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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, 1999
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.)
30 North LaSalle Street, Chicago, Illinois 60602
(Address of principal executive offices) (Zip Code)
(312)759-7660
(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, 1999
and December 31, 1998 . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations for the
three months ended March 31, 1999 and 1998. . . . . 5
Consolidated Statements of Partners' Capital for
the periods January 1, 1998 to March 31, 1999 . . . 6
Consolidated Statements of Cash Flows for the
three months ended March 31, 1999 and 1998. . . . . 7
Notes to Consolidated Financial Statements. . . . . 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 26
Item 3. Quantitative and Qualitative Disclosures about
Market Risk . . . . . . . . . . . . . . . . . . . . 34
PART II Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . 35
Item 2. Changes in Securities. . . . . . . . . . . . . . . . 40
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . 41
Item 4. Submissions of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . . . 41
Item 5. Other Information. . . . . . . . . . . . . . . . . . 41
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 41
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 42
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PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Except for the December 31, 1998 Consolidated Balance Sheet,
the following Consolidated Balance Sheet as of March 31, 1999,
Consolidated Statements of Operations for the three months ended
March 31, 1999 and 1998, Consolidated Statements of Partners'
Capital for the periods January 1, 1998 to March 31, 1999 and
Consolidated Statements of Cash Flows for the three months ended
March 31, 1999 and 1998 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 1998 Annual Report on Form
10-K.
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BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1999 1998
ASSETS
Investment in real estate:
Land $ 3,933,663 $ 3,933,663
Buildings and improvements 9,295,966 9,295,966
13,229,629 13,229,629
Less: Accumulated depreciation (1,461,422) (1,400,375)
Net investment in real estate 11,768,207 11,829,254
Investment in Brauvin Bay County
Venture (Note 4) 251,145 250,782
Cash and cash equivalents 500,944 514,439
Tenant receivables 11,186 9,664
Deferred rent receivable 518,033 510,867
Prepaid offering costs 175,163 175,163
Other assets 14,040 --
Total Assets $13,238,718 $13,290,169
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and
accrued expenses $ 197,693 $ 179,524
Rent received in advance 77,375 59,502
Due to an affiliate 1,787 1,608
Total Liabilities 276,855 240,634
MINORITY INTERESTS IN BRAUVIN
GWINNETT COUNTY VENTURE 673,674 682,419
PARTNERS' CAPITAL:
General Partners 27,674 23,130
Limited Partners 12,260,515 12,343,986
Total Partners' Capital 12,288,189 12,367,116
Total Liabilities and
Partners' Capital $13,238,718 $13,290,169
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,
(Unaudited)
1999 1998
INCOME:
Rental $404,022 $366,032
Interest 4,902 3,243
Other 17,783 49,350
Total income 426,707 418,625
EXPENSES:
General and administrative 51,157 46,864
Management fees (Note 3) 3,902 3,581
Depreciation 61,047 77,238
Transaction costs (Note 5) 35,954 16,671
Bad debt expense 37,500 --
Total expenses 189,560 144,354
Income before minority and equity
interests in joint venture 237,147 274,271
Minority interests' share in Brauvin
Gwinnett County Venture's net income (15,095) (14,879)
Equity interest in Brauvin Bay
County Venture 5,163 4,950
Net income $227,215 $264,342
Net income allocated to the
General Partners $ 4,544 $ 5,287
Net income allocated to the
Limited Partners $222,671 $259,055
Net income per Unit outstanding (a) $ 0.14 $ 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.
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BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
For the periods from January 1, 1998 through March 31, 1999
(Unaudited)
General Limited
Partners Partners* Total
Balance, January 1, 1998 $ 16,995 $12,525,130 $12,542,125
Net income 11,774 576,944 588,718
Cash distributions (5,639) (758,088) (763,727)
Balance December 31, 1998 23,130 12,343,986 12,367,116
Net income 4,544 222,671 227,215
Cash distributions -- (306,142) (306,142)
Balance March 31, 1999 $ 27,674 $12,260,515 $12,288,189
*Total Units sold, including those raised through the Plan, at
March 31, 1999 and December 31, 1998 were 1,632,510. Cash
distributions to Limited Partners per Unit were approximately $0.19
and $0.46, for the three months ended March 31, 1999 and the year
ended December 31, 1998.
