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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
__________
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
X Definitive Proxy Statement Commission Only (as permitted by
Definitive Additional Materials Rule 14a-6(e)(2))
Soliciting Material Pursuant to
Rule 14a-11-(c) or Rule 14a-12
BURGER KING LIMITED PARTNERSHIP II
(Name of Registrant as Specified in its Charter)
BK II PROPERTIES, INC., GENERAL PARTNER
(Name of Person(s) Filing Proxy Statement, if other
than the Registrant)
Payment of Filing Fee:
$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A
$500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
X Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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 applies:
15,000
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:
$17,225,000.00
4) Proposed maximum aggregate value of transaction:
$17,225,000.00
5) Total fee paid:
$3,445.00
Fee paid previously with preliminary materials:
$3,445.00
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:
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ONLY RETURN THIS REQUEST IF YOU WISH TO CONVENE A MEETING FOR
THE PURPOSE OF VOTING TO DISAPPROVE
THE PROPOSED SALE
BURGER KING LIMITED PARTNERSHIP II
c/o Service Data Corporation
2424 South 130th Circle
Omaha, NE 68144
Attention: Proxy Department
REQUEST FOR MEETING
The purpose of this letter is to request a meeting of the holders of
limited partnership interests (the "Unitholders") in Burger King Limited
Partnership II, a New York limited partnership (the "Partnership"), for the
purpose of voting to disapprove a proposed sale of the Partnership's remaining
Burger King restaurants, 17 of which are owned in fee simple and 11 of which
are subject to ground leases (collectively, the "Proposed Sale") to U.S.
Restaurant Properties Operating L.P., a Delaware limited partnership (the
"Buyer"). The Partnership has entered into an Agreement of Purchase and Sale,
dated as of October 11, 1995, as amended as of January 9, 1996 (the "Purchase
Agreement"), with the Buyer with respect to the Proposed Sale.
To request a meeting for the purpose of voting to disapprove the
Proposed Sale, please complete and execute this Request for Meeting and mail
such Request for Meeting to the address noted above. Only properly completed
Requests for Meeting received on or prior to April 30, 1996 will be valid. If
the Partnership receives properly executed Requests for Meeting from
Unitholders holding an aggregate of 10% or more in interest of the outstanding
limited partnership interests (the "Units"), BK II Properties, Inc., the
general partner of the Partnership (the "General Partner") will call a meeting
of Unitholders at a time and place to be determined.
Please see the attached proxy statement and the instructions on the
reverse before completing and returning a Request for Meeting.
Pursuant to Section 15.1 of the Agreement of Limited Partnership, dated
as of August 23, 1982, as amended and restated as of October 19, 1982, the
undersigned Unitholder hereby requests that a meeting of the Unitholders be
convened for the purpose of voting to disapprove the Proposed Sale.
UNITHOLDER SIGNATURE:
____________________________________ Unitholder Address: _____________
[Please print name of Unitholder as it __________________________________
appears on the certificate representing __________________________________
the Units covered hereby]
Signature: _________________________ Number of Units held: ___________
Date: _____________________________
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INSTRUCTIONS
1. Signatures of Registered Holder. In order to be valid, each
Request for Meeting must be signed by the registered Unitholder or
Unitholders. If a Request for Meeting is signed by the registered
Unitholder(s) of the Units included in any Request for Meeting, 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 Request
for Meeting 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 Requests for Meeting as there are different
registrations or certificates.
If a Request for Meeting 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
Request for Meeting.
2. Delivery. Delivery of a Request for Meeting to an address
other than the address set forth on the Request for Meeting does not constitute
a valid delivery. Only Requests for Meeting received at such address on or
prior to April 30, 1996 will be valid. The method of delivery of a Request for
Meeting 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 Request for
Meeting may be directed to the Investor Services Department of Service Data
Corporation at the address above or the following phone number: 800-223-3464.
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BURGER KING LIMITED PARTNERSHIP II
Three World Financial Center
29th Floor
New York, NY 10285
March 25, 1996
Dear Limited Partner:
We would like to take this opportunity to update you on an
important development regarding your investment in Burger King Limited
Partnership II (the "Partnership"). As discussed in the Partnership's 1995
quarterly reports, BK II Properties Inc., the general partner of the
Partnership (the "General Partner"), has been aggressively marketing the
Partnership's remaining restaurants (the "Properties") to a number of
prospective buyers. We are pleased to report that, as a result of these
efforts, the Partnership executed an Agreement of Purchase and Sale on October
11, 1995, as amended as of January 9, 1996 (the "Purchase Agreement"), with
U.S. Restaurant Properties Operating L.P. to sell the Properties (the "Proposed
Sale") for $17,025,000 in cash, subject to certain conditions and adjustments
described in the enclosed proxy statement (the "Proxy Statement").
Upon completion of the Proposed Sale, the General Partner
intends to distribute to the limited partners of the Partnership (the
"Unitholders") the net proceeds from the Proposed Sale, which the General
Partner estimates will be approximately $15,674,283, or $1,045 per Unit, after
deducting the expenses of the Proposed Sale, payment of approximately $660,182
in allocable distributions due to the General Partner pursuant to the
Partnership Agreement (as defined below), 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. For more information, see the section of the
Proxy Statement captioned "Unaudited Pro Forma Condensed Financial Data." The
General Partner then plans to distribute the remaining cash flow from the
operations of the Properties and ultimately liquidate the Partnership. As a
result, following the sale of the Properties, the Unitholders will no longer
receive additional distributions of cash flow from operations since the
Partnership will no longer be operating the Properties.
In addition, Unitholders may recognize income and gains for
Federal, state and/or local income tax purposes earlier than they otherwise
would have, due to the disposition by the Partnership of the Properties during
1996 pursuant to the Proposed Sale. For more information, see the section of
the Proxy Statement captioned "Federal Income Tax Consequences of the Proposed
Sale -- Unitholder's Gain or Loss Upon the Sale of the Properties." It is also
possible that the Unitholders may fail to benefit from future appreciation, if
any, in the value of the Properties if the Properties are sold at this time
pursuant to the Proposed Sale. Furthermore, it is estimated that the General
Partner will receive distributions of approximately $660,182 in connection with
the Proposed Sale and $11,634 in connection with the liquidation of the
Partnership as the General Partner's final liquidating distribution.
Unitholders should be aware that the right to receive such distributions could
appear to create a potential conflict of interest for the General Partner in
its determination of whether the Proposed Sale is in the best interests of the
Partnership. However, such distributions to the General Partner would be
payable upon any eventual sale of the Properties and the ultimate liquidation
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of the Partnership, although the amount of such distributions would be impacted
by the final sales price of the Properties. For more information concerning
the Proposed Sale, including a more detailed discussion of the advantages and
disadvantages of the Proposed Sale to the Unitholders, please review the Proxy
Statement.
As further detailed in the Proxy Statement, Unitholders have
the right to vote (assuming certain conditions are met) upon certain matters,
and, if such conditions are satisfied, Unitholders voting a majority in
interest of limited partnership units (the "Units") may, without the
concurrence of the General Partner, cause, among other things, the disapproval
of the Proposed Sale. See "Terms of the Proposed Sale; Conditions Precedent"
in the Proxy Statement for more information.
In order to effect the Unitholder's right to vote to disapprove
the Proposed Sale, Unitholders holding 10% or more in interest of the
outstanding Units must submit written requests for a meeting of the Unitholders
pursuant to Section 15.1 of the Agreement of Limited Partnership dated as of
August 23, 1982, as amended and restated as of October 19, 1982 (the
"Partnership Agreement"). While the General Partner may itself call a meeting
of the Unitholders for any purpose, the General Partner believes that the
Proposed Sale is in the best interest of the Unitholders and has, therefore,
determined not to call a meeting for the purpose of considering the disapproval
of the Proposed Sale. Therefore, if any Unitholder desires to request a meeting
of the Unitholders in order to vote to disapprove the Proposed Sale,
such Unitholder should complete and execute the enclosed letter entitled
"Request for Meeting" (the "Request") and mail such Request to the address
provided on the Request no later than April 30, 1996. In considering whether
to submit the Request, Unitholders should carefully review the financial and
other information contained in the Proxy Statement.
Pursuant to the terms and conditions of the Partnersip Agreement and
under applicable state law, the approval of Unitholders is not reqired to
effect the Proposed Sale. Accordingly, Unitholders in favor of the Proposed
Sale of the Properties are not required to execute and return the enclosed
Request. Only Unitholders that desire that a meeting of Unitholders be
convened for the purpose of voting to disapprove the Proposed Sale should
execute and return the enclosed Request. The Proxy Statement is being sent to
the Unitholders of record as of March 20, 1996.
If the Partnership does not receive, on or prior to April 30, 1996,
properly completed Requests from Unitholders holding an aggregate of 10% or
more in interest of the outstanding Units, the Proposed Sale will be
consummated pursuant to the terms and subject to the conditions of the Purchase
Agreement. If the Partnership receives properly completed Requests from
Unitholders holding 10% or more in interest of the outstanding Units on or
prior to April 30, 1996, the General Partner will be required to call a meeting
of Unitholders for the purpose of voting to disapprove of the Proposed Sale. If
a meeting of the Unitholders is called, and the Proposed Sale is disapproved by
a majority in interest of the Unitholders, the Purchase Agreement will be
terminated, pursuant to its terms, and the Partnership will continue to operate
the Properties and distribute the cash flow from operations to the Unitholders
in accordance with the Partnership Agreement. If, however, a meeting of the
Unitholders is called, and Unitholders holding less than a majority in interest
vote to disapprove the Proposed Sale, the Proposed Sale will be consummated
pursuant to the terms and subject to the conditions set forth in the Purchase
Agreement and as described in the Proxy Statement.
Assuming consummation of the Proposed Sale, the Partnership
will be dissolved in accordance with Article XI of the Partnership Agreement.
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,
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liquidating distributions will be made to Unitholders and the General Partner
as provided in the Partnership Agreement.
Very truly yours,
BK II Properties Inc.,
as General Partner of Burger
King Limited Partnership II
/s/ Rocco F. Andriola
__________________________
Rocco F. Andriola
President
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BURGER KING LIMITED PARTNERSHIP II
3 World Financial Center
29th Floor
New York, New York 10285
(800) 223-3464
PROXY STATEMENT
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
This Proxy Statement is being mailed on or about March 25, 1996 to holders of
limited partnership interests (the "Units") in Burger King Limited Partnership
II, a New York limited partnership (the "Partnership"), for the purpose, among
other things, of describing the proposed terms under which the Partnership has
agreed to sell 17 of the Partnership's Burger King restaurants owned in fee
simple (the "Owned Properties") and to assign all of its rights in 11 of the
Partnership's Burger King restaurants subject to ground leases (the "Leased
Properties)(the Owned Properties and the Leased Properties are referred to
herein collectively as the "Properties" or, individually, as a "Property") to
U.S. Restaurant Properties Operating L.P., a Delaware limited partnership (the
"Buyer"), pursuant to an Agreement of Purchase and Sale, dated as of October
11, 1995, as amended as of January 9, 1996, between the Partnership and the
Buyer (the "Purchase Agreement"). A copy of the Purchase Agreement is attached
hereto as Appendix A and all references herein to the terms of the Purchase
Agreement are qualified in their entirety by reference to the full text of the
Purchase Agreement. Capitalized terms used herein and not otherwise defined
have the meanings ascribed thereto in the Purchase Agreement.
Pursuant to the terms of the Purchase Agreement, subject to the satisfaction of
certain conditions, the Buyer agreed to acquire the Properties for
consideration in the amount of $17,025,000 in cash (the "Purchase Price"),
subject to adjustments and prorations for base and percentage rents as well as
certain other charges payable in respect of the Leased Properties and
adjustments in respect of certain closing costs (the "Proposed Sale"). See
"Terms of the Proposed Sale -- Adjustments and Prorations; Closing Expenses."
In addition, the Purchase Price may be reduced upon the exclusion of any
Property pursuant to the terms of the Purchase Agreement as a result of the
commencement of eminent domain proceedings in respect of all or substantially
all of such Property. If the Buyer objects to any exceptions set out in the
title reports to be delivered to the Buyer prior to the Closing that materially
impair marketability of title, the Partnership may elect to remedy such
exceptions and defer the Closing in respect of the Properties for a reasonable
period following the Closing Date, such period not to exceed 90 days. If the
Partnership does not elect to cure any material exceptions to which the Buyer
has objected, the Buyer may either proceed to Closing and take title to the
Properties subject to the noted exceptions or terminate the Purchase Agreement.
See "Terms of the Proposed Sale -- Title Exceptions." The Purchase Price is
also subject to an increase of $200,000 to an aggregate of $17,225,000 if the
Partnership
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elects to include a restaurant located in Marietta, Georgia (the "Marietta
Property") in the Proposed Sale. BK II Properties Inc., the general partner of
the Partnership (the "General Partner"), is pursuing parties that may have an
interest in purchasing the Marietta Property for a price in excess of $200,000.
If the General Partner is unsuccessful in locating a potential purchaser, the
Partnership would, in all likelihood, include the Marietta Property in the
Proposed Sale.
Pursuant to Section 8.3 of the Agreement of Limited Partnership dated as of
August 23, 1982, as amended as of October 19, 1982 (the "Partnership
Agreement"), the holders of Units of the Partnership (the "Unitholders") have
the right to vote (assuming certain conditions described in the Partnership
Agreement are met) only upon certain matters and Unitholders 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 sale of the Properties to the
Buyer pursuant to the Purchase Agreement (the "Proposed Sale") would constitute
a sale of all or substantially all of the Partnership's assets. Accordingly,
Unitholders have the right to disapprove the Proposed Sale. A copy of the
Partnership Agreement is attached hereto as Appendix B.
In order to effect a vote to disapprove the Proposed Sale, Unitholders holding
10% or more in interest of the outstanding Units must submit written requests
for a meeting of the Unitholders pursuant to Section 15.1 of the Partnership
Agreement. While the General Partner may call a meeting of the Unitholders for
any purpose, the General Partner believes that the Proposed Sale is in the best
interest of the Unitholders and has, therefore, determined not to call a
meeting for the purpose of considering the disapproval of the Proposed Sale.
Therefore, if any Unitholder desires to request a meeting of the Unitholders in
order to vote to disapprove the Proposed Sale, such Unitholder should complete
and execute the letter enclosed herein entitled "Request for Meeting" (the
"Request") and mail the Request to the address provided below no later than
April 30, 1996.
Burger King Limited Partnership II
c/o Service Data Corporation
2424 South 130th Circle
Omaha, NE 68144
Attn: Proxy Department
Unitholders in favor of the Proposed Sale are not required to execute and
return the enclosed Request. Only Unitholders who desire that a meeting of
Unitholders be convened for the purpose of voting to disapprove the Proposed
Sale should execute and return the enclosed Request. This Proxy Statement is
being sent to the Unitholders of record as of March 20, 1996. If the
Partnership does not receive, on or prior to April 30, 1996, properly completed
Requests from Unitholders holding an aggregate of 10% or more in interest of
the outstanding Units, the General Partner will not hold a meeting of
Unitholders to consider the disapproval of the Proposed Sale, and the Proposed
Sale will be consummated pursuant to the terms and subject to the conditions of
the Purchase Agreement. If the Proposed Sale is consummated, Unitholders will
not have any rights of appraisal or similar rights under New York law. If a
Unitholder completes, executes and sends the Request, he or she may
subsequently revoke such Request by mailing a letter to the address above
stating that the Unitholder no longer desires that a meeting of Unitholders be
convened to consider whether to disapprove the Proposed Sale.
If the Partnership receives properly completed Requests from Unitholders
holding 10% or more in interest of the outstanding Units, the General Partner
will be required to call a meeting of the Unitholders to consider the
disapproval of the Proposed Sale. If a meeting of the Unitholders is called,
and the Proposed Sale is disapproved by a majority in interest of the
Unitholders, the Purchase Agreement will be terminated, pursuant to its terms,
and the Partnership will continue to operate the Properties and distribute the
cash flow from operations to the Unitholders in accordance with the Partnership
Agreement. If, however, a meeting of the Unitholders is called, and
Unitholders holding less than a majority in interest vote to disapprove the
Proposed Sale, the Proposed Sale will be consummated pursuant to the terms and
subject to the conditions set forth in the Purchase Agreement.
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Upon the consummation of the Proposed Sale and the transfer of the Properties
to the Buyer, the Partnership will 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 Unitholders 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."
The Unitholders right to vote to disapprove the Proposed Sale is ineffective
until such time as (a) either (i) a court of competent jurisdiction will have
determined in an action for declaratory judgment or similar relief sought on
behalf of the Unitholders that neither the grant nor the exercise of the
Unitholders' right to vote with respect to such matters will result in the loss
of any Unitholder'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 the
Unitholders right to vote with respect to such matters 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. While the Partnership has not obtained declaratory
judgments, rulings or legal opinions required to give effect to the Unitholders
right to vote to disapprove the Proposed Sale, the General Partner believes
that it could obtain the required legal opinions without unreasonable effort or
expense. If the Partnership receives properly completed Requests from
Unitholders holding an aggregate of 10% or more in interest of the outstanding
Units requesting that a meeting be called to vote on the disapproval of the
Proposed Sale, the General Partner will use its best efforts to obtain the
required legal opinions prior to calling a meeting of the Unitholders.
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 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 October 21, 1982 (the "Prospectus"), were to
provide the Unitholders (i) quarterly distributions of cash flow generated from
the restaurants' operations and (ii) realization of long-term appreciation in
the value of the Properties, consistent in all cases with the preservation of
the Unitholders' 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 contenplated
in the Prospectus.
The Partnership originally constructed 33 Properties. As of September 30,
1995, the Partnership had disposed of four Properties and the net proceeds of
such sales have been distributed to the Unitholders 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. After careful consideration, the
General Partner determined that the sale of all of the remaining Properties to
the Buyer in a single sale would best satisfy the Partnership's investment
objective of realization of long-term appreciation, consistent with
preservation of the Unitholders' capital, as required by Section 6.3 of the
Partnership Agreement.
During 1994, the General Partner sent certain summary information on the
Properties to a number of potential purchasers that the General Partner
believed might have an interest in acquiring all or substantially all of the
Properties. The summary information provided to the potential purchasers
stated that only bids in excess of $15.0 million would be considered by the
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General Partner. Of the potential purchasers that expressed an interest in
purchasing the Properties, five bidders exceeded the $15.0 million minimum
threshold. The General Partner pursued discussions with, and provided
additional information to, the five bidders. Based on this additional
information, the Buyer submitted a final bid that exceeded those submitted by
the remaining bidders. In addition, the Buyer indicated a willingness to agree
to certain significant terms and conditions which were favorable to the
Partnership, as discussed below in "Advantages to Unitholders of the Proposed
Sale." Based on the foregoing reasons, the General Partner determined that it
was in the best interest of the Partnership to pursue the Proposed Sale.
