<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
(Title of class)
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
Indicate by check mark
if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (Section 229.405 of this chapter)
is not contained herein, and will
not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [ X ]
The aggregate sales price of
the limited partnership interests of the registrant
(the "Units") to unaffiliated investors of the registrant
during the initial offering period was $16,008,310.
This does not reflect market value. This is the price
at which the Units were sold to the public during the initial offering
period. There is no current market for the Units nor have any Units
been sold within the last 60 days prior to
this filing except for Units sold to or by the
registrant pursuant to the registrant's distribution reinvestment plan, as
described in the prospectus of the registrant dated December 12, 1991 (the
"Prospectus") as supplemented March 25, 1992 and June 17, 1993 and filed
pursuant to Rule 424(b) and Rule 424(c)
under the Securities Act of 1933, as amended.
Portions of the Prospectus are incorporated by reference into
Parts II, III and IV of this Annual Report on Form 10-K.
<PAGE>
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
1998 FORM 10-K ANNUAL REPORT
INDEX
PART I
Page
Item 1. Business . . . . . . . . . . . . . . . . . . . . . .3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . .7
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . .14
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . .20
PART II
Item 5. Market for the Registrant's Units and Related
Security Holder Matters . . . . . . . . . . . . . .21
Item 6. Selected Financial Data . . . . . . . . . . . . . .23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . .25
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . .35
Item 8. Consolidated Financial Statements and
Supplementary Data . . . . . . . . . . . . . . . .36
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . 36
PART III
Item 10. Directors and Executive Officers of the
Partnership . . . . . . . . . . . . . . . . . . . .37
Item 11. Executive Compensation. . . . . . . . . . . . . . .39
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . .42
Item 13. Certain Relationships and Related Transactions. . .42
PART IV
Item 14. Exhibits, Consolidated Financial Statement
Schedules, and Reports on Form 8-K. . . . . . . . .43
Signatures . . . . . . . . . . . . . . . . . . . . . . . . .45
<PAGE>
PART I
Item 1. Business.
Brauvin Corporate Lease Program IV L.P. (the "Partnership") is a
Delaware limited partnership formed in August 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 at the time that the
Partnership first offered its Units (as defined below) that the
properties would 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 would provide for a base minimum annual rent with periodic
increases in rent as a result of: (i) fixed increases on specific
dates; (ii) upward adjustments to indices, such as the Consumer
Price Index, to which base rents are indexed; or (iii)
participation in lessees' gross sales above a stated level. The
Partnership had not sold any of its limited partnership interests
(the "Units") as of December 31, 1991, pursuant to a Registration
Statement on Form S-11 under the Securities Act of 1933, as
amended, dated December 12, 1991 (the "Offering"). The Offering
was conditioned upon the sale of $1,200,000 of Units, which was
achieved on April 27, 1992. The Offering was anticipated to close
on December 11, 1992 but the Partnership obtained an extension
until December 11, 1993, with the appropriate governmental
approval. A total of 1,600,831 Units were sold to the public at
$10 per Unit ($16,008,310) through December 11, 1993. The
investors in the Partnership (the "Limited Partners") share in the
benefits of ownership of the Partnership's real property
investments based on the number of Units owned by each Limited
Partner compared to the total number of Units sold. An additional
$435,100 of Units was sold through the Partnership's distribution
reinvestment plan (the "Plan") through December 31, 1998. As of
December 31, 1998, $118,706 of Units sold through the Offering have
been repurchased by the Partnership from investors liquidating
their investment and retired. As of December 31, 1998, the Plan
participants own Units which approximate 3% of the total Units
sold.
The principal investment objectives of the Partnership are: (i)
preservation and protection of capital; (ii) distribution of the
Partnership's current cash flow attributable to rental income;
(iii) capital appreciation; (iv) the potential for increased income
through escalations in the base rent or participation in the growth
of the sales of the tenants of the Partnership's properties; (v)
the deferral of the taxation of cash distributions for investors
who are not exempt from federal taxation; and (vi) the production
of "passive" income to offset "passive" losses from other
investments.
Some tax shelter of cash distributions by the Partnership will be
available to Class A Investors through depreciation of the
underlying properties. Class A Investors benefit from the special
allocation of all depreciation to the Units which they acquired
from the Partnership because their reduced taxable income each year
will result in a reduction in taxes due, although no "spill-over"
losses are expected. Taxable income generated by property
operations will likely be considered passive income for federal
income tax purposes because Section 469(c)(2) of the Internal
Revenue Code states that a passive activity includes "any rental
activity" and, therefore, is available to offset losses Class A
Investors may have realized in other passive investments.
During the early years of the Partnership, the Limited Partners
received cash distributions in excess of their allocable share of
the Partnership's income, and substantially in excess of their tax
liability thereon, particularly the Class A Investors, due to the
special allocation of depreciation deductions, although the Class
A Investors will recognize more income from the ultimate sale of
Partnership properties.
It was originally contemplated that the Partnership would dispose
of its properties approximately seven to nine years after their
acquisition with a view towards liquidation of the Partnership
within that period.
In accordance therewith, the Partnership entered an Agreement for
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 (as defined below). If certain
conditions of the Transaction (as defined below) 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 already distributed to the Limited
Partners. The Limited Partners holding a majority of the Units
voted to approve the Sale on November 8, 1996. The Limited
Partners also voted to approve 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 was to be increased by the amount of the investment in
Brauvin Bay County Venture, and correspondingly, the Partnership's
cash holdings were to be 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
that was still pending at December 31, 1998. The General Partners
believe that these lawsuits are without merit and, therefore,
continue to vigorously defend against them. Because of the August
12, 1998 ruling of the District Court in the Christman Litigation,
as described in Item 3, it is not possible for the Sale to be
consummated.
The terms of the transactions between the Partnership and
affiliates of the General Partners are set forth in Item 13 below.
The Agreement provides that the Partnership shall terminate
December 31, 2011, unless sooner terminated.
The Partnership has no employees.
Market Conditions/Competition
The Partnership has utilized its proceeds available for
investment to acquire properties. Since the leases of certain of
the Partnership's properties entitle the Partnership to participate
in gross receipts of lessees above fixed minimum amounts, the
success of the Partnership will depend in part on the ability of
those lessees to compete with similar businesses in their
respective vicinities.
Since the Sale will not be consummated, the General Partners will
have to determine whether to continue the Partnership's operations
or attempt to sell some or all of the properties. The Partnership
has and continues to compete with many other entities engaged in
real estate investment activities. The General Partners will
evaluate factors such as the economy, the lease terms, the
financial strength of the existing tenants and the ability to
locate potential purchasers.
Item 2. Properties.
The Partnership is a landlord only and does not participate in
the operations of any of the properties discussed herein. All
lease payments due to the Partnership are current. At December 31,
1998, all properties, except the House of Fabrics located in
Joliet, Illinois, were 100% occupied. All properties were paid for
in cash, without any financing. The General Partners believe that
all properties are adequately insured.
