SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Under Section 13 or 15(d)
Of The Securities Exchange Act Of 1934
For the Fiscal Year Ended: December 31, 1996
Commission file number: 0-16555
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
(Name of Small Business Issuer in its Charter)
State of Minnesota 41-1571166
(State or other Jurisdiction of (I.R.S. Employer)
Incorporation or Organization) Identification No.)
1300 Minnesota World Trade Center, St. Paul, Minnesota 55101
(Address of Principal Executive Offices)
(612) 227-7333
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
(Title of class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No
Check if disclosure of delinquent filers in response to Rule 405
of Regulation S-B is not contained in this Form, and no
disclosure will be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The Issuer's revenues for year ended December 31, 1996 were
$1,050,609.
As of February 28, 1997, there were 13,994.70 Units of limited
partnership interest in the registrant outstanding and owned by
nonaffiliates of the registrant, which Units had an aggregate
market value (based solely on the price at which they were sold
since there is no ready market for such Units) of $13,994,700.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant has not incorporated any documents by reference
into this report.
Transitional Small Business Disclosure Format:
Yes No [X]
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
AEI Real Estate Fund XVI Limited Partnership (the
"Partnership" or the "Registrant") is a limited partnership which
was organized pursuant to the laws of the State of Minnesota on
February 6, 1987. The registrant is comprised of AEI Fund
Management XVI, Inc. (AFM) as Managing General Partner, Robert P.
Johnson as the Individual General Partner, and purchasers of
partnership units as Limited Partners. The Partnership offered
for sale up to $15,000,000 of limited partnership interests (the
"Units") (15,000 Units at $1,000 per Unit) pursuant to a
registration statement effective December 15, 1986. The
Partnership commenced operations on February 6, 1987 when minimum
subscriptions of 2,000 Limited Partnership Units ($2,000,000)
were accepted. The Partnership's offering terminated November 6,
1987 when the maximum subscription limit of 15,000 Limited
Partnership Units ($15,000,000) was reached.
The Partnership was organized to acquire, initially on a
debt-free basis, existing and newly constructed commercial
properties located in the United States, to lease such properties
to tenants under triple net leases, to hold such properties and
to eventually sell such properties. From subscription proceeds,
the Partnership purchased twenty properties, including partial
interests in eleven properties, totaling $12,910,857. The
balance of the subscription proceeds was applied to organization
and syndication costs, working capital reserves and
distributions, which represented a return of capital. The
properties are all commercial, single tenant buildings leased
under triple net leases.
The Partnership will hold its properties until the General
Partners determine that the sale or other disposition of the
properties is advantageous in view of the Partnership's
investment objectives. In deciding whether to sell properties,
the General Partners will consider factors such as potential
appreciation, net cash flow and income tax considerations. In
addition, certain lessees have been granted options to purchase
properties after a specified portion of the lease term has
elapsed. It is anticipated that the Partnership will sell its
properties within twelve years after acquisition. At any time
prior to selling the properties, the Partnership may mortgage one
or more of its properties in amounts not exceeding 50% of the of
the fair market value of the property.
Leases
Although there are variations in the specific terms of the
leases, the following is a summary of the general terms of the
Partnership's leases. The properties are leased to various
tenants under noncancelable triple net leases, which are
classified as operating leases. Under a triple net lease, the
lessee is responsible for all real estate taxes, insurance,
maintenance, repairs and operating expenses for the property.
The initial lease terms are for 10 to 20 years. The leases
provide for base annual rental payments, payable in monthly
installments, and contain rent clauses which entitle the
Partnership to receive additional rent in future years based on
stated rent increases or if gross receipts for the property
exceed certain specified amounts, among other conditions.
Several of the leases provide the lessee with two to three
five-year renewal options subject to the same terms and
conditions as the initial lease. Certain lessees have been
granted options to purchase the property. Depending on the
lease, the purchase price is either determined by a formula, or
is the greater of the fair market value of the property or the
amount determined by a formula. In all cases, if the option were
to be exercised by the lessee, the purchase price would be
greater than the original cost of the property.
ITEM 1. DESCRIPTION OF BUSINESS. (Continued)
The Partnership owned a 30.8078% interest in a Sizzler
restaurant at the King's Island Theme Park near Cincinnati, Ohio.
In January, 1994, the Partnership closed the restaurant and
listed it for sale or lease. On January 23, 1997, the
Partnership sold its interest in the property to an unrelated
third party. The Partnership received net sales proceeds of
approximately $149,000, which resulted in a net loss of
approximately $216,300, which was recognized as a real estate
impairment in 1996. Prior to the sale, the Partnership was
responsible for the real estate taxes and other costs required to
maintain the property. No rent was received in 1996 or 1995 from
the property.
In June, 1994, Fuddruckers, Inc., the restaurant concept's
franchisor, acquired the operations of the Fuddruckers
restaurants in St. Louis, Missouri and Omaha, Nebraska, and
assumed the lease obligations from the original lessee. As part
of the agreement, the Partnership amended the Leases to reduce
the base rent. In consideration for the lease assumption and
amendment, the Partnership received a lump sum payment from the
original lessee of $299,723. Fuddruckers, Inc. is owned by DAKA
International, which has a net worth in excess of $77 million at
December 28, 1996, making it a much higher credit lessee than the
original lessee.
The Partnership owns a 35% interest in a J.T. McCord's
restaurant in Mesquite, Texas and a 100% interest in a J.T.
McCord's restaurant in Irving, Texas. In December, 1995, the
Partnership took possession of the properties after the lessee
was unable to perform under the terms of the Lease. In March,
1997, the restaurant in Mesquite was re-leased to Texas Sports
City Cafe, Ltd. under a triple net lease agreement with a primary
term of 12 years which may be renewed for up to two consecutive
five-year periods. The Partnership's share of the annual base
rent is $17,500 for the first lease year and $31,500 for the
second lease year, with rent increases in each subsequent lease
year of either three percent of the prior year's rent or three
percent of gross receipts in years two and three and six percent
of gross receipts thereafter, to the extent they exceed the base
rent. The property in Irving is currently listed for sale or
lease. While the properties are being re-leased or sold, the
Partnership is responsible for the real estate taxes and other
costs required to maintain the properties.
The Partnership also owns a 55.0958% interest in a J.T.
McCord's restaurant in Waco, Texas, which was previously closed.
In June 1995, the Partnership re-leased the restaurant to Tex-Mex
Cocina of Waco, L.C. The Lease Agreement has a primary term of
eighteen months with an annual rental payment of $29,752. The
Partnership could also receive additional rent if gross receipts
from the property exceed certain specified amounts. The Lease
contains renewal options which may extend the lease term an
additional 10 years. The property is now operated as a Zapata's
Cantina & Cafe.
In July, 1996, the Partnership entered into an agreement
to sell the J.T. McCord's in Mesquite, Texas to an unrelated
third party. In September, 1996, the Agreement was terminated by
the purchaser.
In December, 1994, the lessee of the Applebee's restaurant
in Charleston, South Carolina, exercised an option in the Lease
Agreement to purchase the property. On December 15, 1994, the
sale closed with the Partnership receiving net sale proceeds of
$1,613,288 which resulted in a net gain of $691,525. At the time
of sale, the cost and related accumulated depreciation of the
property was $1,126,780 and $205,017, respectively.
ITEM 1. DESCRIPTION OF BUSINESS. (Continued)
In March, 1995, the lessee of the Applebee's restaurant in
Columbia, South Carolina, exercised an option in the Lease
Agreement to purchase the property. On July 28, 1995, the sale
closed with the Partnership receiving net sale proceeds of
$990,453 which resulted in a net gain of $437,915. At the time
of sale, the cost and related accumulated depreciation of the
property was $723,823 and $171,285, respectively.
On October 25, 1995, the Partnership sold two of the Jiffy
Lube Auto Care Centers to the lessee. The Partnership recognized
net sale proceeds of $322,443, which resulted in a net gain of
$80,500 for the Jiffy Lube in Garland, Texas. At the time of
sale, the cost and related accumulated depreciation of the
property was $301,884 and $59,941, respectively. The Partnership
recognized net sale proceeds of $161,218, which resulted in a net
gain of $35,705 for one of the Jiffy Lube's in Dallas, Texas. At
the time of sale, the cost and related accumulated depreciation
of the property was $154,781 and $29,268.
In July 1995, the lessee of the Super 8 Motel in Hot
Springs, Arkansas, exercised an option in the Lease Agreement to
purchase the property. On March 29, 1996, the sale closed with
the Partnership receiving net sale proceeds of $663,386 which
resulted in a net gain of $215,017. The Partnership recognized
$18,534 of this gain in 1995 due to nonrefundable deposits
received from the purchaser. At the time of sale, the cost and
related accumulated depreciation of the property was $583,653 and
$135,284, respectively.
In January, 1996, the Cheddar's restaurant in
Indianapolis, Indiana was destroyed by a fire. The Partnership
reached an agreement with the tenant and insurance company which
calls for termination of the Lease, demolition of the building
and payment to the Partnership of $407,282 for the building and
equipment and $49,688 for lost rent. The property will not be
rebuilt and the Partnership listed the land for sale. The
Partnership recognized net disposition proceeds of $406,892 which
resulted in a net gain of $88,207. At the time of disposition,
the cost and related accumulated depreciation was $496,967 and
$178,282, respectively. The Partnership's cost of the land is
$253,747.
In November, 1995, the Partnership entered into an
Agreement to purchase an Applebee's restaurant in Victoria,
Texas. The property was acquired on March 22, 1996 for
$1,335,555. The property is leased to Renaissant Development
Corporation under a Lease Agreement with a primary term of 20
years and annual rental payments of approximately $151,000.
In August, 1996, the Partnership entered into an agreement
to purchase a Caribou Coffee store in Atlanta, Georgia. The
purchase price will be approximately $1,231,000. The property
will be leased to Caribou Coffee Company, Inc. under a Lease
Agreement with a primary term of 18 years and annual rental
payments of approximately $141,500. Through December 31, 1996,
the Partnership had advanced $701,662 for the construction of the
property and was charging interest on the Note at the rate of
7.0%. The Partnership has incurred net costs of $20,933 related
to the acquisition of the property. The costs have been
capitalized and will be allocated to land, building and
equipment.
ITEM 1. DESCRIPTION OF BUSINESS. (Continued)
Major Tenants
During 1996, five of the Partnership's lessees each
contributed more than ten percent of the Partnership's total
rental revenue. The major tenants in aggregate contributed 71%
of the Partnership's total rental revenue in 1996. It is
anticipated that, based on the minimum rental payments required
under the leases, each major tenant will continue to contribute
more than ten percent of the Partnership's total rental revenue
in 1997 and future years. Any failure of these major tenants or
business concepts could materially affect the Partnership's net
income and cash distributions.
Competition
The Partnership is a minor factor in the commercial real
estate business. There are numerous entities engaged in the
commercial real estate business which have greater financial
resources than the Partnership. At the time the Partnership
elects to dispose of its properties, the Partnership will be in
competition with other persons and entities to find buyers for
its properties.
Employees
The Partnership has no direct employees. Management
services are performed for the Partnership by AEI Fund
Management, Inc., an affiliate of AFM.
ITEM 2. DESCRIPTION OF PROPERTIES.
Investment Objectives
The Partnership's investment objectives are to acquire
existing or newly-developed commercial properties throughout the
United States that offer the potential for (i) preservation and
protection of the Partnership's capital; (ii) partially tax-
deferred cash distributions from operations which may increase
through rent participation clauses or mandated rent increases;
and (iii) long-term capital gains through appreciation in value
of the Partnership's properties realized upon sale. The
Partnership does not have a policy, and there is no limitation,
as to the amount or percentage of assets that may be invested in
any one property. However, to the extent possible, the General
Partners attempt to diversify the type and location of the
Partnership's properties.
Description of Properties
The Partnership's properties are all commercial, single
tenant buildings. All the properties were acquired on a debt-
free basis and are leased to various tenants under noncancelable
triple net leases, which are classified as operating leases. The
Partnership holds an undivided fee simple interest in the
properties. At any time prior to selling the properties, the
Partnership may mortgage one or more of its properties in amounts
not exceeding 50% of the fair market value of the property.
ITEM 2. PROPERTIES. (Continued)
The Partnership's properties are subject to the general
competitive conditions incident to the ownership of single tenant
investment real estate. Since each property is leased under a
long-term lease, there is little competition until the
Partnership decides to sell the property. At this time, the
Partnership will be competing with other real estate owners, on
both a national and local level, in attempting to find buyers for
the properties. In the event of a tenant default, the
Partnership would be competing with other real estate owners, who
have property vacancies, to attract a new tenant to lease the
property. The Partnership's tenants operate in industries that
are very competitive and can be affected by factors such as
changes in regional or local economies, seasonality and changes
in consumer preference.
The following table is a summary of the properties that
the Partnership acquired and owned as of December 31, 1996.
<TABLE>
<C> <S> <S> <S> <S> <S>
Total Property Annual Annual
Purchase Acquisition Lease Rent Per
Property Date Costs Lessee Payment Sq. Ft.
Creative Years Early Creative Years
Learning Center Early Learning
Houston, TX 4/8/87 $ 483,128 Centers, Inc. $ 62,596 $ 9.09
Grand Rapids Teachers Grand Rapids
Credit Union Teachers
Wyoming, MI 5/1/87 $ 626,239 Credit Union $ 32,370 $ 9.37
Arby's Restaurant RTM Mid-
Grand Rapids, MI 5/1/87 $ 652,880 America, Inc. $ 24,000 $ 6.89
Fuddruckers Restaurant
Omaha, NE 11/16/87 $ 1,151,543 Fuddruckers, Inc.$ 145,081 $ 20.94
Children's World
Daycare Center Children's
Sterling Heights, MI World Learning
(83.6514%) 11/25/87 $ 729,486 Centers, Inc. $ 105,117 $ 20.35
Jiffy Lube Auto Care Center
Westmoreland Avenue Jiffy Lube
Dallas, TX International of
(25%) 12/10/87 $ 154,891 of Maryland, Inc.$ 18,975 $ 28.43
JEMCARE
Arkansas Lane
Arlington, TX 12/10/87 $ 450,475 JEMCARE, Inc. $ 53,451 $ 10.61
Zapata's Cantina & Cafe
Waco, TX Tex-Mex Cocina
(55.0958%) 12/16/87 $ 674,285 of Waco, L.C. $ 29,752 $ 8.89
J.T. McCord's Restaurant
Irving, TX 12/16/87 $ 1,147,333 (F1)
J.T. McCord's Restaurant Texas
Mesquite, TX Sports City
(35%) (1) 12/16/87 $ 520,109 Cafe, Ltd. $ 17,500 $ 7.07
JEMCARE
Matlock Avenue
Arlington, TX 12/16/87 $ 603,641 JEMCARE, Inc. $ 44,570 $ 6.47
Cheddar's Restaurant
Indianapolis, IN
(50%) 2/16/88 $ 253,747 (F2)
Fuddruckers Restaurant
St. Louis, MO
(40%) 3/25/88 $ 761,053 Fuddruckers, Inc.$ 92,164 $ 26.40
Sizzler Restaurant
Cincinnati, OH
(30.8078%) 1/30/90 $ 468,140 (F3)
Applebee's Restaurant Southland Restaurant
Slidell, LA Development
(73%) 5/5/93 $ 746,465 Company, L.L.C. $ 107,524 $ 32.15
Renaissant
Applebee's Restaurant Development
Victoria, TX 3/22/96 $ 1,335,555 Corp. $ 151,110 $ 30.26
<F1> The property is vacant and listed for sale or lease. The
Mesquite property was re-leased
March 15, 1997.
<F2> The property was destroyed by fire and the land is listed for
sale.
<F3> Property held for sale was sold on January 23, 1997.
</TABLE>
The properties listed above with a partial ownership
percentage are owned with affiliates of the Partnership. AEI
Real Estate Fund 85-B Limited Partnership owns the remaining
interest in the Children's World Daycare Center in Sterling
Heights, Michigan. AEI Real Estate Fund XV Limited Partnership
owns the remaining interest in the restaurant in Waco, Texas, and
the Fuddrucker's restaurant in St. Louis, Missouri. AEI Real
Estate Fund XVII Limited Partnership owns the remaining interests
in the Jiffy Lube property, the J.T. McCord's restaurant in
Mesquite, Texas, and the Cheddar's restaurant. AEI Real Estate
Funds XVII and XVIII Limited Partnerships own the remaining
interest in the Sizzler restaurant. AEI Real Estate Fund XVIII
Limited Partnership owns the remaining interest in the Applebee's
restaurant in Slidell, Louisiana.
Each Partnership owns a separate, undivided interest in
the properties. No specific agreement or commitment exists
between the Partnerships as to the management of their respective
interests in the properties, and the Partnership that holds more
than a 50% interest does not control decisions over the other
Partnership's interest.
ITEM 2. PROPERTIES. (Continued)
The initial Lease terms are 20 years except for the
Houston daycare center, the JEMCARE properties (10 years), the
Credit Union (11 years), the Arby's (15 years), and the Waco
property discussed below. Several of the Leases have renewal
options which may extend the Lease term an additional 9 to 15
years.
The Partnership acquired lease guarantee insurance from
United Guaranty Commercial Insurance Company of Iowa for the
three J.T. McCord's, the Houston, Texas daycare center, and one
of the Arlington, Texas daycare centers. The policies insure
approximately 80% of the annual payments for periods of ten years
for the daycare centers and a twelve month period (over seven
years) for the other properties. The rent guarantee begins
thirty days after the occurrence of all the following: (1) the
lessee is at least thirty days in default in the payment of rent;
(2) the lessee has been removed from the property; (3) the
property has been listed for rent with a real estate broker and
"For Rent" signs have been posted on the property; and (4)
certain other minor conditions. Once these conditions have been
satisfied, the Partnership will receive lease insurance payments
until either the property is re-leased or the policy expires. On
December 15, 1994, the policies on the J.T. McCord's expired.
Pursuant to the Lease Agreements, the tenants are required
to provide proof of adequate insurance coverage on the properties
they occupy. The General Partners believe the properties are
adequately covered by insurance and consider the properties to be
well-maintained and sufficient for the Partnership's operations.
For tax purposes, the Partnership's properties are
depreciated under the Modified Accelerated Cost Recovery System
(MACRS). The largest depreciable component of a property is the
building which is depreciated, using the straight-line method,
over 31.5 or 40 years depending on the date when it was placed in
service. The remaining depreciable components of a property are
personal property and land improvements which are depreciated,
using an accelerated method, over 5 and 15 years, respectively.
Since the Partnership has tax-exempt Partners, the Partnership is
subject to the rules of Section 168(h)(6) of the Internal Revenue
Code which requires a percentage of the properties' depreciable
components to be depreciated over longer lives using the straight-
line method. In general the federal tax basis of the properties
for tax depreciation purposes is the same as the basis for book
depreciation purposes.
During the last five years or since the date of purchase,
if purchased after December 31, 1991, all properties were 100
percent occupied by the lessees noted, with the exception of the
Sizzler property, which was 100 percent occupied until January,
1994, the J.T. McCord's properties, which were 100 percent
occupied until December, 1995, and the Cheddar's property, which
was 100 perent occupied until January, 1996. In June, 1995, the
Partnership re-leased the J.T. McCord's, Waco property. The
Sizzler property, the Irving J.T. McCord's, and Mesquite J.T.
