SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
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Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
BURGER KING LIMITED PARTNERSHIP I
(Name of Registrant as Specified in its Charter)
BK I REALTY INC., GENERAL PARTNER
(Name of Person(s) Filing Proxy Statement, if other
than the Registrant)
Payment of Filing Fee:
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applied:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(c)(2):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
<PAGE>
/x/ Fee paid previously with preliminary materials:
/x/ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing:
1) Amount Previously Paid: $1,600
2) Form, Schedule or Registration Statement No.: 14A
3) Filing Party: Burger King Limited Partnership I
4) Date Filed: August 29, 1997
<PAGE>
BURGER KING LIMITED PARTNERSHIP I
Three World Financial Center
29th Floor
New York, New York 10285-2900
November 12, 1997
Dear Limited Partner:
As discussed in the 1996 annual report of Burger King Limited
Partnership I (the "Partnership"), BK I Realty Inc., the general partner of
the Partnership (the "General Partner"), has been aggressively marketing the
Partnership's remaining nine restaurants (the "Properties") to a number of
prospective buyers interested in a bulk purchase of all or some of the
Properties. In anticipation of reaching an agreement with a prospective
buyer, we are distributing the enclosed proxy statement (the "Proxy
Statement") to describe certain of the terms that any sale or sales
negotiated by the General Partner (the "Proposed Sale") would satisfy and
your rights relating to the Proposed Sale.
Any Proposed Sale of all the Properties will have a purchase price
of at least $6,000,000 before deducting all closing expenses, brokerage
commissions, legal fees and certain adjustments, the sum of which is
estimated to be approximately four percent of the sale price (the "Minimum
Price"). Although the General Partner will endeavor to sell all of the
Properties as part of a single sale, if the General Partner believes it is in
the best interests of the limited partners of the Partnership (the "Limited
Partners"), the Properties may be sold individually or in any combination
provided that the aggregate purchase price for the Properties included in the
transaction equals or exceeds the aggregate Minimum Price for such Properties
specified in the Proxy Statement.
The General Partner intends to distribute to the Limited Partners
the net proceeds from the Proposed Sale, which the General Partner estimates
will be approximately $5,266,742, or $351.12 per limited partnership unit if
all the Properties are sold at the Minimum Price, after deducting the
expenses of the Proposed Sale, payment of approximately $359,576 in
management fees due to Burger King Corporation and the payment of all debts,
liabilities and obligations of the Partnership and other expenses of
dissolution and liquidation of the Partnership. When added to the $2,350.70
per original $1,000 unit already distributed up to and including the third
quarter 1997 distributions from operations, total distributions since
inception of the Partnership will be approximately $2,701.82 per limited
partnership unit. The General Partner then plans to distribute the remaining
cash flow from the operations of the Properties and ultimately liquidate the
Partnership. Additional funds from operations available for distribution to
the Limited Partners from the liquidation of the Partnership are expected to
be approximately $406,578, or $27.11 per limited partnership unit. If the
Properties are sold in more than one transaction, the General Partner
currently intends to distribute the net proceeds of each sale in accordance
with the Agreement of Limited Partnership of the Partnership and will
<PAGE>
continue to operate the remaining Properties until all the Properties are
sold.
The Limited Partners will not benefit from future appreciation, if
any, in the value of the Properties if the Properties are sold at this time.
For more information concerning the Proposed Sale, please review the Proxy
Statement.
The Limited Partners have the right to disapprove of a sale of all
or substantially all of the assets of the Partnership in a single sale.
Although not required to do so, the General Partner has determined to call a
meeting for the purpose of facilitating consideration of the terms of the
Proposed Sale. In that regard, the Limited Partners should carefully review
the financial and other information contained in the Proxy Statement.
The General Partner believes the Proposed Sale is in the best
interests of the Limited Partners. Limited Partners in favor of a Proposed
Sale of the Properties are not required to execute and return the enclosed
proxy. Only limited partners that desire to disapprove a Proposed Sale need
execute and return the enclosed proxy.
If Limited Partners holding a majority in interest of the
outstanding limited partnership units do not disapprove the Proposed Sale,
the General Partner will pursue negotiations for a final sale of the
Properties on terms at least as favorable as those described in the Proxy
Statement.
Very truly yours,
BK I Realty Inc.,
as General Partner of Burger King
Limited Partnership I
Kenneth F. Boyle
President
<PAGE>
BURGER KING LIMITED PARTNERSHIP I
3 World Financial Center
29th Floor
New York, New York 10285-2900
(800) 223-3464
____________________
THIS PROXY IS SOLICITED ON BEHALF OF THE GENERAL PARTNER
____________________
The undersigned hereby appoints Kenneth F. Boyle and Timothy E. Needham, and
each of them, with full power of substitution, as attorneys, agents and
proxies to vote on behalf of the undersigned at the special meeting of
limited partners of Burger King Limited Partnership I (the "Partnership")
called by BK I Realty Inc. (the "General Partner"), the general partner of
the Partnership, to be held at 3 World Financial Center, New York, New York
on December 15, 1997 at 10 a.m., or any adjournment thereof, for the
following purposes:
1. To consider the sale of the remaining restaurants owned by the
Partnership and the assignment of all of the Partnership's rights in the
remaining restaurants subject to ground leases on the terms described in
the Proxy Statement.
THE GENERAL PARTNER RECOMMENDS THE PROPOSED SALE AND ASSIGNMENT.
APPROVE / / DISAPPROVE / /
2. Any other business that may properly come before the meeting.
This proxy (this "Proxy"), when properly executed and duly returned, will be
voted in the manner directed herein by the undersigned limited partner. If
no direction is made on this Proxy, this Proxy will NOT be voted to
DISAPPROVE the sale and assignment.
Dated ________ __, 1997
___________________________
Signature
Name:
Title:
___________________________
Signature (if held jointly)
<PAGE>
PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THE LABEL AFFIXED TO THIS
PROXY. WHEN UNITS ARE HELD BY JOINT
TENANTS, WHEN SIGNING AS AN
ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE
FULL TITLE OF SUCH. IF A
CORPORATION, PLEASE SIGN NAME BY
AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED
PERSON.
Any limited partner desiring to return this proxy should deliver it to:
Burger King Limited Partnership I
c/o Service Data Corporation
2424 South 130th Circle
Omaha, Nebraska 68144
Attn: Proxy Department
If you have any questions, please call Service Data Corporation at
(800) 223-3464.
<PAGE>
INSTRUCTIONS
1. Signatures of Registered Holders. In order to be valid, each
proxy must be signed by the registered Limited Partner or Limited Partners.
The signature must correspond exactly with the name(s) as written on the
label affixed to the proxy representing the Units without alteration. If
Units are owned of record by two or more joint owners, all such owners must
sign a single proxy in respect of such Units. If Units are registered in
different names, it will be necessary to complete, sign and submit as many
separate proxies as there are different registrations.
If a proxy is to be signed by a trustee, executor, administrator,
guardian, attorney-in-fact, agent, officer of a corporation or other person
acting in a fiduciary capacity, such person should so indicate when signing,
and proper evidence satisfactory to the General Partner of such person's
authority so to act must be submitted along with the proxy.
2. Delivery. Delivery of a proxy to an address other than the
address set forth on the proxy does not constitute a valid delivery. Only
proxies received at such address on or prior to the meeting date will be
valid. The method of delivery of a proxy is at the option and risk of the
tendering Unitholder. If delivery is by mail, registered mail with return
receipt requested is recommended. In all cases, sufficient time should be
allowed to insure timely delivery.
3. Requests for Assistance or Additional Copies. Requests for
assistance or additional copies of the Proxy Statement or the proxy may be
directed to the Investor Services Department of Service Data Corporation at
(800) 223-3464 or to the following address:
Service Data Corporation
Investor Services Department
2424 South 130th Circle
Omaha, Nebraska 68144
<PAGE>
BURGER KING LIMITED PARTNERSHIP I
NOTICE OF SPECIAL MEETING OF LIMITED PARTNERS
TO BE HELD ON DECEMBER 15, 1997
NOTICE IS HEREBY GIVEN, that a special meeting of the limited partners of
Burger King Limited Partnership I (the "Partnership"), called by BK I Realty
Inc., the general partner of the Partnership (the "General Partner"), will be
held at 3 World Financial Center, New York, New York, on December 15, 1997,
at 10 a.m. for the following purposes:
1. To consider the sale of the remaining restaurants owned by the
Partnership and the assignment of all of the Partnership's rights in the
remaining restaurants subject to ground leases on the terms described in
the Proxy Statement.
2. To transact such other business as may properly come before the special
meeting.
The General Partner has fixed the close of business on November 6,
1997 as the record date for determination of the limited partners entitled to
notice of and to vote at the special meeting.
Very truly yours,
BK I Realty Inc.,
as General Partner of Burger King
Limited Partnership I
Kenneth F. Boyle
President
New York, New York
November 12, 1997
<PAGE>
BURGER KING LIMITED PARTNERSHIP I
3 World Financial Center
29th Floor
New York, New York 10285-2900
(800) 223-3464
____________________
PROXY STATEMENT
____________________
This proxy statement (the "Proxy Statement") is being furnished to
holders of limited partnership interests (the "Units") in Burger King Limited
Partnership I, a New York limited partnership (the "Partnership"), in
connection with the special meeting of the limited partners (the "Limited
Partners") of the Partnership. The special meeting will be held at 3 World
Financial Center, New York, New York, on December 15, 1997, at 10 a.m., to
consider certain terms pursuant to which the Partnership may agree to sell
all six of the Partnership's Burger King (Registered Trademark) restaurants
owned in fee simple (the "Owned Properties") and to assign all of its rights
in all three of the Partnership's Burger King restaurants subject to ground
leases (the "Leased Properties") (the Owned Properties and the Leased
Properties are collectively referred to herein as the "Properties" and such
sale and assignment is collectively referred to herein as the "Proposed
Sale") to one or more buyers (collectively referred to as a "Buyer").
As of November 6, 1997, the Partnership had approximately 2,531
Limited Partners holding an aggregate of 15,000 Units. There is no
established trading market for such Units. To the best of the General
Partner's knowledge, no person or group of persons beneficially owns more
than five percent of the Units. The General Partner does not own any Units.
Only Limited Partners of record at the close of business on
November 6, 1997 will be entitled to notice of, and to participate in, the
special meeting. Proxies may be revoked in person at the special meeting or
by written notice received by the Partnership at any time before they are
voted. Unrevoked proxies in the form enclosed, properly executed and duly
returned, will be voted in accordance with the instructions thereon and,
unless specified to the contrary, will NOT be voted to DISAPPROVE the
Proposed Sale. The Notice of Meeting, Proxy Statement and the proxy are
being mailed to the Limited Partners on or about November 12, 1997. Officers
and other employees or agents of the General Partner may solicit proxies by
mail, by facsimile, by telephone or by personal interview.
<PAGE>
INTRODUCTION AND GENERAL INFORMATION
If the Proposed Sale is for all of the Properties, the
consideration will be at least $6,000,000 in cash before deducting all
closing expenses, brokerage commissions, legal fees and certain adjustments,
the sum of which is estimated to be approximately four percent of the sale
price (the "Minimum Price"). See "Description of the Proposed Sale -- Terms
of the Proposed Sale." Although the General Partner will endeavor to sell
all of the Properties as part of a single sale, if BK I Realty Inc., the
general partner of the Partnership (the "General Partner"), believes it is in
the best interests of the Limited Partners in order to maximize return, the
Properties may be sold individually or in any combination provided that the
sales price for the Properties included in the transaction equals or exceeds
the aggregate Target Sales Prices for such Properties stated on the chart
appearing below at page 7. The General Partner believes that the Proposed
Sale would be in the best interests of the Limited Partners.
The Agreement of Limited Partnership, dated as of December 14, 1981
(the "Partnership Agreement"), gives the General Partner broad authority to
sell the Partnership's assets at such price, rental or amount, and upon such
terms, as the General Partner deems proper, and obligates the General Partner
to use its best efforts to endeavor to sell all the Properties as soon after
the tenth year following the final closing of the Partnership as economic
circumstances warrant. The General Partner has entered into a nonbinding
letter of intent for the sale of the Properties as described below under
"Description of the Proposed Sale -- Terms of the Proposed Sale." There can
be no assurance that the Proposed Sale to this particular Buyer will be
consummated.
Pursuant to Section 8.3 of the Partnership Agreement, the Limited
Partners have the right to vote (assuming certain conditions described in the
Partnership Agreement are met) only upon certain matters, and Limited
Partners voting a majority in interest may, without the concurrence of the
General Partner, cause, among other things, the disapproval of any sale of
all or substantially all of the assets of the Partnership in a single sale.
A Proposed Sale of all of the Properties would constitute a sale of all or
substantially all of the Partnership's assets. Accordingly, Limited Partners
have the right to disapprove the Proposed Sale. A copy of the Partnership
Agreement is attached hereto as Appendix A.
The General Partner believes that a Proposed Sale is in the best
interests of the Limited Partners, and, though not required to do so by the
Partnership Agreement, it has determined to call a meeting pursuant to
Section 15.1 of the Partnership Agreement for the purpose of facilitating
consideration of the terms of the Proposed Sale by the Limited Partners. In
that regard, Limited Partners should carefully review the financial and other
information contained in this Proxy Statement.
Pursuant to the terms and conditions of the Partnership Agreement
and under applicable state law, the approval of Limited Partners is not
required to effect the Proposed Sale. Accordingly, Limited Partners in favor
of the Proposed Sale of the Properties are not required to execute and return
<PAGE>
the enclosed proxy. Only Limited Partners that desire to disapprove a
Proposed Sale need execute and return the enclosed proxy. Failure to return
the enclosed proxy will effectively count as a vote in favor of the Proposed
Sale.
If Limited Partners representing a majority in interest of the
outstanding Units do not disapprove the sale, the General Partner will pursue
negotiations for a sale of all of the Properties on the most favorable terms
that the General Partner is able to negotiate and otherwise for not less than
the Minimum Price. See "Description of the Proposed Sale -- Terms of the
Proposed Sale". If the Proposed Sale is consummated, Limited Partners will
not have any rights of appraisal or similar rights under New York law. If
Limited Partners representing a majority in interest of the outstanding Units
vote to disapprove the Proposed Sale, the General Partner will continue to
operate the Properties and distribute the cash flow from operations to the
Limited Partners in accordance with the Partnership Agreement.
As soon as practicable after the consummation of the Proposed Sale
of all of the Properties, the Partnership will be dissolved and its business
wound up in accordance with Article XI of the Partnership Agreement and the
Partnership's funds will be distributed to the Limited Partners and the
General Partner in the manner set forth in the Partnership Agreement. Upon
completion of the distribution of the Partnership's funds and liquidation of
the Partnership, the General Partner will execute and record a certificate of
cancellation of the Partnership and any other documents required to
effectuate the dissolution, liquidation and termination of the Partnership,
and the legal existence of the Partnership will cease. See "Distributions
upon Liquidation of the Partnership."
In accordance with the Partnership Agreement, the Partnership has
received an opinion of counsel to the effect that neither the grant nor the
exercise of the Limited Partners' right to vote with respect to the Proposed
Sale will result in the loss of any Limited Partner's limited liability or
will adversely affect the classification of the Partnership as a partnership
for federal income tax purposes.
THIS PROXY STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS. DISCUSSIONS
CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE MATERIAL SET
FORTH UNDER "DESCRIPTION OF THE PROPOSED SALE" AND "PRO FORMA UNAUDITED
CONDENSED FINANCIAL DATA" AS WELL AS WITHIN THE PROXY STATEMENT GENERALLY.
IN ADDITION, WHEN USED IN THIS PROXY STATEMENT, THE WORDS "BELIEVES,"
"ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS; HOWEVER, NOT ALL FORWARD-LOOKING STATEMENTS WILL
CONTAIN SUCH EXPRESSIONS. SUCH STATEMENTS ARE SUBJECT TO A NUMBER OF RISKS
AND UNCERTAINTIES. ACTUAL RESULTS OR EVENTS IN THE FUTURE COULD DIFFER
MATERIALLY FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT
OF THE INABILITY OF THE GENERAL PARTNER TO FIND A SUITABLE PURCHASER FOR THE
PROPERTIES, THE INABILITY TO AGREE ON AN ACCEPTABLE PURCHASE PRICE OR
CONTRACT TERMS, A DECREASE IN THE FINANCIAL PERFORMANCE OF THE PROPERTIES,
BURGER KING RESTAURANTS GENERALLY OR THE QUICK-SERVICE FOOD INDUSTRY, THE
DISCOVERY OF AN ENVIRONMENTAL CONDITION IMPACTING ONE OR MORE OF THE
PROPERTIES, AN ECONOMIC DOWNTURN IN THE MARKETS IN WHICH THE PROPERTIES ARE
<PAGE>
LOCATED AND OTHER FACTORS SET FORTH IN THIS PROXY STATEMENT. THE PARTNERSHIP
FURTHER CAUTIONS LIMITED PARTNERS THAT THE DISCUSSION OF THESE FACTORS MAY
NOT BE EXHAUSTIVE. THE PARTNERSHIP UNDERTAKES NO OBLIGATION TO PUBLICLY
RELEASE ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO
REFLECT ANY FUTURE EVENTS OR CIRCUMSTANCES.
<PAGE>
DESCRIPTION OF THE PROPOSED SALE
Background and Reasons for the Proposed Sale
The Partnership was originally formed to acquire or lease sites and
thereafter construct Burger King (Registered Trademark) restaurants for lease
(the "Leases") on a long-term net basis to franchisees (the "Franchisees") of
the Burger King Corporation ("Burger King Corporation"). The original
objectives of the Partnership, as outlined in the Partnership's prospectus
dated February 25, 1982 (the "Prospectus"), were to provide the Limited
Partners, in order of priority (i) regular and increasing cash distributions,
a portion of which will be "tax sheltered" and (ii) realization of long-term
appreciation in the value of the Properties, consistent in all cases with the
preservation of the Limited Partners' capital. The Prospectus also
contemplated the sale of the Properties as soon after the tenth year
following the closing date as economic conditions warranted, consistent with
the Partnership's investment objective of long-term appreciation, and the
General Partner agreed, pursuant to the Partnership Agreement, to endeavor to
sell the Properties in the manner contemplated in the Prospectus.
The Partnership originally constructed 32 Properties. As of
September 30, 1997, the Partnership had disposed of 23 Properties and the net
proceeds of such sales have been distributed to the Limited Partners pursuant
to the Partnership Agreement. The General Partner has been aggressively
marketing the Partnership's remaining Properties, reviewing both bulk-sales
possibilities and single-property sales to determine the most profitable and
expeditious method of efficiently liquidating the Properties.
The General Partner is currently seeking a Buyer which will agree
to a transaction on terms at least as favorable to the Partnership as the
terms described below and, in that connection, has retained Jones Lang
Wootton USA, Inc. to advise the Partnership regarding the marketing and sale
of the Properties. Jones Lang Wootton USA, Inc. is among the largest real
estate advisors in the United States and was engaged in $1.3 billion of
transactions in 1996.
The Partnership has been successful in distributing to the Limited
Partners, on a quarterly basis, cash flow generated from the Properties'
operations. Since the inception of the Partnership up to and including the
third quarter 1997 distributions from operations, Limited Partners have
received quarterly cash distributions of Net Cash Flow (as defined in the
Partnership Agreement) from operations totaling approximately $1,641.33 per
initial $1,000 Unit, combined with distributions of Net Property Disposition
Proceeds (as defined in the Partnership Agreement) from the sales of the
restaurants totaling approximately $709.37 per Unit, for a total aggregate
cash distribution to the Limited Partners of approximately $2,350.70 per
Unit. On a pro forma basis, assuming the Properties were sold to a Buyer for
the Minimum Price as of September 30, 1997, the General Partner estimates
that the net proceeds from the sale of all of the Properties available for
distribution to the Limited Partners would equal or exceed approximately
$5,266,742, or $351.12 per Unit, after deducting expenses of the Proposed
Sale, payment of management fees due to Burger King Corporation and payment
<PAGE>
of all debts, liabilities and obligations of the Partnership, the expenses of
dissolution and liquidation and the establishment of any reserves for
contingencies that the General Partner reasonably deems necessary. In
addition, the Limited Partners will receive an additional amount equal to or
exceeding $406,578, or $27.11 per Unit, as their final liquidating
distribution of cash flow from operations after the payment of all debts,
liabilities and obligations of the Partnership and the expenses of
dissolution and liquidation and the establishment of any reserves for
contingencies that the General Partner reasonably deems necessary. See
"Unaudited Pro Forma Condensed Financial Data."