The following information is presented for the one property
acquired by the Partnership whose cost basis exceeds 10% of the
gross proceeds of the Offering.
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. At the time of purchase, Walden Books, Inc. was 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 costs associated 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 November 9, 1993, the Partnership invested in a joint venture
that purchased the CompUSA store is a 25,000 square foot single
story building located on a 105,919 square foot parcel in Duluth,
a suburb of Atlanta, in the Gwinnett Place Mall Shopping Area. The
single story building was completed in March 1993.
The Partnership purchased a 70.2% interest in the joint venture
(the "Joint Venture") with affiliated public limited real estate
partnerships that acquired the land and building underlying the
CompUSA computer superstore for $2,350,000. The seller undertook
to expand the store by an additional 1,150 square feet pursuant to
a lease amendment executed by the Tenant, as hereinafter defined.
The store was completed in March 1993, and is leased to CompUSA,
Inc. (the "Tenant"), a NYSE-listed company, for a minimum term of
15 years upon completion of the expansion space.
The following is a summary of the real estate and improvements
purchased by the Partnership:
Steak n Shake:
Peerless Park, Missouri
The property is located on the southeast corner of Highway 141
and Interstate I-44, approximately 16 miles southwest of downtown
St. Louis. The single-story building is 3,860 square feet situated
on a 39,500 square foot parcel of land.
Children's World Learning Center:
Arlington, Texas
The property is located at 1235 West Sublet. The building is
4,950 square feet built on 0.625 acres of land. The single-story,
wood-frame building has brick veneer exterior and has a pitched
roof with asphalt shingles. The building was constructed in 1984.
Chuck E. Cheese's Restaurants:
Ashwaubenon, Wisconsin
The Chuck E. Cheese restaurant is located at 1273 Lombardi Access
Road. The building consists of 10,183 square feet situated on a
3.385 acre parcel and was constructed in 1983 utilizing a steel
frame with concrete.
Springfield, Ohio
The Chuck E. Cheese restaurant is located at 2345 Valley Loop
Road. The building consists of 10,183 square feet situated on a
2.769 acre parcel and was constructed in 1983 utilizing a steel
frame with concrete block.
Mrs. Winner's Chicken & Biscuit Restaurant:
Oakwood, Georgia
The Mrs. Winner's Chicken & Biscuit restaurant is located at 3465
Mundy Mill Road. The building consists of 2,436 square feet
situated on a 25,700 square foot parcel and was constructed in 1983
utilizing concrete block construction with vinyl siding.
House of Fabrics:
Joliet, Illinois
The House of Fabrics store is located at 2900 Colorado Avenue.
The building consists of 20,000 square feet situated on a 1.299
acre parcel and was constructed in 1993 utilizing concrete block
construction with steel frame and metal deck roof.
In October 1994, House of Fabrics filed for protection under
Chapter 11 of the United States Bankruptcy Code. At the time of
the filing the tenant was over one month in arrears. From October
1994 until January 1996, House of Fabrics occupied the Joliet
property and paid all rents and occupancy expenses on a timely
basis.
In August 1995, House of Fabrics notified the Partnership that,
under the provisions of the bankruptcy code, it had rejected the
lease and indicated that it would vacate the property at the end of
January 1996. House of Fabrics vacated the property on January 31,
1996.
In 1997, the Partnership received a Federal Bankruptcy Court
award of approximately 20,800 shares of the House of Fabric with a
market value of $98,800. At December 31, 1997, the market value of
the remaining shares (approximately 17,000) that the Partnership
owned was $35,075. In March 1998, the Partnership sold its
remaining shares of the House of Fabrics stock for approximately
$72,300.
In June 1998, a potential tenant, Nevada Bob's Pro Shop, Inc.
(the Lessee) and the Partnership entered into a five year lease
for the property. The lease was executed in August 1998 with a
rent commencement date of October 1, 1998. However, the Lessee has
not taken possession of the Premises and has not paid rent since
November 1998.
In January 1999, the Partnership was advised by the legal
representatives of Nevada Bob's Pro Shop, Inc. that the Partnership
should immediately take all reasonable steps to relet the premises
to another tenant at the earliest opportunity. In January 1999, the
Partnership engaged a local brokerage firm to assist in re-leasing
of this property.
In March 1999, the owners of Nevada Bob's Pro Shop, Inc. were
attempting to convert an involuntary Chapter 7 bankruptcy petition
filed by their creditors in February 1999 into a voluntary Chapter
11 reorganization. As a result of the bankruptcy, the Partnership
was informed that this lease was on the initial list of leases to
be rejected.
During the fourth quarter of 1998, a provision for impairment of
$214,000 was recorded to adjust the carrying value of the property
to its estimated net realizable value. This allowance 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 23% (land) and 77% (building).
Volume ShoeSource:
Blaine, Washington
The Volume ShoeSource store is located at 439 Peace Portal Drive.
The building consists of 10,900 square feet situated on a .389 acre
parcel and was fully renovated in 1992.
During the fourth quarter of 1996, a provision for impairment of
$356,400 was recorded to adjust the carrying value of the 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 45% (land) and 55% (building).
Joint Venture CompUSA:
Duluth, Georgia
The CompUSA store is a 25,000 square foot single story building
located on a 105,919 square foot parcel in Duluth, a suburb of
Atlanta, in the Gwinnett Place Mall Shopping Area. The single
story building was completed in March 1993.
The Partnership purchased a 70.2% interest in a joint venture
(the "Joint Venture") with affiliated public limited real estate
partnerships that acquired the land and building underlying the
CompUSA computer superstore. The seller undertook to expand the
store by an additional 1,150 square feet pursuant to a lease
amendment executed by the Tenant, as hereinafter defined. The
store was completed in March 1993, and is leased to CompUSA, Inc.
(the "Tenant"), a NYSE-listed company, for a minimum term of 15
years upon completion of the expansion space.
During the fourth quarter of 1996, a provision for impairment of
$197,000 was recorded to adjust the carrying value of the property
to its estimated net realizable value. This allowance 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).
Blockbuster Video:
Eagan, Minnesota
The property is located at 2075 Cliff Road and consists of a
7,028 square foot building situated on a 37,364 square foot parcel
of land. The building was constructed in 1993 of concrete block
and steel frame covered with stucco.
East Side Mario's:
Copley, Ohio
The property is located at 85 W. Montrose Avenue and consists of
a 6,240 square foot building situated on 1.76 acres of land. The
building was constructed in 1993 of concrete block and steel frame.
Walden Books Store:
Miami, Florida
The property is located on the southeast corner of Kendall Drive
and S.W. 112th Street and consists of a 8,500 square foot building
situated on .743 acres of land. The building was constructed in
1988 of masonry block with stucco and dryvit parapet.
