<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly year ended March 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 0-19219
Brauvin Income Plus L.P. III
(Exact name of registrant as specified in its charter)
Delaware 36-3639043
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 South Wacker Drive, Chicago, Illinois 60606
(Address of principal executive offices) (Zip Code)
(312) 443-0922
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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 .
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
INDEX
Page
PART I Financial Information
Item 1. Consolidated Financial Statements . . . . . . . . . 3
Consolidated Balance Sheets at March 31, 1997 and
December 31, 1996 . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations for the three
months ended March 31, 1997 and 1996. . . . . . . . 5
Consolidated Statements of Partners' Capital for
the periods January 1, 1996 to March 31, 1997 . . . 6
Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1996. . . . . . . . 7
Notes to Consolidated Financial Statements. . . . . 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 25
PART II Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 32
Item 2. Changes in Securities . . . . . . . . . . . . . . . 36
Item 3. Defaults Upon Senior Securities . . . . . . . . . . 36
Item 4. Submissions of Matters to a Vote of Security Holders 36
Item 5. Other Information . . . . . . . . . . . . . . . . . 37
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . 37
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . 38
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Except for the December 31, 1996 Consolidated Balance Sheet, the
following Consolidated Balance Sheet as of March 31, 1997,
Consolidated Statements of Operations for the three months ended
March 31, 1997 and 1996, Consolidated Statements of Partners'
Capital for the periods January 1, 1996 to March 31, 1997 and
Consolidated Statements of Cash Flows for the three months ended
March 31, 1997 and 1996 for Brauvin Income Plus L.P. III (the
"Partnership") are unaudited and have not been examined by
independent public accountants but reflect, in the opinion of the
management, all adjustments necessary to present fairly the
information required. All such adjustments are of a normal
recurring nature.
These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Partnership's 1996 Annual Report on Form
10-K.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
ASSETS
Investment in real estate, at cost:
Land $ 7,845,528 $ 7,845,528
Buildings and improvements 10,463,264 10,463,264
18,308,792 18,308,792
Less: Accumulated depreciation (2,347,849) (2,254,604)
Net investment in real estate 15,960,943 16,054,188
Investment in Joint Ventures (Note 4):
Brauvin Gwinnett County Venture 151,061 151,818
Brauvin Bay County Venture 364,993 367,323
Cash and cash equivalents 1,414,070 1,442,263
Rent receivable 2,215 3,318
Deferred rent receivable 47,358 45,201
Prepaid offering costs 70,824 70,824
Other assets -- 2,690
Total Assets $18,011,464 $18,137,625
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued expenses $ 311,479 $ 315,549
Rent received in advance 36,981 62,236
Total Liabilities 348,460 377,785
Minority Interest in Brauvin
Brauvin Chili's Limited Partnership (604) (569)
PARTNERS' CAPITAL:
General Partners 86,905 78,152
Limited Partners 17,576,703 17,682,257
Total Partners' Capital 17,663,608 17,760,409
Total Liabilities and Partners' Capital $18,011,464 $18,137,625
See accompanying notes to consolidated financial statements.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31,
1997 1996
INCOME:
Rental $567,350 $546,007
Interest 17,732 9,814
Other 180 379
Total income 585,262 556,200
EXPENSES:
General and administrative 46,059 38,079
Management fees 6,048 5,943
Transaction costs 11,727 --
Valuation fees -- 19,200
Depreciation 93,245 96,244
Total expenses 157,079 159,466
Income before minority interest and
equity interest in joint ventures 428,183 396,734
Minority interest's share in Brauvin
Chili's Limited Partnership's net income (115) (123)
Equity interest in net income from:
Brauvin Bay County Venture 6,170 --
Brauvin Gwinnett County Venture 3,403 3,403
Net income $437,641 $400,014
Net income allocated to the
General Partners $ 8,753 $ 8,000
Net income allocated to the
Limited Partners $428,888 $392,014
Net income per Unit outstanding (a) $ 0.19 $ 0.18
(a)Net income per Unit was based on the average Units outstanding
during the period since they were of varying dollar amounts and
percentages based upon the dates Limited Partners were admitted to
the Partnership and additional Units were purchased through the
distribution reinvestment plan (the "Plan").
See accompanying notes to consolidated financial statements.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
For the period January 1, 1996 to March 31, 1997
General Limited
Partners Partners* Total
Balance January 1, 1996 $70,772 $17,314,980 $17,385,752
Contributions, net -- 32,715 32,715
Selling commissions and
other offering costs -- (8,313) (8,313)
Net income 28,422 1,392,697 1,421,119
Cash distributions (21,042) (1,049,822) (1,070,864)
Balance, December 31, 1996 78,152 17,682,257 17,760,409
Net income 8,753 428,888 437,641
Cash distributions -- (534,442) (534,442)
Balance, March 31, 1997 $86,905 $17,576,703 $17,663,608
* Total Units sold at March 31, 1997 and December 31, 1996 were
2,230,375. Cash distributions to Limited Partners per Unit were
$.24 and $0.47 for the three months ended March 31, 1997 and the
year ended December 31, 1996 respectively. Cash distributions to
Limited Partners per Unit are based on the average Units
outstanding during the period since they were of varying dollar
amounts and percentages based upon the dates Limited Partners
were admitted to the Partnership and additional Units were
purchased through the Plan.
See accompanying notes to consolidated financial statements.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,
1997 1996
Cash flows from operating activities:
Net income $ 437,641 $400,014
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 93,245 96,244
Minority interest's share of income from
Brauvin Chili's Limited Partnership 115 123
Equity interest in net income from:
Brauvin Bay County Venture (6,170) --
Brauvin Gwinnett County Venture (3,403) (3,403)
Decrease in rent receivables 1,103 --
Increase in deferred rent receivable (2,157) (2,157)
Decrease in due from affiliates -- 7,301
Decrease (increase) in other assets 2,690 (19,759)
Decrease in accounts payable
and accrued expenses (4,070) (29,553)
(Decrease) increase in rent received
in advance (25,255) 4,050
Net cash provided by operating activities 493,739 452,860
Cash flows from investing activities:
Cash distribution from:
Brauvin Bay County Venture 8,500 --
Brauvin Gwinnett County Venture 4,160 3,841
Net cash provided by investing activities 12,660 3,841
Cash flows from financing activities:
Sale of Units, net of liquidations
and selling commissions -- 25,848
Cash distributions to General Partners -- (10,553)
Cash distributions to Limited Partners (534,442) (517,874)
Cash distribution to minority interest -
Brauvin Chili's Limited Partnership (150) (195)
Net cash used in financing activities (534,592) (502,774)
Net decrease in cash and cash equivalents (28,193) (46,073)
Cash and cash equivalents at beginning
of period 1,442,263 1,069,555
Cash and cash equivalents at end of period $1,414,070 $1,023,482
See accompanying notes to consolidated financial statements.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
BRAUVIN INCOME PLUS L.P. III (the "Partnership") is a Delaware
limited partnership organized for the purpose of acquiring
debt-free ownership of existing, free-standing, income-producing
retail, office or industrial real estate properties predominantly
subject to "triple-net" leases. The General Partners of the
Partnership are Brauvin Realty Advisors III, Inc. and Jerome J.
