SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.11(c) or Section
240.14a-12
BANYAN STRATEGIC REALTY TRUST
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
1) Title of each class of securities to which transaction
applies:
Shares of Beneficial Interest
2) Aggregate number of securities to which transaction
applies:
10,478,971
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of its
filing.
1) Amount Previously Paid:
...........................................
2) Form, Schedule or Registration Statement No.:
...........................................
3) Filing Party:
...........................................
4) Date Filed:
...........................................
<PAGE>
FORM OF PROXY
BANYAN STRATEGIC REALTY TRUST
150 SOUTH WACKER DRIVE
SUITE 2900
CHICAGO, ILLINOIS 60606
This Proxy is solicited on behalf of the Board of Trustees
The undersigned hereby appoints Leonard G. Levine and Robert G.
Higgins, and each of them, as Proxies, with the power to appoint their
substitutes, and hereby authorizes them to represent and to vote, as
designated below, all the Shares of Beneficial Interest of Banyan Strategic
Realty Trust (the "Trust") held of record by the undersigned on May 9,
1997, at the Annual Meeting of Shareholders when convened on July 8,
1997, or any adjournment thereof.
Continued on the reverse side.
<PAGE>
This proxy, when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy
will be voted FOR Proposals 1, 2, 3, 4 and 5.
1. PROPOSAL to elect three Class A Trustees to hold office until the
next Annual Meeting of Shareholders, or otherwise as provided in the
Trust's Amended and Restated Declaration of Trust. (check one box):
FOR AGAINST
WALTER E. AUCH, SR. [ ] [ ]
NORMAN M. GOLD [ ] [ ]
MARVIN A. SOTOLOFF [ ] [ ]
For: except vote withheld from the following nominee(s):
___________________________________________________
2. PROPOSAL to concur in the selection of Ernst & Young LLP as the
Trust's independent auditor for the fiscal year ending December 31, 1997.
(check one box):
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. PROPOSAL to authorize the issuance of shares of the Trust's
beneficial interest to Leonard G. Levine, President of the Trust, pursuant
to the terms of an agreement between the Trust and Mr. Levine. (check one
box):
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. PROPOSAL to Amend Section 3.3 of the Trust's Amended and Restated
Declaration of Trust to Increase the Compensation and other Remuneration
payable to the Class A Trustees. (check one box):
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. PROPOSAL to adopt the Banyan Strategic Realty Trust 1997 Omnibus
Stock and Incentive Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
6. In their discretion, the Proxies are authorized to transact any other
business as may properly come before the Meeting, or any adjournment
thereof.
<PAGE>
DATED:_________________________, 1997
_____________________________________
Signature
_____________________________________
Signature if held jointly
Sign exactly as name appears at left. If joint tenant,
both should sign. If attorney, executor, administrator, trustee or
guardian, give full title as such. If a corporation, please sign corporate
name by President or authorized officer. If partnership, sign in full
partnership name by authorized person.
Please promptly mark, date, sign and return this card using the enclosed
envelope.
<PAGE>
BANYAN STRATEGIC REALTY TRUST
150 South Wacker Drive, Suite 2900
Chicago, Illinois 60606
312-683-3671
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of Banyan Strategic Realty Trust:
Notice is hereby given that the annual meeting of shareholders (the
"Meeting" or the "Annual Meeting") of Banyan Strategic Realty Trust, a
Massachusetts business trust (the "Trust" or the "Fund"), will be convened
at The Metropolitan Club, 233 S. Wacker Drive, Chicago, Illinois, on
July 8, 1997, at 10:00 a.m. Central Time (the "Meeting
Date"). All shareholders of the Trust are entitled to attend the Meeting.
The Annual Meeting of Shareholders will be held for the following purposes:
(1) To elect three Class A trustees to hold office until the next
Annual Meeting of Shareholders or otherwise as provided in the Trust's
Amended and Restated Declaration of Trust (the "Declaration");
(2) To concur in the selection of Ernst & Young LLP as the Trust's
independent auditor for the fiscal year ending December 31, 1997;
(3) To authorize the issuance of shares of the Trust's beneficial
interest to Leonard G. Levine, President of the Trust, pursuant to the
terms of an agreement between the Trust and Mr. Levine.
(4) To amend Section 3.3 of the Trust's Amended and Restated
Declaration of Trust to Increase Compensation and other Remuneration
payable to the Class A Trustees.