McCord's have been 100% vacant since January, 1994, December,
1995, and December 1995, respectively. The Mesquite J.T.
McCord's was re-leased on March 15, 1997.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND
RELATED SECURITY HOLDER MATTERS.
As of December 31, 1996, there were 1,514 holders of
record of the registrant's Limited Partnership Units. There is
no other class of security outstanding or authorized. The
registrant's Units are not a traded security in any market.
However, the Partnership may purchase Units from Limited Partners
who have tendered their Units to the Partnership. Such Units may
be acquired at a discount. The Partnership is not obligated to
purchase in any year more than 5% of the total number of Units
outstanding at the beginning of the year. In no event shall the
Partnership be obligated to purchase Units if, in the sole
discretion of the Managing General Partner, such purchase would
impair the capital or operation of the Partnership.
During 1996, thirteen Limited Partners redeemed a total of
113 Partnership Units for $69,640 in accordance with the
Partnership Agreement. In prior years, a total of seventy-seven
Limited Partners redeemed 892.3 Partnership Units for $715,655.
The redemptions increase the remaining Limited Partners'
ownership interest in the Partnership.
Cash distributions of $9,189 and $10,531 were made to the
General Partners and $840,000 and $962,829 were made to the
Limited Partners in 1996 and 1995, respectively. The
distributions were made on a quarterly basis and represent Net
Cash Flow, as defined, except as discussed below. These
distributions should not be compared with dividends paid on
capital stock by corporations.
As part of the Limited Partner distributions discussed
above, the Partnership distributed $692,793 and $643,138 of
proceeds from property sales in 1996 and 1995, respectively. The
distributions reduced the Limited Partners' Adjusted Capital
Contributions.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
Results of Operations
For the years ended December 31, 1996 and 1995, the
Partnership recognized rental income of $973,784 and $1,009,008,
respectively. During the same periods, the Partnership earned
investment income of $76,825 and $77,846, respectively. In 1996,
rental income decreased as a result of the property sales
discussed below and no rental income was recognized for the J.T.
McCord's properties in Irving and Mesquite, Texas. The decrease
in rental income was partially offset by rental income received
from re-leasing the property in Waco, Texas, rental income
received from the Applebee's in Victoria, Texas, and rent
increases on six properties.
In May, 1990, Flagship, Inc. (Flagship), the lessee of the
J.T. McCord's properties, filed for reorganization, after
occupying the properties for approximately five years. In March,
1993, the Partnership, along with affiliated Partnerships which
also own J.T. McCord's properties, filed its own plan of
reorganization (the "Plan") with the Court. That Plan provided
for an assignee of the Partnerships (a replacement tenant) to
purchase the assets of Flagship and operate the restaurants with
financial assistance from the Partnerships. This Plan was
expected to allow the Partnerships to avoid closing these
properties, allow operations to continue uninterrupted, and avoid
further costly litigation with Flagship and its creditors. The
Plan was confirmed by the Court and the creditors April 16, 1993
and became effective July 20, 1993.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
To entice the assignee, WIM, Inc. (WIM) to operate the
restaurants and enter into the Lease Agreements, the Partnership
provided funds to renovate the restaurants and paid for operating
expenses. The Partnership's share of renovation and operating
expenses during this period was $755,773, which was expensed in
the fourth quarter of 1994. However, WIM was not able to operate
the properties profitably and was unable to make rental payments
as provided in the Lease Agreements. To reduce expenses and
minimize the losses produced by these properties, the Waco
restaurant was closed and listed for sale or lease and the
Partnership amended the agreements for the Irving and Mesquite
locations to provide for WIM to make annual rental payments of
the greater of $60,000 or 5.5% of sales beginning October 1,
1994. In December, 1995, the Partnership took possession of the
properties after WIM was unable to perform under the terms of the
Leases. The properties are currently listed for sale or lease.
While the properties are being re-leased or sold, the Partnership
is responsible for the real estate taxes and other costs required
to maintain the properties.
As part of the Plan, the Partnerships, which own these
properties, were responsible for an annual payment to the
Creditors Trust of approximately $110,000 for the next five
years. The Partnership's share of the annual payment was
$69,702. In 1994, the Partnership expensed $302,652 to record
this liability and administrative costs related to the
bankruptcy.
In 1995, the Partnership negotiated a settlement, with the
trustee, for a lump sum payment of the minimum amount due over
the remaining term of the Plan for release of the Partnership and
WIM from any other financial obligations and reporting
requirements to the trustee. The settlement of $215,442 was
completed in the fourth quarter of 1995.
In June 1995, the Partnership re-leased the Waco property
to Tex-Mex Cocina of Waco, L.C. The Lease Agreement has a
primary term of eighteen months with an annual rental payment of
$29,752. The Partnership could also receive additional rent if
gross receipts from the property exceed certain specified
amounts. The Lease contains renewal options which may extend the
lease term an additional 10 years. The property is now operated
as a Zapata's Cantina & Cafe.
In July, 1996, the Partnership entered into an agreement
to sell the J.T. McCord's in Mesquite, Texas to an unrelated
third party. In September, 1996, the Agreement was terminated by
the purchaser. The property was listed for sale or lease until
March, 1997 when it was re-leased to Texas Sports City Cafe, Ltd.
under a triple net lease agreement with a primary term of 12
years which may be renewed for up to two consecutive five-year
periods. The Partnership's share of the annual base rent is
$17,500 for the first lease year and $31,500 for the second lease
year, with rent increases in each subsequent lease year of either
three percent of the prior year's rent or three percent of gross
receipts in years two and three and six percent of gross receipts
thereafter, to the extent they exceed the base rent.
The Partnership owned a 30.8078% interest in a Sizzler
restaurant at the King's Island Theme Park near Cincinnati, Ohio.
In January, 1994, the Partnership closed the restaurant and
listed it for sale or lease. On January 23, 1997, the
Partnership sold its interest in the property to an unrelated
third party. The Partnership received net sales proceeds of
approximately $149,000, which resulted in a net loss of
approximately $216,300, which was recognized as a real estate
impairment in 1996. Prior to the sale, the Partnership was
responsible for the real estate taxes and other costs required to
maintain the property. No rent was received in 1996 or 1995 from
the property. At December 31, 1996, the property was classified
on the balance sheet as Real Estate Held for Sale.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
In June, 1994, Fuddruckers, Inc., the restaurant concept's
franchisor, acquired the operations of the Fuddruckers
restaurants in St. Louis, Missouri and Omaha, Nebraska, and
assumed the lease obligations from the original lessee. As part
of the agreement, the Partnership amended the Leases to reduce
the base rent from $109,033 to $92,164 for the St. Louis property
and $167,699 to $145,081 for the Omaha property. The Partnership
could receive additional rent in the future if 10% of gross
receipts from the properties exceed the base rent. In
consideration for the lease assumption and amendment, the
Partnership received a lump sum payment from the original lessee
of $299,723. The lump sum payment will be recognized as income
over the remainder of the Lease terms which expire January 31,
2008 and November 30, 2007, using the straight line method.
Fuddruckers, Inc. is owned by DAKA International, which has a net
worth in excess of $77 million at December 28, 1996, making it a
much higher credit lessee than the original lessee.
During the years ended December 31, 1996 and 1995, the
Partnership paid Partnership administration expenses to
affiliated parties of $202,324 and $223,782, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and correspondence to the Limited Partners. During
the same periods, the Partnership incurred Partnership
administration and property management expenses from unrelated
parties of $130,473 and $138,202, respectively. These expenses
represent direct payments to third parties for legal and filing
fees, direct administrative costs, outside audit and accounting
costs, taxes, insurance and other property costs.
As of December 31, 1996, the Partnership's annualized cash
distribution rate was 6.5%, based on the Adjusted Capital
Contribution. Distributions of Net Cash Flow to the General
Partners were subordinated to the Limited Partners as required in
the Partnership Agreement. As a result, 99% of distributions
were allocated to Limited Partners and 1% to the General
Partners.
Inflation has had a minimal effect on income from
operations. It is expected that increases in sales volumes of
the tenants, due to inflation and real sales growth, will result
in an increase in rental income over the term of the leases.
Inflation also may cause the Partnership's real estate to
appreciate in value. However, inflation and changing prices may
also have an adverse impact on the operating margins of the
properties' tenants which could impair their ability to pay rent
and subsequently reduce the Partnership's Net Cash Flow available
for distributions.
Liquidity and Capital Resources
During 1996, the Partnership's cash balances decreased
$1,228,532. Net Cash provided by operating activities increased
from $543,413 in 1995 to $681,414 in 1996 mainly as a result of
net timing differences in the collection of payments from lessees
and the payment of expenses. In 1996 and 1995, net cash income
before depreciation and real estate impairment was approximately
the same. The reduction in revenue in 1996, when compared to
1995, was offset by a reduction in expenses in 1996.
The major components of the Partnership's cash flow from
investing activities are investments in real estate and proceeds
from the sale of real estate. In 1996 and 1995, the Partnership
generated cash flow from the sale of real estate, as discussed
below, of $1,051,744 and $1,455,148, respectively. During the
same periods, the Partnership expended $2,043,337 and $14,813,
respectively, to invest in real properties (inclusive of
acquisition expenses) as the Partnership reinvested the cash
generated from the property sales.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
In March, 1995, the lessee of the Applebee's restaurant in
Columbia, South Carolina, exercised an option in the Lease
Agreement to purchase the property. On July 28, 1995, the sale
closed with the Partnership receiving net sale proceeds of
$990,453 which resulted in a net gain of $437,915. At the time
of sale, the cost and related accumulated depreciation of the
property was $723,823 and $171,285, respectively.
On October 25, 1995, the Partnership sold two of the Jiffy
Lube Auto Care Centers to the lessee. The Partnership recognized
net sale proceeds of $322,443, which resulted in a net gain of
$80,500 for the Jiffy Lube in Garland, Texas. At the time of
sale, the cost and related accumulated depreciation of the
property was $301,884 and $59,941, respectively. The Partnership
recognized net sale proceeds of $161,218, which resulted in a net
gain of $35,705 for one of the Jiffy Lube's in Dallas, Texas. At
the time of sale, the cost and related accumulated depreciation
of the property was $154,781 and $29,268.
In July 1995, the lessee of the Super 8 Motel in Hot
Springs, Arkansas, exercised an option in the Lease Agreement to
purchase the property. On March 29, 1996, the sale closed with
the Partnership receiving net sale proceeds of $663,386 which
resulted in a net gain of $215,017. The Partnership recognized
$18,534 of this gain in 1995 due to nonrefundable deposits
received from the purchaser. At the time of sale, the cost and
related accumulated depreciation of the property was $583,653 and
$135,284, respectively.
In January, 1996, the Cheddar's restaurant in
Indianapolis, Indiana was destroyed by a fire. The Partnership
reached an agreement with the tenant and insurance company which
calls for termination of the Lease, demolition of the building
and payment to the Partnership of $407,282 for the building and
equipment and $49,688 for lost rent. The property will not be
rebuilt and the Partnership listed the land for sale. The
Partnership recognized net disposition proceeds of $406,892 which
resulted in a net gain of $88,207. At the time of disposition,
the cost and related accumulated depreciation was $496,967 and
$178,282, respectively. The Partnership's cost of the land is
$253,747.
During 1996 and 1995, the Partnership distributed $699,791
and $730,214, respectively, of the net sale proceeds to the
Limited and General Partners as part of their regular quarterly
distributions and to pay for the redemption of Partnership Units.
The distributions represented a return of capital of $49.17 and
$50.98 per Limited Partnership Unit, respectively. The majority
of the remaining net proceeds will be reinvested in additional
properties.
In November, 1995, the Partnership entered into an
agreement to purchase an Applebee's restaurant in Victoria,
Texas. The property was acquired on March 22, 1996 for
$1,335,555. The property is leased to Renaissant Development
Corporation under a Lease Agreement with a primary term of 20
years and annual rental payments of approximately $151,000.
In August, 1996, the Partnership entered into an agreement
to purchase a Caribou Coffee store in Atlanta, Georgia. The
purchase price will be approximately $1,231,000. The property
will be leased to Caribou Coffee Company, Inc. under a Lease
Agreement with a primary term of 18 years and annual rental
payments of approximately $141,500. Through December 31, 1996,
the Partnership had advanced $701,662 for the construction of the
property and was charging interest on the Note at the rate of
7.0%. The Partnership has incurred net costs of $20,933 related
to the acquisition of the property. The costs have been
capitalized and will be allocated to land, building and
equipment.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Partnership's primary use of cash flow is distribution
and redemption payments to Partners. The Partnership declares
its regular quarterly distributions before the end of each
quarter and pays the distribution in the first week after the end
of each quarter. The Partnership attempts to maintain a stable
distribution rate from quarter to quarter. Redemption payments
are paid to redeeming Partners in the fourth quarter of each
year. The redemption payments generally are funded with cash
that would normally be paid as part of the regular quarterly
distributions. As a result, total distributions and
distributions payable have fluctuated from year to year due to
cash used to fund redemption payments. Effective October 1,
1995, the Partnership's distribution rate was reduced from 7% to
6%. As a result, distributions during 1995 were higher when
compared to the same period in 1996.
The Partnership may acquire Units from Limited Partners
who have tendered their Units to the Partnership. Such Units may
be acquired at a discount. The Partnership is not obligated to
purchase in any year more than 5% of the number of Units
outstanding at the beginning of the year. In no event shall the
Partnership be obligated to purchase Units if, in the sole
discretion of the Managing General Partner, such purchase would
impair the capital or operation of the Partnership.
During 1996, thirteen Limited Partners redeemed a total of
113 Partnership Units for $69,640 in accordance with the
Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. In prior years, a total of
seventy-seven Limited Partners redeemed 892.3 Partnership Units
for $715,655. The redemptions increase the remaining Limited
Partners' ownership interest in the Partnership.
The continuing rent payments from the properties, together
with cash generated from the property sales, should be adequate
to fund continuing distributions and meet other Partnership
obligations on both a short-term and long-term basis.
ITEM 7. FINANCIAL STATEMENTS.
See accompanying Index to Financial Statements.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
Independent Auditor's Report
Balance Sheet as of December 31, 1996 and 1995
Statements for the Years Ended December 31, 1996 and 1995:
Income
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
INDEPENDENT AUDITOR'S REPORT
To the Partners:
AEI Real Estate Fund XVI Limited Partnership
St. Paul, Minnesota
We have audited the accompanying balance sheet of AEI REAL
ESTATE FUND XVI LIMITED PARTNERSHIP (a Minnesota limited
partnership) as of December 31, 1996 and 1995 and the related
statements of income, cash flows and changes in partners' capital
for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of AEI Real Estate Fund XVI Limited Partnership as of December
31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended, in conformity with generally
accepted accounting principles.
Minneapolis, Minnesota /s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.
January 31, 1997 Certified Public Accountants
<PAGE>
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31
ASSETS
1996 1995
CURRENT ASSETS:
Cash and Cash Equivalents $ 645,302 $ 1,873,834
Receivables 17,284 54,661
----------- -----------
Total Current Assets 662,586 1,928,495
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 3,446,635 3,537,198
Buildings and Equipment 6,590,448 6,966,837
Construction Advances 701,662 0
Property Acquisition Costs 20,933 14,813
Accumulated Depreciation (2,148,068) (2,274,424)
----------- -----------
8,611,610 8,244,424
Real Estate Held for Sale 403,073 0
----------- -----------
Net Investments in Real Estate 9,014,683 8,244,424
----------- -----------
Total Assets $ 9,677,269 $10,172,919
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 102,082 $ 153,644
Distributions Payable 190,647 190,172
Deferred Income 22,212 22,212
----------- -----------
Total Current Liabilities 314,941 366,028
----------- -----------
DEFERRED INCOME - Net of Current Portion 221,981 244,193
PARTNERS' CAPITAL (DEFICIT):
General Partners (37,794) (33,570)
Limited Partners, $1,000 Unit value;
15,000 Units authorized and issued;
13,995 and 14,108 outstanding in 1996
and 1995, respectively 9,178,141 9,596,268
----------- -----------
Total Partners' Capital 9,140,347 9,562,698
----------- -----------
Total Liabilities and Partners' Capital $ 9,677,269 $10,172,919
=========== ===========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 3l
1996 1995
INCOME:
Rent $ 973,784 $ 1,009,008
Investment Income 76,825 77,846
----------- -----------
Total Income 1,050,609 1,086,854
----------- -----------
EXPENSES:
Partnership Administration - Affiliates 202,324 223,782
Partnership Administration and Property
Management - Unrelated Parties 130,473 138,202
Interest 0 12,713
Depreciation 289,724 317,059
Real Estate Impairment 216,300 0
----------- -----------
Total Expenses 838,821 691,756
----------- -----------
OPERATING INCOME 211,788 395,098
GAIN ON SALE OF REAL ESTATE 284,690 572,654
----------- -----------
NET INCOME $ 496,478 $ 967,752
=========== ===========
NET INCOME ALLOCATED:
General Partners $ 4,965 $ 9,678
Limited Partners 491,513 958,074
----------- -----------
$ 496,478 $ 967,752
=========== ===========
NET INCOME PER LIMITED PARTNERSHIP UNIT
(14,079 and 14,196 weighted average Units outstanding
in 1996 and 1995, respectively) $ 34.91 $ 67.49
=========== ===========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 496,478 $ 967,752
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 289,724 317,059
Real Estate Impairment 216,300 0
Gain on Sale of Real Estate (284,690) (572,654)
Decrease in Receivables 37,377 47,996
Increase (Decrease) in Payable to
AEI Fund Management, Inc. (51,562) 41,674
Decrease in Contract Payable 0 (236,202)
Decrease in Deferred Income (22,212) (22,212)
----------- -----------
Total Adjustments 184,937 (424,339)
----------- -----------
Net Cash Provided By Operating Activities 681,415 543,413
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (2,043,337) (14,813)
Proceeds from Sale of Real Estate 1,051,744 1,455,148
----------- -----------
Net Cash Provided By (Used For)
Investing Activities (991,593) 1,440,335
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Distributions Payable 475 60,430
Distributions to Partners (848,485) (972,554)
Redemption Payments (70,344) (80,580)
----------- -----------
Net Cash Used For Financing Activities (918,354) (992,704)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,228,532) 991,044
CASH AND CASH EQUIVALENTS, beginning of period 1,873,834 882,790
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 645,302 $ 1,873,834
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid During the Year $ 0 $ 17,157
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Note Receivable Acquired in Sale of Property $ 0 $ 37,500
=========== ===========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 1994 $ (32,717) $ 9,680,797 $ 9,648,080 14,225.70
Distributions (9,725) (962,829) (972,554)
Redemption Payments (806) (79,774) (80,580) (118.00)
Net Income 9,678 958,074 967,752
---------- ----------- ----------- -----------
BALANCE, December 31, 1995 (33,570) 9,596,268 9,562,698 14,107.70
Distributions (8,485) (840,000) (848,485)
Redemption Payments (704) (69,640) (70,344) (113.00)
Net Income 4,965 491,513 496,478
---------- ----------- ----------- -----------
BALANCE, December 31, 1996 $ (37,794) $ 9,178,141 $ 9,140,347 13,994.70
========== =========== =========== ===========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHlP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1995
(1) Organization -
AEI Real Estate Fund XVI Limited Partnership (Partnership)
was formed to acquire and lease commercial properties to
operating tenants. The Partnership's operations are managed
by AEI Fund Management XVI, Inc. (AFM), the Managing General
Partner of the Partnership. Robert P. Johnson, the
President and sole shareholder of AFM, serves as the
Individual General Partner of the Partnership. An affiliate
of AFM, AEI Fund Management, Inc. (AEI), performs the
administrative and operating functions for the Partnership.
