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:
/x/ Preliminary Proxy Statement /x/ Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/x/ Definitive Proxy Statement
/x/ Definitive Additional Materials
/x/ 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.
/x/ 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:
Limited Partnership Units
2) Aggregate number of securities to which transaction applied:
15,000
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(c)(2): $533.33
<PAGE>
4) Proposed maximum aggregate value of transaction: $8,000,000
5) Total fee paid: $1,600
/_/ Fee paid previously with preliminary materials:
/_/ 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:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
BURGER KING LIMITED PARTNERSHIP I
Three World Financial Center
29th Floor
New York, New York 10285-2900
_______, 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") 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 $8,000,000 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.
The General Partner intends to distribute to the Limited Partners
the net proceeds from the Proposed Sale, which the General Partner estimates
will be at least $7,680,000, or $512 per limited partnership unit if all the
Properties are sold, after deducting the expenses of the Proposed Sale,
payment of approximately $___ in management fees due to the General Partner,
payment of 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
$2,339.08 per original $1,000 Unit already distributed through June 30, 1997,
total distributions since inception of the Partnership will be at least
$2,851.08 per Unit. The General Partner then plans to distribute the
remaining cash flow from the operations of the Properties and ultimately
liquidate the Partnership. 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 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.
<PAGE>
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.
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 card. Only limited partners that desire to disapprove a Proposed Sale
need execute and return the enclosed proxy card.
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.
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 ____ __, 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, when properly executed, will be voted in the manner directed
herein by the undersigned limited partner. If no direction is made on this
card, this proxy will be voted to APPROVE the sale and assignment.
Dated _____ __, 1997
----------------------------------------
Signature
Name:
Title:
----------------------------------------
Signature (if held jointly)
PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THE BOOKS OF THE
PARTNERSHIP. 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.
<PAGE>
Any limited partner desiring to return this proxy card 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 card must be signed by the registered Unitholder or Unitholders. The
signature must correspond exactly with the name(s) as written on the face of
the certificate 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 card in respect of such Units. If Units are registered in
different names on several certificates, it will be necessary to complete,
sign and submit as many separate proxy cards as there are different
registrations or certificates.
If a proxy card 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 card.
2. Delivery. Delivery of a proxy card to an address other than
the address set forth on the proxy card does not constitute a valid delivery.
Only proxy cards received at such address on or prior to the meeting date
will be valid. The method of delivery of a proxy card 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. Inadequate Space. If the space provided herein is inadequate,
the certificate numbers and/or the number of Units should be listed on a
separate signed schedule attached hereto.
4. Requests for Assistance or Additional Copies. Requests for
assistance or additional copies of the Proxy Statement or the proxy card may
be directed to the Investor Services Department of Service Data Corporation
at the following phone number: (800) 223-3464 or at the following address:
2424 South 130th Circle
Omaha, Nebraska 68144
<PAGE>
BURGER KING LIMITED PARTNERSHIP I
NOTICE OF SPECIAL MEETING OF LIMITED PARTNERS
TO BE HELD ON ____ __, 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 ____ __, 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 _________
__, 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
____ __, 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 ____ __, 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 June 30, 1997, the Partnership had approximately ______
Limited Partners holding 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
______ __, 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 proxy cards 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 card are
being mailed to the Limited Partners on or about ______ __, 1997. Officers
and other employees of the General Partner may solicit proxies by mail, by
facsimile, by telephone or by personal interview.
INTRODUCTION AND GENERAL INFORMATION
If the Proposed Sale is for all of the Properties, the
consideration will be at least $__ 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
<PAGE>
the aggregate Target Sales Prices for such Properties stated on the chart
appearing below at page 13. 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.
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.
The 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
the enclosed proxy card. Only Limited Partners that desire to disapprove a
Proposed Sale need execute and return the enclosed proxy card. Failure to
return the enclosed proxy card 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 the section captioned "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
<PAGE>
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 "UNAUDITED PRO FORMA
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. 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
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.
