance of 318.01 feet to an iron pin set in the easterly right of way line of said High Cross Boulevard at the southwesterly corner of herein described tract; thence along the easterly right of way line of said High Cross Boulevard and the westerly line of herein described tract, with a curve to the right, having a radius of 2960.00 feet, a chord bearing of N 9 21' 59" E, and a chord distance of 10/.64 feet to an iron pin set; thence N 9 28'10" E, along the easterly right of way line of said High Cross Boulevard and the westerly line of herein described tract a distance of 89.24 feet to an iron pin set; thence along the easterly right of way line of said High Cross Boulevard and the westerly line of herein described tract, with a curve to the left, having a radius of 390.00 feet, a chord bearing at N 3 47' 19" E, and a chord distance of 77.21 feet to an iron pin set; thence N 53' 32" W, along the easterly right of way line of said High Cross Boulevard and the westerly line of herein described tract a distance of 106/36 feet to the True Point of Beginning containing 2,005 acres, more or less, and subject to any rights of way, easements, and restrictions of record. The Basis of Bearing in this description is the centerline of East Campus View Boulevard, being S 86 49' 53" E, as shown in Plat Book 61, Page 79, Recorder's Office, Franklin County, Ohio. EX-10.26 4 PURCHASE AGREEMENT Champps Restaurant - Columbus, OH This AGREEMENT, entered into effective as of the 2-13 of Feb, 1998. l. Parties. Seller is AEI Income & Growth Fund XXI Limited Partnership which owns an undivided 44.6302% interest in the fee title to that certain real property legally described in the attached Exhibit "A" (the "Entire Property") Buyer is Edward C. & Virginia L. Thulin, married as tenants in common, ("Buyer"). Seller wishes to sell and Buyer wishes to buy a portion as Tenant in Common of Seller's interest in the Entire Property. 2. Property. The Property to be sold to Buyer in this transaction consists of an undivided 4.9629 percentage interest (hereinafter, simply the "Property") as Tenant in Common in the Entire Property. 3. Purchase Price . The purchase price for this percentage interest in the Entire Property is $200,000 all cash. 4. Terms. The purchase price for the Property will be paid by Buyer as follows: (a) When this agreement is executed, Buyer will pay $5,000 to Seller (which shall be deposited into escrow according to the terms hereof) (the "First Payment"). The First Payment will be credited against the purchase price when and if escrow closes and the sale is completed. (b) Buyer will deposit the balance of the purchase price, $195,000 (the "Second Payment") into escrow in sufficient time to allow escrow to close on the closing date. 5. Closing Date. Escrow shall close on or before February 20, 1998./s/VLT/ECT /s/ RPJ 6. Due Diligence. Buyer will have until the expiration of the tenth business day (The "Review Period") after delivery of each of following items, to be supplied by Seller, to conduct all of its inspections and due diligence and satisfy itself regarding each item, the Property, and this transaction. Buyer agrees to indemnify and hold Seller harmless for any loss or damage to the Entire Property or persons caused by Buyer or its agents arising out of such physical inspections of the Entire Property. (a) The original and one copy of a title insurance commitment for an Owner's Title insurance policy (see paragraph 8 below). (b) Copies of a Certificate of Occupancy or other such document certifying completion and granting permission to permanently occupy the improvements on the Entire Property as are in Seller's possession. (c) Copies of an "as built" survey of the Entire Property done concurrent with Seller's acquisition of the Property. (d) Lease (as further set forth in paragraph 11(a) below) of the Entire Property showing occupancy date, lease expiration date, rent, and Guarantys, if any, accompanied by such tenant financial statements as may have been provided most recently to Seller by the Tenant and/or Guarantors. Buyer Initial: /s/ ECT /s/ VLT Purchase Agreement for Champps - Columbus, OH It is a contingency upon Seller's obligations hereunder that two (2) copies of Co-Tenancy Agreement in the form attached hereto duly executed by Buyer and Seller and dated on escrow closing date be delivered to the Seller on the closing date. Buyer may cancel this agreement for ANY REASON in its sole discretion by delivering a cancellation notice, via first class mail, return receipt requested, to Seller and escrow holder before the expiration of the Review Period. Such notice shall be deemed effective only upon receipt by Seller. If this Agreement is not cancelled as set forth above, the First Payment shall be non-refundable unless Seller shall default hereunder. If Buyer cancels this Agreement as permitted under this Section, except for any escrow cancellation fees and any liabilities under sections 15(a) of this agreement (which will survive), Buyer (after execution of such documents reasonably requested by Seller to evidence the termination hereof) shall be returned its First Payment, and Buyer will have absolutely no rights, claims or interest of any type in connection with the Property or this transaction, regardless of any alleged conduct by Seller or anyone else. Unless this Agreement is canceled by Buyer pursuant to the terms hereof, if Buyer fails to make the Second Payment, Seller shall be entitled to retain the First Payment and Buyer irrevocably will be deemed to be in default under this Agreement. Seller may, at its option, retain the First Payment and declare this Agreement null and void, in which event Buyer will be deemed to have canceled this Agreement and relinquish all rights in and to the Property or Seller may exercise its rights under Section 14 hereof. If this Agreement is not canceled and the Second Payment is made when required, all of Buyer's conditions and contingencies will be deemed satisfied. 7. Escrow. Escrow shall be opened by Seller and funds deposited in escrow upon acceptance of this agreement by both parties. The escrow holder will be a nationally-recognized escrow company selected by Seller. A copy of this Agreement will be delivered to the escrow holder and will serve as escrow instructions together with the escrow holder's standard instructions and any additional instructions required by the escrow holder to clarify its rights and duties (and the parties agree to sign these additional instructions). If there is any conflict between these other instructions and this Agreement, this Agreement will control. 