<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period 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 0-21536
Brauvin Corporate Lease Program IV L. P.
(Exact name of registrant as specified in its charter)
Delaware 36 -3800611
(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 .
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BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(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. . . . . . . . . 26
PART II Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 35
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . 39
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . 39
Item 4. Submissions of Matters to a Vote of Security Holders . 39
Item 5. Other Information . . . . . . . . . . . . . . . . . . . 39
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 39
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . 40
<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 Corporate Lease Program IV L.P.
(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 CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
ASSETS
Investment in real estate, (Note 4):
Land $ 3,991,040 $ 3,991,040
Buildings and improvements 9,460,590 9,460,590
13,451,630 13,451,630
Less: Accumulated depreciation (965,003) (902,615)
Net investment in real estate 12,486,627 12,549,015
Investment in Brauvin Bay County
Venture (Note 5) 257,459 259,104
Cash and cash equivalents 639,262 753,655
Investment in marketable securities 83,240 --
Tenant receivables -- 325
Deferred rent receivable 360,206 333,099
Prepaid offering costs 175,163 175,163
Organization costs (net of
accumulated amortization:
1997-$29,500;1995-$28,000) 500 2,000
Other assets 41,419 37,483
Total Assets $14,043,876 $14,109,844
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and
accrued expenses $ 45,229 $ 50,054
Rent received in advance 46,822 47,146
Total Liabilities 92,051 97,200
MINORITY INTERESTS IN BRAUVIN
GWINNETT COUNTY VENTURE 698,920 702,443
PARTNERS' CAPITAL:
General Partners 10,794 10,794
Limited Partners 13,242,111 13,299,407
Total Partners' Capital 13,252,905 13,310,201
Total Liabilities and
Partners' Capital $14,043,876 $14,109,844
See accompanying notes to consolidated financial statements.
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BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31,
1997 1996
INCOME:
Rental $370,826 $388,593
Interest 10,195 8,272
Other 87,605 1,578
Total income 468,626 398,443
EXPENSES:
General and administrative 44,577 36,272
Management fees (Note 3) 3,984 3,645
Amortization of organization costs 1,500 1,500
Depreciation 62,388 66,034
Valuation fees -- 13,500
Transaction costs (Note 6) 6,615 --
Total expenses 119,064 120,951
Income before minority and equity
interests in joint venture 349,562 277,492
Minority interests' share in Brauvin
Gwinnett County Venture's net income (15,847) (15,843)
Equity interest in Brauvin Bay
County Venture 4,355 --
Net income $338,070 $261,649
Net income allocated to the
Limited Partners $338,070 $261,649
Net income per Unit outstanding (a) $ 0.21 $ 0.16
(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.
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
For the periods from January 1,1996 through March 31, 1997
General Limited
Partners Partners* Total
Balance, January 1, 1996 $10,794 $14,028,233 $14,039,027
Contributions, net -- 5,982 5,982
Selling commissions and
offering costs -- (4,918) (4,918)
Net income -- (97,221) (97,221)
Cash distributions -- (632,669) (632,669)
Balance, December 31, 1996 10,794 13,299,407 13,310,201
Net income -- 338,070 338,070
Cash distributions -- (395,366) (395,366)
Balance March 31, 1997 $10,794 $13,242,111 $13,252,905
*Total Units sold, including those raised through the Plan at March
31, 1997 and December 31, 1996 were 1,632,510. Cash distributions
to Limited Partners per Unit were $.24 and $0.39 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.
