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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, 1996
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 0-17556
Brauvin High Yield Fund L.P. II
(Exact name of registrant as specified in its charter)
Delaware 36-358013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 South Wacker Drive, Chicago, Illinois 60606
(Address of principal executive offices) (Zip Code)
(312) 443-0922
(Registrant's telephone number, including area code)
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 $38,923,000.
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 June 17, 1988, as supplemented (the
"Prospectus").
Portions of the Prospectus of the registrant dated June 17, 1988,
as supplemented July 12, 1988, March 1, 1989, April 28, 1989, and
June 7, 1989 and filed pursuant to Rule 424(b) and Rule 424(c)under
the Securities Act of 1933, as amended, are incorporated by
reference into Parts II, III and IV of this Annual Report on Form
10-K.
BRAUVIN HIGH YIELD FUND L.P. II
1996 FORM 10-K ANNUAL REPORT
INDEX
PART I
Page
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . .6
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 23
PART II
Item 5. Market for the Registrant's Units and Related
Security Holder Matters . . . . . . . . . . . . . . . . . . . 24
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . 25
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . 27
Item 8. Consolidated Financial Statements and Supplementary
Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure. . . . . . 37
PART III
Item 10. Directors and Executive Officers of the Partnership.. . . . . 38
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . 40
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . 42
Item 13. Certain Relationships and Related Transactions. . . . . . . . 43
PART IV
Item 14. Exhibits, Consolidated Financial Statements and
Schedule, and Reports on Form 8-K . . . . . . . . . . . . . . 44
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
PART I
Item 1. Business.
Brauvin High Yield Fund L.P. II (the "Partnership") is a Delaware
limited partnership formed in May 1988 for the purpose of acquiring
debt-free ownership of existing, free-standing, income-producing
retail, office or industrial real estate properties predominantly
all of which would involve "triple-net" leases. It was anticipated
at the time the Partnership first offered its Units (as defined
below) that a majority of these properties would be leased to
operators of national franchise fast food and sit-down restaurants,
automotive service businesses and convenience stores, as well as
banks and savings and loan branches. The leases would 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 Partnership sold $38,923,000 of limited
partnership interests (the "Units") commencing June 17, 1988,
pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, to the public at a price of
$1,000 per Unit (the "Offering"). The Offering closed on September
30, 1989. An additional $4,059,178 of Units has been purchased by
Limited Partners investing their distributions of Operating Cash
Flow in the Partnership's distribution reinvestment plan (the
"Plan") through December 31, 1996. These Units were purchased from
the Units reserved for the Plan after termination of the Offering.
These Units were issued at the Offering price per Unit, less any
amounts per Unit of the Offering price that have been returned to
Participants. Of the Units issued under the Plan as of December
31, 1996, $2,886,915 have been repurchased by the Partnership from
investors liquidating their investment and have been retired. The
investors in the Partnership (the "Limited Partners") share in the
benefits of ownership of the Partnership's real property
investments according to the number of Units each owns.
The principal investment objectives of the Partnership are: (i)
distribution of current cash flow from the Partnership's cash flow
attributable to rental income; (ii) capital appreciation; (iii)
preservation and protection of capital; (iv) the potential for
increased income and protection against inflation through
escalation in the base rent or participation and growth in the
sales of the lessees of the Partnership's properties; (v) the
partial shelter of cash distributions for Taxable Class Limited
Partners; 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 Taxable Class Limited Partners through depreciation
of the underlying properties. Taxable Class Limited Partners will
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 Taxable Class Limited Partners may have
realized in other passive investments.
It was originally contemplated that the Partnership would dispose
of its properties approximately six to nine years after their
acquisition with a view towards liquidation of the Partnership
within that period.
In accordance therewith, the Partnership entered into an
agreement and plan of merger dated as of June 14, 1996, as amended
March 24, 1997 (the "Merger Agreement") with Brauvin Real Estate
Funds, L.L.C., a Delaware limited liability company (the
"Purchaser") affiliated with certain General Partners of the
Partnership. Pursuant to the terms of the Merger Agreement, the
Partnership proposes to merge with and into the Purchaser through
a merger (the "Merger") of its Units. In connection with the
Merger, the Limited Partners will receive approximately $779.22 per
Unit in cash. Promptly upon consummation of the Merger, the
Partnership will cease to exist and the Purchaser, as the surviving
entity, will succeed to all of the assets and liabilities of the
Partnership.
On November 8, 1996, a special meeting of the Limited Partners
(the "Special Meeting") was held at the office of the Partnership
where a vote of the Limited Partners was taken and the merger of
the Partnership with the Purchaser was approved as described in the
Partnership's proxy materials dated August 23, 1996, as
supplemented (the "Proxy"). Further information regarding the
Merger is located in Items 3, 7 and 13 below.
The terms of the transactions between the Partnership and
affiliates of the General Partners of the Partnership are set forth
in Item 13 below. Reference is hereby made for a description of
such terms and transactions.
The restated limited partnership agreement of the Partnership
(the "Agreement") provides that the Partnership shall terminate
December 31, 2025, unless sooner terminated pursuant to its terms.
The Partnership has no employees.
Market Conditions/Competition
The Partnership has utilized its proceeds available for
investment towards the acquisition of properties. Since the leases
at 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.
Although management of the Partnership anticipates that the
Merger will be consummated by the end of the second quarter of
1997, should the Merger not be completed, the General Partners of
the Partnership will have to determine whether to continue its
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. It is not possible
for the General Partners to determine at this time what actions
they will take in connection with the continuation of the
Partnership should the Merger not be completed. 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 landlord only and does not participate in the
operations of any of the properties discussed herein. All
properties are occupied and all lease payments to the Partnership
are current with the exception of the former Hardee's restaurant
located in Albion, Michigan, the Ponderosas located in Sweden, New
York and Joliet, Illinois and the two Chi-Chi's restaurants (as
discussed in the following summary). All properties were paid for
in cash, without any financing. The General Partners believe that
the Partnership's properties are adequately insured.
The Taco Bell restaurant located in Schofield, Wisconsin was sold
in February 1994 (see Item 7). In October 1994, the Partnership
exchanged the Ponderosa restaurant in Apopka, Florida for a
Ponderosa restaurant in Joliet, Illinois.
On October 31, 1996, the Partnership and three other affiliated
public real estate limited partnerships formed a joint venture,
Brauvin Bay County Venture, to purchase the land and building
underlying a newly constructed Blockbuster Video Store. The
Partnership has a 26% interest in this joint venture.
The following is a summary of the real estate and improvements,
of each of the Ponderosa restaurants, the two Taco Bell
restaurants, the Scandinavian Health Spa, the three Children's
World Learning Centers, the three Avis Lubes, the Hardee's
restaurant, the Blockbuster Video store, the three Chi-Chi's
restaurants, the St. Johns, Michigan property and the Albion,
Michigan property. No property had a cost basis in excess of 10%
of the gross proceeds of the Offering or had rental income in
excess of 10% of the total rental income of the Partnership.
Ponderosas:
Rockford, Illinois
Unit 112 is located at 3725 East State Street. The building,
built in 1969, consists of 5,930 square feet situated on a 31,476
square foot parcel. The building was constructed utilizing wood
siding over concrete block.
Bloomington, Illinois
Unit 128 is located at 1329 East Empire Street. The building,
built in 1970, consists of 4,608 square feet situated on a 60,725
square foot parcel. The building was constructed utilizing wood
siding over concrete block.
Orchard Park, New York
Unit 728 is located at 3019 Union Road. The building, built in
1980, consists of 5,600 square feet situated on a 75,000 square
foot parcel. The building was constructed utilizing wood siding
over concrete block.
In July 1995, Metromedia, the parent of Ponderosa, closed the
Orchard Park, New York restaurant. In exchange for the closed
Ponderosa, the Partnership agreed to accept the building and land
underlying a Tony Roma's restaurant. The Tony Roma property is
located at 3780 Towne Crossing Boulevard in Mesquite, Texas. The
building, built in 1984, consists of 5,600 square feet situated on
a 49,810 square foot parcel of land. The Tony Roma's restaurant
provides additional base rent of approximately $2,000 per year plus
percentage rents and future rent escalations upon excercise of
lease renewals.
Oneonta, New York
Unit 740 is located at 333 Chestnut. The building, built in
1979, consists of 5,250 square feet situated on a 61,600 square
foot parcel. The building was constructed utilizing wood siding
over concrete block and facebrick.
Middletown, New York
Unit 779 is located at 163 Dolson Avenue. The building, built
in 1980, consists of 6,120 square feet situated on a 71,708 square
foot parcel. The building was constructed utilizing stained wood
veneer and flagstone.
Joliet, Illinois
Unit 129 is located at 2200 West Jefferson Street. The building,
built in 1970, consists of 4,500 square feet situated on a 57,000
square parcel. The building was constructed utilizing brick and
wood siding. This Ponderosa was received in exchange for Ponderosa
Unit 1055, an original purchase of the Partnership, in December
1994.
In June 1995, Metromedia, the parent of Ponderosa, closed the
Joliet, Illinois Ponderosa with the intent of converting the site
into a Bennigan's restaurant. Subsequently, Metromedia changed its
position and is currently looking for a suitable sublessee. Under
the terms of its lease, Metromedia is continuing to pay rent to the
Partnership.
Franklin, Ohio
Unit 1071 is located at 3320 Village Drive. The building, built
in 1987, consists of 4,550 square feet situated on a 9,242 square
foot parcel. The building was constructed utilizing wood siding
over concrete block.
Herkimer, New York
Unit 665 is located at the corner of State and King Streets. The
building, built in 1979 and remodeled in 1988, consists of 5,817
square feet situated on a 44,932 square foot parcel. The building
was constructed using wood siding over concrete block and
facebrick.
Sweden, New York
Unit 876 is located at 6460 Brockport-Spencerport Road. The
building, built in 1981 and remodeled in 1987, consists of 5,400
square feet situated on a 47,500 square foot parcel. The building
was constructed using wood paneling over concrete block.
On October 31, 1996, the Partnership's property located in
Sweden, New York had a fire. As a result of this casualty,
Ponderosa terminated its lease at this property as of December 31,
1996. The Partnership is contesting this lease termination.
Subsequent to the lease termination, no rents had been received by
the Partnership for this property.
It is anticipated that the Partnership will receive approximately
$200,000 in initial insurance proceeds to repair the fire damage to
the property. In addition, upon completion of the repairs to the
property, the Partnership will receive an additional $60,000 of
insurance proceeds.
Appleton, Wisconsin
Unit 182 is located at 130 South Bluemond Road. The building,
built in 1969 and renovated in 1986, is a one-story, 5,400 square
foot building constructed with stucco and painted concrete block
with wood trim over wood frame on an approximately 54,450 square
foot site.
Dublin, Ohio
Unit 347 is located at 1671 East Dublin-Granville Road. The
building, built in 1973 and renovated in 1987, is a one-story,
5,360 square foot building constructed with wood siding over wood
frame on an approximately 47,000 square foot site.
Penfield, New York
Unit 755 is located at 1610 Penfield Road. The building, built
in 1981 and renovated in 1987, is a one-story, 5,400 square foot
building constructed with vinyl siding over wood frame on an
approximately 54,900 square foot site.
Pendleton Pike, Indiana
Unit 816 is located at 8502 Pendleton Pike. The building, built
in 1984 and renovated in 1987, is a one-story, 5,400 square foot
building constructed with a prefab stucco facade with an atrium
front and wood panels on the sides of the building on an
approximately 95,000 square foot site.
Eureka, Missouri
Unit 857 is located at 80 Hilltop Village Center. The building,
built in 1981 and renovated in 1986, is a one-story, 5,360 square
foot building constructed with wood over wood frame on an
approximately 71,400 square foot site.
Joint Venture Ponderosas:
The Partnership has a 99% interest in a Joint Venture with an
affiliated public real estate limited partnership that acquired the
following six Ponderosas:
Louisville, Kentucky
Unit 110 is located at 4801 Dixie Highway. The building, built
in 1969, consists of 5,100 square feet situated on a 62,496 square
foot parcel. The building was constructed utilizing wood siding
over concrete block with flagstone.
Cuyahoga Falls, Ohio
Unit 268 is located at 1641 State Road. The building, built in
1973, consists of 5,587 square feet situated on a 40,228 square
foot parcel. The building was constructed utilizing wood siding
over concrete block.
Tipp City, Ohio
Unit 785 is located at 135 South Garber. The building, built in
1980, consists of 6,080 square feet situated on a 53,100 square
foot parcel. The building was constructed utilizing wood siding
over concrete block.
Mansfield, Ohio
Unit 850 is located at 1075 Ashland Road. The building, built
in 1980, consists of 5,600 square feet situated on a 104,500 square
foot parcel. The building was constructed utilizing wood siding
over concrete block and flagstone.
Tampa, Florida
Unit 1060 is located at 4420 West Gandy. The building, built in
1986, consists of 5,777 square feet situated on a 50,094 square
foot parcel. The building was constructed utilizing wood siding
over concrete block.
Mooresville, Indiana
Unit 1057 is located at 499 South Indiana Street. The building,
built in 1981, consists of 6,770 square feet situated on a 63,525
square foot parcel. The building was constructed utilizing wood
siding over concrete block.
Taco Bells:
Schofield, Wisconsin
Unit 1343 is located at 704 Grand Avenue approximately 2.5 miles
south of Wausau, Wisconsin. The building, built in 1978, consists
of 1,440 square feet situated on a 11,603 square foot parcel. The
building was constructed utilizing painted brick on a concrete
foundation. This property was sold in February 1994. See Item 7.
Lansing, Michigan
Unit 1848 is located at 4238 West Saginaw on the outskirts of
Lansing, Michigan. The building, built in 1979, consists of 1,566
square feet situated on a 21,186 square foot parcel. The building
was constructed utilizing painted brick on a concrete foundation.