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 CASH FLOWS
For the Three Months Ended March 31,
(Unaudited)
1999 1998
Cash flows from operating activities:
Net income $227,215 $264,342
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 61,047 77,238
Minority interests in Brauvin Gwinnett
County Venture's net income 15,095 14,879
Equity interest in Brauvin Bay
County Venture's net income (5,163) (4,950)
Bad debt expense 37,500 --
Changes in:
Tenant receivables (39,022) --
Deferred rent receivable (7,166) (21,279)
Other assets (14,040) 3,739
Accounts payable and
accrued expenses 18,169 5,145
Rent received in
advance 17,873 (16,147)
Due to affiliates 179 (304)
Net cash provided by operating activities 311,687 322,663
Cash flows from investing activities:
Change in investment in marketable
securities -- 35,075
Distribution from Brauvin Bay
County Venture 4,800 6,240
Cash provided by investing
activities 4,800 41,315
Cash flows from financing activities:
Cash distributions to Limited Partners (306,142) --
Cash distributions to General Partners -- (5,639)
Cash distribution to minority interest
in Brauvin Gwinnett County Venture (23,840) (16,986)
Cash used in financing activities (329,982) (22,625)
Net (decrease) increase in cash and
cash equivalents (13,495) 341,353
Cash and cash equivalents at beginning
of period 514,439 139,508
Cash and cash equivalents at end of period $500,944 $ 480,861
See accompanying notes to consolidated financial statements.
<PAGE>
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(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 subject to "triple-net" leases. It was 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 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
is managed by an affiliate of the General Partners.
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, 1999 and December
31, 1998 the Partnership has sold $16,443,810 of Units,
respectively. These totals include $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, 1999 and December 31, 1998. As of
March 31, 1999 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 joint 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, 1999 and December 31, 1998 the Partnership has
classified its real estate investments as held for sale 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 1998, the Partnership engaged LaSalle Partners, Inc. to
prepare an evaluation of the Partnership's properties. As a result
of this evaluation, in the third quarter of 1998, the Partnership
recorded a provision for impairment of $242,000 related to an other
than temporary decline in the real estate value. The provision has
been recorded to land and building based on the original
acquisition percentages (see Note 5).
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, 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 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 and cash equivalents include all highly liquid debt
instruments with an original maturity within three months from date
of purchase.
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, 1999 and
December 31, 1998, 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.
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; rent received
in advance and due to affiliate.
(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 former 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, 1999 and 1998 were as follows:
1999 1998
Management fees $3,902 $3,581
Reimbursable operating
expense 22,832 20,550
As of March 31, 1999 and 1998, the Partnership has made all
payments to affiliates except for $1,787 and $1,608, respectively,
related to management fees.
(4) 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, December 31,
1999 1998
Land and buildings, net $1,029,530 $1,033,942
Other assets 30,423 17,330
$1,059,953 $1,051,272
Liabilities $ 11,465 $ 4,296
Partners' capital 1,048,488 1,046,976
$1,059,953 $1,051,272
Three Months Ended March 31,
1999 1998
Rental and other income $27,313 $27,357
Expenses:
Depreciation 4,412 4,412
Management fees 501 291
Operating and administrative 887 2,027
5,800 6,730
Net income $21,513 $20,627
<PAGE>
(5) 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, June
30, 1997, September 30, 1997, December 31, 1997, March 31, 1998 and
June 30, 1998 (the "Sale Agreement"), the Partnership proposed to
sell (the "Sale") 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 was approximately $7.65 per Unit. Although the Sale
will not be consummated, the following text describes the
transaction. If certain conditions of the Transaction were met,
the Partnership would be liquidated and the Class A Limited
Partners would have received 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 would have received a liquidating distribution
of approximately $8.44 to $8.73 per Unit. Of the liquidating
distributions (of both Class A and Class B investors) referred to
above, approximately $0.38 was already distributed to the Limited
Partners. The Limited Partners holding a majority of the Units
voted on the Sale on November 8, 1996. The Limited Partners also
voted on 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 was based on the fair market value of 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. On April 1,
1996, Cushman & Wakefield determined the fair market value of the
Assets to be $12,489,100, or $7.65 per Unit. Subsequently, the
Partnership purchased a 24% interest in Brauvin Bay County Venture.
Based on the terms of the Sale Agreement, the fair market value of
the Assets would have increased by the amount of the investment in
Brauvin Bay County Venture, and correspondingly, the Partnership's
cash holdings were reduced by the same amount and, therefore, the
total liquidating distribution would remain unchanged. The
liquidating distribution also included 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 were not to receive any fees in connection
with the Transaction and would 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, were to have a
minority ownership interest in the Purchaser.
The Sale was not completed primarily due to certain litigation,
as described below, that was still pending at March 31, 1999. The
General Partners believe that these lawsuits were without merit and
therefore, continued to vigorously defend against them. Because of
the August 12, 1998 ruling of the District Court in the Christman
litigation, as described below, it is not possible for the Sale to
be consummated.