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(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 $338,070 $261,649
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 63,888 67,534
Minority interests in Brauvin Gwinnett
County Venture's net income 15,847 15,843
Equity interest in Brauvin Bay
County Venture's net income (4,355) --
Increase in investment in
marketable securities (83,240) --
Decrease (increase) in tenant receivable 325 (259)
Increase in deferred rent receivable (27,107) (30,225)
Decrease in due from affiliates -- 7,627
Increase in other assets (3,936) (3,787)
(Decrease) increase in accounts
payable and accrued expenses (4,825) 6,028
(Decrease) increase in rent received
in advance (324) 5,867
Decrease in due to affiliates -- --
Net cash provided by operating activities 294,343 330,277
Cash flows from investing activities:
Distribution from
Brauvin Bay County Venture 6,000 --
Cash provided by investing activities 6,000 --
Cash flows from financing activities:
Sale of Units, net of liquidations, selling
commissions and other offering costs -- 1,885
Cash distributions to Limited Partners (395,366) (327,397)
Cash distribution to minority interest
in Brauvin Gwinnett County Venture (19,370) (17,880)
Net cash used in financing activities (414,736) (343,392)
Net decrease in cash and
cash equivalents (114,393) (13,115)
Cash and cash equivalents at beginning
of period 753,655 711,167
Cash and cash equivalents at end of period $639,262 $ 698,052
See accompanying notes to consolidated financial statements.
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BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Brauvin Corporate Lease Program IV L.P. (the "Partnership") is
a Delaware limited partnership formed on August 7, 1991 for the
purpose of acquiring debt-free ownership of existing,
income-producing retail and other commercial properties
predominantly all of which will be subject to "triple-net" leases.
It is anticipated that these properties will be leased primarily to
corporate lessees of national and regional retail businesses,
service providers and other users consistent with "triple-net"
lease properties. The leases will provide for a base minimum
annual rent and increases in rent such as through participation in
gross sales above a stated level, fixed increases on specific dates
or indexation of rent to indices such as the Consumer Price Index.
The General Partners of the Partnership are Brauvin Realty Advisors
IV, Inc. and Jerome J. Brault. Brauvin Realty Advisors IV, Inc. is
owned by Messrs. Brault (beneficially)(50%) and Cezar M. Froelich
(50%). Mr. Froelich resigned as a director of the Corporate
General Partner in December 1994 and as an Individual General
Partner effective as of September 17, 1996. Brauvin Securities,
Inc., an affiliate of the General Partners, is the selling agent of
the Partnership.
The Partnership filed a Registration Statement on Form S-11 with
the Securities and Exchange Commission which was declared effective
on December 12, 1991. Per the terms of the Restated Limited
Partnership Agreement of the Partnership (the "Agreement"), 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 April 27, 1992. The Partnership's
offering was anticipated to close on December 11, 1992 but the
Partnership obtained an extension until December 11, 1993. A total
of 1,600,831 Units were sold to the public through the offering at
$10 per Unit ($16,008,310). Through March 31, 1997 and
December 31, 1996, the Partnership has sold $16,443,810 of Units.
This total includes $435,100 of Units raised by Limited Partners
who utilized their distributions of Operating Cash Flow to purchase
additional Units through the Partnership's distribution
reinvestment plan (the "Plan"). Units valued at $118,706, 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 own Units which approximate 3% of
the total Units sold.
The Partnership has acquired the land and buildings underlying
a Steak n Shake restaurant, a Children's World Learning Center, two
Chuck E. Cheese's restaurants, a Mrs. Winner's Chicken and Biscuit
restaurant, a House of Fabrics store, a Volume ShoeSource store, an
East Side Mario's Restaurant, a Blockbuster Video Store, and a
Walden Books Store. In addition, the Partnership has acquired a
70.2% and 24.0% equity interest in two joint ventures with three
entities affiliated with the Partnership. These ventures own the
land and building underlying a CompUSA store and a Blockbuster
Video store.
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 these 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.
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 70.2% equity interest in a joint venture,
which owns the land and the building underlying one CompUSA store.
The accompanying financial statements have consolidated 100% of the
assets, liabilities, operations and partners' capital of Brauvin
Gwinnett County Venture. All significant intercompany accounts
have been eliminated.
Investment in Joint Venture
The Partnership owns a 24% equity interest in a joint venture,
Brauvin Bay County Venture, which owns one Blockbuster Video store.
The accompanying financial statements include the investment in
Brauvin Bay County Venture using the equity method of accounting.