The terms of the Partnership offering call for a
subscription price of $1,000 per Limited Partnership Unit,
payable on acceptance of the offer. The Partnership
commenced operations on February 6, 1987 when minimum
subscriptions of 2,000 Limited Partnership Units
($2,000,000) were accepted. The Partnership's offering
terminated on November 6, 1987 when the maximum subscription
limit of 15,000 Limited Partnership Units ($15,000,000) was
reached.
Under the terms of the Limited Partnership Agreement, the
Limited Partners and General Partners contributed funds of
$15,000,000 and $1,000, respectively. During the operation
of the Partnership, any Net Cash Flow, as defined, which the
General Partners determine to distribute will be distributed
90% to the Limited Partners and 10% to the General Partners;
provided, however, that such distributions to the General
Partners will be subordinated to the Limited Partners first
receiving an annual, noncumulative distribution of Net Cash
Flow equal to 10% of their Adjusted Capital Contribution, as
defined, and, provided further, that in no event will the
General Partners receive less than 1% of such Net Cash Flow
per annum. Distributions to Limited Partners will be made
pro rata by Units.
Any Net Proceeds of Sale, as defined, from the sale or
financing of the Partnership's properties which the General
Partners determine to distribute will, after provisions for
debts and reserves, be paid in the following manner: (i)
first, 99% to the Limited Partners and 1% to the General
Partners until the Limited Partners receive an amount equal
to: (a) their Adjusted Capital Contribution plus (b) an
amount equal to 6% of their Adjusted Capital Contribution
per annum, cumulative but not compounded, to the extent not
previously distributed from Net Cash Flow; (ii) next, 99% to
the Limited Partners and 1% to the General Partners until
the Limited Partners receive an amount equal to 14% of their
Adjusted Capital Contribution per annum, cumulative but not
compounded, to the extent not previously distributed; (iii)
next, to the General Partners until cumulative distributions
to the General Partners under Items (ii) and (iii) equal 15%
of cumulative distributions to all Partners under Items (ii)
and (iii). Any remaining balance will be distributed 85% to
the Limited Partners and 15% to the General Partners.
Distributions to the Limited Partners will be made pro rata
by Units.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHlP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1995
(1) Organization - (Continued)
For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of the Partnership's
property, will be allocated first in the same ratio in
which, and to the extent, Net Cash Flow is distributed to
the Partners for such year. Any additional profits will be
allocated 90% to the Limited Partners and 10% to the General
Partners. In the event no Net Cash Flow is distributed to
the Limited Partners, 90% of each item of Partnership
income, gain or credit for each respective year shall be
allocated to the Limited Partners, and 10% of each such item
shall be allocated to the General Partners. Net losses from
operations will be allocated 98% to the Limited Partners and
2% to the General Partners.
For tax purposes, profits arising from the sale, financing,
or other disposition of the Partnership's property will be
allocated in accordance with the Partnership Agreement as
follows: (i) first, to those partners with deficit balances
in their capital accounts in an amount equal to the sum of
such deficit balances; (ii) second, 99% to the Limited
Partners and 1% to the General Partners until the aggregate
balance in the Limited Partners' capital accounts equals the
sum of the Limited Partners' Adjusted Capital Contributions
plus an amount equal to 14% of their Adjusted Capital
Contributions per annum, cumulative but not compounded, to
the extent not previously allocated; (iii) third, to the
General Partners until cumulative allocations to the General
Partners equal 15% of cumulative allocations. Any remaining
balance will be allocated 85% to the Limited Partners and
15% to the General Partners. Losses will be allocated 98%
to the Limited Partners and 2% to the General Partners.
The General Partners are not required to currently fund a
deficit capital balance. Upon liquidation of the
Partnership or withdrawal by a General Partner, the General
Partners will contribute to the Partnership an amount equal
to the lesser of the deficit balances in their capital
accounts or 1% of total Limited Partners' and General
Partners' capital contributions.
(2) Summary of Significant Accounting Policies -
Financial Statement Presentation
The accounts of the Partnership are maintained on the
accrual basis of accounting for both federal income tax
purposes and financial reporting purposes.
Accounting Estimates
Management uses estimates and assumptions in preparing
these financial statements in accordance with generally
accepted accounting principles. Those estimates and
assumptions may affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses.
Actual results could differ from those estimates.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHlP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1995
(2) Summary of Significant Accounting Policies - (Continued)
The Partnership regularly assesses whether market events
and conditions indicate that it is reasonably possible to
recover the carrying amounts of its investments in real
estate from future operations and sales. A change in
those market events and conditions could have a material
effect on the carrying amount of its real estate
Cash Concentrations of Credit Risk
At times throughout the year, the Partnership's cash
deposited in financial institutions may exceed FDIC
insurance limits.
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash
equivalents include cash in checking, cash invested in
money market accounts, certificates of deposit, federal
agency notes and commercial paper with a term of three
months or less.
Income Taxes
The income or loss of the Partnership for federal income
tax reporting purposes is includable in the income tax
returns of the partners. Accordingly, no recognition has
been given to income taxes in the accompanying financial
statements.
The tax return, the qualification of the Partnership as
such for tax purposes, and the amount of distributable
Partnership income or loss are subject to examination by
federal and state taxing authorities. If such an
examination results in changes with respect to the
Partnership qualification or in changes to distributable
Partnership income or loss, the taxable income of the
partners would be adjusted accordingly.
Real Estate
The Partnership's real estate is leased under long-term
triple net leases classified as operating leases. The
Partnership recognizes rental revenue on the accrual
basis according to the terms of the individual leases.
For leases which contain cost of living increases, the
increases are recognized in the year in which they are
effective.
Real estate is recorded at the lower of cost or estimated
net realizable value. The Financial Accounting Standards
Board issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" which is effective for the
Partnership's fiscal year ended December 31, 1996. This
standard requires the Partnership to compare the carrying
amount of its properties to the estimated future cash
flows expected to result from the property and its
eventual disposition. If the sum of the expected future
cash flows is less than the carrying amount of the
property, the Statement requires the Partnership to
recognize an impairment loss by the amount by which the
carrying amount of the property exceeds the fair value of
the property. Adoption of this Statement resulted in a
$216,300 real estate impairment loss on the Partnership's
1996 financial statements.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHlP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1995
(2) Summary of Significant Accounting Policies - (Continued)
The Partnership has capitalized as Investments in Real
Estate certain costs incurred in the review and
acquisition of the properties. The costs were allocated
to the land, buildings and equipment.
The buildings and equipment of the Partnership are
depreciated using the straight-line method for financial
reporting purposes based on estimated useful lives of 30
years and 10 years, respectively.
(3) Related Party Transactions -
In 1987, the Partnership acquired an 83.6514% interest in
the Children's World Daycare Center located in Sterling
Heights, Michigan. The remaining interest is owned by AEI
Real Estate Fund 85-B Limited Partnership, an affiliate of
the Partnership.
In 1987 and 1988, the Partnership acquired a 55.0958%
interest in the restaurant in Waco, Texas, a 40% interest in
the St. Louis Fuddruckers restaurant and a 50% interest in a
Super 8 Motel. The remaining interests in these properties
are owned by AEI Real Estate Fund XV Limited Partnership, an
affiliate of the Partnership.
In 1988, the Partnership purchased a 50% interest in a
Cheddar's restaurant and a 58.12% interest in the Columbia
Applebee's restaurant. The remaining interests in these
properties are owned by AEI Real Estate Fund XVII Limited
Partnership, an affiliate of the Partnership.
In February and March, 1988, the Partnership sold, at its
original cost of $2,101,052, a majority interest in four
properties to AEI Real Estate Fund XVII Limited Partnership,
an affiliate of the Partnership. The Partnership sold a 65%
interest in the Mesquite J.T. McCord's restaurant, a 50%
interest in the Jiffy Lube in Garland, Texas and a 75%
interest in both of the Jiffy Lubes in Dallas, Texas. The
sale of these interests allowed the Partnership to acquire
all of its commitments without financing and provided a
greater diversification of its property portfolio.
In 1990, the Partnership acquired a 30.8078% interest in a
Sizzler restaurant. The remaining interest in this property
is owned by AEI Real Estate Funds XVII and XVIII Limited
Partnerships, affiliates of the Partnership.
In May, 1993, the Partnership acquired a 73% interest in an
Applebee's restaurant in Slidell, Louisiana. The remaining
interest in this property is owned by AEI Real Estate Fund
XVIII Limited Partnership.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHlP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1995
(3) Related Party Transactions - (Continued)
Each Partnership owns a separate undivided interest in the
properties. No specific agreement or commitment exists
between the Partnerships as to the management of their
respective interests in the properties, and the Partnership
that holds more than a 50% interest does not control
decisions over the other Partnership's interest. The
financial statements reflect only this Partnership's
percentage share of the properties' land, building and
equipment, liabilities, revenues and expenses.
AFM and AEI received the following compensation and
reimbursements for costs and expenses from the Partnership:
Total Incurred by the Partnership
for the Years Ended December 3l
1996 1995
a.AEI and AFM are reimbursed for all costs
incurred in connection with managing the
Partnership's operations, maintaining the
Partnership's books and communicating
the results of operations to the Limited
Partners. $ 202,324 $ 223,782
=========== ===========
b.AEI and AFM are reimbursed for all direct
expenses they have paid on the Partnership's
behalf to third parties. These expenses
included printing costs, legal and filing fees,
direct administrative costs, outside audit and
accounting costs, taxes, insurance and
other property costs. $ 130,473 $ 138,202
=========== ===========
c.AEI is reimbursed for all property acquisition
costs incurred by it in acquiring properties on
behalf of the Partnership. The amounts are net
of financing and commitment fees and expense
reimbursements received by the Partnership from
the lessees in the amount of $48,543 and
$6,250 for 1996 and 1995, respectively. $ 1,395 $ 14,813
=========== ===========
The payable to AEI Fund Management, Inc. represents the
balance due for the services described in 3a, b and c. This
balance is non-interest bearing and unsecured and is to be
paid in the normal course of business.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1995
(4) Investments in Real Estate -
The Partnership leases its properties to various tenants
through non-cancelable triple net leases, which are
classified as operating leases. Under a triple net lease,
the lessee is responsible for all real estate taxes,
insurance, maintenance, repairs and operating expenses of
the property. The initial Lease terms are 20 years except
for the Houston daycare center, the JEMCARE properties (10
years), the Credit Union (11 years), the Arby's (15 years),
and the Waco property discussed below. Several of the
Leases have renewal options which may extend the Lease term
an additional 9 to 15 years. The Leases contain rent
clauses which entitle the Partnership to receive additional
rent in future years based on stated rent increases or if
gross receipts for the property exceed certain specified
amounts, among other conditions. Certain lessees have been
granted options to purchase the property. Depending on the
lease, the purchase price is either determined by a formula,
or is the greater of the fair market value of the property
or the amount determined by a formula. In all cases, if the
option were to be exercised by the lessee, the purchase
price would be greater than the original cost of the
property.
The Partnership's properties are all commercial, single-
tenant buildings. The restaurant in Waco, Texas was
constructed in 1980 and enlarged in 1982 and 1983. The
Irving and Mesquite J.T. McCord's restaurants and the
Houston daycare center were constructed in 1984. The Omaha
Fuddruckers restaurant was constructed in 1985 and remodeled
in 1987. The Sizzler restaurant was constructed in 1989.
The Applebee's restaurant in Slidell, Louisiana, was
constructed in 1993. The Applebee's restaurant in Victoria,
Texas was constructed in 1996. All other properties were
constructed in 1986, 1987 or 1988. All properties were
acquired in 1987 or 1988, except for the Sizzler restaurant
which was acquired in 1990, and the Slidell Applebee's
restaurant in 1993, and the Victoria Applebee's restaurant
in 1996. There have been no costs capitalized as
improvements subsequent to the acquisitions.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1995
(4) Investments in Real Estate - (Continued)
The cost of the properties not held for sale and the related
accumulated depreciation at December 31, 1996 are as
follows:
Buildings and Accumulated
Property Land Equipment Total Depreciation
Daycare Center
Houston, TX $ 147,753 $ 335,375 $ 483,128 $ 134,832
Credit Union, Wyoming, MI 166,434 459,805 626,239 186,681
Arby's, Grand Rapids, MI 195,229 457,651 652,880 185,806
Fuddruckers, Omaha, NE 307,913 843,630 1,151,543 415,274
Children's World,
Sterling Heights, MI 138,133 591,353 729,486 200,928
Jiffy Lube, Dallas, TX 65,918 88,973 154,891 33,923
JEMCARE, Arlington, TX 148,214 302,261 450,475 110,775
Zapata's, Waco, TX 226,315 447,970 674,285 170,117
J.T. McCord's, Irving, TX 441,252 706,081 1,147,333 268,134
J.T. McCord's, Mesquite, TX 230,337 289,772 520,109 110,032
JEMCARE, Arlington, TX 323,671 279,970 603,641 100,734
Fuddruckers, St. Louis, MO 396,943 364,110 761,053 143,532
Applebee's, Slidell, LA 278,879 467,586 746,465 57,149
Applebee's, Victoria, TX 379,644 955,911 1,335,555 30,151
---------- ---------- ----------- ----------
$3,446,635 $6,590,448 $10,037,083 $2,148,068
========== ========== =========== ==========
In May, 1990, Flagship, Inc. (Flagship), the lessee of the
J.T. McCord's properties, filed for reorganization, after
occupying the properties for approximately five years. In
March, 1993, the Partnership, along with affiliated
Partnerships which also own J.T. McCord's properties, filed
its own plan of reorganization (the "Plan") with the Court.
That Plan provided for an assignee of the Partnerships (a
replacement tenant) to purchase the assets of Flagship and
operate the restaurants with financial assistance from the
Partnerships. This Plan was expected to allow the
Partnerships to avoid closing these properties, allow
operations to continue uninterrupted, and avoid further
costly litigation with Flagship and its creditors. The Plan
was confirmed by the Court and the creditors April 16, 1993
and became effective July 20, 1993.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1995
(4) Investments in Real Estate - (Continued)
To entice the assignee, WIM, Inc. (WIM) to operate the
restaurants and enter into the Lease Agreements, the
Partnership provided funds to renovate the restaurants and
paid for operating expenses. The Partnership's share of
renovation and operating expenses during this period was
$755,773 which was expensed in the fourth quarter of 1994.
However, WIM was not able to operate the properties
profitably and was unable to make rental payments as
provided in the Lease Agreements. To reduce expenses and
minimize the losses produced by these properties, the Waco
restaurant was closed and listed for sale or lease and the
Partnership amended the agreements for the Irving and
Mesquite locations to provide for WIM to make annual rental
payments of the greater of $60,000 or 5.5% of sales
beginning October 1, 1994. In December, 1995, the
Partnership took possession of the properties after WIM was
unable to perform under the terms of the Leases. The
properties are currently listed for sale or lease. While
the properties are being re-leased or sold, the Partnership
is responsible for the real estate taxes and other costs
required to maintain the properties.
As part of the Plan, the Partnerships, which own these
properties, were responsible for an annual payment to the
Creditors Trust of approximately $110,000 for the next five
years. The Partnership's share of the annual payment was
$69,702. In 1994, the Partnership expensed $302,652 to
record this liability and administrative costs related to
the bankruptcy.
In 1995, the Partnership negotiated a settlement, with the
trustee, for a lump sum payment of the minimum amount due
over the remaining term of the Plan for release of the
Partnership and WIM from any other financial obligations and
reporting requirements to the trustee. The settlement of
$215,442 was completed in the fourth quarter of 1995.
In June 1995, the Partnership re-leased the Waco property to
Tex-Mex Cocina of Waco, L.C. The Lease Agreement has a
primary term of eighteen months with an annual rental
payment of $29,752. The Partnership could also receive
additional rent if gross receipts from the property exceed
certain specified amounts. The Lease contains renewal
options which may extend the lease term an additional 10
years. The property is now operated as a Zapata's Cantina &
Cafe.
In July, 1996, the Partnership entered into an agreement to
sell the J.T. McCord's in Mesquite, Texas to an unrelated
third party. In September, 1996, the Agreement was
terminated by the purchaser. The property was listed for
sale or lease until March, 1997 when it was re-leased to
Texas Sports City Cafe, Ltd. under a triple net lease
agreement with a primary term of 12 years which may be
renewed for up to two consecutive five-year periods. The
Partnership's share of the annual base rent is $17,500 for
the first lease year and $31,500 for the second lease year,
with rent increases in each subsequent lease year of either
three percent of the prior year's rent or three percent of
gross receipts in years two and three and six percent of
gross receipts thereafter, to the extent they exceed the
base rent.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1995
(4) Investments in Real Estate - (Continued)
In March, 1995, the lessee of the Applebee's restaurant in
Columbia, South Carolina, exercised an option in the Lease
Agreement to purchase the property. On July 28, 1995, the
sale closed with the Partnership receiving net sale proceeds
of $990,453 which resulted in a net gain of $437,915. At
the time of sale, the cost and related accumulated
depreciation of the property was $723,823 and $171,285,
respectively.
On October 25, 1995, the Partnership sold two of the Jiffy
Lube Auto Care Centers to the lessee. The Partnership
recognized net sale proceeds of $322,443, which resulted in
a net gain of $80,500 for the Jiffy Lube in Garland, Texas.
At the time of sale, the cost and related accumulated
depreciation of the property was $301,884 and $59,941,
respectively. The Partnership recognized net sale proceeds
of $161,218, which resulted in a net gain of $35,705 for one
of the Jiffy Lube's in Dallas, Texas. At the time of sale,
the cost and related accumulated depreciation of the
property was $154,781 and $29,268.
In July 1995, the lessee of the Super 8 Motel in Hot
Springs, Arkansas, exercised an option in the Lease
Agreement to purchase the property. On March 29, 1996, the
sale closed with the Partnership receiving net sale proceeds
of $663,386 which resulted in a net gain of $215,017. The
Partnership recognized $18,534 of this gain in 1995 due to
nonrefundable deposits received from the purchaser. At the
time of sale, the cost and related accumulated depreciation
of the property was $583,653 and $135,284, respectively.
In January, 1996, the Cheddar's restaurant in Indianapolis,
Indiana was destroyed by a fire. The Partnership reached an
agreement with the tenant and insurance company which calls
for termination of the Lease, demolition of the building and
payment to the Partnership of $407,282 for the building and
equipment and $49,688 for lost rent. The property will not
be rebuilt and the Partnership listed the land for sale.
The Partnership recognized net disposition proceeds of
$406,892 which resulted in a net gain of $88,207. At the
time of disposition, the cost and related accumulated
depreciation was $496,967 and $178,282, respectively. The
Partnership's cost of the land is $253,747.