During the fourth quarter of 1996, a provision for impairment of
$303,600 was recorded to adjust the carrying value of the property
to its estimated net realizable value. This provision was
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 31% (land) and 69% (building).
During the fourth quarter of 1998, a provision for impairment of
$28,000 was recorded to adjust the carrying value of the property
to its estimated net realizable value. This allowance 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 31% (land) and 69% (building).
Joint Venture Blockbuster:
Callaway, Florida
The Partnership owns a 24.0% 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 property is located at 123 N. Tydall Parkway on the
major arterial in the Panama City, Florida area. The property
contains a 6,466 square foot building located on a 40,075 square
foot parcel of land.
The following table summarizes the operations of the
Partnership's properties:
<TABLE>
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
SUMMARY OF OPERATING DATA
DECEMBER 31, 1998
<CAPTION>
1998
PERCENT OF 1998 PERCENT OF LEASE
PURCHASE ORIGINAL RENTAL RENTAL EXPIRATION RENEWAL
PROPERTIES PRICE UNITS SOLD INCOME INCOME DATES OPTIONS
<S> <C> <C> <C> <C> <C> <C>
1 STEAK N' SHAKE RESTAURANT $ 995,000 6.2% $ 121,888 8.5% 2010 2 TEN YEAR OPTIONS
1 CHILDREN'S WORLD LEARNING CENTER 425,000 2.7% 53,922 3.8% 2007 2 FIVE YEAR OPTIONS
2 CHUCK E. CHEESE'S RESTAURANTS 2,085,000 13.0% 250,966 17.4% 2005 2 FIVE YEAR OPTIONS
1 MRS. WINNER'S CHICKEN & BISCUIT 600,000 3.7% 90,241 6.3% 2013 2 FIVE YEAR OPTIONS
1 HOUSE OF FABRICS STORE (A) 1,430,000 8.9% 27,208 1.9% -- --
1 VOLUME SHOESOURCE STORE 1,627,822 10.2% 182,774 12.7% 2003 4 FIVE YEAR OPTIONS
1 BLOCKBUSTER VIDEO 905,000 5.7% 109,494 7.6% 2003 2 FIVE YEAR OPTIONS
1 EAST SIDE MARIO'S 1,435,000 9.0% 217,996 15.1% 2014 2 TEN YEAR OPTIONS
1 WALDEN BOOK CO. INC. 1,680,000 10.5% 176,387 12.2% 2009 NONE
70.2% OF 1 COMPUSA STORE 1,649,700 10.3% 183,150 12.7% 2008 4 FIVE YEAR OPTIONS
24.0% OF 1 BLOCKBUSTER VIDEO STORE 243,319 1.5% 26,220 1.8% 2006 3 FIVE YEAR OPTIONS
$13,075,841 81.7% $1,440,246 100.0%
<FN>
<F1>
NOTE - THE FORMAT OF THIS SCHEDULE DIFFERS FROM THE INCOME STATEMENT OF THE PARTNERSHIP.
THIS SCHEDULE ALLOCATES THE PARTNERSHIP'S SHARE OF PURCHASE PRICE AND RENTAL INCOME FROM EACH JOINT VENTURE.
THE INCOME STATEMENT USES THE EQUITY METHOD OF ACCOUNTING FOR THE 24% INTEREST IN THE BLOCKBUSTER VIDEO STORE,
THEREFORE, NO RENTAL INCOME IS RECORDED IN THE RENTAL INCOME ACCOUNTS FOR THE JOINT VENTURE. THE INCOME
STATEMENT CONSOLIDATES THE COMPUSA STORE, THEREFORE RECORDING 100% OF THE COMPUSA STORE'S RENTAL INCOME.
(A) NEVADA BOB'S PRO SHOP, INC. NEVER TOOK POSSESSION OF THE PREMISES (SEE ITEM 2 ABOVE).
</FN>
</TABLE>
<PAGE>
Risk of Ownership
The possibility exists that the tenants of the Partnership's
properties as well as lease guarantors, if any, may be unable to
fulfill their obligations pursuant to the terms of their leases,
including making base rent or percentage rent payments to the
Partnership. Such a default by the tenants or a premature
termination of any one of the leases (as is the case with the House
of Fabrics) could have an adverse effect on the financial position
of the Partnership. Furthermore, the Partnership may be unable to
successfully locate a substitute tenant due to the fact that these
buildings have been designed or built primarily to house a
particular type of operation. Thus, the properties may not be
readily marketable to a new tenant without substantial capital
improvements or remodeling. Such improvements may require
expenditure of Partnership funds which might otherwise be available
for distribution.
Item 3. 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, will be forwarded to the Limited Partners in
the second quarter of 1999. 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 these actions the Partnership and the
General Partners and their named affiliates denied all allegations
set forth in the 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 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 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
Partnerships 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 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
PART II
Item 5. Market for the Registrant's Units and Related Security
Holder Matters.
At December 31, 1998, there were 891 Limited Partners in the
Partnership. There is no established public trading market for
Units and it is not anticipated that there will be a public market
for Units. Neither the General Partners nor the Partnership are
obligated to redeem or repurchase Units, but the Partnership may,
as described under the section of the Prospectus entitled "Unit
Repurchase Program" on pages 73-74 of the Prospectus, purchase
Units under certain very limited circumstances.
Units in the hands of a transferee will retain the same
character as in the hands of the transferor. Thus, the transferee,
whether a taxable or tax-exempt investor, who acquires a Unit from
a Class B Investor, as such term is defined in the Agreement, will
not be allocated any depreciation and, conversely, a transferee who
is a tax-exempt investor and acquires a Unit from a Class A
Investor will be allocated depreciation even though such
depreciation may not provide a benefit to it.
Pursuant to the terms of the Agreement, there are restrictions
on the ability of the Limited Partners to transfer their Units. In
all cases, the General Partners must consent to the substitution of
a Limited Partner.
Cash distributions to Limited Partners for 1998, 1997 and 1996
were $758,088, $1,745,585 and $632,669, respectively. Prior to the
commencement of the Partnership's proxy solicitation in August
1996, distributions of operating cash flow were paid four times per
year, 45 days after the end of each calendar quarter or were paid
monthly within 15 days of the end of the month, depending upon the
Limited Partner's preference (see Item 7). The distributions were
generated from a combination of property operations and interest
income. No amount distributed was a return of capital. Pursuant to
the terms of the Sale Agreement, net income after August 1, 1996
accrues to the Purchaser and, therefore, the net income through
July 31, 1996 were to be distributed to the Limited Partners at the
time of the closing of the Sale. Since the net income of the
Partnership after August 1, 1996 was to accrue to the Purchaser, no
distributions of net income were paid to the Limited Partners for
the two months of August and September 1996 and the quarter ended
December 31, 1996. Included in the December 31, 1997 distribution
was any prior period earnings including amounts previously reserved
for anticipated closing costs.<PAGE>Item 6. Selected Financial Data.