The Partnership has been successful in distributing to the Unitholders, on a
quarterly basis, cash flow generated from the Properties' operations. Since
the inception of the Partnership through December 31, 1995, Unitholders have
received quarterly cash distributions of Net Cash Flow from Operations (as
defined in the Partnership Agreement) totalling approximately $1,615 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 totalling approximately $98 per Unit, for a total aggregate cash
distribution to the Unitholders of approximately $1,713 per Unit. On a pro
forma basis, assuming the Properties were sold to the Buyer as of December 31,
1995, the General Partner estimates that the net proceeds from the sale of the
Properties available for distribution to the Unitholders would be approximately
$15,674,283, or $1,045 per Unit, after deduction of expenses of the Proposed
Sale, distributions to the General Partner, payment of management fees due to
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 $660,182 in connection with the
Proposed Sale (assuming the Proposed Sale were to occur on December 31, 1995).
Pursuant to the Partnership Agreement, the General Partner is entitled to
receive approximately $114,202, or 1% of the net proceeds from the Proposed
Sale until the Unitholders have received from the Partnership aggregate
distributions equal to such Unitholder'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
$545,980, or 11.1% of the net proceeds from the Proposed Sale after each
Unitholder has achieved Payout. In addition, it is estimated that upon the
liquidation of the Partnership, the General Partner will receive an additional
amount of approximately $11,634 as the General Partner's final liquidating
distribution. Unitholders should be aware that the right to receive such
distributions could appear to create a potential conflict of interest for the
General Partner in its determination of whether the Proposed Sale is in the
best interests of the Partnership. However, such distributions to the General
Partner would be payable upon any eventual sale of the Properties and the
ultimate liquidation of the Partnership, although the amount of such
distributions would be impacted by the final sales price of the Properties.
Advantages to Unitholders 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 seven or eight 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 in 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 an extremely
attractive opportunity for the Partnership. As discussed above, the
Partnership received offers from a number of prospective buyers, and the
Purchase Price offered by the Buyer represents what the General Partner
believes is currently the highest attainable sale price for the Properties. The
Purchase Price of $17,025,000 is $2,603,000 higher than the Properties'
aggregate appraised value of $14,422,000 as of December 31, 1994, which
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appraised value was disclosed in the Partnership's 1994 Annual Report. In
addition, the Buyer has advised the General Partner that it has sufficient
funds available to finance the Proposed Sale with borrowings from an existing
line of credit with a third-party commercial lending institution.
The terms and conditions of the Proposed Sale also offer certain benefits to
the Partnership and its Unitholders. The Buyer has agreed, subject to certain
pre-closing contingencies related to exceptions set out in the title reports
delivered to the Buyer or upon damage, destruction or condemnation of a
Property, to acquire the Properties at Closing on an "as is, where is" basis in
their current state, including without limitation, the physical and
environmental condition of the Properties. Further, the Buyer has agreed to
waive any and all claims that it may now or hereafter have against the
Partnership arising out of or in connection with Environmental Laws (as defined
in the Purchase Agreement). As a result of the Buyer's agreement to accept the
Properties on an "as is, where is" basis and to waive any claims it may now or
hereafter have under environmental laws, the General Partner believes that the
possibility of future contingent liability of the Partnership to third parties
with respect to environmental issues is substantially reduced. In addition,
the Buyer has agreed to provide an irrevocable letter of credit in favor of
Burger King to secure potential payments which the Partnership may owe under
certain ground leases between the Partnership and Burger King, which ground
leases will be assigned to the Buyer in connection with the Proposed Sale. In
consideration for the provision of such letter of credit by the Buyer, the
Partnership will pay the fees associated with the issuance of such letter of
credit. Such fees are not expected to exceed $20,000 and will be paid through
an adjustment in the Purchase Price. Accordingly, the General Partner expects
to reduce the reserves required to cover future contingencies as a result of
the terms and conditions set forth in the Purchase Agreement, thus allowing the
Partnership to distribute a greater portion of the net proceeds from the sale
of the Properties.
Disadvantages to Unitholders of the Proposed Sale
While the General Partner believes that the Proposed Sale is in the best
interests of the Unitholders, each Unitholder should consider the following
factors in evaluating the Proposed Sale. Upon the completion of the Proposed
Sale and pending the liquidation of the Partnership, Unitholders will no longer
receive distributions of cash flows from operations since the Partnership will
no longer be operating the Properties. However, Unitholders 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." In addition, Unitholders may recognize income and gains
for Federal, state and/or local income tax purposes earlier than they otherwise
would have, due to the disposition by the Partnership of the Properties during
1996 pursuant to the Proposed Sale. See "Federal Income Tax Consequences of
the Proposed Sale -- Unitholder's Gain or Loss upon the Sale of the
Properties." Finally, it is possible that the Unitholder's may fail to benefit
from future appreciation, if any, in the value of the Properties if the
Properties are sold at this time pursuant to the Proposed Sale.
Terms of the Proposed Sale
The Purchase Agreement was entered into as of October 11, 1995 and amended as
of January 9, 1996, between the Partnership and the Buyer. The Buyer is a
Delaware limited partnership that currently owns approximately 130 properties,
located in approximately 37 states, on which Burger King, Chili's and other
fast food/casual dining restaurants are operated. The Buyer receives base
rents and percentage rents based upon the sales volumes at its restaurants. The
Buyer's principal business address is c/o QSV Properties Inc., 5310 Harvest
Hill Road, Suite 270, Dallas, Texas 75230 and its telephone number is (214)
490-9119.
Properties and Consideration. All of the Properties are Burger King
restaurants located at the locations set forth in the following table. The
Buyer has agreed, subject to the terms and conditions of the Purchase
Agreement, to acquire the Properties set forth below for an aggregate Purchase
Price of $17,025,000 in cash, subject to certain prorations and adjustments.
See "-- Adjustments and Prorations; Closing Expenses." The Purchase Price is
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subject to an increase of $200,000 to an aggregate of $17,225,000 if the
Partnership elects to include the Marietta Property in the Proposed Sale
pursuant to the Purchase Agreement. The General Partner is pursuing parties
that may have an interest in purchasing the Marietta Property for a purchase
price in excess of $200,000. If the General Partner is unsuccessful in locating
a potential purchaser, the Partnership would, in all likelihood, exercise its
option to include the Marietta Property in the sale of the remaining Properties
and to transfer the Marietta Property to the Buyer upon the consummation of the
Purchase Agreement.
Restaurant Number Location Sales Price
3642 Redlands, CA $665,000
3647 Garland, TX 514,000
3659 Nederland, TX 951,000
3677 St. Peters, MO 681,000
3692 Marietta, GA 428,000
3693 Corpus Christi, TX 619,000
3696 Pelham, AL 387,000
3701 Milan, TN 191,000
3704 Greenville, TN 704,000
3706 Phoenix, AZ 604,000
3720 Wilmington, NC 539,000
3722 Southbend, IN 834,000
3723 Riverdale, GA 697,000
3732 Kansas City, KS 247,000
3758 Erlanger, KY 344,000
3773 Ceres, CA 1,265,000
3777 Orange, CA 268,000
3779 Statesboro, GA 780,000
3830 Plano, TX 193,000
3833 Hot Spring, AR 631,000
3871 Columbus, MS 1,087,000
3892 Vernon, CT 764,000
3925 Tucson, AZ 231,000
3978 Springfield, MA 302,000
4005 Glendale, AZ 619,000
4056 Rocky Mount, NC 1,049,000
4115 Mt. Clemens, MI 435,000
4185 Greenville, MS 996,000
With an option to include:
3891 Marietta, GA 200,000
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Properties -- Operating Data. Of the 29 Properties, the Partnership owns 18 of
the Properties in fee simple and holds a leasehold interest in 11 of the
Properties ("Leased 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 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.
OPERATING LEASES BK LEASES
1996 1996 Rent
Restaurant Restaurant Lease Minimum Lease paid to
Number Location Title Expiration Base Rent Expiration* Burger King
3642 Redlands, CA Fee 03/14/03 $ 74,516
3647 Garland, TX Fee 04/19/03 58,621
3659 Nederland, TX Fee 04/10/03 93,394
3677 St. Peters, MO Fee 05/24/03 73,846
3692 Marietta, GA Fee 05/12/03 66,719
3693 Corpus Christi, TX Fee 05/28/03 70,784
3696 Pelham, AL Fee 05/04/03 59,235
3701 Milan, TN Fee 05/26/03 55,495
3704 Greenville, TN Fee 05/27/03 62,582
3706 Phoenix, AZ Fee 05/24/03 68,998
3720 Wilmington, NC Leasehold 05/28/03 55,021 05/28/28 $ 17,862
3722 Southbend, IN Fee 05/27/03 74,004
3723 Riverdale, GA Fee 06/15/03 71,298
3732 Kansas City, KS Leasehold 05/30/03 63,139 05/30/23 27,772
3758 Erlanger, KY Leasehold 07/05/03 63,131 07/05/13 28,854
3773 Ceres, CA Fee 08/04/03 73,662
3777 Orange, CA Leasehold 05/30/03 89,683 05/30/23 59,357
3779 Statesboro, GA Leasehold 07/01/03 57,343 07/01/13 20,782
3830 Plano, TX Leasehold 09/26/03 97,237 09/26/23 59,242
3833 Hot Spring, AR Fee 10/16/03 77,282
3871 Columbus, MS Fee 11/13/03 70,112
3892 Vernon, CT Leasehold 10/13/03 84,579 10/13/23 34,350
3925 Tucson, AZ Leasehold 01/31/04 67,338 01/31/24 29,341
3978 Springfield, MA Leasehold 12/11/03 66,505 12/11/23 24,045
4005 Glendale, AZ Leasehold 03/08/04 75,832 03/08/14 37,212
4056 Rocky Mount, NC Fee 06/15/04 78,164
4115 Mt. Clemens, MI Leasehold 05/22/04 55,675 05/22/14 17,175
4185 Greenville, MS Fee 08/27/04 58,413
With an option
to include:
3891 Marietta, GA Fee 11/16/03 63,567
* Assuming exercise of all available renewal options.
7
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Closing Date. Assuming all conditions to the closing of the Proposed Sale are
satisfied or waived, including without limitation, the condition that the
Unitholders do not vote to disapprove the Proposed Sale, the Closing will occur
on the date selected by the Buyer upon 10 days written notice to the
Partnership, provided, however, that the Closing Data will be no more than 15
days after the expiration of the Notice Periods described below. See "--
Conditions Precedent."
Escrow. Upon the execution of the Purchase Agreement, the Buyer deposited the
sum of $1,000,000 in an interest-bearing escrow account with Lawyers Title
Insurance Corporation (the "Escrow Agent"). The proceeds of this account will
be held and disbursed pursuant to the Purchase Agreement. Upon the Closing,
the Escrow Agent shall deliver the proceeds of the escrow account to the
Partnership which shall be credited against the Purchase Price obligations of
the Buyer. In all other cases, if either party makes a demand upon the Escrow
Agent for delivery of the proceeds of the escrow, the Escrow Agent will give
written notice to the other party of such demand. If a notice of objection for
delivery of the proceeds of the escrow is not received from the other party
within seven business days after the giving of notice by the Escrow Agent, the
Escrow Agent is permitted to deliver the proceeds of the escrow account to the
party who made the demand. If the Escrow Agent receives a notice of objection
within the seven day period or if for any other reason the Escrow Agent in good
faith elects not to deliver the proceeds of the escrow account, then the Escrow
Agent shall continue to hold the escrow and thereafter pay it to the party
entitled to receive it when the Escrow Agent receives (a) a notice from the
objecting party withdrawing the objection, or (b) a notice signed by both
parties directing disposition of the proceeds of the escrow account, or (c) a
judgment or order of a court of competent jurisdiction directing disposition
of the proceeds of the escrow account.
Conditions Precedent. The obligation of the Partnership to sell the Properties
on the Closing Date is subject to the satisfaction of the following conditions
(any of which may be waived by the Partnership): (a) the representations and
warranties of the Buyer were true and correct in all material respects when
made and will be true and correct in all material respects on the Closing Date,
(b) the Buyer delivers to the Partnership each of the items required to be
delivered by the Buyer and takes all of the actions required to be taken by the
Buyer as required by the Purchase Agreement prior to or on the Closing Date,
and (c) the Buyer will have performed, observed and complied with all
covenants, agreements and conditions required by the Purchase Agreement to be
performed, observed and complied with on its part prior to or as of the Closing
Date.
The obligation of the Buyer to purchase the Properties on the Closing Date is
subject to the satisfaction of the following conditions (any of which may be
waived by the Buyer): (a) the representations and warranties of the
Partnership set forth in the Purchase Agreement were true and correct in all
material respects when made and will be true and correct in all material
respects on the Closing Date; (b) the Partnership delivers to the Buyer each of
the items required to be delivered by the Partnership and takes all of the
actions required to be taken by the Partnership pursuant to the Purchase
Agreement prior to or on the Closing Date; and (c) the Partnership shall have
performed, observed and complied with all covenants, agreements and conditions
required by the Purchase Agreement to be performed, observed and complied with
on its part prior to or as of the Closing Date.
The Partnership's and the Buyer's respective obligations are further subject to
the rights of the Unitholders pursuant to the Partnership Agreement to vote to
disapprove the Proposed Sale. In connection therewith, the Purchase Agreement
provides that the Partnership is obligated to deliver this Proxy Statement
concerning the Proposed Sale to its Unitholders advising such Unitholders as to
the terms of the Proposed Sale and their right pursuant to the Partnership
Agreement to convene a meeting to consider whether to vote to disapprove the
Proposed Sale. If the General Partner receives properly completed Requests
from Unitholders holding 10% or more in interest of the outstanding Units by
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April 30, 1996, the General Partner will call a meeting of the Unitholders
to vote on the disapproval of the Proposed Sale and will notify the Buyer that
the Closing will be delayed for a period of 90 days from the date of the notice
to the Unitholders (the "Notice Period") pending the outcome of the vote of the
Unitholders at such meeting. If the General Partner does not receive properly
completed Requests from Unitholders holding 10% or more in interest of the
outstanding Units by April 30, 1996, the General Partner will promptly
notify the Buyer in writing that the condition relating to the Unitholders'
right to vote to disapprove the Proposed Sale has been waived, and the parties
will proceed to Closing, assuming all other conditions are satisfied or waived.
If the General Partner notifies the Buyer that a meeting of the Unitholders is
to be convened, and the meeting of the Unitholders is held during the Notice
Period, the General Partner will promptly advise the Buyer in writing as to the
outcome of such vote. If a majority of the Unitholders vote to disapprove the
Proposed Sale, then the General Partner will advise the Buyer in writing that
the Purchase Agreement is terminated and the Escrow Agent will return the
proceeds of the escrow account to the Buyer. If less than a majority of the
Unitholders vote to disapprove the Proposed Sale, the General Partner will
promptly notify the Buyer in writing that the Notice Period has expired and the
parties will proceed to Closing, assuming all other conditions are satisfied or
waived. If for any reason the meeting of the Unitholders is delayed, postponed
or adjourned to a date subsequent to the expiration of the Notice Period, then
the Buyer, in its sole discretion, may terminate the Purchase Agreement by
written notice to the Partnership and the proceeds of the escrow account will
be returned to the Buyer.
Title Exceptions. The Partnership has obtained a Title Report (as defined in
the Purchase Agreement) from the American Title Company (the "Title Insurer")
for each of the Properties and delivered copies thereof to the Buyer as
required by the Purchase Agreement. The Buyer has specified certain objections
to exceptions to title appearing in certain of the Title Reports (for each
Property an "Objection" and collectively "Objections") which may materially
impair marketability of title. Pursuant to the Purchase Agreement, the
Partnership has the right, but not the obligation, to seek to eliminate or cure
any of the Objections. If the Partnership seeks to eliminate or cure any of
the Objections, the Partnership may adjourn the Closing Date with respect to
the Property or Properties affected by such Objections for such period (not to
exceed 90 days) as the Partnership determines is reasonably required in order
to eliminate or cure such Objections (the "Extension Period"). The Buyer is
obligated to proceed with the Closing with respect to all Properties to which
no Objection has been made, with the Purchase Price reduced by the portion of
the consideration attributable to the affected Properties. If the Objections
have been eliminated or cured to the reasonable satisfaction of the Buyer prior
to or on the expiration of the Extension Period, the parties will proceed to
close with respect to such Property or Properties. If the Buyer does not elect
to eliminate or cure any Objections that are the subject of the Buyer's
Objections, the Buyer may, at its election, either (i) proceed with the Closing
and take title to all Properties subject to all noted Objections to title
contained in the Title Reports without any adjustment to the Purchase Price or
(ii) terminate the Purchase Agreement, in which case the proceeds of the escrow
account maintained by the Escrow Agent will be returned to the Buyer.
Adjustments and Prorations; Closing Expenses. The base or fixed rents and
charges payable under the Leases and rents and charges actually received by the
Partnership for the month in which the Closing occurs, which rents and charges
may include, but are not limited to, base or fixed rents and percentage rents,
will be apportioned between the Buyer and the Partnership as of 11:59 p.m. of
the day next preceding the Closing Date. The percentage rents shall be
pro-rated as of the Closing Date in the following manner: the total amount of
percentage rent payable for the fiscal year in which the Closing occurs
("Fiscal Year 1996") for each Property will be computed for each Property based
on an estimate of the sales for the entire Fiscal Year 1996, which shall be
determined by the prior year sales multiplied by the percentage of increase or
decrease in sales for the period (commencing with the beginning of Fiscal Year
1996 through and including the last day of the month prior to the Closing Date)
over the comparable period for 1995. The resulting percentage rental
obligation for Fiscal Year 1996 will then be apportioned equally to each day
during 1996, with the amount accruing prior to the Closing Date being referred
to as the "Pre-Closing Portion". The Partnership will be credited (and the
Purchase Price increased by such amount) with 1996 percentage rents in the
amount of the excess, if any, of (i) the Pre-Closing Portion reduced by (ii)
percentage rent payments actually received by the Partnership for Fiscal Year
1996 prior to the Closing Date. If clause (ii) above exceeds (i) above, the
Partnership will be debited with such excess on the Closing Date, and the
Purchase Price will be decreased by such excess.
The premium for the title policies for the Properties, all costs for the Title
Reports and any fees for any survey or the recording of deeds or other
conveyancing documents will be paid by the Buyer. The Partnership will pay the
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escrow charges imposed by Escrow Agent and any expenses incurred in connection
with this Proxy Statement and any meeting of its Unitholders. The Partnership
and the Buyer will each pay one-half of any transfer taxes. All other expenses
of Closing shall be paid by the Buyer, other than the Partnership's legal
expenses.
In addition, the Buyer has agreed to provide an irrevocable letter of credit in
favor of Burger King to secure potential payments which the Partnership may owe
under certain ground leases between the Partnership and Burger King, which
ground leases will be assigned to the Buyer in connection with the Proposed
Sale. In consideration for the provision of such letter of credit by the
Buyer, the Partnership will pay the fees associated with the issuance of such
letter of credit. Such fees are not expected to exceed $20,000 and will be
paid through an adjustment in the Purchase Price.