During 1996 and 1995, the Partnership distributed $699,791
and $730,214, respectively, of the net sale proceeds to the
Limited and General Partners as part of their regular
quarterly distributions and to pay for the redemption of
Partnership Units. The distributions represented a return
of capital of $49.17 and $50.98 per Limited Partnership
Unit, respectively. The majority of the remaining net
proceeds will be reinvested in additional properties.
In November, 1995, the Partnership entered into an Agreement
to purchase an Applebee's restaurant in Victoria, Texas.
The property was acquired on March 22, 1996 for $1,335,555.
The property is leased to Renaissant Development Corporation
under a Lease Agreement with a primary term of 20 years and
annual rental payments of approximately $151,000.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1995
(4) Investments in Real Estate - (Continued)
In August, 1996, the Partnership entered into an agreement
to purchase a Caribou Coffee store in Atlanta, Georgia. The
purchase price will be approximately $1,231,000. The
property will be leased to Caribou Coffee Company, Inc.
under a Lease Agreement with a primary term of 18 years and
annual rental payments of approximately $141,500. Through
December 31, 1996, the Partnership had advanced $701,662 for
the construction of the property and was charging interest
on the Note at the rate of 7.0%. The Partnership has
incurred net costs of $20,933 related to the acquisition of
the property. The costs have been capitalized and will be
allocated to land, building and equipment.
The Partnership owned a 30.8078% interest in a Sizzler
restaurant at the King's Island Theme Park near Cincinnati,
Ohio. In January, 1994, the Partnership closed the
restaurant and listed it for sale or lease. On January 23,
1997, the Partnership sold its interest in the property to
an unrelated third party. The Partnership received net
sales proceeds of approximately $149,000, which resulted in
a net loss of approximately $216,300, which was recognized
as a real estate impairment in 1996. Prior to the sale, the
Partnership was responsible for the real estate taxes and
other costs required to maintain the property. No rent was
received in 1996 or 1995 from the property. At December 31,
1996, the property was classified on the balance sheet as
Real Estate Held for Sale.
The minimum future rentals on the non-cancelable Leases for
years subsequent to December 31, 1996 are as follows:
1997 $ 838,309
1998 837,547
1999 854,072
2000 820,901
2001 731,870
Thereafter 7,154,462
-----------
$11,237,161
===========
The Partnership recognized contingent rents in 1996 and 1995
of $27,187 and $19,971, respectively.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1995
(5) Deferred Income -
In June, 1994, Fuddruckers, Inc., the restaurant concept's
franchisor, acquired the operations of the Fuddruckers
restaurants in St. Louis, Missouri and Omaha, Nebraska, and
assumed the lease obligations from the original lessee. As
part of the agreement, the Partnership amended the Leases to
reduce the base rent from the current annual rent of
$109,033 to $92,164 for the St. Louis property and $167,699
to $145,081 for the Omaha property. The Partnership could
receive additional rent in the future if 10% of gross
receipts from the properties exceed the base rent. In
consideration for the lease assumption and amendment, the
Partnership received a lump sum payment from the original
lessee of $299,723. The lump sum payment will be recognized
as income over the remainder of the Lease terms which expire
January 31, 2008 and November 30, 2007, using the straight
line method. As of December 31, 1996 and 1995, the
Partnership has recognized $55,530 and $33,318,
respectively, of this payment as income.
(6) Major Tenants -
The following schedule presents rent revenue from individual
tenants, or affiliated groups of tenants, who each
contributed more than ten percent of the Partnership's total
rent revenue for the years ended December 31:
1996 1995
Tenants Industry
Fuddruckers, Inc. Restaurant $ 259,457 $ 259,457
Renaissant Development Corp. Restaurant 117,395 N/A
Southland Restaurant
Development Company, L.L.C. Restaurant 106,009 102,424
JEMCARE, Inc. Child Care 103,177 N/A
Children's World
Learning Centers, Inc. Child Care 102,809 N/A
---------- ----------
Aggregate rent revenue of major tenants $ 688,847 $ 361,881
========== ==========
Aggregate rent revenue of major tenants as
a percentage of total rent revenue 71% 36%
========== ==========
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1995
(7) Partners' Capital -
Cash distributions of $9,189 and $10,531 were made to the
General Partners and $840,000 and $962,829 were made to the
Limited Partners in 1996 and 1995, respectively. The
Limited Partners' distributions represent $59.66 and $67.82
per Limited Partnership Unit outstanding using 14,079 and
14,196 weighted average Units in 1996 and 1995,
respectively. The distributions represent $29.93 and $67.49
per Unit of Net Income and $29.73 and $.33 per Unit of
return of contributed capital in 1996 and 1995,
respectively.
As part of the Limited Partner distributions discussed
above, the Partnership distributed $692,793 and $643,138 of
proceeds from property sales in 1996 and 1995, respectively.
The distributions reduced the Limited Partners' Adjusted
Capital Contributions.
Distributions of Net Cash Flow to the General Partners
during 1996 and 1995 were subordinated to the Limited
Partners as required in the Partnership Agreement. As a
result, 99% of distributions and income were allocated to
the Limited Partners and 1% to the General Partners.
The Partnership may acquire Units from Limited Partners who
have tendered their Units to the Partnership. Such Units may
be acquired at a discount. The Partnership is not obligated
to purchase in any year more than 5% of the number of Units
outstanding at the beginning of the year. In no event shall
the Partnership be obligated to purchase Units if, in the
sole discretion of the Managing General Partner, such
purchase would impair the capital or operation of the
Partnership.
During 1996, thirteen Limited Partners redeemed a total of
113 Partnership Units for $69,640 in accordance with the
Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. In 1995, twelve
Limited Partners redeemed a total of 118 Partnership Units
for $79,774. The redemptions increase the remaining Limited
Partners' ownership interest in the Partnership.
After the effect of redemptions and the return of capital
from the sale of property, the Adjusted Capital
Contribution, as defined in the Partnership Agreement, is
$925.38 per original $1,000 invested.
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1995
(8) Income Taxes -
The following is a reconciliation of net income for
financial reporting purposes to income reported for federal
income tax purposes for the years ended December 31:
1996 1995
Net Income for Financial
Reporting Purposes $ 496,478 $ 967,752
Depreciation for Tax Purposes
Under Depreciation for Financial
Reporting Purposes 56,498 56,416
Income Accrued for Tax Purposes
Under Income for Financial
Reporting Purposes (24,256) (4,324)
Property Expenses for Tax Purposes
Over Expenses for Financial
Reporting Purposes 0 (234,439)
Gain on Sale of Real Estate for Tax
Purposes Over (Under) Gain for Financial
Reporting Purposes 185,210 (25,031)
---------- ----------
Taxable Income to Partners $ 713,930 $ 760,374
========== ==========
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1995
(8) Income Taxes - (Continued)
The following is a reconciliation of Partners' capital for
financial reporting purposes to Partners' capital reported
for federal income tax purposes for the years ended December
31:
1996 1995
Partners' Capital for
Financial Reporting Purposes $ 9,140,347 $ 9,562,698
Adjusted Tax Basis of Investments
in Real Estate Over Net Investments
in Real Estate for Financial
Reporting Purposes 736,694 494,986
Capitalized Start-Up Costs
Under Section 195 185,558 185,558
Amortization of Start-Up and
Organization Costs (190,952) (190,952)
Income Accrued for Tax Purposes Over
Income for Financial
Reporting Purposes 319,055 343,311
Organization and Syndication Costs
Treated as Reduction of Capital
for Financial Reporting Purposes 1,987,080 1,987,080
----------- -----------
Partners' Capital for
Tax Reporting Purposes $12,177,782 $12,382,681
=========== ===========
AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1995
(9) Fair Value of Financial Instruments -
The estimated fair values of the financial instruments, none
of which are held for trading purposes, are as follows at
December 31:
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash $ 416 $ 416 $ 1,665 $ 1,665
Money Market Funds 644,886 644,886 1,872,169 1,872,169
---------- --------- ----------- -----------
Total Cash and
Cash Equivalents $ 645,302 $ 645,302 $ 1,873,834 $ 1,873,834
========== ========= =========== ===========
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
The registrant is a limited partnership and has no
officers, directors, or direct employees. The General Partners
of the registrant are Robert P. Johnson and AFM. The General
Partners manage and control the Partnership's affairs and have
general responsibility and the ultimate authority in all matters
affecting the Partnership's business. The director and officers
of AFM are as follows:
Robert P. Johnson, age 52, is Chief Executive Officer,
President and Director and has held these positions since the
formation of AFM in September, 1986, and has been elected to
continue in these positions until March, 1998. From 1970 to the
present, he has been employed exclusively in the investment
industry, specializing in tax-advantaged limited partnership
investments. In that capacity, he has been involved in the
development, analysis, marketing and management of public and
private investment programs investing in net lease properties as
well as public and private investment programs investing in
energy development. Since 1971, Mr. Johnson has been the
president, a director and a registered principal of AEI
Incorporated, which is registered with the Securities and
Exchange Commission as a securities broker-dealer, is a member of
the National Association of Securities Dealers, Inc. (NASD) and
is a member of the Security Investors Protection Corporation
(SIPC). Mr. Johnson has been president, a director and the
principal shareholder of AEI Fund Management, Inc., a real estate
management company founded by him, since 1978. Mr. Johnson is
currently a general partner or principal of the general partner
in fifteen other limited partnerships.
Mark E. Larson, age 44, is Executive Vice President,
Treasurer and Chief Financial Officer and has been elected to
continue in these positions until March, 1998. Mr. Larson has
been Treasurer and Executive Vice President since December, 1987
and Chief Financial Officer since January, 1990. In January,
1993, Mr. Larson was elected to serve as Secretary of AFM and
will continue to serve until March, 1998. Mr. Larson has been
employed by AEI Fund Management, Inc. and affiliated entities
since 1985. From 1979 to 1985, Mr. Larson was with Apache
Corporation as manager of Program Accounting responsible for the
accounting and reports for approximately 45 public partnerships.
Mr. Larson is responsible for supervising the accounting
functions of AFM and the registrant.
ITEM 10. EXECUTIVE COMPENSATION.
The General Partner and affiliates are reimbursed at cost
for all services performed on behalf of the registrant and for
all third party expenses paid on behalf of the registrant. The
cost for services performed on behalf of the registrant is actual
time spent performing such services plus an overhead burden.
These services include organizing the registrant and arranging
for the offer and sale of Units, reviewing properties for
acquisition and rendering administrative and management services.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
AFM, the Managing General Partner of the registrant, and
Robert P. Johnson, its Individual General Partner, contributed
$1,000 in total for their interest in the registrant. See Item 1
for a discussion of their share of the registrant's profits and
losses. Neither the General Partners nor their affiliates have
purchased Limited Partnership Units.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The registrant, AFM and its affiliates have common
management and utilize the same facilities. As a result, certain
administrative expenses are allocated among these related
entities. All of such activities and any other transactions
involving the affiliates of the General Partner of the registrant
are governed by, and are conducted in conformity with, the
limitations set forth in the Limited Partnership Agreement of the
registrant.
The following table sets forth the forms of compensation,
distributions and cost reimbursements paid by the registrant to
the General Partners or their Affiliates in connection with the
operation of the Fund and its properties for the period from
inception through December 31, 1996.
Person or Entity Amount Incurred From
Receiving Form and Method Inception (February 6, 1987)
Compensation of Compensation To December 31, 1996
AEI Incorporated Selling Commissions equal to 9% $1,500,000
of proceeds plus a 1% nonaccountable
expense allowance, most of which was
reallowed to Participating Dealers.
General Partners Reimbursement at Cost for other
and Affiliates Organization and Offering Costs. $ 487,080
General Partners Reimbursement at Cost for all $ 223,414
and Affiliates Acquisition Expenses
General Partners 1% of Net Cash Flow in any fiscal year $ 89,379
until the Limited Partners have
received annual, non-cumulative
distributions of Net Cash Flow equal
to 10% of their Adjusted Capital
Contributions and 10% of any remaining
Net Cash Flow in such fiscal year.
General Partners Reimbursement at Cost for all $2,063,404
and Affiliates Administrative Expenses attributable
to the Fund, including all expenses
related to management and disposition
of the Fund's properties and all other
transfer agency, reporting, partner
relations and other administrative
functions.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(Continued)
Person or Entity Amount Incurred From
Receiving Form and Method Inception (February 6, 1987)
Compensation of Compensation To December 31, 1996
General Partners 15% of distribution of Net Proceeds $ 20,703
of Sale other than distributions
necessary to restore Adjusted Capital
Contributions and provide a 6%
cumulative return to Limited Partners.
The General Partners will receive
only 1% of distributions of Net
Proceeds of Sale until the Limited
Partners have received an amount
equal to: (a) their Adjusted Capital
Contributions, plus (b) an amount equal
to 14% of their Adjusted Capital
Contributions per annum, cumulative
but not compounded, less (c) all
previous cash distributions to the
Limited Partners.
The limitations included in the Partnership Agreement
require that the cumulative reimbursements to the General
Partners and their affiliates for administrative expenses not
allowed under the NASAA Guidelines ("Guidelines") will not exceed
the sum of (i) the front-end fees allowed by the Guidelines less
the front-end fees paid, (ii) the cumulative property management
fees allowed but not paid, (iii) any real estate commission
allowed under the Guidelines, and (iv) 10% of Net Cash Flow less
the Net Cash Flow actually distributed. The reimbursements not
allowed under the Guidelines include a controlling person's
salary and fringe benefits, rent and depreciation. As of
December 31, 1996, the cumulative reimbursements to the General
Partners and their affiliates did not exceed these amounts.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND FORM 8-K/A.
A. Exhibits -
Description
10.1 Sale and Leaseback Financing
Commitment dated August 18, 1995 between
AEI Fund Management, Inc. and Renaissant
Development Corporation relating to the
property at 6409 N. Navarro Road, Victoria,
Texas (incorporated by reference to Exhibit
10.1 of Form 8-K filed with the Commission
on April 4, 1996).
10.2 Amendment to Sale and
Leaseback Financing Commitment dated
November 21, 1995 between the Partnership,
AEI Fund Management, Inc. and Renaissant
Development Corporation relating to the
property at 6409 N. Navarro Road, Victoria,
Texas (incorporated by reference to Exhibit
10.2 of Form 8-K filed with the Commission
on April 4, 1996).
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A.
(Continued)
A. Exhibits - (Continued)
Description
10.3 Net Lease Agreement dated
March 22, 1996, between the Partnership and
Renaissant Development Corporation relating
to the property at 6409 N. Navarro Road,
Victoria, Texas (incorporated by reference
to Exhibit 10.3 of Form 8-K filed with the
Commission on April 4, 1996).
10.4 Purchase Agreement dated
July 25, 1995 between the Partnership, AEI
Real Estate Fund XV Limited Partnership and
Motel Developers, Inc. relating to the
property at 4726 Central Avenue, Hot
Springs, Arkansas (incorporated by
reference to Exhibit 10.1 of Form 8-K filed
with the Commission on April 2, 1996).
10.5 Purchase Agreement dated
July 10, 1996, between the Partnership, AEI
Real Estate Fund XVII Limited Partnership,
and BW, Incorporated relating to the
property at 3808 Town Crossing Boulevard,
Mesquite, Texas (incorporated by reference
to Exhibit 10.1 of Form 10-QSB filed with
the Commission on August 7, 1996).
10.6 Assignment of Construction
Loan Commitment and Sale and Leaseback
Financing Commitment dated August 8, 1996,
concerning those documents with Caribou
Coffee store and AEI Fund Management, Inc.
to the Partnership, relating to the sale
and leaseback of a Caribou Coffee store at
Johnson Ferry Road in Atlanta, Georgia
(incorporated by reference to Exhibit 10.1
of Form 10-QSB filed with the Commission on
November 13, 1996).
10.7 Net Lease Agreement dated March 15, 1997
between the Partnership, AEI Real Estate
Fund XVI Limited Partnership, and Texas
Sports City Cafe, Ltd. relating to the
property at 3808 Towne Crossing Boulevard,
Mesquite, Texas.
10.8 Guarantee of Lease dated March 15, 1997
between the Partnership, AEI Real Estate
Fund XVI Limited Partnership, and Texas
Sports City Cafe, Ltd. relating to the
property at 3808 Towne Crossing Boulevard,
Mesquite, Texas.
27 Financial Data Schedule
for year ended December 31, 1996.
B. Reports on Form 8-K and Form 8-K/A - None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AEI REAL ESTATE FUND XVI
Limited Partnership
By: AEI Fund Management XVI, Inc.
Its Managing General Partner
March 24, 1997 By: /s/ Robert P. Johnson
Robert P. Johnson, President and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Name Title Date
/s/ Robert P. Johnson President (Principal Executive Officer) March 24, 1997
Robert P. Johnson and Sole Director of Managing General
Partner
/s/ Mark E. Larson Executive Vice President, Treasurer March 24, 1997
Mark E. Larson and Chief Financial Officer
(Principal Accounting Officer)
NET LEASE AGREEMENT
THIS LEASE, made and entered into effective as of March 15,
1997, by and among AEI REAL ESTATE FUND XVI LIMITED PARTNERSHIP,
a Minnesota limited partnership whose corporate general partner
is AEI Fund Management XVI, Inc., a Minnesota corporation, and
AEI REAL ESTATE FUND XVII LIMITED PARTNERSHIP, a Minnesota
limited partnership whose corporate general partner is AEI Fund
Management XVII, Inc., a Minnesota corporation, both of whose
address is 1300 Minnesota World Trade Center, 30 East Seventh
Street, St. Paul, Minnesota 55101 ("Lessor"), and Texas Sports
City Cafe, Ltd., a Texas limited partnership, whose address is
12225 Greenville Avenue, Suite 532, Dallas, Texas 75243
("Lessee");
WITNESSETH:
WHEREAS, Lessor is the fee owner of a certain parcel of real
property and improvements located at 3808 Towne Crossing
Boulevard, Mesquite, Texas and legally described in Exhibit "A",
which is attached hereto and incorporated herein by reference;
and
WHEREAS, Lessee desires to lease the real property and the
building and improvements (together the "Building") on the real
property described in Exhibit "A", (said real property and
Building hereinafter referred to as the "Leased Premises"), from
Lessor upon the terms and conditions hereinafter provided;
NOW, THEREFORE, in consideration of the Rents, terms,
covenants, conditions, and agreements hereinafter described to be
paid, kept, and performed by Lessee, Lessor does hereby grant,
demise, lease, and let unto Lessee, and Lessee does hereby take
and hire from Lessor and does hereby covenant, promise, and agree
as follows:
ARTICLE 1. LEASED PREMISES
Lessor hereby leases to Lessee, and Lessee leases and takes
from Lessor, the Leased Premises subject to the conditions of
this Lease.
ARTICLE 2. TERM
(A) The term of this Lease ("Term") shall be Twelve (12)
consecutive "Lease Years", as hereinafter defined, commencing on
the effective date first listed above, ("Occupancy Date").
(B) The first "Lease Year" of the Term shall be for a period
commencing on the effective date hereof and ending December 31,
1997. Each Lease Year after the first Lease Year shall be a
successive period of twelve (l2) calendar months.