Brault. Brauvin Realty Advisors III, Inc. is owned by Messrs.
Brault (beneficially) (50%) and Cezar M. Froelich (50%). Mr.
Froelich resigned as a director of Brauvin Realty Advisors III,
Inc. in December 1994 and as an Individual General Partner
effective as of September 17, 1996. Brauvin Securities, Inc., an
affiliate of the General Partners, was the selling agent for the
Partnership. The Partnership is managed by an affiliate of the
General Partners.
The Partnership was formed on July 31, 1989 and filed a
Registration Statement on Form S-11 with the Securities and
Exchange Commission which was declared effective on October 30,
1989. The sale of the minimum of $1,200,000 of limited partnership
interests of the Partnership (the "Units") necessary for the
Partnership to commence operations was achieved on January 15,
1990. The Partnership's offering was originally expected to close
on October 29, 1990 but the Partnership, with the receipt of the
necessary regulatory approval, extended the offering until it
closed on October 29, 1991. Through March 31, 1997 and December
31, 1996, the Partnership has sold $22,766,719 of Units. This
total includes $1,459,119 of Units raised by Limited Partners who
utilized their distributions of Operating Cash Flow to purchase
additional Units through the distribution reinvestment plan (the
"Plan"). Units valued at $462,972,have been repurchased by the
Partnership from Limited Partners liquidating their investment in
the Partnership and have been retired as of March 31, 1997 and
December 31, 1996. As of March 31, 1997, the Plan participants
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
have acquired Units under the Plan which approximate 6% of the
total Units outstanding.
The Partnership has acquired the land and buildings underlying
five Ponderosa restaurants, two Chi-Chi's restaurants, one
International House of Pancakes restaurant, one Applebee's
restaurant, two Sports Unlimited stores, and three Steak n Shake
restaurants. The Partnership also acquired 99.5%, 6.4% and 34.0%
equity interests in three joint ventures with entities affiliated
with the Partnership. These ventures own the land underlying a
Chili's restaurant, a CompUSA store and a Blockbuster Video store,
respectively.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management's Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Accounting Method
The accompanying financial statements have been prepared using
the accrual method of accounting.
Rental Income
Rental income is recognized on a straight-line basis over the
life of the related leases. Differences between rental income
earned and amounts due per the respective lease agreements are
credited or charged as applicable to deferred rent receivable.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Federal Income Taxes
Under the provisions of the Internal Revenue Code, the
Partnership's income and losses are reportable by the partners on
their respective income tax returns. Accordingly, no provision is
made for Federal income taxes in the consolidated financial
statements. However, in certain instances, the Partnership has
been required under applicable state law to remit directly to the
tax authorities amounts representing withholding from distributions
paid to partners.
Consolidation of Joint Venture
The Partnership owns a 99.5% equity interest in one joint
venture, Brauvin Chili's Limited Partnership, which owns one
Chili's restaurant. The accompanying financial statements have
consolidated 100% of the assets, liabilities, operations and
partners' capital of Brauvin Chili's Limited Partnership. All
significant intercompany accounts have been eliminated.
Investment in Joint Venture
The Partnership owns a 6.4% and a 34.0% equity interest in two
joint ventures, Brauvin Gwinnett County Venture, which owns one
CompUSA store, and Brauvin Bay County Venture, which owns one
Blockbuster Video store, respectively. The accompanying financial
statements include the investments in Brauvin Gwinnett County
Venture and Brauvin Bay County Venture using the equity method of
accounting.
Investment in Real Estate
The operating properties acquired by the Partnership are stated
at cost including acquisition costs. The Partnership's rental
properties are stated at cost including acquisition costs.
Depreciation is recorded on a straight-line basis over the
estimated economic lives of the properties which approximate 35
years.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In 1995, the Partnership adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS
121). The Partnership has performed an analysis of its long-lived
assets, and the Partnership's management determined that there were
no events or changes in circumstances that indicated that the
carrying amount of the assets may not be recoverable at March 31,
1997 and December 31, 1996. Accordingly, no impairment loss has
been recorded in the accompanying financial statements for the
three months ended March 31, 1997 or the year ended December 31,
1996.
Organization and Offering Costs
Organization costs represent costs incurred in connection with
the organization and formation of the Partnership. Organization
costs were amortized over a period of five years using the
straight-line method. Offering costs represent costs incurred in
selling Units, such as the printing of the Prospectus and marketing
materials. Offering costs have been recorded as a reduction of
Limited Partners' Capital.
Prepaid offering costs represent amounts in excess of the
defined percentages of the gross proceeds. Prior to the
commencement of the Partnership's proxy solicitation (See Note 5),
gross proceeds were expected to increase due to the purchase of
additional Units through the Plan and the prepaid offering costs
would be transferred to offering costs and treated as a reduction
in Partners' Capital.
Cash and Cash Equivalents
Cash equivalents include all highly liquid debt instruments with
an original maturity within three months of purchase.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Estimated Fair Value of Financial Instruments
Disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments." The estimated fair value amounts
have been determined by using available market information and
appropriate valuation methodologies. However, considerable
judgement is necessarily required in interpreting market data to
develop estimates of fair value.
The fair value estimates presented herein are based on
information available to management as of March 31, 1997, but may
not necessarily be indicative of the amounts that the Partnership
could realize in a current market exchange. The use of different
assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts. Although management is
not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements
since that date, and current estimates of fair value may differ
significantly from amounts presented herein.
The carrying amounts of the following items are a reasonable
estimate of fair value: cash and cash equivalents; rent receivable;
accounts payable and accrued expenses; and rent received in
advance.
Reclassifications
Certain reclassifications have been made to the 1996 financial
statements to conform to classifications adopted in 1997.
(2) PARTNERSHIP AGREEMENT
Distributions
All Operating Cash Flow, as defined in the Partnership Agreement
(the "Agreement") shall be distributed: (a) first, to the Limited
Partners until the Limited Partners receive an amount equal to a
9-1/4% non-cumulative, non-compounded, annual return on Adjusted
Investment, as such term is defined in the Agreement, commencing on
the last day of the calendar quarter in which the Unit was
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
purchased (the "Current Preferred Return"); and (b) thereafter, any
remaining amounts will be distributed 98% to the Limited Partners
(on a pro rata basis) and 2% to the General Partners.