Investment in Real Estate
At March 31, 1997 and December 31, 1996 the Partnership has
classified its real estate investments as held for sale in
recognition of the proposed transaction (See Note 6), and the
properties are stated at the lower of cost including acquisition
costs, or net realizable value. Depreciation expense is computed
on a straight-line basis over approximately 39 years.
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). In 1996, the Partnership engaged Cushman & Wakefield
Valuation Advisory Services to prepare an appraisal of the
Partnership's properties. As a result of the reclassification of
the real estate investments to be held for sale, and based upon
this appraisal, the Partnership recorded a provision for the
impairment of assets of $857,000 (See Note 4).
Organization and Offering Costs
Organization costs represent costs incurred in connection with
the organization and formation of the Partnership. Organization
costs are 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, and 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 6),
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 and cash equivalents include all highly liquid debt
instruments with an original maturity within three months from date
of purchase.
Investment in Marketable Securities
The market value of stock received from the House of
Fabrics, Inc. was approximately $83,200 at March 31, 1997. The
House of Fabrics stock is currently available for sale.
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; tenant
receivables; 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 Agreement, during the
period commencing with the date the Partnership accepts
subscriptions for Units totaling $1,200,000 and terminating on the
Termination Date, as defined in the Prospectus, shall be
distributed to the Limited Partners on a quarterly basis.
Distributions of Operating Cash Flow, if available, shall be made
within 45 days following the end of each calendar quarter or are
paid monthly within 15 days of the end of the month, depending upon
the Limited Partner's preference, commencing with the first quarter
following the Termination Date. Operating Cash Flow during such
period shall be distributed as follows: (a) first, to the Limited
Partners until the Limited Partners receive an amount equal to a 9%
non-cumulative, non-compounded annual return on Adjusted
Investment, as defined in the Agreement, commencing on the last day
of the calendar quarter in which the Unit was 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% cumulative,
non-compounded, annual return of Adjusted Investment (the
"Cumulative Preferred Return");
second, to the Limited Partners until each Limited Partner
has received an amount equal to the amount of his Adjusted
Investment, apportioned pro rata 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 Class A
Investors, as defined in the Agreement.
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
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.
The Partnership paid an affiliated entity a non-accountable
selling expense allowance in an amount equal to 2% of the gross
proceeds of the Partnership's offering, a portion of which may be
reallowed to participating dealers.
In the event that the Partnership does not use more than 2% of
the gross proceeds of the offering for the payment of legal,
accounting, escrow, filing and other fees incurred in connection
with the organization or formation of the Partnership, the
Partnership may pay the General Partners any unused portion of the
2% of the gross proceeds of the offering allowed for organization
and offering expenses, not to exceed 1/2% of the gross proceeds of
the offering. The General Partners will use such funds to pay
certain expenses of the offering incurred by them not covered by
the definition of organization and offering expenses.
An affiliate of the General Partners provides leasing and
re-leasing services to the Partnership in connection with the
management of Partnership properties. The property management fee
payable to an affiliate of the General Partners is 1% of the gross
revenues of each Partnership property.
An affiliate of the General Partners or the General Partners
will receive a real estate brokerage commission in connection with
the disposition of Partnership properties. Such commission will be
in an amount equal to the lesser of: (i) 3% of the sale price of
the property; or (ii) 50% of the real estate commission customarily
charged for similar services in the locale of the property being
sold; provided, however, that receipt by the General Partners or
one of their affiliates of such commission is subordinated to
receipt by the Limited Partners of their Current Preferred Return.
An affiliate of one of the General Partners provided securities
and real estate counsel to the Partnership.
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 $ -- $ 4,098
Management fees 3,984 3,645
Reimbursable operating
expense 26,538 19,500
Legal fees -- 254
(4) PROVISION FOR IMPAIRMENT
During the fourth quarter of 1996, the Partnership recorded a
provision for impairment of $857,000 to adjust the carrying values
of real estate for the Volume ShoeSource ($356,400), the Walden
Books Store ($303,600) and the investment in the Brauvin Gwinnett
County Venture ($197,000) to their estimated net realizable values.
This provision for impairment has been recorded as a reduction of
each property's cost, and allocated to the land and building based
on the original acquisition percentages.