(C) The parties agree that once the Occupancy Date has been
established, upon the request of either party, a short form or
memorandum of this Lease will be executed for recording purposes.
That short form or memorandum of this Lease will set forth the
actual occupancy and termination dates of the Term and optional
Renewal Terms as defined in Article 28 hereof, or Rights of First
Refusal or Option to Purchase, and that said renewal rights,
Option or Right of First Refusal shall terminate when the Lessee
shall lose right to possession or this Lease is terminated,
whichever occurs first.
ARTICLE 3. CONSTRUCTION OF IMPROVEMENTS
(A) Lessee warrants and agrees that it is leasing the
Building as is, where is, and any and all other improvements to
the land, including the parking lot, approaches, and service
areas, will be maintained in accordance with, and if and when
improved by or on behalf of Lessee, will be constructed in all
material respects by Lessee in accordance with, applicable law,
ordinance, or regulation, and according to plans and
specifications submitted to Lessor for its prior reasonable
approval, such approval not to be unreasonably withheld or
delayed.
(B) Lessee agrees to pay, if not already paid in full, for
all architectural fees and actual construction costs, to be
incurred in the future, which shall include, but not be limited
to, plans and specifications, general construction, carpentry,
electrical, plumbing, heating, ventilating, air conditioning,
decorating, equipment installation, outside lighting, curbing,
landscaping, blacktopping, electrical sign hookup, conduit and
wiring from building, fencing, and parking curbs, builder's risk
insurance (naming Lessor, Lessee, and contractor as co-insured),
and all construction bonds for improvements made by or at the
direction of Lessee, to the extent incurred or authorized by
Lessee.
Lessee agrees that no improvements shall commence on the
Leased Premises unless and until Lessee has demonstrated to
Lessor's reasonable satisfaction that Lessee has sufficient funds
available to complete and pay in full for any contemplated
improvements, and Lessor has received copies of all contracts for
the construction of such improvements, including any financing
thereof. In the payment for any such improvements, Lessor may
require that Lessee shall follow commercially reasonable escrow
disbursement procedures to protect Lessor's interest in the
Leased Premises from liens and encumbrances, and Lessor shall be
a third party beneficiary to such disbursement procedures.
(C) Opening for business in the Leased Premises by Lessee
shall constitute an acceptance of the Leased Premises and an
acknowledgment by Lessee that the premises are in the condition
described under this Lease.
ARTICLE 4. RENT PAYMENTS
(A) Annual Rent Payable for the first
and second Lease Years: Lessee shall pay to Lessor a
Base Rent of $1000 for the first five months of the term
hereof, $3,000 for the sixth month of the term hereof,
$5,000 for the seventh month of the term hereof, $7,000
for the eighth month of the term hereof, and $7,500 for
the ninth month of the term hereof, and each month
thereafter for the balance of the first two Lease Years,
which amount shall be payable in advance on the first
day of each month. If the first day of the Lease Term
is not the first day of a calendar month, then the
monthly Rent payable for that partial month shall be a
prorated portion of the equal monthly installment of
Base Rent.
(B) Annual Rent Payable beginning with
the Second or Third (as so indicated below) Lease Year
and each Lease Year thereafter:
1. Beginning for the Base Rent
payable in the Third Lease Year, and for any
subsequent Lease Year, the annual Base Rent due and
payable shall increase by an amount equal to Three
Percent (3%) of the Base Rent payable for the
immediately prior Lease Year. Such increased Base
Rent shall be payable in advance of the first day of
each month in equal monthly installments.
2. For the Second (2nd) and Third
(3rd) Lease Years, Lessee shall also pay annually,
as Additional Rent, an amount equal to Three Percent
(3%) of the Gross Receipts of such Lease Year, to
the extent such amount exceeds the Base Rent for
that Lease Year.
3. For the Fourth (4th) Lease
Year, and for any subsequent Lease Year, Lessee
shall also pay annually, as Additional Rent, an
amount equal to Six Percent (6%) of the Gross
Receipts of such Lease Year, to the extent such
amount exceeds the Base Rent for such Lease Year.
(C) Calculation and Payment of Additional and Increased Base
Rent.
Prior to the commencement of the third and each subsequent
Lease Year, Lessor shall calculate the Base Rent increase and
notify Lessee of the same. Lessee shall pay the increased Base
Rent in advance in equal monthly installments on the first day of
each month.
Payments of Additional Rent for any given quarter of any Lease
Year shall be due and payable within five (5) days after Lessor
shall give Lessee notice of the calculation of such Additional
Rent by Lessor.
(D) Provision of Financial Statements.
If Lessee shall fail to provide the financial statements as
required by Lessor for the purposes of calculating Additional
Rent for any quarter in a Lease Year and installments of Base
Rent for current Lease Years, Lessor may make a good faith
estimate of the same and that estimate shall be binding on
Lessee. When the required financial statements are provided to
Lessor, Lessor shall adjust such estimated increases within a
reasonable time thereafter. However, until such adjustment has
been made, Lessee shall continue to be obligated to pay the
estimated Additional Rent and Base Rent. If any required
financial statements reflect that the calculation or estimate of
Additional Rent and/or Base Rent has been understated, Lessor
shall give notice of the understatement to Lessee. Within ten
(10) days after Lessor gives such notice, Lessee shall pay the
correct Rent amounts and arrearage.
(E) Overdue Payments.
Lessee shall pay interest on all overdue payments of Rent or
other monetary amounts due hereunder at the rate of the lesser of
eighteen percent (18%) per annum or the highest rate allowed by
law accruing from the date such Rent or other monetary amounts
were properly due and payable.
(F) Gross Receipts.
"Gross Receipts" as used herein is hereby defined to mean
gross sales of Lessee, or any assignee or sublessee of Lessee,
and of all licensees, concessionaires, from all business
conducted upon or from the Leased Premises, whether such business
be conducted by Lessee or by licensees, concessionaires, or
tenants of Lessee and whether such sales be evidenced by check,
credit, charge account, exchange, or otherwise, and shall
include, but not be limited to, the amounts received from the
sale of goods, services, foods, etc., performed on or at the
Leased Premises, whether such orders be filled from the Leased
Premises or elsewhere, whether such sales be by means of food,
services, or other vending devices, in the Leased Premises.
Gross Receipts shall not include sales for which cash has been
refunded, or allowances made on food or services claimed to be
defective or unsatisfactory. Gross Receipts shall not include
promotional discounts whether coupons or otherwise, nor the value
or cost of meals provided to employees or meals provided to
others for promotional purposes from whom no payment is received.
Gross Receipts shall not include the amount of any sales, use, or
gross receipts tax imposed by any federal, state, municipal, or
governmental authority directly on sales and collected from
customers. No franchise or capital stock tax and no income or
similar tax based upon income or profits as such shall be
deducted from Gross Receipts in any event whatsoever.
Additionally, Gross Receipts shall not include tips paid to
employees. Proper annual statements, as set forth in Article 26,
shall be prepared and certified by Lessee to Lessor in
conjunction with such Gross Receipts. Lessor may, at its option,
cause an audit to be made of Lessee's business affairs and
records relating to the Leased Premises for the period covered by
any such statements issued by Lessee. Lessee shall maintain its
books and records for at least three years from the end of any
Lease Year. If such audit shall disclose a liability for Rent to
the extent of two percent (2%) or more in excess of the Rents
theretofore computed and paid by Lessee for such period, Lessee
shall pay for the cost of any such audit. Lessee shall also pay
interest on the amount of such liability at the lesser of the
rate of eighteen percent (18%) per annum or the highest rate
allowed by law accruing from the date said liability would have
been due and properly paid by Lessee hereunder.
(G) If Lessee shall lease or suspend operation in violation
of this lease, resulting in operation for less than a full Lease
Year, Gross Receipts for the partial Lease Year shall be
annualized for purposes of calculating Additional Rent due and
payable for such partial Lease Year.
ARTICLE 5. INSURANCE AND INDEMNITY
(A) Lessee shall, throughout the Term or Renewal Terms, if
any, of this Lease, at its own cost and expense, procure and
maintain insurance which covers the Leased Premises and
improvements against fire, wind, and storm damage (including
flood insurance if the Leased Premises is in a federally
designated flood prone area) and such other risks (including
earthquake insurance, if the Leased Premises is located in a
federally designated earthquake zone or in an ISO high risk
earthquake zone) as may be included in the broadest form of
extended coverage insurance as may, from time to time, be
available in amounts sufficient to prevent Lessor or Lessee from
becoming a co-insurer within the terms of the applicable
policies. In any event, the insurance shall not be less than one
hundred percent (100%) of the then insurable value.
Additionally, replacement cost endorsements, inflation guard
endorsements, vandalism endorsement, malicious mischief
endorsement, waiver of subrogation endorsement, waiver of co-
insurance or agreed amount endorsement (if available), and
Building Ordinance Compliance endorsement and Rent loss
endorsements (for a period of one year), and during the course of
construction of any improvements, builder's risk insurance in
commercially reasonable amounts, must be obtained.
(B) Lessee agrees to place and maintain throughout the Term
or Renewal Terms, if any, of this Lease, at Lessee's own expense,
public liability insurance with respect to Lessee's use and
occupancy of said premises, including "Dram Shop" or liquor
liability insurance, if the same shall be or become available in
the State of Texas and liquor is sold on the Premises, with
initial limits of at least $1,000,000 per occurrence/$2,000,000
general aggregate, or such additional amounts as Lessor shall
reasonably require from time to time.
(C) Lessee agrees to notify Lessor in writing if Lessee is
unable to procure all or some part of the aforesaid insurance.
In the event Lessee fails to provide all insurance required under
this Lease, Lessor shall have the right, but not the obligation,
to procure such insurance on Lessee's behalf. Lessee will then,
within three (3) days from receiving written notice, pay Lessor
the amount of the premiums due or paid, together with interest
thereon at the lessor of 18% per annum or the highest rate
allowable by law, which amount shall be considered Rent payable
by Lessee in addition to the Rent defined at Article 4 hereof.
(E) All policies of insurance provided for or contemplated by
this Article can be under Lessee's blanket insurance coverage and
shall name Lessors, AEI Fund Management XVI, Inc., and AEI Fund
Management XVII, Inc. both Minnesota corporations, and Robert P.
Johnson, as the general partners of Lessor, as additional named
insured and loss payee, as their respective interests may appear,
and shall provide that the policies cannot be canceled,
terminated, changed, or modified without thirty (30) days written
notice to the parties. In addition, all of such policies shall
contain endorsements by the respective insurance companies
waiving all rights of subrogation, if any, against Lessor. All
insurance companies providing coverages must be rated "A" or
better by Best's Key Rating Guide (the most current edition), or
similar quality under a successor guide if Best's Key Rating
shall cease to be published. Lessee shall provide Lessor with
legible copies of any and all policies on or before the Occupancy
Date. No less than fifteen (15) business days prior to expiration
of such policies, Lessee shall provide Lessor with legible copies
of any and all renewal Certificates of Insurance, if the terms of
the Policies have not changed, and copies of such policies if the
same have changed. Lessee agrees that it will not settle any
property insurance claims affecting the Leased Premises in excess
of $25,000 without Lessor's prior written consent, such consent
not to be unreasonably withheld or delayed. Lessor shall consent
to any settlement of an insurance claim wherein Lessee shall
confirm in writing with evidence reasonably satisfactory to
Lessor that Lessee has sufficient funds available to complete the
rebuilding of the Premises.
(F) Lessee shall defend, indemnify, and hold Lessor harmless
against any and all claims, damages, and lawsuits arising after
the Occupancy Date of this Lease and any orders, decrees or
judgments which may be entered therein, brought for damages or
alleged damages resulting from any injury to person or property
or from loss of life sustained in or about the Leased Premises,
unless such damage or injury results from the intentional
misconduct or the gross negligence of Lessor and Lessee agrees to
save Lessor harmless from, and indemnify Lessor against, any and
all injury, loss, or damage, of whatever nature, to any person or
property caused by, or resulting from any act, omission, or
negligence of Lessee or any employee or agent of Lessee. In
addition, Lessee hereby releases Lessor from any and all
liability for any loss or damage caused by fire or any of the
extended coverage casualties, unless such fire or other casualty
shall be brought about by the intentional misconduct or gross
negligence of Lessor.
(G) Lessor hereby waives any and all rights that it may have
to recover from Lessee damages for any loss occurring to the
Leased Premises by reason of any act or omission of Lessee;
provided, however, that this waiver is limited to those losses
for which Lessor is compensated by its insurers, if the insurance
required by this Lease is maintained.
Lessee hereby waives any and all right that it may have to
recover from Lessor damages for any loss occurring to the Leased
Premises by reason of any act or omission of Lessor; provided,
however, that this waiver is limited to those losses for which
Lessee is, or should be if the insurance required herein is
maintained, compensated by its insurers.
ARTICLE 6. TAXES, ASSESSMENTS AND UTILITIES
(A) Lessee shall be liable and agrees to pay the charges for
all public utility services rendered or furnished to the Leased
Premises, including heat, water, gas, electricity, sewer, sewage
treatment facilities and the like, all personal property taxes,
real estate taxes, special assessments, and municipal or
government charges, general, ordinary and extraordinary, of every
kind and nature whatsoever, which may be levied, imposed, or
assessed against the Leased Premises, or upon any improvements
thereon, at any time after the Occupancy Date of this Lease and
prior to the expiration of the term hereof, or any Renewal Term,
if exercised.
(B) Lessee shall pay all real estate taxes, assessments for
public improvements or benefits, and other governmental
impositions, duties, and charges of every kind and nature
whatsoever which shall or may, during the term of this Lease, be
charged, laid, levied, assessed, or imposed upon, or become a
lien or liens upon the Leased Premises or any part thereof or
upon the Rents payable hereunder. Such payments shall be
considered as Rent paid by Lessee in addition to the Rent defined
at Article 4 hereof. If due to a change in the method of
taxation, a franchise tax, Rent tax, or income or profit tax
shall be levied against Lessor in substitution for or in lieu of
any tax which would otherwise constitute a real estate tax, such
tax shall be deemed a real estate tax for the purposes herein and
shall be paid by Lessee.
(C) All real estate taxes, assessments for public
improvements or benefits, water rates and charges, sewer rents,
and other governmental impositions, duties, and charges which
shall become payable for the first and last tax years of the term
hereof shall be apportioned pro rata between Lessor and Lessee in
accordance with the respective number of months during which each
party shall be in possession of the Leased Premises in said
respective tax years. For the purposes of this provision, all
personal property taxes, real estate taxes and special
assessments shall be deemed to have been assessed in the year
that the first payment or any installment thereof is due.
(D) Lessee shall have the right to contest or review by legal
proceedings or in such other manner as may be legal (which, if
instituted, shall be conducted solely at Lessee's own expense)
any tax, assessment for public improvements or benefits, or other
governmental imposition aforementioned, upon condition that,
before instituting such proceeding Lessee shall pay (under
protest) such tax or assessments for public improvements or
benefits, or other governmental imposition, duties and charges
aforementioned, unless such payment would act as a bar to such
contest or interfere materially with the prosecution thereof and
in such event Lessee shall post with Lessor alternative security
satisfactory to Lessor. All such proceedings shall be begun as
soon as reasonably possible after the imposition or assessment
of any contested items and shall be prosecuted to final
adjudication with reasonable dispatch. In the event of any
reduction, cancellation, or discharge, Lessee shall pay the
amount that shall be finally levied or assessed against the
Leased Premises or adjudicated to be due and payable, and, if
there shall be any refund payable by the governmental authority
with respect thereto, if Lessee has paid the expenses of Lessor
in such proceeding, Lessee shall be entitled to receive and
retain the same, subject, however, to apportionment as provided
during the first and last years of the term of this Lease.
(E) Lessor, within sixty (60) days after notice to Lessee if
Lessee fails to commence such proceedings, may, but shall not be
obligated to, contest or review by legal proceedings, or in such
other manner as may be legal, and at Lessor's own expense, any
tax, assessments for public improvements and benefits, or other
governmental imposition aforementioned, which shall not be
contested or reviewed, as aforesaid, by Lessee, and unless Lessee
shall promptly join with Lessor in such contest or review, Lessor
shall be entitled to receive and retain any refund payable by the
governmental authority with respect thereto.
(F) Lessor shall not be required to join in any proceeding
referred to in this Article, unless in Lessee's reasonable
opinion, the provisions of any law, rule, or regulation at the
time in effect shall require that such a proceeding be brought by
and/or in the name of Lessor, in which event Lessor shall upon
written request, join in such proceedings or permit the same to
be brought in its name, all at no cost or expense to Lessor.
(G) Within thirty (30) days after Lessor notifies Lessee in
writing that Lessor has paid such amount, Lessee shall also pay
to Lessor, as additional Rent, the amount of any sales tax,
franchise tax, excise tax, and tax or fees charged foreign
limited partnerships or their general partners as a requisite for
doing business in the state where the Leased Premises are
located, arising out of or relating to the income derived from
this Lease. At Lessor's option, Lessee shall deposit with Lessor
on the first day of each and every month during the term hereof,
an amount equal to one-twelfth (1/12) of any estimated sales tax
payable to the State in which the property is situated for Rent
received by Lessor hereunder ("Deposit"). From time to time out
of such Deposit Lessor will pay the sales tax to the State in
which the property is situated as required by law. In the event
the Deposit on hand shall not be sufficient to pay said tax when
the same shall become due from time to time, or the prior
payments shall be less than the current estimated monthly
amounts, then Lessee shall pay to Lessor on demand any amount
necessary to make up the deficiency. The excess of any such
Deposit shall be credited to subsequent payments to be made for
such items. If a default or an event of default shall occur
under the terms of this Lease, Lessor may, at its option, without
being required so to do, apply any Deposit on hand to cure such
default, in such order and manner as Lessor may elect. Lessee
shall also pay to Lessor, as additional Rent, the amount of any
sales, use, or other tax imposed on or measured by any Rent paid
hereunder. Such sales, use, or other tax shall be paid by Lessee
to Lessor at the same time as payment of any installment of Base
Rent is made.
ARTICLE 7. PROHIBITION ON ASSIGNMENTS AND SUBLETTING; TAKE-BACK
RIGHTS
(A) Except as otherwise expressly provided in this Article,
Lessee shall not, without obtaining the prior written consent of
Lessor, in each instance:
1. assign or otherwise transfer
this Lease, or any part of Lessee's right, title or
interest therein;
2. sublet all or any part of the
Leased Premises or allow all or any part of the
Leased Premises to be used or occupied by any other
Persons (herein defined as a Party other than
Lessee, be it a corporation, a partnership, an
individual or other entity); or
3. mortgage, pledge or otherwise
encumber this Lease, or the Leased Premises.
(B) For the purposes of this Article:
1. the transfer of voting control
of any class of capital stock of any corporate
Lessee or sublessee, or the transfer voting control
of the total interest in any other person which is a
Lessee or sublessee, however accomplished, whether
in a single transaction or in a series of related or
unrelated transactions, shall be deemed an
assignment of this Lease, or of such sublease, as
the case may be;
2. an agreement by any other
Person, directly or indirectly, to assume Lessee's
obligations under this Lease shall be deemed an
assignment;
3. any Person to whom Lessee's
interest under this Lease passes by operation of
law, or otherwise, shall be bound by the provisions
of this Article;
4. each modification, amendment or
extension or any sublease to which Lessor has
previously consented shall be deemed a new sublease;
and
5. Lessee shall present the signed
consent to such assignment and/or subletting from
any guarantors of this Lease, such consent to be in
form and substance satisfactory to Lessor.