8. Title. Closing will be conditioned on the commitment of a title company selected by Seller to issue an Owner's policy of title insurance, dated as of the close of escrow, in an amount equal to the purchase price, insuring that Buyer will own insurable title to the Property subject only to: the title company's standard exceptions; current real property taxes and assessments; survey exceptions; the rights of parties in possession pursuant to the lease defined in paragraph 11 below; and other items of record disclosed to Buyer during the Review Period. Buyer shall be allowed ten (10) days after receipt of said commitment for examination and the making of any objections to marketability thereto, said objections to be made in writing or deemed waived. If any objections are so made, the Seller shall be allowed eighty (80) days to make such title marketable or in the alternative to obtain a commitment for insurable title insuring over Buyer's objections. If Seller shall decide to make no efforts to make title marketable, or is unable to make title marketable or obtain insurable title, (after execution by Buyer of such documents reasonably requested by Seller to evidence the termination hereof) Buyer's First Payment shall be returned and this Agreement shall be null and void and of no further force and effect. Pending correction of title, the payments hereunder required shall be postponed, but upon correction of title and within ten (10) days after written notice of correction to the Buyer, the parties shall perform this Agreement according to its terms. Buyer Initial: /s/ ECT /s/ VLT Purchase Agreement for Champps - Columbus, OH 9. Closing Costs. Seller will pay one-half of escrow fees, the cost of the title commitment and any brokerage commissions payable. The Buyer will pay the cost of issuing a Standard Owners Title Insurance Policy in the full amount of the purchase price, if Buyer shall decide to purchase the same. Buyer will pay all recording fees, one-half of the escrow fees, and the cost of an update to the Survey in Sellers possession (if an update is required by Buyer.) Each party will pay its own attorney's fees and costs to document and close this transaction. 10. Real Estate Taxes, Special Assessments and Prorations. (a) Because the Entire Property (of which the Property is a part) is subject to a triple net lease (as further set forth in paragraph 11(a)(i), the parties acknowledge that there shall be no need for a real estate tax proration. However, Seller represents that to the best of its knowledge, all real estate taxes and installments of special assessments due and payable in all years prior to the year of Closing have been paid in full. Unpaid real estate taxes and unpaid levied and pending special assessments existing on the date of Closing shall be the responsibility of Buyer and Seller in proportion to their respective Tenant in Common interests, pro-rated, however, to the date of closing for the period prior to closing, which shall be the responsibility of Seller if Tenant shall not pay the same. Seller and Buyer shall likewise pay all taxes due and payable in the year after Closing and any unpaid installments of special assessments payable therewith and thereafter, if such unpaid levied and pending special assessments and real estate taxes are not paid by any tenant of the Entire Property. (b) All income and all operating expenses from the Entire Property shall be prorated between the parties and adjusted by them as of the date of Closing. Seller shall be entitled to all income earned and shall be responsible for all expenses incurred prior to the date of Closing, and Buyer shall be entitled to its proportionate share of all income earned and shall be responsible for its proportionate share of all operating expenses of the Entire Property incurred on and after the date of closing. 11. Seller's Representation and Agreements. (a) Seller represents and warrants as of this date that: (i) Except for the lease in existence between AEI Income & Growth Fund XXI Limited Partnership and AEI Real Estate Fund XVIII Limited Partnership and Americana Dining Corporation, dated August 29, 1996, Seller is not aware of any leases of the Property. The above referenced lease agreement also has a first right of refusal in favor of the Tenant as set forth in Article 34 of said lease agreement, which right shall apply to any attempted disposition of the Property by Buyer after this transaction. (ii) It is not aware of any pending litigation or condemnation proceedings against the Property or Seller's interest in the Property. (iii) Except as previously disclosed to Buyer and as set forth in paragraph (b) below, Seller is not aware of any contracts Seller has executed that would be binding on Buyer after the closing date. (b) Provided that Buyer performs its obligations when required, Seller agrees that it will not enter into any new contracts that would materially affect the Property and be binding on Buyer after the Closing Date without Buyer's prior consent, which will not be unreasonably withheld. However, Buyer acknowledges that Seller retains the right both prior to and after the Closing Date to freely transfer all or a portion of Seller's remaining undivided interest in the Entire Property, provided such sale shall not encumber the Property being purchased by Buyer Initial: /s/ ECT /s/ VLT Purchase Agreement for Champps - Columbus, OH Buyer in violation of the terms hereof or the contemplated Co-Tenancy Agreement. 