(5) INVESTMENT IN JOINT VENTURE
The Partnership owns an equity interest in the Brauvin Bay County
Venture and reports its investment on the equity method. The
following are condensed financial statements for the Brauvin Bay
County Venture:
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 income $27,914
Expenses:
Depreciation 2,984
Management fees 292
Operating and
administrative 6,493
9,769
Net income $18,145
(6) SALE OF PROPERTIES AND LITIGATION
Sale of Properties
Pursuant to the terms of an agreement of purchase and sale of
assets dated as of June 14, 1996, as amended March 24, 1997 (the
"Sale Agreement"), the Partnership proposes to sell substantially
all of the Partnership's properties (the "Assets") to Brauvin Real
Estate Funds L.L.C., a Delaware limited liability company
affiliated with certain of the General Partners (the "Purchaser"),
for a purchase price of $12,489,100, in cash, which is
approximately $7.65 per Unit. If certain conditions of the
Transaction are met, the Partnership will be liquidated and the
Class A Limited Partners will receive a liquidating distribution of
approximately $6.95 to $7.50 per Unit in cash based upon the time
such Class A Limited Partners invested in the Partnership and Class
B Limited Partners will receive a liquidating distribution of
approximately $8.44 to $8.73 per Unit. The Limited Partners
holding a majority of the Units approved the Sale on November 8,
1996. In approving the Sale, the Limited Partners also approved
the adoption of an amendment to the Agreement, to allow the
Partnership to sell or lease property to affiliates (this
amendment, together with the Sale shall be referred to herein as
the "Transaction").
The sale price to be paid to the Limited Partners in connection
with the Sale is based on the fair market value of the Assets of
the Partnership which has been determined by Cushman & Wakefield
Valuation Advisory Services ("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 $12,489,100, or $7.65 per Unit. The
liquidating distribution 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
filing of the certificate of dissolution, including reasonable
reserves in connection with: (i) the proxy solicitation; (ii) the
Sale (as detailed in the Sale 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 outstanding Partnership liabilities.
The General Partners will not receive any fees in connection with
the Transaction and will receive only a de minimis liquidating
distribution of less than $17,000 in the aggregate in accordance
with the terms of the Partnership Agreement.
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 Sale 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 Sale, subject to the
satisfaction of its due diligence as outlined below.
Following receipt of Limited Partner approval, the Purchaser
commenced the finalization of the 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 Affiliated
Partnerships. The due diligence review has also raised questions
regarding the interpretation of certain terms in the leases
governing some of the Affiliated Partnerships' properties. A very
significant tenant of the Affiliated Partnerships 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 Sale and the
related transactions to be consummated without any changes to the
terms or the sale 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 Sale Agreement, the Operating
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
Operating General Partners felt it was appropriate that an earnings
distribution be made to the Limited Partners. Although the terms
of the Sale Agreement entered into by the Partnership and the
Purchaser provide that the Assets being acquired by the Purchaser
in connection with the Sale 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 Sale is consummated. In exchange, the Partnership has agreed
to extend the termination date of the Sale 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
sale 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 $597,600. 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 Sale.
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 Sale. 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
Affiliated Partnerships are each named as a "Nominal Defendant" in
this lawsuit. Jerome J. Brault, the Managing General Partner of
the Partnership, and Brauvin Realty Advisors IV, 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.
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 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.
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 proposed transaction with the Purchaser. On October
11, 1996, 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
has been 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 Sale.
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 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 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 any potential liability from the litigation or
the costs of defense.
<PAGE>
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 indentify 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 December
12, 1991 of 3,300,000 Units, 300,000 of which were available only
through the Plan. The Offering was anticipated to close on
December 11, 1992, but was extended until December 11, 1993 with
the appropriate governmental approvals. None of the Units were
subscribed and issued between December 12, 1991 and December 31,
1991, pursuant to the Offering. The Offering was conditioned upon
the sale of $1,200,000, which was achieved on April 27, 1992.