Lessee agrees to furnish to Lessor upon demand at any time
such information and assurances as Lessor may reasonably request
that neither Lessee, nor any previously permitted sublessee, has
violated the provisions of this Article.
(C) If Lessee agrees to assign this Lease or to sublet all or
any portion of the Leased Premises, Lessee shall, prior to the
effective date thereof (the "Effective Date"), deliver to Lessor
executed counterparts of any such agreement and of all ancillary
agreements with the proposed assignee or sublessee, as
applicable. If Lessor in its sole discretion (except as
otherwise specifically limited herein) shall not consent to a
proposed sublease or assignment, Lessor shall then have all of
the following rights, any of which Lessor may exercise by written
notice to Lessee given within thirty (30) days after Lessor
receives the aforementioned documents:
1. with respect to a proposed
assignment of this Lease, the right to terminate
this Lease on the Effective Date as if it were the
Expiration Date of this Lease;
2. with respect to a proposed
subletting of the entire Leased Premises, the right
to terminate this Lease on the Effective Date as if
it were the Expiration Date; or
3. with respect to a proposed
subletting of less than the entire Leased Premises,
the right to terminate this Lease as to the portion
of the Leased Premises affected by such subletting
on the Effective Date, as if it were the Expiration
Date, in which case Lessee shall promptly execute
and deliver to Lessor an appropriate modification of
this Lease in form satisfactory to Lessor in all
respects.
4. with respect to a proposed
subletting or proposed assignment of this Lease,
impose such conditions upon Lessor's consent as
Lessor shall determine in its sole discretion.
(D) If Lessor exercises any of its options under Article 7(C)
above, (and if Lessor shall impose conditions upon its consent
and Lessee shall fail to meet any conditions Lessor may impose
upon its consent), Lessor may then lease the Leased Premises or
any portion thereof to Lessee's proposed assignee or sublessee,
as the case may be, without liability whatsoever to Lessee.
ARTICLE 8. REPAIRS AND MAINTENANCE
(A) Lessee covenants and agrees to keep and maintain in good
order, condition and repair the interior and exterior of the
Leased Premises during the term of the Lease, or any renewal
terms, and further agrees that Lessor shall be under no
obligation to make any repairs or perform any maintenance to the
Leased Premises. Lessee covenants and agrees that it shall be
responsible for all repairs, alterations, replacements, or
maintenance of, including but without limitation to or of: The
interior and exterior portions of all doors; door checks and
operators; windows; plate glass; plumbing; water and sewage
facilities; fixtures; electrical equipment; interior walls;
ceilings; signs; roof; structure; interior building appliances
and similar equipment; heating and air conditioning equipment;
and any equipment owned by Lessor and leased to Lessee hereunder,
as itemized on Exhibit B attached hereto and incorporated herein
by reference; and further agrees to replace any of said equipment
when necessary. Lessee further agrees to be responsible for, at
its own expense, snow removal, lawn maintenance, landscaping,
maintenance of the parking lot (including parking lines, seal
coating, and blacktop surfacing), and other similar items.
(B) If Lessee refuses or neglects to commence or complete
repairs promptly and adequately, Lessor may cause such repairs to
be made, but shall not be required to do so, and Lessee shall pay
the cost thereof to Lessor upon demand. It is understood that
Lessee shall pay all expenses and maintenance and repair during
the term of this Lease. If Lessee is not then in default
hereunder, Lessee shall have the right to make repairs and
improvements to the Leased Premises without the consent of Lessor
if such repairs and improvements do not exceed Twenty Five
Thousand Dollars ($25,000.00), provided such repairs or
improvements do not affect the structural integrity of the Leased
Premises. Any repairs or improvements in excess of Twenty Five
Thousand Dollars ($25,000.00) or affecting the structural
integrity of the Leased Premises may be done only with the prior
written consent of Lessor, such consent not to be unreasonably
withheld or delayed. All alterations and additions to the Leased
Premises shall be made in accordance with all applicable laws and
shall remain for the benefit of Lessor. In the event of making
such alterations as herein provided, Lessee further agrees to
indemnify and save harmless Lessor from all expense, liens,
claims or damages to either persons or property or the Leased
Premises which may arise out of or result from the undertaking or
making of said repairs, improvements, alterations or additions,
or Lessee's failure to make said repairs, improvements,
alterations or additions.
ARTICLE 9. COMPLIANCE WITH LAWS AND REGULATIONS
Lessee will comply with all statutes, ordinances, rules,
orders, regulations and requirements of all federal, state, city
and local governments, and with all rules, orders and
regulations of the applicable Board of Fire Underwriters which
affect the use of the improvements. Lessee will comply with all
easements, restrictions, and covenants of record against or
affecting the Leased Premises and any franchise agreements
required for operation of the Leased Premises in accordance with
Article 14 hereof.
ARTICLE l0. SIGNS
Lessee shall have the right to install and maintain a sign or
signs advertising Lessee's business, provided that the signs
conform to law, and further provided that the sign or signs
conform specifically to the written requirements of the
appropriate governmental authorities.
ARTICLE ll. SUBORDINATION
(A) Lessor reserves the right and privilege to subject and
subordinate this Lease at all times to the lien of any mortgage
or mortgages now or hereafter placed upon Lessor's interest in
the Leased Premises and on the land and buildings of which said
premises are a part, or upon any buildings hereafter placed upon
the land of which the Leased Premises are a part. Lessor also
reserves the right and privilege to subject and subordinate this
Lease at all times to any and all advances to be made under such
mortgages, and all renewals, modifications, extensions,
consolidations, and replacements thereof, provided such mortgagee
shall execute its standard form, commercially reasonable
subordination, attornment and non-disturbance agreement.
(B) Lessee covenants and agrees to execute and deliver, upon
demand, such further instrument or instruments subordinating this
Lease on the foregoing basis to the lien of any such mortgage or
mortgages as shall be desired by Lessor and any proposed
mortgagee or proposed mortgagees.
ARTICLE l2. CONDEMNATION OR EMINENT DOMAIN
(A) If the whole of the Leased Premises are taken by any
public authority under the power of eminent domain, or by private
purchase in lieu thereof, then this Lease shall automatically
terminate upon the date possession is surrendered, and Rent shall
be paid up to that day. If any part of the Leased Premises shall
be so taken as to render the remainder thereof materially
unusable in the opinion of a licensed third party contractor or
architect approved by Lessor, for the purposes for which the
Leased Premises were leased, then Lessor and Lessee shall each
have the right to terminate this Lease on thirty (30) days notice
to the other given within ninety (90) days after the date of such
taking. In the event that this Lease shall terminate or be
terminated, the Rent shall be paid up to the day that possession
was surrendered.
(B) If any part of the Leased Premises shall be so taken such
that it does not materially interfere with the business of
Lessee, then Lessee shall, with the use of the condemnation
proceeds to be made available by Lessor, but otherwise at
Lessee's own cost and expense, restore the remaining portion of
the Leased Premises to the extent necessary to render it
reasonably suitable for the purposes for which it was leased.
Lessee shall make all repairs to the building in which the Leased
Premises is located to the extent necessary to constitute the
building a complete architectural unit. Provided, however, that
such work shall not exceed the scope of the work required to be
done by Lessee in originally constructing such building unless
Lessee shall demonstrate to Lessor's reasonable satisfaction the
availability of funds to complete such work. Provided, further,
the cost thereof to Lessor shall not exceed the proceeds of its
condemnation award, all to be done without any adjustments in
Rent to be paid by Lessee. This lease shall be deemed amended to
reflect the taking in the legal description of the Leased
Premises.
(C) All compensation awarded or paid upon such total or
partial taking of the Leased Premises shall belong to and be the
property of Lessor without any participation by Lessee, whether
such damages shall be awarded as compensation for diminution in
value to the leasehold or to the fee of the premises herein
leased. Nothing contained herein shall be construed to preclude
Lessee from prosecuting any claim directly against the condemning
authority in such proceedings for: Loss of business; damage to
or loss of value or cost of removal of inventory, trade fixtures,
furniture, and other personal property belonging to Lessee;
provided, however, that no such claim shall diminish or otherwise
adversely affect Lessor's award or the award of any fee
mortgagee.
ARTICLE l3. RIGHT TO INSPECT
Lessor reserves the right to enter upon, inspect and examine
the Leased Premises at any time during business hours, after
reasonable notice to Lessee, and Lessee agrees to allow Lessor
free access to the Leased Premises to show the premises. Upon
default by Lessee or at any time within one hundred eighty (180)
days of the expiration or termination of the Lease, Lessee agrees
to allow Lessor to then place "For Sale" or "For Rent" signs on
the Leased Premises.
ARTICLE l4. EXCLUSIVE USE
(A) After the Occupancy Date, Lessee expressly agrees and
warrants that the Leased Premises will be used exclusively as a
casual dining sit-down restaurant, unless such operation is no
longer economically feasible. In such case, after obtaining
Lessor's prior written consent, such consent not to be
unreasonably withheld or delayed, Lessee may conduct any lawful
business from the Leased Premises. Lessee acknowledges and
agrees that any other use without the prior written consent of
Lessor will constitute a default under and a violation and breach
of this Lease. Lessee agrees: to operate all of the Leased
Premises during the Term or Renewal Terms during regular and
customary hours for businesses similar to the permitted exclusive
use stated herein, unless prevented from doing so by causes
beyond Lessee's control; and to conduct its business in a first
class and reputable manner in order to maximize sales and Rents
payable to Lessor.
(B) If the Leased Premises are not operated as a casual
dining sit-down restaurant or other permitted use hereunder, or
remain closed for fourteen (14) consecutive days, then Lessee
shall be in default hereunder and Lessor may, at its option,
cancel this Lease by giving written notice to Lessee or exercise
any other right or remedy that Lessor may have; provided,
however, that reasonable closings shall be permitted for
replacement of trade fixtures or during periods of repair after
destruction.
(C) In the event this Lease is terminated or canceled
pursuant to this Article, Lessee shall remain liable for the
payment of all Rents due to Lessor under this Lease for the full
remaining term in accordance with the applicable terms and
provisions of this Lease Agreement, offset by Rent generated
under a lease agreement with any new tenant. Provided, however,
that Lessor shall have no affirmative duty to mitigate Lessee's
liability hereunder.
ARTICLE l5. DESTRUCTION OF PREMISES
If, during the term of this Lease, the Leased Premises are
totally or partially destroyed by fire or other elements, within
a reasonable time (but in no event longer than one hundred eighty
(180) days and subject to the provisions herein below), Lessee
shall repair and restore the improvements so damaged or destroyed
as nearly as may be practical to their condition immediately
prior to such casualty. All rents payable by Lessee shall be
abated during the period of repair and restoration to the extent
that Lessor shall be compensated by the proceeds of the rent loss
insurance required to be maintained by Lessee hereunder.
Provided Lessee is not in default hereunder (and retains
according to the terms hereof the right to rebuild) with the
Lessor's prior written consent, which consent shall not be
unreasonably withheld or delayed, Lessee shall have the right to
promptly and in good faith settle and adjust any claim under such
insurance policies with the insurance company or companies on the
amounts to be paid upon the loss. The insurance proceeds shall
be used to reimburse Lessee for the cost of rebuilding or
restoration of the Leased Premises. The Leased Premises shall be
so restored or rebuilt so as to be of at least equal value and
substantially the same character as prior to such damage or
destruction. If the insurance proceeds are less than Twenty-Five
Thousand Dollars ($25,000), they shall be paid to Lessee for such
repair and restoration. If the insurance proceeds are greater
than or equal to Twenty Five Thousand Dollars ($25,000), they
shall be deposited by Lessee and Lessor into a customary
construction escrow at a nationally recognized title insurance
company, or at Lessee's option, with Lessor ("Escrowee") and
shall be made available from time to time to Lessee for such
repair and restoration. Such proceeds shall be disbursed in
conformity with the terms and conditions of a commercially
reasonable construction loan agreement. Lessee shall, in either
instance, deliver to Lessor or Escrowee (as the case may be)
satisfactory evidence of the estimated cost of completion
together with such architect's certificates, waivers of lien,
contractor's sworn statements and other evidence of cost and of
payments as the Lessor or Escrowee may reasonably require and
approve. If the estimated cost of the work exceeds Ten Percent
(10%) of the original cost to Lessor to acquire its interest in
the Lease Premises from Lessee, all plans and specifications for
such rebuilding or restoration shall be subject to the reasonable
approval of Lessor.
Any insurance proceeds remaining with Escrowee after the
completion of the repair or restoration shall be paid to Lessor.
If the proceeds from the insurance are insufficient, after
review of the bids for completion of such improvements, or should
become insufficient during the course of construction, to pay for
the total cost of repair or restoration, Lessee shall, prior to
commencement of work, demonstrate to Escrowee and Lessor's
reasonable satisfaction, the availability of such funds necessary
to completion construction and Lessee shall deposit the same with
Escrowee for disbursement under the construction escrow
agreement. Provided, further, that should the Leased Premises be
damaged or destroyed to the extent of fifty (50%) percent of its
value or such that Lessee cannot carry on business as a casual
dining restaurant without (in Lessor's reasonable opinion) being
closed for more than sixty (60) days (which duration of closure
may be established by Lessee by the affidavit of an independent
third party contractor as to the estimated time of repair) during
the last two years of the remaining term of this Lease or any of
the option terms of this Lease, if any further options to renew
remain, Lessee may elect within 30 days of such damage, to then
exercise at least one (1) option to renew this Lease so that the
remaining term of the Lease is not less than five (5) years in
order to be entitled to such insurance proceeds for restoration
or rebuilding. Absent such election, this Lease shall terminate
upon Lessor's receipt of the insurance proceeds.
ARTICLE l6. ACTS OF DEFAULT
(A) Each of the following shall be deemed a default by Lessee
and a breach of this Lease:
1. Failure to pay the Rent or any
monetary obligation herein reserved, or any part
thereof when the same shall be due and payable.
Interest and late charges for failure to pay Rent
when due shall accrue from the first date such Rent
was due and payable.
2. Failure to do, observe, keep
and perform any of the other terms, covenants,
conditions, agreements and provisions in this Lease
to be done, observed, kept and performed by Lessee;
provided, however, that Lessee shall have twenty
(20) days after written notice from Lessor within
which to cure such default, or such longer time as
may be reasonably necessary if such default cannot
reasonably be cured within twenty (20) days, if
Lessee is diligently pursuing a course of conduct
that in Lessor's reasonable opinion is capable of
curing such default, but in any event such longer
time shall not exceed 90 days after written notice
from Lessor of the default hereunder.
3. The abandonment of the premises
by Lessee, the adjudication of Lessee as a bankrupt,
the making by Lessee of a general assignment for the
benefit of creditors, the taking by Lessee of the
benefit of any insolvency act or law, the
appointment of a permanent receiver or trustee in
bankruptcy for Lessee property, or the appointment
of a temporary receiver which is not vacated or set
aside within sixty (60) days from the date of such
appointment.
ARTICLE l7. TERMINATION FOR DEFAULT
In the event of any uncured default by Lessee and at any time
thereafter, Lessor may serve a written notice upon Lessee that
Lessor elects to terminate this Lease. This Lease shall then
terminate on the date so specified as if that date had been
originally fixed as the expiration date of the term herein
granted, provided, however, that Lessee shall have continuing
liability for future rents for the remainder of the original term
and any exercised renewal term as set forth in Article 19,
notwithstanding any earlier termination of the Lease hereunder,
preserving unto Lessor the benefit of its bargained-for rental
payments.
ARTICLE l8. LESSOR'S RIGHT OF RE-ENTRY
In the event that this Lease shall be terminated as
hereinbefore provided, or by summary proceedings or otherwise, or
in the event of an uncured default hereunder by Lessee, or in the
event that the premises or any part thereof, shall be abandoned
by Lessee, then Lessor or its agents, servants or
representatives, may immediately or at any time thereafter, re-
enter and resume possession of the premises or any part thereof,
and remove all persons and property therefrom, either by summary
dispossess proceedings or by a suitable action or proceeding at
law, or by force or otherwise without being liable for any
damages therefor.
ARTICLE l9. LESSEE'S CONTINUING LIABILITY
(A) Should Lessor elect to re-enter as provided in this Lease
or should it take possession pursuant to legal proceedings or
pursuant to any notice provided for by law, it may either (i)
terminate this Lease or (ii) it may from time to time, without
terminating the contractual obligation of Lessee to pay Rent
under this Lease, make such alterations and repairs as may be
necessary to relet the Leased Premises or any part thereof for
such Term or Renewal Terms, at such Rent or Rents, and upon such
other terms and conditions as Lessor in its sole discretion may
deem advisable. Termination of Lessee's right to possession by
Court Order shall be sufficient evidence of the termination of
Lessee's possessory rights under this Lease, and the filing of
such an Order shall be notice of the termination of Lessee's
Option to Purchase as set forth in any Memorandum of Lease of
record.
(B) Upon each such reletting, without termination of the
contractual obligation of Lessee to pay Rent under this Lease,
all Rents received by Lessor shall be applied as follows:
1. First, to the payment of any
indebtedness other than Rent due hereunder from
Lessee to Lessor;
2. Second, to the payment of any
costs and expenses of such reletting, including
brokerage fees and attorney's fees and of costs of
such alterations and repairs;
3. Third, to the payment of Rent
and other monetary obligations due and unpaid
hereunder;
4. Finally, the residue, if any,
shall be held by Lessor and applied in payment of
future Rent as the same may become due and payable
hereunder.
If such Rents received from such reletting during any month are
less than that to be paid during that month by Lessee hereunder,
Lessee shall pay any such deficiency to Lessor. Such deficiency
shall be calculated and paid monthly. No such re-entry or taking
possession of such Leased Premises by Lessor shall be construed
as an election on its part to terminate Lessee's contractual
obligations under this Lease respecting the payment of rent and
obligations for the costs of repair and maintenance unless a
written notice of such intention be given to Lessee.
(C) Notwithstanding any such reletting without termination,
Lessor may at any time thereafter elect to terminate this Lease
for any breach.
(D) In addition to any other remedies Lessor may have with
this Article 19, Lessor may recover from Lessee all damages it
may incur by reason of any breach, including: The cost of
recovering and reletting the Leased Premises; reasonable
attorney's fees; and, the present value (discounted at a rate of
8% per annum) of the excess of the amount of Rent and charges
equivalent to Rent reserved in this Lease for the remainder of
the Term over the then reasonable Rent value of the Leased
Premises (or the actual Rents receivable by Lessor, if relet) for
the remainder of the Term, all of which amounts shall be
immediately due and payable from Lessee to Lessor in full. In
the event that the Rent obtained from such alternative or
substitute tenant is more than the Rent which Lessee is obligated
to pay under this Lease, then such excess shall be paid to Lessor
provided that Lessor shall credit such excess against the
outstanding obligations of Lessee due pursuant hereto, if any.