Distributions of the Partnership's net earnings for the periods
January 1, 1998 to March 31, 1998, April 1, 1998 to June 30, 1998,
July 1, 1998 to September 30, 1998, and October 1, 1998 to December
31, 1998 were made to the Limited Partners on May 8, 1998, August
15, 1998, November 15, 1998, and February 15, 1999, respectively,
in the amounts of approximately $329,000, $179,100, $250,000, and
$306,100.
A cash distribution of the Partnership's net earnings for the
period January 1, 1999 to March 31, 1999 was made to Limited
Partners on May 17, 1999 in the amount of approximately $287,800.
As detailed below under "Litigation", by agreement of the
Partnership and the General Partners and pursuant to a motion of
the General Partners, the District Court entered an order
preventing the Partnership and the General Partners from completing
the Sale or otherwise disposing of all or substantially all of the
Partnership's assets until further order of the Court.
Litigation
Two legal actions, as hereinafter described, were pending at
December 31, 1998 against the General Partners and affiliates of
such General Partners, as well as against the Partnership on a
nominal basis in connection with the Sale. On April 13, 1999, all
the parties to the litigation reached an agreement to settle the
litigation, subject to the approval by the United States District
Court for the Northern District of Illinois. Management believes
that the settlement will not have a material financial impact on
the Partnership. The terms of the settlement agreement, along with
a Notice to the Class, was forwarded to the Limited Partners in the
second quarter. One additional legal action, which was dismissed
on January 28, 1998, had also been brought against the General
Partners and affiliates of such General Partners, as well as
against the Partnership on a nominal basis in connection with the
Sale. With respect to the actions the Partnership and the General
Partners and their named affiliates denied all allegations set
forth in these complaints and vigorously defended against such
claims.
A. The Dismissed 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
L.P. II, 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 were proposed to be a party to a
Sale or merger with the Purchaser, were each named as a "Nominal
Defendant" in this lawsuit. The named plaintiffs were not limited
partners in the Partnership. Rather, the named plaintiffs are
limited partners in Brauvin High Yield Fund L.P. II, one of the
Affiliated Partnerships. 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
certain corporate general partners of the Affiliated Partnerships,
were named as defendants in this lawsuit. James L. Brault, an
officer of the Corporate General Partner and the son of Jerome J.
Brault, was also named as a defendant. This lawsuit was dismissed
for want of prosecution on January 28, 1998.
B. The Illinois Christman 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
Transaction.
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 Transaction. 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, the 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 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 (as defined below)
in violation of the Commission's requirements. At the conclusion
of the hearing on October 10 and 11, the District Court found that
the 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
Circuit Court of Appeals subsequently dismissed this appeal on the
grounds that the appeal was rendered moot by the Limited Partners'
approval 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
Transaction by proxy. On August 12, 1998, the District Court
granted plaintiffs' motion for summary judgement, holding that the
Agreement did not allow the Limited Partners to vote in favor or
against the Transaction by proxy.
On April 2, 1997, the Court granted plaintiffs' leave to again
amend their complaint. In their second amended complaint,
plaintiffs named the Partnership as a "Nominal Defendant."
Plaintiffs also added a new claim, alleging that the General
Partners violated certain of the rules of the Securities and
Exchange Commission (the "Commission") by making false and
misleading statements in the Proxy. Plaintiffs also allege that
the 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 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. 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. Plaintiffs filed a notice of
appeal to the Seventh Circuit Court of Appeals from the District
Court's May 1, 1997 order denying plaintiffs' motion to
preliminarily enjoin the closing of the Transaction. This appeal
was dismissed by the Seventh Circuit Court of Appeals on January
23, 1998, based on the appellate court's finding that the District
Court's order of January 16, 1998 rendered the appeal moot.
On January 16, 1998, by agreement of the Partnership and the
General Partners and pursuant to a motion of the General Partners,
the District Court entered an order preventing the Partnership and
the General Partners from completing the Sale, or otherwise
disposing of all or substantially all of the Partnership's assets,
until further order of the Court.
On January 28, 1998, the District Court entered an Order of
Reference to Special Master, designating a Special Master and
vesting the Special Master with authority to resolve certain
aspects of the lawsuit subject to the District Court's review and
confirmation. The Special Master was empowered to determine how
the assets of the Partnership should be sold or disposed of in a
manner which allows the Limited Partners to maximize their
financial return in the shortest practicable time frame. In
addition, early in the second quarter of 1998, the Special Master
retained a financial advisor (the "Financial Advisor"), at the
expense of the Partnership, to assist the Special Master. The
Financial Advisor has been engaged to perform a valuation of the
properties of the Partnership as well as a valuation of the
Partnership itself. The cost to the Partnership for the services
of the Financial Advisor was $70,000.