(5) To adopt the Banyan Strategic Realty Trust 1997 Omnibus Stock
and Incentive Plan
Only shareholders of record at the close of business on May 9, 1997
are entitled to receive notice of and to vote at the Meeting or any
adjournment thereof (the "Eligible Holders"). A complete list of Eligible
Holders will be available for inspection at the Trust's offices for at
least 10 days prior to the Meeting.
A proxy statement and form of proxy are enclosed. Whether or not you
expect to attend the Annual Meeting, it is important that you promptly fill
in, sign, date and mail the proxy in the enclosed envelope so that your
shares may be voted for you.
By order of the Board of Trustees:
Robert G. Higgins
Secretary
The Trust's 1996 Annual Report and Form 10-K as filed
with the Securities and Exchange Commission is enclosed with this notice.
<PAGE>
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS OF
BANYAN STRATEGIC REALTY TRUST
JULY 8, 1997
This proxy statement is furnished to the holders of shares ("the
Shareholders") of beneficial interest, no par value (the "Shares"), of
Banyan Strategic Realty Trust, a Massachusetts business trust (the "Trust"
or the "Fund"), in connection with the solicitation of proxies by the
Trust's board of trustees (the "Trustees" or the "Board") for use at the
annual meeting of Shareholders. The Trust's annual meeting of Shareholders
for the fiscal year ended December 31, 1996 will be convened on July 8,
1997, at approximately 10:00 a.m. Central Time, and any
adjournment thereof (the "Annual Meeting" or the "Meeting"). Copies of
this Proxy Statement, the attached notice, and the enclosed form of proxy
were first sent or given to Shareholders on or about June 10, 1997 .
Shareholders who wish to attend the Annual Meeting should contact the Trust
at 312-683-3671 so that arrangements can be made.
The Trust will bear all costs in connection with the solicitation of
proxies, including the cost of preparing, printing and mailing this Proxy
Statement. In addition to the use of the mails, proxies may be solicited
by the Trustees, the Trust's officers or by employees of Banyan Management
Corp., which provides administrative services to the Trust. None of these
individuals will be compensated for proxy solicitation services, but they
may be reimbursed for out-of-pocket expenses in connection with the
solicitation. For further information regarding Banyan Management Corp.,
see "Certain Relationships and Related Transactions." Arrangements will
also be made with brokerage houses, banks and other custodians, nominees
and fiduciaries for the forwarding of solicitation material to the
beneficial owners of the Shares held of record by those persons, and the
Trust may reimburse these custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses incurred in connection therewith.
Further, the Trust has retained the services of ChaseMellon Shareholder
Services to assist in the solicitation of proxies for the Annual Meeting at
a fee payable by the Trust of $7,500 plus out-of-pocket expenses.
Shares represented by properly executed proxies in the accompanying
form received by the Board prior to the Annual Meeting will be voted at the
Annual Meeting. Shares not represented by properly executed proxies will
not be voted. If a Shareholder specifies a choice with respect to any
matter to be acted upon, the Shares represented by that proxy will be voted
as specified. If the Shareholder does not specify a choice, in an
otherwise properly executed proxy, with respect to any proposal referred to
therein, the Shares represented by that proxy will be voted with respect to
that proposal in accordance with the recommendations of the Board described
herein and in accordance with the judgment of the persons acting under
proxies on other matters presented for a vote. A Shareholder who signs and
returns a proxy in the accompanying form may revoke it by: (i) giving
written notice of revocation to the Trust before the proxy is voted at the
Annual Meeting; (ii) executing and delivering a later-dated proxy prior to
or at the Annual Meeting; or (iii) attending the Annual Meeting and voting
the Shares in person.
The close of business on May 9, 1996 has been fixed as the date for
determining those Shareholders entitled to notice of and to vote at the
Annual Meeting (the "Record Date"). On the Record Date, the Trust had
10,478,971 shares outstanding, each of which entitles the holder thereof to
one vote at the Annual Meeting. Only Shareholders of record as of the
Record Date will be entitled to vote at the Annual Meeting. The presence
of a majority of the outstanding shares of beneficial interest, represented
in person or by proxy at the Annual Meeting, will constitute a quorum. The
three nominees receiving the highest vote totals will be elected as
Trustees of the Trust. Accordingly, abstentions and broker non-votes will
not affect the outcome of the election. All other matters to be
<PAGE>
voted on, except proposal number four, will be decided by the affirmative
vote of a majority of the Shares present or represented at the meeting and
entitled to vote. On any such matter, an abstention will have the same
effect as a negative vote but, because Shares held by brokers will not be
considered entitled to vote on matters as to which the brokers withhold
authority, a broker non-vote will have no effect on the vote. With respect
to proposal number four, the affirmative vote of the holders of a majority
of the outstanding shares is required. Accordingly, abstentions and broker
non-votes will have the effect of a negative vote.