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
(not covered by Independent Auditors' Report)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1998 1997 1996
Selected Income Statement Data:
Rental Income $1,491,773 $1,506,072 $ 1,491,109
Interest Income 17,302 40,918 33,608
Net Income(Loss) 588,718 977,509 (97,221)
Net Income(Loss)Per Unit (a) $ 0.35 $ 0.59 $ (0.06)
Selected Balance Sheet Data:
Cash and Cash Equivalents $ 514,439 $ 139,508 $ 753,655
Land, Buildings and
Improvements 13,229,629 13,451,630 13,451,630
Total Assets 13,290,169 13,375,062 14,109,844
Cash Distributions to Limited
Partners 758,088 1,745,585 632,669
Cash Distributions to Limited
Partners Per Unit (a) $0.46 $1.07 $0.39
(a) Net income (loss) per Unit and cash distributions per Unit are
based on the average Units outstanding during the year 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.
The above selected financial data should be read in conjunction
with the consolidated financial statements and the related notes
appearing elsewhere in this annual report.
<PAGE>
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
(not covered by Independent Auditors' Report)
Year Ended Year Ended
December 31, December 31,
1995 1994
Selected Income Statement Data:
Rental Income $1,643,736 $1,571,077
Interest Income 31,777 37,754
Net Income 1,203,510 1,030,281
Net Income Per Unit (a) $ 0.74 $ 0.64
Selected Balance Sheet Data:
Cash and Cash Equivalents $ 711,167 $ 569,244
Land, Buildings and
Improvements 14,308,630 14,308,630
Total Assets 14,850,948 14,895,510
Cash Distributions to Limited
Partners 1,296,726 1,244,736
Cash Distributions to Limited
Partners Per Unit (a) $ 0.80 $ 0.77
(a) Net income per Unit and cash distributions per Unit are based
on the average Units outstanding during the year 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.
The above selected financial data should be read in conjunction
with the consolidated financial statements and the related notes
appearing elsewhere in this annual report.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
Certain statements in this Annual 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
and in the section entitled "Business." 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 consists
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 (a) 1997(b) 1996 1995
February 15 $.1875 -- $.2422 $.2000 $.2000
May 15 -- $.2015 .1093 .1875 .2000
August 15 -- .1097 .1767 -- .2000
November 15 -- .1531 .5411 -- .2000
(a) The 1998 distributions were made on May 8, 1998, August 15,
1998, November 15, 1998 and February 15, 1999.
(b) 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, 1997 to March 31, 1997, April 1, 1997 to June 30, 1997,
July 1, 1997 to September 30, 1997, and October 1, 1997 to December
31, 1997 were made to the Limited Partners on March 31, 1997, July
15, 1997, October 22, 1997, and December 31, 1997, respectively, in
the amounts of approximately $395,400, $178,500, $288,400 and
$883,300.
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.
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 Item 3, 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 Item 3, 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 - Years Ended December 31, 1998 and 1997
Results of operations for the year ended December 31, 1998
reflected net income of $588,718 compared to net income of $977,509
for the year ended December 31, 1997, a decrease of approximately
$388,800.
Total income for the year ended December 31, 1998 was $1,569,311
as compared to $1,610,225 for the period ended December 31, 1997,
a decrease of approximately $41,000. The decrease in total income
was primarily the result of decreased interest income of
approximately $24,000 which is a result of decreased funds invested
during 1998.
Total expenses for the year ended December 31, 1998 were $939,908
as compared to $587,249 for the period ended December 31, 1997, an
increase of approximately $352,700. The increase in expenses was
primarily due to a provision for impairment in the aggregate amount
of $242,000 to adjust the value of real estate for the Walden Books
and the House of Fabrics properties to their net realizable values.
Additionally, the increase in expenses was related to an increase
in general and administrative expenses, valuation fees, and
depreciation expenses of approximately $17,500, $70,000 and $31,800,
respectively. Partially offsetting the increase in expenses, is a
decrease in transaction costs of approximately $7,000.
Results of Operation - Years Ended December 31, 1997 and 1996
Results of operations for the year ended December 31, 1997
reflected net income of $977,509 compared to net loss of $97,221 for
the year ended December 31, 1996, an increase of approximately
$1,074,700.
Total income for the year ended December 31, 1997 was $1,610,225
as compared to $1,560,196 for the period ended December 31, 1996,
an increase of approximately $50,000. The increase in total income
was primarily the result of the Federal Bankruptcy Court's decision
awarding the Partnership stock in the House of Fabrics. The
increase in rental income is primarily the result of 1996 rental
income reflecting a nonrecurring one time charge for the reversal
of the deferred rents receivable of the House of Fabrics property,
while 1997 reflects no such adjustment.
Total expenses for the year ended December 31, 1997 were $587,249
as compared to $1,595,459 for the period ended December 31, 1996,
a decrease of approximately $1,008,000. The primary reason for the
decrease in expenses between 1997 and 1996 relate to the 1996
provision for impairment in the aggregate amount of $857,000 to
adjust the value of real estate for Volume ShoeSource, Walden Books
and CompUSA properties while no such provisions were recorded in
1997. Additionally, the decrease in expenses was related to a
decrease in Transaction costs and valuation fees of approximately
$104,000 and $45,700, respectively.
Results of Operation - Years Ended December 31, 1996 and 1995
Results of operations for the year ended December 31, 1996
reflected a net loss of $97,221 compared to net income of
$1,203,510 for the year ended December 31, 1995, a decrease of
approximately $1,300,700. The decrease in net income resulted from
an increase in expenses as a result of the Transaction, the
Partnership hiring an independent real estate company to conduct
property valuations and a provision for impairment to adjust the
carrying value of certain real estate to its net realizable value.
Total income was $1,560,196 in 1996 as compared to $1,698,451 in
1995, a decrease of approximately $138,300. The decrease in total
income is due to 1996 rental income reflecting a month of
operations of the House of Fabrics property, while 1995 reflects a
full twelve month period.
Total expenses were $1,595,459 in 1996 as compared to $433,045 in
1995, an increase of approximately $1,162,400. The increase in
expenses is primarily the result of an increase in Transaction
costs of $226,316 due to legal and other professional fees paid or
accrued as a result of the Transaction and a provision for
impairment in the aggregate amount of $857,000 to adjust the value
of real estate for the Volume ShoeSource, Walden Books and CompUSA
properties to their net realizable values. Total expenses also
increased in 1996 as compared to 1995 as a result of the
Partnership hiring an independent real estate company to conduct
property valuations to provide a valuation of the Units to satisfy
the Partnership's requirements under the Employee Retirement Income
Security Act of 1974, as amended.
Impact of Inflation
The Partnership anticipates that the operations of the
Partnership should not be significantly impacted by inflation. To
offset any potential adverse effects of inflation, the Partnership
has entered into "triple-net" leases with the tenants, making the
tenants responsible for all operating expenses, insurance and real
estate taxes. In addition, several of the leases require
escalations of rent based upon increases in the Consumer Price
Index, scheduled increases in base rents, or tenant sales.