On August 4, 1998, the Special Master filed a Report and
Recommendation with the District Court, expressing the Special
Master's recommendation that the Partnership's properties be
disposed of in an auction conducted by the Financial Advisor under
the direction of the Special Master. The District Court accepted
this Report and Recommendation. On November 4, 1998, the Special
Master filed an additional Report and Recommendation with the
District Court, requesting that the Court withdraw its Order of
Reference to Special Master on the grounds it would be impossible
to effect the sale of the Partnership's properties in a manner that
maximizes the financial return to Limited partners in a short time
frame, unless certain litigation issues are resolved. The District
Court has accepted this Report and Recommendation.
On January 21, 1999, plaintiffs filed another amended complaint,
adding additional claims against the General Partners and seeking
class certification under Federal Rule 23 as to the newly added
claims, and as to all other claims in plaintiffs' complaint which
had not been previously certified. The District Court granted
plaintiffs' request for class certification as to all of the claims
not previously certified, and certified all of the claims of the
plaintiffs' complaint under Rule 23(b)(1), 23(b)(2)and 23(b)(3).
In addition, pursuant to the General Partners' motion, the
District Court dismissed as moot certain of plaintiffs' claims,
including plaintiffs' claim that the General Partners violated
certain of the rules of the Securities and Exchange Commission by
allegedly making false and misleading statements in the Proxy. The
District Court similarly dismissed as moot a counterclaim that had
been made against class plaintiffs and their counsel for violating
the federal securities laws.
On April 13, 1999, all of the parties reached a Settlement
Agreement encompassing all matters in the lawsuit. The Settlement
Agreement is subject to the approval by the District Court, and the
Limited Partners will be provided with a written notice concerning
its terms. The settlement will not have a material financial
impact on the Partnership.
C. The Scialpi Illinois Lawsuit
On June 20, 1997, another lawsuit was filed in the United States
District Court for the Northern District of Illinois, styled
Benjamin Siegel, Rebecca Scialpi, Helen Friedlander, and BHS &
Associates, Inc. v. Jerome J. Brault, Brauvin Realty Advisors,
Inc., Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors
III, Inc., Brauvin Realty Advisors IV, Inc., James L. Brault,
Brauvin Real Estate Funds LLC 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 number 97 C 4450. The
Partnership and the Affiliated Partnerships are each named as
"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, 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.
Notably, the complaint was filed by two of the same parties,
Scialpi and Friedlander, who were plaintiffs in the Florida
lawsuit, which is described above. As also described above,
Scialpi and Friedlander are not limited partners in the
Partnership, but are limited partners in one of the Affiliated
Partnerships, Brauvin High Yield Fund L.P. II. On August 15, 1997
the plaintiffs filed an amended complaint dropping Benjamin Siegel
as a plaintiff. The plaintiffs are also represented by the same
lawyers that represented them in the Florida lawsuit.
The complaint alleges a putative class action consisting of
claims that certain Commission rules were violated by making false
and misleading statements in the Proxy, the defendants breached
their fiduciary duties and breached the Agreement. The complaint
was consolidated with the Christman lawsuit, which is described
above, pursuant to General Rule 2.31 of the United States District
Court of the Northern District of Illinois. The General Partners
deny these allegations and intend to vigorously defend these
claims. There have been no material developments with respect to
this lawsuit since it was filed on June 20, 1997; however,
management believes that the terms of the April 13, 1999 settlement
agreement described above will encompass this lawsuit.
<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.
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.
Year 2000
The "Year 2000" problem concerns the inability of computer
technology systems to correctly identify and process date sensitive
information beyond December 31, 1999. Many computers
automatically add the "19" prefix to the last two digits the
computer reads for the year when date information is needed in
computer software programs. Thus when a date beginning on January
1, 2000 is entered into a computer, the computer may interpret this
date as the year "1900" rather than "2000".
The Partnership's computer information technology systems
consist of a network of personal computers linked to a server built
using hardware and software from mainstream suppliers. The
Partnership does not own any equipment that contains embedded
microprocessors, which may also pose a potential Year 2000 problem.
Additionally, the Partnership has no internally generated software
coding to correct as all of the Partnership's software is purchased
and licensed from external providers. These external providers
have assured management that their systems are, or will be, Year
2000 compliant.