(E) It is the object and purpose of this Article 19 that
Lessor shall be kept whole and shall suffer no damage by way of
non-payment of Rent or by way of diminution in Rent. Lessee
waives and will waive all rights to trial by jury in any summary
proceedings or in any action brought to recover Rent herein which
may hereafter be instituted by Lessor against Lessee in respect
to the Leased Premises. Lessee hereby waives any rights of re-
entry it may have or any rights of redemption or rights to redeem
this Lease upon a termination of this Lease.
ARTICLE 20. PERSONALTY, FIXTURES AND EQUIPMENT
(A) All building fixtures, building machinery, and building
equipment used in connection with the operation of the Leased
Premises including, but not limited to, heating, electrical
wiring, lighting, ventilating, plumbing, walk-in
refrigerators/coolers, walk-in freezers, air conditioning
systems, and the equipment owned by Lessor and leased to Lessee
hereunder as specifically set forth on Exhibit B attached hereto
and incorporated herein by reference shall be the property of
Lessor. All trade fixtures and all other fixtures and articles
of personal property owned by Lessee, including liquor, food, and
merchandise inventory, shall remain the property of Lessee.
All trade fixtures and all other fixtures and articles of
personal property placed upon the Leased Premises and used in the
operation of the Leased Premises by Lessee (except liquor, food,
and merchandise inventory) shall immediately become the property
of Lessor, whether or not listed on Exhibit B attached hereto.
Lessee agrees to provide Lessor, upon Lessor's reasonable
request, with a current inventory of such items.
(B) Lessee shall furnish and pay for any and all equipment,
furniture, trade fixtures, and signs, and maintain the same free
and clear of all liens and encumbrances except those liens or
encumbrances created or permitted to accrue by Lessor, even
though the same shall be owned by Lessor. Lessee shall have the
right to lease various high maintenance items such as ice
machines, POS, dish machines, glass washers and the like.
(C) At the end of the term of this Lease, the property
described above may not be removed from the Leased Premises by
Lessee regardless of whether or not such property is attached to
the Leased Premises so as to constitute a "fixture" within the
meaning of the law.
ARTICLE 2l. LIENS
Lessee shall not do or cause anything to be done whereby the
Leased Premises may be encumbered by any mechanic's or other
liens. Whenever and as often as any mechanic's or other lien is
filed against said Leased Premises purporting to be for labor or
materials furnished or to be furnished to Lessee, Lessee shall
remove the lien of record by payment or by bonding with a surety
company authorized to do business in the state in which the
property is located, within twenty (20) days from the date of the
filing of said mechanic's or other lien and delivery of notice
thereof to Lessee of Lessee's obligation under this Lease.
Should Lessee fail to take the foregoing steps within said twenty
(20) day period, Lessor shall have the right, among other things,
to pay said lien without inquiring into the validity thereof, and
Lessee shall forthwith reimburse Lessor for the total expense
incurred by it in discharging said lien as additional Rent
hereunder.
ARTICLE 22. NO WAIVER BY LESSOR EXCEPT IN WRITING
No agreement to accept a surrender of the Leased Premises or
termination of this Lease shall be valid unless in writing signed
by Lessor. The delivery of keys to any employee of Lessor or
Lessor's agents shall not operate as a termination of the Lease
or a surrender of the premises. The failure of Lessor to seek
redress for violation of any rule or regulation, shall not
prevent a subsequent act, which would have originally constituted
a violation, from having all the force and effect of an original
violation. Neither payment by Lessee or receipt by Lessor of a
lesser amount than the Rent herein stipulated shall be deemed to
be other than on account of the earliest stipulated Rent. Nor
shall any endorsement or statement on any check nor any letter
accompanying any check or payment as Rent be deemed an accord and
satisfaction. Lessor may accept such check or payment without
prejudice to Lessor's right to recover the balance of such Rent
or pursue any other remedy provided in this Lease. This Lease
contains the entire agreement between the parties, and any
executory agreement hereafter made shall be ineffective to change
it, modify it or discharge it, in whole or in part, unless such
executory agreement is in writing and signed by the party against
whom enforcement of the change, modification or discharge is
sought.
ARTICLE 23. QUIET ENJOYMENT
Lessor covenants that Lessee, upon paying the Rent set forth
in Article 4 and all other sums herein reserved as Rent and upon
the due performance of all the terms, covenants, conditions and
agreements herein contained on Lessee's part to be kept and
performed, shall have, hold and enjoy the Leased Premises free
from molestation, eviction, or disturbance by Lessor, or by any
other person or persons lawfully claiming the same, and that
Lessor has good right to make this Lease for the full term
granted, including renewal periods.
ARTICLE 24. BREACH BY LESSEE - PAYMENT OF LESSOR'S COSTS AND
ATTORNEYS' FEES
Lessee agrees to pay and discharge all reasonable costs, and
actual attorneys' fees and expenses that shall be incurred by
Lessor in enforcing the covenants, conditions and terms of this
Lease or defending against an alleged breach, including the costs
of reletting, and any reasonable attorney's fees incurred in
reviewing any Lessee request for Lessor approvals or consents to
such matters arising from time to time affecting Lessee's
interest in the Leased Premises. Such costs, attorneys fees, and
expenses shall be considered as Rent as due and owing in addition
to any Rent defined in Article 4 hereof.
ARTICLE 25. ESTOPPEL CERTIFICATES
Either party to this Lease will, at any time, upon not less
than ten (l0) days prior request by the other party, execute,
acknowledge and deliver to the requesting party a statement in
writing, executed by an executive officer of such party,
certifying that: (a) this Lease is unmodified (or if modified
then disclosure of such modification shall be made); (b) this
Lease is in full force and effect; (c) the date to which the Rent
and other charges have been paid; and (d) to the knowledge of the
signer of such certificate that the other party is not in default
in the performance of any covenant, agreement or condition
contained in this Lease, or if a default does exist, specifying
each such default of which the signer may have knowledge. It is
intended that any such statement delivered pursuant to this
Article may be relied upon by any prospective purchaser or
mortgagee of the Leased Premises or any assignee of such
mortgagee or a purchaser of the leasehold estate.
ARTICLE 26. FINANCIAL STATEMENTS
During the term of this Lease, Lessee will, within ninety (90)
days after the end of Lessee's fiscal year, furnish its financial
statements of the Lessee. The financial statements shall be
certified as true and correct by the CFO or CEO of Lessee, at the
Lessee's expense, and shall be prepared in conformity with
generally accepted accounting principles. Additionally, during
the term of the Lease, Lessee will within twenty (20) days from
the end of each quarter of each fiscal year, furnish Lessor with
operating statements of the Leased Premises for such quarter.
Lessor shall have the right to require such operating statements
on a monthly basis. Said quarterly (or monthly, if requested by
Lessor) statements do not need to be prepared by an independent
certified public accountant, but shall be certified as true and
correct by the chief financial officer or chief executive officer
of Lessee. The financial statements shall include a balance
sheet and related statements of income, changes in cash funds,
changes in capital, and related notes to financial statements.
For purposes of calculating Additional Rent, Lessee shall provide
within thirty (30) days after the end of the Lease Year unaudited
statements for such periods as necessary to determine the Leased
Premises' operating results for the Lease Year including but not
limited to, Gross Receipts as defined elsewhere in this Lease.
Upon request by Lessor, Lessee shall provide Lessor with copies
of its monthly sales tax reports within fifteen (15) days from
the end of each month. Any Additional Rent due by reason of
Article 4(B)2 or 3 herein, shall be paid within forth-five (45)
days of the end of any Lease Year in which such Rent is due. All
reports required by franchisor in Lessee's franchise agreement
verifying Gross Receipts and royalty fees, shall be
simultaneously provided to Lessor.
ARTICLE 27. MORTGAGE
Lessee does hereby agree to make reasonable modifications of
this Lease requested by any Mortgagee of record from time to time
provided such modifications are not substantial and do not
increase any of the Rents or substantially modify any of the
business elements of this Lease.
ARTICLE 28. OPTION TO RENEW
If this Lease is not previously canceled or terminated and if
Lessee has complied with and performed all of the covenants and
conditions in this Lease, then Lessee shall have the option to
renew this Lease upon the same conditions and covenants contained
in this Lease for Two (2) consecutive periods of Five (5) years
each (singularly "Renewal Term"). Rent during the renewal
periods shall increase each year as set forth in Article 4
hereof.
The first Renewal Term will commence on the day following the
date the original Term expires and successive Renewal Terms would
commence on the day of following the last day of the then
expiring Renewal Term. Lessee must give one hundred eighty (l80)
days written notice to Lessor of its intent to exercise this
option prior to the expiration of the original Term of this Lease
or any Renewal Term, as the case may be.
ARTICLE 29. MISCELLANEOUS PROVISIONS
(A) All written notices shall be given to Lessor by certified
mail. Notices to either party shall be addressed to the person
and address given on the first page hereof. Lessor and Lessee
may, from time to time, change these addresses by notifying each
other of this change in writing. Notices of overdue Rent may be
sent to Lessee by regular, special delivery, or nationally
recognized overnight mail.
(B) The terms, conditions and covenants contained in this
Lease and any riders and plans attached hereto shall bind and
inure to the benefit of Lessor and Lessee and their respective
successors, heirs, legal representatives, and assigns.
(C) This Lease shall be governed by and construed under the
laws of the State of Texas.
(D) In the event that any provision of this Lease shall be
held invalid or unenforceable, no other provisions of this Lease
shall be affected by such holding, and all of the remaining
provisions of this Lease shall continue in full force and effect
pursuant to the terms hereof.
(E) The Article captions are inserted only for convenience
and reference, and are not intended, in any way, to define,
limit, describe the scope, intent, and language of this Lease or
its provisions.
(F) In the event Lessee remains in possession of the premises
herein leased after the expiration of this Lease and without the
execution of a new lease, it shall be deemed to be occupying said
premises as a tenant from month-to-month, subject to all the
conditions, provisions, and obligations of this Lease insofar as
the same can be applicable to a month-to-month tenancy except
that the monthly installment of Rent shall be increased 200% from
the amount due on the last month prior to such expiration.
(G) If any installment of Rent (whether lump sum, monthly
installments, or any other monetary amounts required by this
Lease to be paid by Lessee and deemed to constitute Rent
hereunder) shall not be paid when due, Lessor shall have the
right to charge Lessee a late charge of $250.00 per month for
unpaid Rent for each month that any amount of Rent installment
remains unpaid. Said late charge shall commence after such
installment is due and continue until said installment, interest
and all accrued late charges are paid in full.
(H) Any part of the Leased Premises may be conveyed by Lessor
for private or public non-exclusive easement purposes at any
time, provided such easement does not interfere with the business
of Lessee. In such event Lessor shall, at its own cost and
expense, restore the remaining portion of the Leased Premises to
the extent necessary to render it reasonably suitable for the
purposes for which it was leased, all to be done without
adjustments in Rent to be paid by Lessee. All proceeds from any
conveyance of an easement shall belong solely to Lessor.
(I) For the purpose of this Lease, the term "Rent" shall be
defined as Rent under Article 4, and any other monetary amounts
required by this Lease to be paid by Lessee.
(J) Lessee agrees to cooperate with Lessor to allow Lessor to
obtain and use at Lessor's expense promotional photographs of the
Leased Premises, to the extent permitted by Lessee's franchisor.
ARTICLE 30. REMEDIES
NON-EXCLUSIVITY. Notwithstanding anything contained herein it
is the intent of the parties that the rights and remedies
contained herein shall not be exclusive but rather shall be
cumulative along with all of the rights and remedies of the
parties which they may have at law or equity.
ARTICLE 31. HAZARDOUS MATERIALS INDEMNITY
Lessee covenants, represents and warrants to Lessor, its
successors and assigns, (i) that it will not use or permit the
Leased Premises to be used, whether directly or through
contractors, agents or tenants, for the generating, transporting,
treating, storage, manufacture, emission of, or disposal of any
dangerous, toxic or hazardous pollutants, chemicals, wastes or
substances as defined in the Federal Comprehensive Environmental
Response Compensation and Liability Act of 1980 ("CERCLA"), the
Federal Resource Conservation and Recovery Act of 1976 ("RCRA"),
or any other federal, state or local environmental laws,
statutes, regulations, requirements and ordinances ("Hazardous
Materials"); (ii) that there have been no investigations or
reports involving Lessee by any governmental authority which in
any way pertain to Hazardous Materials (iii) that the operation
of the Leased Premises will not violate any federal, state or
local law, regulation, ordinance or requirement governing
Hazardous Materials; (iv) that the Leased Premises will not
contain any formaldehyde, urea or asbestos, except as may have
been disclosed in writing to Lessor by Lessee at the time of
execution and delivery of this Lease. Lessee agrees to indemnify
and reimburse Lessor, its successors and assigns, for:
(a) any breach of these representations and warranties, and
(b) any loss, damage, expense or cost arising out of or
incurred by Lessor which is the result of a breach of,
misstatement of or misrepresentation of the above
covenants, representations and warranties, and
(c) any and all liability of any kind whatsoever which
Lessor may, for any cause and at any time, sustain or
incur by reason of Hazardous Materials placed or
released on the Leased Premises by Lessee;
together with all attorneys' fees, costs and disbursements
incurred in connection with the defense of any action against
Lessor arising out of the above. These covenants,
representations and warranties shall be deemed continuing
covenants, representations and warranties for the benefit of
Lessor, and any successors and assigns of Lessor and shall
survive expiration or sooner termination of this Lease. The
amount of all such indemnified loss, damage, expense or cost,
shall bear interest thereon at the highest rate of interest
allowed by law and shall become immediately due and payable in
full on demand of Lessor, its successors and assigns. Lessee
shall not be responsible for any liabilities under this Article
if the liability results from activities of Lessor or any agent,
employee, or contractor of Lessor.
ARTICLE 32. ESCROWS
Upon a default by Lessee or upon the request of Lessor's
Mortgagee, if any, Lessee shall deposit with Lessor on the first
day of each and every month, an amount equal to one-twelfth
(1/12th) of the estimated annual real estate taxes, assessments
and insurance ("Charges") due on the Leased Premises, or such
higher amounts reasonably determined by Lessor as necessary to
accumulate such amounts to enable Lessor to pay all charges due
and owing at least thirty (30) days prior to the date such
amounts are due and payable. From time to time out of such
deposits Lessor will, upon the presentation to Lessor by Lessee
of the bills therefor, pay the Charges or will upon presentation
of receipted bills therefor, reimburse Lessee for such payments
made by Lessee. In the event the deposits on hand shall not be
sufficient to pay all of the estimated Charges when the same
shall become due from time to time or the prior payments shall be
less than the currently estimated monthly amounts, then Lessee
shall pay to Lessor on demand any amount necessary to make up the
deficiency. The excess of any such deposits shall be credited to
subsequent payments to be made for such items. If a default or
an event of default shall occur under the terms of this Lease,
Lessor may, at its option, without being required so to do, apply
any Deposit on hand to cure the default, in such order and manner
as Lessor may elect.
ARTICLE 33. NET LEASE
Notwithstanding anything contained herein to the contrary it
is the intent of the parties hereto that this Lease shall be a
net lease and that the Rent defined pursuant to Article 4 should
be a net Rent paid to Lessor. Any and all other expenses
including but not limited to, maintenance, repair, insurance,
taxes, and assessments, shall be paid by Lessee.
ARTICLE 34. RIGHT OF FIRST REFUSAL
Lessor, for itself, its successors and assigns, hereby gives
and grants to Lessee a right of first refusal (the "Option") to
purchase the Leased Premises, subject to the following terms and
conditions:
(A) Duration of Option. The Option and all rights and
privileges of Lessee hereunder shall be in force for the term
(including any exercised renewal options) of this Lease until the
expiration of Lessee's right to possession.
(B) Manner of Exercising Option. If Lessor shall desire to
sell the Leased Premises (subject to the terms of this Lease),
Lessor shall give Lessee written notice of Lessor's intention to
sell Lessor's interest in the Leased Premises. Such notice
("Lessor's Notice") shall state a price at which (or greater)
Lessor intends to sell its interest. For thirty (30) business
days following the giving of such notice, Lessee shall have the
option to purchase the Lessor's interest at the price in cash
stated in the Lessor's Notice. A written notice in substantially
the following form, addressed to Lessor and signed by Lessee and
given, in accordance with the provisions of Article 29(A) hereof,
within the period for exercising the Option, submitted with a
bank cashier's check or money order payable to the order of
Lessor in the amount of $5,000.00 (the "Earnest Money") shall be
an effective exercise of Lessee's Option, to wit:
(date)
"We hereby exercise the Option to purchase the property commonly
known as 3808 Towne Crossing, Mesquite, Texas, pursuant to the
Right of First Refusal contained in that certain Net Lease
Agreement between us pertaining to said premises.
(C) Terms of Sale if Option Exercised. Upon Lessee's
exercise of the Option in accordance with the provisions of
subparagraph (B) hereof, Lessor shall be obligated to sell and
convey by recordable warranty deed, good and marketable title to
the Leased Premises subject only to the matters affecting title
which were of record at the effective date hereof and those
matters which Lessee created, suffered or permitted to accrue
during the term hereof, and Lessee shall be obligated to purchase
the Premises upon the following terms and conditions:
(i) Price. The price "Purchase Price" at which Lessor
shall sell and Lessee shall purchase the Leased Premises
shall be the price stated in Lessor's Notice.
(ii)Closing. Closing shall be thirty (30) days after
the expiration of the twenty days within which Lessee
may exercise its Option, unless the parties mutually
agree otherwise. The Purchase Price less credit for the
Earnest Money shall be tendered in cash or other
certified funds by Lessee at Closing.
(iii) Evidence of Title. Not less than
ten (10) days prior to closing, Lessor shall obtain a
commitment for an TLTA owner's policy of title insurance
dated within thirty (30) days of the closing date,
issued by a nationally recognized title insurance
company selected by Lessor (the "Title Company") in the
amount of the Purchase Price determined pursuant to
subparagraph (C)(i) above, naming Lessee as the proposed
insured, and covering the fee simple title to the Leased
Premises, and showing Lessor vested with good title to
the Leased Premises subject only to the matters
affecting title as set forth above and those matters
which Lessee created, suffered or permitted to accrue
during the term hereof. Such title commitment shall be
conclusive evidence of good title. If Lessee shall make
objection to the marketability of title, Lessor shall
have no obligation to make title marketable, but may
withdraw Lessor's notice of intent to market the
Premises.
(iv)Prorations. Lessor shall pay the cost of the
aforesaid title policy and any and all state and
municipal taxes imposed by law on the transfer of the
title to the Leased Premises, or the transaction
pursuant to which such transfer occurs. Water, sewer
and other utility charges, if any, which are not
metered, driveway permit charges, if any, general real
estate taxes, and other similar items, shall be adjusted
ratably as of the Closing, except to the extent
otherwise settled between the parties pursuant to other
provisions of this Lease. No portion of the Base Rent
paid by Lessee shall be credited toward the Purchase
Price but Lessee shall be given a credit for rent
prepaid for any period after the Closing.