Prior to the commencement of the Partnership's proxy
solicitation, the Partnership raised a total of $16,008,310 through
the Offering and an additional $435,100 through the Plan as of
March 31, 1997 and December 31, 1996. As of March 31, 1997 and
December 31, 1996, Units valued at $118,706 have been repurchased
by the Partnership from Limited Partners liquidating their original
investment and have been retired.
The Partnership purchased the land and buildings underlying a
Steak n Shake restaurant and a Children's World Learning Center in
1992. In 1993, the Partnership purchased the land and buildings
underlying two Chuck E. Cheese's restaurants, a Mrs. Winner's
Chicken & Biscuit restaurant, a House of Fabrics store, and a
Volume ShoeSource. Additionally in 1993, the Partnership acquired
a 70.2% equity interest in a joint venture with affiliated public
real estate limited partnerships that acquired the land and
building underlying a CompUSA computer superstore. The Partnership
acquired the land and buildings underlying an East Side Mario's
restaurant, a Blockbuster Video store and a Waldens Books Store in
1994. In 1996, the Partnerhsip acquired a 24% equity interest in
a joint venture with affiliated public real estate limited
partnerships that acquired the land and building underlying a
Blockbuster Video store.
The following is additional information regarding the Partnerhsip
acquisitions during the last three years:
On January 18, 1994, the Partnership purchased the land and the
6,240 square foot building (the "East Side Mario's Property")
underlying an East Side Mario's restaurant, located in Copley,
Ohio, from Morgan's Foods, Inc. for $1,435,000 plus closing costs.
Morgan's Food is the East Side Mario's franchisee for the State of
Ohio. During 1994, the franchisor, Prime Group of Canada, Inc.,
sold the East Side Mario's concept to Pizza Hut, Inc., a division
of Pepsico, Inc. This sale has no effect on the existing lease.
The store is leased to Morgan's Creative Concepts, Inc. and the
lease is guaranteed by the parent company, Morgan's Food, Inc. for
20 years expiring on January 31, 2014, plus two ten year options.
The tenant is obligated to pay base minimum rent each month in the
amount of $13,453 plus minimum rent escalations of 15% of the then
minimum base rent every five years beginning in the sixth year of
the lease. The tenant is also obligated to pay percentage rent of
5% of total annual sales which exceed a pre-established amount.
The tenant leased the East Side Mario's Property under a triple-net
lease whereby the tenant pays for all expenses related to the East
Side Mario's Property including real estate taxes, insurance, and
maintenance and repair costs.
On February 23, 1994, the Partnership purchased the land and the
7,028 square foot building (the "Blockbuster Property") underlying
a Blockbuster Video store located in Eagan, Minnesota, from an
unaffiliated seller, for a purchase price of $905,000 plus closing
costs. The Blockbuster Property is leased to Mid-America
Entertainment Company (the "Blockbuster Tenant"), a privately held
company under an existing lease for a ten year period expiring on
November 30, 2003. The Blockbuster Tenant has the option to renew
the lease for two additional five year periods. The Blockbuster
Tenant is the exclusive Blockbuster Video franchisee for most of
the State of Minnesota and parts of Iowa. The Blockbuster Tenant
is obligated to pay base minimum rent each month in the amount of
$8,931 plus periodic increases beginning in the third lease year.
The Blockbuster Tenant leased the Blockbuster Property under a
triple-net lease whereby the Blockbuster Tenant pays for all
expenses related to the Blockbuster property including real estate
taxes, insurance premiums, maintenance and repair costs. The
Partnership is responsible for repairs to the roof and structure.
The General Partners believe that that the costs associated with
these items will be immaterial during the lease term as the
building was completed in November 1993 and the Partnership
obtained a roof guarantee for the duration of the lease term. The
Partnership may reserve a portion of the rent for possible repairs
in the future.
On February 28, 1994, the Partnership purchased the land and the
8,500 square foot building (the "Walden Books Property") occupied
by a Walden Books store located in Miami, Florida, from an
unaffiliated seller, for a purchase price of $1,680,000 plus
closing costs. The Walden Books Property was completed in November
1988 and is leased under a triple-net lease to Walden Books, Inc.