12. Disclosures. (a) To the best of Seller's knowledge: there are now, and at the Closing there will be, no material, physical or mechanical defects of the Property, including, without limitation, the plumbing, heating, air conditioning, ventilating, electrical systems, and all such items are in good operating condition and repair and in compliance with all applicable governmental , zoning and land use laws, ordinances, regulations and requirements. (b) To the best of Seller's knowledge: the use and operation of the Property now is, and at the time of Closing will be, in full compliance with applicable building codes, safety, fire, zoning, and land use laws, and other applicable local, state and federal laws, ordinances, regulations and requirements. (c) Seller knows of no facts nor has Seller failed to disclose to Buyer any fact known to Seller which would prevent Buyer from using and operating the Property after the Closing in the manner in which the Property has been used and operated prior to the date of this Agreement. (d) To the best of Seller's knowledge: the Property is not, and as of the Closing will not be, in violation of any federal, state or local law, ordinance or regulations relating to industrial hygiene or to the environmental conditions on, under, or about the Property including, but not limited to, soil and groundwater conditions. To the best of Seller's knowledge: there is no proceeding or inquiry by any governmental authority with respect to the presence of Hazardous Materials on the Property or the migration of Hazardous Materials from or to other property. Buyer agrees that Seller will have no liability of any type to Buyer or Buyer's successors, assigns, or affiliates in connection with any Hazardous Materials on or in connection with the Property either before or after the Closing Date, except such Hazardous Materials on or in connection with the Property arising out of Seller's gross negligence or intentional misconduct. (e) Buyer agrees that it shall be purchasing the Property in its then present condition, as is, where is, and Seller has no obligations to construct or repair any improvements thereon or to perform any other act regarding the Property, except as expressly provided herein. (f) Buyer acknowledges that, having been given the opportunity to inspect the Property and such financial information on the Lessee and Guarantors of the Lease as Buyer or its advisors shall request, Buyer is relying solely on its own investigation of the Property and not on any information provided by Seller or to be provided except as set forth herein. Buyer further acknowledges that the information provided and to be provided by Seller with respect to the Property and to the Lessee and Guarantors of Lease was obtained from a variety of sources and Seller neither (a) has made independent investigation or verification of such information, or (b) makes any representations as to the accuracy or completeness of such information. The sale of the Property as provided for herein is made on an "AS IS" basis, and Buyer expressly acknowledges that, in consideration of the agreements of Seller herein, except as otherwise specified herein, Seller makes no Warranty or representation, Express or Implied, or arising by operation of law, including, but not limited to, any warranty or condition, habitability, tenantability, suitability for commercial purposes, merchantability, or fitness for a particular purpose, in respect of the Property. The provisions (d) - (f) above shall survive closing. Buyer Initial: /s/ ECT /s/ VLT Purchase Agreement for Champps - Columbus, OH 13. Closing. (a) Before the closing date, Seller will deposit into escrow an executed limited warranty deed conveying insurable title of the Property to Buyer, subject to the encumbrances contained in paragraph 8 above. (b) On or before the closing date, Buyer will deposit into escrow: the balance of the purchase price when required under Section 4; any additional funds required of Buyer, (pursuant to this agreement or any other agreement executed by Buyer) to close escrow. Both parties will sign and deliver to the escrow holder any other documents reasonably required by the escrow holder to close escrow. (c) On the closing date, if escrow is in a position to close, the escrow holder will: record the deed in the official records of the county where the Property is located; cause the title company to commit to issue the title policy; immediately deliver to Seller the portion of the purchase price deposited into escrow by cashier's check or wire transfer (less debits and prorations, if any); deliver to Seller and Buyer a signed counterpart of the escrow holder's certified closing statement and take all other actions necessary to close escrow. 14. Defaults. If Buyer defaults, Buyer will forfeit all rights and claims and Seller will be relieved of all obligations and will be entitled to retain all monies heretofore paid by the Buyer. In addition, Seller shall retain all remedies available to Seller at law or in equity. If Seller shall default, Buyer irrevocably waives any rights to file a lis pendens, a specific performance action or any other claim, action or proceeding of any type in connection with the Property or this or any other transaction involving the Property, and will not do anything to affect title to the Property or hinder, delay or prevent any other sale, lease or other transaction involving the Property (any and all of which will be null and void), unless: it has paid the First Payment, deposited the balance of the Second Payment for the purchase price into escrow, performed all of its other obligations and satisfied all conditions under this Agreement, and unconditionally notified Seller that it stands ready to tender full performance, purchase the Property and close escrow as per this Agreement, regardless of any alleged default or misconduct by Seller. Provided, however, that in no event shall Seller be liable for any actual, punitive, consequential or speculative damages arising out of any default by Seller hereunder. 15. Buyer's Representations and Warranties. a. Buyer represents and warrants to Seller as follows: (i) In addition to the acts and deeds recited herein and contemplated to be performed, executed, and delivered by Buyer, Buyer shall perform, execute and deliver or cause to be performed, executed, and delivered at the Closing or after the Closing, any and all further acts, deeds and assurances as Seller or the Title Company may require and be reasonable in order to consummate the transactions contemplated herein. (ii) Buyer has all requisite power and authority to consummate the transaction contemplated by this Agreement and has by proper proceedings duly authorized the execution and delivery of this Agreement and the consummation of the transaction contemplated hereby. (iii) To Buyer's knowledge, neither the execution and delivery of this Agreement nor the consummation of the transaction contemplated hereby will violate or be in conflict with (a) any applicable provisions of law, (b) any order of any court or other agency of government having Buyer Initial: /s/ ECT /s/ VLT Purchase Agreement for Champps - Columbus, OH jurisdiction hereof, or (c) any agreement or instrument to which Buyer is a party or by which Buyer is bound. 