Scandinavian Health Spa
The Partnership has a 51% interest in a joint venture with an
affiliated public real estate limited partnership that purchased
the Scandinavian Health Spa. The Scandinavian Health Spa is a
36,556 square foot health club located on a three-acre parcel in
Glendale, Arizona, a suburb of Phoenix. The Health Spa is a
two-story health and fitness workout facility located within the
195,000 square foot Glendale Galleria Shopping Center.
Children's World Learning Centers:
Livonia, Michigan
The Children's World Learning Center is located at 38880 West Six
Mile Road in Livonia, Michigan, approximately 12 miles west of
downtown Detroit. The 6,095 square foot, single-story building was
built in 1984 utilizing concrete block and has a pitched roof with
asphalt shingles.
Farmington Hills, Michigan
The Children's World Learning Center is located at 29047 13 Mile
Road in Farmington Hills, Michigan, approximately 26 miles
northwest of Detroit. The 6,175 square foot, single-story building
was built in 1989 utilizing a wood frame and has a pitched roof
with asphalt shingles.
Waterford, Michigan
The Children's World Learning Center is located at 3100 Dixie
Highway in Waterford, Michigan, approximately 35 miles northwest of
Detroit. The 6,175 square foot, single-story building was built in
1988 utilizing a wood frame and has a pitched roof with asphalt
shingles.
Avis Lubes:
Orlando, Florida
The Avis Lube is located at 2699 Delaney Street across the street
from a 91,000 square foot shopping center anchored by Publix and
Woolworths. The building, built in 1989, consists of 1,532 square
feet situated on a 12,150 square foot parcel. The building was
constructed using concrete block and has two oil change bays.
Orlando, Florida
The Avis Lube is located at 1625 South Conway Road across the
street from a 123,000 square foot shopping center anchored by
Publix and Eckard Drugs. The building, built in 1989, consists of
1,947 square feet situated on a 24,939 square foot parcel. The
building was constructed using concrete block and has three oil
change bays.
The lessee of the two Orlando Avis Lubes defaulted on its payment
obligations under the lease in 1991 and in January 1992 vacated
the properties. The Partnership continued to receive rent payments
from the lessee, which Avis Lube, Inc. guaranteed to the
Partnership until the lease expired in June 1996. Avis Lube, Inc.
subleased the properties until June 1996 to an unaffiliated
sublessee, Florida Express Lubes, Inc. The Partnership signed new
leases with the sublessee to operate the properties, as lessee,
which commenced on June 1, 1996. The leases are for a 14 year
term. Base annual rent at 2699 Delaney Street is $48,000 and at
1625 South Conway Road is $54,000.
Rock Hill, Missouri
The Avis Lube is located at 9725 Manchester Road, two miles west
of the St. Louis, Missouri city limits. The building, built in
1988, consists of 2,940 square feet situated on a 21,143 square
foot parcel. The building was constructed using brick veneer and
has four oil change bays, two with service pit work access and two
with ground level work access.
The lessee of the Rock Hill, Missouri property defaulted on its
payment obligations and vacated the property in April 1994. The
Partnership had continued to receive rent payments from the
guarantor, Avis Lube, Inc. Avis Lube, Inc. subleased the property
through March 1996 to an unaffiliated sublessee, FOCO, Inc., an
auto/oil repair operator. The Partnership signed a new lease with
the sublessee to operate the property effective March 26, 1996.
The lease is for 42 months and provides for annual base rent of
$55,000.
Hardee's:
Newcastle, Oklahoma
The restaurant is an outparcel of a 67,500 square foot shopping
center located on the 400 & 500 block of N.W. 32nd. The 3,300
square foot, single-story building was built on a 35,200 square
foot parcel in 1990 utilizing a wood frame with brick facing.
St. Johns, Michigan
The restaurant is an outparcel of a 70,000 square foot Wal-Mart
department store located at the corner of U.S. 27 and Townsend
Road. The 3,300 square foot, single-story building was built on a
47,200 square foot parcel in 1990 utilizing a wood frame with brick
facing.
Albion, Michigan
The restaurant is located at 118 E. Michigan Avenue. The 3,034
square foot, single-story building was built on a 32,670 square
foot parcel in 1990 utilizing a wood frame with brick facing.
The tenant in the Albion and St. John's properties abandoned the
St. Johns property in December 1993 and the Albion property in
January 1994.
In 1994, the Partnership entered into a lease with Jasaza, Inc.
to operate the Albion property as a Hardee's restaurant. The base
rent on the property began at a level below the original lease but
was to increase each year. In addition, starting in year three of
the lease, percentage rents were to become due. However, on April
8, 1994, the Partnership was notified that Jasaza, Inc., the
replacement tenant, was terminating its lease at the Albion
Hardee's as of April 12, 1994. The Partnership continues to
actively market this property for a replacement tenant.
During the fourth quarter of 1994, the Partnership executed a
lease with a Dairy Queen franchisee to be the new tenant at the St.
Johns, Michigan property. The lease is for a five year term and
commenced February 1, 1995. Base rent is $2,500 per month with
monthly percentage rent of 5% due after monthly sales exceed
$37,500. The lease provides an option to renew for one five year
period. The new lease rent is lower than the rent from the
previous tenant.
During the third quarter of 1994, the Partnership recorded a
provision for impairment of $500,000 related to an other than
temporary decline in the value of real estate for the St. Johns,
Michigan and Albion, Michigan properties. This allowance has been
recorded as a reduction of the properties' cost, and allocated to
the land and building based on the original acquisition percentages
of 30% (land) and 70% (building).
In 1996, the Partnership engaged Cushman & Wakefield Valuation
Advisory Services ("Cushman & Wakefield") to prepare an appraisal
of the Partnership's properties. As a result of this appraisal,
the Partnership recorded an additional provision for impairment of
$550,000 related to an other than temporary decline in real estate
for the St. Johns, Michigan and Albion, Michigan properties during
the fourth quarter of 1996. This allowance has been recorded as a
reduction of the properties' cost, and allocated to the land and
building based on the original acquisition percentages of 30%
(land) and 70% (building).
Blockbuster Video:
South Orange, New Jersey
The video store is located at 57 South Orange Avenue in downtown
South Orange. The 6,705 square foot brick building was completely
renovated in 1990 and consists of a primary level, a mezzanine
level plus a full basement for storage.
Chi-Chi's:
During 1995, Chi-Chi's, the sub-tenant under a master lease with
Foodmaker, closed each of its three restaurants owned by the
Partnership because they were not profitable. Under the terms of
the three leases, Foodmaker, the master tenant and guarantor, is
continuing to pay rent for the properties, while actively seeking
subtenants. In February 1995, the Chi-Chi's restaurant in
Clarksville, Tennessee closed. During the third quarter of 1995
the Chi-Chi's restaurants in Charlotte, North Carolina and
Richmond, Virginia were closed.
Foodmaker owns, operates and franchises Jack In The Box, a chain
of fast-food restaurants located principally in the western and
southwestern United States. Until January 27, 1994, Foodmaker also
owned Chi-Chi's, a chain of full-service, casual Mexican
restaurants located primarily in the Midwestern and Midatlantic
United States.
For the year ended September 29, 1996, Foodmaker recorded
revenues of $ 1.063 billion from their 391 franchise owned and 879
company owned stores.
Richmond, Virginia
Unit 353 is located at 9135 West Broad Street in Richmond and
consists of a 7,270 square foot restaurant with a seating capacity
of 280. The property was built in January 1990 and is situated on
approximately one acre of land.
Chi-Chi's has undertaken to re-lease the closed Richmond,
Virginia restaurant. In April 1996, a potential sub-tenant
executed a second sub-lease with Chi-Chi's for the Richmond,
Virginia property. This new sub-tenant (Sino-American of Richmond,
Virginia) has an approximate lease occupation date of June 1, 1997.
Foodmaker continues as the guarantor under the terms of the second
sub-lease.
Charlotte, North Carolina
Unit 373 is located at 2522 Sardis Road North at the intersection
of Independence Boulevard. The property is situated on a 1.5 acre
parcel and consists of a 7,270 square foot restaurant with a
seating capacity for 280. The property opened in May 1990.
Chi-Chi's has undertaken to re-lease the closed Charlotte, North
Carolina restaurant. In March 1996, a potential sub-tenant
executed a second sub-lease with Chi-Chi's for the Charlotte, North
Carolina property. This new sub-tenant (Carolina Country BBQ of
Charlotte, North Carolina) occupied the facility in June 1996.
Foodmaker continues to be the guarantor under terms of the second
sub-lease.
Clarksville, Tennessee
Unit 366 is located in Governor's Square Shopping Center at 2815
Guthrie Road in Clarksville. The property consists of a 5,678
square foot restaurant with seating for 180 people and is situated
on an approximately 50,000 square foot parcel of land. The
property opened in May 1990.
Chi-Chi's has undertaken to re-lease the closed Clarksville,
Tennessee restaurant. In October 1996, a potential sub-tenant
executed a second sub-lease with Chi-Chi's for the Clarksville,
Tennessee property. This new sub-tenant (Loco Lupe of Clarksville,
Tennessee) opened to the public on February 17, 1997. Foodmaker
continues as the guarantor under terms of the second sub-lease.
Joint Venture Blockbuster:
Callaway, Florida
The Partnership owns a 26.0% 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.
BRAUVIN HIGH YIELD FUND L.P. II
SUMMARY OF OPERATING DATA
DECEMBER 31, 1996
PERCENT OF 1996 1996 LEASE
PURCHASE ORIGINAL RENTAL PERCENT EXPIRATION RENEWAL
PROPERTIES PRICE UNITS SOLD INCOME OF TOTAL DATES OPTIONS
51% OF 1 SCANDINAVIAN HEALTH SPA $ 2,677,500 6.9% $ 364,385 9.7% 2009 4 FIVE YEAR OPTIONS
99% OF 6 PONDEROSA RESTAURANTS 5,628,150 14.5% 706,872 18.7% 2003 4 FIVE YEAR OPTIONS
TACO BELL RESTAURANT-LANSING, MI 381,200 1.0% 63,661 1.7% 2003 NONE
TACO BELL RESTAURANT-
SCHOFIELD, WI (A) 246,300 0.6% -- -- -- NONE
14 PONDEROSA RESTAURANTS 12,269,992 31.5% 1,476,000 39.1% 2003-2004 2 FIVE YEAR OPTIONS
3 CHILDRENN'S WORLD LEARNING CENTER 2,368,922 6.1% 299,535 7.9% 2004-2009 2 FIVE YEAR OPTIONS
3 AVIS LUBE OIL CHANGE CENTERS 1,539,964 4.0% 182,148 4.8% 2010 2 TEN YEAR OPTIONS
HARDEE'S RESTAURANT-ST. JOHNS, MI(B) 897,348 2.3% 25,593 .7% 2010 NONE
HARDEE'S RESTAURANT -
ALBION, MI PROPERTY (C) 883,477 2.3% -- -- -- NONE
HARDEE'S RESTAURANT -
NEWCASTLE, OK 479,025 1.2% 63,381 1.7% 2010 2 TEN YEAR OPTIONS
BLOCKBUSTER VIDEO RENTAL 1,100,000 2.8% 149,145 3.9% 2010 2 TEN YEAR OPTIONS
3 CHI-CHI'S RESTAURANTS 3,369,000 8.6% 442,346 11.7% 2011 4 FIVE YEAR OPTIONS
26% OF 1 BLOCKBUSTER VIDEO STORE -
CALLAWAY, FL 263,596 0.7% 4,811 0.1% 2006 3 FIVE YEAR OPTIONS
$32,104,474 82.5% $3,777,877 100.0%
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.
(A) SOLD FEBRUARY 18, 1994
(B) RELEASED TO DAIRY QUEEN FRANCHISEE. LEASE COMMENCED FEBRUARY 1, 1995.
(C) FOR LEASE
Risks of Ownership
The possibility exists that the tenants of the Partnership's
properties 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 could have an
adverse effect on the financial position of the Partnership. As
discussed in Items 2 and 7, the past tenant in the Partnership's
Albion, Michigan and St. Johns, Michigan Hardees' is in default on
its leases. The St. Johns, Michigan property has been re-leased at
a lower base rent with the new tenant paying for all remodeling and
capital improvements needed. The Partnership may be unable to
successfully locate a substitute tenant for the Albion, Michigan
property due to the fact that the building had been designed or
built primarily to house a specific operation. Thus, the Albion,
Michigan property and other Partnership properties may not be
readily marketable to a new tenant without substantial capital
improvements or remodeling. Such improvements may require
expenditure of Partnership funds otherwise available for
distribution. In addition, because in excess of 30% of the
Partnership's cash available for investment has been invested in
properties operated as Ponderosa family restaurants, the
Partnership is subject to some risk of loss should adverse events
affect Ponderosa and in turn adversely affect the Ponderosa
lessees' ability to pay rent to the Partnership.
Item 3. Legal Proceedings.
Two legal actions, as hereinafter described, were filed against
certain of the General Partners of the Partnership and affiliates
of such General Partners, as well as against the Partnership on a
nominal basis in connection with the Merger. Each of these actions
was brought by limited partners of the Partnership. The
Partnership and the named General Partners and their affiliates
deny all allegations set forth in the complaints and are vigorously
defending against such claims.
A. The Florida Lawsuit
On September 17, 1996, a lawsuit was filed in the Circuit Court
of the Seventeenth Judicial Circuit in and for Broward County,
Florida, styled Rebecca Scialpi and Helen Friedlander v. Jerome J.