(the "Walden Books Tenant") for a minimum term ending January 31,
2009. Walden Books, Inc. is one of the largest bookstore chains in
the country with approximately 1,150 stores and gross revenues of
over one billion dollars. The Walden Books Tenant is obligated to
pay base minimum rent each month in the amount of $14,167 with
scheduled increases in rent beginning in February 1999. The Walden
Books Tenant is also obligated to pay percentage rent based on the
total annual sales which exceed a pre-established amount.
The Walden Books Tenant leased the Walden Books Property under
a triple-net lease whereby the Walden Books Tenant pays for all
expenses related to the Walden Books Property including real estate
taxes, insurance premiums and maintenance and repair costs. The
Partnership is responsible for repairs to the roof and structure.
The General Partners believe that the costs assciated with these
items will be minimal during the lease term as the building is in
good condition. The Partnership may reserve a portion of the rent
for possible repairs in the future.
On October 31, 1996, the Partnership purchased a 24% 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
6,466 square foot building located on a 40,075 square foot parcel
of land.
During the fourth quarter of 1996, the Partnership recorded a
provision for impairment of $660,000 to adjust the carrying value
of the real estate for the Volume ShoeSource ($356,400) and the
Walden Books Store ($303,600) to its estimated realizable value.
These provisions have been recorded as reductions of each
property's cost, and allocated to the land and building based on
the original acquisition percentages for each property.
During the fourth quarter of 1996, a provision for impairment of
$197,000 was recorded to adjust the carrying value of the
investment in real estate of the CompUSA property to its estimated
net realizable value. This provision has been recorded as a
reduction of the property's cost, and allocated to the land and
building based on the original acquisition percentages of
approximately 37% (land) and 63% (building).
Below is a table summarizing the historical data for distribution
rates per unit:
Distribution
Date 1997 1996 1995 1994
February 15 $.2422(a) $.2000 $.2000 $.1625
May 15 .1875 .2000 .1750
August 15 -- .2000 .2000
November 15 -- .2000 .2500
(a) The 1997 distribution was made on March 31, 1997.
Should the Sale not occur, future increases in the Partnership's
distributions will depend on increased sales at the Partnership's
properties, resulting in additional percentage rent. Rental
increases, to a lesser extent, may 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 Sale Agreement, the Partnership
proposes to sell substantially all of the Partnership's properties
for a purchase price of $12,489,100 in cash which is approximately
$7.65 per Unit. If certain conditions of the Transaction are met,
the Partnership will be liquidated and the Class A Limited Partners
will receive a liquidating distribution of approximately $6.95 to
$7.50 per Unit in cash based upon the time such Class A Limited
Partners invested in the Partnership and Class B Limited Partners
will receive a liquidating distribution of approximately $8.44 to
$8.73 per Unit. The Limited Partners holding a majority of the
Units approved the Sale 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 10:30 a.m. The purpose
of the Special Meeting was to vote upon the Sale and certain other
matters as described in the Proxy.
At the Special Meeting, Limited Partners were also asked to
approve the adoption of an amendment to the Agreement, to allow the
Partnership to sell or lease property to affiliates. Neither the
Delaware Revised Limited Partnership Act nor the Agreement provide
Limited Partners not voting in favor of the Transaction with
dissenters' appraisal rights.
The sale price to be paid to the Limited Partners in connection
with the Sale is based on the fair market value of the properties
of the Partnership (the "Assets"). Cushman & Wakefield Valuation
Advisory Services ("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 $12,489,100, or $7.65 per Unit. The
liquidating distribution 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
filing of the certificate of dissolution, including reasonable
reserves in connection with: (i) the proxy solicitation; (ii) the
Sale (as detailed in the Sale 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 outstanding Partnership liabilities.
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
advises that the price per Unit reflected in the proposed
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
proposed 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 IV, Inc.,
the Corprate 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 fees in connection with the Transaction and will
receive only a de minimis liquidating distribution of less than
$17,000 in the aggregate in accordance with the terms of the
Agreement.