16. Damages, Destruction and Eminent Domain. (a) If, prior to closing, the Property or any part thereof should be destroyed or further damaged by fire, the elements, or any cause, due to events occurring subsequent to the date of this Agreement to the extent that the cost of repair exceeds $10,000.00, this Agreement shall become null and void, at Buyer's option exercised, if at all, by written notice to Seller within ten (10) days after Buyer has received written notice from Seller of said destruction or damage. Seller, however, shall have the right to adjust or settle any insured loss until (i) all contingencies set forth in Paragraph 6 hereof have been satisfied, or waived; and (ii) any ten-day period provided for above in this Subparagraph 16a for Buyer to elect to terminate this Agreement has expired or Buyer has, by written notice to Seller, waived Buyer's right to terminate this Agreement. If Buyer elects to proceed and to consummate the purchase despite said damage or destruction, there shall be no reduction in or abatement of the purchase price, and Seller shall assign to Buyer the Seller's right, title, and interest in and to all insurance proceeds (pro-rata in relation to the Entire Property) resulting from said damage or destruction to the extent that the same are payable with respect to damage to the Property, subject to rights of any Tenant of the Entire Property. If the cost of repair is less than $10,000.00, Buyer shall be obligated to otherwise perform hereinunder with no adjustment to the Purchase Price, reduction or abatement, and Seller shall assign Seller's right, title and interest in and to all insurance proceeds pro-rata in relation to the Entire Property, subject to rights of any Tenant of the Entire Property. (b) If, prior to closing, the Property, or any part thereof, is taken by eminent domain, this Agreement shall become null and void, at Buyer's option. If Buyer elects to proceed and to consummate the purchase despite said taking, there shall be no reduction in, or abatement of, the purchase price, and Seller shall assign to Buyer the Seller's right, title, and interest in and to any award made, or to be made, in the condemnation proceeding pro-rata in relation to the Entire Property, subject to rights of any Tenant of the Entire Property. In the event that this Agreement is terminated by Buyer as provided above in Subparagraph 16a or 16b, the First Payment shall be immediately returned to Buyer (after execution by Buyer of such documents reasonably requested by Seller to evidence the termination hereof). 17. Buyer's 1031 Tax Free Exchange. While Seller acknowledges that Buyer is purchasing the Property as "replacement property" to accomplish a tax free exchange, Buyer acknowledges that Seller has made no representations, warranties, or agreements to Buyer or Buyer's agents that the transaction contemplated by the Agreement will qualify for such tax treatment, nor has there been any reliance thereon by Buyer respecting the legal or tax implications of the transactions contemplated hereby. Buyer further represents that it has sought and obtained such third party advice and counsel as it deems necessary in regards to the tax implications of this transaction. Buyer wishes to novate/assign the ownership rights and interest of this Purchase Agreement to Gary J. Manny, Attorney at Law, P.C. who will act as Accommodator to perfect the 1031 exchange by preparing an agreement of exchange of Real Property whereby Gary J. Manny, Attorney at Law, P.C. will be an independent third party purchasing the ownership interest in subject property from Seller and selling the ownership interest in subject property to Buyer under the same terms and conditions as documented in this Purchase Agreement. Buyer asks the Seller, and Seller agrees to cooperate in the perfection of such an exchange if at no additional cost or expense to Seller Buyer Initial: /s/ ECT /s/ VLT Purchase Agreement for Champps - Columbus, OH or delay in time. Buyer hereby indemnifies and holds Seller harmless from any claims and/or actions resulting from said exchange. Pursuant to the direction of Gary J. Manny, Attorney at Law, P.C., Seller will deed the property to Buyer. 18. Cancellation If any party elects to cancel this Contract because of any breach by another party or because escrow fails to close by the agreed date, the party electing to cancel shall deliver to escrow agent a notice containing the address of the party in breach and stating that this Contract shall be cancelled unless the breach is cured within 13 days following the delivery of the notice to the escrow agent. Within three days after receipt of such notice, the escrow agent shall send it by United States Mail to the party in breach at the address contained in the Notice and no further notice shall be required. If the breach is not cured within the 13 days following the delivery of the notice to the escrow agent, this Contract shall be cancelled. 19. Miscellaneous. (a) This Agreement may be amended only by written agreement signed by both Seller and Buyer, and all waivers must be in writing and signed by the waiving party. Time is of the essence. This Agreement will not be construed for or against a party whether or not that party has drafted this Agreement. If there is any action or proceeding between the parties relating to this Agreement the prevailing party will be entitled to recover attorney's fees and costs. This is an integrated agreement containing all agreements of the parties about the Property and the other matters described, and it supersedes any other agreements or understandings. Exhibits attached to this Agreement are incorporated into this Agreement. (b) If this escrow has not closed by February 18, 1998, through no fault of Seller, Seller may either, at its election, extend the closing date or exercise any remedy available to it by law, including terminating this Agreement. (c) Funds to be deposited or paid by Buyer must be good and clear funds in the form of cash, cashier's checks or wire transfers. (d) All notices from either of the parties hereto to the other shall be in writing and shall be considered to have been duly given or served if sent by first class certified mail, return receipt requested, postage prepaid, or by a nationally recognized courier service guaranteeing overnight delivery to the party at his or its address set forth below, or to such other address as such party may hereafter designate by written notice to the other party. If to Seller: Attention: Robert P. Johnson AEI Real Estate Fund XVIII Limited Partnership 1300 