The Partnership Agreement provides that the General Partner is
entitled to receive a distribution of net sales proceeds of approximately
$383,682 in connection with the Proposed Sale of all of the Properties at the
Minimum Price of $6,000,000 (assuming the Proposed Sale had occurred on
September 30, 1997). Pursuant to the Partnership Agreement, the General
Partner is entitled to receive an amount equal to or exceeding approximately
$24,142, or 1% of the net proceeds from the Proposed Sale until the Limited
Partners have received from the Partnership aggregate distributions equal to
such Limited Partner's original invested capital plus a cumulative annual
compounded return of 12.5% per annum on his remaining invested capital, as
adjusted from time to time ("Payout"), and approximately $359,540, or 11.11%
of the net proceeds from the Proposed Sale after each Limited Partner has
achieved Payout. In addition, it is estimated that upon the liquidation of
the Partnership, the General Partner will receive an additional amount equal
to or exceeding $21,399 as the General Partner's final liquidating
distribution of cash flow from operations.
Advantages to Limited Partners of the Proposed Sale
The General Partner believes that the Proposed Sale will maximize
the Partnership's realization of the appreciation in the value of the
Properties. The Leases with the Franchisees at the Properties were
originally for 20-year terms and, for the most part, currently have
approximately 5-6 years remaining. The remaining terms of the Leases are one
of the primary factors that a prospective buyer will evaluate in pricing the
Properties. As the Leases approach maturity, prospective buyers are likely
to attribute a greater discount to the value of the Properties and,
therefore, if the Partnership continues to hold the Properties, the General
Partner believes that the Properties' fair market value may decrease.
The General Partner also believes that the Proposed Sale is the
most attractive opportunity for the Partnership to dispose of the remaining
Properties. The Partnership's ability to sell all or substantially all of
the remaining Properties in a bulk sale should allow the Partnership to
maximize the purchase price through competitive bids. The purchase price for
the Properties may be higher than the Minimum Price. In addition, any Buyer
would have to indicate that it has sufficient funds available to finance the
Proposed Sale.
<PAGE>
Disadvantages to Limited Partners of the Proposed Sale
While the General Partner believes that the Proposed Sale would be
in the best interests of the Limited Partners, each Limited Partner should
consider the following factors in evaluating the Proposed Sale. Upon the
completion of the Proposed Sale of all of the Properties and pending the
liquidation of the Partnership, Limited Partners will no longer receive
distributions of cash flows from operations since the Partnership will no
longer be operating the Properties. However, Limited Partners will receive a
distribution of the net proceeds of the Proposed Sale, after deduction of
certain expenses and fees as described above in "-- Background and Reasons
for the Proposed Sale." Limited Partners will be subject to capital gains
taxes to the extent the Purchase Price per Unit exceeds the Limited Partners'
adjusted tax basis in each Unit. Finally, Limited Partners will not benefit
from future appreciation, if any, in the value of the Properties if the
Properties are sold at this time.
The Minimum Price of $6,000,000 is $1,530,000 lower than the
Properties' aggregate appraised value of $7,530,000 as of December 31, 1996,
a difference primarily attributable to environmental concerns relating to
certain Properties which were not taken into account when determining the
appraised value.
Terms of the Proposed Sale
Properties and Consideration. All of the Properties are Burger
King (Registered Trademark) restaurants located at the locations set forth in
the following table. A Buyer will agree, subject to the terms and conditions
of a purchase agreement to be negotiated between the Partnership and the
Buyer, to acquire either (i) all the Properties set forth below for an
aggregate purchase price equal to at least the Minimum Price of $6,000,000 or
(ii) less than all of the Properties for a purchase price for the Properties
being sold at least equal to the sum of the Target Sales Prices (as set forth
below) for such Properties.
Restaurant Number Location Target Sales Price
- ----------------- -------- ------------------
3442 Statesville, NC $ 900,000
3466 Fairfield, OH 550,000
3486 Decatur, AL 1,100,000
3504 Springdale, AR 600,000
3548 Greenville, SC 650,000
3588 Springfield, MA 400,000
3626 Greenfield, WI 300,000
3641 Atlanta, GA 750,000
3645 Klamath Falls, OR 750,000
----------
Total ("Minimum Price") $6,000,000
Properties--Operating Data. Of the nine Properties, the
Partnership owns six of the Properties in fee simple and holds a leasehold
interest in three of the Properties. None of the Properties are encumbered
<PAGE>
by mortgages. The land under each of the Leased Properties is owned in fee
by a third party who leases the land to Burger King Corporation (the
"Groundlease"). Burger King Corporation subleases the land under each of the
Leased Properties to the Partnership (the "BK Leases"), which in turn
sub-subleases each of the Leased Properties to individual franchisees (the
"Operating Leases"). All of the Operating Leases are net leases and the
franchisees pay to the Partnership an amount equal to the greater of (i) the
minimum base rent specified in the Operating Leases (as described in the
following table) or (ii) a percentage rent equal to 8.5% of the Property's
annual gross sales. The minimum base rent is paid monthly while percentage
rent is paid quarterly and adjusted on an annual basis. The Partnership has
no plans for the renovation, improvement or development of any of the
Properties. The franchisees are required to maintain insurance coverage for
their respective restaurants as required by the Operating Leases. In the
opinion of the General Partner, each of the Properties is adequately covered
by insurance.
<TABLE>
<CAPTION>
OPERATING LEASES GROUND LEASES
------------------------------------- -------------------------------------
1996 Ground Rent
Restaurant 1996 Minimum Lease paid to Burger
Number Restaurant Location Title Lease Expiration Base Rent Expiration<F1> King Corporation
- --------------- -------------------- ------------ ----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
3442 Statesville, NC Fee 05/23/02 $68,330
3466 Fairfield, OH Fee 06/03/02 62,303
3486 Decatur, AL Fee 08/15/03 63,210
3504 Springdale, AR Fee 05/23/02 66,553
3548 Greenville, SC Fee 10/31/02 53,904
3588 Springfield, MA Leasehold 12/17/02 84,660 12/12/22 $41,220
3626 Greenfield, WI Fee 02/22/03 66,166
3641 Atlanta, GA Leasehold 03/13/03 73,748 03/13/23 37,344
3645 Klamath Falls, OR Leasehold 03/24/03 69,716 03/24/23 34,350
<FN>
<F1> Assuming exercise of all available renewal options.
</TABLE>
General Terms and Conditions. The General Partner will
endeavor to sell the Properties in one or more Proposed Sales on the most
favorable terms that the General Partner is able to negotiate but in any
event will not accept a sale price for a bulk sale of all of the Properties
which is less than the Minimum Price, nor will it accept a sales price for a
sale of less than all of the Properties which is less than the cumulative
Target Sales Prices of such Properties.
Recent Developments. The Partnership has entered into a
letter of intent with a potential Buyer for the sale of the Properties for a
purchase price of $6,400,000. The letter of intent is not binding on either
<PAGE>
of the parties and any sale of the Properties to this potential Buyer is
subject to, among other things, the potential Buyer's review and inspection
of the Properties and the execution by the parties of a definitive contract
of sale. Accordingly, there can be no assurance that the Properties will be
sold to this potential Buyer or, if sold to it, that the actual purchase
price will not be renegotiated, except that the price will not be less than
the Minimum Price. If the Properties are not sold to this potential Buyer,
the General Partner will continue to operate the Properties and pursue
negotiations for a sale of the Properties on terms at least as favorable as
those described in this Proxy Statement.
Federal Income Tax Consequences of the Proposed Sale
The following is a summary of the material Federal income
tax consequences which may affect a Limited Partner resulting from the
Proposed Sale and subsequent liquidation of the Partnership. It would be
impractical to discuss all aspects of Federal, state and local income tax
laws which may affect the income tax consequences upon Limited Partners
described herein and no attempt has been made to do so. This summary is not
intended as a substitute for careful tax planning, particularly because the
Federal income tax consequences of an investment in partnerships, such as the
Partnership, are often dependent on a variety of factors, and the impact of
such factors may vary from Limited Partner to Limited Partner according to
its own particular tax situation. THEREFORE, EACH LIMITED PARTNER SHOULD
SATISFY ITSELF AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS
DESCRIBED HEREIN BY OBTAINING GUIDANCE FROM ITS OWN TAX ADVISOR.
The following summary is based on the Internal Revenue Code
of 1986, as amended to date (the "Code"), the legislative history of the
Code, existing and proposed regulations thereunder, judicial decisions and
current administrative rulings and practices. No assurance can be given that
legislative, judicial or administrative changes may not be forthcoming which
would affect the accuracy of this summary. Any such changes may or may not
be retroactive with respect to transactions entered into or contemplated
prior to the effective date of such changes (subject to the applicable
statute of limitations). Capitalized terms not defined herein have the same
meanings as in the Partnership Agreement.
The following discussion is primarily applicable to Limited
Partners other than tax-exempt organizations (such as Limited Partners who
are holding their Units in employee trusts, institutional retirement accounts
and Keogh plans). Those tax-exempt Limited Partners should pay particular
attention to the discussion under the heading "--Exempt Employee Trusts and
Individual Retirement Accounts; Unrelated Business Taxable Income" below.
Limited Partners should be aware that the Internal Revenue
Service (the "Service") may not agree with certain of the conclusions reached
herein and that, if challenged by the Service, such conclusions might not be
sustained by the courts. If the tax treatment accorded to one or more items
is disallowed, Limited Partners may be assessed for additional taxes along
with interest and penalties.
<PAGE>
In addition, it should be noted that the Limited Partners
may be subject to taxes other than Federal income taxes, such as state and
local income or franchise taxes and estate or inheritance taxes which may be
imposed by various jurisdictions. This discussion is limited to Federal
income tax consequences only.
Taxation of Limited Partners in General. The Partnership is
a partnership for Federal income tax purposes and therefore is not subject to
Federal income tax; rather, each Limited Partner is required to take into
account its distributive share of the Partnership's income, gains, losses,
deductions, credits and tax preference items in computing such Limited
Partner's Federal income tax liability for any taxable year of the
Partnership ending within or with the taxable year of such Limited Partner,
without regard to whether it has received or will receive any distribution
from the Partnership. Such distributive share is required to be reported by
the Partnership to each Limited Partner on the Schedule K-1; each Limited
Partner is required to report consistently with such Schedule K-1 unless it
discloses any inconsistent position to the Service when it files its Federal
income tax return. A Limited Partner's distributive share of the
Partnership's income or loss is determined in accordance with the allocations
set forth in the Partnership Agreement. See "Allocation of Partnership
Income and Losses," below.
Limited Partner's Gain or Loss Upon the Sale of the
Properties. Each Limited Partner will be required to include in its income
for Federal income tax purposes its allocable share of the gain or loss
realized by the Partnership upon the disposition by the Partnership of the
Properties pursuant to the Proposed Sale. Such gain or loss will be
reportable by a Limited Partner whether or not the Partnership distributes
the net proceeds from the sale of the Properties regardless of the amounts
actually distributed to such Limited Partner. The character of the gain or
loss realized upon the sale of the Properties by each Limited Partner will
depend upon, among other things, whether or not the Partnership is considered
a "dealer" in its Properties for Federal income tax purposes, as discussed
below. The Partnership believes that it will not be considered a "dealer" in
real estate, in which event any gain or loss realized from the sale of a
Property held for more than one year will be treated as "Section 1231" gain
(or loss), except that certain portions of such gain may be "recaptured" as
ordinary income. See "--Depreciation Recapture" below. Each Limited Partner
will then net its "Section 1231" gains and losses from all sources, including
its allocable share of such gains and losses realized by the Partnership.
Except as provided in the next sentence, to the extent that a Limited Partner
has a net "Section 1231" gain for any taxable year "Section 1231" gains and
"Section 1231" losses will be treated as long-term capital gains or losses,
as the case may be. A net "Section 1231" gain will be treated as ordinary
income to the extent that such gain does not exceed the amount of net
"Section 1231" losses realized in the five preceding taxable years that did
not result in a net "Section 1231" gain for a prior year being treated as
ordinary income. To the extent that "Section 1231" gains do not exceed
"Section 1231" losses, such gains and losses will be treated as ordinary
gains and losses.
<PAGE>
If the Partnership were considered a "dealer" in the
Properties for Federal income tax purposes, the entire portion of the gain
(or loss) allocable to any particular Limited Partner as a result of the
Proposed Sale of the Properties would be treated as ordinary income (or
loss). The Partnership has not been organized to engage in the business of
buying and selling real property. The Partnership believes that it should
not be characterized as a "dealer" in real property since the sale of the
Properties in the liquidation of the Partnership is not in the "ordinary
course" of the Partnership's business. The determination of this issue,
however, depends on the facts and circumstances of the Partnership's
operations, and the Service may disagree with the Partnership's position.
Depreciation Recapture. In general, a taxpayer must
recapture as ordinary income any gain on the sale of personal property to the
extent of the excess of (i) the lower of (x) the amount realized on the sale
or (y) the "recomputed basis" of the property (which is generally equal to
the adjusted basis of the property plus all adjustments to such basis on
account of allowed or allowable depreciation deductions) over (ii) the
adjusted basis of such property. In addition, a taxpayer must recapture as
ordinary income any gain on the sale of real property (generally, buildings
and their structural components) that is recovery property for purposes of
the accelerated cost recovery system to the extent of depreciation deductions
claimed unless a valid election was made to claim depreciation on a
straight-line basis, and in any event to the extent that depreciation
deductions claimed in respect of such real property were in excess of
straight-line depreciation. The Partnership intends to allocate all of the
proceeds from the sale of the Properties to the real property and, based on
its election to depreciate the Properties on a straight-line basis, to take
the position that the Limited Partners should not be required to recapture
any of the depreciation claimed in respect of such real or personal property,
such that all of the gain (or loss) realized on the sale of the Properties by
the Partnership and allocated to the Limited Partners should be treated in
the manner described above. Were the Service to challenge such position, and
were such challenge successful, a portion of any gain on the sale of the
Properties would be treated as ordinary income rather than as described
above.
Allocation of Partnership Income and Losses. The income and
gain resulting from the Proposed Sale will be allocated to each Limited
Partner according to the terms of the Partnership Agreement. Pursuant to the
Partnership Agreement, the gains from the disposition of the Properties would
be allocated 99% to the Limited Partners and 1% to the General Partner until
the amount so allocated to the Limited Partners increases such Limited
Partners' capital accounts to an amount sufficient, if distributed, to
provide each Limited Partner with a return of its original invested capital
(generally $1,000 per Unit), plus a cumulative annual compounded return of
12.5% on the Limited Partner's remaining invested capital (generally the
Limited Partner's original invested capital reduced by distributions
subsequent to the acquisition of the Unit) (such amount, "Payout"). The
gains then would be allocated to any Partner to the extent required to
increase any Partner's negative capital account to zero and the balance would
be allocated 88.89% to the Limited Partners and 11.11% to the General
<PAGE>
Partner. However, if at the time of the sale of the Properties, Payout has
not yet occurred and the aggregate outstanding balance of the Limited
Partners' capital accounts exceeds the amount necessary to cause Payout to
occur, the gain from the sale of the Properties would be allocated to the
General Partner in an amount equal to 12.5% of such excess, and the remaining
gain would be allocated 88.89% to the Limited Partners and 11.11% to the
General Partner. If Payout has occurred at the time of the sale of the
Properties, gain from the sale of such Properties would be allocated first to
the General Partner to the extent necessary to bring the General Partner's
capital account balance equal to 11.11% of the outstanding aggregate capital
balances of all the Partners, and the remaining gain would be allocated
88.89% to the Limited Partners and 11.11% to the General Partner. Any gain
from the sale treated as ordinary income as a result of previous depreciation
deductions would be allocated to the extent possible under the above rules to
those Limited Partners who were allocated such depreciation deductions.
For the purpose of the allocations, all items of income,
gain, loss, deduction and credit are allocated to each calendar month of the
year, regardless of the Partnership's operations during the months of the
year, and are apportioned on a monthly basis to the Limited Partner in the
ratio in which the number of Units owned by each of them at the end of the
month bears to the total number of Units owned by all of them as of that
date.
Cash Distributions and Adjusted Basis. Cash distributions
from the Partnership will be made to each Limited Partner in accordance with
the Partnership Agreement. Pursuant to the Partnership Agreement,
distributions of the net proceeds from the sale of the Properties would be
made, after capital accounts have been adjusted to reflect the gain from such
proceeds, subject to the rights of Burger King Corporation under the Property
Management Agreement and the Master Agreement, and if Payout has not occurred
at such time, (i) 99% to the Limited Partners and 1% to the General Partner
to the extent necessary to cause Payout to occur or (ii) if at the time of
the distribution the Limited Partners' capital accounts still are
insufficient to cause Payout to occur, the distribution would be made 99% to
the Limited Partners and 1% to the General Partner until the amount so
distributed is sufficient to reduce the lesser of the General Partner's or
the Limited Partners' aggregate capital accounts to zero, then to any Partner
with a positive capital account balance in an amount sufficient to reduce
such balance to zero and finally 99% to the Limited Partners and 1% to the
General Partner in the amount necessary to cause Payout to occur. Once
Payout occurs, and after adjusting all capital accounts to reflect
distributions made as described above, any remaining proceeds would be
distributed in proportion to and to the extent of any Partner's remaining
capital account balance and finally 88.89% to the Limited Partner and 11.11%
to the General Partner.
When the Partnership distributes the net proceeds from the
sale of the Properties, a Limited Partner may incur Federal income tax in
addition to the tax imposed on such Limited Partner's allocable share of the
income or loss upon the sale of the Properties. Because the transactions
contemplated by this Proxy Statement involve a sale of all the Partnership's
<PAGE>
remaining assets and the liquidation of the Partnership, any distribution in
connection with such transactions will be taxable as a liquidating
distribution. In general, a Limited Partner will recognize gain upon receipt
of a liquidating cash distribution to the extent that the amount of cash
received exceeds such Limited Partner's adjusted basis in the Partnership.
Any gain which a Limited Partner recognizes from a liquidating distribution
will be taxed as though such Limited Partner had sold or exchanged its Units
and, therefore, generally will be taxed as capital gain. A Limited Partner
may recognize loss on a liquidating distribution to the extent that such
distribution consists of money and the amount of such money is less than the
Limited Partner's pre-distribution adjusted basis in its Units.
A Limited Partner's adjusted basis in its Units will
initially equal the amount of cash contributed to the Partnership by such
Limited Partner for its Units or the amount paid by a Limited Partner upon a
purchase of the Units. Subsequently, a Limited Partner's adjusted basis is
increased by its distributive share of Partnership taxable income and gain
(such as from the sale of the Properties) and decreased (but not below zero)
by distributions from the Partnership and its distributive share of
Partnership deductions and losses, if any. Although special rules apply to
the computation of a Limited Partner's adjusted basis where (i) the
partnership mortgages its properties or otherwise incurs indebtedness, (ii)
the limited partner is personally liable for partnership debts in excess of
its capital contributions or (iii) there is a shift in the allocation of
partnership profits or losses for the benefit of the limited partners, such
rules generally do not impact the Limited Partners of the Partnership.
Exempt Employee Trusts and Individual Retirement Accounts.
Tax-exempt organizations, including trusts which hold assets of employee
benefit plans, although not generally subject to Federal income tax, are
subject to tax on certain income derived from a trade or business carried on
by the organization which is unrelated to its exempt activities. However,
such unrelated business taxable income does not in general include income
from real property, gain from the sale of property other than inventory,
interest, dividends and certain other types of passive investment income that
is derived from "debt-financed properties" as defined in Section 514 of the
Code. Further, if, as the Partnership believes, the Properties are not
characterized as "inventory," and are not held primarily for sale to
customers in the ordinary course of the Partnership's business, the income
from the sale of the Properties should not constitute unrelated business
taxable income. Finally, the Partnership's temporary investment of funds in
interest-bearing instruments and deposits also should not give rise to
unrelated business taxable income.