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"). 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 (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 of operations 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.
<PAGE>
The Partnership originally constructed 32 Properties. As of
December 31, 1996, 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 has had discussions with a number of
institutions and other third parties interested in purchasing the
Partnership's nine remaining properties, but the existence of an
environmental issue at one of the Properties located in Greenfield, Wisconsin
(the "Greenfield Property") has delayed the Partnership's efforts to complete
a bulk sale. 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 through June 30, 1997,
Limited Partners have received quarterly cash distributions of Net Cash Flow
(as defined in the Partnership Agreement) from operations totaling
approximately $1,629.72 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 $709.36
per Unit, for a total aggregate cash distribution to the Limited Partners of
approximately $2,339.08 per Unit. On a pro forma basis, assuming the
Properties were sold to a Buyer for the Minimum Price as of June 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 $7,680,000, or $512 per Unit, after deduction of
expenses of the Proposed Sale, distributions to the General Partner, payment
of management fees due to Burger King Corporation ("Burger King"), 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 approximately $__ in connection with
the Proposed Sale of all of the Properties at the Minimum Price of $__
(assuming the Proposed Sale had occurred on June 30, 1997). Pursuant to the
Partnership Agreement, the General Partner is entitled to receive an amount
equal to or exceeding approximately $__, 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 $___, 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 $___ as the General
Partner's final liquidating distribution.
<PAGE>
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 a Proposed Sale would be an
attractive opportunity for the Partnership. The Minimum Price of $8,000,000
is equal to the Properties' aggregate appraised value as of December 31,
1996, which appraised value was disclosed in the Partnership's June 30, 1997
Quarterly Report. 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.
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.
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 $8,000,000 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.
<PAGE>
Restaurant Number Location Target Sales Price
- ----------------- -------- ------------------
3442 Statesville, NC $ 1,000,000
3466 Fairfield, OH 725,000
3486 Decatur, AL 1,500,000
3504 Springdale, AR 700,000
3548 Greenville, SC 900,000
3588 Springfield, MA 450,000
3626 Greenfield, WI 600,000
3641 Atlanta, GA 925,000
3645 Klamath Falls, OR 1,000,000
Total ("Minimum Price") $ 8,000,000
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
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 (the "Groundlease").
Burger King 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 individual 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 BK LEASES
--------------------------------- -----------------------------------------
Restaurant 1996 Minimum 1996 Rent paid to
Number Restaurant Location Title Lease Expiration Base Rent Lease Expiration<F1> Burger King
- ---------------- --------------------- --------------- ------------------ -------------- -------------------- --------------------
<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 84,316 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>
<PAGE>
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.
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). These Limited Partners should pay particular attention to
the discussion under the heading "Exempt Employee Trusts and Individual
Retirement Accounts; Unrelated Business Taxable Income."
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 in future years.
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
<PAGE>
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 Recaptured" 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.
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.
<PAGE>
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 gain 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
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.
<PAGE>
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 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 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
<PAGE>
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, 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
<PAGE>
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.
Accounting Treatment of the Proposed Sale
The Proposed Sale is expected to result in a gain by the
Partnership in fiscal year 1997 for financial reporting purposes.
UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
The following unaudited Pro Forma Condensed Financial Data is based
on the financial statements of the Partnership included elsewhere in this
Proxy Statement, adjusted to give effect to the sale of the Partnership's
remaining six Owned Properties and three Leased Properties to a Buyer for
aggregate consideration in the amount of at least the Minimum Price of
$8,000,000. The unaudited Pro Forma Balance Sheet data reflects the
Unaudited Balance Sheet for the six months ended June 30, 1997, included
elsewhere in this Proxy Statement, assuming the Proposed Sale occurred on
June 30, 1997. The unaudited Pro Forma Statement of Operations data assumes
that the Proposed Sale occurred on January 1, 1996.