The mailing address of the principal executive offices of the Trust is
150 South Wacker Drive, Suite 2900, Chicago, Illinois 60606.
<PAGE>
<TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following persons or entities are the only persons or entities known to the Trust to be the beneficial
owners of more than five percent (5%) of the outstanding shares as of May 10, 1997:
<CAPTION>
Name and Address of Amount of Beneficial
Title of Class Beneficial Owner Ownership Percent of Class
- -------------------- ------------------- -------------------- -----------------
<S> <C> <C> <C>
Shares of Beneficial Fidelity Management 1,110,550 10.6%
Interest and Research Corp.
82 Devonshire Street
Boston, MA 02109
Shares of Beneficial Magten Asset 1,762,105 16.8%
Interest Management Corp.
350 East 21st Street
New York, NY 10010
</TABLE>
<PAGE>
The following table sets forth the number of Shares owned by all
Trustees and Officers owning Shares, and all Trustees and Officers as a
group as of May 10, 1997:
Name of Amount & Nature of Percent of
Beneficial Owner Beneficial Ownership Class
- ---------------- -------------------- ----------
Leonard G. Levine, 16,869 shares Less than 1%
President
Neil D. Hansen, 10,373 shares Less than 1%
First Vice President
Jay E. Schmidt, 2,000 shares Less than 1%
Vice President
Joel L. Teglia, 1,000 shares Less than 1%
Chief Financial Officer
All Trustees and Officers 27,242 shares Less than 1%
of the Trust, as a group
(eight persons)
The Trust is not aware of any arrangements, the operation of which
may, at a subsequent date, result in a change of control of the Trust.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Trust's officers and trustees, and persons who own more than
ten percent of a registered class of the Trust's equity securities, to file
initial statements of beneficial ownership (Form 3), and statements of
changes in beneficial ownership (Forms 4 or 5), of beneficial interest and
other equity securities of the Trust with the Securities and Exchange
Commission (the "SEC") and the National Association of Securities Dealers,
Inc. (the "NASD"). The SEC requires officers, trustees and greater than
ten percent shareholders to furnish the Trust with copies of all these
forms filed with the SEC or the NASD.
To the Trust's knowledge, based solely on its review of the copies of
these forms received by it, or written representations from certain
reporting persons that no additional forms were required for those persons,
the Trust believes that all filing requirements applicable to its
officers, trustees, and greater than ten percent beneficial owners were
complied with during 1996.
<PAGE>
MATTERS TO BE CONSIDERED BY SHAREHOLDERS
1. Election of Trustees
Three individuals will be elected at the Annual Meeting to serve as
Class A Trustees of the Trust until the next annual meeting of Shareholders
or otherwise as provided in the Amended and Restated Declaration of Trust
(the "Declaration"). Unless instructions to the contrary are given, the
persons named as proxy voters in the accompanying proxy, or their
substitutes, will vote for the following nominees for Class A Trustees with
respect to all proxies received by the Trust. If any nominee should become
unavailable for any reason, the votes will be cast for a substitute nominee
designated by the Board. The Trustees have no reason to believe that the
nominees named will be unable to serve if elected.
The nominees for Class A Trustee are as follows:
Principal Occupation(s) Trustee
Name Age During Past Five Years Since
- ---- --- ----------------------------------- -------
Walter E. Auch, Sr. 75 Prior to retiring, Mr. Auch was 1986
the Chairman and Chief Executive
Officer of the Chicago Board of
Options Exchange. Prior to that
time, Mr. Auch was Executive
Vice President, Director and
a member of the executive committee
of PaineWebber. Mr. Auch is a
Director of Pimco Advisors L.P.,
Geotek Communications, Inc.,
Smith Barney Concert Series Funds,
Smith Barney Trak Fund, The Crimson
Partners Funds and Nicholas
Applegate Funds. He is a Trustee
of Hillsdale College and the
Arizona Heart Institute. Mr. Auch
is also a Director of Banyan
Strategic Land Fund II, Banyan
Management Corp. and Legend
Properties, Inc. (f/k/a Banyan
Mortgage Investment Fund).