Foreign Investors. Foreign corporations, foreign
partnerships, foreign trusts, foreign estates and nonresident aliens
(collectively "Foreign Persons") who engage in a trade or business in the
United States are taxable as domestic persons with respect to income which is
effectively connected with the conduct of such trade or business. Limited
Partners who are Foreign Persons are deemed to be engaged in a trade or
business in the United States as a result of the Partnership's purchase and
leasing of the Properties. As a result, rental income from such Properties,
<PAGE>
the gain or loss from the sale of the Properties, and any interest or
dividend income on funds temporarily invested in short-term obligations (as
well as gain or loss from the sale of such obligations) will be taxed
according to the general rules applicable to domestic entities to the extent
that such income and gains are effectively connected with the conduct of the
Partnership's business. In the absence of an applicable tax treaty between
the United States and a Foreign Person's resident country, the Partnership is
required to withhold Federal income tax on amounts actually distributed that
are (or are treated as being) effectively connected with the Partnership's
trade or business allocable to a Foreign Person, and the Partnership intends
to withhold such Federal income tax at the highest rate applicable to
individuals or corporations, as the case may be (currently 39.6% and 35%,
respectively). The amount of any withholding tax payments will be offset by
the Partnership against distributions payable to such Foreign Person. It
should be noted that this section does not purport to discuss all of the
Federal, state or local tax consequences or considerations that may be
applicable to Foreign Persons owning Interests. In particular, foreign
corporations owning Units may be subject to the branch profits tax. All
Foreign Persons owning Units are strongly encouraged to consult their own tax
advisors with respect to their own situations and the effects of the
transactions contemplated by this Proxy Statement.
State and Local Taxes. The Partnership may operate in
states and localities which impose a tax on the Partnership's assets or
income or on each Limited Partner's share of any income, and certain states
require the Partnership to withhold a portion of earnings or distributions,
or both, to non-resident Limited Partners in respect of such taxes. A
Limited Partner's distributive share of the taxable income or loss of the
Partnership may be required to be included in determining its reportable
income for state or local tax purposes in the state in which the Limited
Partner resides. In addition, any other states in which the Partnership owns
properties may require non-resident Limited Partners to file state income tax
returns and may impose a tax determined with reference to a Limited Partner's
proportionate share of Partnership income derived from such state. On the
other hand, tax losses, if any attributable to the Partnership's ownership of
property in a particular state may be available to offset income from other
sources derived within that state. To the extent that a non-resident Limited
Partner pays tax to a state by virtue of Partnership operations within that
state, it may be entitled to a deduction or credit against tax owed to its
state of residence with respect to the same income. With respect to
corporate Limited Partners, potential taxation of the same income by more
than one state may be mitigated by allocation and apportionment rules. In
addition, payment of state and local income taxes will constitute a deduction
for Federal income tax purposes, assuming (in the case of an individual) that
the Limited Partner itemizes deductions.
THE FOREGOING ANALYSIS CANNOT BE, AND IS NOT INTENDED AS, A
SUBSTITUTE FOR CAREFUL TAX PLANNING. LIMITED PARTNERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR OWN TAX SITUATIONS AND THE
EFFECTS OF THIS TRANSACTION AS TO FEDERAL, STATE AND LOCAL TAXES INCLUDING,
BUT NOT LIMITED TO, INCOME, ESTATE AND INHERITANCE TAXES.
<PAGE>
Accounting Treatment of the Proposed Sale
The Proposed Sale is expected to result in a gain by the
Partnership for financial reporting purposes.
<PAGE>
DISTRIBUTIONS UPON LIQUIDATION OF THE PARTNERSHIP
If the Proposed Sale of all of the Properties is
consummated, the Partnership will subsequently be dissolved and its business
wound up in accordance with Article XI of the Partnership Agreement. The
Partnership's funds will be distributed to the Limited Partners and the
General Partner in the manner set forth in the Partnership Agreement. Upon
completion of the distribution of the Partnership's funds and the liquidation
of the Partnership, the General Partner will execute and record a certificate
of cancellation of the Partnership and any other documents required to
effectuate the dissolution, liquidation and termination of the Partnership,
and the legal existence of the Partnership will cease. Subsequent to the
consummation of a Proposed Sale, the General Partner will distribute the net
proceeds from the Proposed Sale other than amounts which the General Partner
expects to retain to cover the expenses of liquidating the Partnership and
amounts required to establish reserves for contingencies that the General
Partner reasonably deems necessary. Any remaining proceeds not applied to
pay such expenses of liquidating the Partnership will be distributed to the
Limited Partners upon final liquidation of the Partnership.
Assuming the Proposed Sale of all of the Properties was
consummated on September 30, 1997 at the Minimum Price, the General Partner
estimates that the Limited Partners would have received a distribution of
approximately $2,728.93 per Unit, approximately $1,641.33 of which would have
constituted Net Cash Flow from operations and approximately $1,087.60 of
which would have constituted Net Property Disposition Proceeds. If a
Proposed Sale is consummated for a purchase price in excess of the Minimum
Price, distributions to Limited Partners and the General Partner will be
higher. See "Unaudited Pro Forma Condensed Financial Data."
UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
The following Unaudited Pro Forma Condensed Balance Sheet as
of September 30, 1997 and the Unaudited Pro Forma Statement of Changes in Net
Assets Available for Liquidation as of the same date are presented as if the
Partnership's remaining six owned properties and three leased properties are
sold at the Minimum Price of $6,000,000 and the Partnership liquidated on
September 30, 1997. This unaudited pro forma condensed financial data should
be read in conjunction with the unaudited financial statements for the
quarter ended September 30, 1997 included elsewhere in this Proxy Statement.
<PAGE>
BURGER KING LIMITED PARTNERSHIP I
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
September 30, 1997
<TABLE>
<CAPTION>
Pro Forma
Historical Pro Forma Pro Forma Balance Sheet
Balance Sheet<F1> Proposed Sale Liquidation at September
at September 30, 1997 Adjustments Adjustments<F4> 30, 1997
--------------------- ------------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Assets
Real estate held for sale . . $1,497,736 $(1,497,736)<F2> $ -- $ --
Cash . . . . . . . . . . . . 858,898 5,760,000<F2> (180,921) 6,437,977
Rent receivable . . . . . . . 70,556 -- (70,556) --
---------- ----------- ----------- -----------
Total Assets . . . . . . 2,427,190 4,262,264 (251,477) 6,437,977
========== =========== ========== ===========
Liabilities and Partners'
Capital
Liabilities:
Accounts payable and
accrued expenses . . . . . $ 54,844 $ -- $ (54,844) $ --
Management fee . . . . . . -- 359,576<F2> -- 359,576
Distributions payable . . 196,633 -- (196,633) --
---------- ----------- ----------- -----------
Total Liabilities . . . 251,477 359,576 (251,477) 359,576
========== =========== ========== ===========
Partners' Capital (Deficit):
General Partner . . . . . (89,538) 494,619<F3> -- 405,081
Limited Partners (15,000
units outstanding) . . . . 2,265,251 3,408,069<F3> -- 5,673,320
---------- ----------- ----------- -----------
Total Partners' Capital 2,175,713 3,902,688 -- 6,078,401
---------- ----------- ----------- -----------
Total Liabilities and
Partners' Capital . . . $2,427,190 $ 4,262,264 $ -- $ 6,437,977
========== =========== ========== ===========
</TABLE>
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF CHANGES IN NET ASSETS
AVAILABLE FOR LIQUIDATION
September 30, 1997
<TABLE>
<CAPTION>
General Limited Per
Total Partner Partners LP Unit
--------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Gross Sales Price . . . . . . . . . . . $ 6,000,000<F2>
Less Estimated Sales Costs. . . . . . . (240,000)<F2>
-----------
Estimated Net Sales Proceeds . . . . . 5,760,000<F2>
Reserve Net Sales Proceeds . . . . . . 250,000<F5>
-----------
Total Property Disposition Proceeds . . 6,010,000
Distribution of Net Property
Disposition Proceeds Required to
Reach Payout:
Remaining Invested Capital at
September 30, 1997 (15,000 Units at
$159.34 per Unit) . . . . . . . . . . . 2,414,242<F6> $ 24,142 $ 2,390,100 $159.34
Net Property Disposition Proceeds . . . 3,595,758
Less 10% Management Fee to Burger
King Corporation . . . . . . . . . (359,576)<F7>
-----------
Remaining Property Disposition
Proceeds . . . . . . . . . . . . . 3,236,182<F7> 359,540 2,876,642 191.78
=========== ======== =========== =======
Allocation of Net Property
Disposition Proceeds . . . . . . . 5,650,424 383,682 5,266,742 351.12
Cash Available at September 30, 1997 . 858,898<F1>
Reserve Net Sales Proceeds . . . . . . (250,000)<F5>
Liquidation of Balance Sheet Accounts . (180,921)<F4>
-----------
Allocation of Cash Available from
Operations . . . . . . . . . . . . . . 427,977<F8> 21,399 406,578 27.11
----------- -------- ----------- -------
Total Distributions . . . . . . . . . . $ 6,078,401 $405,081 $ 5,673,320 $378.22
=========== ======== =========== =======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Data.
<PAGE>
Notes to Unaudited Pro Forma Condensed Financial Data
[FN]
<F1> The pro forma balances were prepared by taking historical balances
reflected in the Partnership's September 30, 1997 Form 10-Q and
adjusting for the Proposed Sale, estimates for selling costs and
liquidation of the Partnership, as described in the Proxy Statement.
<F2> The proceeds from the Proposed Sale are assumed to be $5,760,000 (the
Minimum Price of $6,000,000 less maximum estimated selling cost of
$240,000). Pursuant to the Management Agreement, Burger King
Corporation will receive a management fee equal to 10% of the net
property sales proceeds after each Limited Partner has received
aggregate distributions equal to such Limited Partner's original
invested capital plus a cumulative annual compounded return of 12.5%
per annum.
<F3> The adjustments to partners' capital in the aggregate amount of
$3,902,688 are made to reflect a gain from the Proposed Sale as if it
occurred on September 30, 1997.
<F4> Receipt of rents receivable, payment of accounts payable and accrued
expenses and distributions payable prior to the liquidation of the
Partnership.
<F5> Represents "Net Property Disposition Proceeds," as defined in the
Partnership Agreement, previously retained in cash reserves.
<F6> Section 5.2 of the Partnership Agreement provides that Net Property
Disposition Proceeds are distributed 99% to the Limited Partners and
1% to the General Partner in an amount sufficient to cause Payout to
occur. Payout is defined in the Partnership Agreement as the point
in time at which each Limited Partner has received from the
Partnership aggregate distributions equal to such Limited Partner's
Original Invested Capital plus a cumulative annual compounded return
of 12.5% per annum on its Remaining Invested Capital, as adjusted
from time to time.
<F7> After Payout has occurred and capital accounts have been adjusted to
zero, Burger King Corporation is entitled to receive a management fee
equal to 10% of the Net Property Disposition Proceeds remaining after
Payout and, thereafter, distributions of the Net Property Disposition
Proceeds are allocated 88.89% to the Limited Partners and 11.11% to
the General Partner.
<F8> After payment of all the debts, liabilities and obligations of the
Partnership and the expenses of dissolution and liquidation and the
setting up of any reserves for contingencies that the General Partner
reasonably deems necessary, liquidating distributions shall be made
to the Limited Partners in the same manner that "Net Cash Flow from
Operations," as defined in the Partnership Agreement, is distributed
in accordance with Section 5.1 of the Partnership Agreement.
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected historical financial
data of the Partnership for the five years ended December 31, 1996 and the
nine months ended September 30, 1997 and 1996. The selected historical
financial data for the five years ended December 31, 1996 were derived from
the Partnership's financial statements for the corresponding periods. The
selected historical financial data for the nine months ended September 30,
1997 and 1996, respectively, are unaudited but, in the opinion of management,
include all adjustments necessary for a fair presentation of the financial
data for such periods. The results for the nine months ended September 30,
1997 and 1996 are not necessarily indicative of the results for a full fiscal
year.
Limited Partners should note that the General Partner does
not maintain a separate audited balance sheet. The General Partner is an
affiliate of Lehman Brothers Inc. The General Partner has no employees and
conducts no business other than serving as the General Partner of the
Partnership. The General Partner does not believe that the disclosure of its
audited balance sheet would be material to a Limited Partner's evaluation of
the Proposed Sale since the General Partner's financial condition will have
no effect on distributions to the Limited Partners in connection with the
Proposed Sale or thereafter. For additional information, see the unaudited
Pro Forma Condensed Financial Data and Financial Statements included
elsewhere in this Proxy Statement. The following table should be read in
conjunction with the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 and the Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, 1997, June 30, 1997 and September 30, 1997,
as well as any other documents filed by the Partnership after the date of
this Proxy Statement, all of which are incorporated by reference in this
Proxy Statement. For a report by the Partnership's independent auditors with
respect to certain historical financial information, see "Index to Financial
Statements."
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
-------------------------- ---------------------------------------------------------------------
Financial Data 1997 1996 1996 1995 1994 1993 1992
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental Income . . . . . . . . . $ 683,516 $ 771,660 $ 994,879 $1,004,195 $1,820,012 $1,907,913 $2,415,894
Gains on Sales of Properties . -- -- 338,595 1,253,015 2,040,687 550,609 1,539,107
Net Income . . . . . . . . . . 475,998 528,945 1,026,350 1,870,532 3,179,853 1,734,447 2,981,876
Net Income per Unit . . . . . . 30.15 33.22 65.54 121.41 206.04 110.38 191.76
Total Assets . . . . . . . . . 2,427,190 2,882,241 3,052,291 2,886,432 5,841,632 5,944,174 6,961,206
</TABLE>
<TABLE>
<CAPTION>
Quarterly Cash
Distributions
(per Unit) 1997 1996 1995 1994 1993 1992
- -------------------- ------------ ---------------- --------------- --------------- -------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
First quarter . . . $10.21 $11.56 $134.87 $ 21.42 $ 24.24 $ 26.10
Second quarter . . 9.17 11.07 4.73 21.73 92.91 28.35
Third quarter . . . 11.68 16.33 11.84 159.37 22.99 29.45
Fourth quarter . . -- 51.42 10.52 156.33 23.68 205.88
------ ------ ------- ------- ------- -------
Total Cash
Distributions . . $31.06 $90.38<F1> $161.96<F2> $358.85<F3> $163.82<F4> $289.78<F5>
</TABLE>
[FN]
<F1> Includes a distribution of $38.31 from the sale of one of the
Properties located in Wichita, KS.
<F2> Includes a distribution of $128.37 from the sale of three of the
Properties located, respectively, in Washington, NC; Carlsbad, NM;
and Big Spring, TX.
<F3> Includes a $139.66 per Unit distribution from the sale of six
Properties located in, respectively, Madison Heights, VA; Pearl, MS;
Falmouth, MA; Tucson, AZ; West Springfield, MA; and Jackson, MS and a
$140.65 per unit distribution from the sale of four Properties
located, respectively, in Kansas City, MO; Pasco, WA; Salem, MA; and
West Allis, WI.
<F4> Includes a $71.91 per Unit distribution from the sale of three
Properties located, respectively, in Atlantic Highlands, NJ; Rohnert
Park, CA; and Dothan, AL.
<F5> Includes a $171.30 per Unit distribution from the sale of five
Properties located, respectively, in Grand Island, NE; Marion, VA;
Sunnyvale, CA; Greenbelt, MD; and Guilderland, NY.
<PAGE>
BUSINESS OF THE PARTNERSHIP
The Partnership was formed as a limited partnership on
December 14, 1981 under the partnership laws of the State of New York. The
General Partner of the Partnership is BK I Realty Inc. (formerly Shearson/BK
Realty, Inc.), a New York corporation and an affiliate of Lehman Brothers
Inc. (formerly Shearson Lehman Brothers, Inc.). The Partnership has no
employees. The Partnership engages in the business of acquiring,
constructing, improving, holding and maintaining Burger King restaurants.
The Properties are leased on a long-term net basis to franchisees of Burger
King Corporation.
The Properties consist of the restaurant buildings, the
fixtures and improvements, and, in some cases, the underlying land. See
"Description of the Proposed Sale -- Terms of the Proposed Sale." For a
Property located on land owned by the Partnership, the annual rent is the
greater of (i) 14.5% of the Partnership's investment (which shall equal the
cost of land acquisition plus construction costs, as estimated at the date
the lease is executed, and capitalized interest) or (ii) 8.5% of the
Property's annual gross sales. For a Property located on land leased by the
Partnership, the annual rent is the greater of (i) 14.5% of the Partnership's
investment plus the annual ground rent paid by the Partnership to Burger King
Corporation who, in turn, pays rent to the owner of the underlying land or
(ii) 8.5% of the Property's annual gross sales.
Percentage rents received by the Partnership from the
restaurant leases are based on the sales generated by the lessees in the
quick service food business. Competition in the quick service food industry
has generally become more intense as the number of chains competing for the
consumer's business has increased. For most chains, the General Partner
believes that in 1997 the primary source of revenue growth has been and will
continue to be the development of new restaurants or the acquisition of
existing restaurants. As a result, intense price competition and aggressive
marketing promotions have become essential ingredients in the effort to
increase sales from existing restaurants. Other factors which influence
sales include, but are not limited to, product quality, customer service, and
the diversity of menu offerings. Such competition may adversely affect the
percentage rents received by the Partnership from time to time.
The Partnership's principal investment objectives are:
(1) to provide regular and increasing cash
distributions, a portion of which will be
"tax sheltered"; and
(2) to provide realization of the long-term
appreciation in the value of the
Properties, consistent in all cases with
the preservation of Limited Partners'
capital.
<PAGE>
Burger King Corporation had the right of first refusal to
match any third-party offer to purchase any Property from the Partnership
during the first seven years following the closing date, as well as the
option to purchase at a price equal to the fair market value of any Property
as determined by an independent third-party appraisal any or all of the
Properties from the Partnership at any time during the eighth through tenth
years following the closing date. Upon expiration of these options in 1992,
the General Partner began marketing the Properties for sale. Until all of
the Properties are sold, the Partnership will continue to operate the
restaurants and make distributions to Limited Partners in accordance with the
terms of the Partnership Agreement.
The Partnership is not currently involved in any legal
proceedings the outcome of which, if determined adversely to the Partnership,
would have a material adverse effect on the financial condition or results of
operations of the Partnership.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Partnership (File No.
733-667) with the Securities & Exchange Commission are hereby incorporated in
this Proxy Statement by reference:
1. Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "Form 10-K"); and
2. Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997
(collectively, the "Forms 10-Q").