The unaudited pro forma information is based upon available
information and certain assumptions that the General Partner believes are
reasonable. The unaudited Pro Forma Condensed Financial Data does not
purport to represent what the Partnership's financial position or results of
operations would actually have been had a Proposed Sale in fact occurred on
such date or to project the Partnership's financial position or results of
operations for any future date or period. For additional information, see
the Financial Statements included elsewhere in this Proxy Statement.
<PAGE>
<TABLE>
BURGER KING LIMITED PARTNERSHIP I
UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
June 30, 1997
<CAPTION>
Historical Pro Forma Pro Forma
Balance Adjustments Balance
---------- ----------- ---------
<S> <C> <C> <C>
Balance Sheet Data:
Assets
Real estate held for sale . . . . . . . . . . . . . . $1,497,736
Cash . . . . . . . . . . . . . . . . . . . . . . . . 813,468
Rent Receivable . . . . . . . . . . . . . . . . . . . 99,584
----------
Total Assets . . . . . . . . . . . . . . . . . . $2,410,788
==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses . . . . . . . $ 46,477
Due to affiliates . . . . . . . . . . . . . . . . . --
Management fee(a) . . . . . . . . . . . . . . . . . --
Distributions payable . . . . . . . . . . . . . . . 151,203
----------
Total Liabilities . . . . . . . . . . . . . . . . $ 197,680
----------
Partners' Capital (Deficit):
General Partner . . . . . . . . . . . . . . . . . . (87,668)
Limited Partners (15,000 units outstanding) . . . . 2,300,776
----------
Total Partners' Capital . . . . . . . . . . . . . 2,213,108
----------
Total Liabilities and Partners
Capital . . . . . . . . . . . . . . . . . . . . . $2,410,788
==========
</TABLE>
<PAGE>
Statement of Operations Data:
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Historical
Balance for
year ended Pro Forma Pro Forma
December 31, 1996 Adjustments Balance
----------------- ----------- ---------
<S> <C> <C> <C>
Income
Rental income . . . . . . . . . . . . . . . . . . $ 994,879
Interest income . . . . . . . . . . . . . . . . . 58,248
Other income . . . . . . . . . . . . . . . . . . 1,140
----------
Total Income . . . . . . . . . . . . . . . . . 1,054,267
----------
Expenses
Depreciation . . . . . . . . . . . . . . . . . . 108,127
Ground lease rent . . . . . . . . . . . . . . . . 112,914
Management fee . . . . . . . . . . . . . . . . . 87,601
General and administrative . . . . . . . . . . . 57,870
----------
Total Expenses . . . . . . . . . . . . . . . . 366,512
----------
Income from Operations . . . . . . . . . . . . . 687,755
Gain on Sale of Property . . . . . . . . . . . . 338,595
Net Income . . . . . . . . . . . . . . . . . . $1,026,350
==========
Net Income Allocated
To the General Partner . . . . . . . . . . . . . . $ 43,180
To the Limited Partners . . . . . . . . . . . . . . 983,170
----------
$1,026,350
==========
Per limited partnership
Unit (15,000 outstanding) . . . . . . . . . . . . $ 65.54
==========
</TABLE>
<PAGE>
Statement of Operations Data:
Six Months Ended June 30, 1997
<TABLE>
<CAPTION>
Historical Balance
for the six months Pro Forma Pro Forma
ended 03/31/97 Adjustments Balance
------------------ ----------- ---------
<S> <C> <C> <C>
Income
Rental income . . . . . . . . . . . . . . . . . . $473,919
Interest income . . . . . . . . . . . . . . . . . 24,107
Other income . . . . . . . . . . . . . . . . . . 1,181
--------
Total Income . . . . . . . . . . . . . . . . . 499,207
--------
Expenses
Depreciation . . . . . . . . . . . . . . . . . . --
Ground lease rent . . . . . . . . . . . . . . . . 56,457
Management fee . . . . . . . . . . . . . . . . . 41,746
General and administrative . . . . . . . . . . . 72,008
--------
Total Expenses . . . . . . . . . . . . . . . . 170,211
--------
Net Income . . . . . . . . . . . . . . . . . . $328,996
========
Net Income Allocated:
To the General Partner . . . . . . . . . . . . . . $ 16,450
To the Limited Partners . . . . . . . . . . . . . . 312,546
--------
$328,996
========
Per limited partnership
Unit (15,000 outstanding) . . . . . . . . . . . . $ 20.84
</TABLE>
<PAGE>
Notes to the unaudited Pro Forma Condensed Financial Data
(1) The Pro Forma Balance Sheet is presented as if the Proposed Sale
occurred on June 30, 1997. Land, buildings, fixtures, equipment and
related accumulated depreciation have been removed to reflect the
Proposed Sale as of the same date.