Norman M. Gold 66 Senior Partner in the law firm of 1986
Altheimer & Gray; Mr. Gold has
practiced law for over forty years,
specializing in tax, corporate and
real estate law. Mr. Gold is a
Trustee of New Plan Realty Trust and
a Director of Banyan Management Corp.
He is a Certified Public Accountant
and member of the Chicago and
American Bar Associations.
Marvin A. Sotoloff 53 Partner of The Palmer Group Ltd., 1986
a company involved in real estate
brokerage, development and property
management, concentrating on commercial
real estate. Prior to joining
The Palmer Group Ltd., Mr. Sotoloff
was regional vice president of
Premisys Real Estate Services Inc.,
a subsidiary of the Prudential Realty
Group. A licensed real estate broker,
Mr. Sotoloff is a past president of
<PAGE>
Principal Occupation(s) Trustee
Name Age During Past Five Years Since
- ---- --- ----------------------------------- -------
the Chicago Office Leasing Brokers
Association and is a Director of
Banyan Management Corp. He is also
an attorney and a member of the
Illinois and Pennsylvania Bar
Associations.
The Board is required to meet at least four times per year, either in
person or by telephonic conference. The Board met six times in 1996,
including one time as the Audit Committee. The Trustees did not establish
any nominating, compensation or other committees or other groups performing
similar functions during 1996, other than the Audit Committee which is
comprised of all of the Trustees.
RECOMMENDATION OF THE BOARD: The Board hereby recommends and
nominates Messrs. Auch, Gold and Sotoloff for election as Class A Trustees
of the Trust by the Shareholders at the Annual Meeting to serve until the
next annual meeting of Shareholders or as otherwise provided in the
Declaration.
The three nominees receiving the highest vote totals will be elected
as Trustees of the Trust.
2. SELECTION OF INDEPENDENT AUDITOR
The Trust's financial statements, including those for the fiscal year
ended December 31, 1996, are included in the Annual Report furnished to all
Shareholders. The year-end statements have been audited by the independent
firm of Ernst & Young LLP which has served as the Fund's independent
auditor since the fiscal year ended December 31, 1989. The Board believes
that Ernst & Young LLP is knowledgeable about the Trust's operations and
accounting practices and is well qualified to act in the capacity of
independent auditor. Therefore, the Board has selected Ernst & Young LLP
as the Trust's independent auditor to examine its financial statements for
the fiscal year ended December 31, 1997. Although the selection of an
auditor does not require a Shareholder vote, the Board believes it is
desirable to obtain the concurrence of the Shareholders to this selection.
Due to the difficulty and expense involved in retaining another independent
firm on short notice, the Board does not contemplate appointing another
firm to act as the Trust's independent auditor for fiscal year 1997 if the
Shareholders do not concur in the appointment of Ernst & Young LLP.
Instead, the Board will consider the vote as advice in making their selec-
tion of an independent auditor for the following year.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting and will have the opportunity to make a statement if they so
desire and will be available to respond to appropriate questions.
RECOMMENDATION OF THE BOARD: That the Shareholders concur in the
following resolution which will be presented for a vote of the Shareholders
at the Annual Meeting:
RESOLVED, that the Shareholders concur in the appointment by the Board
of Ernst & Young LLP to serve as the Trust's independent auditor for the
fiscal year ended December 31, 1997.
The affirmative vote of a majority of the votes cast by Shareholders
present in person or by proxy and eligible to vote at the Annual Meeting, a
quorum being present, is required to adopt the foregoing resolution.
<PAGE>
3. PROPOSAL TO AUTHORIZE THE ISSUANCE OF SHARES OF THE
TRUST'S BENEFICIAL INTEREST TO LEONARD G. LEVINE, PRESIDENT
OF THE TRUST, PURSUANT TO THE TERMS OF AN AGREEMENT BETWEEN
THE TRUST AND MR. LEVINE.
Mr. Levine serves as the President and Chief Executive Officer of the
Trust pursuant to an employment agreement entered into January 1, 1990 and
subsequently amended on December 31, 1992 (the "Employment Agreement").