Brault, Brauvin Realty Advisors, Inc., Brauvin Realty Advisors II,
Inc., Brauvin Realty Advisors III, Inc., and Brauvin Realty
Advisors IV, Inc., James L. Brault, and Brauvin Real Estate Funds,
L.L.C. and Brauvin High Yield Fund L.P., Brauvin High Yield Fund
II, L.P., Brauvin Income Plus L.P. III, and Brauvin Corporate Lease
Program IV, L.P., Docket No. 96012807. The Partnership and the
other affiliated partnerships named in this lawsuit (the
"Affiliated Partnerships") that are proposed to be a party to a
merger or sale with the Purchaser, are each named as a "Nominal
Defendant" in this lawsuit. Jerome J. Brault, the Managing General
Partner of the Partnership, and Brauvin Realty Advisors II, Inc.,
the Corporate General Partner of the Partnership, as well as
certain corporate general partners of the Affiliated Partnerships,
have been named as defendants in this lawsuit. James L. Brault, an
officer of the Corporate General Partner and the son of Jerome J.
Brault, is also named as a defendant.
Plaintiffs filed an amended complaint on October 8, 1996. The
amended complaint alleges a purported class action consisting of
claims for breach of fiduciary duties, fraud, breach of the
Agreement, and civil racketeering. The amended complaint seeks
injunctive relief, as well as compensatory and punitive damages,
relating to the proposed transactions with the Purchaser. The
defendants have answered plaintiffs' amended complaint, and have
denied each of the plaintiffs' allegations of wrongful conduct.
On October 2, 1996, the plaintiffs in this action requested that
the Circuit Court enjoin the special meetings of the limited
partners and the proposed transactions with the Purchaser. This
motion was denied by the Circuit Court on October 8, 1996, and the
Florida appellate court denied plaintiffs' appeal of the Circuit
Court's October 8, 1996 ruling. There have been no material
developments with respect to this lawsuit since October 8, 1996.
B. The Illinois Lawsuit
On September 18, 1996, a class action lawsuit was filed in the
United States District Court for the Northern District of Illinois,
styled M. Barbara Christman, Joseph Forte, Janet M. Toolson, John
Archbold, and Ben O. Carroll v. Brauvin Realty Advisors, Inc.,
Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors III,
Inc., Brauvin Realty Advisors IV, Inc., Jerome J. Brault; Brauvin
Real Estate Funds, L.L.C. and Brauvin High Yield Fund L.P., Brauvin
High Yield Fund L.P. II, Brauvin Income Plus L.P. III, and Brauvin
Corporate Lease Program IV L.P., Docket No. 96C6025. The
Partnership and the other Affiliated Partnerships are each named as
a "Nominal Defendant" in the lawsuit. Jerome J. Brault and the
Corporate General Partner of the Partnership, as well as the
corporate general partners of the Affiliated Partnerships, are
named as defendants.
The plaintiffs filed an amended complaint on October 8, 1996,
which alleges claims for breach of fiduciary duties, breaches of
the Agreement, and violation of the Illinois Deceptive Trade
Practices Act, 815 ILCS 505 et seq. The amended complaint seeks
injunctive relief, as well as compensatory and punitive damages,
relating to the proposed transaction with the Purchaser.
On October 2, 1996, the District Court certified plaintiffs'
proposed class as all of the limited partners of the Partnership
and of the Affiliated Partnerships, and appointed plaintiffs'
counsel, The Mills Law Firm, as counsel for the class. On October
2, 1996, the District Court also conducted a hearing on plaintiffs'
motion to preliminarily enjoin the special meetings of the limited
partners and the proposed transactions with the Purchaser. The
District Court denied plaintiffs' motion for a preliminary
injunction at the conclusion of the October 2, 1996 hearing.
On September 27, 1996, counsel for plaintiffs, The Mills Law
Firm, mailed a solicitation to all of the Limited Partners,
requesting that they revoke their previously-mailed proxies in
favor of the Merger. On October 11, 1996, Jerome J. Brault and the
Corporate General Partner (collectively, the "Operating General
Partners") of the Partnership filed a counterclaim against
plaintiffs and their counsel, The Mills Law Firm, alleging that
plaintiffs and The Mills Law Firm violated the federal securities
laws and proxy rules by sending their September 27, 1996 letter to
the Limited Partners. The plaintiffs and The Mills Law Firm have
moved to dismiss this counterclaim. The District Court has taken
this motion under advisement and has yet to issue a ruling.
On October 10 and 11, 1996, the District Court conducted an
evidentiary hearing on the motion of the Operating General Partners
to invalidate revocations of proxies procured as a result of The
Mills Law Firm's September 27, 1996 letter. In that evidentiary
hearing, The Mills Law Firm admitted that it violated the proxy
rules by sending its September 27, 1996 letter to the Limited
Partners without filing such letter with the Securities and
Exchange Commission (the "Commission") in violation of the
Commission's requirements. At the conclusion of the hearing on
October 10 and 11, the District Court found that the Operating
General Partners have a likelihood of succeeding on the merits with
respect to their claim that the September 27, 1996 letter sent to
the Limited Partners by plaintiffs and The Mills Law Firm is false
or misleading in several significant respects.
Notwithstanding this finding, the District Court did not
invalidate the revocations of proxies resulting from The Mills Law
Firm's September 27, 1996 letter because it did not believe it
possessed the authority to do so under present law. This ruling
was appealed to the Seventh Circuit Court of Appeals. The Seventh
Court of Appeals subsequently dismissed this appeal on the grounds
that the appeal was rendered moot by the Limited Partners' approval
on November 8, 1996 of the Merger.
On October 16, 1996 and on November 6, 1996, the parties filed
cross-motions for partial summary judgement addressing the
allegation in plaintiffs' amended complaint that the Agreement does
not allow the Limited Partners to vote in favor of or against the
proposed transaction with the Purchaser by proxy. These cross-
motions for partial summary judgement were taken under advisement
by the District Court, and the District Court has yet to issue a
ruling.
On April 2, 1997, the Court granted plaintiffs' leave to again
amend their complaint. In their second amended complaint,
plaintiffs have named the Partnership as a "Nominal Defendant."
Plaintiffs have also added a new claim, alleging that the Operating
General Partners violated certain of the Commission's rules (15
U.S.C. section 78n(a), 17 C.F.R. sections 240.14a-9, 140.14a-4) by
making false and misleading statements in the Proxy. Plaintiffs
also allege that the Operating General Partners breached their
fiduciary duties, breached various provisions of the Agreement,
violated the Illinois Deceptive Trade Practice Act, 815 ILCS 505 et
seq., and violated section 17-305 of the Delaware Revised Uniform
Limited Partnership Act. The Operating General Partners deny those
allegations and will continue to vigorously defend against these
claims.
Pursuant to the Agreement and Delaware law, the Partnership will
advance to the defendants their defense costs. The Corporate
General Partner has agreed to repay the Partnership for the
advances if it is ever determined that the parties were not
entitled to receive the advances. No estimate can reasonably be
made at this time of the costs of defense.
Item 4. Submission of Matters to a Vote of Security Holders.
A Special Meeting of the Limited Partners was held on Friday,
November 8, 1996 at 9:30 a.m. At this Special Meeting, the Limited
Partners holding a majority of the Units approved the merger of the
Partnership with and into the Purchaser. Additionally, at the
Special Meeting, Limited Partners holding a majority of the Units
approved the adoption of an amendment to the Agreement to allow the
majority vote of the Limited Partners to determine the outcome of
the transaction with the Purchaser without the vote of the General
Partners of the Partnership.
PART II
Item 5. Market for the Registrant's Units and Related Security
Holder Matters.
At December 31, 1996, there were approximately 2,641 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 Corporate General
Partner nor the Partnership are obligated, but reserve the right,
to redeem or repurchase the Units. Units may also be purchased by
the Plan. Any Units so redeemed or repurchased shall be retired.
However, there is no intent to redeem or purchase Units pending the
Merger.
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 1996, 1995 and 1994
were $1,814,767, $3,582,492 and $3,726,277, respectively. Of the
$3,726,277 cash distributions to Limited Partners in 1994, $248,257
was a return of capital. Prior to the commencement of the
Partnership's proxy solicitation in August 1996, distributions were
paid four times per year, within 60 days after the end of each
calendar quarter. See Item 7. Pursuant to the terms of the Merger
Agreement, net income after August 1, 1996 accrues to the Purchaser
and, therefore, the net income through July 31, 1996 will be
distributed to the Limited Partners at the time of the closing of
the Merger. Since the net income of the Partnership after August
1, 1996 accrues 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. As a
result of the delays in closing the Merger, the Purchaser has
agreed to allow distributions of net income accruing from and
after January 1, 1997 until the Merger is consummated. See Item 7.
The Partnership provided for a reserve in its initial offering
to fund cash distributions in excess of operating cash flow. Such
payments from the reserve represent a return of capital and
represent less than 2% of cumulative distributions through February
15, 1997.
Item 6. Selected Financial Data.
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
(not covered by Independent Auditors' Report)
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Selected Income Statement Data:
Rental Income (a) $4,130,302 $4,192,243 $4,198,955
Interest Income 93,923 68,435 31,248
Net Income 1,824,01 3,039,738 2,564,375
Net Income Per Unit (b) $45.23 $75.82 $64.69
Selected Balance Sheet Data:
Cash and Cash Equivalents $2,413,914 $ 1,374,779 $1,106,917
Land and Buildings 35,401,164 35,951,164 35,951,164
Total Assets 33,290,582 33,207,008 33,630,071
Cash Distributions to
Limited Partners (c) 1,814,767 3,582,492 3,478,020
Cash Distributions to Limited
Partners Per Unit (b) $45.00 $89.36 $87.74
(a) This includes $67,561, $67,561 and $73,122 of non-cash income related
to the change in the deferred rent receivable balance for 1996, 1995
and 1994, respectively.
(b) Net income per Unit and cash 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.
c) This includes $10,278, $9,060 and $14,717 paid to various states for
income taxes on behalf of all Limited Partners for the years 1996,
1995 and 1994, respectively.
The above selected financial data should be read in conjunction with the
financial statements and the related notes appearing elsewhere in this
annual report.
Item 6. Selected Financial Data - continued.
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
(not covered by Independent Auditors' Report)
Years Ended December 31, 1993 and 1992
1993 1992
Selected Income Statement Data:
Rental Income $4,128,233 $4,064,706
Interest Income 12,876 20,440
Net Income 2,346,355 2,936,205
Net Income Per Unit (a) $57.82 $72.62
Selected Balance Sheet Data:
Cash and Cash Equivalents $799,390 $ 548,439
Land and Buildings 36,727,348 36,727,348
Total Assets 34,704,875 35,626,490
Cash Distributions to
Limited Partners (b) 3,569,741 3,456,204
Cash Distributions to Limited
Partners Per Unit (a) $90.22 $87.68
(a) Net income per Unit and cash 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.
(b) This includes $10,909 and $7,856 paid to various states for income
taxes on behalf of all Limited Partners for the years 1993 and 1992,
respectively.
The above selected financial data should be read in conjunction with
the financial statements and the related notes appearing elsewhere in
this annual report.
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.
Liquidity and Capital Resources
The Partnership commenced an offering to the public on June
17, 1988 of 25,000 Units (subject to increase to 40,000 units).
The offering was anticipated to close on June 16, 1989 but was
extended and closed on September 30, 1989. A total of $38,923,000
of Units were subscribed and issued between June 17, 1988 and
September 30, 1989, pursuant to the public offering.
Until the proxy solicitation process began, the Plan raised
$4,059,178 through December 31, 1996 from Limited Partners
investing their distributions of Operating Cash Flow in additional
Units. As of December 31, 1996, Units valued at $2,886,915 have
been repurchased by the Partnership from Limited Partners
liquidating their investment in the Partnership and have been
retired.
The Partnership purchased the land and buildings underlying
seven Ponderosa restaurants in 1988, and owns a 99% equity interest
in an affiliated joint venture formed in 1988 which purchased the
land and buildings underlying six Ponderosa restaurants. In 1989,
the Partnership purchased the land and buildings underlying two
Taco Bell restaurants, formed a 51% equity interest in an
affiliated joint venture which purchased a Scandinavian Health Spa
and purchased the land and buildings underlying seven additional
Ponderosa restaurants. In 1990, the Partnership purchased the land
and buildings underlying three Children's World Learning Centers,
three Hardee's restaurants and three Avis Lubes. The Partnership
purchased three Chi-Chi's restaurants in 1991.
On October 31, 1996, the Partnership purchased a 26% equity
interest in a joint venture with affiliated public real estate
limited partnerships (the "Bay County Venture"). The Bay County
Venture purchased real property upon which a newly constructed
Blockbuster Video store is operated. The property contains a 6,466
square foot building located on a 40,075 square foot parcel of
land.
The Partnership's acquisition process is now completed with
the exception of acquisitions made with funds raised through the
Plan.
The tenant in the Albion and St. Johns properties abandoned
the St. Johns property in December 1993 and the Albion property in
January 1994.
In 1994, the Partnership entered into a lease with Jasaza,
Inc. to operate the Albion property as a Hardee's restaurant. The
base rent on the property began at a level below the original lease
but was to increase each year. In addition, starting in year three
of the lease, percentage rents were to become due. However, on
April 8, 1994, the Partnership was notified that Jasaza, Inc., the
replacement tenant, was terminating its lease at the Albion
Hardee's as of April 12, 1994. The Partnership continues to
actively market this property for a replacement tenant.
During the fourth quarter of 1994, the Partnership executed a
lease with a Dairy Queen franchisee to be the new tenant at the St.
Johns, Michigan property. The lease is for a five year term and
commenced February 1, 1995. Base rent is $2,500 per month with
monthly percentage rent of 5% due after monthly sales exceed
$37,500. The lease provides an option to renew for one five year
period. The new lease rent is lower than the rent from the
previous tenant.
During the third quarter of 1994, the Partnership recorded a
provision for impairment of $500,000 related to an other than
temporary decline in the value of the real estate for the St.
Johns, Michigan and Albion, Michigan properties. This allowance
has been recorded as a reduction of the properties' cost, and
allocated to the land and building based on the original
acquisition percentages of 30% (land) and 70% (building).