The net proceeds of a sale or refinancing of a Partnership
property shall be distributed as follows:
. first, pro rata to the Limited Partners until each Limited
Partner has received an amount equal to a 10.5% cumulative,
non-compounded, annual return of Adjusted Investment (the
"Cumulative Preferred Return");
. second, to the Limited Partners until each Limited Partner has
been paid an amount equal to his Adjusted Investment, as defined
in the Agreement, apportioned pro rata among the Limited
Partners based on the amount of the Adjusted Investment; and
. thereafter, 95% to the Limited Partners (apportioned pro rata
based on Units) and 5% to the General Partners.
Profits and Losses
Net profits and losses from operations of the Partnership
[computed without regard to any allowance for depreciation or cost
recovery deductions under the Internal Revenue Code of 1986, as
amended (the "Code")] for each taxable year of the Partnership
shall be allocated to each Partner in the same ratio as the cash
distributions received by such Partner attributable to that period
bears to the total cash distributed by the Partnership. In the
event that there are no cash distributions, net profits and losses
from operations of the Partnership (computed without regard to any
allowance for depreciation or cost recovery deductions under the
Code) shall be allocated 99% to the Limited Partners and 1% to the
General Partners. Notwithstanding the foregoing, all depreciation
and cost recovery deductions allowed under the Code shall be
allocated 2% to the General Partners and 98% to the Taxable Class
Limited Partners, as defined in the Agreement.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The net profit of the Partnership from any sale or other
disposition of a Partnership property shall be allocated (with
ordinary income being allocated first) as follows: (a) first, an
amount equal to the aggregate deficit balances of the Partners'
Capital Accounts, as such term is defined in the Agreement, shall
be allocated to each Partner who or which has a deficit Capital
Account balance in the same ratio as the deficit balance of such
Partner's Capital Account bears to the aggregate of the deficit
balances of all Partners' Capital Accounts; (b) second, to the
Limited Partners until the Capital Account balances of the Limited
Partners are equal to any unpaid Cumulative Preferred Return, as of
such date; (c) third, to the Limited Partners until the Capital
Account balances of the Limited Partners are equal to the sum of
the amount of their Adjusted Investment plus any unpaid Cumulative
Preferred Return; (d) fourth, to the General Partners until their
Capital Account balances are equal to any previously subordinated
fees; and (e) thereafter, 95% to the Limited Partners and 5% to the
General Partners. The net loss of the Partnership from any sale or
other disposition of a Partnership property shall be allocated as
follows: (a) first, an amount equal to the aggregate positive
balances in the Partners' Capital Accounts, to each Partner in the
same ratio as the positive balance in such Partner's Capital
Account bears to the aggregate of all Partners' positive Capital
Accounts balances; and (b) thereafter, 95% to the Limited Partners
and 5% to the General Partners.
(3) TRANSACTIONS WITH RELATED PARTIES
The Partnership pays an affiliate of the General Partners an
annual property management fee equal to up to 1% of gross revenues
derived from Partnership properties managed by such affiliate. The
property management fee is subordinated to receipt by the Limited
Partners of distributions of Operating Cash Flow in an amount equal
to the Current Preferred Return.
An affiliate of one of the General Partners provided securities
and real estate counsel to the Partnership.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Partnership pays affiliates of the General Partners selling
commissions of 7-1/2% of the capital contributions received for
Units sold by the affiliates.
The Partnership pays an affiliate of the General Partners an
acquisition fee in the amount of up to 5% of the gross proceeds of
the Partnership's offering for the services rendered in connection
with the process pertaining to the acquisition of a property.
Acquisition fees related to the properties not ultimately purchased
by the Partnership are expensed as incurred.
Fees, commissions and other expenses paid or payable to the
General Partners or its affiliates for the three months ended March
31, 1997 and 1996 were as follows:
1997 1996
Selling commissions $ -- $ 6,867
Management fees 6,048 5,943
Reimbursable operating expenses 36,646 22,200
Legal fees -- 3,479
(4) INVESTMENT IN JOINT VENTURES
The Partnership owns equity interests in the Brauvin Gwinnett
County Venture and the Brauvin Bay County Venture and reports its
investments on the equity method. The following are condensed
financial statements for the Brauvin Gwinnett County Venture and
the Bay County Venture:
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
BRAUVIN GWINNETT COUNTY VENTURE
March 31, 1997 December 31, 1996
Land and buildings, net $2,320,177 $2,330,758
Other assets 59,258 59,531
$2,379,435 $2,390,289
Liabilities $ 24,786 $ 22,702
Partners' capital 2,354,649 2,395,375
$2,379,435 $2,418,077
For the three months ended March 31,
1997 1996
Rental income $65,805 $65,225
Expenses:
Depreciation 10,582 11,438
Management fees 875 622
Operating and
administrative 1,169 --
12,626 12,060
Net income $53,179 $53,165
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
BRAUVIN BAY COUNTY VENTURE
March 31,1997 December 31, 1996
Land and buildings, net $1,066,293 $1,069,277
Other assets 8,506 13,531
$1,074,799 $1,082,808
Liabilities $ -- $ 1,155
Partners' capital 1,074,799 1,081,653
$1,074,799 $1,082,808
For the three months ended March 31,
1997
Rental and other income $27,914
Expenses:
Depreciation 2,984
Management fees 292
Operating and administrative 6,493
9,769
Net income $18,145
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(5) MERGER AND LITIGATION
Merger
Pursuant to the terms of the an agreement and plan of merger
dated as of June 14, 1996, as amended March 24, 1997 (the "Merger
Agreement") the Partnership proposes to merge with and into the
Brauvin Real Estate Funds L.L.C., a Delaware limited liability
company affiliated with certain of the General Partners (the
"Purchaser") through a merger (the "Merger") of its Units. In
connection with the Merger, the Limited Partners will receive
approximately $8.85 per Unit in cash. Promptly upon consummation
of the Merger, the Partnership will cease to exist and the
Purchaser, as the surviving entity, will succeed to all of the
assets and liabilities of the Partnership. The Limited Partners
holding a majority of the Units approved the Merger on November 8,
1996. By approving the Merger, the Limited Partners also approved
an amendment of the Agreement allowing the Partnership to sell or
lease property to affiliates (this amendment, together with the
Merger shall be referred to herein as the "Transaction").