All reports and other documents filed by the Partnership
after the date of this Proxy Statement pursuant to Section 13(a), 13(c), 14
or 15(d) of the Securities and Exchange Act of 1934 and prior to the date of
the Special Meeting shall be deemed to be incorporated by reference herein
and to be a part hereof from the dates of filing of such reports or
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for the purposes of this Proxy Statement to the extent that a
statement contained herein or in another document that also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
OTHER BUSINESS
If any other matters are properly presented to the Special
Meeting for consideration, the General Partner will have discretion to vote
on such matters in accordance with its best judgment. As of the date hereof,
the General Partner knows of no such matters.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . F-1
Audited Financial Statements:
Audited Balance Sheets of the Partnership as of
December 31, 1996 and December 31, 1995 . . . . . . . . . . F-2
Audited Statements of Partners' Capital (Deficit) for the
years ended December 31, 1996, December 31, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . F-3
Audited Statements of Operations for the years ended
December 31, 1996, December 31, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . F-4
Audited Statements of Cash Flows for the years ended
December 31, 1996, December 31, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . F-5
Notes to Audited Financial Statements . . . . . . . . . . . . . . . . F-6
Interim Financial Statements:
Unaudited Balance Sheet for the nine months ended
September 30, 1997 and at year ended December 31,
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-13
Unaudited Statement of Partners' Capital (Deficit) for the
nine months ended September 30, 1997 . . . . . . . . . . . . F-14
Unaudited Statements of Operations for the three and nine
months ended September 30, 1997 and September 30,
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-15
Unaudited Statements of Cash Flow for the nine months
ended September 30, 1997 and September 30, 1996 . . . . . . F-16
Notes to Interim Financial Statements . . . . . . . . . . . . . . . . F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Burger King Limited Partnership I:
We have audited the accompanying balance sheets of Burger King Limited
Partnership I (a New York limited partnership) as of December 31, 1996 and
1995, and the related statements of operations, partners' capital (deficit)
and cash flows for each of the years in the three-year period ended December
31, 1996. 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 Burger King Limited
Partnership I as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
January 31, 1997
<PAGE>
<TABLE>
<CAPTION>
At December 31, At December 31,
Balance Sheets 1996 1995
- -------------- ----------------------- -----------------------
<S> <C> <C>
Assets
Real estate held for sale $1,497,736 $ --
Real estate at cost:
Land -- 1,113,406
Buildings -- 2,210,836
Fixtures and equipment -- 485,306
---------- ----------
-- 3,809,548
Less accumulated depreciation -- (1,961,780)
---------- ----------
-- 1,847,768
Cash and cash equivalents 1,478,513 973,641
Rent receivable 76,042 65,023
---------- ----------
Total Assets $3,052,291 $ 2,886,432
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 36,025 $ 139,418
Due to Burger King Corporation 14,152 --
Distributions payable 812,096 180,645
---------- ----------
Total Liabilities 862,273 320,063
---------- ----------
Partners' Capital (Deficit):
General Partner (88,823) (85,088)
Limited Partners (15,000 units outstanding) 2,278,841 2,651,457
---------- ----------
Total Partners' Capital 2,190,018 2,566,369
---------- ----------
Total Liabilities and Partners' Capital $3,052,291 $ 2,886,432
========== ==========
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1996, 1995 and 1994
General
Partner Total
------------------ ---------------------
<S> <C> <C> <C>
Balance at December 31, 1993 $ (73,199) $ 5,551,950 $ 5,478,751
Net Income 89,234 3,090,619 3,179,853
Distributions to partners (Note 7) (104,472) (5,382,754) (5,487,226)
--------- ----------- -----------
Balance at December 31, 1994 (88,437) 3,259,815 3,171,378
Net Income 49,322 1,821,210 1,870,532
Distributions to partners (Note 7) (45,973) (2,429,568) (2,475,541)
--------- ----------- -----------
Balance at December 31, 1995 (85,088) 2,651,457 2,566,369
Net Income 43,180 983,170 1,026,350
Distributions to partners (Note 7) (46,915) (1,355,786) (1,402,701)
--------- ----------- -----------
Balance at December 31, 1996 $ (88,823) $ 2,278,841 $ 2,190,018
========= =========== ===========
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statements of Operations
For the years ended December 31, 1996 1995 1994
- -------------------------------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C>
Income
Rent (Note 4) $ 994,879 $1,004,195 $1,820,012
Interest 58,248 75,276 40,987
Other 1,140 1,905 2,828
---------- ---------- ----------
Total Income 1,054,267 1,081,376 1,863,827
Expenses
Depreciation 108,127 118,323 237,368
Ground lease rent (Note 4) 112,914 112,914 171,976
Management fee (Note 5) 87,601 89,129 164,912
General and administrative 57,870 143,493 150,405
---------- ---------- ----------
Total Expenses 366,512 463,859 724,661
---------- ---------- ----------
Income from operations 687,755 617,517 1,139,166
Other Income
Gains on sales of properties (Note 4) 338,595 1,253,015 2,040,687
Net Income 1,026,350 1,870,532 3,179,853
========== ========== ==========
Net Income Allocated:
To the General Partner 43,180 49,322 89,234
To the Limited Partners 983,170 1,821,210 3,090,619
---------- ---------- ----------
1,026,350 1,870,532 3,179,853
========== ========== ==========
Per limited partnership unit
(15,000 outstanding) $ 65.54 $ 121.41 $ 206.04
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows
For the years ended December 31, 1996 1995 1994
- ------------------------------------------------ ------------------- ------------------- ---------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Income $ 1,026,350 $ 1,870,532 $ 3,179,853
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 108,127 118,323 237,368
Gains on sales of properties (338,595) (1,253,015) (2,040,687)
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Settlement escrow receivable -- 95,260 (95,260)
Rent receivable (11,019) 34,957 (28,796)
Accounts payable and accrued expenses (103,393) (112,604) 203,648
Due to Burger King Corporation 14,152 -- --
----------- ----------- -----------
Net cash provided by operating activities 695,622 753,453 1,456,126
----------- ----------- -----------
Cash Flows From Investing Activities
Proceeds from sales of properties 580,500 1,804,526 4,637,811
----------- ----------- -----------
Net cash provided by investing activities 580,500 1,804,526 4,637,811
Cash Flows From Financing Activities
Cash distributions to partners (771,250) (4,713,128) (3,486,043)
----------- ----------- -----------
Net cash used for financing activities (771,250) (4,713,128) (3,486,043)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents 504,872 (2,155,149) 2,607,894
Cash and cash equivalents, beginning of period 973,641 3,128,790 520,896
----------- ----------- -----------
Cash and cash equivalents, end of period $ 1,478,513 $ 973,641 $ 3,128,790
=========== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
1. Organization
Burger King Limited Partnership I (the "Partnership") was formed as a New
York limited partnership on December 14, 1981. The Partnership was formed
for the purpose of acquiring, constructing, improving, holding, and
maintaining Burger King (Registered Trademark) restaurant properties (the
"Properties") to be leased on a net basis to franchisees of Burger King
Corporation ("BKC").
The general partner is BK I Realty Inc. (the "General Partner"), formerly
Shearson/BK Realty, Inc., an affiliate of Lehman Brothers Inc. On July 31,
1993, certain of Shearson Lehman Brothers Inc.'s domestic retail brokerage
and management businesses were sold to Smith Barney, Harris Upham & Co. Inc.
Included in the purchase was the name "Shearson." Consequently, the General
Partner's name was changed to delete any reference to "Shearson."
The General Partner has had discussions with a number of institutions and
other third parties interested in purchasing the Partnership's nine remaining
Properties. However, an environmental issue at the Property located in
Greenfield, Wisconsin (the "Greenfield Property") has, to date, delayed
efforts to complete a bulk sale of the remaining Properties. In light of
this unanticipated lengthy delay the Partnership has encountered during the
past two years in its efforts to reach an agreement for a remediation plan
for the site, the General Partner has decided to move forward with efforts to
market the Properties for a bulk sale during 1997. Until all of the
Properties are sold, the Partnership will continue to operate the Properties,
and it is intended that cash flow from operations will be distributed to the
partners of the Partnership in accordance with the terms of the Partnership
Agreement. As a result of the Partnership's intention to pursue a sale of
the Properties, the Properties have been reclassified on the Partnership's
balance sheet as real estate held for sale (See Note 8).
2. Significant Accounting Policies
Basis of Accounting The accompanying financial statements have been prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles. Revenues are recognized as earned and expenses are
recorded as obligations are incurred. Partnership revenue is realized from
base and percentage rents received on each individual Property. Minimum base
rents on the leased properties increase in an amount equal to corresponding
increases in expenses incurred pursuant to the underlying ground leases.
Accounting for Impairment In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("FAS 121"), which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. FAS 121 requires that
<PAGE>
assets held for sale or disposal be carried at the lower of carrying amount
or fair value less cost to sell and prohibits depreciation from being
recorded during the periods which the asset is being held for sale or
disposal. The Partnership adopted FAS 121 in the fourth quarter of 1995.
Real Estate Held for Sale Prior to December 31, 1996, the Partnership's real
estate investments, which consist of buildings, fixtures and improvements
and, in some cases, the underlying land were recorded at cost less
accumulated depreciation. Cost included the initial purchase price of the
Properties plus closing costs, acquisition and legal fees and original
capital improvements. The General Partner has decided to move forward with
efforts to sell the Properties during 1997. As of December 31, 1996, the
Partnership's real estate investments (as discussed in Note 4), which had a
carrying value of $1,497,736, were reclassified as "Real Estate Held for
Sale" and are carried at the lower of cost or fair value less any estimated
costs to sell the Properties, including any estimated environmental
remediation costs. Depreciation will be suspended in accordance with FAS
121. Depreciation of buildings was computed using the straight-line method
over an estimated useful life of 20 years. Depreciation of the fixtures and
improvements was computed under the straight-line method over an estimated
useful life of 7 years.
Reclassifications Certain prior year amounts have been reclassified in order
to conform to the current year's presentation.
Cash Equivalents Cash equivalents consist of short-term highly liquid
investments which have maturities of three months or less from the date of
purchase. The carrying value approximates fair value because of the short
maturity of these instruments.
Concentration of Credit Risk Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
in excess of the financial institutions' insurance limits. The Partnership
invests available cash with high credit quality financial institutions.
Income Taxes No provision for income taxes has been made in the financial
statements of the Partnership since such taxes are the responsibility of the
individual partners rather than of the Partnership.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. Partnership Allocations
Allocation of Income and Loss In accordance with the partnership agreement
dated December 14, 1981 (the "Partnership Agreement"), credits and income or
gain from the Partnership's operations are allocated, without regard to
<PAGE>
depreciation, in proportion to distributions of net cash flow from operations
made to the partners. To the extent that any such income or gain exceeds
distributions in any year, such excess shall be allocated 95% to the limited
partners and 5% to the General Partner. Depreciation shall be allocated
annually in proportion to the partners' respective capital accounts as of the
beginning of the year.
Net income is allocated monthly and is apportioned to the limited partners of
the Partnership in the pro rata basis in which the number of units owned by
each limited partner on the last day of the month bears to the total number
of units owned by the General Partner and all the limited partners as of that
date. At December 31, 1996, 1995 and 1994 and during the years then ended,
there were 15,000 units of limited partnership units outstanding (the
"Units").
Gains with respect to dispositions of the Properties shall be allocated as
follows: first, 99% to the limited partners and 1% to the General Partner
until the limited partners achieve payout as defined in the Partnership
Agreement ("Payout"); second, to any partner in an amount sufficient to
increase his negative capital account to zero; and third, 88.89% to the
limited partners and 11.11% to the General Partner. Subsequent to Payout,
gains shall be allocated to the General Partner until their capital account
equals 11.11% of the aggregate outstanding capital balances of all the
partners and any remaining gain shall be allocated 88.89% to the limited
partners and 11.11% to the General Partner.
Prior to Payout, losses shall be allocated 99% to the limited partners and 1%
to the General Partner. Subsequent to Payout, losses shall be allocated
88.89% to the limited partners and 11.11% to the General Partner.
Cash Distributions Distributions of net cash flows from operations are made
quarterly and are allocated 95% to the limited partners and 1% to the General
Partner, with the remaining 4% distributed to the limited partners to the
extent that cash distributions to the limited partners for the Partnership's
fiscal year do not equal at least 12.5% of their remaining invested capital
and the remainder, if any, is distributed to the General Partner. For the
year ended December 31, 1996, distributions to the limited partners were in
excess of a 12.5% return on their remaining invested capital as defined in
the Partnership Agreement.
Distributions of net property disposition proceeds are made quarterly and are
allocated 99% to the limited partners and 1% to the General Partner until
Payout. After Payout, BKC receives an additional management fee equal to 10%
of the net property disposition proceeds, and the remainder is distributed
88.89% to the limited partners and 11.11% to the General Partner. As of
December 31, 1996, Payout had not occurred.
4. Real Estate
As of December 31, 1996, 1995 and 1994, the Partnership owned 9, 10 and 13
Properties, respectively, consisting of the restaurant buildings, fixtures
and improvements, and in some cases, the underlying land.
<PAGE>
The Properties are leased on a net basis to franchisees of BKC. The leases
between the Partnership and the franchisees (the "Leases") had an initial
term of 20 years with no renewal options. All of the Leases expire in the
year 2002 or 2003. With respect to those Properties in which the Partnership
does not own the underlying land, there is a ground lease between the
Partnership and BKC (collectively, the "Ground Leases"). The Ground Leases
had an initial term of 10 years with a minimum of two five-year renewal
options. Minimum future rentals on the noncancelable term of the Leases and
the related Ground Leases as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Minimum Ground
Years ending Rental Lease
December 31, Income Obligations
- ----------------------- -------------------- ----------------------
<S> <C> <C>
1997 $ 608,667 $113,224
1998 627,593 132,260
1999 630,715 135,382
2000 630,715 135,382
2001 630,715 135,382
Thereafter 543,698 152,112
---------- --------
$3,672,103 $803,742
---------- --------
</TABLE>
Leases are on a net basis requiring the franchisees to pay all taxes,
assessments, maintenance costs, insurance premiums and other impositions
against the premises. The franchisee is also required to make percentage
rental payments to the extent that 8.5% of such franchisee's annual gross
sales exceed the minimum base rent. Percentage rental income for the years
ended December 31, 1996, 1995 and 1994 was $339,461, $296,408 and $360,257,
respectively.
<PAGE>
During the year ended December 31, 1996, the Partnership sold the following
Property:
<TABLE>
<CAPTION>
Adjusted
Date of Selling Net Book Gain on
Store Sale Price Value Sale
- -------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Wichita, KS 10/01/96 $580,500 $241,905 $338,595
-------- -------- --------
</TABLE>
During the year ended December 31, 1995, the Partnership sold the following
Properties:
<TABLE>
<CAPTION>
Adjusted
Dates of Selling Net Book Gains on
Stores Sales Prices Values Sales
- -------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Washington, NC 3/08/95 $ 619,944 $180,837 $ 439,107
Carlsbad, NM 3/31/95 728,684 240,175 488,509
Big Spring, TX 3/31/95 455,898 130,499 325,399
$1,804,526 $551,511 $1,253,015
---------- -------- ----------
</TABLE>
During the year ended December 31, 1994, the Partnership sold the following
Properties:
<PAGE>
<TABLE>
<CAPTION>
Adjusted
Dates of Selling Net Book Gains on
Stores Sales Prices Values Sales
- ----------------------------- ----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Madison Heights, VA 7/01/94 $ 369,218 $ 274,271 $ 94,947
Pearl, MS 8/01/94 427,108 257,672 169,436
Falmouth, MA 8/01/94 568,353 289,187 279,166
Tucson, AZ 8/01/94 161,163 74,146 87,017
W. Springfield, MA 8/01/94 151,391 104,977 46,414
Jackson, MS 8/01/94 503,149 332,299 170,850
Kansas City, MO 12/02/94 536,691 290,626 246,065
Salem, MA 12/09/94 590,264 335,664 254,600
Pasco, WA 12/15/94 618,487 271,444 347,043
West Allis, WI 12/15/94 711,987 366,838 345,149
$4,637,811 $2,597,124 $2,040,687
---------- ---------- ----------
</TABLE>
For the year ended December 31, 1996, the Properties located in Statesville
(NC), Decatur (AL), Springdale (AR), Atlanta (GA) and Klamath Falls (OR)
generated 11%, 14%, 10%, 13% and 13%, respectively, of the Partnership's
rental revenues. No individual Property represented 10% or more of the
Partnership's total assets for the year ended December 31, 1996.
5. Management Agreement
The Partnership has entered into an agreement (the "Agreement") with BKC for
the management of the Properties. The Agreement provides for a fee equal to
10% of all rental income received by the Partnership from the Properties. To
the extent the annual rental income from the Properties is less than 15% of
the Partnership's investments in the Properties, as defined in the Agreement,
BKC is required to refund all or a portion of such management fee to provide
the Partnership with a 15% return on funds invested in the Properties. At
December 31, 1996, 1995 and 1994, no such amounts were due from BKC.
Pursuant to an indemnity agreement between BKC and the Partnership (the
"Indemnity Agreement"), in the event of a default under the Leases, BKC is
obligated to pay the minimum monthly rent due under the Lease for the period
that the Lease is in default. The cumulative payments made by BKC pursuant
to the Indemnity Agreement are limited to an indemnity amount which was
originally 10% of the Partnership's original investment in the Properties as
defined in the Indemnity Agreement, or $1,301,325. The indemnity amount may
be decreased by the amount of the minimum monthly rent payments made by BKC
to the Partnership pursuant to the Indemnity Agreement. In 1987 and
subsequent years, the indemnity amount was decreased on an annual basis by an
<PAGE>
amount equal to the greater of (1) payments made by BKC pursuant to the
Indemnity Agreement or (2) 6-2/3% of the fifth year amount of the indemnity
until it is reduced to zero. On December 31, 1996, the indemnity amount was
approximately $433,862.
6. Transactions with Affiliates
Amounts reimbursed to the General Partner and its affiliates for
out-of-pocket expenses during the years ended December 31, 1996, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
Unpaid at Earned
December 31, ---------------------------------------------
1996 1996 1995 1994
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
BK I Realty Inc. and affiliates
Out-of-pocket expenses $ -- $402 $1,382 $7,072
-------- ---- ------ ------
$ -- $402 $1,382 $7,072
-------- ---- ------ ------
</TABLE>
Cash and cash equivalents reflected on the Partnership's balance sheet at
December 31, 1995 were on deposit with an affiliate of the General Partner.
As of December 31, 1996, no cash and cash equivalents were on deposit with an
affiliate of the General Partner or the Partnership.
7. Distributions
Distributions paid or payable to the limited partners and the General Partner
for the years ended December 31, 1996, 1995, and 1994 are aggregated as
follows:
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------- ----------------------------- ---------------------------
Total Per Unit Total Per Unit Total Per Unit
------------- ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Limited Partners
- ----------------
Cash flow from operations $ 781,090 $52.07 $ 503,909 $ 33.59 $1,177,999 $ 78.54
Net property disposition
proceeds 574,695 38.31 1,925,659 128.37 4,204,755 280.31
---------- ------ ---------- ------- ---------- -------
Total Limited Partners $1,355,785 $90.38 $2,429,568 $161.96 $5,382,754 $358.85
---------- ------ ---------- ------- ---------- -------
General Partner
- ---------------
Cash flow from operations $ 41,110 $ -- $ 26,522 $ -- $ 62,000 $ --
Net property disposition
proceeds 5,805 -- 19,451 -- 42,472 --
---------- ------ ---------- ------- ---------- -------
Total General Partner $ 46,915 $ -- $ 45,973 $ -- $ 104,472 $ --
---------- ------ ---------- ------- ---------- -------
</TABLE>
As of December 31, 1996, the Partnership declared a distribution of $787,488,
of which $771,333 ($51.42 per unit) was paid to limited partners and $3,231
was paid to the General Partner on January 30, 1997. The remaining $12,924
was distributed to the General Partner in accordance with the Partnership
Agreement.
Pursuant to the terms of the Partnership Agreement, 80% of the General
Partner's quarterly distributions from operations are retained by the
Partnership, until it is determined that the unitholders have received their
priority return as defined in the Partnership Agreement. For the year ended
December 31, 1996, the unitholders received their priority return, and all
amounts retained in 1996 were paid to the General Partner on January 30, 1997
in a distribution which amounted to $37,532 and included $12,924 for the
fourth quarter of 1996.
8. Contingency
On September 23, 1994, the Partnership notified the State of Wisconsin
Department of Natural Resources ("WDNR") that petroleum and chlorinated
compounds were discovered at the Greenfield Property. The WDNR has indicated
that under Wisconsin state law, the Partnership is responsible for
remediating the site. The Partnership had previously proposed site-specific,
clean-up standards for the Greenfield Property to the WDNR, whose response
has taken significantly longer than originally anticipated. In light of this
<PAGE>
unanticipated lengthy delay, the General Partner has decided to move forward
with its efforts to market the Properties for a bulk sale during 1997. Upon
the sale of the Properties, the General Partner intends to distribute the net
sales proceeds in accordance with the terms of the Partnership Agreement.