Damage, Destruction and Eminent Domain. In the event that a casualty or other
loss occurs to any Property prior to the Closing Date which (i) renders such
Property inoperable as a restaurant for a period reasonably estimated by the
Seller to exceed four months, or (ii) with respect to which there is
insufficient insurance coverage and/or tenant contributions to restore such
Property to its condition prior to such casualty, the Buyer may, in its sole
discretion (a) elect to purchase all of the Properties without reduction of the
Purchase Price; or (b) terminate the Purchase Agreement by written notice to
the Partnership, in which case the proceeds of the escrow account maintained by
the Escrow Agent will be returned to the Buyer.
In the event of any threatened, commenced or consummated proceedings in eminent
domain respecting a Property or substantially all of a Property, the Buyer may,
at its option, by notice to the Partnership given ten days after the Buyer is
notified of such actual or possible proceedings, elect to exclude the affected
Property from the Purchase Agreement and the Purchase Price shall be reduced by
the consideration attributable to the affected Property, or if the Buyer fails
to elect or if such eminent domain proceedings are for less than substantially
all of a Property, then the Buyer shall be obligated to purchase the Property
as provided herein and the Partnership will, at the Closing, assign to the
Buyer its entire right, title and interest in and to any condemnation award.
Environmental Inquiries. The Partnership, at its expense, has engaged an
environmental consultant to conduct certain environmental investigations in
respect of the Properties and has furnished to the Buyer the results of such
investigations. Pursuant to the Purchase Agreement, the Partnership has
disclaimed all warranties as to the condition or fitness of the Properties
including, without limitation, the environmental fitness and condition of the
Properties. The Buyer has acknowledged that it has made such inspections and
investigations of the Properties as it has deemed necessary including, without
limitation, the physical and environmental conditions of the Properties and
that the Buyer will acquire the Properties "as is, where is" in their current
state, including without limitation their current physical and environmental
condition, subject to normal wear and tear between the date of the Purchase
Agreement and the Closing.
Federal Income Tax Consequences of the Proposed Sale
The following is a summary of the material Federal income tax consequences
which may affect a Unitholder 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 Federal income
tax consequences 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 Unitholder to Unitholder according to its
own particular tax situation. THEREFORE, EACH UNITHOLDER SHOULD SATISFY ITSELF
AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS DESCRIBED HEREIN
BY OBTAINING GUIDANCE FROM ITS OWN TAX ADVISOR.
10
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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 Unitholders other than
tax-exempt organizations (such as Unitholders who are holding their Units in
employee trusts, institutional retirement accounts and Keogh plans). These
Unitholders should pay particular attention to the discussion under the heading
"Exempt Employee Trusts and Individual Retirement Accounts; Unrelated Business
Taxable Income."
Unitholders 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,
Unitholders may be assessed for additional taxes along with interest and
penalties in future years.
In addition, it should be noted that the Unitholders 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.
Taxation of Unitholders in General. The Partnership is a partnership for
Federal income tax purposes and therefore is not subject to Federal income tax;
rather, each Unitholder 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 Unitholder's Federal income tax liability
for any taxable year of the Partnership ending within or with the taxable year
of such Unitholder, 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 Unitholder on the Schedule K-1; each
Unitholder 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 Unitholder'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.
Unitholder's Gain or Loss Upon the Sale of the Properties. Each Unitholder
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 Unitholder whether or not the
Partnership distributes the net proceeds from the sale of the Properties. The
character of the gain or loss realized upon the sale of the Properties by each
Unitholder 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
Unitholder 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 net
"Section 1231" gains exceed net "Section 1231" losses, such gains and losses
will be treated as long-term capital gains or losses, as the case may be. The
net "Section 1231" gains will be treated as ordinary income to the extent that
such gains do not exceed the amount of net "Section 1231" losses realized in
the five preceding taxable years that had not resulted in net "Section 1231"
gains for prior years 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.
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If the Partnership were considered to be a "dealer" in the Properties for
Federal income tax purposes, the entire portion of the gain (or loss) allocable
to any particular Unitholder 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 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 of 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 Unitholders 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 Unitholders 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 Unitholder 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
Unitholders and 1% to the General Partner until the amount so allocated to the
Unitholders increases such Unitholders' capital accounts to an amount
sufficient, if distributed, to provide each Unitholder with a return of its
Original Invested Capital (generally $1000 per Unit) plus a cumulative annual
compounded return of 12.5% on the Unitholder's Remaining Invested Capital
(generally the Unitholder'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 Unitholders 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 Unitholders' 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
Unitholders 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 such
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 Unitholders 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
Unitholders who were allocated such depreciation deductions.
Cash Distributions and Adjusted Basis. Cash distributions from the Partnership
are allocated to each Unitholder in accordance with the Partnership Agreement.
Pursuant to such Agreement, distributions of the proceeds from the sale of the
Properties would be allocated, 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 Unitholders and 1% to the General
Partner to the extent necessary to cause Payout to occur or (ii) if at the time
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of the distribution the Unitholders' capital accounts still are insufficient to
cause Payout to occur, the distribution would be allocated 99% to the
Unitholders and 1% to the General Partner until the amount so allocated is
sufficient to reduce the lesser of the General Partner's or the Unitholders'
aggregate capital accounts to zero, then to any Parter with a positive capital
account balance in an amount sufficient to reduce such balance to zero and
finally, 99% to the Unitholders and 1% to the General Partner in the amount
necessary to cause Payout to occur. If any amount remains after Payout occurs,
and after adjusting all capital accounts to reflect distributions made as
described above, such remaining positive amount would be allocated and
distributed in proportion to and to the extent of any Partner's remaining
capital account balance and finally, 88.89% to the Unitholder and 11.11% to the
General Partner. For purpose of the allocations, all items of income, gain,
loss, deduction and credit are allocated to each calendar month of the year,
regardless of Partnership operations during the months of the year, and are
apportioned on a monthly basis to the Unitholder 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.
When the Partnership distributes the proceeds from the sale of the Properties,
a Unitholder may incur Federal income tax in addition to the tax imposed on
such Unitholder'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 Unitholder will recognize
gain upon receipt of a liquidating cash distribution to the extent that the
amount of cash received exceeds such Unitholder's adjusted basis in the
Partnership. Any gain which a Unitholder recognizes from a liquidating
distribution is taxed as though such Unitholder had sold or exchanged its Units
and, therefore, generally will be taxed as capital gain. A Unitholder 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
Unitholder's pre-distribution adjusted basis in its Units.
A Unitholder's adjusted basis in its Units will initially equal the amount of
cash contributed to the Partnership by such Unitholder for its Units or the
amount paid by a Unitholder upon a purchase of the Units. Subsequently, a
Unitholder'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 affect the Unitholders in 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. Unitholders 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
13
<PAGE>
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
Unitholder's share of any income, and certain states require the Partnership to
withhold a portion of earnings or distributions, or both, to non-resident
Unitholders in respect of such taxes. A Unitholder'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 Unitholder resides. In addition, any other states in which the
Partnership owns properties may require non-resident Unitholders to file state
income tax returns and may impose a tax determined with reference to a
Unitholder'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 Unitholder 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 Unitholders, 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
Unitholder itemizes deductions.
THE FOREGOING ANALYSIS CANNOT BE, AND IS NOT INTENDED AS, A SUBSTITUTE FOR
CAREFUL TAX PLANNING. UNITHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THEIR OWN TAX SITUATION 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 1996 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
18 Owned Properties and 11 Leased Properties to the Buyer for consideration in
the amount of $17,225,000. The unaudited Pro Forma Balance Sheet data reflects
the Unaudited Balance Sheet for the nine months ended September 30, 1995,
included elsewhere in this Proxy Statement, assuming the Proposed Sale occurred
on September 30, 1995. The unaudited Pro Forma Statement of Operations data
assumes that the Proposed Sale occurred on January 1, 1994.
14
<PAGE>
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 the 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.
15
<PAGE>
BURGER KING LIMITED PARTNERSHIP II
UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
September 30, 1995
Balance Sheet Data:
Historical Pro Forma Pro Forma
Assets Balance Adjustments Balance
- ------ -----------------------------------------------
Real estate held for sale $ 5,617,793 $ (5,617,793)(1) --
Cash 683,532 16,880,500 (3) $17,564,032
Rent Receivable 178,069 -- 178,069
--------- ---------- ----------
Total Assets $ 6,479,394 $ 11,262,707 $17,742,101
========= ========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued
expenses $ 43,582 $ -- $ 43,582
Due to affiliates 1,800 -- 1,800
Management fee(a) -- 546,035 (4) 546,035
Distributions payable 583,534 -- 583,534
--------- --------- ----------
Total Liabilities 628,916 546,035 1,174,951
Partners' Capital (Deficit):
General Partner (52,453) 724,269 (5) 671,816
Limited Partners
(15,000 units outstanding) 5,902,931 9,992,403 (5) 15,895,334
--------- --------- ----------
Total Partners' Capital 5,850,478 10,716,672 16,567,150
--------- ---------- ----------
Total Liabilities and
Partners Capital $ 6,479,394 $ 11,262,707 $17,742,101
========= ========== ==========
16
<PAGE>
Statement of Operations Data:
Year Ended December 31, 1994
Historical
Balance for
the year ended Pro Forma Pro Forma
12/31/94 Adjustments Balance
----------------------------------------------
Income
Rental income $2,611,183 $(2,611,183)(2&6) $ --
Interest income 19,959 -- 19,959
Other income 1,800 -- 1,800
--------- ---------- ---------
Total Income 2,632,942 (2,611,183) 21,759
Expenses
Depreciation 271,586 (271,586) (2&6) --
Ground lease rent 365,772 (365,772) (2&6) --
Management fee 224,540 (224,540) (2&6) --
General and administrative 98,438 -- 98,438
--------- ---------- ---------
Total Expenses 960,336 (861,898) 98,438
--------- ---------- ---------
Net Income $1,672,606 $(1,749,285) $ (76,679)
========= ========== ==========
Net Income Allocated:
To the General Partner $ 97,210 $ (105,729) $ (8,519)
To the Limited Partners 1,575,396 (1,643,556) (68,160)
--------- ---------- ----------
$1,672,606 (1,749,285) $ (76,679)
========= ========== ==========
Per limited partnership
Unit (15,000 outstanding) $ 105.03 $ (109.57) $ (4.54)
========= ========== ==========
17
<PAGE>
Statement of Operations Data:
Nine Months Ended September 30, 1995
Historical
Balance for
the nine months Pro Forma Pro Forma
ended 09/30/95 Adjustments Balance
----------------------------------------------
Income
Rental income $2,055,843 $(2,055,843)(2&6) $ --
Interest income 24,181 -- 24,181
Other income 1,520 -- 1,520
--------- ---------- ---------
Total Income 2,081,544 (2,055,843) 25,701
Expenses
Depreciation 200,942 (200,942) (2&6) --
Ground lease rent 271,040 (271,040) (2&6) --
Management fee 178,470 (178,470) (2&6) --
General and administrative 78,282 -- 78,282
--------- ---------- ---------
Total Expenses 728,734 (650,452) 78,282
--------- ---------- ---------
Income from operations 1,352,810 (1,405,391) (52,581)
Gain on sale of property 49,818 (49,818) (2&7) --
--------- ---------- ----------
Net Income $1,402,628 $(1,455,209) $ (52,581)
========= ========== ==========
Net Income Allocated:
To the General Partner $ 78,186 $ (84,028) $ (5,842)
To the Limited Partners 1,324,442 (1,371,181) (46,739)
--------- ---------- ----------
$1,402,628 $(1,455,209) $ (52,581)
========= ========== ==========
Per limited partnership
Unit (15,000 outstanding) $ 88.30 $ (91.41) $ (3.11)
========= ========== ==========
18
<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 September 30, 1995. Land, building, 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, 1994. Therefore, rental income, operating
expenses (depreciation, ground lease rent and management fees) and gain
on sales of properties for the period January 1, 1994 through September
30, 1995 have been removed to reflect the Proposed Sale as of January
1, 1994.
(3) The cash balance has been increased to reflect the net proceeds from
the Proposed Sale in the amount of $16,880,500 (sales proceeds
of $17,225,000 less estimated selling costs of $344,500). The pro
forma condensed financial data assume the Marietta Property is included
in the Proposed Sale at a price of $200,000. If the Marietta Property
is not sold in the Proposed Sale, the net proceeds will be $16,684,500
(sales proceeds of $17,025,000 less estimated selling costs of
$340,500).
(4) Burger King is entitled to an additional management fee equal to 10% of
the net proceeds from the Proposed Sale after each Unitholder has
received aggregate distributions equal to such Unitholder'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 $10,716,672 are
made to reflect a gain from the Proposed Sale as if it occurred on
September 30, 1995.
(6) The pro forma condensed financial data assume the Marietta Property is
included in the Proposed Sale at a price of $200,000.
(7) On June 30, 1995, the Partnership sold a Property located in Ferguson,
Missouri (the "Ferguson Property") in a separate transaction that
resulted in a gain of $49,818. The pro forma Statement of Operations
Data for the nine months ended September 30, 1995 reflects the
disposition of the Ferguson Property as if it had occurred on January
1, 1994.
19
<PAGE>
DISTRIBUTIONS UPON LIQUIDATION OF THE PARTNERSHIP
Assuming that the Proposed Sale 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 Unitholders 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 Closing, the General Partner will distribute the net
proceeds from the Proposed Sale other than an amount of approximately $100,000,
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 Unitholders upon final
liquidation of the Partnership.
Assuming the Proposed Sale was consummated on December 31, 1995, the General
Partner estimates that the Unitholders would have received a distribution of
approximately $1,060 per Unit, $15 of which would have constituted Net Cash
Flow from Operations and $1,045 of which would have constituted Net Property
Disposition Proceeds. See "Unaudited Pro Forma Condensed Financial Data."
Allocation of Net
Property Disposition General Limited Per
Proceeds Total Partner Partners LP Unit
- ------------------------------------------------------------------------------
Gross sales price $ 17,225,000(a)
Less estimated
sales costs (344,500)
----------
Net sales price 16,880,500
Distribution of
Net Property
Disposition Proceeds
required to cover
payment of unpaid
return $ 1,871,364 $ 18,714(b) $ 1,852,650(b) $ 123.51(b)
----------
$ 15,009,136
Disposition of
Net Property
Disposition Proceeds
required to reach
Payout:
Remaining invested
capital at
December 31, 1995
15,000 LP Units at
$630.22/unit $ 9,548,788 $ 95,488(b) $ 9,453,300(b) $ 630.22(b)
----------
Net Property
Disposition Proceeds 5,460,348
Less 10% management
fee to Burger King
Corporation (546,035)(c)
----------
Remaining property
disposition
proceeds $ 4,914,313 $ 545,980(c) $ 4,368,333(c) $ 291.22(c)
------- --------- ------
Total allocation
of Net Property
Disposition
Proceeds from the
Proposed Sale $ 660,182 $15,674,283 $1,044.95
======= ========== ========
- ------------------------------------------------------------------------------
Distribution of
remaining net
operating assets $ 232,685(d) 11,634(d) 221,051(d) 14.74(d)
------- ------- ---------- --------
Liquidating cash
distribution
(15,000
outstanding) $ 671,816 $15,895,334 $1,059.69
======= ========== ========
20
<PAGE>
Notes to the Allocation of Property
Disposition Proceeds Table
(a) The projected sales price assumes the Marietta Property is included in
the Proposed Sale at a price of $200,000.
(b) Section 5.2 of the Partnership Agreement provides that "Net Property
Disposition Proceeds," as defined in the Partnership Agreement, are
distributed 99% to the Unitholders 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 Unitholder has
received from the Partnership aggregate distributions equal to such
Unitholder'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.
(c) 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 Unitholders and 11.11% to the General Partner.
(d) 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 Unitholders 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.
21
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data of the
Partnership for the five years ended December 31, 1994 and the nine months
ended September 30, 1995 and 1994, respectively. The selected historical
financial data for the five years ended December 31, 1994 were derived from the
Partnership's financial statements for the corresponding periods. The selected
historical financial data for the nine months ended September 30, 1995 and
1994, 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, 1995 are not
necessarily indicative of the results for a full fiscal year.
Unitholders 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 Unitholder's evaluation of the
Proposed Sale since the General Partner's financial condition will have no
effect on distributions to the Unitholders 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 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>
Financial Data
Nine Months Ended
September 30, Year Ended December 31,
1995 1994 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
Rental income $2,055,843 $1,962,147 $2,611,183 $2,501,191 $2,520,824 $2,506,977 $2,656,837
Gains on sales
of Properties 49,818 -- -- 44,107 51,598 150,000 259,683
Net income 1,402,628 1,248,723 1,672,606 1,656,527 1,552,589 1,684,347 1,766,319
Net income per
L.P. unit 88.30 78.41 105.03 104.12 97.53 106.03 110.99
Total Assets 6,479,394 6,740,048 6,722,402 6,934,572 7,472,869 7,983,525 8,499,238
</TABLE>
<TABLE>
<CAPTION>
Quarterly Cash
Distributions 1995(a) 1994 1993(b) 1992(c) 1991(d) 1990(e)
<C> <C> <C> <C> <C> <C>
First quarter $30.43 $28.61 $23.55 $25.04 $23.23 $32.26
Second quarter 39.91 30.67 36.19 28.07 28.07 31.95
Third quarter 34.49 29.98 31.48 28.79 27.25 35.05
Fourth quarter -- 33.19 30.07 48.97 40.34 58.93
Total Cash
Distributions 104.83 122.45 121.29 130.87 118.89 158.19
<FN>
(a) Second quarter includes $10.01 distribution from the sale of the Ferguson,
Missouri property, which represents a return of capital to the
Unitholders.
(b) Third quarter includes $8.72 distribution from the sale of the Downey,
California property, which represents a return of capital to the
Unitholders.
(c) Fourth quarter includes $8.54 distribution from the sale of the Mt.
Pleasant, Wisconsin property, which represents a return of capital to the
Unitholders.
(d) Fourth quarter includes $11.42 distribution from the sale of the Mt.
Pleasant, Wisconsin property, which represents a return of capital to the
Unitholders.
(e) Fourth quarter includes $29.83 distribution from the sale of the Mt.
Pleasant, Wisconsin property, which represents a return of capital to the
Unitholders.
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Nine months ended September 30, 1995 compared to nine months ended September
30, 1994. For the three and nine-month periods ended September 30, 1995, the
Partnership generated net income of $472,229 and $1,402,628, respectively,
compared to $451,777 and $1,248,723, respectively, for the corresponding
periods in 1994. The increase for the three-month period is primarily
attributable to a reduction in general and administrative expenses. The
increase for the nine-month period is primarily attributable to the gain
recognized on the sale of a restaurant located in Ferguson, Missouri in the
amount of $49,818, and an increase in percentage rental income as a result of
improved restaurant performance. Higher interest income also contributed to
the increase in net income over the prior periods due to a larger invested cash
balance and an increase in the average interest rate earned during 1995.
General and administrative expenses for the three and nine-month periods ended
September 30, 1995 were $26,555 and $78,282, respectively, compared to $47,478
and $82,056, respectively, for the corresponding periods in 1994. The decrease
in the nine-month period is primarily attributable to environmental consulting
costs incurred by the Partnership during the third quarter of 1994 in
preparation for the sale of the Properties.