The Partnership has two main software packages that contain
date sensitive information, (i) accounting and (ii) investor
relations. In 1997, the Partnership initiated and completed the
conversion from its existing accounting software to a new software
program that is Year 2000 compliant. In 1998, the investor
relations software was also updated to a new software program that
is Year 2000 compliant. Management has determined that the Year
2000 issue will not pose significant operational problems for its
remaining computer software systems. All costs associated with
these conversions are expensed as incurred, and are not material.
Management does not believe that any further expenditures will be
necessary for the Partnership to be Year 2000 compliant. However,
existing personal computers may be replaced from time to time with
newer machines.
Also in 1997, management of the Partnership initiated formal
communications with all of its significant third party vendors,
service providers and financial institutions to determine the
extent to which the Partnership is vulnerable to those third
parties failure to remedy their own Year 2000 issue. There can be
no guarantee that the systems of these third parties will be timely
converted and would not have an adverse effect on the Partnership.
The most reasonably likely worst case scenario for the
Partnership with respect to the Year 2000 issue would be the
inability of certain tenants to timely make their rental payments
beginning in January 2000. This could result in the Partnership
temporarily suffering a depletion of the Partnership's cash
reserves as expenses will need to be paid while the cash flows from
revenues are delayed. The Partnership has no formal Year 2000
contingency plan.
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 through December 31,
1998. As of December 31, 1998, 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 Partnership 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 Partnership
acquisition during the last three years:
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 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 cost allocation of
approximately 37% (land) and 63% (building).
During the fourth quarter of 1998, the Partnership recorded a
provision for impairment of $242,000 to adjust the carrying value
of the real estate for the House of Fabrics ($214,000) and the
Walden Books Store ($28,000) to their 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.
Below is a table summarizing the historical data for distribution
rates per unit:
Distribution
Date 1999 (a) 1998 (b) 1997(c) 1996
February 15 $.1875 -- $.2422 $.2000
May 15 .1763 $.2015 .1093 .1875
August 15 -- .1097 .1767 --
November 15 -- .1531 .5411 --
(a) The 1999 distribution was made on May 17, 1999.
(b) The 1998 distributions were made on May 8, 1998, August 15,
1998, November 15, 1998 and February 15, 1999.
(c) The 1997 distributions were made on March 31, 1997, July 15,
1997, October 22, 1997 and December 31, 1997.
Distributions of the Partnership's net earnings for the periods
January 1, 1998 to March 31, 1998, April 1, 1998 to June 30, 1998,
July 1, 1998 to September 30, 1998, and October 1, 1998 to December
31, 1998 were made to Limited Partners on May 8, 1998, August 15,
1998, November 15, 1998, and February 15, 1999, respectively, in
the amounts of approximately $329,000, $179,100, $250,000, and
$306,100.
Distributions of the Partnership's net earnings for the period
January 1, 1999 to March 31, 1999 were made on May 17, 1999 in the
amount of approximately $287,800.
Per the terms of the Sale, the Partnership's net earnings from
April 1996 through July 1996 were to be distributed to the Limited
Partners in conjunction with the closing of the Sale. However,
because of the lengthy delay and the uncertainty of the ultimate
closing date, the General Partners decided to make a significant
distribution on December 31, 1997 of the Partnership's earnings.
Included in the December 31, 1997 distribution was any prior period
earnings including amounts previously reserved for anticipated
closing costs. Based on the August 12, 1998 ruling of the District
Court in the Christman litigation, it is not possible for the Sale
to be consummated.
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.
Although the Sale will not be consummated, the following text
describes the Transaction. Pursuant to the terms of the Sale
Agreement the Limited Partners were to have received approximately
$7.65 per Unit. If certain conditions of the Transaction were met,
the Partnership would have been liquidated and the Class A Limited
Partners would have received 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 would have received a liquidating distribution
of approximately $8.44 to $8.73 per Unit. Of the liquidating
distributions (of both Class A and Class B investors) referred to
above, approximately $0.38 was distributed to the Limited Partners
in the December 31, 1997 distribution.
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 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 that was to be paid to the Limited Partners in
connection with the Sale was 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. On April 1, 1996, Cushman & Wakefield determined
the fair market value of the Assets to be $12,489,100, or $7.65 per
Unit. Subsequently, the Partnership purchased a 24% interest in
Brauvin Bay County Venture. Based on the terms of the Sale
Agreement, the fair market value of the Assets was to be increased
by the amount of the investment in Brauvin Bay County Venture, and
correspondingly, the Partnership's cash holdings were reduced by
the same amount and, therefore, the total liquidating distribution
would remain unchanged. The liquidating distribution included 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
advised that the price per Unit reflected in the proposed
Transaction was 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 was 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 was believed by Cushman & Wakefield to be
reasonable.