Minnesota World Trade Center 30 E. 7th Street St. Paul, MN 55101 Buyer Initial: /s/ ECT /s/ VLT Purchase Agreement for Champps - Columbus, OH If to Buyer: Edward C. and Virginia L. Thulin 3309 Hollow Creek Road Arlington, TX 76001 When accepted, this offer will be a binding agreement for valid and sufficient consideration which will bind and benefit Buyer, Seller and their respective successors and assigns. Buyer is submitting this offer by signing a copy of this offer and delivering it to Seller. Seller has five (5) business days from receipt within which to accept this offer. IN WITNESS WHEREOF, the Seller and Buyer have executed this Agreement effective as of the day and year above first written. BUYER: EDWARD C. AND VIRGINIA L. THULIN, MARRIED AS TENANTS IN COMMON By: /s/ Edward C Thulin Edward C. Thulin By: /s/ Virginia L Thulin Virginia L. Thulin WITNESS: (as to both signers) /s/ C.R. Elhoff Jr. C. R. Elhoff Jr. (Print Name) WITNESS: /s/ Carol Pevsner Carol Pevsner (Print Name) Buyer Initial: /s/ ECT /s/ VLT Purchase Agreement for Champps - Columbus, OH SELLER: AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP a Minnesota limited partnership By: AEI Fund Management XXI Inc., its corporate general partner By: /s/ Robert P Johnson Robert P. Johnson, President WITNESS: /s/ Laura Steidl Laura Steidl (Print Name) WITNESS: /s/ Dawn E Campbell Dawn E Campbell (Print Name) Buyer Initial: /s/ ECT /s/ VLT Purchase Agreement for Champps - Columbus, OH LEGAL DESCRIPTION Situated in the State of Ohio, County of Franklin, City of Columbus, being located in Section 2, Township 2, Range 18, United States Military Lands, and being part of a 43. 161 acre tract of land (Parcel No. 610-146452) conveyed to Forty- One Corporation (the Grantor), by deed of record in Official Record 15500 A-G, all references being to records in the Recorder's Office, Franklin County Ohio, and being more particularly described as follows: Beginning for reference at the intersection of North High Street (US 23) and East Campus View Boulevard (80.00 feet in width) as shown in Plat Book 60, Page 26: thence S 86 49' 53" E, along the centerline of said East Campus View Boulevard, a distance of 900.00 feet to a point of curvature, thence along the centerline of said East Campus View Boulevard, with a curve tot he left having a radius of 1350.00 feet, a chord bearing of N 89 27' 50" E, and a chord distance of 174.45 feet to the intersection with centerline of High Cross Boulevard (80.00 feet in width); thence S 1 53'32" E, along the centerline of said High cross Boulevard a distance of 74.72 feet to a point; thence N 88 06'28" E, a distance of 40.00 feet to an iron pin set in the easterly right of way line of said High Cross Boulevard, said point being the True Point of Beginning of herein described tract; thence along the easterly right of way line of said High Cross Boulevard, with a curve to the right, having a radius of 40.00 feet, a chord bearing of N 40 23'34" E, and a chord distance of 53.83 feet to an iron pin set in the southerly right of way line of said East Campus View Boulevard; thence along the southerly right of way line of said East Campus View Boulevard and the northerly line of herein described tract, with a curve to the left, having a radius of 1390.00 feet, a chord bearing of N 82 25'24" E, and a chord distance of 12.36 feet to an iron pin set; thence N 82 10' 07" E, along the southerly right of way line of said East Campus View boulevard and the northerly line of herein described tract, a distance of 209.28 feet to an iron pin set at the northeasterly corner of herein described tract; thence s 7 49' 49" E, along the easterly line of herein described tract, a distance of 312.60 feet to an iron pin set at the southeasterly corner of herein described tract; thence S 82 10'11" W, along the southerly line of herein described tract, a distance of 318.01 feet to an iron pin set in the easterly right of way line of said High Cross Boulevard at the southwesterly corner of herein described tract; thence along the easterly right of way line of said High Cross Boulevard and the westerly line of herein described tract, with a curve to the right, having a radius of 2960.00 feet, a chord bearing of N 9 21' 59" E, and a chord distance of 10/.64 feet to an iron pin set; thence N 9 28'10" E, along the easterly right of way line of said High Cross Boulevard and the westerly line of herein described tract a distance of 89.24 feet to an iron pin set; thence along the easterly right of way line of said High Cross Boulevard and the westerly line of herein described tract, with a curve to the left, having a radius of 390.00 feet, a chord bearing at N 3 47' 19" E, and a chord distance of 77.21 feet to an iron pin set; thence N 53' 32" W, along the easterly right of way line of said High Cross Boulevard and the westerly line of herein described tract a distance of 106/36 feet to the True Point of Beginning containing 2,005 acres, more or less, and subject to any rights of way, easements, and restrictions of record. The Basis of Bearing in this description is the centerline of East Campus View Boulevard, being S 86 49' 53" E, as shown in Plat Book 61, Page 79, Recorder's Office, Franklin County, Ohio. EX-27 5
5 0000931755 AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP 12-MOS DEC-31-1997 DEC-31-1997 2,506,790 0 162,677 0 0 2,669,467 16,558,782 (399,150) 18,829,099 381,148 0 0 0 0 18,447,951 18,829,099 0 1,513,094 0 1,180,406 0 0 0 439,239 0 439,239 0 0 0 439,239 18.18 18.18
EX-99 6 EXHIBIT 99 FORWARD LOOKING STATEMENTS CAUTIONARY STATEMENT Statements regarding the future prospects of the Partnership must be evaluated in the context of a number of factors that may materially affect its financial condition and results of operations. Disclosure of these factors is intended to permit the Partnership to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Most of these factors have been discussed in prior filings by the Company with the Securities and Exchange Commission. Although the Partnership has attempted to list the factors that it is currently aware may have an impact on its operations, other factors may in the future prove to be important and the following list should not necessarily be considered comprehensive. General Purchase of Unspecified Properties. Cash available to the Partnership will be used to acquire non-residential commercial properties (including single-tenant properties in the restaurant and retail industry) that are subject to