In 1996, the Partnership engaged Cushman & Wakefield to
prepare an appraisal of the Partnership's properties. As a result
of this appraisal, the Partnership recorded an additional provision
for impairment of $550,000 related to an other than temporary
decline in real estate for the St. Johns, Michigan and Albion,
Michigan properties during the fourth quarter of 1996. This
allowance has been recorded as a reduction of the properties' cost,
and allocated to the land and building based on the original
acquisition percentages of 30% (land) and 70% (building).
On February 18, 1994, the Partnership sold the Taco Bell
located in Schofield, Wisconsin to an unaffiliated third party.
The following is a calculation of the gain realized on the sale:
Sale proceeds $ 375,000
Less net book value:
Land 82,856
Building 193,328
Accumulated depreciation (27,927)
Net book value 248,257
Realized gain $ 126,743
All amounts receivable on this property were collected at the
sale. The sale proceeds of $375,000 were distributed to the Limited
Partners on November 15, 1994.
In April 1994, the lessee of the Rock Hill, Missouri property
defaulted on its payment obligations and vacated the property. The
Partnership had continued to receive rent payments from the
guarantor, Avis Lube, Inc. Avis Lube, Inc. subleased the property
through March 1996 to an unaffiliated sublessee, FOCO, Inc., an
auto/oil repair operator. The Partnership signed a new lease with
the sublessee to operate the property effective March 26, 1996.
The lease is for 42 months and provides for annual base rent of
$55,000. The new lease rent is lower than previous rent.
The lessee of the two Orlando Avis Lubes defaulted on its
payment obligations under the lease in 1991 and in January 1992
vacated the properties. The Partnership continued to receive rent
payments from the lessee, which Avis Lube, Inc. guaranteed to the
Partnership until the lease expired in June 1996. Avis Lube, Inc.
subleased the properties until June 1996 to an unaffiliated
sublessee, Florida Express Lubes, Inc. The Partnership signed new
leases with the sublessee to operate the properties, as lessee,
which commenced on June 1, 1996. The leases are for a 14 year
term. Base annual rent at 2699 Delaney Street is $48,000 and at
1625 South Conway Road is $54,000. The new lease rents are lower
than the previous rents.
The Partnership made distributions to Limited Partners for
calendar years 1994, 1995 and 1996 (the final payment for each year
from 1994-1995 being made the following February 15). As
contemplated in the Prospectus, the distributions prior to full
property specification exceeded the amount of Operating Cash Flow,
as such term is defined in the Agreement, available for
distribution. As described in Footnote 8 to the section of the
Prospectus on pages 8 and 9 entitled "Estimated Use of Proceeds of
Offering", the Partnership set aside 1% of the gross proceeds of
the Offering in a reserve (the "Distribution Guaranty Reserve").
The Distribution Guaranty Reserve was structured so as to enable
the Partnership to make quarterly distributions of Operating Cash
Flow equal to at least 9.25% per annum on Adjusted Investment
during the period from the Escrow Termination Date
(February 28, 1989), as such term is defined in Section H.3 of the
Agreement, through the earlier of: (i) the first anniversary of
the Escrow Termination Date (February 28, 1990); or (ii) the
expenditure of 95% of the proceeds available for investment in
properties, which date was July 26, 1989. The General Partners
guaranteed payment of any amounts in excess of the Distribution
Guaranty Reserve and were entitled to receive any amounts of the
Distribution Guaranty Reserve not used to fund distributions.
The Partnership's acquisition process was not completed until
March 1991 due to an unusually high number of properties being
declined during the due diligence process because of the General
Partners' unwillingness to lower the Partnership's investment
standards. As a result, the Partnership had a substantial amount
of cash invested in short-term investments, as opposed to
properties, and during 1990 did not generate sufficient Operating
Cash Flow to fully support the distributions to Limited Partners.
In order to continue to maintain the 9.25% per annum
distribution through December 31, 1990, the General Partners agreed
to continue the Distribution Guaranty up to the net $140,000 of
Distribution Guaranty previously paid to them. At December 31,
1996, 1995 and 1994, $140,000 was due from the General Partners
related to the Distribution Guaranty.
Furthermore, since at December 31, 1990, the Partnership had not
yet completed its acquisition process and Operating Cash Flow
together with the Distribution Guaranty Reserve was as yet
insufficient to fund distributions, the General Partners committed
to advance an additional $136,000 to maintain the 9.25% per annum
distribution through December 31, 1990 and ensure that
distributions would not be paid out of Capital Contributions, as
defined in the Prospectus. The cumulative deficit produced has
been reduced from $136,000 at December 31, 1990 to $0 at
December 31, 1996, as Operating Cash Flow has exceeded
distributions since December 31, 1990.
Below is a table summarizing the four year historical data for
distribution rates per unit:
Distribution
Date 1997 1996 1995 1994
February 15 $22.3597 $22.3597 $22.3597
May 15 22.3597 22.3597 22.3597
August 15 -- 22.3597 22.3597
November 15 -- 22.3597 26.1121
Pursuant to the terms of the Merger Agreement, the Limited
Partners will receive approximately $779.22 per Unit in cash.
Promptly upon consummation of the Merger, the Partnership will
cease to exist and the Purchaser, as the surviving entity will
succeed to all of the assets and liabilities of the Partnership.
The Limited Partners holding a majority of the Units approved the
Merger on November 8, 1996.
The Partnership drafted a proxy statement, which required
prior review and comment by the Commission, to solicit proxies for
use at the Special Meeting originally to be held at the offices of
the Partnership on September 24, 1996. As a result of the various
pending legal issues, as described in Item 3, the Special Meeting
was adjourned to November 8, 1996 at 9:30 a.m. The purpose of the
Special Meeting was to vote upon the Merger and certain other
matters as described in the Proxy.
By approving the Merger, the Limited Partners also approved an
amendment of the Agreement allowing the Partnership to sell or
lease property to affiliates (this amendment, together with the
Merger shall be referred to herein as the "Transaction"). The
Delaware Revised Uniform Limited Partnership Act (the "Act")
provides that a merger must also be approved by the general
partners of a partnership, unless the limited partnership agreement
provides otherwise. Because the Agreement did not address this
matter, at the Special Meeting, Limited Partners holding a majority
of the Units were asked to approve the adoption of an amendment to
the Agreement to allow the majority vote of the Limited Partners to
determine the outcome of the transaction with the Purchaser without
the vote of the General Partners of the Partnership. Neither the
Act nor the Agreement provides the Limited Partners not voting in
favor of the Transaction with dissenters' appraisal rights.
The redemption price to be paid to the Limited Partners in
connection with the Merger is based on the fair market value of the
properties of the Partnership (the "Assets"). Cushman & Wakefield,
an independent appraiser, the largest real estate valuation and
consulting organization in the United States, was engaged by the
Partnership to prepare an appraisal of the Assets, to satisfy the
Partnership's requirements under the Employee Retirement Income
Security Act of 1974, as amended. Cushman & Wakefield determined
the fair market value of the Assets to be $30,183,300, or $748.09
per Unit. The redemption price of $779.22 per Unit also includes
all remaining cash of the Partnership, less net earnings of the
Partnership from and after August 1, 1996 through December 31,
1996, less the Partnership's actual costs incurred and accrued
through the effective time at the filing of the certificate of
merger, including reasonable reserves in connection with: (i) the
proxy solicitation; (ii) the Transaction (as detailed in the Merger
Agreement); and (iii) the winding up of the Partnership, including
preparation of the final audit, tax return and K-1s (collectively,
the "Transaction Costs") and less all other Partnership
obligations.
Cushman & Wakefield subsequently provided an opinion as to the
fairness of the Transaction to the Limited Partners from a
financial point of view. In its opinion, Cushman & Wakefield
advised that the price per Unit reflected in the Transaction is
fair, from a financial point of view, to the Limited Partners.
Cushman & Wakefield's determination that a price is "fair" does not
mean that the price is the highest price which might be obtained
in the marketplace, but rather that based on the appraised values
of the Assets, the price reflected in the Transaction is believed
by Cushman & Wakefield to be reasonable.
In addition to Mr. Jerome J. Brault, the Managing General
Partner of the Partnership, and Brauvin Realty Advisors II, Inc.,
the Corporate General Partner of the Partnership, Mr. David M.
Strosberg is also an Individual General Partner of the Partnership.
Mr. Cezar M. Froelich resigned his position as an Individual
General Partner effective as of September 17, 1996. The General
Partners will not receive any payment in exchange for the
redemption of their general partnership interests nor will they
receive any fees from the Partnership in connection with the
Transaction.
The Managing General Partner and his son, James L. Brault, an
executive officer of the Corporate General Partner, will have a
minority ownership interest in the Purchaser. Therefore, the
Messrs. Brault have an indirect economic interest in consummating
the Transaction that is in conflict with the economic interests of
the Limited Partners. Messrs. Froelich and Strosberg have no
affiliation with the Purchaser.
Although the Special Meeting was held and the necessary
approvals received, the Merger has not been completed primarily due
to the lawsuits that are still pending. The Operating General
Partners believe that these lawsuits are without merit and,
therefore, continue to vigorously defend against them. The
Purchaser is aware of these lawsuits and is nonetheless willing to
proceed with the Merger, subject to the satisfaction of its due
diligence as outlined below.
Following receipt of Limited Partner approval, representatives
of the Purchaser commenced in earnest the finalization of the
Purchaser's financing and its due diligence review of the assets of
the Partnership and those of the Affiliated Partnerships. The due
diligence process has revealed certain concerns relating to
potential environmental problems at some of the properties of the
Partnership and the Affiliated Partnerships. The due diligence
review has also raised questions regarding the interpretation of
certain terms in the leases governing some of the Partnership's and
the Affiliated Partnerships' properties. A very significant tenant
is interpreting certain purchase options contained in its leases in
a way that would cause the value of the properties leased by such
tenant to be significantly below the current appraised value.
Members of management of the Partnership and the Affiliated
Partnerships have been working diligently with the Purchaser to
assess these risks and to resolve them in a way that will allow the
Merger and the related transactions to be consummated without any
changes to the terms or the merger price.
In accordance with the terms of the Merger Agreement, the
Operating General Partners suspended all distributions to Limited
Partners, however, as a result of the unforeseen delays brought
about by the litigation and the due diligence issues highlighted
above, the Operating General Partners felt it was appropriate that
an earnings distribution be made to the Limited Partners. Although
the terms of the Merger Agreement entered into by the Partnership
and the Purchaser provides that the Assets being acquired by the
Purchaser in connection with the Merger include all earnings of the
Partnership from and after August 1, 1996, the Purchaser has agreed
to allow the Partnership to make distributions to the Limited
Partners of net earnings for the period from and after January 1,
1997 until the Merger is consummated. In exchange, the Partnership
has agreed to extend the termination date of the Merger Agreement
to June 30, 1997 to allow the Purchaser time to complete its due
diligence. Notwithstanding the extension of the termination date,
the Partnership and the Purchaser continue to work through the due
diligence issues outlined above, with the intent of closing the
Merger as soon as possible. Net earnings accruing after March 31,
1997 through the closing date will be included with the final cash
distribution to the Limited Partners from the Merger.
A distribution of the Partnership's net earnings for the
period January 1, 1997 to March 31, 1997 was made to the Limited
Partners on March 31, 1997 in the amount of approximately $814,500.
Results of Operations - Years ended December 31, 1996 and 1995
Results of operations for the Partnership for the year ended
December 31, 1996 reflected net income of $1,824,011 compared to
net income of $3,039,738 for the year ended December 31, 1995, a
decrease of approximately $1,215,700. The decrease in net income
resulted from an increase in expense as a result of the
Transaction, the Partnership hiring an independent real estate
company to conduct property valuations and a provision for
impairment on other than a temporary decline in the value of the
real estate. The increase in expenses was partially offset by an
increase in interest income.
Total income for the year ended December 31, 1996 was
$4,227,229 as compared to $4,268,386 for the year ended December
31, 1995, a decrease of approximately $41,200. The decrease in
total income is primarily due to the decreases in rental income.
Interest income increased as a result of the Partnership having
more funds invested in properties in 1996, however, rental income
decreased due to decreased percentage rent earned at certain of the
Partnership's properties.
Total expenses for the year ended December 31, 1996 were
$2,106,603 as compared to $930,775 for the year ended December 31,
1995, an increase of approximately $1,175,800. The increase in
expenses is primarily the result of an increase in Transaction
costs of $453,013 due to legal and other professional fees paid or
accrued as a result of the Transaction and a provision for
impairment on other than a temporary decline in the value of the
real estate of $550,000 for the St. Johns, Michigan and Albion,
Michigan properties. 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.
Results of Operations - Years ended December 31, 1995 and 1994
Results of operations for the year ended December 31, 1995
reflected net income of $3,039,738 compared to $2,564,375 for the
year ended December 31, 1994, an increase of $475,363. The
increase in net income is mainly due to reduced expenses in 1995
compared to 1994 which was a result of the Partnership's 1994
recognition of a provision for impairment on other than a temporary
decline in the value of the real estate of $500,000 for the St.
Johns, Michigan and the Albion, Michigan properties.
Additionally, expenses declined for the year ended December 31,
1995 compared to 1994 as a result of a decline in the provision for
bad debts of approximately $68,000 that was established for the St.
Johns, Michigan and Albion, Michigan properties. Another factor
that caused income to increase for the year ended in 1995 compared
to 1994 was an increase in interest income of approximately
$37,000, which was the result of higher cash balances during the
year. Partially offsetting these increases in net income was the
recognition in 1994 of the gain on the sale of the Taco Bell
restaurant of approximately $127,000.
Results of Operations - Years ended December 31, 1994 and 1993
Results of operations for the year ended December 31, 1994
reflected net income of $2,564,375 compared to $2,346,355 for year
ended December 31, 1993, an increase of approximately $218,000.