(v) Escrow Closing. At the election of Lessor or Lessee
upon notice to the other party not less than five (5)
days prior to the Closing, this sale shall be closed
through an escrow with the Title Company, in accordance
with the general provisions of the usual form of Deed
and Money Escrow Agreement then is use by said company,
with such special provisions inserted in the escrow
agreement as may be required to conform with this
agreement. Upon the creation of such an escrow,
anything herein to the contrary notwithstanding, paying
of the purchase price and delivery of the deed shall be
made through the escrow. The cost of the escrow shall
be divided equally between the Lessor and Lessee. If
for any reason other than Lessee's default, the
transaction fails to close, the Earnest Money shall be
returned to Lessee forthwith.
(vi)Remedies on Default. If Lessee defaults under the
provisions of this subparagraph 34(C), Lessor shall have
the right to annul the provisions of this paragraph 34
by giving Lessee notice of such election, provided that
Lessor has first notified Lessee of such default and
Lessee has failed to cure the same within twenty (20)
days after such notice. Upon Lessor's notice of
annulment in accordance herewith, the Earnest Money
shall be forfeited and paid to Lessor as liquidated
damages, which shall be Lessor's sole and exclusive
remedy. If Lessor defaults under the provisions of this
subparagraph 34(C) and fails to cure such default within
twenty (20) days after being notified of the same by
Lessee, then in such event, (i) the Earnest Money at
Lessee's election and immediately upon its demand shall
be returned to Lessee, which return shall not, however,
in any way release or absolve Lessor from its
obligations hereunder and (ii) Lessee shall be entitled
to all remedies (both legal and equitable) the law (both
statutory and decisional) of the state in which the
Leased Premises are situated provides without first
having to tender the balance of the purchase price as a
condition precedent thereof and without having to make
any election of such remedies.
(D) Effect of Option on Lease. If the Option is exercised,
this Lease shall continue in full force and effect until the
Closing hereinabove specified. If for any reason such Closing
fails to occur, this Lease shall continue in full force and
effect, except that if the provisions of this paragraph 34 are
annulled by Lessor, in accordance with subparagraph 34(C)(vi), by
reason of a default by Lessee, this Lease shall continue but
without the provisions of this paragraph 34 being a part hereof.
(E) If Lessee fails to exercise its Option, Lessor shall be
free to sell its interest in the Leased Premises for six months
following the expiration of the twenty days within which Lessee
may exercise its Option, provided that Lessor shall sell its
interest for a price equal to or greater than the price set forth
in Lessor's Notice. This Right of First Refusal shall survive
any sale of the Leased Premises and shall apply to any subsequent
sale or potential sale by Lessor or its assigns.
ARTICLE 35. OPTION TO PURCHASE
Lessor, for itself, its successors and assigns, hereby gives
and grants to Lessee the exclusive and irrevocable option (the
"Option") to purchase the Leased Premises, subject to the
following terms and conditions:
(A) Duration of Option. The Option and all rights and
privileges of Lessee hereunder shall be in force for the period
commencing as of the effective date hereof until the end of the
Third Lease Year.
(B) Manner of Exercising Option. A written notice in
substantially the following form, addressed to Lessor and signed
by Lessee and given, in accordance with the provisions of Article
29(A) hereof, within the period for exercising the Option,
submitted with a bank cashier's check or money order payable to
the order of Lessor in the amount of $5,000.00 (the "Earnest
Money") shall be an effective exercise of the Option, to wit:
(date)
"We hereby exercise the Option to purchase the property commonly
known as 3808 Towne Crossing Boulevard, Mesquite, Texas, pursuant
to the option to purchase contained in that certain Net Lease
Agreement between us pertaining to said premises".
(C) Terms of Sale if Option Exercised. Upon Lessee's
exercise of the Option in accordance with the provisions of
subparagraph (B) hereof, Lessor shall be obligated to sell and
convey by recordable warranty deed, good and marketable title to
the Leased Premises subject only to the matters affecting title
which were in existent as of the effective date of this Lease and
those items which Lessee has suffered, created, or permitted to
accrue during the term hereof, and Lessee shall be obligated to
purchase the Premises upon the following terms and conditions:
(i) Price. The price "Purchase Price" at which Lessor
shall sell and Lessee shall purchase the Leased Premises
shall be: (a) $900,000 if closing on the purchase by
Lessee shall occur in Lease Year One or Two; (b)
$1,000,000 if closing on the purchase by Lessee shall
occur in Lease Year Three.
(ii)Closing. Closing shall be thirty (30) days after
the Option is exercised, unless the parties mutually
agree otherwise. The Purchase Price less credit for the
Earnest Money shall be tendered in cash or other
certified funds by Lessee at Closing.
(iii) Evidence of Title. Not less than
ten (10) days prior to closing, Lessee shall obtain a
commitment for an ALTA owner's policy of title insurance
dated within thirty (30) days of the closing date,
issued by a nationally recognized title company (the
"Title Company") in the amount of the Purchase Price
determined pursuant to subparagraph (C)(i) above, naming
Lessee as the proposed insured, and covering the fee
simple title to the Leased Premises, and showing Lessor
vested with good title to the Leased Premises subject
only to the matters affecting title set forth above.
Such title commitment shall be conclusive evidence of
good title. If Lessee shall make objection to title,
Lessor shall be under no obligation to cure such
objections. If Lessee should proceed to closing on the
purchase of the Leased Premises, such purchase shall be
subject to any uncured objections to title made by
Lessee.
(iv)Prorations. Lessor shall pay the cost of the
aforesaid title policy and any and all state and
municipal taxes imposed by law on the transfer of the
title to the Leased Premises, or the transaction
pursuant to which such transfer occurs. Water, sewer
and other utility charges, if any, which are not
metered, driveway permit charges, if any, general real
estate taxes, and other similar items, shall be adjusted
ratably as of the Closing, except to the extent
otherwise settled between the parties pursuant to other
provisions of this Lease. No portion of the Base Rent
paid by Lessee shall be credited toward the Purchase
Price but Lessee shall be given a credit for rent
prepaid for any period after the Closing.
(v) Escrow Closing. At the election of Lessor or Lessee
upon notice to the other party not less than five (5)
days prior to the Closing, this sale shall be closed
through an escrow with the Title Company, in accordance
with the general provisions of the usual form of Deed
and Money Escrow Agreement then is use by said company,
with such special provisions inserted in the escrow
agreement as may be required to conform with this
agreement. Upon the creation of such an escrow,
anything herein to the contrary notwithstanding, paying
of the purchase price and delivery of the deed shall be
made through the escrow. The cost of the escrow shall
be divided equally between the Lessor and Lessee. If
for any reason other than Lessee's default, the
transaction fails to close, the Earnest Money shall be
returned to Lessee forthwith.
(vi)Remedies on Default. If Lessee defaults under the
provisions of this subparagraph 35(C), Lessor shall have
the right to annul the provisions of this paragraph 35
by giving Lessee notice of such election, provided that
Lessor has first notified Lessee of such default and
Lessee has failed to cure the same within twenty (20)
days after such notice. Upon Lessor's notice of
annulment in accordance herewith, the Earnest Money
shall be forfeited and paid to Lessor as liquidated
damages, which shall be Lessor's sole and exclusive
remedy. If Lessor defaults under the provisions of this
subparagraph 35(C) and fails to cure such default within
twenty (20) days after being notified of the same by
Lessee, then in such event, (i) the Earnest Money at
Lessee's election and immediately upon its demand shall
be returned to Lessee, which return shall not, however,
in any way release or absolve Lessor from its
obligations hereunder and (ii) Lessee shall be entitled
to all remedies (both legal and equitable) the law (both
statutory and decisional) of the state in which the
Leased Premises are situated provides without first
having to tender the balance of the purchase price as a
condition precedent thereof and without having to make
any election of such remedies, subject however to the
limitations upon Lessor's obligations to remedy any
title objection raised by Lessee as set forth above.
(D) Effect of Option on Lease. If the Option is exercised,
this Lease shall continue in full force and effect until the
Closing hereinabove specified. If for any reason such Closing
fails to occur, this Lease shall continue in full force and
effect, except that if the provisions of this paragraph 35 are
annulled by Lessor, in accordance with subparagraph 35(C)(vi), by
reason of a default by Lessee, this Lease shall continue but
without the provisions of this paragraph 35 being a part hereof.
IN WITNESS WHEREOF, Lessor and Lessee have respectively signed
and sealed this Lease as of the day and year first above written.
LESSEE: TEXAS SPORTS CITY CAFE, LTD.
By: Texas Sports City Cafe I, Inc., its General Partner
By: /s/ Charles W. Greener
Its:Pres
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK - LESSOR'S SIGNATURE
ON FOLLOWING PAGE
LESSOR: AEI REAL ESTATE FUND XVI LIMITED
PARTNERSHIP, a Minnesota limited partnership
By: AEI FUND MANAGEMENT XVI, INC., a Minnesota corporation
By: /s/ Robert P Johnson
Robert P. Johnson, President
LESSOR: AEI REAL ESTATE FUND XVII LIMITED
PARTNERSHIP, a Minnesota limited partnership
By: AEI FUND MANAGEMENT XVII, INC., a Minnesota corporation
By: /s/ Robert P Johnson
Robert P. Johnson, President
EXHIBIT "A"
Lot 2-A, Block B, TOWNE CROSSING, an Addition to the City of Mesquite,
Dallas County, Texas, according to the Plat recorded in Volume 85051,
Page 5143, Map Records, Dallas County, Texas.
GUARANTEE OF LEASE
Effective as of March 15, 1997
FOR VALUE RECEIVED, and in order to induce AEI REAL ESTATE
FUND XVI LIMITED PARTNERSHIP, a Minnesota limited partnership,
whose corporate general partner is AEI Fund Management XVI, Inc.,
a Minnesota corporation and AEI REAL ESTATE FUND XVII LIMITED
PARTNERSHIP, a Minnesota limited partnership, whose corporate
general partner is AEI Fund Management XVII, Inc., a Minnesota
corporation ("Lessor"), to enter into, execute and deliver that
certain Lease Agreement dated effective of even effective date
herewith ("Lease") between Lessor, and Texas Sports City Cafe,
Ltd. ("Lessee"), the undersigned ("Guarantor", whether one or
more) hereby absolutely and unconditionally guarantees to said
Lessor, its successors and assigns, the due and prompt
performance and observance of all of the obligations of said
Lease to be met by Lessee, including but not limited to the
payment of rent and other payments to be made under the Lease.
The undersigned agrees that no act or thing, except for payment
in full or written release of this Guarantee by Lessor, which but
for this provision might or could in law or equity act as a
release of the liability of the undersigned hereunder, shall in
any way affect or impair the absolute and unconditional
obligation of the undersigned. This Guarantee shall be a
continuing, absolute and unconditional Guarantee and shall be in
full force and effect until all amounts due and owing under the
Lease are paid in full, or until this Guarantee has been released
in writing by Lessor, whichever occurs first, notwithstanding
expiration or sooner termination of the Lease. The undersigned
hereby waives all notices and protests, as well as all defenses
and offsets which could or may in any way be asserted against
said Lessor, either on the part of Lessee or by the Guarantor
itself. This Guarantee shall inure to the benefit of the
successors and assigns of said Lessor, including any subsequent
holder of Lessor's interest in the Lease.
The undersigned hereby waives notice of the execution of the
Lease; waives notice of the date of commencement of said Lease
and of any assignment or transfer of Lessor's interest in the
Lease and agrees to be bound by the terms of this Agreement to
any subsequent transferee or assignee of Lessor without further
notice or acceptance by such transferee or assignee.
Additionally, the undersigned Guarantor agrees to reimburse
Lessor for any and all costs or expenses, including legal fees,
incurred by Lessor in enforcing the terms and conditions of the
Lease or this Guaranty.
The undersigned hereby agrees that the Lessor may from time
to time without notice to or consent of the undersigned and upon
such terms and conditions as the Lessor may deem advisable
without affecting this Guarantee (a) release any maker, surety or
other person liable for payment of all or any part of the
obligations under the Lease; (b) make any agreement extending or
otherwise altering the time for or the terms of payment of rent
and/or fulfillment of the obligations of Lessee under the Lease;
(c) modify, waive, compromise, release, subordinate, resort to,
exercise or refrain from exercising any right the Lessor may have
hereunder, under the Lease or any other security given for
payment of rent and/or fulfillment of other obligations of Lessee
under the Lease; (d) accept additional security or guarantees of
any kind; (e) transfer or assign the Lease to any other party;
(f) accept from Lessee or any other party partial payment or
payments on account of the Lease; (g) release, settle or
compromise any claim of the Lessor against the Lessee, or against
any other person, firm or corporation whose obligation is held by
the Lessor as security for the payment of rent and/or the
fulfillment of other obligations of Lessee under the Lease.
The undersigned hereby unconditionally and absolutely waives
(a) any obligation on the part of the Lessor to protect, secure
or insure any of the Leased Premises; (b) the invalidity or
unenforceability of the Lease; (c) notice of acceptance of this
Guarantee by the Lessor; (d) notice of presentment, demand for
payment, notice of non-performance, protest, notices of protest
and notices of dishonor, notice of non-payment or partial
payment; (e) notice of any defaults under the Lease or in the
performance of any of the covenants and agreements contained
therein or in any instrument given as security for the Lease; (f)
any defense, offset or claim the Lessee or the undersigned may
have against the Lessor; (g) any limitation or exculpation of
liability on the part of the Lessee whether contained in the
Lease or otherwise; (h) any transfer by the Lessee; (i) any
failure, neglect or omission on the part of Lessor to realize or
protect the Leased Premises or any security given therefor; (j)
any right to insist that the Lessor proceed against the Lessee or
against any other Guarantor or surety prior to enforcing this
Guarantee; provided, however, at its sole discretion the Lessor
may either in a separate action or an action pursuant to this
Guarantee pursue its remedies against the Lessee or any other
Guarantor or surety, without affecting its rights under this
Guarantee; or (k) any order, method or manner of application of
any payments on the Lease.
Without limiting the generality of the foregoing, the
undersigned will not assert against the Lessor any defense of
waiver, release, discharge in bankruptcy, statute of limitations,
res judicata, statute of frauds, anti-deficiency statute, fraud,
ultra vires acts, usury, illegality or unenforceability which may
be available to the Lessee in respect of the Lease, or any setoff
available against the Lessor to the Lessee whether or not on
account of a related transaction.
The undersigned agrees this Guarantee is executed in order
to induce the Lessor to lease the Leased Premises to Lessee with
the intent that it be relied upon by the Lessor. This Guarantee
shall run with the Leased Premises and without the need for any
further assignment of this Guarantee to any subsequent owner of
the Leased Premises or the need for any notice to the undersigned
thereof. Upon assignment of the Lessor's interest in the Lease
to any subsequent party, said subsequent party may enforce this
Guarantee as if said party had been originally named as Lessor
hereunder.
No right or remedy herein conferred upon or reserved to the
Lessor is intended to be exclusive of any other available remedy
or remedies but each and every remedy shall be cumulative and
shall be in addition to every other remedy given under this
Guarantee or now or hereafter existing at law or in equity. No
waiver, amendment, release or modification of this Guarantee
shall be established by conduct, custom or course of dealing, but
only by an instrument in writing duly executed by Lessor.
This Guarantee and each and every part hereof, shall be
binding upon the undersigned and upon its heirs, administrators,
representatives, executors, successors and assigns and shall
inure to the pro rata benefit of each and every future Lessor
with the Lease, including the heirs, administrators,
representatives, executors, successors and assigns of the Lessor.
The undersigned expressly agrees that the liability and
obligations under this Guarantee shall not in any way be affected
by the institution by or against the Lessee of any bankruptcy,
reorganization, arrangement, insolvency or liquidation
proceedings, or any other similar proceedings for relief under
any bankruptcy law or similar law for relief of debtors and that
upon the institution of any of the above actions, at Lessor's
sole discretion and without any notice thereof or demand
therefor, the entire unpaid rent and other payments due under the
Lease shall become immediately due and payable and enforceable
against the Guarantor.
The undersigned agrees to furnish to Lessor the
undersigned's annual financial statements, audited if available,
or certified by the undersigned's CEO or CFO as true and correct,
within 90 days after the end of each calendar year, and such
unaudited interim statements as Lessor may reasonably request
from time to time. Such financial statements shall include a
balance sheet and, if prepared and available, profit and loss
statements. Any audited or reviewed financial statements, if
available, shall be accompanied by their auditor's opinion. The
undersigned shall also provide Lessor with copies of its tax
returns when filed.
If this Guarantee be executed by more than one person or
entity, the obligations of the undersigned are understood to be
joint and several and are fully enforceable against all or any of
the undersigned and neither the legal disaffirmity, death nor
release of any individual shall affect or release the joint and
several liability of any other Guarantor.
The undersigned agrees that all indebtedness, liability or
liabilities now or at any time or times hereafter owing by Lessee
to the undersigned are hereby subordinated to the Lessee's
obligations under the Lease and any payment of indebtedness of
the Lessee to the undersigned, if the Lessor so requests, shall
be received by the undersigned as trustee for the Lessor on
account of the Lessee's obligations under the Lease. The
undersigned agrees that the payment of any amount or amounts by
the undersigned pursuant to this Guarantee shall not in any way
entitle the undersigned whether at law, in equity or otherwise to
any right to participate in any security held by the Lessor for
the payment of the Lessee's obligations under the Lease, any
right to direct the application or disposition of any such
security or any right to direct the enforcement of any such
security. Performance by the undersigned under this Guarantee
shall not entitle the undersigned to be subrogated to any of the
Lessee's obligations under the Lease or to any security therefor,
unless and until the full amount of the Lessee's obligations
under the Lease has been fully paid.
This Guarantee is executed under and intended to be
construed by the laws of the State of Minnesota. The undersigned
consents to be sued in the jurisdiction and venue of any District
Court in the State of Minnesota or in any Court in the State of
Texas, such jurisdiction and venue to be determined at the sole
option and election of Lessor.
This document may be executed in counterpart and separately
by any combination of signatories hereto, but shall constitute
one and the same document as if all signatories executed the same
counterpart.
IN WITNESS WHEREOF, the undersigned has caused this
Guarantee to be executed effective as of this 15TH day of March,
1997.
HARBORAGE I, LTD.
By: Harborage Services, Inc.
By:/s/ Joyce Mc Reynolds
Its:President
STATE OF )
)SS.
COUNTY OF )
The foregoing instrument was acknowledged before me this
15th day of March,1997,by Joyce Mc Reynolds, the President of
Harborage Services, Inc., on behalf of said corporation, as
corporate general partner of Harborage I, Ltd, a limited
partnership, on behalf of said limited partnership.
/s/ Jane Both
Notary Public
[notary seal]
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000804127
<NAME> AEI REAL ESTATE FUND XVI PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 645,302
<SECURITIES> 0
<RECEIVABLES> 17,284
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 662,586
<PP&E> 11,162,751
<DEPRECIATION> (2,148,068)
<TOTAL-ASSETS> 9,677,269
<CURRENT-LIABILITIES> 314,941
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,140,347
<TOTAL-LIABILITY-AND-EQUITY> 9,677,269
<SALES> 0
<TOTAL-REVENUES> 1,050,609
<CGS> 0
<TOTAL-COSTS> 838,821
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 496,478
<INCOME-TAX> 0
<INCOME-CONTINUING> 496,478
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 496,478
<EPS-PRIMARY> 34.91
<EPS-DILUTED> 34.91
</TABLE>