The redemption price to be paid to the Limited Partners in
connection with the Merger is based on the fair market value of the
properties of the Partnership (the "Assets"). Cushman & Wakefield
Valuation Advisory Service ("Cushman & Wakefield"), an independent
appraiser, the largest real estate valuation and consulting
organization in the United States, was engaged by the Partnership
to prepare an appraisal of the Assets, to satisfy the Partnership's
requirements under the Employee Retirement Income Security Act of
1974, as amended. Cushman & Wakefield determined the fair market
value of the Assets to be $19,129,150, or $8.58 per Unit. The
redemption price of $8.85 per Unit also includes all remaining cash
of the Partnership, less net earnings of the Partnership from and
after August 1, 1996 through December 31, 1996, less the
Partnership's actual costs incurred and accrued through the
effective time of the filing of the certificate of merger,
including reasonable reserves in connection with: (i) the proxy
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
solicitation; (ii) the Transaction (as detailed in the Merger
Agreement); and (iii) the winding up of the Partnership, including
preparation of the final audit, tax return and K-1s (collectively,
the "Transaction Costs") and less all other Partnership
obligations.
The General Partners will not receive any payment in exchange for
the redemption of their general partnership interests nor will they
receive any fees from the Partnership in connection with the
Transaction. The Managing General Partner and his son, James L.
Brault, an executive officer of the Corporate General Partner, will
have a minority ownership interest in the Purchaser.
The Merger has not been completed primarily due to certain
litigation, as described below, that is still pending. The
Operating General Partners (as defined below) believe that these
lawsuits are without merit and, therefore, continue to vigorously
defend against them. The Purchaser is aware of these lawsuits and
is nonetheless willing to proceed with the Merger, subject to the
satisfaction of its due diligence as outlined below.
Following receipt of Limited Partner approval, the Purchaser
commenced the finalization of Purchaser's financing and its due
diligence review of the assets of the Partnership and those of the
Affiliated Partnerships (as defined below). The due diligence
process has revealed certain concerns relating to potential
environmental problems at some of the properties of the Partnership
and the Affiliated Partnerships. The investigation has narrowed
the concerns to properties of the Affiliate Partnerships. The due
diligence review has also raised questions regarding the interpretation
of certain terms in the leases governing some of the Partnership's and
the Affiliated Partnerships' properties. A very significant tenant is
interpreting certain purchase options contained in its leases in a
way that would cause the value of the properties leased by such
tenant to be significantly below the current appraised value.
Members of management of the Partnership and the Affiliated
Partnerships have been working with the Purchaser to assess these
risks and to resolve them in a way that will allow the Merger and
the related transactions to be consummated without any changes to
the terms or the Merger price. The Purchaser is continuing to
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
assess certain lease provisions, assess the costs and risks of the
litigation discussed below, and finalize its financing in the light
of these developments.
In accordance with the terms of the Merger Agreement, the General
Partners suspended all distributions to Limited Partners; however,
as a result of the unforeseen delays brought about by the
litigation and the due diligence issues highlighted above, the
General Partners felt it was appropriate that an earnings
distribution be made to the Limited Partners. Although the terms
of the Merger Agreement entered into by the Partnership and the
Purchaser provide that the Assets being acquired by the Purchaser
in connection with the Merger include all earnings of the
Partnership from and after August 1, 1996, the Purchaser has agreed
to allow the Partnership to make distributions to the Limited
Partners of net earnings for the period from and after January 1,
1997 until the Merger is consummated. In exchange, the Partnership
has agreed to extend the termination date of the Merger Agreement
to June 30, 1997 to allow the Purchaser time to complete its due
diligence. Notwithstanding the extension of the termination date,
the Partnership and the Purchaser continue to work through the due
diligence issues outlined above, with the intent of closing the
merger as soon as possible.
A distribution of the Partnership's net earnings for the period
January 1, 1997 to March 31, 1997 was made to the Limited Partners
on March 31, 1997 in the amount of approximately $534,400. Net
earnings accruing after March 31, 1997 through the closing date
will be included with the final cash distribution to the Limited
Partners from the Merger.
Litigation
Two legal actions, as hereinafter described, were filed against
certain of the General Partners of the Partnership and affiliates
of such General Partners, as well as against the Partnership on a
nominal basis in connection with the Merger. Each of these actions
was brought by limited partners of the Partnership. The
Partnership and the named General Partners and their affiliates
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
deny all allegations set forth in the complaints and are vigorously
defending against such claims.
A. The Florida Lawsuit
On September 17, 1996, a lawsuit was filed in the Circuit Court
of the Seventeenth Judicial Circuit in and for Broward County,
Florida, styled Rebecca Scialpi and Helen Friedlander v. Jerome J.
Brault, Brauvin Realty Advisors, Inc., Brauvin Realty Advisors II,
Inc., Brauvin Realty Advisors III, Inc., and Brauvin Realty
Advisors IV, Inc., James L. Brault, and Brauvin Real Estate Funds,
L.L.C. and Brauvin High Yield Fund L.P., Brauvin High Yield Fund
II, L.P., Brauvin Income Plus L.P. III, and Brauvin Corporate Lease
Program IV, L.P., Docket No. 96012807. The Partnership and the
other affiliated partnerships named in this lawsuit (the
"Affiliated Partnerships") that are proposed to be a party to a
merger or sale with the Purchaser, are each named as a "Nominal
Defendant" in this lawsuit. Jerome J. Brault, the Managing General
Partner of the Partnership, and Brauvin Realty Advisors III, Inc.,
the Corporate General Partner of the Partnership, as well as
certain corporate general partners of the Affiliated Partnerships,
have been named as defendants in this lawsuit. James L. Brault, an
officer of the Corporate General Partner and the son of Jerome J.
Brault, is also named as a defendant.
The plaintiffs filed an amended complaint on October 8, 1996.
The amended complaint alleges a purported class action consisting
of claims for breach of fiduciary duties, fraud, breach of the
Agreement, and civil racketeering. The amended complaint seeks
injunctive relief, as well as compensatory and punitive damages,
relating to the proposed transactions with the Purchaser. The
defendants have answered plaintiffs' amended complaint, and have
denied each of the plaintiffs' allegations of wrongful conduct.
On October 2, 1996, the plaintiffs in this action requested that
the Circuit Court enjoin the special meetings of the limited
partners and the proposed transactions with the Purchaser. This
motion was denied by the Circuit Court on October 8, 1996, and the
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Florida appellate court denied plaintiffs' appeal of the Circuit
Court's October 8, 1996 ruling. There have been no material
developments with respect to this lawsuit since October 8, 1996.