The increase in income was mainly due to the gain from the sale of
the Taco Bell restaurant of approximately $127,000 and as a result
of increases in base rent based upon increases in the Consumer
Price Index. The increase in interest income of approximately
$18,000 is a result of both higher interest rates and higher cash
balances during the year. Total expenses increased approximately
$12,000 as a result of a provision for impairment on other than a
temporary decline in the value of the real estate of $500,000 for
the St. Johns, Michigan and Albion, Michigan properties in 1994
offset by a decrease in bad debt expense of approximately $495,000
due to the provision for bad debts established in 1993 for the St.
Johns, Michigan and Albion, Michigan properties. In addition,
general and administrative expense increased as a result of the
Taco Bell sale and Ponderosa property exchange. This increase was
slightly offset by the decrease in depreciation expense due to the
reduction in properties as a result of the Taco Bell sale.
Impact of Inflation
The Partnership anticipates that the operations of the
Partnership will not be significantly impacted by inflation. To
offset any potential adverse effects of inflation, the Partnership
has entered into "triple-net" leases with 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.
Other Information
On March 15, 1989, Mr. David M. Strosberg resigned as an
employee of the Corporate General Partner and certain affiliates
of the Corporate General Partner. Currently, Mr. Strosberg remains
an Individual General Partner of the Partnership. The remaining
General Partners do not believe that Mr. Strosberg's lack of
involvement has had an adverse effect, and should not in the future
have any adverse effect, on the operations of the Partnership.
Item 8. Consolidated Financial Statements and Supplementary
Data.
See Index to Consolidated Financial Statements and Schedule
on Page F-1 of this Annual Report on 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.
PART III
Item 10. Directors and Executive Officers of the Partnership.
The General Partners of the Partnership are:
Brauvin Realty Advisors II, Inc., an Illinois corporation
Mr. Jerome J. Brault, individually
Mr. David M. Strosberg, individually
Brauvin Realty Advisors II, Inc. (the "Corporate General Partner"),
was formed under the laws of the State of Illinois in 1988, with its
issued and outstanding shares being owned by Messrs. Jerome J. Brault
(beneficially)(44%), Cezar M. Froelich (44%) and David M. Strosberg
(12%).
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. B. Allen Aynessazian . . . . Treasurer and Chief Financial
Officer
Mr. James L. Brault. . . . . . . Vice President and Secretary
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 63) 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. 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. Mr. Brault received a B.S. in Business from DePaul
University, Chicago, Illinois in 1959.
MR. CEZAR M. FROELICH (age 51) is a principal with the Chicago
law firm of Shefsky & Froelich Ltd., which acted as counsel to the
General Partners, the Partnership and certain of their affiliates.
His practice has been primarily in the fields of securities and
real estate and he has acted as legal counsel to various public and
private real estate limited partnerships, mortgage pools and real
estate investment trusts. Mr. Froelich is a shareholder in Brauvin
Management Company and Brauvin Financial Inc. 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.
MR. JAMES L. BRAULT (age 36) is a 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 Brauvin Real Estate Funds, L.L.C. 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 for
Brauvin Net Lease V, 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. B. ALLEN AYNESSAZIAN (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 publicly registered real
estate programs. He is the chief financial officer of Brauvin Net
Lease V, Inc. He is also responsible for the overall financial
accounting of Brauvin Management Company, Brauvin Financial, Inc.
and related partnerships. He is also responsible for the
Partnership's accounting and financial reporting to regulatory
agencies. He joined the Brauvin organization in August 1996.
Prior to that time, he was the chief financial officer of
Giordano's Enterprises, a privately held, 40-restaurant,
family-style pizza chain in the Chicago metropolitan area where he worked
since 1989. While at Giordano's, Mr. Aynessazian was responsible
for all accounting functions, lease negotiations and financings of
new restaurants, equipment and general corporate debt. From 1987
to 1989, Mr. Aynessazian worked in the accounting compliance and
tax department of KPMG Peat Marwick. Mr. Aynessazian is a
certified public accountant.
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 and its affiliates as
described under the caption "Compensation Table" on pages 10 to 12
of the Partnership's Prospectus, as supplemented, and the sections
of the Agreement entitled "Distribution of Operating Cash Flow,"
"Allocation of Profits, Losses and Deductions," "Distribution of
Net Sale or Refinancing Proceeds" and "Compensation of General
Partners and Their Affiliates" on pages A-10 to A-15 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 above 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 of any property by the Partnership
whether designated as real estate commissions, acquisition fees,
finders' fees, selection fees, development fees, construction fees,
non-recurring management fees, consulting fees or any other similar
fees or commissions, however designated and however treated for tax
or accounting purposes. Aggregate Acquisition Fees payable to all
persons in connection with the purchase of Partnership properties
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 the General Partners and their affiliates shall not exceed 6% of
the gross proceeds of the Offering. No amounts were paid in 1995
or 1994. An acquisition fee of $19,171 was paid in 1996 related to
the purchase of the Bay County Venture.
As described in Item 7, the General Partners were also entitled
to receive any portion of the 1% of the gross proceeds of the
Offering placed in the Distribution Guaranty Reserve not utilized
to pay the Distribution Guaranty through the Distribution Guaranty
Termination Date. The General Partners received approximately
$140,000 in consideration for providing such guaranty to the
Partnership through the Distribution Guaranty Termination date of
July 28, 1989. However, in order to continue to maintain the 9.25%
per annum distribution through December 31, 1990, the General
Partners agreed to continue the Distribution Guaranty up to the net
$140,000 of Distribution Guaranty previously paid to them. At
December 31, 1996, 1995, and 1994, $140,000 was due from the
General Partners related to the Distribution Guaranty.
Furthermore, since at December 31, 1990, the Partnership had not
yet completed its acquisition process and Operating Cash Flow
together with the Distribution Guaranty Reserve was as yet
insufficient to fund distributions, the General Partners committed
to advance an additional $136,000 to maintain the 9.25% per annum
distribution through December 31, 1990 and ensure that
distributions would not be paid out of Capital Contributions, as
defined in the Prospectus. The cumulative deficit remaining was
$0, $0, and $23,000 at December 31, 1996, 1995 and 1994,
respectively.
An affiliate of the General Partners provides leasing and
re-leasing services to the Partnership in connection with the
management of Partnership properties. The maximum property
management fee payable to the General Partners or their affiliates
shall be equal to 1% of the gross revenues of each Partnership
property or interest therein, however, the receipt of such property
management fee by the General Partners or their affiliates is
subordinated to the receipt by the Limited Partners of a 9%
non-cumulative, non-compounded annual return on Adjusted
Investment. An affiliate of the General Partners received $42,653,
$42,134 and $41,934 in 1996, 1995 and 1994 respectively, for
providing such services to the Partnership.
(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, 1996, 1995 and 1994:
1996 1995 1994
Selling commissions $ 12,307 $48,712 $45,464
Management fees 42,653 42,134 41,934
Reimbursable operating expenses 135,590 80,583 74,400
Legal fees 3,993 11,642 18,477
Acquisition fees 19,171 -- --
Transaction costs 14,873 -- --
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 of the
Partnership.
(b) None of the officers and directors of the Corporate
General Partner of the Partnership 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 in the sections of the
Partnership's Prospectus, as supplemented, entitled
"Compensation Table" and"Conflicts of Interest" at pages
10 to 15 and the section of the Agreement entitled
"Rights, Duties and Obligations of General Partners" at
pages A-17 to A-20 of the Agreement. The relationship of
the Corporate General Partner to its affiliates is set forth
in Item 10. Cezar M. Froelich is a principal of the law firm
of Shefsky & Froelich Ltd., which firm acted as securities
and real estate counsel to the Partnership, the General Partners
and certain of their respective affiliates.
(c) The General Partners owe the Partnership, at December 31, 1996,
1995 and 1994, approximately $140,000.
(d) There have been no transactions with promoters.
PART IV
Item 14. Exhibits, Consolidated Financial Statements and Schedule, 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:
(10)(d) First Amendment and Waiver to Agreement and Plan of
Merger.
(22) Subsidiaries of the Registrant.
(27) Financial Data Schedule.
The following exhibits are incorporated by reference from the
Registrant's Registration Statement (File No. 33-21928) on Form S-11
filed under the Securities Act of 1933:
Exhibit No. Description
3.(a) Restated Limited Partnership Agreement
3.(b) Articles of Incorporation of Brauvin Realty
Advisors II, Inc.
3.(c) By-Laws of Brauvin Realty Advisors II, Inc.
3.(d) Amendment to the Certificate of Limited Partnership of
the Partnership
10.(a) Escrow Agreement
(b) Form 8-K. On November 8, 1996, the vote of the Limited Partners
was taken and resulted in approval of the merger of the Partnership
per the terms of the Proxy. This Form 8-K was dated and filed on
November 8, 1996.
(c) An annual report for the fiscal year 1996 will be sent to the
Limited Partners subsequent to this filing.
The following exhibits are incorporated by references to the
Registrant's fiscal year ended December 31, 1994 Form 10-K (File No. 0-
17756):
Exhibit No. Description
(10)(b)(1) Management Agreement
(19)(a) Amendment to Distribution Reinvestment Plan
(28) Pages 8-15 of the Partnership's Prospectus dated
June 17, 1988 as supplemented, and pages A-10 to
A-15 and A-17 to A-20 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) Merger Agreement.
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 HIGH YIELD FUND L.P. II
BY: Brauvin Realty Advisors II, Inc.
Corporate General Partner
By:/s/ Jerome J. Brault
Jerome J. Brault
Chairman of the Board of Directors,
President and Chief Executive Officer
By:/s/ B. Allen Aynessazian
B. Allen Aynessazian
Chief Financial Officer and Treasurer
By:/s/ James L. Brault
James L. Brault
Executive Vice President and Secretary
INDIVIDUAL GENERAL PARTNERS
/s/ Jerome J. Brault
Jerome J. Brault
David M. Strosberg
DATED: April 11, 1997
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page
Independent Auditors' Report . . . . . . . . . . . . . . . . . . .. F-2
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1996 and 1995 . .F-3
Consolidated Statements of Operations, for the years
ended December 31, 1996, 1995 and 1994. . . . . . . . . . .F-4
Consolidated Statements of Partners' Capital, for the years
ended December 31, 1996, 1995 and 1994. . . . . . . . . . .F-5
Consolidated Statements of Cash Flows, for the years ended
December 31, 1996, 1995 and 1994. . . . . . . . . . . . . .F-6
Notes to Consolidated Financial Statements. . . . . . . . .F-7
Schedule III -- Real Estate and Accumulated Depreciation,
December 31, 1996. . . . . . . . . . . . . . . . . . . . . .F-29
All other schedules provided for in Item 14(a)(2) of Form 10-K are
either not required, not applicable, or immaterial.