Item 7A. 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.
Item 8. Consolidated Financial Statements and Supplementary Data.
See Index to Consolidated Financial Statements and Schedule on
Page F-1 of this Form 10-K for consolidated financial statements
and financial statement schedule, where applicable.
The supplemental financial information specified in Item 302 of
Regulation S-K is not applicable.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
During the Partnership's two most recent fiscal years, there have
been no changes in, or disagreements with, the accountants.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Partnership
The General Partners of the Partnership are:
Brauvin Realty Advisors IV, Inc., an Illinois corporation
Mr. Jerome J. Brault, individually
Brauvin Realty Advisors IV, Inc. (the "Corporate General
Partner") was formed under the laws of the State of Illinois in
1991, with its issued and outstanding shares being owned by Messrs.
Jerome J. Brault (beneficially) (50%) and Cezar M. Froelich (50%).
The principal officers and directors of the Corporate General
Partner are:
Mr. Jerome J. Brault . . . . Chairman of the Board of
Directors, President, Chief
Executive Officer and Director
Mr. James L. Brault . . . . Executive Vice President
and Secretary
Mr. Thomas E. Murphy . . . . Treasurer and Chief Financial
Officer
The business experience during the past five years of the General
Partners and the principal officers and directors of the Corporate
General Partner are as follows:
MR. JEROME J. BRAULT (age 65) chairman of the board of directors,
president and chief executive officer of the Corporate General
Partner, as well as a principal shareholder of the Corporate
General Partner. He is a member and manager of Brauvin Real Estate
Funds, L.L.C. He is a member of Brauvin Capital Trust L.L.C.
Since 1979, he has been a shareholder, president and a director of
Brauvin/Chicago, Ltd. He is an officer, director and one of the
principal shareholders of various Brauvin entities which act as the
general partners of six other publicly registered real estate
programs. He is an officer, director and one of the principal
shareholders of Brauvin Associates, Inc., Brauvin Management
Company, Brauvin Advisory Services, Inc. and Brauvin Securities,
Inc., Illinois companies engaged in the real estate and securities
businesses. He is a director, president and chief executive
officer of Brauvin Net Lease V, Inc. He is the chief executive
officer of Brauvin Capital Trust, Inc. Mr. Brault received a B.S.
in Business from DePaul University, Chicago, Illinois in 1959.
MR. JAMES L. BRAULT (age 38) is an executive vice president and
secretary and is responsible for the overall operations of the
Corporate General Partner and other affiliates of the Corporate
General Partner. He is an officer of various Brauvin entities
which act as the general partners of six other publicly registered
real estate programs. Mr. Brault is executive vice president and
assistant secretary and is responsible for the overall operations
of Brauvin Management Company. He is also an executive vice
president and secretary of Brauvin Net Lease V, Inc. He is a
manager of Brauvin Real Estate Funds, L.L.C., Brauvin Capital
Trust, L.L.C. and BA/Brauvin L.L.C. He is the president of Brauvin
Capital Trust, Inc. Prior to joining the Brauvin organization in
May 1989, he was a Vice President of the Commercial Real Estate
Division of the First National Bank of Chicago ("First Chicago"),
based in their Washington, D.C. office. Mr. Brault joined First
Chicago in 1983 and his responsibilities included the origination
and management of commercial real estate loans, as well as the
direct management of a loan portfolio in excess of $150 million.
Mr. Brault received a B.A. in Economics from Williams College,
Williamstown, Massachusetts in 1983 and an M.B.A. in Finance and
Investments from George Washington University, Washington, D.C. in
1987. Mr. Brault is the son of Mr. Jerome J. Brault.
MR. THOMAS E. MURPHY (age 32) is the treasurer and chief
financial officer of the Corporate General Partner and other
affiliates of the Corporate General Partner. He is the chief
financial officer of various Brauvin entities which act as the
general partners of six other publicly registered real estate
programs. Mr. Murphy is also the chief financial officer of
Brauvin Associates, Inc., Brauvin Management Company, Brauvin
Financial, Inc., Brauvin Securities, Inc. and Brauvin Net Lease V,
Inc. He is the treasurer, chief financial officer and secretary of
Brauvin Capital Trust, Inc. He is responsible for the Partnership's
accounting and financial reporting to regulatory agencies. He
joined the Brauvin organization in July 1994. Prior to joining the
Brauvin organization he worked in the accounting department of
Zell/Merrill Lynch and First Capital Real Estate Funds where he was
responsible for the preparation of the accounting and financial
reporting for several real estate limited partnerships and
corporations. Mr. Murphy received a B.S. degree in Accounting from
Northern Illinois University in 1988. Mr. Murphy is a Certified
Public Accountant and is a member of the Illinois Certified Public
Accountants Society.
Item 11. Executive Compensation.
(a & b) The Partnership is required to pay certain fees, make
distributions and allocate a share of the profits and losses of the
Partnership to the Corporate General Partner or its affiliates as
described under the caption "Compensation Table" on pages 14 to 17
of the Prospectus, as supplemented, and "Summary of Limited
Partnership Agreement - Allocations and Distributions to the
Limited Partners" on page 63 of the Prospectus, as supplemented,
and the sections of the Agreement entitled "Distribution of
Operating Cash Flow," "Allocation of Profits, Losses and
Deductions," "Distribution of Net Sales Proceeds" and "Compensation
of General Partners and Their Affiliates" located on pages A-8 to
A-13 of the Agreement, attached as Exhibit A to the Prospectus.
The relationship of the Corporate General Partner (and its
directors and officers) to its affiliates is set forth in Item 10.
Reference is also made to Note 2 of the Notes to the Consolidated
Financial Statements filed with this annual report for a
description of such distributions and allocations.
The General Partners are entitled to receive Acquisition Fees for
services rendered in connection with the selection, purchase,
construction or development by the Partnership of any property
whether designated as real estate commissions, acquisition fees,
finders' fees, selection fees, development fees, non-recurring
management fees, consulting fees, payments for covenants not to
compete, guarantee fees, financing fees or any other similar fees
or commissions, however treated for tax or accounting purposes.
Such Acquisition Fees may not exceed such compensation as is
customarily charged in arm's-length transactions by others
rendering similar services as an ongoing public activity in the
same geographic locale and for comparable properties. The
aggregate Acquisition Fees to be paid to an affiliate of the
General Partners shall not exceed: (a) the lesser of 5% of the
gross proceeds of the Offering; or (b) such compensation as is
customarily charged in arm's-length transactions by others
rendering similar services as an ongoing public activity in the
same geographic locale and for property comparable to the property
to be purchased by the Partnership. To the extent Acquisition Fees
paid to the General Partners, their Affiliates and third parties
would cause the Partnership to invest less than 80% of the gross
proceeds of the Offering in properties, the General Partners and
their Affiliates will return those fees, so as to provide
compliance with paragraph 1, Section M of the Agreement. No such
amount was paid in 1998 or 1997 as no acquisitions were
consummated. In 1996, an acquisition fee of $14,837 was paid
related to the Bay County purchase.