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 Sale has not been completed primarily due
to the lawsuits that are still pending. The Operating 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 Sale, 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 the
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
Affiliated Partnerships. The due diligence review has also raised
questions regarding the interpretation of certain terms in the
leases governing some of the Affiliated Partnerships' properties.
A very significant tenant of the Affiliated Partnerships 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 tne Purchaser to
assess these risks and to resolve them in a way that will allow the
Sale and the related transactions to be consummated without any
changes to the terms or the sale 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 Sale Agreement, the Operating
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
Operating General Partners felt it was appropriate that an earnings
distribution be made to the Limited Partners. Although the terms
of the Sale Agreement entered into by the Partnership and the
Purchaser provides that the assets being acquired by the Purchaser
in connection with the Sale 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 Sale is consummated. In exchange, the Partnership has agreed
to extend the termination date of the Sale 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
Sale as soon as possible. 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 Sale.
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 $395,400.
Results of Operation - Three months Ended March 31, 1997 and 1996
Results of operations for the three months ended March 31, 1997
reflected net income of $338,070 compared to net income of $261,649
for the three months ended March 31, 1996, an increase of
approximately $76,400.
Total income for the three months ended March 31, 1997 was
$468,626 as compared to $398,443 for the period ended March 31,
1996, an increase of approximately $70,200. The increase in total
income is primarily the result of the receipt by the Partnership of
stock in the House of Fabrics, Inc. related to the House of Fabric's
reorganization and its prior default on its lease obligation to the
Partnership. The decrease in rental income is due to 1996 rental income
reflecting a month of operations of the House of Fabrics property,
while 1997 reflects no rental income for the House of Fabrics
property. Partially offsetting this decrease in rental income is
an increase in interest income, which was the result of higher
investment cash balances during 1997.
Total expenses for the three months ended March 31, 1997 were
$119,064 as compared to $120,951 for the period ended March 31,
1996, a decrease of approximately $1,900. The decrease in expenses
was due to the 1996 expenses reflecting valuation fees of $13,500
while no such fees have been incurred in 1997. Partially
offsetting the valuation fee decrease is an increase in transaction
costs of approximately $6,600 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>
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 Sale. 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
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 IV, Inc.,
the Corporate General Partner of the Partnership, as well
as the 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.
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.
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 Sale. 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 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 has been 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 Sale.
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 rules (15 U.S.C.
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 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.
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 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.
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
BY: Brauvin Realty Advisors IV, Inc.
Corporate General Partner
By: /s/ Jerome J. Brault
Jerome J. Brault
Chairman of the Board of
Directors, President and Chief
Executive Officer
By: /s/ B. Allen Aynessazian
B. Allen Aynessazian
Chief Financial Officer and
Treasurer
INDIVIDUAL GENERAL PARTNER
/s/ Jerome J. Brault
Jerome J. Brault
DATED: 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> 722,502
<SECURITIES> 257,459 <F1>
<RECEIVABLES> 360,206
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 13,451,630 <F2>
<DEPRECIATION> 965,003
<TOTAL-ASSETS> 14,043,876
<CURRENT-LIABILITIES> 92,051
<BONDS> 698,920 <F3>
0
0
<COMMON> 13,252,905 <F4>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,043,876
<SALES> 0
<TOTAL-REVENUES> 468,626 <F5>
<CGS> 0
<TOTAL-COSTS> 119,064 <F6>
<OTHER-EXPENSES> 11,492 <F7>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 338,070
<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> "BONDS" REPRESENTS MINORITY INTEREST IN JOINT VENTURE
<F4> "COMMON" REPRESENTS TOTAL PARTNERS CAPITAL
<F5> "TOTAL REVENUES" REPRESENTS RENTAL, INTEREST, AND OTHER
INCOME
<F6> "TOTAL COSTS" REPRESENTS TOTAL EXPENSES
<F7> "OTHER EXPENSES" REPRESENTS MINORITY AND EQUITY INTEREST
IN JOINT VENTURES' NET INCOME
</FN>
</TABLE>