Fiscal year ended December 31, 1994 compared to fiscal year ended December 31,
1993. For the year ended December 31, 1994, the Partnership reported net
income of $1,672,606 compared to $1,656,527 for the year ended December 31,
1993. The increase was primarily attributable to higher rental income in 1994
as a result of favorable restaurant performance. The increase was partially
offset by a gain recognized on the sale of a restaurant in 1993. During the
first quarter of 1993, the sale of the Downey, California restaurant due to
economic abandonment resulted in the Partnership recording a $44,107 gain. See
the Financial Statements of the Partnership included herein and the notes
thereto for additional information regarding the sale of the Downey, California
restaurant.
Expenses for the year ended December 31, 1994 were $960,336, compared to
$905,887 for the year ended December 31, 1993. The increase in expenses is
primarily attributable to an increase in general and administrative expenses
due to environmental consulting and, to a lesser extent, increases in ground
lease rent and management fees. The increases in ground lease rent and
management fees correspond to rent escalations and increased percentage rental
income, respectively.
Fiscal year ended December 31, 1993 compared to fiscal year ended December 31,
1992. Net income for the year ended December 31, 1992 was $1,552,589,
compared to net income of $1,656,527 for the year ended December 31, 1993. The
increase was primarily attributable to lower general and administrative
expenses as well as an increase in percentage rent as a result of more
favorable sales at several of the Properties during 1993. The increase in
percentage rent was partially offset by a decrease in base rental income of
$57,574 which is attributable to the sale of the Downey, California store in
the first quarter of 1993. The 1993 sale of the Downey, California property
resulted in the Partnership recording a $44,107 gain as compared to the $51,598
gain on the final settlement of the Mt. Pleasant, Wisconsin store during 1992.
General and administrative expenses decreased from $165,018 for the year ended
December 31, 1992, to $72,824 for the year ended December 31, 1993. Included
in the 1992 expense were costs associated with the litigation related to the
State of Wisconsin taking the Partnership's Mt. Pleasant, Wisconsin store by
eminent domain, and substantial appraisal costs in conjunction with developing
a marketing plan to sell the Properties.
23
<PAGE>
The effects of inflation did not have a material impact on the Partnership's
operations during the past three years.
Liquidity and Capital Resources
- -------------------------------
At September 30, 1995, the Partnership had cash of $683,532, largely unchanged
from $680,377 at December 31, 1994. Cash consists of the Partnership's working
capital and undistributed cash flow from operations.
Net cash provided by operating activities increased by $87,626 from $1,409,386
at September 30, 1994 to $1,497,012 at September 30, 1995. The increase was
primarily due to the increase in rental income. Rental income increased by
$93,696 from $1,962,147 at September 30, 1994 to $2,055,843 at September 30,
1995. The increase in rental income was a result of improved sales at the
Properties during 1995 which in turn increased the percentage rents calculated
as a percentage of store sales.
Net cash provided by investing activities increased to $151,691 at September
30, 1995 from $0 at September 30, 1994. The increase is due to net sales
proceeds received on June 30, 1995 from the sale of a restaurant located in
Ferguson, Missouri (the "Ferguson Property").
Net cash used for financing activities increased by $218,941 from $1,426,607 at
September 30, 1994 to $1,645,548 at September 30, 1995. Net cash used for
financing activities consists of quarterly distributions of net proceeds from
the sales of Properties and/or net cash flow from operations, which were made
to the Unitholders. The increase was primarily due to the distribution of net
sales proceeds from the sale of the Ferguson Property and an increase in
distributions of net cash flow from operations.
The Marietta Property was declared economically abandoned by Burger King on
January 29, 1994. Burger King allowed the franchisee to continue operating
this property while it was marketed for sale. In May 1995, Burger King
executed a sales agreement with a third-party buyer with respect to this
Property for a sales price of $445,000. This agreement was subsequently
terminated. As part of the Proposed Sale, the Partnership may, at its option,
elect to include the Marietta Property at a price of $200,000. The General
Partner is pursuing other parties that may have an interest in purchasing the
Marietta Property for a price in excess of $200,000. If the General Partner is
unsuccessful in locating a potential purchaser, the Partnership would, in all
likelihood, include the Marietta Property in the Proposed Sale.
Legal, accounting, printing and other costs associated with the preparation
and distribution of the Proxy Statement are estimated to be approximately
$150,000 and will be funded from cash flow from operations. In addition,
selling costs relating to the Proposed Sale are estimated to be approximately
$344,500 and will be funded from the proceeds of the Proposed Sale.
Rent receivable at September 30, 1995 and December 31, 1994 was $178,069 and
$121,417, respectively. The increase in rent receivable is attributable to an
increase in percentage rents earned during the third quarter of 1995 as
compared to the fourth quarter of 1994.
Distributions payable at September 30, 1995 were $583,534, which consisted of
cash flow from operations for the third quarter of 1995. On November 3, 1995,
the Partnership paid an aggregate cash distribution to the Unitholders in the
amount of $522,741. The unpaid portion of $60,793 primarily represents an
amount equal to 4% of the quarterly distribution of Net Cash Flow from
Operations, which is required to be retained pursuant to the terms of the
Partnership Agreement. Net Cash Flow from Operations is distributed 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"). To the
extent the Unitholders do not receive an annual return of 12.5% of their
remaining invested capital, the Contingent Reserve shall be distributed to the
Unitholders with the remainder, if any, distributed to the General Partner.
24
<PAGE>
BUSINESS OF THE PARTNERSHIP
The Partnership was formed as a limited partnership on August 23, 1982 under
the partnership laws of the State of New York. The General Partner of the
Partnership is BK II Properties Inc. (formerly Shearson/BK Properties, 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. Most of
the Properties are located near other fast food restaurants, which compete on
the basis of price, service and product quality and variety. Competition in
the fast food industry has intensified in various ways as restaurants compete
with each other by offering, among other things, lower prices and attractive
promotions. 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 cash distributions; and
(2) to provide realization of the long-term appreciation
in the value of such Properties, consistent in all
cases with the preservation of Unitholders' capital.
Burger King had the option to purchase the Properties at fair market value
through January 3, 1993. Upon expiration of Burger King's option, the General
Partner began marketing the Properties for sale. The Partnership has entered
into the Purchase Agreement, pursuant to which the General Partner expects that
all remaining Properties will be sold to the Buyer, subject to the satisfaction
or waiver of certain conditions and assuming the Unitholders do not vote to
disapprove the Proposed Sale pursuant to their rights under the Partnership
Agreement. In addition, the Purchase Agreement contains certain provisions
pursuant to which certain Properties may be excluded from the Proposed Sale.
See "Description of the Proposed Sale." Accordingly, there can be no assurance
that the General Partner will ultimately be successful in selling any or all of
the Properties during 1996. Until all of the Properties are sold, the
Partnership will continue to operate the restaurants and make distributions to
Unitholders 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.
25
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors 27
Financial Statements:
Audited Balance Sheets of the Partnership as of December 31, 1994
and December 31, 1993 28
Audited Statements of Partners' Capital (Deficit) for the years
ended December 31, 1994, December 31, 1993 and December 31, 1992 29
Audited Statements of Operations for the years ended December 31,
1994, December 31, 1993 and December 31, 1992 30
Audited Statements of Cash Flows for the years ended December 31,
1994, December 31, 1993 and December 31, 1992 31
Notes to Audited Financial Statements 32
Interim Financial Statements:
Unaudited Balance Sheet for the nine months ended September 30, 1995 37
Unaudited Statement of Partners' Capital (Deficit) 37
Unaudited Statements of Operations for the three months ended
September 30, 1995 and September 30, 1994 and the nine months
ended September 30, 1995 and September 30, 1994 38
Unaudited Statements of Cash Flow for the nine months ended
September 30, 1995 and September 30, 1994 39
Notes to Interim Financial Statements 40
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Burger King Limited Partnership II:
We have audited the accompanying balance sheets of Burger King Limited
Partnership II (a New York limited partnership) as of December 31, 1994 and
1993, 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,
1994. 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 II at December 31, 1994 and 1993, and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1994, in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 5, 1995
27
<PAGE>
Burger King Limited Partnership II
Balance Sheets
December 31, 1994 and 1993
Assets 1994 1993
- ------ ---- ----
Real estate at cost (Note 4):
Land $ 3,576,544 $ 3,576,544
Building 5,431,714 5,431,714
Fixtures and equipment 2,675,310 2,675,310
--------- ---------
11,683,568 11,683,568
Less - accumulated depreciation (5,762,960) (5,491,374)
--------- ---------
5,920,608 6,192,194
Cash 680,377 626,860
Rent receivable 121,417 115,518
--------- ---------
Total Assets $ 6,722,402 $ 6,934,572
========= =========
Liabilities and Partners' Capital
Liabilities
Accounts payable and accrued expenses $ 44,073 $ 47,479
Due to affiliates 1,397 2,895
Distributions payable (Note 7) 580,378 526,860
-------- --------
Total Liabilities 625,848 577,234
-------- --------
Partners' Capital (Deficit):
General Partner (54,272) (54,812)
Limited Partners
(15,000 interests outstanding) 6,150,826 6,412,150
--------- ---------
Total Partners' Capital 6,096,554 6,357,338
--------- ---------
Total Liabilities and Partners' Capital $ 6,722,402 $ 6,934,572
========= =========
28
<PAGE>
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1994, 1993 and 1992
Limited General
Partners Partners Total
Balance at December 31, 1991 $ 7,169,711 $ (50,659) $ 7,119,052
Net income 1,463,013 89,576 1,552,589
Distributions to
partners (Note 7) (1,963,100) (98,241) (2,061,341)
--------- ------ ---------
Balance at December 31, 1992 6,669,624 (59,324) 6,610,300
Net income 1,561,823 94,704 1,656,527
Distributions to
partners (Note 7) (1,819,297) (90,192) (1,909,489)
--------- ------ ---------
Balance at December 31, 1993 6,412,150 (54,812) 6,357,338
Net income 1,575,396 97,210 1,672,606
Distributions to
partners (Note 7) (1,836,720) (96,670) (1,933,390)
--------- ------ ---------
Balance at December 31, 1994 $ 6,150,826 $ (54,272) $ 6,096,554
========= ====== =========
29
<PAGE>
Statements of Operations
For the years ended December 31, 1994, 1993 and 1992
Income 1994 1993 1992
Rental income (Note 4) $ 2,611,183 $ 2,501,191 $ 2,520,824
Interest income 19,959 14,934 12,211
Miscellaneous income 1,800 2,182 1,710
--------- --------- ---------
Total Income 2,632,942 2,518,307 2,534,745
--------- --------- ---------
Expenses
Depreciation 271,586 272,833 280,218
Ground lease rent (Note 4) 365,772 344,570 373,820
Management fee 224,540 215,660 214,698
General and administrative 98,438 72,824 165,018
--------- --------- ---------
Total Expenses 960,336 905,887 1,033,754
Income from operations 1,672,606 1,612,420 1,500,991
--------- --------- ---------
Other Income
Gain on sale of property
(Notes 4 and 5) -- 44,107 51,598
--------- --------- ---------
Net Income $ 1,672,606 $ 1,656,527 $ 1,552,589
========= ========= =========
Net Income Allocated:
To the General Partner $ 97,210 $ 94,704 $ 89,576
To the Limited Partners 1,575,396 1,561,823 1,463,013
--------- --------- ---------
$ 1,672,606 $ 1,656,527 $ 1,552,589
========= ========= =========
Per limited partnership
interest (15,000
outstanding) $ 105.03 $ 104.12 $ 97.53
========= ========= =========
30
<PAGE>
Statements of Cash Flow
For the years ended December 31, 1994, 1993 and 1992
Cash Flows from Operating Activities 1994 1993 1992
Net income $ 1,672,606 $ 1,656,527 $ 1,552,589
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 271,586 272,833 280,218
Gain on sale of property -- (44,107) (51,598)
Increase (decrease) in cash
arising from changes in operating
assets and liabilities:
Settlement escrow -- -- 210,555
Rent receivable (5,899) (33,142) 3,128
Accounts payable and accrued
expenses (3,406) 5,979 (8,716)
Due to affiliates (1,498) 1,295 200
Other liabilities -- -- (133,591)
--------- --------- ---------
Net cash provided by operating
activities 1,933,389 1,859,385 1,852,785
--------- --------- ---------
Cash Flows from Investing Activities:
Proceeds from sale of property -- 132,058 51,598
--------- --------- ---------
Net cash provided by investing
activities -- 132,058 51,598
--------- --------- ---------
Cash Flows from Financing Activities:
Cash distributions to partners (1,879,872) (2,202,098) (1,921,138)
--------- --------- ---------
Net cash used for financing activities (1,879,872) (2,202,098) (1,921,138)
--------- --------- ---------
Net increase (decrease) in cash 53,517 (210,655) (16,755)
Cash at beginning of year 626,860 837,515 854,270
--------- --------- ---------
Cash at end of year $ 680,377 $ 626,860 $ 837,515
========= ========= =========
31
<PAGE>
Burger King Limited Partnership II
Notes to Financial Statements
December 31, 1994, 1993 and 1992
1. Organization
Burger King Limited Partnership II (the "Partnership") was formed as a
limited partnership on August 23, 1982, under the partnership laws of
the State of New York. The Partnership was formed for the purpose of
acquiring, constructing, improving, holding, and maintaining Burger
King restaurants (the "Properties"). The Properties are leased on a
long-term net basis to franchisees of Burger King Corporation ("Burger
King").
The general partner is BK II Properties Inc. (the "General Partner")
formerly Shearson/BK Properties, 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.
2. Significant Accounting Policies
The financial statements of the Partnership have been prepared on the
accrual basis of accounting.
Real estate investments, which consist of buildings, are recorded at
cost less accumulated depreciation. Cost includes the initial purchase
price of the properties plus closing costs, acquisition and legal fees
and capital improvements. Depreciation of buildings is computed using
the straight-line method over an estimated useful life of 20 years.
Depreciation of the fixtures and equipment was computed under the
straight-line method over an estimated useful life of 7 years. The
Partnership's properties held for sale are recorded at the lower of
amortized cost or fair market value.
Net income is allocated monthly, and is apportioned 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 the General Partner and all the limited partners
as of that date. At December 31, 1994, 1993 and 1992 and for the years
then ended, there were 15,000 units of limited partnership interests
outstanding (the "Interests").
No provision is made for income taxes since such liability is that of
the individual partners.
3. Partnership Allocations
Allocation of Income and Loss. Pursuant to the terms of the
Partnership Agreement, credits and income or gain from operations of
the Partnership are allocated, without regard to depreciation, in
proportion to distributions of net cash flows 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.
Gains with respect to disposition 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 his capital account equals 11.11% of the aggregate outstanding
32
<PAGE>
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 is
made quarterly, and is 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, 1994,
distributions to the limited partners were in excess of a 12.5% return
on their remaining invested capital.
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, Burger King 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, 1994, Payout had not
occurred.
4. Real Estate
As of December 31, 1994 and 1993, the Partnership owned 30 Burger King
restaurant properties, consisting of the restaurant buildings, fixtures
and improvements, and in some cases the underlying land.
The leases between the Partnership and the franchisees (the "Leases")
had an initial term of 20 years with no renewal options. With respect
to those Properties in which the Partnership does not own the
underlying land, there is a ground lease between the Partnership and
Burger King (collectively, the "Ground Leases"). The Ground Leases had
an initial term of ten years with a minimum of two five-year renewal
options. All of the Leases expire in the year 2003 and 2004. Minimum
future rentals on the noncancelable term of the Leases and the related
Ground Leases as of December 31, 1994, are as follows:
Year ending Minimum Ground Lease
December 31, Rental Income Obligation
1995 $ 2,101,044 $ 382,327
1996 2,101,044 382,327
1997 2,101,044 382,327
1998 2,118,478 399,752
1999 2,164,115 445,389
Thereafter 8,013,244 1,716,903
--------- ---------
$ 18,598,969 $ 3,709,025
========== =========
The Leases are on a net basis, and the franchisees are required to pay
all taxes, assessments, maintenance costs, insurance premiums and other
impositions against the premises. The lessee is also required to make
percentage rental payments to the extent that 8.5% of such lessee's
gross sales exceed the minimum base rent paid by the lessee.
Percentage rental income for the years ended December 31, 1994, 1993,
and 1992 was $529,695, $432,053, and $394,112, respectively.
33
<PAGE>
In accordance with an agreement between Burger King and the
Partnership, Burger King had the option to purchase any or all
restaurant properties from the Partnership, at a fair market value
determined by an independent appraisal, exercisable at any time during
the period from January 4, 1990 through January 3, 1993. Burger King
did not exercise its option to purchase any of the Properties from the
Partnership.
On October 31, 1990, the Burger King restaurant located in Mt.
Pleasant, Wisconsin, was taken by eminent domain by the State of
Wisconsin. The Partnership contested the amount offered by the State
of Wisconsin and, after a trial, was awarded a judgment of $966,200, of
which $192,894 was paid to the lessee for the cost of equipment,
purchased by the lessee. Total gain recorded on the disposal of this
property amounted to $461,281, of which $51,598 was recognized in 1992.
The General Partner is currently reviewing the most profitable method
of liquidating the Partnership's portfolio of restaurant properties.
The General Partner is pursuing both bulk-sale possibilities and single
property sales to individual buyers. See Note 5 for discussion of
additional sales.
5. Management Agreement
The Partnership has entered into agreements with Burger King for the
management of the Properties. These agreements provide for a fee
equal to 10% of the rents received by the Partnership from the
Properties, as defined in the Partnership Agreement. To the extent the
annual rental income from the Properties is less than 15% of the
Partnership's investments in the Properties, Burger King 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, 1994 and 1993, no such amounts were due from Burger King.
Pursuant to an indemnity agreement, Burger King is obligated to
contribute minimum monthly rent payments in the event of a default
under the Leases up to the indemnity amount, as defined below. The
indemnity amount is 10% of the original partnership investment capital
as defined in the Partnership Agreement, or $1,295,797. The indemnity
amount may be decreased by the amount of the minimum monthly rent
payments made by Burger King to the Partnership pursuant to the
indemnity agreement. In 1988 and subsequent years, the indemnity
amount was decreased on an annual basis by an amount equal to the
greater of (1) payments made by Burger King pursuant to the indemnity
agreement or (2) 6-2/3% of the fifth year amount of the indemnity until
it is reduced to zero.
During 1990, the Downey, California property ceased operations and
subsequently defaulted on its minimum rent obligations. Burger King
funded minimum monthly rent payments to the Partnership in accordance
with the indemnity agreement, and in February 1993, the Partnership
sold the Downey, California property to a third party in accordance
with the terms and conditions of the Partnership Agreement. The
restaurant, at the date of sale, had a net book value of $87,951,
resulting in a gain on sale of $44,107.
6. Transactions with Affiliates
The amount of fees received for services performed and reimbursements
for expenses incurred on the Partnership's behalf by affiliates as of
December 31, 1994, 1993 and 1992 was $3,185, $5,787 and $4,055,
respectively, of which $1,397 and $2,895 were unpaid at December 31,
1994 and 1993, respectively.
Cash reflected on the Partnership's balance sheet at December 31, 1994
was on deposit with an affiliate of the General Partner. Cash
reflected on the Partnership's balance sheet at December 31, 1993 was
on deposit with an unaffiliated party.