While we are hopeful that a sale of the Properties can be completed during
1997, there can be no assurances that such efforts will be successful.
The General Partner believes that the potential environmental remediation
costs associated with the Greenfield Property will not exceed approximately
$300,000 and, therefore, in accordance with the Partnership Agreement, such
amount has been set aside from the Partnership's net cash flow from
operations to fund these costs. If the proposed site-specific standards are
approved by the WDNR prior to any sale, it is expected that any of such
reserves spent on the environmental remediation will be recovered from the
proceeds of the eventual sale of the Greenfield Property. Therefore, any
remediation costs incurred prior to a sale of the Greenfield Property will be
capitalized and included in the carrying value of the Properties.
Alternatively, if the sale occurs prior to the receipt of such approval, it
is likely that any buyer will attribute a discount to the value of the
Greenfield Property in determining an acceptable purchase price.
9. Reconciliation of Financial Statement Net Income and Partners' Capital to
Federal Income Tax Basis Net Income and Partners' Capital
Reconciliation of financial statement net income to federal income tax basis
net income:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
<S> <C> <C> <C>
Financial statement net income $ 1,026,350 $ 1,870,532 $ 3,179,853
Tax basis depreciation over financial
statement depreciation (21,624) (36,099) (61,143)
Financial statement gain on sales of
Properties under tax basis gain on sales
of Properties 46,713 79,771 453,235
----------- ----------- -----------
Federal income tax basis net income $ 1,051,439 $ 1,914,204 $ 3,571,945
----------- ----------- -----------
</TABLE>
Reconciliation of financial statement basis partners' capital to federal
income tax basis partners' capital:
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
<S> <C> <C> <C>
Financial statement basis partners' capital $2,190,018 $2,566,369 $ 3,171,378
Current year financial statement net income
under federal income tax basis net income 25,089 43,672 392,092
Cumulative financial statement net income under
cumulative federal income tax basis net income 1,236,879 1,193,207 801,115
---------- ---------- ----------
Federal income tax basis partners' capital $3,451,986 $3,803,248 $ 4,364,585
---------- ---------- ----------
</TABLE>
Because many types of transactions are susceptible to varying interpretations
under Federal and state tax laws and regulations, the amounts reported above
may be subject to change at a later date upon final determination by the
taxing authorities.
<PAGE>
<TABLE>
<CAPTION>
At September At December 31,
Balance Sheets 30, 1997 1996
- ----------------------------------------- --------------- ---------------
<S> <C> <C>
Assets
Real estate held for sale $1,497,736 $1,497,736
Cash and cash equivalents 858,898 1,478,513
Rent and other receivables 70,556 76,042
---------- ----------
Total Assets $2,427,190 $3,052,291
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 54,844 $ 36,025
Due to Burger King Corporation -- 14,152
Distributions payable 196,633 812,096
---------- ----------
Total Liabilities 251,477 862,273
---------- ----------
Partners' Capital (Deficit):
General Partner (89,538) (88,823)
Limited Partners (15,000 units
outstanding) 2,265,251 2,278,841
---------- ----------
Total Partners' Capital 2,175,713 2,190,018
---------- ----------
Total Liabilities and Partners' Capital $2,427,190 $3,052,291
========== ==========
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statements of Partners' Capital (Deficit) General Limited
For the nine months ended September 30, 1997 Partner Partners Total
- --------------------------------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C>
Balance at December 31, 1996 $ (88,823) $ 2,278,841 $ 2,190,018
Net Income 23,800 452,198 475,998
Distributions to partners (24,515) (465,788) (490,303)
--------- ----------- -----------
Balance at September 30, 1997 $ (89,538) $ 2,265,251 $ 2,175,713
========= =========== ===========
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
Statements of Operations September 30, September 30,
- -------------------------------------- -------------------------------- ---------------------------------
1997 1996 1997 1996
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Income
Rental income $209,597 $ 246,309 $683,516 $771,660
Interest income 11,594 16,906 35,701 38,064
Miscellaneous income 345 240 1,526 870
-------- -------- -------- --------
Total Income 221,536 263,455 720,743 810,594
Expenses
Ground lease rent 28,229 28,229 84,686 84,686
Management fee 18,136 21,808 59,882 68,697
Depreciation -- 27,635 -- 82,906
General and administrative 28,169 19,278 100,177 45,360
-------- -------- -------- --------
Total Expenses 74,534 96,950 244,745 281,649
-------- -------- -------- --------
Net Income 147,002 166,505 475,998 $528,945
======== ======== ======== ========
Net Income Allocated:
To the General Partner 7,350 9,707 23,800 $ 30,593
To the Limited Partners 139,652 156,798 452,198 498,352
-------- -------- -------- --------
Total $147,002 $ 166,505 $475,998 $528,945
======== ======== ======== ========
Per limited partnership unit
(15,000 outstanding) $ 9.31 $ 10.45 $ 30.15 $ 33.22
-------- -------- -------- --------
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows
For the nine months ended September 30, 1997 1996
- --------------------------------------------- ------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities
Net Income $ 475,998 $ 528,945
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation -- 82,906
Increase (decrease) in cash arising from
changes in operating assets and
liabilities:
Rent and other receivables 5,486 (30,156)
Accounts payable and accrued expenses 18,819 (10,203)
Due to Burger King Corporation (14,152) 725
---------- ----------
Net cash provided by operating activities 486,151 572,217
---------- ----------
Cash Flows From Financing Activities
Cash distributions to partners (1,105,766) (523,658)
---------- ----------
Net cash used for financing activities (1,105,766) (523,658)
---------- ----------
Net increase (decrease) in cash and cash
equivalents (619,615) 48,559
Cash and cash equivalents, beginning of
period 1,478,513 973,641
---------- ----------
Cash and cash equivalents, end of period $ 858,898 $1,022,200
========== ==========
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
NOTES TO THE INTERIM FINANCIAL STATEMENTS
The interim unaudited financial statements should be read in conjunction with
Burger King Limited Partnership I's (the "Partnership") 1996 annual audited
financial statements within Form 10-K.
The interim unaudited financial statements include all normal and recurring
adjustments which are, in the opinion of management, necessary to present a
fair statement of financial position as of September 30, 1997 and the results
of operations for the three- and nine- month periods ended September 30, 1997
and 1996 and cash flows for the nine-month periods ended September 30, 1997
and 1996 and the statement of partners' capital (deficit) for the nine-month
period ended September 30, 1997. Results of operations for the period are
not necessarily indicative of the results to be expected for the full year.
The following significant event occurred subsequent to fiscal year 1996 which
requires disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a)(5):
On November 7, 1997, the Partnership entered into a letter of intent with a
potential Buyer for the sale of the Properties for a purchase price of
$6,400,000. The letter of intent is not binding on either of the parties and
any sale of the Properties to this potential Buyer is subject to, among other
things, the potential Buyer's review and inspection of the Properties and the
execution by the parties of a definitive contract of sale.
<PAGE>
Appendix A
AGREEMENT OF LIMITED PARTNERSHIP
OF
BURGER KING LIMITED PARTNERSHIP I
This Agreement of Limited Partnership (the "Agreement"),
dated as of December 14, 1981, is hereby entered into by and between
Shearson/BK Realty, Inc. as the general partner (the "General Partner") and
the limited partners listed on Schedule A (the "Limited Partners"), all of
whom do hereby form Burger King Limited Partnership I, as a limited
partnership pursuant to the Uniform Limited Partnership Law of the State of
New York, upon the following terms and subject to the following conditions:
ARTICLE I
Defined Terms
1.1 Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Affiliate": (i) Any person directly or indirectly
controlling, controlled by, or under common control with, another
person, (ii) a person owning or controlling ten percent (10%) or more
of the outstanding voting securities of such other person, (iii) any
officer, director, partner or employee of such person, and (iv) if
such other person is an officer, director, partner or employee, any
other entity for which such person acts in any capacity.
"Agreement": This Agreement of Limited Partnership of
Burger King Limited Partnership I, as originally executed and as
amended or restated from time to time.
"Bankruptcy": (i) The filing by a Partner of a voluntary
petition seeking liquidation, reorganization, arrangement or
readjustment, in any form, of its debts under Title 11 of the United
States Code or any other federal or state insolvency law, or a
Partner's filing an answer consenting to or acquiescing in any such
petition, (ii) the making by a Partner of any assignment for the
benefit of its creditors or the inability to pay its debts when they
become due, or (iii) the expiration of 30 days after the filing of an
involuntary petition under Title 11 of the United States Code, an
application for the appointment of a receiver for the assets of a
Partner, or an involuntary petition seeking liquidation,
reorganization, arrangement or readjustment of its debts under any
other federal or state insolvency law, provided that the same shall
not have been vacated, set aside or stayed within such 30-day period.
<PAGE>
"Burger King Property Management Agreement": The property
management agreement to be entered into between the Partnership and
Burger King Corporation with respect to each of the Partnership's
restaurant properties and the management of such property by Burger
King Corporation.
"Capital Contributions": The total amount contributed or to
be contributed to the Partnership by any Partner, or class of
Partners, as the case may be, or the predecessor holders of the
Interests of any such Partner or class of Partners.
"Code": The Internal Revenue Code of 1954, as amended, or
the corresponding provisions of any successor statute.
"Development Agreement": The agreement to be entered into
between the Partnership and Burger King Corporation with respect to
each of the Partnership's restaurant properties and the acquisition,
construction and development of such property by Burger King
Corporation as agent for the Partnership.
"Disposition": Any Partnership transaction not in the
ordinary course of business, including (i) sale of Partnership
properties, (ii) a condemnation award in respect of the acquisition
of all or a portion of a Partnership property (but not including
payments in respect of a temporary taking of use of a Partnership
property) or (iii) a casualty insurance recovery in respect of damage
to a Partnership property.
"Distributions": Any cash distributed to a Partner in
respect of his interest in the Partnership.
"Economic Abandonment": A determination by Burger King
Corporation in good faith, following a default by a lessee of a
restaurant under its lease with the Partnership, that continued
operation of such restaurant by a lessee is no longer economically
feasible.
"Escrow Agent": Manufacturers Hanover Trust Company at 40
Wall Street, New York, New York, or its successor.
"Family Member" or "Family Members": The spouse, children,
grandchildren, parents, grandparents, brothers, sisters, nephews,
nieces, aunts and uncles of an individual Limited Partner over the
age of 21 or a trustee of a trust for the exclusive benefit of such
individual or individuals regardless of age or a custodian under any
Uniform Gifts to Minors Act for the benefit of any such individual or
individuals who are minors.
"Final Closing Date": The date on which the subscription
for the final Interest offered by the Partnership is accepted by the
General Partner, but in no event later than December 31, 1982.
<PAGE>
"General Partner": Shearson/BK Realty, Inc.
"Gross Operating Revenues": Rental receipts from restaurant
properties leased by the Partnership, interest earned on short-term
investments of the Partnership and all other Partnership revenues
from whatever source derived, except for revenues derived from the
Disposition of Partnership properties.
"Incapacity" or "Incapacitated": The death or adjudication
of incompetency or insanity of any individual or the dissolution or
liquidation of any partnership, corporation, trust or entity.
"Indemnity Agreement": An agreement between the Partnership
and Burger King Corporation, dated the Initial Closing Date, pursuant
to which Burger King Corporation shall indemnify the Partnership
against certain losses in the event of a default by a lessee of the
Partnership.
"Individual Retirement Account" or "IRA": An individual
retirement account subject to the provisions of the Employee
Retirement Income Security Act of 1974.
"Initial Closing Date": The date on which subscriptions for
the minimum of 7,500 Interests have been accepted by the General
Partner, which date shall be on or before April 30, 1982 unless the
General Partner has received notice from Burger King Corporation, on
or before April 20, 1982, extending the period during which
subscriptions for such minimum of 7,500 Interests may be accepted by
the General Partner through June 30, 1982.
"Initial Limited Partner": William M. Kahn.
"Interest": A limited partnership interest in the
Partnership acquired by a contribution to the Partnership pursuant to
Section 3.3 hereof.
"Limited Partners": All persons and entities, including the
Initial Limited Partner prior to his withdrawal from the Partnership
on the Initial Closing Date, listed on Schedule A who are admitted to
the Partnership as limited partners.
"Management Fees": Fees payable to Burger King Corporation
in connection with management services rendered to the Partnership
pursuant to Section 4.3 hereof.
"Master Agreement": An agreement to be entered into between
the Partnership and Burger King Corporation with respect to the
acquisition by the Partnership of sites for the construction of
Burger King restaurants, the construction of Burger King restaurants
thereon and the conducting of the Partnership's business.
<PAGE>
"Net Cash Flow from Operations": Gross Operating Revenues
less the Partnership's operating expenses (including the fees paid to
Burger King Corporation out of rental income pursuant to the Burger
King Property Management Agreement) and a reasonable reserve for the
Partnership's actual and contingent liabilities.
"Net Lease": A lease of Partnership property pursuant to
which the lessee will be responsible for payment of all taxes, costs,
common area maintenance fees, expenses and charges of every kind and
nature relating to the premises (except for certain inheritance,
estate, succession, transfer, gift, franchise, corporation, income or
profit taxes or capital levies that are or may be imposed upon the
Partnership, and except for any payments for interest or principal
under any indebtedness of the Partnership) which may arise or become
due during the term or any extension of such lease.
"Net Property Disposition Proceeds": Proceeds in respect of
the Disposition of any of the Partnership's properties in excess of
amounts applied to restore or repair any Partnership property less
related expenses and a reasonable reserve for the Partnership's
actual and contingent liabilities and less, to the extent applicable,
the fees paid to Burger King Corporation pursuant to the Master
Agreement between Burger King Corporation and the Partnership.
"Original Invested Capital": An amount equal to $1,000 per
Interest.
"Partner": The General Partner or any Limited Partner.
"Partnership": Burger King Limited Partnership I, the
limited partnership created under this Agreement.
"Partnership year": The Partnership's fiscal year which
shall be the calendar year.
"Payout": The point in time at which each Limited Partner
has received from the Partnership, from its formation through such
point in time, aggregate Distributions equal to such Limited
Partner's Original Invested Capital plus a cumulative annual
compounded return of 12 1/2% per annum on his Remaining Invested
Capital, as adjusted from time to time.
"Person": An individual, partnership, corporation, trust,
Individual Retirement Account or other entity.
"Prospectus": The prospectus forming a part of the
Registration Statement.
"Purchase Option Agreement": An agreement to be entered
into between the Partnership and Burger King Corporation, described
in Section 6.7 hereof.
<PAGE>
"Registration Statement": The Partnership's Registration
Statement on Form S-11 as filed with the Securities and Exchange
Commission, as amended from time to time, relating to the sale of
Interests.
"Remaining Invested Capital": The amount of each Limited
Partner's Original Invested Capital as reduced (i) at the end of each
quarter, by Distributions of Net Property Disposition Proceeds to
such Limited Partner for such quarter but only to the extent that
such Distributions are considered to be distributions of Remaining
Invested Capital pursuant to Section 5.2(b)(iii) hereof; (ii) at the
end of each Partnership year, by Distributions of Net Cash Flow from
Operations to such Limited Partner for such year but only to the
extent that such Distributions are considered to be distributions of
Remaining Invested Capital pursuant to Section 5.1(b)(ii) hereof; and
(iii) at the time of any distribution pursuant to Section 3.7 hereof,
by the amount of such distribution to such Limited Partner.
"Substituted Limited Partner": Any Person admitted to the
Partnership as a Limited Partner pursuant to the provisions of
Section 9.2 hereof.
"Successor General Partner": A general partner elected by
the Limited Partners to replace a Terminated General Partner.
"Terminated General Partner": A General Partner who is
removed by the Limited Partners or becomes Bankrupt or Incapacitated.
ARTICLE II
Organization
2.1 Formation. The General Partner and the Initial Limited
Partner hereby form a limited partnership in accordance with and pursuant to
the laws of the State of New York unless otherwise expressly set forth
herein.
2.2 Name. The Partnership business shall be conducted
under the name Burger King Limited Partnership I. The General Partner may,
in its discretion, change the name of the Partnership and in such event shall
notify the Limited Partners within thirty (30) days after any such name
change. In addition, the General Partner may adopt trade or fictitious names
as it deems appropriate for the conduct of the Partnership's business.
2.3 Term. The Partnership shall continue until dissolved
and liquidated as provided in Section 11.1 hereof or as otherwise provided by
law.
2.4 Character of the Business. The character of the
business of the Partnership shall be to invest in, acquire, construct,
improve, hold and maintain Burger King restaurant properties (including the
<PAGE>
restaurant buildings and the underlying land) and to lease such restaurant
properties to franchisees of Burger King Corporation and thereafter to
release, and, at such time as the General Partner determines is appropriate
to liquidate the investments of the Partnership, sell or otherwise dispose of
such restaurant properties, and to engage in any and all activities related
or incidental thereto. The land to be acquired by the Partnership may
include leasehold as well as fee interests; provided, however, the
Partnership will own in fee simple the improvements constructed thereon.
2.5 Principal Place of Business. The principal place of
business of the Partnership shall be Two World Trade Center, 105th Floor, New
York, New York 10048. The General Partner may from time to time change the
principal place of business, and in the event of any such change, the Limited
Partners shall be notified within thirty (30) days after any such change of
the principal place of business of the Partnership. In addition, in its
discretion, the General Partner may establish additional places of business
for the Partnership.
ARTICLE III
Partners and Capital
3.1 Name and Address of the General Partner. The General
Partner of the Partnership shall be Shearson/BK Realty, Inc., a New York
corporation having its principal offices at Two World Trade Center, 105th
Floor, New York, New York 10048.
3.2 Names and Addresses of Limited Partners. The name and
place of residence of each Limited Partner of the Partnership is set forth on
Schedule A attached hereto. The Initial Limited Partner shall withdraw from
the Partnership and the amount which he previously contributed as a Capital
Contribution to the Partnership shall be promptly returned to him on the
Initial Closing Date.
3.3 Capital Contributions. The General Partner has
previously contributed the sum of One Thousand Dollars ($1,000) to the
capital of the Partnership. The Capital Contribution of, and the number of
Interests held by, each Limited Partner is set forth on Schedule A attached
hereto. The Initial Limited Partner has previously contributed the sum of
One Thousand Dollars ($1,000) to the capital of the Partnership. On the
Initial Closing Date, the Capital Contribution of the Initial Limited Partner
shall be returned in full to him and he shall withdraw from the Partnership
as provided in Section 3.2 hereof. Each Limited Partner, other than the
Initial Limited Partner, shall contribute the sum of One Thousand Dollars
($1,000) per Interest to the capital of the Partnership and shall purchase no
less than five Interests, except that an IRA may purchase a minimum of two
Interests; provided, however, the amount required to be contributed to the
capital of the Partnership by a limited Partner who acquires more than 200
Interests shall be reduced by the amount by which the selling commission paid
by the Partnership with respect to the issuance of such Interests is less
than $75 per Interest. Upon payment of $1,000 per Interest, or such lesser
<PAGE>
amount determined as set forth above, each Interest so purchased shall be
fully paid and nonassessable.
3.4 Application of Capital Contributions Prior to the
Initial Closing. The General Partner is authorized to raise additional
capital for the Partnership by offering and selling not more than fifteen
thousand (15,000) Interests (excluding the limited partnership interest of
the Initial Limited Partner) at a price of One Thousand Dollars ($1,000) per
Interest except as reduced as set forth in Section 3.3 hereof. All
subscriptions for Interests shall be subject to acceptance by the General
Partner. Until the Initial Closing Date, all payments for subscriptions for
Interests will be placed in an escrow account with the Escrow Agent.
Subscription payments deposited in the escrow account may not be withdrawn by
subscribers. The Escrow Agent shall invest the escrowed funds in United
States government securities, securities of governmental agencies if covered
by a bank repurchase agreement, bankers' acceptances, documented discount
notes and certificates of deposit in banks having undivided capital and
surplus of not less than One Hundred Twenty-Five Million Dollars
($125,000,000). Any interest earned on subscription proceeds will not become
a part of the Partnership's capital. Within thirty (30) days following the
Initial Closing Date, the Escrow Agent shall distribute to such limited
Partners any interest earned on their subscription proceeds prior to the
Initial Closing Date, with the amount distributable to each Limited Partner
being determined by the elapsed time that his funds were held in escrow.