B. The Illinois Lawsuit
On September 18, 1996, a class action lawsuit was filed in the
United States District Court for the Northern District of Illinois,
styled M. Barbara Christman, Joseph Forte, Janet M. Toolson, John
Archbold, and Ben O. Carroll v. Brauvin Realty Advisors, Inc.,
Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors III,
Inc., Brauvin Realty Advisors IV, Inc., Jerome J. Brault; Brauvin
Real Estate Funds, L.L.C. and Brauvin High Yield Fund L.P., Brauvin
High Yield Fund L.P. II, Brauvin Income Plus L.P. III, and Brauvin
Corporate Lease Program IV L.P., Docket No. 96C6025. The
Partnership and the Affiliated Partnerships are each named as a
"Nominal Defendant" in the lawsuit. Jerome J. Brault and the
Corporate General Partner of the Partnership, as well as the
corporate general partners of the Affiliated Partnerships, are
named as defendants.
The plaintiffs filed an amended complaint on October 8, 1996,
which alleges claims for breach of fiduciary duties, breaches of
the Agreement, and violation of the Illinois Deceptive Trade
Practices Act. The amended complaint seeks injunctive relief, as
well as compensatory and punitive damages, relating to the proposed
transaction with the Purchaser.
On October 2, 1996, the District Court certified plaintiffs'
proposed class as all of the limited partners of the Partnership
and of the Affiliated Partnerships, and appointed plaintiffs'
counsel, The Mills Law Firm, as counsel for the class. On October
2, 1996, the District Court also conducted a hearing on plaintiffs'
motion to preliminarily enjoin the special meetings of the limited
partners and the proposed transactions with the Purchaser. The
District Court denied plaintiffs' motion for a preliminary
injunction at the conclusion of the October 2, 1996 hearing.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
On September 27, 1996, counsel for plaintiffs, The Mills Law
Firm, mailed a solicitation to all of the Limited Partners,
requesting that they revoke their previously-mailed proxies in
favor of the Merger. On October 11, 1996, the Operating General
Partners filed a counterclaim against plaintiffs and their counsel,
The Mills Law Firm, alleging that plaintiffs and The Mills Law Firm
violated the federal securities laws and proxy rules by sending
their September 27, 1996 letter to the Limited Partners. The
plaintiffs and The Mills Law Firm have moved to dismiss this
counterclaim. The District Court has taken this motion under
advisement and has yet to issue a ruling.
On October 10 and 11, 1996, the District Court conducted an
evidentiary hearing on the motion of the Operating General Partners
to invalidate revocations of proxies procured as a result of The
Mills Law Firm's September 27, 1996 letter. In that evidentiary
hearing, The Mills Law Firm admitted that it violated the proxy
rules by sending its September 27, 1996 letter to the Limited
Partners without filing such letter with the Commission in
violation of the Commission's requirements. At the conclusion of
the hearing on October 10 and 11, the District Court found that the
Operating General Partners have a likelihood of succeeding on the
merits with respect to their claim that the September 27, 1996
letter sent to the Limited Partners by plaintiffs and The Mills Law
Firm is false or misleading in several significant respects.
Notwithstanding this finding, the District Court did not
invalidate the revocations of proxies resulting from The Mills Law
Firm's September 27, 1996 letter because it did not believe it
possessed the authority to do so under present law. This ruling
was appealed to the Seventh Circuit Court of Appeals. The Seventh
Court of Appeals subsequently dismissed this appeal on the grounds
that the appeal was rendered moot by the Limited Partners' approval
on November 8, 1996 of the Merger.
On October 16, 1996 and on November 6, 1996, the parties filed
cross-motions for partial summary judgement addressing the
allegation in plaintiffs' amended complaint that the Agreement does
not allow the Limited Partners to vote in favor of or against the
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
proposed transaction with the Purchaser by proxy. These cross-
motions for partial summary judgement were taken under advisement
by the District Court, and the District Court has yet to issue a
ruling.
On April 2, 1997, the Court granted plaintiffs' leave to again
amend their complaint. In their second amended complaint,
plaintiffs have named the Partnership as a "Nominal Defendant."
Plaintiffs have also added a new claim, alleging that the Operating
General Partners violated certain of the Commission rules by making
false and misleading statements in the Proxy. Plaintiffs also
allege that the Operating General Partners breached their fiduciary
duties, breached various provisions of the Agreement, violated the
Illinois Deceptive Trade Practice Act and violated section 17-305
of the Delaware Revised Uniform Limited Partnership Act. The
Operating General Partners deny those allegations and will continue
to vigorously defend against these claims.
On April 2, 1997, plaintiffs again requested that the District
Court enjoin the closing of the transaction with the
Purchaser. After conducting a lengthy hearing on May 1, 1997, the
District Court denied plaintiffs' motion to preliminarily enjoin
the closing of the transaction with the Purchaser.
Pursuant to the Agreement and Delaware law, the Partnership will
advance to the defendants their defense costs. The Corporate
General Partner has agreed to repay the Partnership for the
advances if it is ever determined that the parties were not
entitled to receive the advances. No estimate can reasonably be
made at this time of the costs of defense.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
Certain statements in this Quarterly Report that are not
historical fact constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
Discussions containing forward-looking statements may be found in
this section. Without limiting the foregoing, words such as
"anticipates," "expects,""intends,""plans" and similar expressions
are intended to identify forward-looking statements. These
statements are subject to a number of risks and uncertainties.
Actual results could differ materially from those projected in the
forward-looking statements. The Partnership undertakes no
obligation to update these forward-looking statements to reflect
future events or circumstances.
Liquidity and Capital Resources
The Partnership commenced an offering to the public on October
30, 1989 of 2,500,000 Units. The offering was anticipated to close
on October 29, 1990 but was extended by the General Partners with
the necessary regulatory approval to October 29, 1991. The
Offering was conditioned upon the sale of $1,200,000, which was
achieved on January 15, 1990. The Offering closed on October 29,
1991 with the Partnership raising a cumulative total of
$21,307,600. Until the proxy solicitation process began, the
Partnership continued to raise additional funds through the Plan.
The Plan raised $1,459,119 as of March 31, 1997 and December 31,
1997 from Limited Partners investing their distributions of
Operating Cash Flow in additional Units, which process was
discontinued when the proxy solicitation process began. As of
March 31, 1997 and December 31, 1997 Units valued at $462,972 have
been repurchased by the Partnership from Limited Partners
liquidating their investment in the Partnership and have been
retired.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
The Partnership purchased the land, buildings and improvements
underlying five Ponderosa restaurants on January 19, 1990, February
16, 1990, March 19, 1990, April 24, 1990 and June 4, 1990,
respectively. In addition, the Partnership closed on the land,
buildings and improvements underlying two Chi-Chi's restaurants;
the first closed on March 12, 1991 and the second closed on March
27, 1991. The land, buildings and improvements underlying an IHOP
restaurant were purchased on April 26, 1991, an Applebee's
restaurant on June 5, 1991 (which was expanded in 1992), two Sports
Unlimited sporting goods stores on September 17, 1991, a Chili's
restaurant on February 7, 1992 and three Steak n Shake restaurants
on April 16, 1992.