(2) The Pro Forma Statements of Operations are presented as if the Proposed
Sale occurred on January 1, 1996. Therefore, rental income, operating
expenses (depreciation, ground lease rent and management fees) and gain
on sales of properties for the period January 1, 1996 through June 30,
1997 have been removed to reflect the Proposed Sale as of January 1,
1996.
(3) The cash balance has been increased to reflect the net proceeds from the
Proposed Sale in the amount of $7,680,000 (Minimum Price of $8,000,000
less maximum estimated selling costs of $320,000).
(4) Burger King is entitled to an additional management fee equal to 10% of
the net proceeds from the Proposed Sale 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.
(5) The adjustments to partners' capital in the amount of $___ are made to
reflect a gain from the Proposed Sale as if it occurred on June 30,
1997.
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
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 an amount of approximately $___
which the General Partner expects to retain for a period of up to one year 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 June 30, 1997 at the Minimum Price, the General Partner estimates that the
Limited Partners would have received a distribution of approximately $ per
Unit, approximately $1,629.72 of which would have constituted Net Cash Flow
from operations and approximately $1,221.36 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."
<PAGE>
<TABLE>
<CAPTION>
Allocation of Net Property Disposition General Limited Per
Proceeds Total Partner Partners LP Unit
- --------------------------------------------- ----- ------- -------- -------
<S> <C> <C> <C> <C>
Gross sales price . . . . . . . . . . . . . .
Less estimated sales costs . . . . . . . . . .
Net sales price . . . . . . . . . . . . . . .
Distribution of Net Property Disposition
Proceeds required to cover payment of
unpaid return . . . . . . . . . . . . . . .
Distribution of Net Property Disposition
Proceeds required to reach Payout:
Remaining invested capital at June 30,
1997 15,000 Units at $290.64/Unit. . . . . .
Net Property Disposition Proceeds . . . . . .
Less 10% management fee to Burger King
Corporation . . . . . . . . . . . . . . . .
Remaining property disposition proceeds . . .
Total allocation of Net Property Disposition .
Proceeds from the Proposed Sale . . . . . . .
Distribution of remaining net operating
assets . . . . . . . . . . . . . . . . . . .
Liquidating cash distribution (15,000 Units
outstanding) . . . . . . . . . . . . . . . .
</TABLE>
<PAGE>
Notes to the Allocation of Property Disposition Proceeds Table
(a) Section 5.2 of the Partnership Agreement provides that "Net Property
Disposition Proceeds," as defined in the Partnership Agreement, 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 his Remaining Invested Capital,
as adjusted from time to time.
(b) After Payout has occurred and capital accounts have been adjusted to
zero, pursuant to the Master Agreement between Burger King and the
Partnership, Burger King is entitled to receive a management fee equal
to 10% of the Net Property Disposition Proceeds remaining after Payout
and payment of the management fee to Burger King, and thereafter,
according to Section 5.2 of the Partnership Agreement, distributions of
the Net Property Disposition Proceeds remaining after Payout will be
allocated 88.89% to the Limited Partners and 11.11% to the General
Partner.