The General Partner received no fees or reimbursements for services
rendered for the years ended December 31, 1994, 1993 and 1992.
34
<PAGE>
7. Distributions
Distributions paid or payable to limited partners and the General
Partner for the years ended December 31, 1994, 1993 and 1992,
aggregated:
1994 1993 1992
Total Per Unit Total Per Unit Total Per Unit
Limited Partners
Cash flow from
operations $1,836,720 $122.45 $1,688,559 $112.57 $1,835,000 $122.33
Net property
disposition
proceeds -- -- 130,738 8.72 128,100 8.54
--------- ------ --------- ------ --------- ------
Total Limited
Partners $1,836,720 $122.45 $1,819,297 $121.29 $1,963,100 $130.87
========= ====== ========= ====== ========= ======
General Partner
Cash flow from
operations $ 96,670 -- $ 88,872 -- $ 96,947 --
Net property
disposition
proceeds -- -- 1,320 -- 1,294 --
------ ----- ------ ----- ------ -----
Total General
Partner $ 96,670 -- $ 90,192 -- $ 98,241 --
====== ===== ====== ===== ====== =====
As of December 31, 1994, the Partnership had declared distributions of
$524,003, of which $497,803 ($33.19 per unit) was paid to limited partners and
$5,240 was paid to the General Partner on January 30, 1995. The remaining 4%
or $20,960 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 limited partners have received
their priority return as defined in the Partnership Agreement. For the year
ended December 31, 1994, the limited partners had received their priority
return, and all amounts retained during 1994 were paid to the General Partner
on January 30, 1995 in a distribution which amounted to $77,335.
35
<PAGE>
8. Reconciliation of Financial Statement Net Income to Federal Income
Tax Basis Net Income
Reconciliation of financial statement net income to Federal income
tax basis net income:
Years Ended December 31,
1994 1993 1992
Financial statement net income $ 1,672,606 $ 1,656,527 $ 1,552,589
Tax basis depreciation over
financial statement depreciation (264,175) (275,980) (328,745)
Financial statement gain on sale of
property under tax basis gain on
sale of property -- 14,625 --
--------- --------- ---------
Federal income tax basis, net income $ 1,408,431 $ 1,395,172 $ 1,223,844
========= ========= =========
36
<PAGE>
INTERIM FINANCIAL STATEMENTS
Balance Sheets
Assets September 30, 1995 December 31, 1994
Real estate at cost:
Land $ -- $3,576,544
Buildings -- 5,431,714
Fixtures and equipment -- 2,675,310
-- 11,683,568
Less - accumulated depreciation -- (5,762,960)
-- 5,920,608
Real estate held for sale 5,617,793 --
Cash 683,532 680,377
Rent receivable 178,069 121,417
Total Assets $6,479,394 $6,722,402
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $43,582 $44,073
Due to affiliates 1,800 1,397
Distributions payable 583,534 580,378
Total Liabilities 628,916 625,848
Partners' Capital (Deficit):
General Partner (52,453) (54,272)
Limited Partners (15,000 units outstanding) 5,902,931 6,150,826
Total Partners' Capital 5,850,478 6,096,554
Total Liabilities and Partners' Capital $6,479,394 $6,722,402
Statement of Partners' Capital (Deficit)
For the nine months ended September 30, 1995
Limited General Total
Partners Partner
Balance at December 31, 1994 $6,150,826 $(54,272) $6,096,554
Net income 1,324,442 78,186 1,402,628
Distributions (1,572,337) (76,367) (1,648,704)
Balance at September 30, 1995 $5,902,931 $(52,453) $5,850,478
37
<PAGE>
Statements of Operations
Three months ended Nine months ended
September 30, September 30,
Income 1995 1994 1995 1994
Rental income $702,034 $716,116 $2,055,843 $1,962,147
Interest income 9,147 4,879 24,181 13,101
Other income 575 495 1,520 1,470
Total Income 711,756 721,490 2,081,544 1,976,718
Expenses
Depreciation 65,149 67,896 200,942 203,689
Ground lease rent 86,244 91,920 271,040 273,374
Management fee 61,579 62,419 178,470 168,876
General and administrative 26,555 47,478 78,282 82,056
Total Expenses 239,527 269,713 728,734 727,995
Income from operations 472,229 451,777 1,352,810 1,248,723
Other Income
Gain on sale of property - - 49,818 -
Net Income $472,229 $451,777 $1,402,628 $1,248,723
Net Income Allocated:
To the General Partner $26,869 $25,984 $78,186 $72,621
To the Limited Partners 445,360 425,793 1,324,442 1,176,102
$472,229 $451,777 $1,402,628 $1,248,723
Per limited partnership
interest (15,000 outstanding) $29.69 $28.39 $88.30 $78.41
38
<PAGE>
Statements of Cash Flow
For the nine months ended September 30, 1995 and 1994
Cash Flows from Operating Activities: 1995 1994
Net income $1,402,628 $1,248,723
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 200,942 203,689
Gain on sale of property (49,818) -
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Rent receivable (56,652) (26,386)
Accounts payable and accrued expenses (491) (14,950)
Due to affiliates 403 (1,690)
Net cash provided by operating activities 1,497,012 1,409,386
Cash Flows from Investing Activities:
Proceeds from sale of property 151,691 -
Net cash provided by investing activities 151,691
Cash Flows from Financing Activities:
Cash distributions paid (1,645,548) (1,426,607)
Net cash used for financing activities (1,645,548) (1,426,607)
Net increase (decrease) in cash 3,155 (17,221)
Cash at beginning of period 680,377 626,860
Cash at end of period $683,532 $609,639
39
<PAGE>
Notes to Financial Statements
These unaudited interim financial statements should be read in conjunction with
Burger King Limited Partnership II's (the "Partnership's") 1994 annual audited
financial statements within Form 10-K.
These unaudited financial statements include all adjustments which are, in the
opinion of management, necessary to present a fair statement of financial
position as of September 30, 1995 and the results of operations for the three
and nine-month periods ended September 30, 1995 and 1994, cash flows for the
nine-month periods ended September 30, 1995 and 1994, and the statement of
partners' capital (deficit) for the nine-month period ended September 30, 1995.
Results of operations for these periods are not necessarily indicative of the
results to be expected for the full year.
The following significant events have occurred subsequent to fiscal year 1994,
which require disclosure in this interim report per Regulation S-X, Rule 10-1,
Paragraph (a)(5).
A. During the second quarter of 1995, the Partnership sold one property
as follows:
Date Adjusted Net Gain
of Selling Book on
Store Sale Price* Value Sale
Ferguson, MO 6/30/95 $151,691 $101,873 $49,818
* Purchase price less estimated legal costs related to the sale of the
property.
B. An Agreement of Purchase and Sale dated as of October 11, 1995 (the
"Purchase Agreement") between the Partnership and U.S. Restaurant Properties
Operating L.P. (the "Buyer"), was executed for the sale of 17 of the
Partnership's Burger King restaurants owned in fee simple (the "Owned
Properties") and the assignment of all of its rights in 11 of the Partnership's
Burger King restaurants subject to ground leases (the "Leased Properties") (the
Owned Properties and the Leased Properties are referred to herein collectively
as the "Properties") for $17,025,000 in cash (the "Purchase Price"), subject to
adjustments and prorations for base and percentage rents as well as certain
other charges payable in respect of the Leased Properties and adjustments in
respect of certain closing costs (the "Proposed Sale"). Pursuant to the terms
of the Purchase Agreement, the Partnership has the option to include an
additional restaurant Property located in Marietta, Georgia (the "Marietta
Property") in the Proposed Sale increasing the Purchase Price by $200,000. As
discussed in more detail below, the Marietta Property is currently under
contract for sale to a third-party. The Proposed Sale will therefore, in all
likelihood, constitute the sale of all of the Partnership's remaining
Properties. The Proposed Sale is subject to the satisfaction of certain
conditions, including the right of the holders of units of the Partnership
("Unitholders") to reject the Proposed Sale.
Pursuant to Section 8.3 of the Agreement of Limited Partnership dated as of
August 23, 1982, as amended as of October 19, 1982 (the "Partnership
Agreement"), Unitholders have the right to vote (assuming certain conditions
described in the Partnership Agreement are met) only upon certain matters and
Unitholders voting a majority in interest may, without the concurrence of BK II
Properties Inc., the general partner of the Partnership (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.
Consequently, the General Partner intendes to mail a proxy statement to the
Unitholders (the "Proxy Statement") in order to disclose the terms of the
Purchase Agreement and to present the Unitholders with the opportunity to call
a meeting, if they so desire, to consider the disapproval of the Proposed Sale.
It is currently anticipated that the Proxy Statement will be mailed to
Unitholders in the first quarter of 1996. If the Unitholders do not reject the
Proposed Sale, the Properties are expected to be sold pursuant to the Purchase
Agreement in the second quarter of 1996. If the Unitholders reject the
Proposed Sale, the Partnership will continue to operate the Properties until an
alternative liquidation strategy can be implemented. Until the Properties are
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disposed of, it is intended that cash flow from operations will be distributed
to the Unitholders in accordance with the terms of the Partnership Agreement.
The Marietta Property was declared economically abandoned by Burger King on
January 29, 1994. Burger King allowed the franchisee to continue operating
this property while it was marketed for sale. In May 1995, Burger King
executed a sales agreement with a third-party buyer to purchase the Marietta
Property for $445,000. On September 11, 1995, the third-party buyer indicated
that it was unwilling to purchase the Marietta Property and attempted to
terminate the sale. The Partnership has contested the third-party buyer's
right to terminate the sale pursuant to the sales contract. If the sale to the
third-party buyer is not completed, the Partnership has the option to include
the Marietta Property in the Proposed Sale.
C. Accounting for Impairment - In March 1995, the Financial Accounting
Standards Board issued Statement No. 121 Accounting for Impairment of
Long-Lived Assets to be Disposed Of ("FAS 121"). FAS 121 requires impairment
losses to be recorded on long-lived assets, which are either used in operations
or expected to be disposed of, 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. The Partnership will adopt FAS 121 in the
fourth quarter of 1995. Based on current circumstances, the Partnership does
not believe the effect of adoption will be material.
The Properties are normally appraised on an annual basis by an independent
appraiser to determine if there are any issues with respect to impairment in
the value of the Properties.
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APPENDIX A
FIRST AMENDMENT TO
AGREEMENT OF PURCHASE AND SALE
FIRST AMENDMENT TO AGREEMENT OF PURCHASE AND SALE ("Amendment")
made as of 9th day of January 1996, by and between Burger King Limited
Partnership II, a New York limited partnership ("Seller"), and U.S. Restaurant
Properties Operating L.P., a Delaware limited partnership ("Buyer").
W I T N E S S E T H :
WHEREAS, Buyer and Seller are parties to that certain Agreement
of Purchase and Sale, dated as of October 11, 1995 (the "Agreement") for the
sale of twenty-eight Burger King restaurants together with an option to sell
one additional store (the "Marietta Property") as more particularly provided in
the Agreement;
WHEREAS, Buyer and Seller desire to amend the terms of the
Agreement with respect to the conditions precedent to Closing, prorations and
closing expenses; and
WHEREAS, all capitalized terms not defined herein shall have
the meanings ascribed to them in the Agreement.
NOW, THEREFORE, Buyer and Seller agree that the Agreement is
hereby amended as follows:
1. Section 6.1 is supplemented as follows:
"(d) Buyer shall deliver an irrevocable letter of
credit in favor of Burger King Corporation in a form
acceptable to Burger King Corporation and Buyer (the
"Letter of Credit") as of the Closing Date."
2. The second paragraph of Section 9.1 is amended
by striking all references to "Fiscal Year 1995",
"1995" or "1994" and substituting therefor "Fiscal Year
1996", "1996" and "1995" in their corresponding
respective places.
3. Section 9.2 is supplemented as follows:
"Seller shall pay, as of the Closing Date, a fee for
the Letter of Credit in the amount of one (1%) percent
of the principal balance of the Letter of Credit for
each year during its term, totaling the sum of Nineteen
Thousand Five Hundred Nineteen Dollars ($19,519.00)."
4. Other than as amended hereby, the Agreement remains
unmodified and in full force and effect.
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IN WITNESS WHEREOF, the undersigned have duly executed this
Amendment as of the day and year first above written.
SELLER: BUYER:
BURGER KING LIMITED U.S. RESTAURANT PROPERTIES
PARTNERSHIP II, OPERATING L.P.,
a New York limited partnership a Delaware limited partnership
By: BK II PROPERTIES INC., By: U.S. Restaurant Properties Inc.
General Partner (f/k/a QSV Properties Inc.),
General Partner
By: /s/ Kenneth Boyle By: /s/ Fred Margolin
Name: Kenneth Boyle Name: Fred Margolin
Title: Vice President Title: Chairman
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AGREEMENT
OF
PURCHASE AND SALE
AGREEMENT OF PURCHASE AND SALE ("Agreement") made as of the
11th day of October, 1995, by and between Burger King Limited Partnership II, a
New York limited partnership ("Seller"), and U.S. Restaurant Properties
Operating L.P., a Delaware limited partnership ("Buyer").
W I T N E S S E T H :
1. Definitions. For purposes of this Agreement, the following
terms have the meanings indicated in this Section 1.
1.1 "Assignment and Assumption of Lease" means an
Assignment and Assumption of Lease in the form attached hereto as Exhibit A,
with such modifications as may be required to conform to local recording laws.
1.2 "Assignment and Assumption of Sublease" means an
Assignment and Assumption of Sublease in the form attached hereto as Exhibit B,
with such modifications as may be required to conform to local recording laws.
1.3 "Closing" means the accomplishment (or waiver by the
party in whose favor each such activity runs) of each and every one of the
activities described in Section 6 below.
1.4 "Closing Date" means the date on which the Closing
occurs, as set forth in Section 4 below.
1.5 "Contract Period" means the period commencing upon the
execution by both Buyer and Seller of this Agreement and ending upon the first
to occur of the Closing or the termination of this Agreement.
1.6 "Deed" means a bargain and sale deed with covenants
against grantor's acts, special warranty deed or the equivalent form of deed
used in the jurisdictions where the Owned Properties are located.
1.7 "Deposit" means the sum of One Million Dollars
($1,000,000.00) delivered by Buyer and deposited with the Escrow Agent, upon
the execution of this Agreement, to be held in an interest bearing account
subject to the terms of this Agreement. The Deposit shall include all interest
earned thereon.
1.8 "Environmental Laws" means any federal, state or local
ordinance, statute, regulation or common law provision relating to human health
and/or the environment.
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1.9 "Escrow Agent" means Lawyers Title Insurance
Corporation, 708 Third Avenue, Suite 2300, New York, New York 10017, Attention:
Craig Feder.
1.10 "Improvements" means any and all buildings, structures,
parking lots, walks, and walkways and all fixtures and equipment (including
without limitation all plumbing, electrical, heating, air conditioning and
ventilating lines and systems and boilers) and each and every other type of
physical improvement located at, on or affixed to a Property to the full extent
such items constitute or are or can or may be construed as realty under the
laws of the applicable jurisdiction.
1.11 "Franchisee" means a holder of the right to occupy a
Property pursuant to a Sublease thereof.
1.12 "Lease" means a sublease agreement between Burger King
Corporation, a Florida corporation, as sublessor, and Seller, as sublessee,
with respect to the Leased Properties and all amendments and modifications
thereof.
1.13 "Leased Properties" means, collectively, those certain
tracts or parcels of land in which Seller has a leasehold interest under the
Leases, and which comprise eleven (11) physical site locations designated as
Stores # 3720, 3732, 3758, 3777, 3779, 3830, 3892, 3925, 3978, 4005 and 4115
on Schedule 1 hereto, together with Seller's interests in all Improvements
located thereon.
1.14 "Option" means, with respect to Store # 3891, as
designated on Schedule 1 hereto (which is currently under contract to be sold
to another purchaser), Seller's right to elect, in its sole discretion, to
include such Property as one of the Properties to be purchased by Buyer
hereunder in the event such contract terminates prior to the Closing Date.
1.15 "Owned Properties" means, collectively, those certain
tracts or parcels of land which individually or together with contiguous tracts
so described, comprise the separate parcels of land pertaining to the seventeen
(17) physical site locations designated as Stores # 3642, 3647, 3659, 3677,
3692, 3693, 3696, 3701, 3704, 3706, 3722, 3723, 3773, 3833, 3871, 4056, 4185
and subject to Seller's exercise of its Option, one (1) additional physical
site location designated as Store 3891, all appearing on Schedule 1 hereto,
which tracts or parcels of land are owned in fee by Seller, including without
limitation any land lying in the bed of any street, road or avenue, open or
proposed, in front of, within or adjoining or adjacent to such land and
Seller's interest in all Improvements located thereon.
1.16 "Permitted Exceptions" means such easements,
restrictions, rights of way, if any, and other matters of record provided they
do not materially impair marketability of title or which are not objected to by
Buyer in the manner prescribed in Section 7 hereto.
1.17 "Properties" means, collectively, the Owned Properties
and the Leased Properties which are designated herein and on Schedule 1 hereto.
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1.18 "Purchase Price" means the sum of Seventeen Million
Twenty Five Thousand Dollars ($17,025,000.00), subject to adjustment to
Seventeen Million Two Hundred Twenty Five Thousand Dollars ($17,225,000.00) in
the event Seller elects to exercise the Option.
1.19 "Sublease" means, as to the Leased Properties those
sub-subleases between Seller, as sub-sublessor, and a Franchisee, as
sub-sublessee, and, as to the Owned Properties, those leases between Seller, as
lessor, and a Franchisee, as lessee, and all amendments and modifications
thereof.
1.20 "Title Insurer" means American Title Company, 2323
Bryan Street, Suite 1600, Dallas, Texas, Attention: Alex Smith.
1.21 "Title Policy" means, as to each Property, a standard
form owner's policy of title insurance, dated the Closing Date, insuring Buyer
as owner of good and marketable fee title to the Owned Properties and the
holder of a subleasehold interest in the Leased Properties subject only to the
Permitted Exceptions.
1.22 "Title Report" means a certificate of title or title
report issued by the Title Insurer to Buyer, which shall disclose Seller as
owner of fee simple interest in the Owned Properties and the holder of a
subleasehold interest in the Leased Properties and shall disclose, and shall
have attached to it, copies of all documents underlying all exceptions to title
and all encumbrances on and other matters of record affecting the Properties.
2. Purchase and Sale. Subject to and in accordance with all
terms and conditions and based upon all representations and warranties set
forth in this Agreement, on the Closing Date, Seller shall convey, transfer,
assign, sell and deliver to Buyer, and Buyer shall acquire, accept and purchase
the Properties.
3. Purchase Price; Payment Thereof. The Purchase Price is
Seventeen Million Twenty Five Thousand Dollars ($17,025,000.00), subject to
adjustment to Seventeen Million Two Hundred Twenty Five Thousand Dollars
($17,225,000.00) in the event Seller exercises the Option, and also subject to
prorations and adjustments as described in Section 9, further subject to
adjustment in the case of a removal of a Property as provided in Sections 7 and
13. The Purchase Price is payable by Buyer to Seller at the Closing by wire or
other mutually agreeable transfer of immediately available funds.