On February 7, 1992, the Partnership purchased a 99.5% equity
interest in a joint venture with an affiliate, Brauvin Chili's
Limited Partnership, which owns one Chili's restaurant.
On November 9, 1993, the Partnership purchased a 6.4% interest
in a joint venture with affiliated public real estate limited
partnerships (the "Venture"). The Venture acquired the land and
building underlying a 25,000 square foot CompUSA computer
superstore from an unaffiliated seller.
On October 31, 1996, the Partnership purchased a 34% joint
venture equity interest in a joint venture with affiliated public
real estate limited partnerships, the Brauvin Bay County Venture.
The Brauvin Bay County Venture purchased real property upon which
is operated a newly constructed Blockbuster video store. The
property contains a 6,466 square foot building located on a 40,075
square foot parcel of land.
These operating properties are expected to generate cash flow
for the Partnership after deducting certain operating and general
and administrative expenses from their rental income. The
Partnership has no funds available to purchase additional property,
excluding those raised through the Plan.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
Below is a table summarizing the four year historical data for
distribution rates per unit:
Distribution
Date 1997 1996 1995 1994
February 15 $.2396 (a) $.2313 $.2313 $.2250
May 15 .2313 .2313 .2250
August 15 -- .2313 .2250
November 15 -- .2313 .2313
(a) The 1997 distribution was made on March 31, 1997.
Should the Merger not occur, future increases in the
Partnership's distributions will largely depend on increased sales
at the Partnership's properties resulting in additional percentage
rent and, to a lesser extent, on rental increases, which will occur
due to increases in receipts from certain leases based upon
increases in the Consumer Price Index or scheduled increases of
base rent.
Pursuant to the terms of the Merger Agreement, the Limited
Partners will receive approximately $8.85 per Unit in cash.
Promptly upon consummation of the Merger, the Partnership will
cease to exist and the Purchaser, as the surviving entity will
succeed to all of the assets and liabilities of the Partnership.
The Limited Partners holding a majority of the Units approved the
Merger on November 8, 1996.
The Partnership drafted a proxy statement, which required
prior review and comment by the Commission, to solicit proxies for
use at the Special Meeting originally to be held at the offices of
the Partnership on September 24, 1996. As a result of various
pending legal issues, as described in legal proceedings, the
Special Meeting was adjourned to November 8, 1996 at 10:00 a.m.
The purpose of the Special Meeting was to vote upon the Merger and
certain other matters as described in the Proxy.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
By approving the Merger, the Limited Partners also approved an
amendment of the Agreement allowing the Partnership to sell or
lease property to affiliates (this amendment, together with the
Merger shall be referred to herein as the "Transaction"). The
Delaware Revised Uniform Limited Partnership Act (the "Act")
provides that a merger must also be approved by the general
partners of a partnership, unless the limited partnership agreement
provides otherwise. Because the Agreement did not address this
matter, at the Special Meeting, Limited Partners holding a majority
of the Units were also asked to approve the adoption of an
amendment to the Agreement to allow the majority vote of the
Limited Partners to determine the outcome of the transaction with
the Purchaser without the vote of the General Partners of the
Partnership. Such approval was also received. Neither the Act
nor the Agreement provides the Limited Partners not voting in favor
of the Transaction with dissenters' appraisal rights.
The redemption price to be paid to the Limited Partners in
connection with the Merger is based on the fair market value of the
properties of the Partnership (the "Assets"). Cushman & Wakefield
Valuation Advisory Service ("Cushman & Wakefield"), an independent
appraiser, the largest real estate valuation and consulting
organization in the United States, was engaged by the Partnership
to prepare an appraisal of the Assets, to satisfy the Partnership's
requirements under the Employee Retirement Income Security Act of
1974, as amended. Cushman & Wakefield determined the fair market
value of the Assets to be $19,129,150, or $8.58 per Unit. The
redemption price of $8.85 per Unit also includes all remaining cash
of the Partnership, less net earnings of the Partnership from and
after August 1, 1996 through December 31, 1996, less the
Partnership's actual costs incurred and accrued through the
effective time of the filing of the certificate of merger,
including reasonable reserves in connection with: (i) the proxy
solicitation; (ii) the Transaction (as detailed in the Merger
Agreement); and (iii) the winding up of the Partnership, including
preparation of the final audit, tax return and K-1s (collectively,
the "Transaction Costs") and less all other Partnership
obligations.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
Cushman & Wakefield subsequently provided an opinion as to the
fairness of the Transaction to the Limited Partners from a
financial point of view. In its opinion, Cushman & Wakefield
advised that, the price per Unit reflected in the Transaction is
fair, from a financial point of view to the Limited Partners.
Cushman & Wakefield's determination that a price is "fair" does not
mean that the price is the highest price which might be obtained in
the marketplace, but rather that based on the appraised values of
the properties, the price reflected in the Transaction is believed
by Cushman & Wakefield to be reasonable.
The General Partners of the Partnership are Mr. Jerome J.
Brault, the Managing General Partner, and Brauvin Realty Advisors
III, Inc., the Corporate General Partner. Mr. Cezar M. Froelich
resigned his position as an Individual General Partner of the
Partnership effective as of September 17, 1996. The General
Partners will not receive any payment in exchange for the
redemption of their general partnership interests nor will they
receive any fees from the Partnership in connection with the
Transaction.
The Managing General Partner and his son, James L. Brault, an
executive officer of the Corporate General Partner, will have a
minority ownership interest in the Purchaser. Therefore, the
Messrs. Brault have an indirect economic interest in consummating
the Transaction that is in conflict with the economic interests of
the Limited Partners. Mr. Froelich has no affiliation with the
Purchaser.
Although the Special Meeting was held and the necessary
approvals received, the Merger has not been completed primarily due
to the lawsuits that are still pending. The General Partners
believe that these lawsuits are without merit and, therefore,
continue to vigorously defend against them. The Purchaser is aware
of these lawsuits and is nonetheless willing to proceed with the
Merger, subject to the satisfaction of its due diligence as
outlined below.