(c) 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 and Net Property Disposition Proceeds, respectively, are
distributed, as provided in Sections 5.1 and 5.2 of the Partnership
Agreement, as appropriate when consideration is given to the sources of
funds distributed in the liquidation.
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 six
months ended June 30, 1997. 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 six months ended June 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 six months ended June 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 a wholly
owned subsidiary of LB I Group Inc., 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. For a
report by the Partnership's independent auditors with respect to historical
<PAGE>
financial information, see "Index to Financial Statements." The following
table should also be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
-------------------------- --------------------------------------------------------------------
Financial Data 1997 1996 1996 1995 1994 1993 1992
- -------------------------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental Income . . . . . . . . . $ 473,919 $ 525,351 $ 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 . . . . . . . . . . 328,996 362,440 1,026,350 1,870,532 3,179,853 1,734,447 2,981,876
Net Income per Unit . . . . . . 20.84 22.77 65.54 121.41 206.04 110.38 191.76
Total Assets . . . . . . . . . 2,410,788 3,052,291 3,052,291 2,886,432 5,841,632 5,944,174 6,961,206
Quarterly Cash Distributions (per unit) 1997 1996 1995 1994 1993 1992
- --------------------------------------------- ------------- ------------ ------------ ------------ ------------ ------------
First quarter . . . . . . . . . . . . . . $ 9.06 $ 9.00 $134.87<F2> $ 21.42 $ 24.24 $ 26.10
Second quarter . . . . . . . . . . . . . 11.78 13.11 4.73 21.73 92.91 28.35
Third quarter . . . . . . . . . . . . . . -- 16.33 11.84 159.37 22.99 29.45
Fourth quarter . . . . . . . . . . . . . -- 51.42<F1> 10.52 156.33 23.68 205.88
------------- ------------ ------------ ------------ ------------ ------------
Total Cash Distributions . . . . . . . . $20.84 90.38 $161.96 $358.85<F3> $163.82<F4> $289.78<F5>
<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.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of operations
Six months ended June 30, 1997 compared to six months ended June 30, 1996.
The Partnership generated net income of $185,993 and $328,996 for
the three- and six-month periods ended June 30, 1997, respectively, compared
to $208,413 and $362,440 for the corresponding periods in 1996. The decrease
in net income for both of the 1997 periods is primarily attributable to a
decrease in rental income and an increase in general and administrative
expenses. The decreases were partially offset by a lower depreciation
expense.
Rental income for the three- and six-month periods ended June 30,
1997 totaled $258,109 and $473,919, respectively, compared to $295,674 and
$525,351 for the corresponding periods in 1996. The decreases for both
periods are primarily attributable to the decrease in sales at the Properties
during the 1997 period which was primarily the result of the sale of a
Property located in Wichita, Kansas (the "Wichita Property") in the fourth
quarter of 1996.
Interest income for the three- and six-month periods ended June 30,
1997 totaled $10,974 and $24,107, respectively, compared to $8,322 and
$21,158 for the corresponding periods in 1996. The increase in interest
income for both periods is primarily attributable to a higher cash balance
invested by the Partnership in the first and second quarters of 1997.
No depreciation expense was recorded for the three- or six-month
periods ended June 30, 1997, compared to $27,636 and $55,271 for the
corresponding periods in 1996. Effective December 31, 1996, the Partnership
ceased recording depreciation expense as a result of the classification of
the Properties as real estate held for sale in accordance with Statements of
Financial Accounting Standards No. 121.
General and administrative expenses totaled $32,414 and $72,008 for
the three- and six-month periods ended June 30, 1997, respectively, compared
to $13,335 and $26,082 for the corresponding periods in 1996. During the 1997
periods, certain expenses incurred by an unaffiliated third-party service
provider in servicing the Partnership, which were voluntarily absorbed by
affiliates of the General Partner in prior periods, were reimbursable to the
General Partner and its affiliates.
Year ended December 31, 1996 compared to year ended December 31, 1995.
The Partnership generated net income for the year ended
December 31, 1996 of $1,026,350, compared to $1,870,532 for the prior year.