4. Closing Date. The Closing Date shall be on a date selected
by Buyer upon ten (10) days written notice to Seller but not later than fifteen
(15) days following the date that the contingency set forth in Section 6.3 is
removed. The Closing shall take place at 11:00 a.m. on the Closing Date at the
offices of the Title Insurer.
5. Escrow Agent. The Deposit shall be deposited by Escrow Agent
in an interest bearing escrow account and the proceeds held and disbursed in
accordance with the terms of this Agreement. Upon Closing, Escrow Agent shall
deliver the Deposit to Seller and the Deposit shall be credited against the
Purchase Price. In all other cases, if either party makes a demand upon
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Escrow Agent for delivery of the Deposit, Escrow Agent shall give written
notice to the other party of such demand. If a notice of objection to the
proposed payment is not received from the other party within seven (7)
business days after the giving of notice by Escrow Agent, time being of the
essence, Escrow Agent is hereby authorized to deliver the Deposit to the party
who made the demand. If Escrow Agent receives a notice of objection within
said period or if for any other reason Escrow Agent in good faith elects not
to deliver the Deposit, then Escrow Agent shall continue to hold the Deposit
and thereafter pay it to the party entitled when Escrow Agent receives (a) a
notice from the objecting party withdrawing the objection, or (b) a notice
signed by both parties directing disposition of the Deposit or (c) a judgment
or order of a court of competent jurisdiction directing disposition of the
Deposit. Buyer and Seller hereby jointly and severally agree that Escrow
Agent shall incur no liability whatsoever in connection with its good faith
performance under this Agreement, and Buyer and Seller hereby jointly and
severally release and waive any claims they may have against Escrow Agent
which may result from its performance in good faith of its functions under
this Agreement. Escrow Agent shall be liable only for loss or damage caused
directly by its acts of negligence while performing under this Agreement.
Buyer and Seller further agree to indemnify against, hold harmless, release
and waive any claims they may have against Escrow Agent as a result of a
reasonable delay in any wire transfer made pursuant to this Agreement, and/or
any errors in wiring instructions given to Escrow Agent. The signing of this
Agreement by Escrow Agent is only to evidence Escrow Agent's acceptance of the
terms and conditions of this paragraph.
6. Conditions Precedent.
6.1 The obligation of Seller to sell the Properties on the
Closing Date shall be subject to the satisfaction, of the following conditions
(any of which may be waived by Seller): (a) the representations and
warranties of Buyer set forth in Section 11 were true and correct in all
material respects when made and are true and correct in all material respects
on the Closing Date, (b) Buyer delivers to Seller each of the items required
to be delivered by Buyer and takes all of the actions required to be taken by
Buyer under Section 8 prior to or on the Closing Date, and (c) Buyer shall
have performed, observed and complied with all covenants, agreements and
conditions required by this Agreement to be performed, observed and complied
with on its part prior to or as of the Closing Date.
6.2 The obligation of Buyer to purchase the Properties on the
Closing Date shall be subject to the satisfaction of the following conditions
(any of which may be waived by Buyer): (a) the representations and warranties
of Seller set forth in Section 10 were true and correct in all material
respects when made and are true and correct in all material respects on the
Closing Date, (b) Seller delivers to Buyer each of the items required to be
delivered by Seller and takes all of the actions required to be taken by
Seller under Section 8 prior to or on the Closing Date, and (c) Seller shall
have performed, observed and complied with all covenants, agreements and
conditions required by this Agreement to be performed, observed and complied
with on its part prior to or as of the Closing Date.
6.3 The parties' respective obligations hereunder are further
subject to the right of Seller's limited partners pursuant to Seller's
agreement of limited partnership to vote to disapprove the sale of the
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Properties. In connection therewith, Seller shall complete the preparation of
a preliminary proxy statement concerning the transactions contemplated herein
promptly following the date of mutual execution of this Agreement and use its
commercially reasonable efforts to file such preliminary proxy statement with
the Securities and Exchange Commission ("SEC") as soon thereafter as
practicable. Thereafter, within ten (10) days of the SEC's clearance of such
proxy statement Seller shall mail such proxy statement to its limited
partners. If Seller does not receive properly completed requests to convene a
meeting from its limited partners holding, in the aggregate, 10% or more of
Seller's outstanding limited partnership interests within sixty (60) days
from the date of proxy statement, then Seller will promptly notify Buyer in
writing that the condition relating to the limited partners' right to vote to
disapprove of the sale of the Properties has been waived, and the parties will
proceed to Closing, assuming all other conditions are satisfied or waived. If
Seller receives properly completed requests to convene a meeting from its
limited partners holding, in the aggregate, 10% or more of the Seller's
outstanding limited partnership interests, then Seller shall call a meeting of
its limited partners to consider the disapproval of the sale of the Properties
and shall give Buyer prompt written notice of that fact. If a meeting of
Seller's limited partners is held during the period ending ninety (90) days
following the date of such notice to Buyer (the "Notice Period"), then (x) if
a majority of Seller's limited partners vote to disapprove of the proposed
sale, Seller shall have the right to terminate this Agreement by written
notice to Buyer, the Deposit shall be returned to Buyer and thereafter neither
party shall have any obligation to the other under this Agreement, or (y) if
less than a majority of Seller's limited partners vote to disapprove of the
sale of the Properties, then Seller will promptly notify the Buyer in writing
that the condition relating to the limited partners' right to vote to
disapprove of the sale of the Properties has been satisfied and the parties
will proceed to Closing, assuming all other conditions are satisfied or
waived. If (i) for any reason the meeting of the Seller' limited partners is
delayed, postponed or adjourned to a date subsequent to the expiration of the
Notice Period or (ii) Seller after using commercially reasonable efforts is
unable to proceed to Closing within one (1) year following the mutual
execution of this Agreement, then Buyer, in its sole discretion, may terminate
this Agreement by written notice to the Seller, the Deposit shall be returned
to Buyer and thereafter neither party shall have any obligation to the other
under this Agreement.
7. Title Exceptions. Seller shall obtain a Title Report from the
Title Insurer for each of the Properties and deliver a copy thereof to Buyer
on or before thirty (30) days after mutual execution and delivery of this
Agreement but shall have no obligation to deliver surveys for the Properties.
Buyer shall have ten (10) days from the date of its receipt of each Title
Report and survey to object to any exception to title appearing in the Title
Report or survey (for each Property an "Objection" and collectively
"Objections") which materially impairs marketability of title by delivering
written notice to the Seller. If Buyer fails to object as prescribed in this
section then the Buyer acknowledges and agrees that such exception shall be a
Permitted Exception and Buyer shall be obligated to proceed with the Closing
and take title to the Properties subject to such exceptions to title without a
reduction of the Purchase Price.
(a) Upon receipt of such Objection, Seller shall have the
right, but not the obligation, to seek to eliminate, cure or
correct such exceptions to title. If such exceptions to title
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in Seller's sole and exclusive judgment can be cured or
corrected and if Seller notifies Buyer not later than 5:00 p.m.
(New York time) within ten (10) days after receipt of all
Objections to the Property(ies) to seek to cure or correct
same, then (1) Seller shall have the right to adjourn the
Closing for such Property(ies) for such period, not to exceed
ninety (90) days as shall, in Seller's discretion reasonably
exercised, be required in order to cure such exceptions to
title and Buyer shall be obligated to purchase on the Closing
Date all Properties not objected to as provided above and the
Purchase Price shall be reduced by the consideration
attributable to the affected Property(ies) as shown on Schedule
1; (2) Seller shall give Buyer written notice upon the
correction of an Objection for each Property and Buyer shall
purchase such Property, according to the terms hereof, on a
mutually agreeable closing date within ten (10) days of such
notice; and (3) if such exceptions to title can only be
satisfied by the payment of money, Seller shall be entitled to
apply a portion of the Purchase Price payable on such Closing
Date for such Property(ies) in order to cure or correct same.
If Seller fails to notify Buyer of its election to seek to cure
such exceptions to title, Seller shall be deemed to have
elected NOT to seek to cure same.
(b) If Seller elects not to cure all un-permitted
exceptions to title on any Property encumbered by same, Buyer
may, at its election, (1) proceed with the Closing and take
title to all of the Properties subject to such exceptions to
title without a reduction of the Purchase Price, or (2)
terminate this Agreement by written notice to Seller, in which
case the Deposit shall be returned to Buyer and thereafter
neither party shall have any obligation to the other under this
Agreement, provided, however, that Buyer shall provide such
written notice of termination to Seller no later than the close
of business ten (10) days after receipt of Seller's notice
electing not to cure title exceptions (the "Title Notice Day").
If Buyer fails to provide such notice by 5:00 p.m. (New York
time) on the Title Notice Day, Buyer shall be obligated to
purchase the Properties as provided herein, subject to any
exceptions to title. If Seller, having elected to attempt to
cure such exceptions to title, fails so to do within such
ninety (90) day period, Buyer shall have no further obligation
to purchase and Seller shall have no further obligation to sell
the Properties unless Buyer forthwith elects to purchase the
Properties subject to the unrectified matters with no reduction
in the Purchase Price.
To be effective, each notice delivered by Buyer to Seller hereunder must be
sent by facsimile transmission to the FAX numbers set forth in Section 17 with
an original hard copy thereof sent in accordance with the requirements of
Section 17. Any dispute as to whether or not a notice regarding removal of a
Property from the Agreement has been given in a timely manner shall be
resolved by reference to the date and time stamped on the first page of the
facsimile copy of such notice by the facsimile unit receiving same.
8. Closing Deliveries. At the Closing, the following actions
shall be taken, all of which will be deemed taken simultaneously and
no one of which will be deemed completed until all have been
completed:
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(a) The Purchase Price shall be paid to Seller in
accordance with Section 3.
(b) The Deeds for each Owned Property shall be executed and
delivered to Buyer.
(c) Buyer and Seller shall execute and deliver an
Assignment and Assumption of Lease for each Leased Property.
(d) Buyer and Seller shall execute and deliver an
Assignment and Assumption of Sublease for each Sublease
encumbering the Properties.
(e) An affidavit of the Seller under FIRPTA shall be
delivered to Buyer.
(f) Seller shall deliver to Buyer the original counterparts
or true copies of the Leases assigned by Seller to Buyer and
assumed by Buyer pursuant to the Assignment and Assumption of
Leases delivered under clause (c) above (or copies thereof
certified to be true and correct by Seller) and the original
counterparts of the Subleases assigned by Seller to Buyer and
assumed by Buyer pursuant to the Assignment and Assumption of
Subleases delivered under clause (d) above (or copies thereof
certified to be true and correct by Seller).
(g) Seller shall deliver to Buyer estoppel certificates
from at least twenty-six (26) of the Franchisees, in the form
attached hereto as Exhibit C and the balance of the estoppel
certificates, if any, may be delivered by Seller, in the form
attached hereto as Exhibit D ("Seller's Estoppel Certificate"),
if Seller, after using reasonable efforts, is unable to obtain
such estoppel certificates from the Franchisees by the Closing
Date.
(h) Seller shall deliver to Buyer estoppel certificates
from Burger King Corporation with respect to the Leased
Properties, in form attached hereto as Exhibit E.
(i) Seller shall deliver the originals (if any, and to the
extent in Seller's possession) of all agreements, plans,
drawings, surveys, technical descriptions, warranties and
licenses or permits affecting the Properties.
(j) Any and all documents, affidavits and agreements
reasonably required by the Title Insurer to enable it to issue
the Title Policies shall be delivered by Buyer and Seller,
respectively.
9. Adjustments and Prorations; Closing Expenses.
9.1 Adjustments and Prorations. The basic or fixed rents
and charges payable under the Subleases and rents and charges actually
received by Seller for the month in which the Closing occurs, which rents and
charges may include but are not limited to basic or fixed rents, shall be
apportioned between Buyer and Seller as of 11:59 p.m. of the day next
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preceding the Closing Date (it being understood and agreed that Buyer and
Seller shall endeavor to compute all closing adjustments at least five (5)
business days prior to the Closing Date.
The percentage rents shall be pro-rated as of the Closing Date in the
following manner: the total amount of percentage rent payable for the fiscal
year in which the Closing occurs ("Fiscal Year 1995") for each Property shall
be computed for each Property based on an estimate of the sales for the entire
Fiscal Year 1995 which shall be determined by the prior year sales multiplied
by the percentage of increase or decrease in sales for the period commencing
with the beginning of Fiscal Year 1995 through and including the last day of
the month prior to the Closing Date over the comparable period for 1994. The
resulting percentage rental obligation for Fiscal Year 1995 shall then be
apportioned equally to each day during Fiscal Year 1995, with the amount
accruing prior to the Closing Date being referred to as the "Pre-Closing
Portion". Seller shall be credited with 1995 percentage rents in the amount
of the excess, if any, of (i) the Pre-Closing Portion reduced by (ii)
percentage rent payments actually received by Seller for Fiscal Year 1995
prior to the Closing Date. If clause (ii) above exceeds (i) above, Seller
shall be debited with such excess on the Closing Date.
Seller represents and warrants that the respective Franchisees of
the Properties have the obligation for paying all real estate taxes and
assessments and all charges for utility services.
9.2 Closing Expenses. The premium for the Title Policies,
all costs for the Title Report and any fees for any survey and fees for
recording the Deeds and other conveyancing documents shall be paid by Buyer.
Seller shall pay the escrow charges imposed by Escrow Agent and any expenses
incurred in connection with Seller complying with Section 6.3. Buyer and
Seller shall each pay one-half of any transfer taxes. All other expenses of
Closing shall be paid by Buyer, other than Seller's legal expenses.
10. Representations and Warranties of Seller. Seller hereby
represents and warrants to Buyer as follows, it being expressly understood and
agreed that all such representations and warranties are to be true and correct
at the date of this Agreement, except as otherwise provided, and as of the
Closing, but such representations and warranties shall not survive the
Closing:
(a) Seller has the full right, power and authority to enter
into this Agreement and at the date hereof but not as of the
Closing subject to the right of its limited partners to object
as discussed in Section 6.3, to cause the sales, transfers and
assignments contemplated herein; and each of the persons
signing this Agreement on behalf of Seller is authorized to do
so;
(b) To the actual knowledge of Seller, (i) the execution
and delivery of this Agreement and the consummation of the
transactions contemplated hereunder on the part of the Seller
does not violate any applicable law, ordinance, statute, rule,
regulation, order, decree or judgment to which Seller may be
subject, and (ii) no action by any federal, state or municipal
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or other governmental department, commission, board, bureau or
instrumentality is necessary to make this Agreement a valid
instrument binding upon Seller in accordance with its terms;
and
(c) To the actual knowledge of Seller, there are no pending
or contemplated condemnation, eminent domain or similar
proceedings with respect to all or any portion of the
Properties, except as provided in Section 13.
(d) Except for the information contained in the documents
listed in Schedule 2 attached hereto, Seller has no actual
acknowledge as to the environmental conditions of the
Properties.
(e) Seller has no contracts of any kind, such as for waste
disposal, termite protection, cleaning services, management
services or paper supplies which will survive the Closing.
(f) Seller has delivered to Buyer the monthly sales reports
for the months January through July 1995 or true copies thereof
which were delivered to Buyer from Burger King Corporation.
Seller expressly does not represent or warrant the accuracy or
completeness of the information contained in such sales
reports.
(g) From and after the date hereof until the Closing or
earlier termination of this Agreement, Seller shall not sell,
assign or create any right, title or interest whatsoever in or
to any property or create any liens, encumbrance or charge
thereon without promptly discharging same, except with respect
to Store # 4185, Buyer acknowledges that Seller may be granting
easement and/or non-disturbance rights with respect to a
portion of such Property.
(h) From and after the date hereof until the Closing or
earlier termination of this Agreement, Seller shall conduct its
activities as landlord of the Properties reasonably consistent
with its past practices.
If Buyer discovers prior to Closing, that any representation or
warranty made in this Agreement or in Seller's Estoppel Certificate(s), if
any, is untrue, then Buyer shall have the right, as its sole and exclusive
remedy, either to (i) terminate this Agreement by notice given to Seller prior
to the Closing Date, receive a return of the Deposit and thereafter neither
party shall have any obligation to the other under this Agreement, or (ii)
elect to purchase the Properties subject to such untrue representation or
warranty without any reduction in the Purchase Price.
11. Representations and Warranties of Buyer. Buyer hereby
represents and warrants to Seller as follows, such representations and
warranties to be true and correct at the date of this Agreement and as of the
Closing, but such representations and warranties shall not survive the
Closing:
(a) Buyer is a limited partnership duly organized and in
good standing under the laws of the State of Delaware;
9
<PAGE>
(b) Buyer has the full right, power and authority to enter
into and fully perform its obligations under this Agreement,
and each of the persons signing this Agreement on behalf of
Buyer is authorized to do so; and
(c) To the actual knowledge of Buyer, (i) the execution and
delivery of this Agreement and the consummation of the
transactions contemplated hereunder on the part of Buyer does
not violate any applicable law, ordinance, statute, rule,
regulation, order, decree or judgment to which Buyer may be
subject, and (ii) no action by any federal, state or municipal
or other governmental department, commission, board, bureau or
instrumentality is necessary to make this Agreement a valid
instrument binding upon Buyer in accordance with its terms.
12. Damage or Destruction. In the event that a casualty or other
loss occurs to any Property prior to the Closing Date which (i) renders such
Property inoperable as a restaurant for a period reasonably estimated by
Seller to exceed four (4) months, or (ii) with respect to which there is
insufficient insurance coverage and/or tenant contributions to restore such
Property to its condition prior to such casualty, Buyer may, in its sole
discretion (a) elect to purchase all of the Properties without reduction of
the Purchase Price; or (b) terminate this Agreement by written notice to
Seller and receive a return of the Deposit.
13. Eminent Domain. In the event of any threatened, commenced or
consummated proceedings in eminent domain respecting a Property or
substantially all of a Property, Buyer may, at its option, by notice to Seller
given ten (10) days after Buyer is notified of such actual or possible
proceedings, elect to remove the affected Property from this Agreement and the
Purchase Price shall be reduced by the consideration attributable to the
affected Property as shown on Schedule 1, or if Buyer fails to elect or if
such eminent domain proceedings are for less than substantially all of a
Property, then Buyer shall be obligated to purchase the Property as provided
herein and Seller shall, at the Closing, assign to Buyer its entire right,
title and interest in and to any condemnation award. Buyer acknowledges that
with respect to Store 4185, Seller intends to convey a portion of such
Property by deed in lieu of condemnation and Seller shall at the Closing
assign to Buyer its right, title and interest in and to the consideration to
be paid for such conveyance.
14. Environmental Inquiries.
14. Buyer acknowledges that Seller, at Seller's expense,
has caused Environmental Consulting & Technology, Inc. ("ECT") to conduct a
Transaction Screen Assessments consistent with ASTM Standard E 1528-93 (each,
a "Transaction Screen") of the Properties, and that Seller herewith has
furnished to Buyer such information as more particularly described on Schedule
2 hereto.