INDEPENDENT AUDITORS' REPORT
To the Partners
Brauvin High Yield Fund L.P. II
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of Brauvin
High Yield Fund L.P. II (a limited partnership) and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements
of operations, partners' capital, and cash flows for each of the three
years in the period ended December 31, 1996. 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 High Yield
Fund L.P. II and subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996 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 10, 1997
(April 2, 1997 as to Note 9)
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1996 1995
ASSETS
Investment in real estate (Note 7):
Land $10,961,124 $11,126,124
Buildings 24,440,040 24,825,040
35,401,164 35,951,164
Less: Accumulated depreciation (5,357,473) (4,635,384)
Net investment in real estate 30,043,691 31,315,780
Investment in Brauvin Bay
County Venture (Note 8) 283,793 --
Cash and cash equivalents 2,413,914 1,374,779
Rent receivable 37,063 56,975
Deferred rent receivable 342,539 274,978
Due from General Partners (Note 5 140,000 150,175
Other assets 29,582 34,321
Total Assets $33,290,582 $33,207,008
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued
expenses $ 59,233 $ 61,759
Rent received in advance 142,596 58,344
Total Liabilities 201,829 120,103
MINORITY INTEREST:
Brauvin High Yield Venture 32,374 33,746
Brauvin Funds Joint Venture 2,450,861 2,472,647
PARTNERS' CAPITAL:
General Partners 319,429 319,429
Limited Partners 30,286,089 30,261,083
Total Partners' Capital 30,605,518 30,580,512
Total Liabilities and
Partners' Capital $33,290,582 $33,207,008
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
INCOME
Rental (Note 4) $4,130,302 $4,192,243 $4,198,955
Interest 93,923 68,435 31,248
Other 3,004 7,708 19,057
Total income 4,227,229 4,268,386 4,249,260
EXPENSES
General and administrative 245,571 161,125 170,956
Management fees (Note 3) 42,653 42,134 41,934
Provision for bad debts -- -- 68,374
Amortization of deferred
organization costs and
other assets 2,497 5,427 4,327
Depreciation 722,089 722,089 729,368
Transaction costs (Note 9) 453,013 -- --
Valuation fees 90,780 -- --
Provision for impairment(Note 7) 550,000 -- 500,000
Total expenses 2,106,603 930,775 1,514,959
Income before gain on sale and
minority and equity interests'
share of net income 2,120,626 3,337,611 2,734,301
Gain on sale -- -- 126,743
Minority interest share
in net income:
Brauvin High Yield Venture (5,828) (5,967) (5,585)
Brauvin Funds Joint Venture (291,814) (291,906) (291,084)
Equity interest in:
Brauvin Bay County Venture's
net income 1,027 -- --
Net Income $1,824,011 $3,039,738 $2,564,375
Net income allocated to the
Limited Partners $1,824,011 $3,039,738 $2,564,375
Net income per
Unit outstanding (a) $ 45.23 $ 75.82 $ 64.69
(a) Net income per Unit is 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
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
For the years ended December 31, 1996, 1995 and 1994
General Limited
Partners Partners * Total
Balance, January 1, 1994 $319,429 $31,428,289 $31,747,718
Contributions, net -- 207,446 207,446
Return of capital -- (248,257) (248,257)
Selling commissions and
other offering costs -- (56,161) (56,161)
Net income -- 2,564,375 2,564,375
Cash distributions -- (3,478,020) (3,478,020)
Balance, December 31, 1994 9,429 30,417,672 30,737,101
Contributions, net -- 446,338 446,338
Selling commissions and
other offering costs -- (60,173) (60,173)
Net income -- 3,039,738 3,039,738
Cash distributions -- (3,582,492) (3,582,492)
Balance, December 31, 1995 319,429 30,261,083 30,580,512
Contributions, net -- 30,965 30,965
Selling commissions and other
offering costs -- (15,203) (15,203)
Net income -- 1,824,011 1,824,011
Cash distributions -- 1,814,767) (1,814,767)
Balance, December 31, 1996 $319,429 $30,286,089 $30,605,518
* Total Units outstanding at December 31, 1996, 1995 and 1994 were
40,347, 40,316 and 39,866, respectively. Cash distributions to Limited
Partners per Unit were $45.00, $89.36 and $87.74 for the years ended
December 31, 1996, 1995 and 1994, respectively. Cash 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
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash Flows From Operating Activities:
Net income $1,824,011 $3,039,738 $2,564,375
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 724,586 727,516 733,695
Provision for impairment 550,000 -- 500,000
Gain on sale -- -- (126,743)
Provision for bad debts -- -- 68,374
Minority interest's share of income
from Brauvin High Yield Venture 5,828 5,967 5,585
Minority interest's share of income
from Brauvin Funds Joint Venture 291,814 291,906 291,084
Equity interest share of income
from Brauvin Bay County Venture (1,027) -- --
Decrease (increase) in rent
receivable 19,912 9,639 (99,534)
Increase in deferred rent receivable (67,561) (67,561) (73,122)
Increase in other assets (654) (7,652) (4,737)
Decrease in accounts
payable and accrued expenses (2,526) (69,745) (17,235)
Increase (decrease) in rent
received in advance 84,252 (148,133) (16,156)
Decrease in due to affiliates -- (3,469) (10,865)
Net cash provided by operating
activities 3,428,635 3,778,206 3,814,721
Cash Flows From Investing Activities:
Investment in Brauvin Bay County
Venture (282,766) -- --
Proceeds from sale of property -- -- 375,000
Net cash (used in) provided by
investing activities (282,766) -- 375,000
Cash Flows From Financing Activities:
Sale of Units, net of liquidations,
selling commissions and other
offering costs 18,658 397,627 161,982
Return of capital -- -- (248,257)
Cash distributions to Limited
Partners (1,814,767) (3,582,492)(3,478,020)
Decrease (increase)in due from
General Partners 10,175 17,521 (1,299)
Decrease in due to General
Partners -- (23,000) --
Cash distribution to minority interest -
Brauvin High Yield Venture (7,200) (6,400) (7,900)
Cash distribution to minority interest -
Brauvin Funds Joint Venture (313,600) (313,600) (308,700)
Net cash used in financing
activities (2,106,734) (3,510,344)(3,882,194)
Net increase in cash and cash
equivalents 1,039,135 267,862 307,527
Cash and cash equivalents at
beginning of year 1,374,779 1,106,917 799,390
Cash and cash equivalents at
end of year $2,413,914 $1,374,779 $1,106,917
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1996, 1995 and 1994
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
BRAUVIN HIGH YIELD FUND L.P. II (the "Partnership") is a Delaware
limited partnership organized for the purpose of acquiring
debt-free ownership of existing, free-standing, income-producing
retail, office or industrial real estate properties predominantly
all of which will involve "triple-net" leases. The General
Partners of the Partnership are Brauvin Realty Advisors II, Inc.,
Jerome J. Brault and David M. Strosberg. Brauvin Realty Advisors
II, Inc. is owned primarily by Messrs. Brault (beneficially) (44%)
and Cezar M. Froelich (44%). Mr. Froelich resigned as a director
of Brauvin Realty Advisors II, Inc. in December 1994 and as an
Individual General Partner effective as of September 17, 1996.
Brauvin Securities, Inc., an affiliate of the General Partners, is
the selling agent of the Partnership.
The Partnership was formed on May 3, 1988 and filed a
Registration Statement on Form S-11 with the Securities and
Exchange Commission which became effective on June 17, 1988. 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 July 26, 1988. The offering was
anticipated to close on June 16, 1989 but was extended until and
closed on September 30, 1989. A total of $38,923,000 of Units were
subscribed for and issued between June 17, 1988 and September 30,
1989, pursuant to the Partnership's public offering. Through
December 31, 1996, 1995 and 1994, the Partnership has sold
$42,982,178, $42,837,384 and $39,866,216 of Units, respectively.
These totals include $4,059,178, $3,914,384 and $3,342,063 of
Units, respectively, purchased by Limited Partners who utilized
their distributions of Operating Cash Flow to purchase Units
through the distribution reinvestment plan (the "Plan"). Units
valued at $2,886,915, $2,773,086 and $2,646,347 have been
repurchased by the Partnership from Limited Partners liquidating
their investment in the Partnership and have been retired as of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
December 31, 1996, 1995 and 1994, respectively. As of
December 31, 1996, the Plan participants have acquired Units under
the Plan which approximate 9% of the total Units outstanding.
The Partnership has acquired the land and buildings underlying 14
Ponderosa restaurants, two Taco Bell restaurants, three Children's
World Learning Centers, three Hardee's restaurants, three Avis Lube
Oil Change Centers and three Chi-Chi's restaurants. Also acquired
were 99%, 51% and 26% equity interests in three joint ventures with
affiliated entities, which ventures purchased the land and
buildings underlying six Ponderosa restaurants, a Scandinavian
Health Spa and a Blockbuster Video store, respectively. In 1995,
the Partnership and Metromedia, the parent of Ponderosa
Restaurants, exchanged one of the Ponderosa restaurants for a Tony
Roma's restaurant. The Partnership's acquisition process is now
completed except to the extent funds raised through the Plan are
sufficient to purchase additional properties.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management's Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
Accounting Method
The accompanying financial statements have been prepared using
the accrual method of accounting.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
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.
Consolidation of Joint Ventures
The Partnership owns a 99% equity interest in a joint venture,
Brauvin High Yield Venture, which owns six Ponderosa restaurants,
and a 51% equity interest in another joint venture, Brauvin Funds
Joint Venture, which owns a Scandinavian Health Spa. The
accompanying financial statements have consolidated 100% of the
assets, liabilities, operations and partners' capital of these
ventures. All significant intercompany accounts have been
eliminated.
Investment in Joint Venture
The Partnership owns a 26% 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.
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 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
Investment in Real Estate
The operating properties acquired by the Partnership are stated
at cost including acquisition costs, net of an allowance for
impairment. Depreciation expense is computed on a straight-line
basis over approximately 35 years.
Prior to 1995, the Partnership provided an allowance for
impairment to reduce the cost basis of real estate to its estimated
net realizable value when the real estate was judged to have
suffered an impairment in value that was other than temporary (see
Note 7). For purposes of this analysis, the cost basis of real
estate included deferred rent receivable and accumulated
depreciation. Net realizable value is inherently subjective and is
based on management's best estimate of current conditions and
assumptions about expected future conditions. Estimated net
realizable value was calculated based on undiscounted estimated
operating cash flows of the property over an expected holding
period, with a sales price at the end of the holding period
calculated by applying an expected capitalization rate to the
stabilized net operating income of the property, less associated
sales costs.
In 1995, the Partnership adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS
121). SFAS 121 requires the provision of an allowance for
impairment to reduce the cost basis of real estate to its estimated
fair value when the real estate is judged to have suffered an
impairment that is other than temporary. The Partnership has
performed an analysis of its long-lived assets, and the
Partnership's management determined that there were no events or
changes in circumstances that indicated that the carrying amount of
the assets may not be recoverable at December 31, 1996 and 1995,
except as described in Note 7.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid debt
instruments with an original maturity within three months 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, 1996, but
may not necessarily be indicative of the amounts that the
Partnership could realize in a current market exchange. The use of
different assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts. Although
management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements
since that date, and current estimates of fair value may differ
significantly from amounts presented herein.
The carrying amounts of the following items are a reasonable
estimate of fair value: cash and cash equivalents; rent receivable;
due from General Partners; accounts payable and accrued expenses;
and rent received in advance.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
(2) PARTNERSHIP AGREEMENT
Distributions
All Operating Cash Flow, as defined in the Partnership Agreement
(the "Agreement"), shall be distributed: (a) first, to the Limited
Partners until the Limited Partners receive an amount equal to
their 10% Current Preferred Return, as such term is defined in the
Agreement; and (b) thereafter, any remaining amounts will be
distributed 97.5% to the Limited Partners and 2.5% to the General
Partners.
The net proceeds of a sale or refinancing of a Partnership
property shall be distributed as follows:
first, to the Limited Partners until the Limited Partners have
received an amount equal to the 10% Cumulative Preferred Return,
as such term is defined in the Agreement;
second, to the Limited Partners until the Limited Partners have
received an amount equal to the amount of their Adjusted
Investment, as such term is defined in the Agreement; and
third, 95% to the Limited Partners 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 between the Limited Partners and the General
Partners in accordance with the ratio of aggregate distributions of
Operating Cash Flow attributable to such tax year, although if no
distributions are made in any year, net losses (computed without
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
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 2.5% to the General Partners and
97.5% to the Taxable Class Limited Partners, 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 Limited Partners have been allocated an
amount of profits equal to their 10% Cumulative Preferred Return as
of such date; (c) third, to the Limited Partners until the Limited
Partners have been allocated an amount of profit equal to the
amount of their Adjusted Investment; and (d) 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 Account balances; and (b) thereafter,
95% to the Limited Partners and 5% to the General Partners.
(3) TRANSACTIONS WITH RELATED PARTIES
An affiliate of the General Partners manages the Partnership's
real estate properties for an annual property management fee equal
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
to up to 1% of gross revenues derived from the properties. The
property management fee is subordinated, annually, to receipt by
the Limited Partners of a 9% non-cumulative, non-compounded return
on their Adjusted Investment.
The General Partners owe the Partnership $140,000 at December 31,
1996, relating to the Distribution Guaranty Reserve.
The Partnership pays affiliates of the General Partners selling
commissions of 8-1/2% of the capital contributions received for
Units sold by the affiliates.
The Partnership pays an affiliate of the General Partners an
acquisition fee in the amount of up to 6% 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.
An affiliate of one of the General Partners provided securities
and real estate counsel to the Partnership.
Fees, commissions and other expenses paid or payable to the
General Partners or its affiliates for the years ended December 31,
1996, 1995 and 1994 were as follows:
1996 1995 1994
Selling commissions $12,307 $48,712 $45,464
Management fees 42,653 42,134 41,934
Reimbursable operating
expenses 135,590 80,583 74,400
Legal fees 3,993 11,642 18,477
Acquisition fees 19,171 -- --
Transaction costs 14,873 -- --
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
(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 as of December 31, 1996:
Year ending December 31:
1997 $ 3,961,139
1998 3,961,139
1999 4,019,874
2000 3,953,047
2001 3,950,547
Thereafter 18,149,487
$37,995,233
Additional rent based on percentages of tenant sales increases
was $83,633, $129,786 and $125,427 in 1996, 1995 and 1994,
respectively.
Approximately 58% of the Partnership's rental income is from
properties operated as Ponderosa restaurants. The Partnership is
subject to some risk of loss should adverse events affect those
Ponderosa restuarants and in turn adversely affect the lessees'
ability to pay rent to the Partnership.
The tenant in the Albion and St. Johns properties abandoned the
St. Johns property in December 1993 and the Albion property in
January 1994.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
In 1994, the Partnership entered into a lease with a new tenant,
Jasaza, Inc., to operate the Albion property as a Hardee's
restaurant. The base rent on the property began at a level below
the original lease but was to increase each year. In addition,
starting in year three of the lease, percentage rents were to
become due. However, on April 8, 1994, the Partnership was
notified that Jasaza, Inc., the replacement tenant, was terminating
its lease at the Albion Hardee's, as of April 12, 1994. The
Partnership continues to actively market this property for a
replacement tenant.
During the fourth quarter of 1994, the Partnership executed a
lease with a Dairy Queen franchisee to be the new tenant at the St.
Johns, Michigan property. The lease is for a five year term and
commenced February 1, 1995. Base rent is $2,500 per month with
monthly percentage rent of 5% due after monthly sales exceed
$37,500. The lease provides an option to renew for one five year
period.
The lessee of the two Orlando Avis Lubes defaulted on its
payment obligations under the lease in 1991 and in January 1992
vacated the properties. The Partnership continued to receive rent
payments from the lessee, which Avis Lube, Inc. guaranteed to the
Partnership until the lease expired in June 1996. Avis Lube, Inc.
subleased the properties until June 1996 to an unaffiliated
sublessee, Florida Express Lube, Inc. The Partnership signed new
leases with the sublessee to operate the properties, as lessee,
which commenced on June 1, 1996. The leases are for a 14 year
term. Base annual rent at 2699 Delaney Street is $48,000 and at
1625 South Conway Road is $54,000. The new lease rents are lower
than the previous rents.
In April 1994, the lessee of the Rock Hill, Missouri property
defaulted on its payment obligations and vacated the property. The
Partnership continued to receive rent payments from the guarantor,
Avis Lube, Inc. Avis Lube, Inc. subleased the property through
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
March 1996 to an unaffiliated sublessee, FOCO, Inc., an auto/oil
repair operator. The Partnership signed a new lease with the
sublessee to operate the property effective March 26, 1996. The
lease is for 42 months and provides for annual base rent of
$55,000. The new lease rent is lower than previous rent.