Mr. Jerome J. Brault is the Managing General Partner of the
Partnership and Brauvin Realty Advisors IV, Inc. is 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 were not to receive any
fees in connection with the Transaction and were to 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, were to have a
minority ownership interest in the Purchaser. Therefore, the
Messrs. Brault had an indirect economic interest in consummating
the Transaction that was 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 an affirmative vote of
the majority of the Limited Partners was received, the District
Court in the Christman litigation ruled on August 12, 1998 in favor
of the plaintiffs' motion for partial summary judgement, holding
that the Agreement did not allow the Limited Partners to vote in
favor or against the Transaction by proxy.
As discussed in "Legal Proceedings", all the parties to the
litigation reached an agreement to settle the litigation, subject
to the approval by the United States District Court for the
Northern District of Illinois. Unfortunately, however, the delay
caused by the litigation has had an adverse effect on the
Partnership today as well as on future prospects.
On January 16, 1998, by agreement of the Partnership and the
General Partners and pursuant to a motion of the General Partners,
the District Court entered an order preventing the Partnership and
the General Partners from completing the Sale, or otherwise
disposing of all or substantially all of the Assets, until further
order of the Court.
On January 28, 1998, the District Court entered an Order of
Reference to Special Master, designating a Special Master and
vesting the Special Master with authority to resolve certain
aspects of the lawsuit subject to the District Court's review and
confirmation. The Special Master has been empowered to determine
how the assets of the Partnership should be sold or disposed of in
a manner which allows the Limited Partners to maximize their
financial return in the shortest practicable time frame. In
addition, early in the second quarter of 1998, the Special Master
retained a financial advisor (the "Financial Advisor"), at the
expense of the Partnership, to assist the Special Master. The
Financial Advisor was engaged to perform a valuation of the
properties of the Partnership as well as a valuation of the
Partnership itself. The cost to the Partnership for the services
of the Financial Advisor was $70,000.
On August 4, 1998, the Special Master filed a Report and
Recommendation with the District Court expressing the Special
Master's recommendation that the Partnership's properties be
disposed of in an auction conducted by the Financial Advisor under
the direction of the Special Master. The District Court accepted
this Report and Recommendation.
On November 4, 1998, the Special Master filed an additional
Report and Recommendation with the District Court, requesting that
the Court withdraw its Order of Reference to Special Master on the
grounds it would be impossible to effect the sale of the
Partnership's properties in a manner that maximizes the financial
return to Limited Partners in a short time frame, unless certain
litigation issues are resolved. The District Court has accepted
this Report and Recommendation.
On January 21, 1999, plaintiffs filed another amended complaint,
adding additional claims against the General Partners and seeking
class certification under Federal Rule 23 as to the newly added
claims, and as to all other claims in plaintiffs' complaint which
had not been previously certified. The District Court granted
plaintiffs' request for class certification as to all of the claims
not previously certified, and certified all of the claims of the
plaintiffs' complaint under Rule 23(b)(1), 23(b)(2)and 23(b)(3).
In addition, pursuant to the General Partners' motion, the
District Court dismissed as moot certain of plaintiffs' claims,
including plaintiffs' claim that the General Partners violated
certain of the rules of the Securities and Exchange Commission by
allegedly making false and misleading statements in the Proxy. The
District Court similarly dismissed as moot a counterclaim that had
been made against class plaintiffs and their counsel for violating
the federal securities laws.
On April 13, 1999, all of the parties reached a Settlement
Agreement encompassing all matters in the lawsuit. The Settlement
Agreement is subject to the approval by the District Court, and the
Limited Partners will be provided with a written notice concerning
its terms. The settlement will not have a material financial
impact to the Partnership.
Results of Operation - Three months Ended March 31, 1999 and 1998
Results of operations for the three months ended March 31, 1999
reflected net income of $227,215 compared to net income of $264,342
for the three months ended March 31, 1998, a decrease of
approximately $37,000.
Total income for the three months ended March 31, 1999 was
$426,707 as compared to $418,625 for the period ended March 31,
1998, an increase of approximately $8,000. The increase in total
income is the result of a $38,000 increase in rental income and a
$2,000 increase in interest income and a $32,000 decrease in other
income. The increase in rental income is the result of a new tenant
at the previously vacated House of Fabrics property. The $32,000
decrease in other income is the result of the gain on sale of
marketable securities in 1998, while no such sale occurred in 1999.