long-term triple net leases. Investors will not have an opportunity to evaluate the relevant economic, financial and other factors regarding the properties in which cash will be invested. Investors must rely upon the ability of the General Partners with respect to the investment of such cash and management of the properties. No assurance can be given that the Partnership will be successful in obtaining suitable investments or that the objectives of the Partnership will be achieved. Conflicts of Interest. The General Partners and their Affiliates provide substantially all of the management services to the Partnership and have an interest in the Partnership. In addition, the General Partners manage a number of other Partnerships engaged in investment in net leased real estate, some of which may have purchased, or may purchase in the future, joint interests in the properties the Partnership acquires. The operation of the Partnership involves various conflicts of interest for the General Partners. Reliance On Management. Except for certain voting rights afforded Limited Partners by the Limited Partnership Agreement, the Limited Partners have no control over the management of the Partnership or its properties, but must rely almost exclusively upon the General Partners. Financial Position of General Partners. AEI Fund Management XXI, Inc. the Managing General Partner, was formed in 1994 to serve as general partner of the Partnership with substantially the same structure and investment objectives as the Partnership. It also is the Managing General Partner of AEI Income & Growth Fund XXII Limited Partnership, an affiliated Partnership. The Managing General Partner does not have substantial net worth. The Individual General Partner, Robert P. Johnson, who represents that he has a net worth in excess of $2,400,000, has been involved as a general partner in public and private net lease real estate partnerships and energy partnerships for more than twenty years. Mr. Johnson could become subject to claims of creditors for liabilities unrelated to the Partnership's business in an amount that could adversely affect the Partnership. A substantial portion of the assets of the Individual General Partner consist of illiquid investments that were valued using valuation formulae established by, and which are believed reasonable by, the Individual General Partner. There can be no assurance that such assets could be sold at their estimated value. Death or Withdrawal of General Partners. In the event of the death, removal, bankruptcy or withdrawal of both of the General Partners, the Partnership will be dissolved. While the Limited Partners may elect, under such circumstances, to continue the Partnership and its business with a new general partner, the Limited Partners may not be able to find, or agree upon, a person willing to act as general partner. In such event, the Partnership would be liquidated. Sale of properties under such circumstances might not produce an advantageous price and the investors might suffer adverse tax and economic consequences. The Partnership will not have the benefit of insurance on the life of the Individual General Partner. Indemnification of General Partners. Under the Limited Partnership Agreement, the General Partners are not liable to the Partnership or to the Limited Partners for any act or omission that they determine in good faith is in the best interest of the Partnership, except for acts of negligence or misconduct, and under certain circumstances the General Partners will be entitled to indemnification from the Partnership for certain losses. Not a Real Estate Investment Trust or Investment Company. The Partnership is not a mutual fund or a real estate investment trust and it will not operate in a manner as to be classified as an "investment company" for purposes of the Investment Company Act of 1940. The management and the investment practices and policies of the Partnership are not supervised or regulated by any federal or state authority. Representation by Attorneys and Accountants. The Partnership, its Limited Partners and the General Partners are not represented by separate counsel. The legal counsel and accountants for the Partnership have not been retained, and will not be available, to provide legal counseling or tax advice to investors. Therefore, investors should retain their own legal and tax advisors. No Market for Units/Restrictions on Transfer. There is no public market for the Units. In addition, under section 9.1 of the Partnership Agreement, Units may not be assigned without notice to and approval by the Managing General Partner. Although such approval is required when the assignment or transfer is not in violation of the Partnership Agreement, the Partnership Agreement places substantial restrictions on the form and number of transfers that may be made in order to retain the treatment of the Partnership as a partnership for income tax purposes under Internal Revenue Service definitions of "Publicly Traded Partnerships." Limited Liability. Although investors are limited partners in a limited partnership, certain events under the Uniform Limited Partnership Act can result in general liability being imposed upon them. For example, if a Limited Partner takes part in control of the business of the Partnership, he or she may become liable as a general partner. Also, it is possible that a failure on the part of the Partnership to file certain documents in some jurisdictions in which it operates may jeopardize their limited liability. Under the Minnesota Revised Uniform Limited Partnership Act, however, an investor generally will be liable to a Partnership or its creditors only for any difference between such investor's contributions to the capital of the Partnership and the amount of such contribution the investor has committed in writing to make, for amounts or property wrongfully distributed to such investor by the Partnership, and for any return of such investor's contributions to the capital of the Partnership, plus interest, to the extent that a creditor extended credit or had a claim against the Partnership prior to such return. Repurchase of Units. The Partnership Agreement provides that Partners may tender Units to the Partnership for repurchase by it commencing in 1996. In 1996 and 1997, the repurchase price was equal to 75% and 90% of the Limited Partner's Adjusted Capital Contribution, respectively, and in each year thereafter is equal to 100% of such Adjusted Capital Contribution