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 may provide leasing and
re-leasing services to the Partnership in connection with the
management of Partnership's properties. The property management
fee payable to an affiliate of the General Partners shall not
exceed the lesser of: (i) fees which are competitive for similar
services in the geographical area where the properties are located;
or (ii) 1% of the gross revenues of each Partnership property.
Property management fees of $14,637, $14,291 and $14,217, were
incurred in 1998, 1997 and 1996, respectively.
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 shall 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 shall be subordinated to
receipt by the Limited Partners of their Current Preferred Return,
as defined in the Agreement. No real estate sales commission was
paid in 1998, 1997 or 1996.
(c, d, e & f) Not applicable.
(g) The Partnership has no employees and pays no
employee or director compensation.
(h, i) Not applicable.
(j) Compensation Committee Interlocks and Insider
Participation. Since the Partnership has no
employees, it did not have a compensation committee
and is not responsible for the payment of any
compensation.
(k) Not applicable.
(l) Not applicable.
The following is a summary of all fees, commissions and other
expenses paid or payable to the General Partners or their
affiliates for the years ended December 31, 1998, 1997 and 1996:
1998 1997 1996
Acquisition fees $ -- $ -- $ 14,837
Selling commissions -- -- 4,098
Management fees 14,637 14,291 14,217
Reimbursable operating
expense 92,413 96,899 86,443
Legal fees -- 155 3,958
Transaction costs -- -- 5,626
As of December 31, 1998 and 1997, the Partnership has made all
payments to affiliates except for $1,608 and $1,460, respectively,
related to management fees.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
(a) No person or group is known by the Partnership to own
beneficially more than 5% of the outstanding Units.
(b) None of the officers and directors of the Corporate General
Partner purchased Units.
(c) Other than as described in the Proxy, the Partnership is
not aware of any arrangements, which may result in a change
in control of the Partnership.
No officer or director of the Corporate General Partner possesses
a right to acquire beneficial ownership of Units. The General
Partners of the Partnership will share in the profits, losses and
distributions of the Partnership as outlined in Item 11, "Executive
Compensation."
Item 13. Certain Relationships and Related Transactions.
(a & b) The Partnership is entitled to engage in various
transactions involving affiliates of the Corporate General Partner,
as described under the captions "Compensation Table" and "Conflicts
of Interest" at pages 14 to 17 and 17 to 20, respectively, of the
Prospectus, as supplemented, and the section of the Agreement
entitled "Rights, Duties and Obligations of General Partners" at
pages A-15 to A-18 of the Agreement. The relationship of the
Corporate General Partner to its affiliates is set forth in Item
10. Cezar M. Froelich, a former Individual General Partner and a
shareholder of the Corporate General Partner, is a principal of the
law firm of Shefsky & Froelich Ltd., which firm acted as securities
and real estate counsel to the Partnership and as counsel to the
Corporate General Partner and certain of its affiliates.
(c) No management persons are indebted to the Partnership.
(d) There have been no significant transactions with promoters.
<PAGE>
PART IV
Item 14. Exhibits, Consolidated Financial Statement and
Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) (2) Consolidated Financial Statements
and Schedule indicated in Part II,
Item 8 "Consolidated Financial
Statements and Supplementary Data."
See Index to Consolidated Financial
Statements and Schedule on page F-1
of Form 10-K.
(3) Exhibits required by the Securities and Exchange
Commission Regulation S-K, Item 601:
(21) Subsidiaries of the Registrant.
(27) Financial Data Schedule.
The following exhibits are incorporated by reference from the
Registrant's Registration Statement (File No. 33-42327) on Form
S-11 filed under the Securities Act of 1933, as amended:
Exhibit No. Description
3.(a) Restated Limited Partnership Agreement.
3.(b) Articles of Incorporation of Brauvin Realty
Advisors IV, Inc.
3.(c) By-Laws of Brauvin Realty Advisors IV, Inc.
3.(d) Amendment to the Certificate of Limited
Partnership of the Partnership.
10.(a) Escrow Agreement.
(b) Form 8-K.
None
(c) An annual report for the fiscal year 1998 will be
sent to the Limited Partners subsequent to this
filing.
The following exhibits are incorporated by reference to the
Registrant's fiscal year ending December 31, 1994 Form 10-K (File
No. 0-21536):
Exhibit Description
(10)(b)(1) Management Agreement.
(28) Pages 14-20, 63, 73 and 74 of the Partnership's
Prospectus dated December 12, 1991, as
supplemented, pages A-8 to A-13 and A-15 to A-18
of the Agreement.
The following exhibits are incorporated by reference to the
Registrant's definitive proxy statement dated August 23, 1996(File
No. 0-17557):
Exhibit No. Description
(10)(c) Agreement for Purchase and Sale of Assets.
The following exhibit is incorporated by reference to the
Registrant's fiscal year ending December 31, 1996 Form 10-K (File
No. 0-21536):
Exhibit Description
(10)(d) First Amendment and Waiver to the Agreement for
Purchase and Sale of Assets.
<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/ James L. Brault
James L. Brault
Executive Vice President
and Secretary
By: /s/ Thomas E. Murphy
Thomas E. Murphy
Chief Financial Officer and
Treasurer
INDIVIDUAL GENERAL PARTNER
/s/ Jerome J. Brault
Jerome J. Brault
DATED: April 15, 1999
<PAGE>
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page
Independent Auditors' Report. . . . . . . . . . . . . . . .F-2
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1998 and 1997 .F-3
Consolidated Statements of Operations, for the
years ended December 31, 1998, 1997 and 1996 . . . . . .F-4
Consolidated Statements of Partners' Capital, for the
years ended December 31, 1998, 1997 and 1996 . . . . . .F-5
Consolidated Statements of Cash Flows, for the
years ended December 31, 1998, 1997 and 1996 . . . . . .F-6
Notes to Consolidated Financial Statements. . . . . . . .F-7
Schedule III - Real Estate and Accumulated Depreciation,
December 31, 1998. . . . . . . . . . . . . . . . . . . . .F-29
All schedules provided for in Item 14(a)(2) of Form 10-K are either
not required, not applicable or not material.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Brauvin Corporate Lease Program IV L.P.