The decrease in net income is primarily due to a reduction in gain on sales
which, for the year ended December 31, 1995, included the sales of three
Properties totaling $1,253,015, as compared to a gain on the sale of one
Property totaling $338,595 during the year ended December 31, 1996.
Excluding the gain on sales of Properties, the Partnership generated income
from operations totaling $687,755 for the year ended December 31, 1996,
compared to $617,517 for the year ended December 31, 1995. The increase in
income from operations from 1995 to 1996 is primarily attributable to a
decrease in general and administrative expenses.
<PAGE>
Rental income for the year ended December 31, 1996 totaled $994,879,
largely unchanged from $1,004,195 for the year ended December 31, 1995.
Interest income for the year ended December 31, 1996 totaled
$58,248, compared to $75,276 for the year ended December 31, 1995. The
decrease is primarily attributable to a decrease in the cash invested by the
Partnership during 1996. During the first and second quarters of 1995, the
Partnership received interest income on the net proceeds from the sales of
four Properties in December 1994 and six Properties in March 1995. These
proceeds were subsequently distributed to the partners on January 30, 1995
and April 28, 1995, respectively.
Depreciation expense for the year ended December 31, 1996 totaled
$108,127, compared to $118,323 for the year ended December 31, 1995. The
decrease in depreciation expense is primarily due to the sale of three
Properties in March 1995, and, to a lesser extent, the sale of one Property
in October 1996.
General and administrative expenses totaled $57,870 for the year
ended December 31, 1996, compared to $143,493 for the year ended December 31,
1995. The decrease in general and administrative expense is primarily
attributable to a decrease in environmental consulting costs and other
professional fees incurred by the Partnership in connection with the
Greenfield Property.
Year ended December 31, 1995 compared to year ended December 31, 1994.
The Partnership generated net income for the year ended
December 31, 1995 of $1,870,532 compared to $3,179,853 for the year ended
December 31, 1994. The decrease in net income was primarily attributable to
(i) a decrease in the gain on the sales of Properties from $2,040,687
recognized on the sales of 10 Properties during 1994 as compared to a gain of
$1,253,015 recognized on the sales of three Properties during 1995, and
(ii) a decrease in rental income as a result of the Partnership owning fewer
Properties during 1995.
Rental income for the year ended December 31, 1995 totaled
$1,004,195 compared to $1,820,012 for the year ended December 31, 1994. The
decrease was due to the fact that there were fewer stores paying rent as a
result of the sales of 10 Properties during the second half of 1994 and three
Properties in the first quarter of 1995. This was partially offset by an
increase in percentage rents from the remaining 10 Properties owned by the
Partnership. Percentage rent increased from $235,921 for the year ended
December 31, 1994 to $292,707 for the year ended December 31, 1995 primarily
attributable to higher sales at these Properties during 1995.
Liquidity and Capital Resources
At June 30, 1997, the Partnership had a cash and cash equivalents
balance of $813,468, compared to $1,478,513 at December 31, 1996. The
decreases primarily attributable to the distribution made on January 30,
1997 of the net proceeds received from the sale of the Wichita Property,
which were previously included in the Partnership's cash balance at December
31, 1996. The Partnership's cash balance at June 30, 1997 consisted primarily
of the Partnership's working capital, cash flow from operations for the
second quarter of 1997 and a reserve established to fund potential
environment remediation costs with respect to the Greenfield Property. At
June 30, 1997, the Partnership owned nine Properties.
<PAGE>
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, the environmental issue at
the Greenfield Property has delayed the Partnership's efforts to complete a
sale of the remaining Properties. The Partnership had previously proposed
site-specific, clean-up standards for the Greenfield Property to the
Wisconsin Department of Natural Resources ("WDNR"), whose response has taken
significantly longer than originally anticipated. In light of this
unanticipated lengthy delay, the General Partner has begun marketing the
Partnership's remaining nine Properties for sale and has engaged the services
of Jones Lang Wootton, a nationally recognized real estate broker, to assist
the Partnership in its marketing efforts. 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 the General
Partner is hopeful that a sale of the Properties can be completed during
1997, there can be no assurances that such efforts will ultimately be
successful. As a result of the Partnership's efforts to market the
Properties for sale, the Properties have been reclassified on the
Partnership's balance sheet as real estate held for sale.