Following receipt of Limited Partner approval, representatives
of the Purchaser commenced in earnest the finalization of
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
Purchaser's financing and its due diligence review of the assets of
the Partnership and those of the Affiliated Partnerships. The due
diligence process has revealed certain concerns relating to
potential environmental problems at some of the properties of the
Partnership and the Affiliated Partnerships. The investigation has
narrowed the concerns to properties of the Affiliated Partnerships.
The due diligence review has also raised questions regarding the
interpretation of certain terms in the leases governing some of
the Partnership's and the Affiliated Partnerships' properties. A
very significant tenant is interpreting certain purchase options
contained in its leases in a way that would cause the value of the
properties leased by such tenant to be significantly below the current
appraised value. Members of management of the Partnership and the Affiliated
Partnerships have been working diligently with the Purchaser to
assess these risks and to resolve them in a way that will allow the
Merger and the related transactions to be consummated without any
changes to the terms or the Merger price. The Purchaser is
continuing to assess certain lease provisions, assess the costs and
risks of the litigation discussed below, and finalize its financing
in the light of these developments.
In accordance with the terms of the Merger Agreement, the
General Partners suspended all distributions to Limited Partners,
however, as a result of the unforeseen delays brought about by the
litigation and the due diligence issues highlighted above, the
General Partners felt it was appropriate that an earnings
distribution be made to the Limited Partners. Although the terms
of the Merger Agreement entered into by the Partnership and the
Purchaser provides that the assets being acquired by the Purchaser
in connection with the merger include all earnings of the
Partnership from and after August 1, 1996, the Purchaser has agreed
to allow the Partnership to make distributions to the Limited
Partners of net earnings for the period from and after January 1,
1997 until the merger is consummated. In exchange, the Partnership
has agreed to extend the termination date of the Merger Agreement
to June 30, 1997 to allow the Purchaser time to complete its due
diligence. Notwithstanding the extension of the termination date,
the Partnership and the Purchaser continue to work through the due
diligence issues outlined above, with the intent of closing the
Merger as soon as possible. Net earnings accruing after March 31,
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
1997 through the closing date will be included with the final cash
distribution to the Limited Partners from the Merger.
A distribution of the Partnership's net earnings for the
period January 1, 1997 to March 31, 1997 was made to the Limited
Partners on March 31, 1997 in the amount of approximately $534,400.
Results of Operations - Three months ended March 31, 1996 and 1995
Results of operations for the three months ended March 31,
1997 reflected net income of $437,641 compared to $400,014 for the
three months ended March 31, 1996, an increase of approximately
$37,600. The increase in net income was due primarily to an
increase in total income of approximately $29,100.
Total income for the three months ended March 31, 1997 was
$585,262 as compared to $556,200 for the three months ended March
31, 1996, an increase of approximately $29,100. The increase in
total income is mainly due to an increase in rental income as a
result of increased percentage rents. Additionally adding to the
increase in total income is an increase in interest income as a
result of increased cash balances in 1997.
Total expenses for the three months ended March 31, 1997 were
$157,079 as compared to $159,466 for the three months ended March
31, 1996, a decrease of approximately $2,400. The decrease in
expenses was due to an decrease in valuation fees related to the
Parntership hiring an independent real estate company to conduct
property valuations in 1996. Partially offsetting the decline in
valuation fees is the increase in transaction costs related to the
Merger Agreement and an increase in general and administrative
expenses associated with the Partnership's attempt to resolve some
of the due diligence issues and related items associated with the
Merger, as discussed above.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
Two legal actions, as hereinafter described, were
filed against certain of the General Partners of the
Partnership and affiliates of such General Partners, as
well as against the Partnership on a nominal basis in
connection with the Merger. Each of these actions was
brought by limited partners of the Partnership. The
Partnership and the named General Partners and their
affiliates deny all allegations set forth in the
complaints and are vigorously defending against such
claims.
A. The Florida Lawsuit
On September 17, 1996, a lawsuit was filed in the Circuit
Court of the Seventeenth Judicial Circuit in and for
Broward County, Florida, styled Rebecca Scialpi and Helen
Friedlander v. Jerome J. Brault, Brauvin Realty Advisors,
Inc., Brauvin Realty Advisors II, Inc., Brauvin Realty
Advisors III, Inc., and Brauvin Realty Advisors IV, Inc.,
James L. Brault, and Brauvin Real Estate Funds, L.L.C.
and Brauvin High Yield Fund L.P., Brauvin High Yield Fund
II, L.P., Brauvin Income Plus L.P. III, and Brauvin
Corporate Lease Program IV, L.P., Docket No. 96012807.
The Partnership and the other affiliated partnerships
named in this lawsuit (the "Affiliated Partnerships")
that are each named as a "Nominal Defendant" in this
lawsuit. Jerome J. Brault, the Managing General Partner
of the Partnership, and Brauvin Realty Advisors III,
Inc., the Corporate General Partner of the Partnership,
as well as the corporate general partners of the
Affiliated Partnerships have been named as defendants.
James L. Brault, an officer of the Corporate General
Partner and the son of Jerome J. Brault, is also named as
a defendant.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
Plaintiffs filed an amended complaint on October 8,
1996. The amended complaint alleges a purported class
action consisting of claims for breach of fiduciary
duties, fraud, breach of the Agreement, and civil
racketeering. The amended complaint seeks injunctive
relief, as well as compensatory and punitive damages,
relating to the proposed transactions with the Purchaser.
The defendants have answered plaintiffs' amended
complaint, and have denied each of the plaintiffs'
allegations of wrongful conduct.
On October 2, 1996, the plaintiffs in this action
requested that the Circuit Court enjoin the special
meetings of the limited partners and the proposed
transactions with the Purchaser. This motion was denied
by the Circuit Court on October 8, 1996, and the Florida
appellate court denied plaintiffs' appeal of the Circuit
Court's October 8, 1996 ruling. There have been no
material developments with respect to this lawsuit since
October 8, 1996.
B. The Illinois Lawsuit
On September 18, 1996, a class action lawsuit was filed
in the United States District Court for the Northern
District of Illinois, styled M. Barbara Christman, Joseph
Forte, Janet M. Toolson, John Archbold, and Ben O.