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of
Brauvin Corporate Lease Program IV L.P. (a limited partnership) and
subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of operations, partners' capital, and cash
flows for each of the three years in the period ended December 31,
1998. Our audits also included the financial statement schedule
listed in the Index to Consolidated Financial Statements and
Schedule on page F-1. These consolidated financial statements and
the financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express an
opinion on these consolidated financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Brauvin
Corporate Lease Program IV L.P. and its subsidiary at December 31,
1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
1998 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 16, 1999
(April 14, 1999 as to Note 7)
<PAGE>
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1998 1997
ASSETS
Investment in real estate, (Note 5):
Land $ 3,933,663 $ 3,991,040
Buildings and improvements 9,295,966 9,460,590
13,229,629 13,451,630
Less: Accumulated depreciation (1,400,375) (1,135,602)
Net investment in real estate 11,829,254 12,316,028
Investment in Brauvin Bay County
Venture (Note 6) 250,782 251,449
Cash and cash equivalents 514,439 139,508
Investment in marketable securities -- 35,075
Tenant receivables 9,664 --
Deferred rent receivable 510,867 453,999
Prepaid offering costs 175,163 175,163
Other assets -- 3,840
Total Assets $13,290,169 $13,375,062
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and
accrued expenses $ 179,524 $ 96,709
Rent received in advance 59,502 41,611
Due to affiliate 1,608 1,460
Total Liabilities 240,634 139,780
MINORITY INTERESTS IN BRAUVIN
GWINNETT COUNTY VENTURE 682,419 693,157
PARTNERS' CAPITAL:
General Partners 23,130 16,995
Limited Partners 12,343,986 12,525,130
Total Partners' Capital 12,367,116 12,542,125
Total Liabilities and
Partners' Capital $13,290,169 $13,375,062
See accompanying notes to consolidated financial statements.
<PAGE>
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
1998 1997 1996
INCOME:
Rental (Note 4) $1,491,773 $1,506,072 $1,491,109
Interest 17,302 40,918 33,608
Other 60,236 63,235 35,479
Total income 1,569,311 1,610,225 1,560,196
EXPENSES:
General and administrative 232,970 215,454 182,087
Management fees (Note 3) 14,637 14,291 14,217
Amortization of
organization costs -- 2,000 6,000
Depreciation 264,773 232,987 264,136
Valuation fees 70,000 -- 45,703
Transaction costs (Note 7) 115,528 122,517 226,316
Provision for
impairment (Note 5) 242,000 -- 857,000
Total expenses 939,908 587,249 1,595,459
Income (loss)before minority interest
and equity interests in
joint venture 629,403 1,022,976 (35,263)
Minority interest share in
Brauvin Gwinnett County
Venture's net income (61,378) (62,532) (62,906)
Equity interest in Brauvin
Bay County Venture 20,693 17,065 948
Net income (loss) $ 588,718 $ 977,509 $ (97,221)
Net income allocated to
General Partners $ 11,774 $ 6,201 $ --
Net income (loss) allocated
to Limited Partners $ 576,944 $ 971,308 $ (97,221)
Net income (loss) per Unit
outstanding (a) $ 0.35 $ 0.59 $ (0.06)
(a) Net income (loss) per Unit was based on the average Units
outstanding during the year since they were of varying dollar
amounts and percentages based upon the dates Limited Partners were
admitted to the Partnership and additional Units were purchased
through the distribution reinvestment plan (the "Plan").
See accompanying notes to consolidated financial statements.
<PAGE>
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
For the years ended December 31, 1998, 1997 and 1996
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
other offering costs -- (4,918) (4,918)
Net loss -- (97,221) (97,221)
Cash distributions -- (632,669) (632,669)
Balance, December 31, 1996 10,794 13,299,407 13,310,201
Net income 6,201 971,308 977,509
Cash distributions -- (1,745,585) (1,745,585)
Balance, December 31, 1997 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
* Total Units outstanding, including those raised through the
Plan, at December 31, 1998, 1997 and 1996 were 1,632,510,
1,632,510 and 1,632,510, respectively. Distributions to
Limited Partners per Unit were approximately $0.46, $1.07 and
$0.39 for the years ended December 31, 1998, 1997 and 1996,
respectively. Distributions to Limited Partners per Unit are
based on the average Units outstanding during the year since
they were of varying dollar amounts and percentages based upon
the dates Limited Partners were admitted to the Partnership and
additional Units were purchased through the Plan.
See accompanying notes to consolidated financial statements.
<PAGE>
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1998 1997 1996
Cash flows from operating activities:
Net income (loss) $588,718 $ 977,509 $(97,221)
Adjustments to reconcile
net income(loss)to net cash
provided by operating activities:
Depreciation and amortization 264,773 234,987 270,136
Provision for impairment 242,000 -- 857,000
Minority interests in Brauvin Gwinnett
County Venture's net income 61,378 62,532 62,906
Equity interest in Brauvin Bay
County Venture's net income (20,693) (17,065) (948)
Changes in:
Tenant receivables (56,868) 325 (325)
Deferred rent receivable (9,664) (120,900) (91,980)
Due from affiliate -- -- 7,627
Other assets 3,840 33,643 (582)
Accounts payable
and accrued expenses 82,815 46,655 16,394
Rent received in advance 17,891 (5,535) (20,059)
Due to affiliates 148 1,460 --
Net cash provided by
operating activities 1,174,338 1,213,611 1,002,948
Cash flows from investing activities:
Change in investment of marketable
securities 35,075 (35,075) --
Investment in Brauvin
Bay County Venture - - (258,156)
Capital expenditures (19,999) - --
Distribution from Brauvin
Bay County Venture 21,360 24,720 --
Cash provided by (used in)
investing activities 36,436 (10,355) (258,156)
Cash flows from financing activities:
Sale of Units, net of liquidations, selling
commissions and other offering costs -- -- 1,884
Cash distributions to
General Partners (5,639) -- --
Cash distributions to
Limited Partners (758,088) (1,745,585)(632,669)
Cash distribution to minority
interests in Brauvin
Gwinnett County Venture (72,116) (71,818) (71,519)
Net cash used in financing
activities (835,843) (1,817,403)(702,304)
Net increase (decrease) in cash and
cash equivalents 374,931 (614,147) 42,488
Cash and cash equivalents at beginning
of year 139,508 753,655 711,167
Cash and cash equivalents
at end of year $ 514,439 $ 139,508 $753,655
See accompanying notes to consolidated financial statements.
<PAGE>
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998, 1997 and 1996
(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 December 31, 1998, 1997 and
1996, the Partnership has sold $16,443,810, $16,443,810 and
$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 December 31, 1998 and
1997. As of December 31, 1998, 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.
<PAGE>
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 December 31, 1998 and 1997, 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 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 5).
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 7), 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 December 31, 1998 and
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.
The carrying amounts of the following items are a reasonable
estimate of fair value: cash and cash equivalents; investment in
marketable securities; tenant receivables; accounts payable and
accrued expenses; rent received in advance and due to affiliate.
Reclassifications
Certain reclassifications have been made to the consolidated
1997 financial statements to conform to classifications adopted in
1998.