(5) WORKING CAPITAL RESERVES
The Partnership has made quarterly distributions to Limited
Partners for calendar years 1994, 1995 and the first quarter of
1996 (the final payment for each year is made the following
February 15). As contemplated in the Prospectus, the distributions
prior to full property specification exceeded the amount of
Operating Cash Flow, as such term is defined in the Agreement,
available for distribution. The Partnership set aside 1% of the
gross proceeds of its offering in a reserve (the "Distribution
Guaranty Reserve"). The Distribution Guaranty Reserve was
structured so as to enable the Partnership to make quarterly
distributions of Operating Cash Flow equal to at least 9.25% per
annum on Adjusted Investment during the period from the Escrow
Termination Date (February 28, 1989), as such term is defined in
Section H.3 of the Agreement, through the earlier of: (i) the
first anniversary of the Escrow Termination Date (February 28,
1990); or (ii) the expenditure of 95% of the proceeds available for
investment in properties, which date was July 26, 1989. The
General Partners guaranteed payment of any amounts in excess of the
Distribution Guaranty Reserve and were entitled to receive any
amounts of the Distribution Guaranty Reserve not used to fund
distributions.
The Partnership's acquisition process was not completed until
March 1991 due to an unusually high number of properties being
declined during the due diligence process because of the General
Partners' unwillingness to lower the Partnership's investment
standards. As a result, the Partnership had a substantial amount of
cash invested in short-term investments, as opposed to properties
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
and during 1990 did not generate sufficient Operating Cash Flow to
fully support the distributions to Limited Partners.
In order to continue to maintain the 9.25% per annum
distribution through December 31, 1990, the General Partners agreed
to continue the Distribution Guaranty up to the net $140,000 of
Distribution Guaranty previously paid to them. At December 31,
1996, 1995 and 1994, $140,000 was due from the General Partners
related to the Distribution Guaranty.
(6) SALE OF PROPERTY
On February 18, 1994, the Partnership sold the Taco Bell located
in Schofield, Wisconsin to an unaffiliated third party. The
following is a calculation of the gain realized on the sale:
Sale proceeds $375,000
Less net book value:
Land 82,856
Building 193,328
Accumulated depreciation (27,927)
Net book value 248,257
Realized gain $126,743
All amounts receivable on this property were collected at the
sale. The sale proceeds of $375,000 were distributed to the
Limited Partners on November 15, 1994.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
(7) PROVISION FOR IMPAIRMENT
During the third quarter of 1994, the Partnership recorded a
provision for impairment of $500,000 related to an other than
temporary decline in the value of the real estate for the St.
Johns, Michigan and Albion, Michigan properties. This allowance
has been recorded as a reduction of the properties' cost, and
allocated to the land and building based on the original
acquisition percentages of 30% (land) and 70% (building).
In 1996, the Partnership engaged Cushman & Wakefield Valuation
Advisory Services ("Cushman & Wakefield") to prepare an appraisal
of the Partnership's properties. As a result of this appraisal,
during the fourth quarter of 1996, the Partnership recorded an
additional provision for impairment of $550,000 related to an other
than temporary decline in real estate for the St. Johns, Michigan
and Albion, Michigan properties. This allowance has been recorded
as a reduction of the properties' cost, and allocated to the land
and buildings based on the original acquisition percentages of 30%
(land) and 70% (building).
(8) 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:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
BRAUVIN BAY COUNTY VENTURE
December 31, 1996
Land and buildings, net $1,069,277
Other assets 13,531
$1,082,808
Liabilities $ 1,155
Partners' capital 1,081,653
$1,082,808
Period from
October 31, 1996
(inception) to
December 31,
1996
Rental income $18,502
Expenses:
Depreciation 2,898
Management fees 191
Operating and administrative 11,463
14,552
Net income $ 3,950
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
(9) MERGER AND LITIGATION
Merger
Pursuant to the terms of an agreement and plan of merger dated
as of June 14, 1996, as amended March 24, 1997 (the "Merger
Agreement"), the Partnership proposes to merge with and into
Brauvin Real Estate Funds, L.L.C., a Delaware limited liability
company affiliated with certain of the General Partners (the
"Purchaser") through a merger (the "Merger") of its Units. In
connection with the Merger, the Limited Partners will receive
approximately $779.22 per Unit in cash. Promptly upon consummation
of the Merger, the Partnership will cease to exist and the
Purchaser, as the surviving entity, will succeed to all of the
assets and liabilities of the Partnership. The Limited Partners
holding a majority of the Units approved the Merger on November 8,
1996. By approving the Merger, the Limited Partners also approved
an amendment of the Agreement allowing the Partnership to sell or
lease property to affiliates (this amendment, together with the
Merger shall be referred to herein as the "Transaction").
The redemption price to be paid to the Limited Partners in
connection with the Merger is based on the fair market value of the
properties of the Partnership (the "Assets"). Cushman & Wakefield
Valuation Advisory 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 Assets, to satisfy the Partnership's
requirements under the Employee Retirement Income Security Act of
1974, as amended. Cushman & Wakefield determined the fair market
value of the Assets to be $30,183,300, or $748.09 per Unit. The
redemption price of $779.22 per Unit also includes all remaining
cash of the Partnership, less net earnings of the Partnership from
and after August 1, 1996 through December 31, 1996, less the
Partnership's actual costs incurred and accrued through the
effective time at the filing of the certificate of merger,
including reasonable reserves in connection with: (i) the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
proxy solicitation; (ii) the Transaction (as detailed in the Merger
Agreement); and (iii) the winding up of the Partnership, including
preparation of the final audit, tax return and K-1s (collectively,
the "Transaction Costs") and less all other Partnership
obligations.
The General Partners will not receive any payment in exchange for
the redemption of their general partnership interests nor will they
receive any fees from the Partnership in connection with the
Transaction. The Managing General Partner and his son, James L.
Brault, an executive officer of the Corporate General Partner, will
have a minority ownership interest in the Purchaser.
The Merger has not been completed primarily due to certain
litigation, as described below, that is still pending. The
Operating General Partners (as defined below) believe that these
lawsuits are without merit and, therefore, continue to vigorously
defend against them. The Purchaser is aware of these lawsuits and
is nonetheless willing to proceed with the Merger, subject to the
satisfaction of its due diligence as outlined below.
Following receipt of Limited Partner approval, the Purchaser
commenced the finalization of the Purchaser's financing and its due
diligence review of the assets of the Partnership and those of the
Affiliated Partnerships (as defined below). The due diligence
process has revealed certain concerns relating to potential
environmental problems at some of the properties of the Partnership
and the Affiliated Partnerships. The due diligence review has also
raised questions regarding the interpretation of certain terms in
the leases governing some of the Partnership's and the Affiliated
Partnerships' properties. A very significant tenant is
interpreting certain purchase options contained in its leases in a
way that would cause the value of the properties leased by such
tenant to be significantly below the current appraised value.
Members of management of the Partnership and the Affiliated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
Partnerships have been working with the Purchaser to assess these
risks and to resolve them in a way that will allow the Merger and
the related transactions to be consummated without any changes to
the terms or the Merger price.
In accordance with the terms of the Merger Agreement, the
Operating General Partners suspended all distributions to Limited
Partners; however, as a result of the unforeseen delays brought
about by the litigation and the due diligence issues highlighted
above, the Operating General Partners felt it was appropriate that
an earnings distribution be made to the Limited Partners. Although
the terms of the Merger Agreement entered into by the Partnership
and the Purchaser provide that the Assets being acquired by the
Purchaser in connection with the Merger include all earnings of the
Partnership from and after August 1, 1996, the Purchaser has agreed
to allow the Partnership to make distributions to the Limited
Partners of net earnings for the period from and after January 1,
1997 until the Merger is consummated. In exchange, the Partnership
has agreed to extend the termination date of the Merger Agreement
to June 30, 1997 to allow the Purchaser time to complete its due
diligence. Notwithstanding the extension of the termination date,
the Partnership and the Purchaser continue to work through the due
diligence issues outlined above, with the intent of closing the
Merger as soon as possible.
A distribution of the Partnership's net earnings for the period
January 1, 1997 to March 31, 1997 was made to the Limited Partners
on March 31, 1997 in the amount of approximately $814,500. Net
earnings accruing after March 31, 1997 through the closing date
will be included with the final cash distribution to the Limited
Partners from the Merger.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
Litigation
Two legal actions, as hereinafter described, were filed against
certain of the General Partners of the Partnership and affiliates
of such General Partners, as well as against the Partnership on a
nominal basis in connection with the Merger. Each of these actions
was brought by limited partners of the Partnership. The
Partnership and the named General Partners and their affiliates,
deny all allegations set forth in the complaints and are vigorously
defending against such claims.
A. The Florida Lawsuit
On September 17, 1996, a lawsuit was filed in the Circuit Court
of the Seventeenth Judicial Circuit in and for Broward County,
Florida, styled Rebecca Scialpi and Helen Friedlander v. Jerome J.
Brault, Brauvin Realty Advisors, Inc., Brauvin Realty Advisors II,
Inc., Brauvin Realty Advisors III, Inc., and Brauvin Realty
Advisors IV, Inc., James L. Brault, and Brauvin Real Estate Funds,
L.L.C. and Brauvin High Yield Fund L.P., Brauvin High Yield Fund
II, L.P., Brauvin Income Plus L.P. III, and Brauvin Corporate Lease
Program IV, L.P., Docket No. 96012807. The Partnership and the
other affiliated partnerships named in this lawsuit (the
"Affiliated Partnerships") that are proposed to be a party to a
merger or sale with the Purchaser, are each named as a "Nominal
Defendant" in this lawsuit. Jerome J. Brault, the Managing General
Partner of the Partnership, and Brauvin Realty Advisors II, Inc.,
the Corporate General Partner of the Partnership, as well as
certain corporate general partners of the Affiliated Partnerships,
have been named as defendants in this lawsuit. James L. Brault, an
officer of the Corporate General Partner and the son of Jerome J.
Brault, is also named as a defendant.
Plaintiffs filed an amended complaint on October 8, 1996. The
amended complaint alleges a purported class action consisting of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
claims for breach of fiduciary duties, fraud, breach of the
Agreement, and civil racketeering. The amended complaint seeks
injunctive relief, as well as compensatory and punitive damages,
relating to the proposed transactions with the Purchaser. The
defendants have answered plaintiffs' amended complaint, and have
denied each of the plaintiffs' allegations of wrongful conduct.
On October 2, 1996, the plaintiffs in this action requested that
the Circuit Court enjoin the special meetings of the limited
partners and the proposed transactions with the Purchaser. This
motion was denied by the Circuit Court on October 8, 1996, and the
Florida appellate court denied plaintiffs' appeal of the Circuit
Court's October 8, 1996 ruling. There have been no material
developments with respect to this lawsuit since October 8, 1996.
B. The Illinois Lawsuit
On September 18, 1996, a class action lawsuit was filed in the
United States District Court for the Northern District of Illinois,
styled M. Barbara Christman, Joseph Forte, Janet M. Toolson, John
Archbold, and Ben O. Carroll v. Brauvin Realty Advisors, Inc.,
Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors III,
Inc., Brauvin Realty Advisors IV, Inc., Jerome J. Brault; Brauvin
Real Estate Funds, L.L.C. and Brauvin High Yield Fund L.P., Brauvin
High Yield Fund L.P. II, Brauvin Income Plus L.P. III, and Brauvin
Corporate Lease Program IV L.P., Docket No. 96C6025. The
Partnership and the Affiliated Partnerships are each named as a
"Nominal Defendant" in the lawsuit. Jerome J. Brault and the
Corporate General Partner of the Partnership, as well as the
corporate general partners of the Affiliated Partnerships, are
named as defendants.
The plaintiffs filed an amended complaint on October 8, 1996,
which alleges claims for breach of fiduciary duties, breaches of
the Agreement, and violation of the Illinois Deceptive Trade
Practices Act. The amended complaint seeks injunctive relief,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
as well as compensatory and punitive damages, relating to the
proposed transaction with the Purchaser.
On October 2, 1996, the District Court certified plaintiffs'
proposed class as all of the limited partners of the Partnership
and of the Affiliated Partnerships, and appointed plaintiffs'
counsel, The Mills Law Firm, as counsel for the class. On October
2, 1996, the District Court also conducted a hearing on plaintiffs'
motion to preliminarily enjoin the special meetings of the limited
partners and the proposed transaction with the Purchaser. The
District Court denied plaintiffs' motion for a preliminary
injunction at the conclusion of the October 2, 1996 hearing.
On September 27, 1996, counsel for plaintiffs, The Mills Law
Firm, mailed a solicitation to all of the Limited Partners,
requesting that they revoke their previously-mailed proxies in
favor of the Merger. On October 11, 1996, the Operating General
Partners filed a counterclaim against plaintiffs and their counsel,
The Mills Law Firm, alleging that plaintiffs and The Mills Law Firm
violated the federal securities laws and proxy rules by sending
their September 27, 1996 letter to the Limited Partners. The
plaintiffs and The Mills Law Firm have moved to dismiss this
counterclaim. The District Court has taken this motion under
advisement and has yet to issue a ruling.
On October 10 and 11, 1996, the District Court conducted an
evidentiary hearing on the motion of the Operating General Partners
to invalidate revocations of proxies procured as a result of The
Mills Law Firm's September 27, 1996 letter. In that evidentiary
hearing, The Mills Law Firm admitted that it violated the proxy
rules by sending its September 27, 1996 letter to the Limited
Partners without filing such letter with the Commission in
violation of the Commission's requirements. At the conclusion of
the hearing on October 10 and 11, the District Court found that the
Operating General Partners have a likelihood of succeeding
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
on the merits with respect to their claim that the September 27,
1996 letter sent to the Limited Partners by plaintiffs and The
Mills Law Firm is false or misleading in several significant
respects.