Carroll v. Brauvin Realty Advisors, Inc., Brauvin Realty
Advisors II, Inc., Brauvin Realty Advisors III, Inc.,
Brauvin Realty Advisors IV, Inc., Jerome J. Brault;
Brauvin Real Estate Funds, L.L.C. and Brauvin High Yield
Fund L.P., Brauvin High Yield Fund L.P. II, Brauvin
Income Plus L.P. III, and Brauvin Corporate Lease Program
IV L.P., Docket No. 96C6025. The Partnership and the
other Affiliated Partnerships are each named as a
"Nominal Defendant" in the lawsuit. Jerome J. Brault and
the Corporate General Partner of the Partnership, as well
as the corporate general partners of the Affiliated
Partnerships, are named as defendants.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
The plaintiffs filed an amended complaint on October
8, 1996, which alleges claims for breach of fiduciary
duties, breaches of the Agreement, and violation of the
Illinois Deceptive Trade Practices Act, 815 ILCS 505 et
seq. The amended complaint seeks injunctive relief, as
well as compensatory and punitive damages, relating to
the proposed transaction with the Purchaser.
On October 2, 1996, the District Court certified
plaintiffs' proposed class as all of the limited partners
of the Partnership and of the Affiliated Partnerships,
and appointed plaintiffs' counsel, The Mills Law Firm, as
counsel for the class. On October 2, 1996, the District
Court also conducted a hearing on plaintiffs' motion to
preliminarily enjoin the special meetings of the limited
partners and the proposed transactions with the
Purchaser. The District Court denied plaintiffs' motion
for a preliminary injunction at the conclusion of the
October 2, 1996 hearing.
On September 27, 1996, counsel for plaintiffs, The
Mills Law Firm, mailed a solicitation to all of the
Limited Partners, requesting that they revoke their
previously-mailed proxies in favor of the Merger. On
October 11, 1996, Jerome J. Brault and the Corporate
General Partner (collectively, the "Operating General
Partners") of the Partnership filed a counterclaim
against plaintiffs and their counsel, The Mills Law Firm,
alleging that plaintiffs and The Mills Law Firm violated
the federal securities laws and proxy rules by sending
their September 27, 1996 letter to the Limited Partners.
The plaintiffs and The Mills Law Firm have moved to
dismiss this counterclaim. The District Court has taken
this motion under advisement and has yet to issue a
ruling.
On October 10 and 11, 1996, the District Court
conducted an evidentiary hearing on the motion of the
Operating General Partners to invalidate revocations of
proxies procured as a result of The Mills Law Firm's
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
September 27, 1996 letter. In that evidentiary hearing,
The Mills Law Firm admitted that it violated the proxy
rules by sending its September 27, 1996 letter to the
Limited Partners without filing such letter with the
Securities and Exchange Commission (the "Commission") in
violation of the Commission's requirements. At the
conclusion of the hearing on October 10 and 11, the
District Court found that the Operating General Partners
have a likelihood of succeeding on the merits with
respect to their claim that the September 27, 1996 letter
sent to the Limited Partners by plaintiffs and The Mills
Law Firm is false or misleading in several significant
respects.
Notwithstanding this finding, the District Court did
not invalidate the revocations of proxies resulting from
The Mills Law Firm's September 27, 1996 letter because it
did not believe it possessed the authority to do so under
present law. This ruling was appealed to the Seventh
Circuit Court of Appeals. The Seventh Court of Appeals
subsequently dismissed this appeal on the grounds that
the appeal was rendered moot by the Limited Partners'
approval on November 8, 1996 of the Merger.
On October 16, 1996 and on November 6, 1996, the
parties filed cross-motions for partial summary judgement
addressing the allegation in plaintiffs' amended
complaint that the Agreement does not allow the Limited
Partners to vote in favor of or against the proposed
transaction with the Purchaser by proxy. These cross-
motions for partial summary judgement were taken under
advisement by the District Court, and the District Court
has yet to issue a ruling.
On April 2, 1997, the Court granted plaintiffs'
leave to again amend their complaint. In their second
amended complaint, plaintiffs have named the Partnership
as a "Nominal Defendant." Plaintiffs have also added a
new claim, alleging that the Operating General Partners
violated certain of the Commission's rules (15 U.S.C.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
section 78n(a), 17 C.F.R. sections 240.14a-9, 140.14a-4)
by making false and misleading statements in the Proxy.
Plaintiffs also allege that the Operating General
Partners breached their fiduciary duties, breached
various provisions of the Agreement, violated the
Illinois Deceptive Trade Practice Act, 815 ILCS 505 et
seq., and violated section 17-305 of the Delaware Revised
Uniform Limited Partnership Act. The Operating General
Partners deny those allegations and will continue to
vigorously defend against these claims.
On April 2, 1997, plaintiffs again requested that
the District Court enjoin the closing of the transaction
with the Purchaser. After conducting a lengthy hearing
on May 1, 1997, the District Court denied plaintiffs'
motion to preliminarily enjoin the closing of the
transaction with the Purchaser.
Pursuant to the Agreement and Delaware law, the
Partnership will advance to the defendants their defense
costs. The Corporate General Partner has agreed to repay
the Partnership for the advances if it is ever determined
that the parties were not entitled to receive the
advances. No estimate can reasonably be made at this
time of the costs of defense.
ITEM 2. Changes in Securities.
None.
ITEM 3. Defaults Upon Senior Securities.
None.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
ITEM 5. Other Information.
None.
ITEM 6. Exhibits and Reports On Form 8-K.
Exhibit 27. Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
l934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BY: Brauvin Realty Advisors III, Inc.
Corporate General Partner of
Brauvin Income Plus L.P. III
BY: /s/ Jerome J. Brault
Jerome J. Brault
Chairman of the Board of Directors,
President and Chief Executive Officer
DATE: May 15, 1997
BY: /s/ B. Allen Aynessazian
B. Allen Aynessazian
Chief Financial Officer and Treasurer
DATE: May 15, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,414,070
<SECURITIES> 516,054 <F1>
<RECEIVABLES> 49,573
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 18,308,792 <F2>
<DEPRECIATION> 2,347,849
<TOTAL-ASSETS> 18,011,464
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 17,663,608 <F3>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 18,011,464
<SALES> 0
<TOTAL-REVENUES> 585,262 <F4>
<CGS> 0
<TOTAL-COSTS> 157,079 <F5>
<OTHER-EXPENSES> (9,458) <F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 437,641
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> "SECURITIES" REPRESENTS INVESTMENT IN JOINT VENTURE
<F2> "PP&E" REPRESENTS INVESTMENT IN REAL ESTATE [LAND AND
BUILDING]
<F3> "COMMON" REPRESENTS TOTAL PARTNERS CAPITAL
<F4> "TOTAL REVENUES" REPRESENTS RENTAL, INTEREST, AND OTHER
INCOME
<F5> "TOTAL COSTS" REPRESENTS TOTAL EXPENSES
<F6> "OTHER EXPENSES" REPRESENTS MINORITY INTEREST AND JOINT
VENTURES' NET INCOME/LOSS
</FN>
</TABLE>