less half of the net cash flow distributed. The Partnership is not required, however, to repurchase Units in excess of 5% percent of the Units outstanding in any year and is not required to repurchase Units if such repurchase would impair the Partnership's ability to continue operations. The repurchase price for any Units must be paid out of either (i) Partnership revenues otherwise distributable to Limited Partners or (ii) Partnership borrowings. Accordingly, to the extent that the Partnership repurchases Units, distributions to remaining Limited Partners may initially be reduced. Moreover, there may be circumstances under which Partnership revenues and borrowings will be insufficient to fully fund such repurchases. Distributions of Capital. During the acquisition phase of the Partnership's operations, the General Partners intend to distribute all interest income earned on proceeds that are temporarily invested. To the extent that net operating revenues are not sufficient to fund all such distributions, they may constitute a return of capital. Temporarily Invested Proceeds. Pending investment in properties, the offering proceeds will be invested in short-term government securities or in insured deposits with a financial institution and will earn interest at short-term deposit rates. The amount invested in insured accounts may periodically exceed insurance limits and there can be no assurance that the Partnership would recover the full amount of the account if the financial institution in which they are deposited were placed in receivership. Risks Involved in Real Estate Transactions Risks of Real Estate Ownership. The Partnership's investment in non-residential commercial properties will be subject to the risks generally incident to the ownership of real property, including risks related to national economic conditions, changes in the investment climate for real estate, changes in local market conditions, changes in interest rates, changes in real estate tax rates, other operating expenses, governmental rules and fiscal policies, uninsured losses, the financial condition of tenants, and other factors beyond the control of the General Partners. The Partnership's properties are subject to the risk of the inability to retain tenants or of the default by tenants (and the inability to lease properties to new tenants thereafter), which could result from adverse changes in local real estate markets or other factors. The General Partners believe that because the Partnership will be investing in triple net lease properties on an all-cash basis, some of the general risks associated with investments in real property will be reduced. No Assurance of Property Appreciation or Partnership Profits. There is no assurance that the properties to be acquired by the Partnership will operate at a profit, will appreciate in value, or will be sold at a profit. The marketability and value of each property will depend upon many factors beyond the control of the General Partners. Since investments in real property are generally illiquid, there is no assurance that there will be a market for any property. Adequacy of Reserves. Because the Partnership's properties will be subject to triple net leases, the General Partners will retain only a small working capital reserve. There can be no assurance that adequate reserves will be available. Tenant Default. The financial failure of a tenant of the Partnership may cause a reduction in the Net Cash Flow of the Partnership and a decline in the value of the property leased to such tenant. In the event of such default, there is no assurance that the Partnership would be able to find a new tenant for the property at the same rental, or to sell the property without incurring a loss. Like most entities that invest in real estate, prior Partnerships sponsored by Affiliates of the General Partners have purchased properties that have been leased to tenants who have defaulted on lease obligations. In the event of the bankruptcy of a tenant, there can be no assurance that the Partnership could rapidly recover leased property from a trustee in bankruptcy proceedings or that the Partnership would receive rent in such proceedings sufficient to cover its expenses, if any, with respect to such property. Bankruptcies have caused several months' interruption in rental payments from lessees of properties in some prior partnerships. Net Leases. Net leases frequently give the tenant greater discretion in the use of the property than do ordinary property leases (e.g., with respect to rights to sublease, to make alterations in the leased premises and to terminate the lease in certain circumstances). Although the value of such properties might be adversely affected by the failure of tenants to renew such leases, the General Partners will attempt to reduce this risk by entering into long-term leases of 10 or more years. Single Use Properties. The properties which the Partnership purchases may be designed or built primarily for a particular tenant such as a specific restaurant franchisee. If the Partnership holds such a property upon termination of the lease and the tenant elects not to renew its lease, or if such a tenant otherwise defaults on its lease obligations, the property may not be readily marketable to a new tenant without substantial capital improvements or remodeling. Such improvements might require expenditure of funds otherwise available for distribution or the sale of the property at a lower price. The Restaurant and Retail Industry. It is anticipated that many of the properties acquired or to be acquired will be leased to operators in the restaurant industry or in the retail industry. Both of these industries are highly competitive and can be affected by factors such as changes in regional or local economies, seasonality and changes in consumer preference. Although the General Partners will attempt to limit these risks by emphasizing acquisition of properties for cash that are leased to established national and regional companies, there can be no assurance that a downturn affecting such industries would not have an adverse effect on the Partnership. Construction Lending. The Partnership may advance funds to certain seller/lessees prior to acquisition to assist in financing the construction of such properties. Although all of such advances will be secured by the property and all improvements thereon, and although none of the ten public funds previously sponsored by the General Partners have ever experienced a