Total expenses for the three months ended March 31, 1999 were
$189,560 as compared to $144,354 for the period ended March 31,
1998, an increase of approximately $45,000. The increase in
expenses was due to an increase in transaction costs of
approximately $19,000, and increase in bad debt expense of $37,000,
and a decrease of depreciation expense of approximately $15,000.
The increase in transaction costs is the result of an increase in
legal fees associated with the negotiation and settlement of the
lawsuit. The increase in bad debt expense is the result of the
financial difficulties of the new tenant at the House of Fabrics
facility. In March 1999, the Partnership was informed that the
tenant was in bankruptcy and that the lease was on the initial list
of leases to be rejected. The decrease in depreciation expense is
the result of recording an impairment of assets in 1998, which
reduces monthly depreciation associated with these assets.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk.
The Partnership does not engage in any hedge transactions or
derivative financial instruments, or have any interest sensitive
obligations.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
Two legal actions, as hereinafter described, were pending at
December 31, 1998 against the General Partners and affiliates of
such General Partners, as well as against the Partnership on a
nominal basis in connection with the Sale. On April 13, 1999, all
the parties to the litigation reached an agreement to settle the
litigation, subject to the approval by the United States District
Court for the Northern District of Illinois. Management believes
that the settlement will not have a material financial impact on
the Partnership. The terms of the settlement agreement, along with
a Notice to the Class, was forwarded to the Limited Partners in the
second quarter. One additional legal action, which was dismissed
on January 28, 1998, had also been brought against the General
Partners and affiliates of such General Partners, as well as
against the Partnership on a nominal basis in connection with the
Sale. With respect to the actions the Partnership and the General
Partners and their named affiliates denied all allegations set
forth in these complaints and vigorously defended against such
claims.
A. The Dismissed 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
L.P. II, 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 were proposed to be a party to a
Sale or merger with the Purchaser, were each named as a "Nominal
Defendant" in this lawsuit. The named plaintiffs were not limited
partners in the Partnership. Rather, the named plaintiffs are
limited partners in Brauvin High Yield Fund L.P. II, one of the
Affiliated Partnerships. 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
certain corporate general partners of the Affiliated Partnerships,
were named as defendants in this lawsuit. James L. Brault, an
officer of the Corporate General Partner and the son of Jerome J.
Brault, was also named as a defendant. This lawsuit was dismissed
for want of prosecution on January 28, 1998.
B. The Illinois Christman 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
Transaction.
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 Transaction. 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, the 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 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 (as defined below)
in violation of the Commission's requirements. At the conclusion
of the hearing on October 10 and 11, the District Court found that
the 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
Circuit Court of Appeals subsequently dismissed this appeal on the
grounds that the appeal was rendered moot by the Limited Partners'
approval 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
Transaction by proxy. On August 12, 1998, the District Court
granted plaintiffs' motion for summary judgement, holding that the
Agreement did not allow the Limited Partners to vote in favor or
against the Transaction by proxy.
On April 2, 1997, the Court granted plaintiffs' leave to again
amend their complaint. In their second amended complaint,
plaintiffs named the Partnership as a "Nominal Defendant."
Plaintiffs also added a new claim, alleging that the General
Partners violated certain of the rules of the Securities and
Exchange Commission (the "Commission") by making false and
misleading statements in the Proxy. Plaintiffs also allege that
the 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 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. 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. Plaintiffs filed a notice of
appeal to the Seventh Circuit Court of Appeals from the District
Court's May 1, 1997 order denying plaintiffs' motion to
preliminarily enjoin the closing of the Transaction. This appeal
was dismissed by the Seventh Circuit Court of Appeals on January
23, 1998, based on the appellate court's finding that the District
Court's order of January 16, 1998 rendered the appeal moot.
On January 16, 1998, by agreement of the Partnership and the
General Partners and pursuant to a motion of the General Partners,
the District Court entered an order preventing the Partnership and
the General Partners from completing the Sale, or otherwise
disposing of all or substantially all of the Partnership's assets,
until further order of the Court.
On January 28, 1998, the District Court entered an Order of
Reference to Special Master, designating a Special Master and
vesting the Special Master with authority to resolve certain
aspects of the lawsuit subject to the District Court's review and
confirmation. The Special Master was empowered to determine how
the assets of the Partnership should be sold or disposed of in a
manner which allows the Limited Partners to maximize their
financial return in the shortest practicable time frame. In
addition, early in the second quarter of 1998, the Special Master
retained a financial advisor (the "Financial Advisor"), at the
expense of the Partnership, to assist the Special Master. The
Financial Advisor has been engaged to perform a valuation of the
properties of the Partnership as well as a valuation of the
Partnership itself. The cost to the Partnership for the services
of the Financial Advisor was $70,000.