Subscription proceeds will not be deposited into escrow after the Initial
Closing Date.
3.5 Subscription for Minimum Number of Interests. At such
time as subscriptions for seven thousand five hundred (7,500) Interests have
been accepted by the General Partner, the subscription proceeds shall be
released by the Escrow Agent to the Partnership to pay expenses incurred in
connection with the offering and sale of the Interests and for other proper
Partnership purposes. If at least seven thousand five hundred (7,500)
Interests have not been accepted by the General Partner on or before April
30, 1982, or on or before June 30, 1982, if an Affiliate of the General
Partner, acting as the Partnership's agent for the placement of the
Interests, receives, on or before April 20, 1982, the written request of
Burger King Corporation to extend until June 30, 1982 the period for the
acceptance of 7,500 Interests, all subscription proceeds shall be returned to
the subscribers, together with any interest earned on their subscription
proceeds to such date, with the amount distributable to each subscriber being
determined by the elapsed time that his funds were held in escrow.
3.6 Admission of Limited Partners to the Partnership. The
General Partner shall amend the Certificate of Limited Partnership with
fifteen (15) days following the Initial Closing Date to reflect the
admission, as Limited Partners, of those persons whose subscriptions for
Interests have been accepted. Thereafter, the General Partner shall amend
the certificate of limited partnership as of the first day of the month
following the month in which additional subscriptions for Interests are
accepted by the General Partner to reflect the admission of such additional
Limited Partners. Each amendment shall set forth on Schedule A the name,
<PAGE>
place of residence. Capital Contribution of, and number of interests held
by, each Limited Partner.
The General Partner shall take such action as may be
required to constitute the Partnership a duly and validly organized limited
partnership under the laws of the State of New York, and such further action
as may be required to continue the Partnership as such.
3.7 Failure to Invest Net Proceeds. Any net proceeds from
the sale of Interests that have not been invested or committed for investment
in Burger King restaurants prior to the expiration of twenty-four (24) months
following the declaration by the Securities and Exchange Commission of the
effectiveness of the Registration Statement shall be distributed promptly by
the General Partner to the Limited Partners in the ratio in which the number
of Interests owned by each holder on the last day of the calendar month
preceding such distribution bears to the total number of Interests owned by
all holders of Interests as of that date. Funds will be deemed to have been
committed to investment and will not be returned to the Limited Partners to
the extent written contractual agreements with respect to the investment of
such proceeds have been executed prior to the 24-month period (even if after
such 24-month period any such investment is not consummated pursuant to such
agreements), to the extent any funds have been reserved to make contingent
payments pursuant to written contractual agreements in connection with any
property, or pursuant to the decision of the General Partner that an addition
to the working capital reserve is necessary in connection with any property.
All such Distributions of the net proceeds from the sale of Interests shall
be treated for purposes of the Agreement, as Distributions of Net Property
Disposition Proceeds.
3.8 Partners' Capital Accounts. Each Partner's capital
account shall initially equal the amount paid by such Partner to the
Partnership to acquire Interests, reduced, however, by any sales commissions
paid by the Partnership in respect of such Interests pursuant to Section 4.1
hereof, and shall be increased by:
(a) The amount of any later Capital Contributions to the
Partnership; and
(b) The amount of any income or gain allocated to such
Partner pursuant to Section 5.4 hereof.
Each Partner's capital account shall be decreased by:
(x) The amount of any loss or deduction allocated
to such Partner pursuant to Section 5.4 hereof;
(y) The amount of those nondeductible expenses
allocated to such Partner pursuant to Section 5.5 hereof;
and
(z) The amount of all Distributions to such Partner
pursuant to this Agreement.
<PAGE>
Capital accounts shall be adjusted at the close of each
Partnership Year, or more often, as required for the purposes of making
allocations and Distributions pursuant to this Agreement.
The transferee of Interests shall succeed to that portion of
transferor's capital account which is allocable to the transferred Interests.
3.9 Partnership Capital. (a) No Partner shall be paid
interest on any Capital Contribution to the Partnership.
(b) No Limited Partner (other than the Initial Limited
Partner) shall be entitled to the return of any part of his Capital
Contribution; provided, however, each Limited Partner shall be entitled to
receive Distributions to the extent specifically provided for in this
Agreement.
(c) Under circumstances requiring a return of any Capital
Contribution or any portion thereof, no Limited Partner shall have the right
to receive property other than cash.
3.10 Additional Terms and Conditions of the Offering.
Except as otherwise provided in this Article III, the General Partner shall
have sole and complete discretion in determining the terms and conditions of
the offering and sale of Interests, and the General Partner is authorized and
directed to do all things which it deems to be necessary, convenient,
appropriate or advisable in connection therewith, including, but not limited
to, the preparation and filing on behalf of the Partnership of a Registration
Statement with the Securities and Exchange Commission, the qualification of
Interests pursuant to the "Blue Sky" laws of any state in which the General
Partner determines to market the Interests and the execution and performance
of agreements with a dealer manager and others concerning the marketing of
Interests on such basis and upon such terms as the General Partner shall deem
appropriate.
ARTICLE IV
Compensation of General Partner and
Affiliates and Burger King Corporation
4.1 Selling Commissions and Dealer Manager Fee. An
Affiliate of the General Partner acting as the Partnership's agent for the
placement of the Interests shall receive, as compensation for the sale of
Interests, a selling commission not to exceed seven and one-half percent
(7 1/2%) of the gross proceeds derived from all sales made directly by such
Affiliate or by others. In addition to such selling commission, an amount
equal to the difference between the lesser of $600,000 or 7 1/2% of the gross
offering proceeds and all organizational and offering expenses, including
legal and accounting fees, as well as up to $40,000 incurred by Burger King
Corporation for fees of its counsel, will be paid to such Affiliate as a
dealer manager fee, except that under no circumstances will the dealer
manager fee exceed one percent (1%) of the gross offering proceeds. The
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Partnership will also reimburse the General Partner and such Affiliate for
actual out-of-pocket expenses incurred in connection with organizing the
Partnership and the sale of Interests, including legal fees, subject to the
limitation described in Section 4.2 hereof.
4.2 Reimbursement of Organizational and Offering Expenses.
The Partnership will reimburse the General Partner and its Affiliates, or pay
as the case may be, for all actual out-of-pocket organizational and offering
expenses incurred in connection with organizing the Partnership and the sale
of Interests, including legal and accounting fees, printing costs, escrow
fees, securities registration and qualification fees and other expenses, as
well as up to $40,000 incurred by Burger King Corporation for fees of its
counsel, in an amount not to exceed the lesser of (i) $600,000 or (ii) 7 1/2%
of the gross offering proceeds. To the extent that such expenses exceed the
lesser of item (i) or (ii) above, an Affiliate of the General Partner and
Burger King Corporation have each agreed to pay 50% of the excess.
4.3 Management Fees to Burger King Corporation. Pursuant
to the Burger King Property Management Agreement and the Master Agreement,
the Partnership shall pay Burger King Corporation a fee for its management
services, to the extent specified in such agreements.
ARTICLE V
Cash Distributions, Allocations of Profits and
Losses and Allocation of Certain Nondeductible Expenses
5.1 Cash Distributions of Net Cash Flow from Operations.
(a) Distributions of Net Cash Flow from Operations shall be made to the
Partners quarterly during each Partnership Year, within 30 days after the end
of each calendar quarter (for such purposes Distributions made on or before
January 30 of each year shall be treated as a Distribution made with respect
to the previous Partnership Year), beginning after the first complete fiscal
quarter subsequent to the Initial Closing Date, on the basis ninety-five
percent (95%) to the Limited Partners and one percent (1%) to the General
Partner with the remaining four percent (4%) to be retained by the
Partnership; provided, however, for any Partnership Year in which the sum of
(x) such Distributions of Net Cash Flow from Operations to the Limited
Partners, plus (y) the amount of all Distributions of Net Property
Disposition Proceeds paid to the Limited Partners with respect to such year
which was/is considered in payment of the current return pursuant to
Section 5.2(b)(i) hereof, is:
(i) less than a 12 1/2% return on the Limited Partners'
Remaining Invested Capital (as adjusted from time to time), from the
beginning of such year, the General Partner shall cause the
Partnership to distribute, from the amounts retained by the
Partnership as set forth above, to the Limited Partners an amount
which when added to the sum of (x) the Limited Partners'
Distributions of Net Cash Flow from Operations with respect to such
year, plus (y) the amount of Net Property Disposition Proceeds paid
<PAGE>
to the Limited Partners with respect to such year which was/is
considered in payment of the current return pursuant to
Section 5.2(b)(i) hereof, is sufficient to return to the Limited
Partners such 12 1/2% return for such Partnership Year; in no event
shall the amount distributed pursuant to this subparagraph (i) exceed
the four percent (4%) of Net Cash Flow from Operations retained by
the Partnership during such year; the balance of such retained
amounts, if any, shall be distributed to the General Partner; or
(ii) equal to or in excess of a 12 1/2% return on the
Limited Partners' Remaining Invested Capital (as adjusted from time
to time), from the beginning of the year, the four percent (4%) of
Net Cash Flow from Operations retained by the Partnership during such
year shall be distributed to the General Partner.
In the event any Partnership Year is less than 12 months,
the foregoing 12 1/2% return shall be prorated on the basis of the number of
months of such year.
(b) At the end of each Partnership Year, amounts
distributed pursuant to this Section 5.1 during such year to each Limited
Partner shall be considered to consist of, and reduce accordingly, the
following amounts:
(i) first, the current return at the rate of 12 1/2%
accrued since the beginning of the Partnership Year on such Limited
Partner's Remaining Invested Capital (as adjusted from time to time),
to the extent such return is not considered to have been paid out of
such year's Distributions of Net Property Disposition Proceeds
pursuant to Section 5.2(b)(i) hereof; and
(ii) second, Remaining Invested Capital.
5.2 Cash Distributions of Net Property Disposition
Proceeds. (a) Distributions of Net Property Disposition Proceeds, if any,
shall be made once each calendar quarter to the Partners within 30 days after
the end of each calendar quarter. Subject to the rights of Burger King
Corporation as set forth in the Burger King Property Management Agreement and
the Master Agreement and after capital accounts have been adjusted to reflect
(1) Cash Distributions of Net Cash Flow from Operations to date and (2) the
appropriate allocations pursuant to Section 5.4 hereof, the General Partner
shall cause the Partnership to distribute Net Property Disposition Proceeds
as follows:
(i) If Payout has not yet occurred:
(A) ninety-nine percent (99%) to the Limited
Partners and one percent (1%) to the General Partner in an
amount sufficient to cause Payout to occur;
(B) Notwithstanding the foregoing paragraph (A),
if, prior to Payout, the aggregate outstanding balance in
<PAGE>
the capital accounts of the Limited Partners is less than
the amount which must be distributed to them in order to
cause Payout to occur, then Net Property Disposition
Proceeds shall be distributed, first, if the outstanding
balances of the General Partner's capital account and the
Limited Partners' aggregate capital accounts are both
positive, ninety-nine percent (99%) to the Limited Partners
and one percent (1%) to the General Partner until the amount
so allocated is sufficient to reduce the lesser of the
General Partner's capital account or the Limited Partners'
aggregate capital accounts to zero; second, after adjusting
all capital accounts to reflect distributions, if any, under
the immediately preceding clause, to any Partner(s) in the
amount necessary to reduce its (or their) outstanding
capital account(s) to zero; and finally, the balance, if
any, ninety-nine percent (99%) to the Limited Partners and
one percent (1%) to the General Partner in the amount
necessary to cause Payout to occur.
(ii) Once Payout has occurred, and after adjusting
capital accounts to reflect Distributions, if any, made pursuant to
Section 5.2(a)(i) hereof, first, in proportion to and to the extent
of the outstanding balances of the Partners' capital accounts; and
second, the remainder, if any, eighty-eight and 89/100 percent
(88.89%) to the Limited Partners and eleven and 11/100 percent
(11.11%) to the General Partner.
(b) At the end of each quarter, amounts distributed to each
Limited Partner pursuant to this Section 5.2 shall be considered to consist
of, and reduce accordingly, the following amounts:
(i) first, the current return at the rate of 12 1/2%
accrued from the beginning of that Partnership Year to date on such
Limited Partner's Remaining Invested Capital, as adjusted from time
to time;
(ii) second, the unpaid, annual, cumulative, compounded
return at the rate of 12 1/2% which has accrued in respect of such
Limited Partner's Remaining Invested Capital (as adjusted from time
to time) from the effective date of such Partner's admission to the
Partnership through the close of the Partnership Year immediately
preceding the year with respect to which such Distributions are made,
plus a return thereon at the rate of 12 1/2% accrued from the
beginning of the Partnership Year with respect to which such
Distributions are made to date; and
(iii) third, Remaining Invested Capital.
5.3 Allocation of Distributions among Limited Partners.
Net Cash Flow from Operations and Net Property Disposition Proceeds will be
distributed quarterly as set forth in Sections 5.1 and 5.2 hereof, but
apportioned on a monthly basis to the holders of Interests in the ratio in
<PAGE>
which the number of Interests owned by each Limited Partner on the last day
of the month bears to the total number of Interests owned by all Limited
Partners as of that date.
5.4 Allocation of Gain, Income and Loss. (a) The
allocation of all gain with respect to Dispositions of Partnership properties
or other capital transactions shall be made only after Net Cash Flow from
Operations, if any, has been distributed, all other appropriate allocations
pursuant to this Section have been made, capital accounts have been adjusted
to reflect such distributions and allocations and shall be as follows:
(i) Prior to Payout
(A) If Payout has not yet occurred, gain shall be
allocated, first, ninety-nine percent (99%) to the Limited
Partners and one percent (1%) to the General Partner, until
the amount so allocated to the Limited Partners equals the
difference between (x) the amount required to be distributed
to the Limited Partners in order to cause Payout to occur
and (y) the aggregate outstanding balance of their capital
accounts; second, to any Partner in an amount sufficient to
increase his negative capital account to zero; and finally,
the balance, if any, eighty-eight and 89/100 percent
(88.89%) to the Limited Partners and eleven and 11/100
percent (11.11%) to the General Partner.
(B) Notwithstanding the foregoing, if Payout has
not yet occurred and the aggregate outstanding balance of
the Limited Partners' capital accounts exceeds the amount
which must be distributed to them in order to cause Payout
to occur, then gain shall first be allocated to the General
Partner in an amount equal to 12 1/2% of such excess, and
then, the remaining gain, if any, shall be allocated
eighty-eight and 89/100 percent (88.89%) to the Limited
Partners and eleven and 11/100 percent (11.11%) to the
General Partner.
(ii) Post Payout
After Payout, gain shall first be allocated to the
General Partner in an amount sufficient to bring the General
Partner's capital account balance equal to eleven and 11/100
percent (11.11%) of the aggregate outstanding capital
account balances of all the Partners; then, the remaining
gain, if any, shall be allocated eighty-eight and 89/100
percent (88.89%) to the Limited Partners and eleven and
11/100 percent (11.11%) to the General Partner.
(iii) Any gain recognized with respect to Dispositions of
Partnership properties, or other capital transactions which for
federal income tax purposes is treated as ordinary income, rather
than capital gain as a result of previous depreciation deductions,
<PAGE>
will be allocated insofar as possible under the allocations in
paragraphs (i) and (ii) above to those Partners who were allocated
the depreciation deductions which resulted in such ordinary income.
(b) Credits and income or gain from operations or other
transactions not covered by subparagraph (a) above and determined without
regard to depreciation and/or amortization, will be allocated on an annual
basis in proportion to, and to the extent that, Distributions are made to the
Partners out of Net Cash Flow from Operations for such Partnership Year (for
such purposes, Distributions made on or before January 30 of each year shall
be treated as a Distribution made with respect to the Partnership's previous
Partnership Year); to the extent that any such income or gain exceeds
Distributions in any year, such excess will be allocated ninety-five percent
(95%) to the Limited Partners and five percent (5%) to the General Partner.
(c) Except as provided below, depreciation and amortization
shall be allocated among the Partners in the same proportion as the
respective balances of their capital accounts as of the beginning of the tax
year with respect to which the allocation is being made. However, any
Partner admitted to the Partnership after the Initial Closing Date, but on or
before the Final Closing Date, shall be considered to have had a capital
account balance at the beginning of the tax year equal to the amount of his
capital contribution for the purpose of allocating any depreciation or
amortization which is allocable to the months subsequent to such Partner's
admission to the Partnership. Furthermore, in the year in which Payout
occurs, depreciation and amortization allocable to that portion of the year
preceding Payout shall be allocated among the Partners in accordance with
capital accounts as provided above and that portion of the depreciation and
amortization allocable to the portion of the year following Payout shall be
allocated among the Partners in the same proportion as the respective
balances of their capital accounts as of the end of the quarter in which
Payout occurred, with all appropriate adjustments through that quarter being
taken into account.
(d) Prior to Payout losses shall be allocated ninety-nine
(99%) to the Limited Partners and one percent (1%) to the General Partner.
Subsequent to Payout, losses shall be allocated eighty-eight and 89/100
percent (88.89%) to the Limited Partners and eleven and 11/100 percent
(11.11%) to the General Partners.
(e) For purposes of these allocations, income, gain, loss,
deduction and credit shall be allocated to each calendar month of the year,
regardless of Partnership operations during the months of the year, and shall
be apportioned on a monthly basis to the holders of Interests in the ratio in
which the number of Interests owned by each Limited Partner on the last day
of the month bears to the total number of Interests owned by all the Limited
Partners as of that date.
5.5 Allocation of Certain Nondeductible Expenses.
(a) Organizational expenses, offering expenses and other items which are paid
by the Partnership pursuant to Article IV hereof and which are nondeductible
and nonamortizable for federal income tax purposes, but not including any
<PAGE>
sale commissions paid pursuant to Section 4.1 hereof, shall be allocated
ninety-nine percent (99%) to the Limited Partners and one percent (1%) to the
General Partner.
(b) Costs allocated to the Limited Partners pursuant to the
preceding paragraph shall be apportioned among them in the ratio in which the
number of Interests owned by each Limited Partner on the Final Closing Date
bears to the total number of Interests owned by all Limited Partners as of
that date.
ARTICLE VI
Powers, Rights and Duties of the General Partner
6.1 Management and Control of the Partnership. The General
Partner shall have exclusive authority to manage the operations and affairs
of the Partnership and to make all decisions regarding the business of the
Partnership. Pursuant to the foregoing, it is understood and agreed that the
General Partner shall have all of the rights and powers of a general partner
as provided under the laws of the State of New York and as otherwise provided
by law, and any action taken by the General Partner shall constitute the act
of and serve to bind the Partnership. Persons dealing with the Partnership
are entitled to rely conclusively on the power and authority of the General
Partner as set forth in this Agreement.
6.2 Rights, Powers and Authority of the General Partner.
Subject to any and all limitations expressly set forth in this Agreement, the
General Partner is hereby granted the right, power and authority to do on
behalf of the Partnership all things which, in its sole judgment, are
necessary, proper or desirable to carry out the aforementioned duties and
responsibilities, including, but not limited to, the right, power and
authority:
(i) to expend the capital and revenues of the
Partnership in furtherance of the Partnership's business;
(ii) to employ and dismiss from employment any and all
employees, agents, independent contractors, attorneys and
accountants;
(iii) to acquire Burger King restaurant sites, either in
fee simple or by leasehold interest, and thereafter to hold for
investment, lease, sell, exchange or otherwise dispose of all Burger
King restaurants constructed on such sites, and the land upon which
they are situated;
(iv) to construct, alter, improve, repair, raze, replace
or rebuild any Partnership property;
<PAGE>
(v) to do any and all of the foregoing at such price,
rental or amount, and upon such terms as the General Partner deems
proper;
(vi) to purchase, at the expense of the Partnership,
liability and other insurance deemed necessary to protect the
Partnership properties and business;
(vii) to open and maintain a bank account or accounts on
behalf of the Partnership with any bank in the United States having
undivided capital and surplus of not less than One Hundred
Twenty-Five Million Dollars ($125,000,000), and to designate and
change signatories on such account or accounts;
(viii) to invest such funds as are temporarily not invested
in Partnership properties, including the Partnership's working
capital, in accordance with the terms of Section 6.3(b) hereof; and
(ix) to execute, acknowledge and deliver any and all
agreements, contracts, documents, certificates, deeds, bills of sale
and any other instruments necessary or convenient in connection with
the business of the Partnership or to effectuate any and all of the
foregoing.