Notwithstanding this finding, the District Court did not
invalidate the revocations of proxies resulting from The Mills Law
Firm's September 27, 1996 letter because it did not believe it
possessed the authority to do so under present law. This ruling
was appealed to the Seventh Circuit Court of Appeals. The Seventh
Court of Appeals subsequently dismissed this appeal on the grounds
that the appeal was rendered moot by the Limited Partners' approval
November 8, 1996 of the Merger.
On October 16, 1996 and on November 6, 1996, the parties filed
cross-motions for partial summary judgement addressing the
allegation in plaintiffs' amended complaint that the Partnership
Agreement does not allow the Limited Partners to vote in favor of
or against the proposed transaction with the Purchaser by proxy.
These cross-motions for partial summary judgement were taken under
advisement by the District Court, and the District Court has yet to
issue a ruling.
On April 2, 1997, the Court granted plaintiffs' leave to again
amend their complaint. In their second amended complaint,
plaintiffs have named the Partnership as a "Nominal Defendant."
Plaintiffs have also added a new claim, alleging that the Operating
General Partners violated certain of the Commission's rules by
making false and misleading statements in the Proxy. Plaintiffs
also allege that the Operating General Partners breached their
fiduciary duties, breached various provisions of the Agreement,
violated the Illinois Deceptive Trade Practice Act, and violated
section 17-305 of the Delaware Revised Uniform Limited Partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
For the years ended December 31, 1996, 1995 and 1994
Act. The Operating General Partners deny those allegations and
will continue to vigorously defend against these claims.
Pursuant to the Agreement and Delaware law, the Partnership will
advance to the defendants their defense costs. The Corporate
General Partner has agreed to repay the Partnership for the
advances if it is ever determined that the parties were not
entitled to receive the advances. No estimate can reasonably be
made at this time of any potential liability from the litigation or
the costs of defense.
SCHEDULE III
BRAUVIN HIGH YIELD FUND L.P.II
(a Delaware limited partnership)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
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 Depreciation (b) Acquired
Ponderosas - BHYF II $0 $ 3,907,384 $9,117,233 $0 $ 3,907,384 $ 9,117,233 $13,024,617 $2,030,512 9/88-11/89
Ponderosas - BHYV 0 1,810,770 4,225,129 0 1,810,770 4,225,129 6,035,899 993,066 9/88
Taco Bell 0 128,236 299,218 0 128,236 299,218 427,454 68,059 1/89
Scandinavian Health Spa-BFJV 0 1,657,861 3,868,342 0 1,657,861 3,868,342 5,526,203 819,799 7/89
Children's World Learning Center 0 771,140 1,799,327 0 771,140 1,799,327 2,570,467 333,684 1/90-9/90
Hardee's Restaurant 0 729,798 1,702,861 0 414,798 967,861 1,382,659 286,358 5/90-7/90
Avis Lubes 0 507,620 1,184,448 0 507,620 1,184,448 1,692,068 220,071 6/90-8/90
Blockbuster Video Store 0 354,644 827,501 0 354,644 827,501 1,182,145 151,121 9/90
Chi-Chi's Restaurant 0 1,408,671 2,150,981 0 1,408,671 2,150,981 3,559,652 454,803 3/91
$0 11,276,124 $25,175,040 $0 $10,961,124 $24,440,040 $35,401,164 $5,357,473
NOTES:
(a) The cost of this real estate is $36,451,166 for tax purposes (unaudited). The buildings are depreciated over approximately
35 years using the straight line method. The properties were constructed between 1969 and 1990.
(b) The following schedule summarizes the changes in the Partnership's real estate and accumulated depreciation balances:
Real estate 1996 1995 1994
Balance at beginning of year $35,951,164 $35,951,164 $36,727,348
Subtractions - land and buildings (d) (550,000) ---- (776,184)
Balance at end of year $35,401,164 $35,951,164 $35,951,164
Accumulated depreciation 1996 1995 1994
Balance at beginning of year $ 4,635,384 $ 3,913,295 $ 3,211,854
Subtractions - (e) ---- ---- (27,927)
Provision for depreciation 722,089 722,089 729,368
Balance at end of year $ 5,357,473 $ 4,635,384 $ 3,913,295
(c) Encumbrances - Brauvin High Yield Fund L.P. II 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) The 1994 amount reflects a provision for impairment on land of $150,000 and buildings of $350,000 related to the properties in
St. Johns and Albion, Michigan and the sale of the Schofield, Wisconsin Taco Bell, cost basis of which was $276,184. The 1996
amount reflects a provision for impairment on land of $165,000 and buildings of $385,000 related to the properties in St. Johns
and Albion, Michigan.
(e) Amount represents accumulated depreciation on the sold Schofield, Wisconsin Taco Bell as of 1/31/94.
EXHIBITS
TO
BRAUVIN HIGH YIELD FUND L.P. II
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1996
EXHIBIT INDEX
BRAUVIN HIGH YIELD FUND L.P. II
FORM 10-K
For the fiscal year ended December 31, 1996
Exhibit (10)(d) First Amendment and Waiver to Agreement and Plan of
Merger
Exhibit (21) Subsidiaries of the Registrant
Exhibit (27) Financial Data Schedule
EXHIBIT (10) (d)
FIRST AMENDMENT AND WAIVER
to
AGREEMENT AND PLAN OF MERGER
This Amendment and Waiver (the "Amendment") is made and entered
into as of March 24, 1997, by and among BRAUVIN HIGH YIELD FUND
L.P., a Delaware limited partnership ("Brauvin I"), BRAUVIN HIGH
YIELD FUND L.P. II, a Delaware limited partnership ("Brauvin II"),
BRAUVIN INCOME PLUS L.P. III, a Delaware limited partnership
("Brauvin III; and together with Brauvin I and Brauvin II, being
sometimes collectively referred to as the "Brauvin Partnerships")
and BRAUVIN REAL ESTATE FUNDS, L.L.C., a Delaware limited liability
company (the "Merger Company").
R E C I T A L S
WHEREAS, the Brauvin Partnerships and the Merger Company have
entered into an Agreement and Plan of Merger, dated as of June 14,
1996 (the "Merger Agreement");
WHEREAS, the assets being acquired by the Merger Company in
connection with the Transaction include all earnings of the Brauvin
Partnerships from and after August 1, 1996;
WHEREAS, unforeseen events have led to the delay in the
consummation of the Transaction contemplated by the Merger
Agreement;
WHEREAS, the Brauvin Partnerships have requested that certain
funds constituting earnings accrued after August 1, 1996 and
currently being held by the Brauvin Partnerships be released to the
limited partners of the Brauvin Partnerships;
WHEREAS, the Merger Company has agreed to allow for the release
of certain funds on the condition that the Brauvin Partnerships
agree to extend the Termination Date as set forth in the Merger
Agreement; and
WHEREAS, as a result of the foregoing, the Brauvin Partnerships
and the Merger Company desire to amend the Merger Agreement in
certain respects and to waive certain provisions thereof as set
forth below.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows, each
intending to be legally bound as and to the extent herein provided.
1. Definitions. Capitalized terms used but not otherwise
defined herein are used herein as defined in the Merger Agreement.
Each reference in the Merger Agreement to "Merger Agreement," "this
Agreement" or words of like import, shall, unless the context
otherwise requires, be deemed to refer to the Merger Agreement as
amended hereby.
2. Amendments.
(a) Section 2.1.2 of the Merger Agreement is hereby deleted
and restated in its entirety as follows:
"General Partner Interest. The general partner interests
held by: Brauvin Realty Advisors, Inc., Jerome J. Brault and
David M. Strosberg (the "Brauvin I GPs") in Brauvin I; Brauvin
Realty Advisors II, Inc., Jerome J. Brault and David M.
Strosberg (the "Brauvin II GPs") in Brauvin II; and Brauvin
Realty Advisors III, Inc. and Jerome J. Brault (the "Brauvin
III GPs" and together with the Brauvin I GPs and the Brauvin II
GPs, the "Brauvin GPs") in Brauvin III shall all be cancelled
and extinguished and no consideration shall be paid therefor."
(b) The definition of "Brauvin I Unit Value" as set forth in
Section 9.2 of the Merger Agreement is hereby deleted and restated
in its entirety as follows:
"'Brauvin I Unit Value' means an amount which is equal to
the quotient obtained by dividing (i) the difference between
(A) the sum of (1) the fair market value of substantially all
of Brauvin I's real estate related assets, including the value
of Brauvin I's interest, if any, in joint ventures owning real
estate (as determined by Cushman & Wakefield or other
independent appraiser), and (2) Brauvin I's Available Cash and
(B) the sum of (1) the costs of the Transaction to Brauvin I to
the extent not otherwise deducted in computing Available Cash
and not previously paid, (2) other liabilities of Brauvin I not
otherwise deducted in computing Available Cash and not
otherwise included in costs of the Transaction and (3) the
earnings of Brauvin I from August 1, 1996 through December 31,
1996 by (ii) the number of Brauvin I Units."
(c) The definition of "Brauvin II Unit Value" as set forth in
Section 9.2 of the Merger Agreement is hereby deleted and restated
in its entirety as follows:
"'Brauvin II Unit Value' means an amount which is equal
to the quotient obtained by dividing (i) the difference between
(A) the sum of (1) the fair market value of substantially all
of Brauvin II's real estate related assets, including the value
of Brauvin II's interest, if any, in joint ventures owning real
estate (as determined by Cushman & Wakefield or other
independent appraiser), and (2) Brauvin II's Available Cash and
(B) the sum of (1) the costs of the Transaction to Brauvin II
to the extent not otherwise deducted in computing Available
Cash and not previously paid, (2) other liabilities of Brauvin
II not otherwise deducted in computing Available Cash and not
otherwise included in costs of the Transaction and (3) the
earnings of Brauvin II from August 1, 1996 through December 31,
1996 by (ii) the number of Brauvin II Units."
(d) The definition of "Brauvin III Unit Value" as set forth
in Section 9.2 of the Merger Agreement is hereby deleted and
restated in its entirety as follows:
"'Brauvin III Unit Value' means an amount which is equal
to the quotient obtained by dividing (i) the difference between
(A) the sum of (1) the fair market value of substantially all
of Brauvin III's real estate related assets, including the
value of Brauvin III's interest, if any, in joint ventures
owning real estate (as determined by Cushman & Wakefield or
other independent appraiser), and (2) Brauvin III's Available
Cash and (B) the sum of (1) the costs of the Transaction to
Brauvin III to the extent not otherwise deducted in computing
Available Cash and not previously paid, (2) other liabilities
of Brauvin III not otherwise deducted in computing Available
Cash and not otherwise included in costs of the Transaction and
(3) the earnings of Brauvin III from August 1, 1996 through
December 31, 1996 by (ii) the number of Brauvin III Units."
(e) The definition of "Termination Date" as set forth in
Section 9.2 of the Merger Agreement is hereby deleted and restated
in its entirety as follows:
"'Termination Date' means June 30, 1997."
3. Waiver.
(a) In connection with the amendments set forth in Sections
2(b), (c) and (d) above, the Merger Company waives compliance with
Section 7.3.10 of the Merger Agreement to allow the Brauvin
Partnerships to make distributions of earnings with respect to
Units, for earnings received from and after January 1, 1997 through
the Effective Time.
(b) The Merger Company acknowledges that it has been fully
informed of certain actions, suits and proceedings that have been
commenced against the Brauvin Partnerships and certain of their
Affiliates seeking to restrain in certain material respects the
Transaction and seeking material damages in connection therewith.
The absence of such actions, suits and proceedings is a condition
precedent to the obligations of the Merger Company as set forth in
Section 7.3.5 of the Merger Agreement. The Merger Company hereby
waives compliance with Section 7.3.5 of the Merger Agreement with
respect to such actions, suits and proceedings that have been
brought as of the date hereof.
No other waiver of any other filings or other term or condition of
the Merger Agreement, express or implied, should be inferred from
the foregoing waivers.
4. Construction. The Article and Section headings of this
Amendment are for convenience of reference only and do not form a
part hereof and do not in any way modify, interpret or construe the
intentions of the parties.
5. Effectiveness. The effectiveness of this Amendment is
subject to receipt by the parties hereto of counterparts of this
Amendment executed by each party (whether on the same or different
counterparts).
6. Binding Amendment. This Amendment shall be binding upon
and inure to the benefit of the parties and their respective
successors and permitted assigns.
7. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS, AND NOT THE LAW OF
CONFLICTS, OF THE STATE OF ILLINOIS.
8. Counterparts. This Amendment may be executed in one or
more counterparts, and all such counterparts shall constitute one
and the same instrument.
[Signatures on following pages.]
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the day and year first above written.
Brauvin Partnerships:
BRAUVIN HIGH YIELD FUND L.P.,
a Delaware limited partnership
By: Brauvin Realty Advisors, Inc.,
an Illinois corporation
Its: Corporate General Partner
By: /s/ Jerome J. Brault
Its: President
BRAUVIN HIGH YIELD FUND L.P. II,
a Delaware limited partnership
By: Brauvin Realty Advisors II, Inc.,
an Illinois corporation
Its: Corporate General Partner
By: /s/ Jerome J. Brault
Its: President
BRAUVIN INCOME PLUS L.P. III,
a Delaware limited partnership
By: Brauvin Realty Advisors III, Inc.,
an Illinois corporation
Its: Corporate General Partner
By: /s/ Jerome J. Brault
Its: President
Merger Company:
BRAUVIN REAL ESTATE FUNDS, L.L.C.,
a Delaware limited liability company
By: Brauvin Realty Estate Funds, Inc.,
an Illinois corporation
Its: Manager
By: /s/James L. Brault
Its: President
Exhibit 21
Name of Subsidiary State of Formation
Brauvin High Yield Venture Illinois
Brauvin Funds Joint Venture Illinois
Brauvin Bay County Venture Illinois