15. Property "As Is". Seller does not warrant, either
expressly or impliedly, the condition or fitness of the Properties, including
without limitation the environmental fitness and condition of the Properties.
Buyer acknowledges that it has made such inspections and investigations of the
Properties as it has deemed necessary including, without limitation, the
physical and environmental features of the Properties and that Buyer will
10
<PAGE>
acquire the Properties "AS IS, WHERE IS" in their current state, including
without limitation their current physical and environmental condition, subject
to normal wear and tear between the effective date of this Agreement and the
Closing. It is expressly understood and agreed that the willingness of Buyer
to purchase the Properties on an "AS IS, WHERE IS" basis in accordance
herewith is a material inducement to Seller's agreement to sell the Properties
to Buyer. Buyer hereby waives any and all claims which it may now or hereafter
have against Seller arising out of or in connection with Environmental Laws,
including without limitation any such claims under the federal Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section
9601-9659 ("CERCLA"), and any claims under state common law, relating to the
emission, discharge or release of any hazardous substance, as that term is
defined under CERCLA at 42 U.S.C. Section 9601(14), or petroleum product or
other pollutant or contaminant.
16. Brokerage. Each party represents and warrants to the other
that it has neither engaged nor employed any broker or finder in connection
with the transactions contemplated by this Agreement, and each party hereby
indemnifies and agrees to hold the other harmless from and against any loss,
cost, damage or expense (including reasonable attorneys' fees) by reason of
the incorrectness of such representation and warranty. This provision shall
survive the Closing.
17. Notices. All notices, demands, requests, consents, approvals
or other communications ("Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in
writing and shall (except as herein expressly provided to the contrary) be
delivered personally or sent by either registered or certified mail, return
receipt requested, postage prepaid, by Federal Express or another nationally
recognized air courier service, or by telephonic facsimile transmission,
addressed as follows:
TO SELLER:
Burger King Limited Partnership, II
c/o Lehman Brothers Inc.
3 World Financial Center, 29th Floor
New York, New York 10285
Attention: Kenneth F. Boyle
FAX: (212) 528-9696
With a copy to:
Gibson, Dunn & Crutcher
200 Park Avenue
47th Floor
New York, New York 10166
Attention: C. Ransom Samuelson II, Esq.
FAX: (212) 351-4035
11
<PAGE>
TO BUYER:
U.S. Restaurant Properties Operating L.P.,
c/o QSV Properties Inc.
5310 Harvest Hill Road, Suite 270
Dallas, Texas 75230
Attention: Robert J. Stetson
FAX: (214) 490-9119
With a copy to:
Middleberg Riddle & Gianna
2323 Bryan Street, Suite 1600
Dallas, Texas 75201
Attention: Richard S. Wilensky, Esq.
FAX: (214) 220-0179
or such other address as such party shall have specified most recently by like
Notice. Notices mailed as provided herein shall be deemed given on the third
New York business day following the date so mailed, on the New York business
day received from a nationally recognized air courier service or on the New
York business day received by facsimile transmission.
18. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken
together shall constitute but one and the same instrument.
19. Governing Law. This Agreement shall be governed by,
interpreted under, and construed and enforced in accordance with, the
laws of the State of New York.
20. Jurisdiction. The parties hereto irrevocably and
unconditionally submit themselves to the general jurisdiction of the
courts of the State of New York, the courts of the United States of
America for the Southern District of New York, and the appellate
courts thereof, in any legal action or proceeding arising under this
Agreement or in any way related hereto.
21. Entire Agreement. This Contract is not to be recorded and may
not be changed, modified or terminated except by written instrument
executed by the parties hereto. This Agreement (including the
Exhibits attached hereto) contain the entire agreement between the
parties with respect to the subject matter hereof and supersedes all
prior understandings, if any, with respect thereto. This Agreement
may not be modified, changed or supplemented, nor may any obligations
hereunder be waived, except by written instrument signed by the party
to be charged or by its agent duly authorized in writing or as
otherwise expressly permitted herein. The parties do not intend to
12
<PAGE>
confer any benefit hereunder on any person, firm or corporation other
than the parties hereto. This provision shall survive the Closing.
22. Attorneys' Fees. Should either party institute any action or
proceeding to enforce this Agreement or any provision hereof, or for
damages by reason of any alleged default under or breach of this
Agreement or of any provision hereof, or for a declaration of rights
hereunder, the prevailing party in any such action or proceeding
shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the
prevailing party in connection with such action or proceeding at
trial and any appellate levels.
23. Non-Waiver of Rights. No failure or delay of either party in
the exercise of any right given to such party hereunder shall
constitute a waiver thereof unless the time specified herein for
exercise of such right has expired, nor shall any single or partial
exercise of any right preclude other or further exercise thereof or
of any other right. The waiver of any breach hereunder shall not be
deemed to be a waiver of any other or any subsequent breach hereof.
24. Rules of Construction. This Agreement shall be construed
without regard to any presumption or other rule requiring
construction against the party causing this Agreement to be drafted.
25. Titles and Headings. Titles and headings of Articles and
Sections of this Agreement are for convenience of reference only and
shall not affect the construction of any provision of this Agreement.
26. Exhibits. Each of the Exhibits and Schedules referred to
herein and attached hereto is an integral part of this Agreement and
are incorporated herein by this reference.
27. Pronouns; Joint and Several Liability. All pronouns and any
variation thereof shall be deemed to refer to the masculine,
feminine or neuter, singular or plural, as the identity of the
parties may require. If the Buyer consists of two or more parties,
the liability of such parties shall be joint and several.
28. Further Assurances. Seller and Buyer each agree to do such
further acts and things and to execute and deliver such additional
agreements and instruments as the other may reasonably require to
consummate, evidence or confirm the sale or any other agreement
contained herein in the manner contemplated hereby.
29. No Assignment. Buyer shall have no right to assign this
Agreement or its rights hereunder, without the express written
consent of Seller. The transfer of a controlling interest in the
shares of Buyer shall be deemed an assignment for purposes of this
Agreement.
30. Damages. In the event this Agreement is terminated due to
either party's default in the performance of its obligations
hereunder then if Seller is the defaulting party, Buyer shall be
entitled to pursue any and all remedies available at law or in
equity, including but not limited to specific performance or to
13
<PAGE>
terminate this Agreement and receive a refund of the Deposit;
provided, however, that if Seller is unable to deliver estoppel
certificates as provided in Sections 8(g) and 8(h) then Buyer shall
have the right, as its sole and exclusive remedies, to either (i)
terminate this Agreement by written notice to Seller on or prior to
the Closing Date and receive a return of the Deposit, or (ii) elect
to purchase all of the Properties without any reduction in the
Purchase Price. In the event Buyer is the defaulting party, then
the parties have agreed that the Deposit shall be retained by Seller
as agreed upon liquidated damages it being acknowledged that Seller's
damages from Buyer's default might be impossible to ascertain and
that the Deposit constitutes a fair and reasonable amount for
Seller's damages and is not a penalty. Thereafter neither party
shall have any responsibility or obligation to the other under or
pursuant to this Agreement.
Initial: /s/ KB /s/ FM
Seller Buyer
31. TIME OF ESSENCE. TIME IS OF THE ESSENCE OF EACH AND EVERY
TERM, CONDITION AND PARTICULAR OF THIS AGREEMENT
32. Option to Sell
32.1 Buyer and Seller acknowledge that Store 3891 on
Schedule 1 hereto (the "Marietta Property"), is currently under contract to be
sold to another purchaser. In the event such contract is terminated prior to
the Closing Date then Buyer and Seller agree that Seller, in its sole
discretion, may elect to include the Marietta Property as one of the
Properties to be purchased by Buyer on the Closing Date. Seller may exercise
the Option by delivering written notice to Buyer of its intention to include
the Marietta Property at anytime during the period commencing with the
execution of this Agreement and terminating 10 days prior to the Closing Date
(the "Option Period").
32.2 If Seller does not exercise the Option within the
Option Period then upon the expiration of the Option Period the Option shall
terminate and be of no further force or effect.
32.3 In the event Seller exercises the Option within the
Option Period then under the terms of this Agreement Buyer shall be obligated
to buy and Seller shall be obligated to sell the Marietta Property on the
Closing Date at a purchase price of Two Hundred Thousand Dollars ($200,000.00).
14
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the day and year first above written.
SELLER: BUYER:
Burger King Limited Partnership II, U.S. Restaurant Properties Operating L.P.,
a New York limited partnership a Delaware limited partnership
By: BK II PROPERTIES INC. By: QSV Properties Inc.,
renamed U.S. Restaurant Properties Inc.
General Partner General Partner
By: /s/ Kenneth Boyle By: /s/ Fred Margolin
Name: Kenneth Boyle Name: Fred Margolin
Title: Vice President Title: Chairman
ESCROW AGENT:
Lawyers Title Insurance Corporation
By: /s/ Craig S. Feder
Name: Craig S. Feder
Title: Counsel
15
<PAGE>
BURGER KING LIMITED PARTNERSHIP II
SCHEDULE 1
STORE LOCATION SALES PRICE
3642 Redlands, CA 665,000
3647 Garland, TX 514,000
3659 Nederland, TX 951,000
3677 St. Peters, MO 681,000
3692 Marietta, GA 428,000
3693 Corpus Christi, TX 619,000
3696 Pelham, AL 387,000
3701 Milan, TN 191,000
3704 Greenville, TN 704,000
3706 Phoenix, AZ 604,000
3720 Wilmington, NC 539,000
3722 Southbend, IN 834,000
3723 Riverdale, GA 697,000
3732 Kansas City, KS 247,000
3758 Erlanger, KY 344,000
3773 Ceres, CA 1,265,000
3777 Orange, CA 268,000
3779 Statesboro, GA 780,000
3830 Plano, TX 193,000
3833 Hot Spring AR 631,000
3871 Columbus, MS 1,087,000
3892 Vernon, CT 764,000
3925 Tucson, AZ 231,000
3978 Springfield, MA 302,000
4005 Glendale, AZ 619,000
4056 Rocky Mt, NC 1,049,000
4115 Mt Clemens, MI 435,000
4185 Greenville, MS 996,000
17,025,000
with an Option to include
3891 Marietta, GA 200,000
<PAGE>
SCHEDULE 2
1. Transaction Screen Assessment for each of the Properties
prepared by Environmental Consulting & Technology, Inc. ("ECT") for Kirkpatrick
& Lockhart dated June 1994.
<PAGE>
EXHIBIT A
ASSIGNMENT AND ASSUMPTION OF LEASE
FOR AND IN CONSIDERATION of the sum of Ten Dollars ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned, Burger King Limited Partnership II, a New
York limited partnership ("Assignor"), does hereby sell, assign, convey,
transfer, set over and deliver to U.S. Restaurant Properties Operating L.P., a
Delaware limited partnership ("Assignee"), the entire interest of Assignor, as
lessee, in and to the lease of real property more particularly described in
Exhibit A attached hereto and incorporated by reference herein, between Burger
King Corporation, as lessor, and Burger King Limited Partnership II, as tenant,
dated __________ ___, 19__, a Memorandum of which was filed on __________ ___,
19__, and recorded at Book ____, Page ___ in the __________ County Registry of
Deeds (the "Lease").
Assignee hereby assumes and agrees to perform all the terms, covenants
and conditions of the Lease required to be performed by the lessee thereunder
from and after the date hereof. Assignee hereby indemnifies and holds Assignor
harmless from and against any and all loss, cost, damage, expense (including
reasonable attorney's fees), liability, claims or causes of action existing in
favor of or asserted by the lessor under the Lease arising out of or relating
to Assignee's failure to perform any of its obligations as lessee under the
Lease on or after the date hereof.
Assignor hereby indemnifies and holds Assignee harmless from and against
any and all loss, cost, damage, expense (including reasonable attorney's fees),
liability, claims or causes of action existing in favor of or asserted by the
lessor under the Lease arising out of or relating to Assignor's failure to
perform any of its obligations as lessee under the Lease prior to the date
hereof.
This Assignment shall be binding upon and shall inure to the benefit of
Assignor and Assignee and their respective successors and assigns.
A-1
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment and
Assumption of Lease this ___ day of , 1995.
ASSIGNOR:
Burger King Limited Partnership II,
a New York limited partnership
By: BK II Properties Inc.,
a New York corporation, general partner
By:________________________________________
Name:
Title:
U.S. RESTAURANT PROPERTIES
OPERATING L.P.
a Delaware limited partnership
By: QSV Properties Inc.,
a Delaware corporation, General Partner
By:________________________________________
Name:
Title:
A-2
<PAGE>
EXHIBIT B
ASSIGNMENT AND ASSUMPTION OF SUBLEASE
FOR AND IN CONSIDERATION of the sum of Ten Dollars ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned, Burger King Limited Partnership II, a New
York limited partnership ("Assignor"), does hereby sell, assign, convey,
transfer, set over and deliver to U.S. Restaurant Properties Operating L.P., a
Delaware limited partnership ("Assignee"), the entire interest of Assignor in
and to the sublease of real property more particularly described in Exhibit A
attached hereto and incorporated by reference herein, between Burger King
Limited Partnership II, as lessor, and [Name Of Lessee], as lessee, dated
______________, a Memorandum of which was filed on ____________, and recorded
at Book _____, Page ____, in the ______ County Registry of Deeds (the
"Sublease").
Assignee hereby assumes and agrees to perform all the terms,
covenants and conditions of the Sublease required to be performed by the lessor
thereunder from and after the date hereof, including, without limitation, the
obligation to repay in accordance with the terms of the Sublease to the lessee
thereunder any and all security deposits and prepaid rental deposits to the
extent, but only to the extent of the amount of cash delivered by Assignor to
Assignee with respect to such security deposits and prepaid rental deposits and
only to the extent that any such amount shall hereafter become refundable to
the lessee under the Sublease.
Assignee hereby indemnifies and holds Assignor harmless from and
against any and all loss, cost, damage, expense (including reasonable
attorney's fees), liability, claims or causes of action existing in favor of or
asserted by the lessee under the Sublease arising out of or relating to
Assignee's failure to perform any of its obligations as lessor under the
Sublease on or after the date hereof. Assignor hereby indemnifies and holds
Assignee harmless from and against any and all loss, cost, damage, expense
(including reasonable attorney's fees), liability, claims or causes of action
existing in favor of or asserted by the lessee under the Sublease arising out
of or relating to Assignor's failure to perform any of its obligations as
lessor under the Sublease prior to the date hereof.
This Assignment shall be binding upon and shall inure to the benefit
of Assignor and Assignee and their respective successors and assigns.
B-1
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment and
Assumption of Sublease as of this ___ day of _______________, 1995.
ASSIGNOR:
BURGER KING LIMITED PARTNERSHIP II,
a New York limited partnership
By: BK II Properties Inc., a
New York corporation,
general partner
By:________________________
Name:
Title:
ASSIGNEE:
U.S. RESTAURANT PROPERTIES
OPERATING L.P.
a Delaware limited partnership
By: QSV Properties Inc.,
a Delaware corporation,
General Partner
By:________________________
Name:
Title:
B-2
<PAGE>
EXHIBIT C
[FRANCHISEE ESTOPPEL]
___________________, 1995
U.S. Restaurant Properties Operating L.P.
5310 Harvest Hill Road, Suite 270
Dallas, Texas 75230
Re: (a) Sublease or Lease dated _______________________ between Burger
King Limited Partnership II ("Landlord") and __________________________
________________________, as tenant ("Franchisee"), covering the real
property commonly known as ___________________________________
________________ (the "Property") , as amended or modified by the
following: ______________________________________________
_______________________________________ (the "Lease").
(b) Franchise Agreement dated _____________________ between Burger
King Corporation ("Burger King"), as franchisor, and Franchisee with
respect to the operation of a "Burger King" restaurant at the Property,
as amended or modified by the following: ____________________________
____________________________________(the "Franchise Agreement").
Dear Ladies and Gentlemen:
The undersigned has been advised that you or another person or
entity are about to purchase the interest of Burger King Limited Partnership II
in the Property. In connection with such acquisition, the undersigned hereby
represents and certifies to you that:
A. Lease
1. The Lease constitutes the entire agreement between
Landlord and Franchisee pertaining to the Property, and the undersigned has not
assigned, sublet or otherwise transferred its interest in the Lease.
2. The commencement and termination dates of the current
term of the Lease are _____________________ and _______________________,
respectively. Franchisee has the following options or rights to renew the
term:_____________________________________________________________________.
C-1
<PAGE>
3. All rent payable by Franchisee under the Lease has been
paid through ________________, 1995.
4. The Lease is in full force and effect; there are no
outstanding notices of default or breach under the Lease served either by
Landlord or Franchisee, nor, to Franchisee's actual knowledge, has there been
any occurrence or omission which, with the giving of notice or passage of time
or both, would give rise to a default by either party under the Lease.
5. There have been no security or other deposits and there
have been no pre-payments of rent, nor will Franchisee pre-pay rent or other
amounts in connection with the Lease. No concessions, rebates, allowances, or
other concessions for free or reduced rent in the future have been granted,
other than as set forth in the Lease.
6. Franchisee has not currently (i) made a general
assignment for the benefit of creditors; (ii) filed any voluntary petition in
bankruptcy or suffered the filing of an involuntary petition by its creditors;
(iii) suffered the appointment of a receiver to take possession all or
substantially all of its assets; (iv) suffered the attachment or other judicial
seizure of all or substantially all of its assets; (v) admitted in writing its
inability to pay its debts as they come due; or (iv) made an offer of
settlement, extension or composition of its creditors generally.
B. Franchise Agreement
1. The Franchise Agreement constitutes the entire
agreement between Burger King and Franchisee pertaining to the operation of a
"Burger King" restaurant at the Property.
2. The term of the Franchise Agreement is 20 years.
3. The Franchise Agreement is in full force and effect;
there are no outstanding notices of default or breach under the Franchise
Agreement served either by Burger King or Franchisee, nor, to Franchisee's
actual knowledge, has there been any occurrence or omission which, with the
giving of notice or passage of time or both, would give rise to a default by
either party under the Franchise Agreement.
C-2
<PAGE>
Franchisee hereby acknowledges and agrees that you and any such
other purchasing person or entity shall be entitled to rely upon the foregoing
provisions of this letter in consummating the above-referenced transaction.
Very truly yours,
If Franchisee is a corporation,
insert corporation's name and sign here ___________________________
By:________________________
Name:
Title:
If Franchisee is an individual, ___________________________
sign here: Name:
C-3
<PAGE>
EXHIBIT D
[BKLP II ESTOPPEL]
___________________, 1995
U.S. Restaurant Properties Operating L.P.
5310 Harvest Hill Road, Suite 270
Dallas, Texas 75230
Re: (a) Sublease dated ____________________ between Burger King
Corporation ("Burger King") and Burger King Limited Partnership II
("BKLP-II"), covering the real property commonly known as ____________
_____________________________________ (the "Property"), as amended or
modified by the following: _____________________________________
___________________________________________ (the "Sublease"); and
(b) Lease dated _________________________ between BKLP-II, as
landlord, and ________________________________, as subtenant
("Franchisee"), as amended or modified by the following: ______________
___________________________________________________________ (the
"Operating Lease").