6.3 Partnership's Policies. The General Partner shall use
its best efforts to observe the following Partnership policies:
(a) The Partnership shall seek to acquire (by purchase in
fee simple or by leasehold interest) the sites for, and thereafter
construct or cause to be constructed thereon, and own, approximately
30 free-standing Burger King "fast food" restaurant buildings, for
lease on a net basis to franchisees of Burger King Corporation who
will operate such restaurants. Burger King Corporation, as agent for
the Partnership, will provide property management services, including
collection of rents under Partnership leases, pursuant to the Burger
King Property Management Agreement and will supervise the
construction of the restaurants and related improvements pursuant to
the Development Agreement.
(b) Until all of the investment capital of the Partnership
has been invested in restaurant properties, the General Partner
shall, to the extent practicable, temporarily invest such investment
capital and the Partnership's working capital in United States
government securities, securities of governmental agencies if covered
by a bank repurchase agreement, bankers' acceptances, documented
discount notes and certificates of deposit in banks having undivided
capital and surplus of not less than One Hundred Twenty-Five Million
Dollars ($125,000,000).
(c) The Partnership shall not manage or operate any
restaurants or have any direct interest in the "fast food" restaurant
<PAGE>
business nor shall it acquire or finance the acquisition of the
equipment necessary to operate Burger King restaurants.
(d) Subject to review and approval by the General Partner
and until all of the investment capital of the Partnership has been
invested in restaurant properties, as and when Partnership funds
become available therefore, the Partnership shall acquire restaurant
sites located in the United States in the order that they become
available to Burger King Corporation, exclusive of (i) restaurant
properties which Burger King Corporation determines to operate
itself, (ii) restaurant properties which are to be developed,
constructed and owned by Burger King Corporation franchisees on sites
proposed to Burger King Corporation by such franchisees, and (iii)
restaurant properties which are made available to institutional
investors pursuant to a pending site acquisition program.
(e) The Partnership shall endeavor to diversify the
restaurant properties it acquires with respect both to geographic
location and lessees.
(f) Leases from the Partnership to franchisees of Burger
King Corporation shall be net leases for an initial term of twenty
(20) years. Such leases shall have the following basic rental terms;
provided, however, the Partnership may enter into renewal leases or
leases with successor lessees with different terms if, in the sole
discretion of the General Partner, economic circumstances make the
original lease terms unsuitable:
(1) for restaurants constructed on land owned by
the Partnership in fee simple, the annual rent will be the
greater of:
a. 14.5% of the Partnership's investment
(equal to the cost of land acquisition and
construction costs, as estimated at the time the
lease is executed, plus capitalized interest) in the
applicable property; or
b. 8.5% of the applicable lessee's annual
gross sales from operation of the applicable
restaurant property.
(2) for restaurants constructed on land subleased
by the Partnership, the annual rent will be the greater of:
a. the sum of (x) 14.5% of the
Partnership's investment (equal to construction
costs, as estimated at the time the lease is
executed, plus the ground lease rent payments during
the construction period, plus capitalized interest)
in the applicable property and (y) 114.5% of the
<PAGE>
ground rent paid to the owner of the underlying
land; or
b. 8.5% of the applicable lessee's annual
gross sales from operation of the applicable
restaurant property.
In the case of restaurants located on leased land, Burger
King Corporation will be the prime ground lessee and will sublease,
at cost, to the Partnership any such land, for a term of ten (10)
years (with certain renewal options) and, in consideration of the
contingent liability assumed by Burger King Corporation, as prime
ground lessee, the Partnership will pay over to Burger King
Corporation as additional ground rent an additional amount equal to
14.5% of the monthly ground rent paid by Burger King Corporation to
the landowner.
(g) All restaurant properties acquired by the Partnership
shall be leased to franchisees of Burger King Corporation except as
otherwise provided in the Development Agreement or the Sublease
between Burger King Corporation and the Partnership pertaining to the
applicable restaurant property.
(h) The General Partner shall not re-invest Net Property
Disposition Proceeds except to repair or rebuild in the event of
casualty or condemnation.
(i) The General Partner shall endeavor to sell, as soon
after the tenth year following the Final Closing as economic
circumstances warrant and in a manner consistent with the
Partnership's investment objective of realization of long-term
appreciation, consistent with preservation of Partners capital, all
restaurant properties which have not previously been sold to Burger
King Corporation, in accordance with the terms set forth in
Section 6.7 hereof, or to third parties.
(j) Within 120 days following the end of each Partnership
Year, an estimate will be made by an independent appraiser of the
current aggregate market value of the Partnership's portfolio of
Properties.
6.4 Services of the General Partner. The General Partner
shall devote such time to the affairs of the Partnership as the General
Partner, in its sole discretion, shall deem appropriate, consistent with its
obligations under this Agreement.
6.5 Other Business Interests of the General Partner. The
General Partner and its Affiliates may have other business interests or
engage in other business ventures of any nature or description, whether
presently existing or hereafter created, including, but not limited to, the
rendering of advice or services of any kind to other investors, the making of
other investments, even if competitive with the business of the Partnership,
<PAGE>
including investments in the commercial real estate business in all of its
phases, which shall include, without limitation, the ownership, operation,
management, syndication and development of commercial real property,
including property competitive with restaurant properties of the Partnership,
and neither the Partnership nor any Partner shall have any rights in or to
such independent ventures or the income or profits derived therefrom;
provided, however, neither the General Partner nor its Affiliates will offer
to sell interests in partnerships organized to acquire Burger King restaurant
properties until all Interests in the Partnership have been sold or the
offering of Interests has terminated.
6.6 Code Section 754 Election. The General Partner may, in
its sole discretion, make (and, if made, may revoke) the election referred to
in Section 754 of the Code or any similar provision enacted in lieu thereof
and is absolved from any and all liability to all previously admitted or
subsequently admitted Partners based on the making or revocation of such
election. Each of the Partners will, upon request, supply the information
necessary properly to give effect to such election.
6.7 Purchase Option on Partnership Properties. The
Partnership shall enter into a Purchase Option Agreement with Burger King
Corporation pursuant to which Burger King Corporation shall have a right of
first refusal to match any third party offer to purchase any restaurant
property during the first seven years following the Final Closing Date and,
thereafter, the right, but not the obligation, to purchase any or all of the
Partnership properties (including the restaurant buildings and the underlying
land or ground leasehold) from the Partnership during the eighth through the
tenth years following the Final Closing Date, ar fair market value,
determined at that time by independent appraisal.
6.8 Reimbursement of the General Partner. Reimbursement to
the General Partner and its Affiliates of expenses shall not be allowed,
except:
(a) for the expenses described in Section 4.2 hereof; and
(b) for the actual cost of goods, services and materials
used for and by the Partnership and obtained from entities
unaffiliated with the General Partner or an Affiliate of the General
Partner, including, but not limited to, audit, appraisal, legal and
tax preparation fees as well as costs of data processing services.
6.9 Restrictions on Authority of the General Partner.
Anything in this Agreement to the contrary notwithstanding, the General
Partner shall have no authority to:
(a) pay for any services performed by the General Partner
or Affiliates of the General Partner, except as otherwise permitted
in this Agreement;
(b) do any act in contravention of this Agreement;
<PAGE>
(c) do any act which would make it impossible to carry on
the ordinary business of the Partnership;
(d) confess a judgment against the Partnership;
(e) execute or deliver any general assignment for the
benefit of the creditors of the Partnership;
(f) possess Partnership property or assign the rights of
the Partnership in specific property for other than a Partnership
purpose;
(g) admit a person as a Partner, except in this Agreement;
(h) invest more than 25% of the Partnership's investment
capital in restaurant properties located on land not owed by the
Partnership in fee simple;
(i) mortgage, pledge, encumber or hypothecate the assets of
the Partnership to secure the repayment of sums borrowed in
connection with the acquisition, construction and ownership of the
restaurant properties;
(j) sell, lease or sublease any property to the
Partnership, or purchase, lease or sublease any property from the
Partnership;
(k) issue senior securities of the Partnership;
(l) make loans to other persons except in connection with
the sale of its properties;
(m) invest in the securities of other issuers for the
purpose of exercising control;
(n) to underwrite securities of other issuers;
(o) engage in the purchase and sale (or turnover) of
investments other than Burger King restaurants;
(p) offer securities in exchange for property, or
(q) repurchase or reacquire its own securities.
6.10 Net Worth Representation. In addition to its other
duties and obligations, the General Partner further agrees as follows:
(a) At the time the investors are admitted to the
Partnership, the General Partner's assets (other than its interest
in, or claims against, the Partnership) will have a current fair
market value that exceeds its liabilities by an amount equal to ten
<PAGE>
percent (10%) or more of the Limited Partner Capital Contributions;
and
(b) At all times subsequent to the admission to the
Partnership of the Limited Partners, the General Partner will use its
best efforts to maintain a net worth in excess of the total amount
that could reasonably be expected to be demanded from it by creditors
of the Partnership and any other partnership in which it has the
liabilities of a general partner.
ARTICLE VII
Transferability of the General Partner's Interest
7.1 Liability of the Terminated General Partner. In the
event the General Partner is removed by vote of the Limited Partners pursuant
to Section 8.3 hereof, becomes Bankrupt or Incapacitated, the Terminated
General Partner shall remain liable for its portion of any obligations and
liabilities incurred by the Partnership or by it as General Partner prior to
the time of such removal, Bankruptcy or Incapacity by it shall not be liable
for any obligation or liability incurred by the Partnership from and after
the time of such removal, Bankruptcy or Incapacity.
7.2 Removal, Bankruptcy or Incapacity of the General
Partner. In the event of the removal, Bankruptcy or the Incapacity of the
General Partner, the Partnership shall be dissolved, pursuant to the terms of
this Agreement, unless the Limited Partners elect a Successor General Partner
in accordance with the terms of Section 11.1 hereof.
7.3 Valuation of the General Partner's Partnership
Interest. In the event of the removal, Bankruptcy or Incapacity (except for
voluntary dissolution or liquidation of the General Partner) of the General
Partner, then, upon the election, if any, by the Limited Partners to continue
the business of the Partnership and to appoint a Successor General Partner,
the interest in the Partnership of the Terminated General Partner shall be
valued at fair market value by independent appraisal and shall be assigned to
the Successor General Partner upon payment of the amount of such valuation of
the Terminated General Partner or if appropriate to its legal representative.
The Terminated General Partner and the Limited Partners shall each select an
independent appraiser within 30 days of such election. If such appraisers
fail to agree on such fair market value within 60 days, then the two
appraisers shall jointly select a third appraiser whose determination shall
be final and binding, and if they cannot agree on such selection then
President of the Bar Association of the City of New York shall appoint such
third appraiser.
In the event of the voluntary withdrawal from the
Partnership by the General Partner or the voluntary dissolution or
liquidation of the General Partner, then, upon the election, if any, by the
Limited Partners to continue the business of the Partnership and to appoint a
Successor General Partner, the interest in the Partnership of the voluntarily
<PAGE>
withdrawing, dissolving or liquidating General Partner shall be valued at One
Dollar ($1).
ARTICLE VIII
Rights of the Limited Partners
8.1 Limitations on Limited Partners. No Limited Partner
shall take part in the management of the business of the Partnership,
transact any business for the Partnership, or have the power to sign for or
to bind the Partnership to any agreement or document, said powers being
vested solely and exclusively in the General Partner, provided, however, the
Limited Partners shall have the rights specifically provided for herein.
8.2 Liability of Limited Partners. So long as the Limited
Partners do not exceed the scope of Section 8.1 hereof, no Limited Partner
shall have any personal liability whatsoever, whether to the Partnership, to
any of the Partners, or to the creditors of the Partnership, for the debts of
the Partnership or any of its losses beyond (i) the amount contributed by him
to the capital of the Partnership as set forth in Schedule A annexed hereto,
(ii) his share of undistributed profits and (iii) except as otherwise set
forth below. To the extent required by applicable law, a Limited Partner
will be liable to the Partnership and to its creditors for and to the extent
of any Distribution made to such Limited Partner if, after such Distribution,
the remaining assets of the Partnership are insufficient to pay its then
outstanding liabilities, exclusive of liabilities to Limited Partners on
account of their contributions and liabilities to the General Partner.
Additionally, to the extent that a Distribution to a Limited Partner
constitutes a return of all or a portion of such Limited Partner's Capital
Contribution, even though such Distribution was rightfully made, such Limited
Partner will be liable to the Partnership for any sum, not in excess of such
return of capital, together with interest thereon, as may be required by law,
necessary to discharge the Partnership's liabilities to creditors who
extended credit or whose claims arose prior to such return of capital.
8.3 Voting Rights of Limited Partners. Whenever the
Limited Partners are entitled, pursuant to this Section 8.3, to vote on any
particular matter, each Limited Partner shall be entitled to cast as many
votes as the number of Interests he holds. For purposes of determining the
number of votes which he is entitled to cast, a Limited Partner shall be
deemed to be the holder of only those Interests shown on Schedule A, as
amended by the last filed Certificate of Limited Partnership.
Limited Partners shall have the right to vote only upon the
following matters and Limited Partners voting a majority in interest may,
without the concurrence of the General Partner, cause:
(a) The removal of the General Partner and the election of
a replacement therefor;
(b) The termination and dissolution of the Partnership;
<PAGE>
(c) The amendment of this Agreement; provided, however, any
amendment changing (y) the proportionate interest of any Partner's
participation in the allocation of profits or losses or Distributions
by the Partnership of Net Cash Flow from Operations or Net Property
Disposition Proceeds, or (z) the powers, rights and duties of the
General Partner, will require the consent of each Partner affected
thereby; provided, further, any amendment of this Section 8.3(c) will
require the consent of all the Partners;
(d) The sale of all or substantially all of the assets of
the Partnership in a single sale (subject to any contractual
obligation of the Partnership then in effect); and
(e) The disapproval of any sale of all or substantially all
of the assets of the Partnership in a single sale.
The rights of the Limited Partners described in
subparagraphs (a), (b), (d) and (e) of this Section 8.3 will be ineffective
until such time as (a) either (i) a court of competent jurisdiction shall
have determined in an action for declaratory judgment or similar relief
sought on behalf of the Limited Partners, that neither the grant nor the
exercise of such provisions will result in the loss of any Limited Partner's
limited liability, or (ii) counsel to the Partnership shall have delivered to
the Partnership an opinion to the same effect; and (b) either (i) a favorable
ruling shall have been received by the Partnership from the Internal Revenue
Service that neither the grant nor the exercise of such provisions will
adversely affect the classification of the Partnership as a partnership for
federal income tax purposes, or (ii) such counsel shall have delivered to the
Partnership an opinion to the same effect.
8.4 Treatment of the General Partner as a Limited Partner.
In the event that the General Partner shall own any Interests, the General
Partner shall in all respects be treated as a Limited Partner with respect to
such Interests.
ARTICLE IX
Transferability of a Limited Partner's Interest
9.1 Restrictions on Transfer or Assignment of Interest.
(a) No Limited Partner may sell, assign, transfer, encumber or otherwise
dispose of all or any portion of its beneficial interest in the right to
receive Distributions and allocations of profit and loss in Interests without
the prior written consent of the General Partner, which consent may, in the
sole discretion of the General Partner, be granted or withheld; provided,
however, a Limited Partner or the permitted assignee of a Limited Partner may
assign and transfer, without the prior written consent of the General
Partner, either the whole or any portion of his beneficial interest in the
Distributions from the Partnership and the allocation of profits and losses
of the Partnership to a Family Member or Family Members, and the Partnership
shall recognize the assignee as the holder of the interest so assigned (but
<PAGE>
not as a Substituted Limited Partner, except pursuant to the provisions of
Section 9.2 hereof), provided, such assignment is made in accordance with the
provisions of this Article IX.
(b) No transfer, assignment or other disposition of a
beneficial interest in the right to receive Distributions and allocations of
profit and loss in any Interest or any fraction thereof may be made if the
General Partner or counsel to the Partnership shall be of the opinion that
such transfer, assignment or other disposition of such Interest:
(i) would be in violation of any applicable state
securities or "Blue Sky" laws or any investor suitability standards
established by the Partnership;
(ii) would result in the Partnership being classified
other than as a partnership for federal income tax purposes; or
(iii) would result in the termination of the Partnership
pursuant to the provisions of Section 708 of the Code.
9.2 Substituted Limited Partners. In addition to the
restrictions on sales, assignments, transfers, encumbrances and other
disposition of a beneficial interest in the right to receive Distributions
and allocations of profit and loss in Interests, as set forth in Section 9.1
hereof, no assignee, transferee, donee, legatee, distributee, or other
recipient of a beneficial interest in the right to receive Distributions and
allocations of profit and loss in an Interest (collectively referred to for
the purposes of this Article IX, as the "recipient") shall be admitted to the
Partnership as a Substituted Limited Partner unless all of the following
conditions are satisfied:
(a) A duly executed written instrument of assignment
setting forth the intention of the Limited Partner seeking to sell,
assign, transfer, encumber or otherwise dispose of all or a portion
of his Interests (collectively referred to for the purposes of this
Article IX as the "assignor") that the recipient shall become a
Substituted Limited Partner in his place, which is in form and
substance satisfactory to the General Partner, shall have been filed
with the General Partner;
(b) The Interests being acquired by the recipient shall
consist of at least five (5) Interests (in the case of an IRA two (2)
Interests) and, if the assignor shall retain any Interests, such
assignor shall retain at lest five (5) Interests (in the case of an
IRA two (2) Interests);
(c) The assignor and recipient shall execute and
acknowledge such other instruments as the General Partner reasonably
deems necessary or desirable to effect such assignment and admission
including, but not limited to, evidence of the recipient's compliance
with suitability standards imposed by the Partnership and any
applicable "Blue Sky" laws, the written acceptance and adoption by
<PAGE>
the recipient of the provisions of this Agreement and his execution,
acknowledgment and delivery to the General Partner of a special power
of attorney, the form and content of which are more fully described
in Article XVI hereof;
(d) The Partnership shall have received from the assignor
or recipient a transfer fee to cover all reasonable expenses of the
transfer, including, without limitation, all legal expenses and all
expenses related to the amendment of the Certificate of Limited
Partnership, not to exceed Two Hundred Dollars ($200) per
transaction, but such transfer fee may be waived by the General
Partner, in its sole discretion; and
(e) The General Partner has consented in writing to the
recipient becoming a Substituted Limited Partner, which consent the
General Partner may grant or withhold in its sole discretion.
9.3 Recognition of Assignment or Transfer. (a) Any sale,
assignment, transfer, encumbrance or other disposition of an Interest in
contravention of any of the provisions of this Article IX shall be void and
ineffective, shall be of no force and shall not be binding upon or recognized
by the Partnership.
(b) A recipient of a beneficial interest in the
Distributions from the Partnership and the allocation of profits and
losses pursuant to Section 9.1(a) hereof, who is not admitted as a
Substituted Limited Partner, shall have no right to require any
information or account of the Partnership's transactions or to
inspect the Partnership's books; he shall only be entitled to receive
Distributions from the Partnership and the share of income, gain,
loss, deduction and credit attributable to the beneficial interest in
the Interests acquired by reason of such sale, assignment, transfer,
encumbrance or other disposition from the first day of the month
following the month in which the written assignment instrument,
executed by the assignor and in form and substance reasonably
satisfactory to the General Partner, and other documents reasonably
deemed necessary or appropriate by the General Partner (as, for
example, evidence that the recipient meets the Partnership's investor
suitability standards and evidence of compliance with standards
imposed by applicable state securities or "Blue Sky" laws) shall have
been received by the Partnership.