default on a construction loan, construction lending is subject to a number of risks. Risks incurred by owners during construction, including cost overruns, nonperforming contractors, changes in construction codes and changes in cost, can cause financial difficulty and increase the likelihood of default on a construction loan. If a borrower defaults on an advance during construction, the Partnership's primary recourse is to foreclose on the property. Such foreclosure is normally subject to a period of redemption, depending upon the applicable laws of the jurisdiction in which the property is located, of up to one year during which time the Partnership would not be able to dispose of the property and during which time the property would not produce income. In addition, if the Partnership acquired title to a property through foreclosure, there can be no assurance that the property could be resold at a price equal to the principal amount of the loan. If, as is likely, the property were only partially complete at the time of foreclosure, the Partnership might be required to expend capital to complete the property to enhance its sale. Although in many cases it is anticipated that the Partnership may have recourse against an individual guarantor in the event of a default, there can be no assurances that the ability of the guarantor to satisfy the default would not be impaired by the same financial circumstances that caused the default. Sale of Properties and Reinvestment of Proceeds. The General Partners may, from time to time, sell properties and reinvest the proceeds therefrom in additional net lease properties. Limited Partners will not have the right to receive cash upon sale of the properties other than cash representing a majority of the gain, and must rely on the ability of the General Partners to find appropriate properties in which to reinvest such proceeds. Upon the final sale of all Partnership properties, if the Partnership provides financing to purchasers, the liquidation of the Partnership could be delayed until such financing is fully collected. Uninsured Losses. The General Partners will arrange for comprehensive insurance coverage on the properties. However, certain types of losses (generally of a catastrophic nature) may be either uninsurable or not economically insurable. Should such a disaster occur, the Partnership could suffer a complete loss of capital invested in, and any profits expected from, the affected properties. Federal Income Tax Risks Audits. A ruling from the Internal Revenue Service (the "Service") has not been obtained with respect to any tax aspect of an investment in the Partnership. Availability of certain tax consequences intended to be realized by Limited Partners may be challenged upon audit by the Service. Any adjustment resulting from an audit by the Service also could result in adjustments to the tax returns of the Limited Partners and may lead to an examination of other items unrelated to the Partnership or an examination of prior tax returns. Moreover, Limited Partners could incur substantial legal and accounting costs in connection with any challenge by the Service of the position taken by the Partnership on its tax returns regardless of the outcome of such a challenge. Partnership Allocations. The Partnership Agreement allocates to each Partner his or her distributive share of Partnership tax items. Whether such allocations will be respected for federal income tax purposes is governed by Section 704(b) of the Code and regulations promulgated thereunder. Section704(b) generally requires that Partnership allocations must have substantial economic effect. The allocations contained in the Partnership Agreement appear to satisfy the requirements of regulations under Section 704(b) as to allocations that do not cause or increase a deficit balance in a Partner's capital account. Counsel for the Partnership has concluded, therefore, as of the date of this Prospectus, that it is more likely than not that the allocations under the Partnership Agreement will be recognized for federal income tax purposes under Section 704(b) of the Code so long as such conditions are satisfied. Compliance with the regulations depends, in certain cases, on the individual tax situations of the Partners, and counsel's opinion does not extend to such situations. New Tax Legislation--Changes in Federal Tax Laws, Regulations and Interpretations Thereof. Investors should not rely unduly on the prospect that tax consequences provided by existing law will continue to be afforded or that changes in the interpretation of applicable income tax laws will not be made by administrative or judicial action that will adversely affect the tax consequences of an investment in the Partnership. Tax benefits of an investment in the Partnership could be reduced or tax liabilities could be incurred by reason of changes in the tax law. Any legislative, administrative or judicial changes may or may not be retroactive with respect to transactions entered into prior to the effective date of such changes. Partnership Income. For any year in which the Partnership has taxable net income or any gain on sale of properties, individual Partners will be required to report their allocable share of such income or gain, whether or not net cash in a corresponding amount is distributed to them, on their federal and state tax returns and will be liable for the payment of taxes thereon. Such taxes could be greater than cash distributions received by a Partner from the Partnership for the year, particularly in years in which the Partnership sells properties and reinvests the proceeds therefrom or uses distributable Net Cash Flow to repurchase Units. Partners participating in a Distribution Reinvestment Plan will be required to report the net income from the Partnership that might otherwise have been covered by distributions that are reinvested even though they will not receive any cash from such distributions. Tax Liability Upon Sale or Disposition of Property or Units. A sale or other disposition of a property or a disposition of Units by a Limited Partner may result in substantial tax liability to such Limited Partner. Furthermore, under certain circumstances, the taxes payable by a Limited Partner resulting from the sale of a property or from the disposition of Units by such Limited Partner could exceed the cash available to such Limited Partner from such sale or the proceeds from such disposition of Units. -----END PRIVACY-ENHANCED MESSAGE-----