Dear Ladies and Gentlemen:
In connection with your purchase of BKLP-II's interest in the
Property, the undersigned hereby represents and certifies to you and to any
other purchasing person or entity that:
A. Sublease
1. The Sublease constitutes the entire agreement between
Burger King and BKLP-II pertaining to the demising of the Property, and
BKLP-II has not assigned or transferred its interest in the Sublease.
2. The commencement and termination dates of the current
term of the Sublease are _____________________ and _______________________,
respectively. BKLP-II has the following options or rights to renew the term:
____________________________________________________________________________.
E-1
<PAGE>
3. All rent payable by BKLP-II under the Sublease has been
paid through ________________, 1995.
4. The Sublease is in full force and effect; there are no
outstanding notices of default or breach under the Sublease served either by
Burger King or BKLP-II thereunder, nor, to Burger King's actual knowledge, has
there been any occurrence or omission which, with the giving of notice or
passage of time or both, would give rise to a default by either party under the
Sublease.
5. There have been no security or other deposits and there
have been no pre-payments of rent, nor will Franchisee pre-pay rent or other
amounts in connection with the Lease. No concessions, rebates, allowances, or
other concessions for free or reduced rent in the future have been granted,
other than as set forth in the Lease.
B. Operating Lease
1. The Operating Lease constitutes the entire agreement
between BKLP-II and Franchisee pertaining to the Property, and BKLP-II has not
assigned or transferred its interest in the Operating Lease.
2. The commencement and termination dates of the current
term of the Operating Lease are _____________________ and
_______________________, respectively. Franchisee has the following options or
rights to renew the term: _____________________________________________________
_____________________________________.
3. All minimum rent and additional rent payable by
Franchisee under the Operating Lease has been paid through ________________,
1995. All percentage rent payable by Franchisee has been paid through
__________________, 199__.
4. The Operating Lease is in full force and effect; there
are no outstanding notices of default or breach under the Operating Lease
served either by BKLP-II or Franchisee, nor, to BKLP-II's actual knowledge, has
there been any occurrence or omission which, with the giving of notice or
passage of time or both, would give rise to a default by either party under the
Operating Lease.
5. There have been no security or other deposits and there
have been no pre-payments of rent, nor will Franchisee pre-pay rent or other
amounts in connection with the Lease. No concessions, rebates, allowances, or
other concessions for free or reduced rent in the future have been granted,
other than as set forth in the Lease.
E-2
<PAGE>
The representations and certifications made hereunder shall not
survive the date upon which you or such other purchasing person or entity
purchase BKLP-II's interest in the Property. BKLP-II hereby acknowledges that
you and any such other purchasing person or entity shall be entitled to rely
upon the foregoing provisions of this letter in consummating the
above-referenced transaction.
Very truly yours,
BURGER KING LIMITED PARTNERSHIP II,
By: BK II Properties Inc.,
general partner
By:________________________________
Name:
Title:
E-3
<PAGE>
APPENDIX B
Agreement
of Limited Partnership
of
Burger King Limited
Partnership II
<PAGE>
BURGER KING LIMITED PARTNERSHIP II
AGREEMENT OF LIMITED PARTNERSHIP
INDEX
Page
ARTICLE I Defined Terms
1.1 Defined Terms B-1
ARTICLE II Organization
2.1 Formation B-4
2.2 Name B-4
2.3 Term B-4
2.4 Character of the Business B-4
2.5 Principal Place of Business B-4
ARTICLE III Partners and Capital
3.1 Name and Address of the General Partner B-4
3.2 Names and Addresses of Limited Partners B-4
3.3 Capital Contributions B-4
3.4 Application of Capital Contributions
Prior to the Initial Closing B-5
3.5 Subscription for Minimum Number of Interests B-5
3.6 Admission of Limited Partners to the Partnership B-5
3.7 Failure to Invest Net Proceeds B-5
3.8 Partners' Capital Accounts B-6
3.9 Partnership Capital B-6
3.10 Additional Terms and Conditions of the Offering B-6
ARTICLE IV Compensation of General Partner and Affiliates and
Burger King Corporation
4.1 Selling Commissions and Dealer Manager Fee B-6
4.2 Reimbursement of Organizational and Offering Expenses B-7
4.3 Management Fees to Burger King Corporation B-7
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 B-7
5.2 Cash Distributions of Net Property Disposition Proceeds B-8
5.3 Allocation of Distributions among Limited Partners B-8
5.4 Allocation of Gain, Income and Loss B-8
5.5 Allocation of Certain Nondeductible Expenses B-10
5.6 Taxes Withheld B-10
ARTICLE VI Powers, Rights and Duties of the General Partner
6.1 Management and Control of the Partnership B-10
6.2 Rights, Powers and Authority of the General Partner B-10
6.3 Partnership's Policies B-11
6.4 Services of the General Partner B-12
6.5 Other Business Interests of the General Partner B-12
i
<PAGE>
6.6 Code Section 754 Election B-12
6.7 Purchase Option on Partnership Properties B-12
6.8 Reimbursement of the General Partner B-13
6.9 Restrictions on Authority of the General Partner B-13
6.10 Net Worth Representation B-14
ARTICLE VII Transferability of the General Partner's Interest
7.1 Liability of the Terminated General Partner B-14
7.2 Removal, Bankruptcy or Incapacity of the General Partner B-14
7.3 Valuation of the General Partner's Partnership Interest B-14
ARTICLE VIII Rights of the Limited Partners
8.1 Limitations on Limited Partners B-15
8.2 Liability of Limited Partners B-15
8.3 Voting Rights of Limited Partners B-15
8.4 Treatment of the General Partner as a Limited Partner B-16
ARTICLE IX Transferability of a Limited Partner's Interest
9.1 Restrictions on Transfer or Assignment of Interests B-16
9.2 Substituted Limited Partners B-17
9.3 Recognition of Assignment or Transfer B-17
9.4 Treatment of a Substituted Limited
Partner as a Limited Partner B-18
9.5 Withdrawal, Bankruptcy or Incapacity of a Limited Partner B-18
ARTICLE X Indemnification
10.1 Indemnification of the General Partner B-18
10.2 Limited Indemnification from
Violations of the Securities Laws B-19
10.3 Indemnification of Limited Partners B-19
ARTICLE XI Dissolution and Termination
11.1 Events of Dissolution B-19
11.2 Payment of Partnership Funds Upon Liquidation B-19
11.3 Effectuation of Liquidation B-20
ARTICLE XII Notices
12.1 Notices B-20
ARTICLE XIII Accounting Reports and Statements
13.1 Fiscal Year B-20
13.2 Records of Partnership Transactions B-20
13.3 Access to Partnership Records B-20
13.4 Preparation of Tax Returns; Tax Audits B-20
13.5 Reports on Partnership's Business B-21
13.6 Availability of Reports on Form 10-Q B-21
13.7 Availability of Annual Reports B-21
13.8 Reports of Property Acquisitions B-21
13.9 Annual Appraisal B-21
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ARTICLE XIV Amendments to Partnership Agreement
14.1 Amendments to Partnership Agreement B-22
ARTICLE XV Meetings of the Partners
15.1 Meetings B-22
15.2 Proxy B-22
ARTICLE XVI Special Power of Attorney
16.1 Special Power of Attorney B-23
16.2 Scope of Power of Attorney B-23
ARTICLE XVII Miscellaneous
17.1 Binding Effect B-23
17.2 Applicable Law B-23
17.3 Counterpart Signature B-24
17.4 Separability of Provisions B-24
17.5 Headings B-24
17.6 Gender and Number B-24
17.7 Entire Agreement B-24
17.8 Section 48(q)(4) Election B-24
17.9 Acquisition Schedule; Suitability Reports B-24
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AGREEMENT OF LIMITED PARTNERSHIP
OF
BURGER KING LIMITED PARTNERSHIP II
This Agreement of Limited Partnership (the "Agreement"), dated as of August 23,
1982, entered into by and between Shearson/BK Properties, Inc. as the general
partner (the "General Partner") and the limited partners listed on Schedule A
(the "Limited Partners"), is hereby amended and restated as of October 19,
1982, and all of such partners do hereby form Burger King Limited Partnership
II, 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:
"Acquisition fee": The total of all fees and commissions paid by any
party in connection with the purchase or development of property by the
Partnership, except a development fee paid to a person not affiliated with
the General Partner or any Affiliate thereof in connection with the actual
development of Burger King restaurants after acquisition of the land by the
Partnership. Included in the computation of such fees or commissions shall
be any real estate commission, selection fee, development fee, non-recurring
management fee, or any fee of a similar nature, however designated.
"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 II, 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.
"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.
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"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) a sale of Partnership properties, (ii) a
condemnation award in respect of the acquisition of all or any portion of a
Partnership property (but not including payments in respect of a temporary
taking of the use of a Partnership property) or (iii) a casualty insurance
recovery in respect of damage to any Partnership property.
"Distributions": Any cash distributed to a Partner in respect of his
Interest and any amount of taxes withheld with respect to such Partner's
allowable share of any income of 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.
"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 March 31, 1983, except that such date shall be no later
than May 31, 1983, if the Dealer Manager of the offering of Interests has
received notice from Burger King Corporation that such date shall be extended
to no later than May 31, 1983.
"General Partner": Shearson/BK Properties, Inc.
"Gross Operating Revenues": Rental receipts from restaurant properties
leased by the Partner-ship, 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 other 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 December 31, 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.
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"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.
"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.
"1982 Act": Tax Equity and fiscal Responsibility Act of 1982.
"Original Invested Capital": An amount equal to $1,000 per Interest.
"Partner": The General Partner or any Limited Partner.
"Partnership": Burger King Limited Partnership II, 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.
"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.
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"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. The rights and liabilities of the Partners are as provided
by 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 II. 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 its 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 restaurant buildings
and the underlying land) and to lease such restaurant properties to franchisees
of Burger King Corporation and thereafter to re-lease, 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 Properties, 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
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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 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 und ivided 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 December 31, 1982, 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 as soon as practicable
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 soon as practicable after 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, 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
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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.
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 $900,000 or 7 1/2% of the gross offering proceeds and
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all organizational and offering expenses, including legal and accounting
fees, 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 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 $110,000 as
a non-accountable allowance for expenses of Burger King Corporation in
connection with this offering, in an amount not to exceed the lesser of (i)
$900,000 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 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 60 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 of 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 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 pro- rated 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:
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(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 60 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) 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 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 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
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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, 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 the 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 percent (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
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(88.89%) to the Limited Partners and eleven and 11/100 percent (11.11%) to the
General Partner.
(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 sales 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.
5.6 Taxes Withheld. Any amount of taxes withheld with respect to any
Partner's allocable share of any income of the Partnership shall be deemed to
be a distribution or payment to such Partner and shall reduce the amounts
distributable to such Partner.
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;
(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
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(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 and reserves in United States government securities, securities
of governmental agencies if covered by a bank repurchase agreement, bankers'
acceptances, docu-mented 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 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 therefor, 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 Burger King Limited Partnership I.
(e) The Partnership shall endeavor to diversify the restaurant
properties it acquires with respect to both 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,
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plus capitalized interest) in the applicable property and (y) 114.5%
of the 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 reinvest 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, 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 including Burger King Limited
Partnership I, 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, at fair market value, determined at that time
by independent appraisal.
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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;
(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 right of the
Partnership in specific property for other than a Partnership
purpose;
(g) admit a person as a Partner, except as provided in this Agreement;
(h) invest more than 25% of the Partnership's investment capital in
restaurant properties located on land not owned 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 purposes of
exercising control;
(n) 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;
(q) repurchase or reacquire its own securities except for the limited
partnership interest of the Initial Limited Partner;
(r) commingle funds of the Partnership with funds of any other limited
partnership;
(s) receive any rebates or give-ups or participate in reciprocal
business arrangements prohibited by state law or regulation;
(t) invest in limited partnership interests of any other limited
partnerships;
(u) make available to the Partnership from the funds of the General
Partner financing of any type for the acquisition, construction
or ownership of Burger King restaurant properties;
(v) allow reinvestment of Net Cash Flow from Operations or Net Property
Disposition Proceeds; or
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(w) permit Acquisition Fees to exceed, in the aggregate, eighteen
percent (18%) of the gross proceeds of the offering of Interests
in the Partnership.
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 percent (10%) or more of the Limited Partners'
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 but 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 to 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 the 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 withdrawing, dissolving or
liquidating General Partner shall be valued at One Dollar ($1).
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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;
(c) The amendment of this Agreement; provided, however, any amendment
so adopted by majority in interest of the Limited Partners 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
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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 Interests. (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 giving written notice of
the sale, assignment, transfer, encumbrance or disposition to the General
Partner. No sale, assignment, transfer, encumbrance or disposition shall be
effective against the Partnership or the General Partner until the first day
of the calendar quarter next succeeding the quarter in which the General
Partner receives the written notice described below and a duly executed written
instrument of assignment. Any sale, assignment, transfer, encumbrance or
disposition by an assignee of Interests of its beneficial interest in the right
to receive Distributions and allocations of profit and loss in Interests shall
not be effective against the Partnership or the General Partner until the first
day of the calendar quarter next succeeding the quarter in which the General
Partner receives the written notice described below and a duly executed written
instrument of assignment. If a sale, assignment, transfer, encumbrance or
disposition occurs by reason of the death of a Limited Partner or assignee such
written notice may be given by the duly authorized representative of the estate
of the Limited Partner or assignee and shall be supported by such proof of
legal authority and valid assignment as may reasonably be requested by the
General Partner. The written notice required by this Section 9.1 shall specify
the name and residence address of the assignee and the date of assignment,
shall include a statement by the assignee that he agrees to give the
above-described written notice to the General Partner upon any subsequent
assignment, and shall be signed by both the assignor and assignee. The General
Partner may, in its sole discretion, waive receipt of the above-described
notice or waive any defect therein. The Partnership shall recognize the
assignee as the holder of the beneficial interest in the Distributions from the
Partnership and the allocation of profits and losses of the Partnership so
assigned (but 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 (1) 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; and
(2) unless all of the following conditions are satisfied: (i) the
Interests being assigned by the assignor shall consist of at least five (5)
Interests (in the case of an IRA, two (2) Interests or such higher number of
Interests as may be required by applicable state law) and if the assignor shall
assign less than all of his Interests, such assignor shall retain at least five
(5) Interests (in the case of an IRA, two (2) Interests or such higher number
of Interests as may be required by applicable state law); (ii) the assignor and
assignee shall execute and acknowledge such other instruments as the General
Partner reasonably deems necessary or desirable to effect such assignment
including, but not limited to, evidence of the assignee's compliance with
suitability standards imposed by the Partnership and applicable "Blue Sky"
laws; and (iii) the Partnership shall have received from the assignor or
assignee a transfer fee to cover all reasonable expenses of the transfer,
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including, without limitation, all legal expenses, not to exceed Two Hundred
Dollars ($200) per transaction, but such transfer may be waived by the General
Partner, in its sole discretion.
9.2 Substituted Limited Partners. In addition to the restrictions on
sales, assignments, transfers, encumbrances and other dispositions 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
or such higher number of Interests as may be required by applicable
state law) and, if the assignor shall retain any Interests, such
assignor shall retain at least five (5) Interests (in the case of
an IRA, two (2) Interests or such higher number of Interests as
may be required by applicable state law);
(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 the
recipient of the provisions of this Agreement and his execution,
acknowledgement 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 calendar quarter
following the calendar quarter in which the Partnership shall have received the
written assignment instrument executed by the assignor in form and substance
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reasonably satisfactory to the General Partner and other documents reasonably
deemed necessary or appropriate by the General Partner.
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 from 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, 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,
misconduct 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 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.
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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.
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) December 31, 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, 2022.
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.
(c) For the 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.
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(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 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 Properties, 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.
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.
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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
furnish 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).
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 amounts 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.
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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.
Notwithstanding anything to the contrary in Section 8.3, in the event Treasury
regulations under the 1982 Act are promulgated or the withholding provisions of
the 1982 Act are amended to provide that interest payable to the Partnership is
not subject to withholding tax, the General Partner is hereby authorized in its
discretion to amend this Agreement without the vote or concurrence of any of
the Limited Partners to provide for the making of such distributions and
allocations which will, to the extent practicable, treat the amounts withheld
with respect to the income allocable to the Taxable Limited Partners (as
defined below) as a cash distribution to them and to distribute to the
Tax-Exempt Limited Partners (as defined below) an amount equal to the product
of the withholding tax rate and their proportionate share of interest income,
and in the discretion of the General Partner, to make such other amendments to
this Agreement so as to fairly give effect to such regulations or amendment to
the 1982 Act. Notwithstanding anything to the contrary in Section 8.3, in the
event Treasury regulations under the 1982 Act are promulgated or the
withholding provisions of the 1982 Act are amended to provide that while
interest payable to the Partnership is subject to withholding tax, an amount
equal to the distributive share of such income allocable to the Tax-Exempt
Limited Partners (as defined below) is exempt from withholding tax, the General
Partner is hereby authorized in its discretion to amend this Agreement, without
the concurrence or vote of any of the Limited Partners, to provide for the
following allocations and distributions. Each Limited Partner will be treated
as having been allocated an amount equal to his allocable share of the entire
amount of interest earned by the Partnership including the amount of taxes
withheld by the payor of such interest to the Partnership. The tax withheld
will be allocated to the capital accounts of the Taxable Limited Partners (as
defined below) and will be treated as a distribution to those Partners. In
addition, the General Partner, may, in its discretion, make such other
amendments to this Agreement so as to fairly give effect to such regulations or
amendment to the 1982 Act. "Tax-Exempt Limited Partners" shall mean Limited
Partners which are not subject to Federal income tax or which are exempt from
the withholding requirements of the 1982 Act. "Taxable Limited Partners" shall
mean Limited Partners which are not Tax-Exempt Limited Partners. 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.
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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.
(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 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.
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.
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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.
17.8 Section 48(q)(4) Election. Limited Partners which are corporations
hereby authorize the General Partner in its discretion to elect on their
behalf under Section 48(q)(4) of the Code, and to execute, acknowledge and file
on their behalf all such documents as may be necessary or desirable in that
connection.
17.9 Acquisition Schedule; Suitability Reports. (a) Within thirty (30) days
after completion of the last acquisition of properties by the Partnership, the
General Partner shall forward to the Commissioner of Corporations of the State
of California a schedule, verified under penalty of perjury, reflecting (i)
each acquisition made; (ii) the purchase price paid; (iii) the aggregate of all
Acquisition Fees paid on each transaction; and (iv) a computation showing
compliance with Rule 260.140.113.3 of the Department of Corporations of the
State of California. (b) The General Partner shall maintain records confirming
that Limited Partners resident in the State of California have either (i) a net
worth (exclusive of home, home furnishings and personal automobiles) of at
least $75,000 and an annual gross income (without regard to investment in the
Partnership) during the current tax year of at least $75,000 or (ii) a net
worth (as computed above) of not less than $300,000.
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 Properties, Inc.
By /s/ A. George Kallop
A. George Kallop,
President
Initial Limited Partner
By /s/ William M. Kahn
William M. Kahn
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SCHEDULE A
Capital
General Partner: Contribution
Shearson/BK Properties, 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
<PAGE>