(c) Anything herein to the contrary notwithstanding, both
the Partnership and the General Partner shall be entitled to treat
the assignor of such Interests as the absolute owner thereof in all
respects, and shall incur no liability for allocations of income,
gain, loss, deduction or credit or for Distributions to the assignor
until the first day of the month following the month in which the
Partnership shall have received the written assignment instrument
executed by the assignor in form and substance reasonably
satisfactory to the General Partner and other documents reasonably
deemed necessary or appropriate by the General Partner.
<PAGE>
9.4 Treatment of a Substituted Limited Partner as a Limited
Partner. Within a reasonable period of time after the date when the General
Partner shall have consented to the substitution of a recipient as a
Substituted Limited Partner, and the assignor and recipient shall have
satisfied all of the conditions of Section 9.2 hereof, the General Partner
shall amend the Certificate of Limited Partnership to admit the recipient as
a Substituted Limited Partner. The admission of any person as a Substituted
Limited Partner shall become effective upon the first day of the first month
following the satisfaction of all of the conditions set forth in Section 9.2
hereof. Any person admitted to the Partnership as a Substituted Limited
Partner shall be subject to all of the provisions of this Agreement as if an
original party hereto.
9.5 Withdrawal, Bankruptcy or Incapacity of a Limited
Partner. (a) No Limited Partner at any time shall withdraw form the
Partnership. However, such restriction shall not prevent the substitution of
a Limited Partner in the place and stead of another Limited Partner if the
applicable terms and conditions of Section 9.2 hereof are complied with.
(b) In the event of Bankruptcy or Incapacity of a Limited
Partner (the "Withdrawing Limited Partner"), the legal representative
of the Withdrawing Limited Partner shall have such power as the
Withdrawing Limited Partner possessed to constitute a successor as an
assignee of his Interests in the Partnership and to join with such
assignee in making application to substitute such assignee as a
Limited Partner. Such legal representative shall succeed to the
rights of the Withdrawing Limited Partner to receive Distributions
from the Partnership and allocations of income, gain, loss, deduction
and credit; provided, however, such legal representative shall not
have the right to become a Substituted Limited Partner in the place
of the Withdrawing Limited Partner unless the conditions of Section
9.2 hereof (other than the requirement that the assignor execute and
acknowledge instruments) are first satisfied.
ARTICLE X
Indemnification
10.1 Indemnification of the General Partner. Neither the
General Partner nor any officer, director, employee, agent, Affiliate or
assignee of the General Partner shall be liable to the Partnership or the
Limited Partners for any loss or damage incurred by reason of any act
performed or omitted in connection with the activities of the Partnership or
in dealing with third parties on behalf of the Partnership, if the General
Partner, in good faith, determined that such course of conduct was in the
best interests of the Partnership, and such course of conduct did not
constitute fraud, negligence or breach of fiduciary duty of the General
Partner. The Partnership, its receiver or its trustee shall indemnify, save
harmless and pay all judgments and claims against the General Partner, its
officers, directors, employees, agents, Affiliates and assigns, from any
liability, loss or damage incurred by them or by the Partnership by reason of
<PAGE>
any act performed or omitted to be performed by them in connection with the
activities of the Partnership or in dealing with third parties on behalf of
the Partnership, including costs and attorneys' fees (which attorneys' fees
may be paid as incurred), and any amounts expended in the settlement of any
claims of liability, loss or damage, provided that such course of conduct is
not adjudicated by a court of competent jurisdiction to have constituted
fraud, negligence or breach of fiduciary duty by the General Partner, and
provided, further, that any such indemnification shall be recoverable only
from the assets of the Partnership and not from the assets of the Limited
Partners or the General Partner.
The Partnership shall not pay for any insurance covering
liability of the General Partner or officers, directors, employees, agents,
Affiliates and assigns of the General Partner for actions or omissions for
which indemnification is not permitted hereunder, provided, however, that
nothing contained herein shall preclude the Partnership from purchasing and
paying for such types of insurance, including extended coverage liability and
casualty insurance, as would be customary for any person owning comparable
property and engaged in a similar business or from naming the General Partner
or any Affiliate of the General Partner or both as additional insured parties
on policies obtained for the benefit of the Partnership to the extent that
there is no additional cost to the Partnership.
Nothing contained herein shall constitute a waiver by any
Limited Partner of any right which he may have against any party under
federal or state securities laws.
10.2 Limited Indemnification from Violations of the
Securities Laws. Notwithstanding the foregoing Section 10.1, neither the
General Partner nor any officer, director, employee, agent, Affiliate or
assign of the General Partner or of the Partnership shall be indemnified from
any liability, loss or damage incurred by them in connection with any claim
or settlement involving allegations that federal and state securities laws
were violated unless (i) the General Partner or other person or entity
seeking indemnification is successful in defending such action and such
indemnification is specifically approved by a court of law which shall have
been advised as to the current position of the Securities and Exchange
Commission regarding indemnification for violations of securities law or (ii)
in case of a settlement, both the settlement and the indemnification are so
approved.
10.3 Indemnification of Limited Partners. The Partnership
will indemnify, to the extent of Partnership assets, each Limited Partner
against any claim of liability asserted against a Limited Partner solely
because he is a Limited Partner in the Partnership.
<PAGE>
ARTICLE XI
Dissolution and Termination
11.1 Events of Dissolution. The Partnership shall be
dissolved and its business wound up upon the earliest to occur of:
(a) April 30, 1982, or June 30, 1982, upon receipt by an
Affiliate of the General Partner, acting as agent for the Partnership
in the placement of the Interests, on or prior to April 20, 1982 of
the written request of Burger King Corporation to extend the offering
period until June 30, 1982, if subscriptions for seven thousand five
hundred (7,500) Interests have not been accepted on or before the
applicable date;
(b) The date of the sale or other disposition of all or
substantially all of the assets of the Partnership, unless the
Partnership shall acquire a mortgage on a Partnership property as
part of the consideration for such sale, in which case the
Partnership shall be dissolved following the sale by it or the
termination of its entire interest in such mortgage;
(c) The date of the removal, Incapacity or Bankruptcy of
the General Partner, unless a majority in interest of the Limited
Partners elect within ninety (90) days of the date of such removal,
Incapacity or Bankruptcy to continue the business of the Partnership
and appoint a Successor General Partner pursuant to the provisions of
Article VII hereof;
(d) The date on which Limited Partners holding a majority
in interest vote in favor of the dissolution and liquidation of the
Partnership pursuant to the provisions of Article VIII hereof; or
(e) December 31, 2021.
The dissolution of the Partnership shall not release or
relieve any of the parties hereto of their contractual obligations under this
Agreement.
11.2 Payment of Partnership Funds Upon Liquidation. (a)
Upon dissolution of the Partnership and the failure to continue the business
of the Partnership in accordance with the provisions hereof, the General
Partner, or its successor, forthwith shall proceed to sell or otherwise
liquidate the assets of the Partnership.
(b) After payment of all of the debts, liabilities and
obligations of the Partnership and the expenses of dissolution and
liquidation and the setting up of any reserves for contingencies that the
General Partner or its successor reasonably deems necessary, Distributions in
liquidation of the Partnership shall be made to the Partners in the same
manner that Net Cash Flow from Operations and Net Property Disposition
Proceeds, respectively, are distributed, as provided in Sections 5.1 and 5.2
hereof, as appropriate when consideration is given to the sources of the
funds distributed in the liquidation.
<PAGE>
(c) For purposes of this Section 11.2, Net Cash Flow from
Operations shall be distributed and the appropriate adjustments to Partners'
capital accounts shall be made prior to the distribution of Net Property
Disposition Proceeds.
(d) No Partner shall be entitled to demand and receive
property other than cash in return for his Capital Contribution and each
Partner hereby waives all rights to partition of the property of the
Partnership.
11.3 Effectuation of Liquidation. Upon completion of the
liquidation of the Partnership, the Partnership shall terminate and the
General Partner or its successor shall have the authority to execute and
record a certificate of cancellation of the Partnership, as well as any and
all other documents required to effectuate the dissolution, liquidation and
termination of the Partnership.
ARTICLE XII
Notices
12.1 Notices. Whenever any notice is required or permitted
to be given under any provision of this Agreement, such notice shall be in
writing, signed by or on behalf of the person giving the notice, and shall be
deemed to have been given on the earlier to occur of the date of actual
delivery and receipt thereof by the addressee or, if mailed, the date when
deposited in an official depository of the United States post office, postage
prepaid, addressed to the person or persons to whom such notice is to be
given as follows (or at such other address as shall be stated in a notice
similarly given at least five (5) days prior to the giving of such notice):
(a) If to Shearson/BK Realty, Inc. such notice shall be
given at Two World Trade Center, 105th Floor, New York, New York
10048; and
(b) If to a Limited Partner, such notice shall be given at
the address shown on Schedule A hereto, as amended.
ARTICLE XIII
Accounting Reports and Statements
13.1 Fiscal Year. The fiscal year of the Partnership shall
end on December 31 of each year.
13.2 Records of Partnership Transactions. The General
Partner shall keep, or cause to be kept, full and accurate records of all
transactions of the Partnership.
<PAGE>
13.3 Access to Partnership Records. Limited Partners and
their designated representatives shall be permitted access to all records of
the Partnership at the principal office of the Partnership during reasonable
business hours and shall have the right to make copies thereof. Upon written
request, after payment of the reasonable expense of duplication, a Limited
Partner shall be provided with a copy of the Certificate or Certificates of
Limited Partnership containing the most recent listing of Partners' names,
addresses and Capital Contributions.
13.4 Preparation of Tax Returns; Tax Audits. (a) Within
seventy-five (75) days after the end of each fiscal year of the Partnership,
the General Partner shall prepare, or cause to be prepared, all federal,
state and local partnership returns of income for the Partnership; and, in
connection therewith, shall, in its sole discretion, make any available or
necessary tax elections. Within such seventy-five (75) day period, the
Partnership will furnish to each person who was a Limited Partner at any time
during the preceding fiscal year all information required to be set forth in
such Partner's individual federal income tax return.
(b) In the event of an income tax audit of any federal,
state or local Partnership tax return, to the extent the Partnership is
treated as an entity for purposes of the audit, including administrative
settlement and judicial review, the General Partner shall be authorized to
act for, and its decision shall be final and binding upon, the Partnership;
and all expenses incurred in connection therewith shall be an expense of the
Partnership.
13.5 Reports on Partnership's Business. Within sixty (60)
days after the close of each quarter other than the last quarter of the
fiscal year, commencing with the first full quarter after the Initial Closing
Date, the General Partner shall furnish to each person who was a Limited
Partner at any time during the quarter then ended, a report setting forth
details with respect to the progress of the Partnership's business and
unaudited financial statements and other relevant information regarding the
Partnership and its activities during the quarter, including a statement of
any transactions by the Partnership with the General Partner or its
Affiliates and of fees, commissions, compensation, reimbursements and other
benefits paid or accrued to the General Partner or its Affiliates for such
quarter, showing the amount paid or accrued to each recipient and the
services performed, and including a statement setting forth in detail the
source of any Distributions paid to the Limited Partners for or during the
quarter, including the amount of Distributions made from reserves, from funds
generated through operations or the sale or other disposition of Partnership
properties or assets.
13.6 Availability of Reports on Form 10-Q. The Partnership
shall also make available to the Limited Partners, within forty-five (45)
days of the end of each quarter, the quarterly report on Form 10-Q filed by
the Partnership with the Securities and Exchange Commission (or a quarterly
report containing at least as much information as the Form 10-Q).
<PAGE>
13.7 Availability of Annual Reports. Within ninety (90)
days after the end of each fiscal year, the General Partner shall furnish to
each person who was a Limited Partner at any time during the fiscal year then
ended an annual report, which shall include (a) financial statements of the
Partnership, including a balance sheet, income statement and a statement of
sources and applications of funds, all of which shall be prepared in
accordance with generally accepted accounting principles and accompanied by
an auditor's report containing an opinion of a certified or independent
public accountant, and, additionally, a cash flow statement which need not be
prepared in accordance with generally accepted accounting principles or
reported on, (b) a report of the activities of the Partnership during such
fiscal year, (c) a statement of any transactions between the Partnership and
the General Partner or its Affiliates, (d) a statement of fees, commissions,
compensation, reimbursements and other benefits paid or accrued to the
General Partner or its Affiliates for the last quarter and for such year
showing the amount paid or accrued to each recipient and the services
performed, (e) a statement setting forth in detail the source of any
Distributions paid to the Limited Partners for or during the last quarter and
such fiscal year, including the amount of Distributions made from reserves,
from funds generated through operations or from funds derived from the sale
or other disposition of Partnership properties or assets, (f) a report of the
activities of the Partnership during such fiscal year, and (g) a
reconciliation between the annual report and the information furnished to the
Limited Partners for their federal income tax returns.
13.8 Reports of Property Acquisitions. Until the net
proceeds from the sale of Interests have been invested in real properties or
returned to the Limited Partners pursuant to Section 3.7 hereof, the General
Partner shall send to all Limited Partners, at least quarterly, a special
report of all property acquisitions within the prior quarter, which report
shall describe each property so acquired and the geographic area in which
such property is located. This special report shall include an itemization
of all monies paid to officers, directors or Affiliates of the General
Partner in connection with the purchase, a statement of the actual purchase
price, including terms of the purchase, a statement of the total amount of
cash expended by the Partnership to acquire each property, and a statement
regarding the amount of proceeds in the Partnership which remain unexpended
or uncommitted. The unexpended or uncommitted amount shall be stated in
terms of both dollar amount and percentage of the total amount of the net
offering proceeds of the Partnership.
13.9 Annual Appraisal. Within 120 days following the end
of each fiscal year of the Partnership, an estimate will be made by an
independent appraiser of the current market value of the Partnership's
portfolio of properties in the aggregate.
<PAGE>
ARTICLE XIV
Amendments to Partnership Agreement
14.1 Amendments to Partnership Agreement. This Agreement
may be amended at any time and from time to time in the manner provided in
Section 8.3 hereof and, if amended, the General Partner shall file, or cause
to be filed, an amendment of the Certificate of Limited Partnership with the
appropriate authorities, in the event that the General Partner determines the
filing of such amendment to be necessary or appropriate.
ARTICLE XV
Meetings of the Partners
15.1 Meetings. Meetings of the Limited Partners, for any
purpose, may be called by the General Partner and shall be called by the
General Partner upon receipt of a request in writing signed by Limited
Partners holding ten percent (10%) or more of the Interests then outstanding.
Such request shall state the purpose or purposes of the proposed meeting and
the business to be transacted. Such meeting shall be held at the principal
office of the Partnership, or at such other place as may be designated by the
General Partner. Notice of any such meeting shall be delivered to all
Partners in the manner prescribed in Article XII within ten (10) days after
receipt of such request and no fewer than fifteen (15) days nor more than
sixty (60) days before the date of such meeting. The notice shall state the
place, date, hour and purpose or purposes of the meeting. At each meeting of
the Limited Partners, the Limited Partners present or represented by proxy
shall adopt such rules for the conduct of such meeting as they shall deem
appropriate. A list of the names and addresses of all Limited Partners (and
the number of Interests held by each Limited Partner) shall be maintained as
part of the books and records of the Partnership.
15.2 Proxy. Each Limited Partner may authorize any person
or persons to act for him by proxy in all matters in which a Limited Partner
is entitled to participate. Every proxy must be signed by the Limited
Partner or his attorney-in-fact (other than the General Partner). No proxy
shall be valid after the expiration of six (6) months from the date thereof.
Every proxy shall be revocable by the Limited Partner executing it.
ARTICLE XVI
Special Power of Attorney
16.1 Special Power of Attorney. Each Limited Partner, by
his execution hereof, hereby irrevocably makes, constitutes and appoints the
General Partner, with full power of substitution, his true and lawful
attorney-in-fact, for him and in his name, place and stead and for his use
and benefit, to make, execute, sign, acknowledge, swear to, deliver, record
and file any document or instrument which may be considered necessary or
desirable by the General Partner to carry out fully the provisions of this
Agreement, including, without limitation, the following:
<PAGE>
(a) Any amendment to this Agreement or the Certificate
of Limited Partnership (including any certificate or other instrument
necessary to evidence the amendment or modification of this
Agreement), any separate certificate of limited partnership or
amendment thereof, any certificate of doing business under an assumed
name, and any other certificate, instrument or document which may be
required to be filed, or which the General Partner, in its sole
discretion, deems advisable to file, under the laws of any state or
the regulations of any governmental agency, as well as any amendments
to the foregoing; and
(b) Any certificate or other instrument which may be
required or appropriate to effect the continuation of the
Partnership, to approve the choice of and to admit any additional or
Substituted Limited Partner, to dissolve and liquidate the
Partnership, to reflect the return to the Limited Partners of all or
a part of their respective Capital Contributions or to effect any
reduction in the Partnership's capital by reason of Distributions to
the Partners.
16.2 Scope of Power of Attorney. The foregoing special
power of attorney granted by each Limited Partner shall be one which:
(a) is a special power of attorney coupled with an
interest, is irrevocable and shall survive the Bankruptcy or
Incapacity of the granting Limited Partner;
(b) may be exercised by the General Partner or by any
officer or director thereof, acting alone for each Limited Partner by
a facsimile signature or by executing any instrument with a single
signature as attorney-in-fact for all Limited Partners; and
(c) shall survive the delivery of any transfer or
assignment by a Limited Partner, as permitted pursuant to this
Agreement, of the whole or any portion of his Interests, except that
where the assignee or transferee of the Interests has been approved
by the General Partner for admission to the Partnership as a
Substituted Limited Partner, this special power of attorney shall
survive the delivery of such assignment or transfer for the sole
purpose of enabling the General Partner to execute, acknowledge and
file any instrument or document necessary to effect such
substitution.
In the event of the designation of a Successor General Partner, each
Limited Partner hereby irrevocably makes, constitutes and appoints the
Successor General Partner his true and lawful attorney-in-fact with full
powers as set forth in Section 16.1 hereof and this Section 16.2.
<PAGE>
ARTICLE XVII
Miscellaneous
17.1 Binding Effect. Except as herein otherwise provided
to the contrary, this Agreement shall be binding upon and inure to the
benefit of the parties hereto, their legal representatives, successors and
assigns.
17.2 Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
17.3 Counterpart Signature. This Agreement may be executed
in several counterparts, all of which so executed shall constitute one
agreement, binding on all of the parties hereto, notwithstanding that all of
the parties are not signatory to the original or the same counterpart.
17.4 Separability of Provisions. In the event that any
sentence, paragraph, provision, section or article of this Agreement is
declared by a court of competent jurisdiction to be void, such sentence,
paragraph, provision, section or article shall be deemed severed from the
remainder of this Agreement and the balance of this Agreement shall remain in
effect.
17.5 Headings. Titles or captions contained in this
Agreement are inserted only as a matter of convenience and for reference.
Such titles and captions shall not be construed to define, limit, extend or
describe the scope of this Agreement nor the intent of any provision hereof.
17.6 Gender and Number. Whenever required by the context
hereof, the singular shall include the plural, and vice-versa; the masculine
gender shall include the feminine and neuter genders, and vice-versa.
17.7 Entire Agreement. This Agreement constitutes the
entire agreement among the parties. This Agreement supersedes any prior
agreement or understanding among the parties and may not be modified or
amended in any manner other than as set forth herein.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement of Limited Partnership as of the day and year first above written.
GENERAL PARTNER:
SHEARSON/BK REALTY, INC.
By: /s/ Robert F. Greenwald
Name: Robert F. Greenwald
Title: Vice President
INITIAL LIMITED PARTNER
By: /s/ William M. Kahn
Name: William M. Kahn
<PAGE>
SCHEDULE A
Capital
Contribution
------------
GENERAL PARTNER:
SHEARSON/BK REALTY, INC. $1,000
Two World Trade Center
105th Floor
New York, New York 10048
INITIAL LIMITED PARTNER:
WILLIAM M. KAHN $1,000
345 East 57th Street
New York, New York 10022