On August 4, 1998, the Special Master filed a Report and
Recommendation with the District Court, expressing the Special
Master's recommendation that the Partnership's properties be
disposed of in an auction conducted by the Financial Advisor under
the direction of the Special Master. The District Court accepted
this Report and Recommendation. On November 4, 1998, the Special
Master filed an additional Report and Recommendation with the
District Court, requesting that the Court withdraw its Order of
Reference to Special Master on the grounds it would be impossible
to effect the sale of the Partnership's properties in a manner that
maximizes the financial return to Limited partners in a short time
frame, unless certain litigation issues are resolved. The District
Court has accepted this Report and Recommendation.
On January 21, 1999, plaintiffs filed another amended complaint,
adding additional claims against the General Partners and seeking
class certification under Federal Rule 23 as to the newly added
claims, and as to all other claims in plaintiffs' complaint which
had not been previously certified. The District Court granted
plaintiffs' request for class certification as to all of the claims
not previously certified, and certified all of the claims of the
plaintiffs' complaint under Rule 23(b)(1), 23(b)(2)and 23(b)(3).
In addition, pursuant to the General Partners' motion, the
District Court dismissed as moot certain of plaintiffs' claims,
including plaintiffs' claim that the General Partners violated
certain of the rules of the Securities and Exchange Commission by
allegedly making false and misleading statements in the Proxy. The
District Court similarly dismissed as moot a counterclaim that had
been made against class plaintiffs and their counsel for violating
the federal securities laws.
On April 13, 1999, all of the parties reached a Settlement
Agreement encompassing all matters in the lawsuit. The Settlement
Agreement is subject to the approval by the District Court, and the
Limited Partners will be provided with a written notice concerning
its terms. The settlement will not have a material financial
impact on the Partnership.
C. The Scialpi Illinois Lawsuit
On June 20, 1997, another lawsuit was filed in the United States
District Court for the Northern District of Illinois, styled
Benjamin Siegel, Rebecca Scialpi, Helen Friedlander, and BHS &
Associates, Inc. v. Jerome J. Brault, Brauvin Realty Advisors,
Inc., Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors
III, Inc., Brauvin Realty Advisors IV, Inc., James L. Brault,
Brauvin Real Estate Funds LLC 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 number 97 C 4450. The
Partnership and the Affiliated Partnerships are each named as
"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, 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.
Notably, the complaint was filed by two of the same parties,
Scialpi and Friedlander, who were plaintiffs in the Florida
lawsuit, which is described above. As also described above,
Scialpi and Friedlander are not limited partners in the
Partnership, but are limited partners in one of the Affiliated
Partnerships, Brauvin High Yield Fund L.P. II. On August 15, 1997
the plaintiffs filed an amended complaint dropping Benjamin Siegel
as a plaintiff. The plaintiffs are also represented by the same
lawyers that represented them in the Florida lawsuit.
The complaint alleges a putative class action consisting of
claims that certain Commission rules were violated by making false
and misleading statements in the Proxy, the defendants breached
their fiduciary duties and breached the Agreement. The complaint
was consolidated with the Christman lawsuit, which is described
above, pursuant to General Rule 2.31 of the United States District
Court of the Northern District of Illinois. The General Partners
deny these allegations and intend to vigorously defend these
claims. There have been no material developments with respect to
this lawsuit since it was filed on June 20, 1997; however,
management believes that the terms of the April 13, 1999 settlement
agreement described above will encompass this lawsuit.
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/ Thomas E. Murphy
Thomas E. Murphy
Chief Financial Officer and
Treasurer
INDIVIDUAL GENERAL PARTNER
/s/ Jerome J. Brault
Jerome J. Brault
DATED: May 17, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 500,944
<SECURITIES> 251,145 <F1>
<RECEIVABLES> 529,219
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 13,229,629 <F2>
<DEPRECIATION> 1,461,422
<TOTAL-ASSETS> 13,238,718
<CURRENT-LIABILITIES> 276,855
<BONDS> 673,674 <F3>
0
0
<COMMON> 12,288,189 <F4>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,238,718
<SALES> 0
<TOTAL-REVENUES> 426,707 <F5>
<CGS> 0
<TOTAL-COSTS> 189,560 <F6>
<OTHER-EXPENSES> 9,932 <F7>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 227,215
<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>