(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 years ended December 31,
1998, 1997 and 1996 were as follows:
1998 1997 1996
Acquisition fees $ -- $ -- $ 14,837
Selling commissions -- -- 4,098
Management fees 14,637 14,291 14,217
Reimbursable operating
expense 92,413 96,899 86,443
Legal fees -- 155 3,958
Transaction costs -- -- 5,626
As of December 31, 1998 and 1997, the Partnership has made all
payments to affiliates except for $1,608 and $1,460, respectively,
related to management fees.
(4) LEASES
The Partnership's rental income is principally obtained from
tenants through rental payments provided under triple-net
noncancelable operating leases. The leases provide for a base
minimum annual rent and increases in rent such as through
participation in gross sales above a stated level.
The following is a schedule of noncancelable future minimum
rental payments due to the Partnership under operating leases of
Partnership properties as of December 31, 1998:
Year Ending December 31:
1999 $ 1,448,989
2000 1,462,064
2001 1,492,106
2002 1,495,327
2003 1,439,250
Thereafter 7,162,832
$14,500,568
Additional rent based on percentages of tenant sales increases
was $8,041, $9,753 and $18,877 in 1998, 1997 and 1996,
respectively.
(5) 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.
During the fourth quarter of 1998 the Partnership recorded a
provision for impairment of $242,000 to adjust the carrying values
of real estate for the Walden Books Store ($28,000) and the House
of Fabrics($214,000) 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.
(6) 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
December 31, December 31,
1998 1997
Land and buildings, net $1,033,942 $1,051,588
Other assets 17,330 11,989
$1,051,272 $1,063,577
Liabilities $ 4,296 $ 13,820
Partners' capital 1,046,976 1,049,757
$1,051,272 $1,063,577
Period from
October 31, 1996
Year Ended Year Ended (inception) to
December 31, December 31, December 31,
1998 1997 1996
Rental and
other income $110,782 $109,985 $18,502
Expenses:
Depreciation 17,646 17,689 2,898
Management fees 1,079 1,178 191
Operating and
administrative 5,838 20,014 11,463
24,563 38,881 14,552
Net income $ 86,219 $ 71,104 $ 3,950
<PAGE>
(7) 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 December 31, 1998.
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, 1997 to March 31, 1997, April 1, 1997 to September 30,
1997, July 1, 1997 to September 30, 1997 and October 1, 1997 to
December 31, 1997 were made to the Limited Partners on March 31,
1997, July 15, 1997, October 22, 1997 and December 31, 1997,
respectively in the amounts of approximately $395,400, $178,500,
$288,400 and $883,300, respectively.
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.
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, will be 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>
<TABLE>
SCHEDULE III
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
<CAPTION> Gross Amount at Which Carried
Initial Cost at Close of Period
Buildings Cost of Buildings
and Subsequent and Accumulated Date
Description Encumbrances (c) Land Improvements Improvements Land Improvements Total(a) Deprec. (b) Acquired
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Steak n' Shake $0 $ 427,872 $ 618,525 $ 0 $ 427,872 $ 618,525 $ 1,046,397 $ 116,996 5/92
Children's World
Learning Center 0 123,962 325,827 0 123,962 325,827 449,789 82,494 8/92
Chuck E. Cheese's 0 224,335 976,601 0 224,335 976,601 1,200,936 154,036 4/93
Chuck E. Cheese's 0 153,722 864,307 0 153,722 864,307 1,018,029 136,324 4/93
Mrs. Winner's
Chicken & Biscuit 0 278,340 363,983 0 278,340 363,983 642,323 56,991 5/93
House of Fabrics 0 344,393 1,167,573 $19,999 295,648 1,022,317 1,317,965 159,716 7/93
Volume Shoesource Store 0 766,724 954,704 0 608,024 757,004 1,365,028 117,666 9/93
CompUSA Store 0 663,681 1,811,959 0 591,481 1,687,159 2,278,640 229,536 11/93
East Side Mario's 0 538,257 976,254 0 538,257 976,254 1,514,511 122,225 1/94
Blockbuster Video Store 0 248,168 708,162 0 248,168 708,162 956,330 86,426 2/94
Walden Books Store 0 546,086 1,225,195 0 443,854 995,827 1,439,681 137,965 2/94
$0 $4,315,540 $9,993,090 $19,999 $3,933,663 $9,295,966 $13,229,629 $1,400,375
<FN>
<F1>
NOTES:
(a) The cost of this real estate is $14,328,629 for tax purposes (unaudited).
The buildings are depreciated over approximately 39 years
using the straight line method. The properties were constructed between 1969 and 1993.
(b) The following schedule summarizes the changes in the Partnership's
real estate and accumulated depreciation balances:
</FN>
<CAPTION>
Real estate 1998 1997 1996
<S> <C> <C> <C>
Balance at beginning of year $13,451,630 $13,451,630 $14,308,630
Capital expenditure 19,999 -- --
Deductions - land and building (d) & (e) (242,000) -- (857,000)
Balance at end of year $13,229,629 $13,451,630 $13,451,630
Accumulated depreciation
Balance at beginning of year $1,135,602 $ 902,615 $ 638,479
Provision for depreciation 264,773 232,987 264,136
Balance at end of year $ 1,400,375 $ 1,135,602 $ 902,615
<FN>
<F2>
(c) Encumbrances - Brauvin Corporate Lease Program L.P. IV did not borrow cash in order to purchase its properties.
100% of the land and buildings were paid for with funds contributed by the Limited Partners.
(d) Amount in 1996 reflects provision for impairment of land and buildings based on the original acquisition
cost allocation for the Volume ShoeSource Store ($356,400), the Walden Books Store ($303,600) and the CompUSA Store ($197,000).
(e) Amount in 1998 reflects provision for impairment of land and buildings based on the original acquisition
cost allocation for the Walden Books Store ($28,000) and the House of Fabrics ($214,000).
</FN>
</TABLE>
<PAGE>
EXHIBITS
TO
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1998
<PAGE>
EXHIBIT INDEX
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
FORM 10-K
For the year ended December 31, 1998
Exhibit (21) Subsidiaries of the Registrant
Exhibit (27) Financial Data Schedule
<PAGE>
Exhibit 21
Name of Subsidiary State of Formation
Brauvin Gwinnett County Venture Illinois
Brauvin Bay County Venture Illinois
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 514,439
<SECURITIES> 250,782 <F1>
<RECEIVABLES> 520,531
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 13,229,629 <F2>
<DEPRECIATION> 1,400,375
<TOTAL-ASSETS> 13,290,169
<CURRENT-LIABILITIES> 240,634
<BONDS> 682,419 <F3>
0
0
<COMMON> 12,367,116 <F4>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY>13,290,169
<SALES> 0
<TOTAL-REVENUES> 1,569,311 <F5>
<CGS> 0
<TOTAL-COSTS> 939,908 <F6>
<OTHER-EXPENSES> 40,685 <F7>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 588,718
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> "SECURITIES" REPRESENTS INVESTMENTS 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 INTEREST AND EQUITY
INTEREST IN JOINT VENTURES' NET INCOME
</FN>
</TABLE>