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 cash flow
from operations to fund these costs. If the proposed site-specific standards
are approved by the WDNR prior to the sale of the Greenfield Property, it is
expected that any of such reserves spent on the environmental remediation
should 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 Greenfield Property. 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.
The General Partner believes that the Partnership will have
sufficient assets with which to pay any potential remediation costs on the
Greenfield Property. In the unlikely event that the Partnership does not
have sufficient assets with which to pay such costs, the General Partner is
unaware of any Federal or State of Wisconsin environmental law imposing any
personal liability on the Limited Partners for their pro-rata share of the
Partnership's remediation costs. Therefore, except as otherwise provided for
in the Partnership Agreement, Limited Partners may be liable for Partnership
obligations only to the extent of their respective capital contributions.
Rent and other receivables increased from $76,042 at December 31,
1996 to $99,584 at June 30, 1997. The increase is primarily attributable to
the timing and remittance of rental payments.
Distributions payable at June 30, 1997 were $151,203, of which
$138,967 was paid on July 30, 1997. The unpaid portion of $12,236 represents
an amount equal to 4% of the quarterly distributions of net cash flow from
operations. Pursuant to the terms of the Partnership Agreement, net cash
flow from operations is distributed on the basis of 95% to the Unitholders
and 1% to the General Partner with the remaining 4% being retained by the
Partnership as a contingent reserve (the "Contingent Reserve"). Unitholders
are entitled to receive an annual return equal to 12.5% of their remaining
invested capital.
<PAGE>
To the extent Unitholders do not receive an annual return of 12.5%,
the Contingent Reserve is distributed to the Unitholders with the remainder,
if any, distributed to the General Partner.
Including the 1997 second quarter distribution of net cash flow
from operations which was paid to Unitholders on July 30, 1997 in the amount
of $9.17 per Unit, Unitholders have received total cash distributions of
$2,339.08 per original $1,000 Unit since the inception of the Partnership.
This total includes distributions of net cash flow from operations in the
amount of $1,629.72 per Unit and distributions of net proceeds from the sales
of Properties in the amount of $709.36 per Unit. Distributions of net sales
proceeds represent returns of capital which have reduced the size of each
Unit from $1,000 to $290.64.
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.
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 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 fast food
business. Competition in the fast food industry has generally become more
intense as the number of chains competing for the consumer's business has
increased. For most chains, in 1997, the primary source of revenue growth
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
<PAGE>
(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.
Burger King had the option to purchase the Properties at fair
market value through December 14, 1991. Upon expiration of Burger King's
option, 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.
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 . . . . . . . . . . . . . . . . . . . . . . .
Audited Financial Statements:
Audited Balance Sheets of the Partnership as of December 31, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audited Statements of Partners' Capital (Deficit) for the years ended
December 31, 1996, December 31, 1995 and December 31, 1994 . . . . . . .
Audited Statements of Operations for the years ended December 31, 1996,
December 31, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . .
Audited Statements of Cash Flows for the years ended December 31, 1996,
December 31, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . .
Notes to Audited Financial Statements . . . . . . . . . . . . . . . . . . . .
Interim Financial Statements:
Unaudited Balance Sheet for the six months ended June 30, 1997 . . . . . .
Unaudited Statement of Partners' Capital (Deficit) . . . . . . . . . . . .
Unaudited Statements of Operations for the six months ended June 30, 1997
and June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unaudited Statements of Cash Flow for the six months ended June 30,
1997 and June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Interim Financial Statements . . . . . . . . . . . . . . . . . . .