Pursuant to the terms of this agreement, all incentive compensation earned
by Mr. Levine in connection with reinvestment activities as described in
the Employment Agreement subsequent to January 1, 1993 is paid 80% in cash
and 20% in shares of the Trust's beneficial interest on or before March 15
of the year following the period for which the incentive is earned. See
"Compensation of Trustees and Executive Officers-Executive Compensation"
for a detailed explanation of amounts paid or payable to Mr. Levine under
the Employment Agreement. In addition, under the terms of the Employment
Agreement, as soon as practicable after December 31, 1997, or, if earlier,
upon termination of Mr. Levine's employment, the amount of incentive
compensation payable to Mr. Levine is recalculated on a cumulative basis
covering the period January 1, 1993 through December 31, 1997 giving effect
to all unrealized profits and gains generated in connection with the
reinvestment activities which are excluded for purposes of the annual
calculation. If the total cumulative incentive compensation as recomputed
exceeds the aggregate compensation previously paid to Mr. Levine, the Trust
is obligated to pay Mr. Levine the excess in cash no later than March 15,
1998. If the recomputed incentive compensation is less than what has
previously been paid to Mr. Levine, then Mr. Levine is required to return
all or some portion of the shares previously awarded to him. The purpose
of providing a portion of Mr. Levine's incentive compensation in the form
of shares is to further align Mr. Levine's interests with those of the
Shareholders.
Mr. Levine and the Trust have recently agreed to further amend the
Employment Agreement. Under the terms of this second amendment, and
subject to approval of the Trust's Shareholders, all of the incentive
compensation payable to Mr. Levine under the Employment Agreement for the
fiscal years ended December 31, 1996 and 1997, as well as any amounts
payable resulting from the cumulative recalculation described above would
be paid in shares of the Trust's beneficial interest rather than 80% in
cash for the annual awards and 100% in cash for the cumulative adjustment.
As required by the rules promulgated by the Nasdaq National Market, since
the number of shares issuable to Mr. Levine under this amendment may exceed
25,000, the Board is seeking approval of the Trust's Shareholders. A copy
of the second amendment to the Employment Agreement is included herewith as
Annex A.
If the Shareholders do not approve the additional issuance of shares
to Mr. Levine, then he will continue to receive incentive compensation
payable in accordance with the existing terms of the Employment Agreement
described above. The issuance of shares to Mr. Levine in respect of 20% of
his incentive compensation was authorized and ratified by the Trust's
shareholders on June 27, 1995.
RECOMMENDATION OF THE BOARD
The Board believes the issuance of the additional shares to Mr. Levine
as contemplated by the second amendment to the Employment Agreement serves
to further align Mr. Levine's interest with those of the Shareholders and
recommends that the Shareholders concur in the following resolution which
will be presented for a vote of Shareholders at the Annual Meeting:
RESOLVED, that the Trust be and hereby is authorized to make
future issuances of shares of the Trust's shares of beneficial interest to
Mr. Levine consistent with the terms of the Employment Agreement and the
second amendment to the Employment Agreement.
<PAGE>
The affirmative vote of a majority of the votes cast by Shareholders
present in person or by proxy and eligible to vote at the Annual Meeting,
assuming a quorum being present, is required to adopt the foregoing
resolution.
4. PROPOSAL TO AMEND SECTION 3.3 OF THE TRUST'S AMENDED AND
RESTATED DECLARATION OF TRUST TO INCREASE THE COMPENSATION
AND OTHER REMUNERATION PAYABLE TO THE CLASS A TRUSTEES.
Under the provisions of the Trust's Amended and Restated Declaration
of Trust, the Class A Trustees (currently Messrs. Auch, Gold and Sotoloff)
are entitled to receive $15,000 per year for their services as Trustees.
Previously, the Shareholders authorized payment of meeting fees to the
Trustees of $875 for each meeting attended in person and $250 an hour for
each telephonic board meeting. In light of the time and responsibility
involved in serving as a Trustee and giving consideration to the fact that
Trustee's compensation has not otherwise been increased since June 19,
1991, the Trust is hereby proposing to increase the amount of fees payable
to the Trustees annually from $15,000 to $20,000 and the per meeting fees
from $875 to $1,000 for each meeting attended in person and from $250 an
hour to $500 for each meeting attended via telephonic conference call. A
copy of the proposed amendment to the Declaration is attached as Annex B.
RECOMMENDATION OF THE BOARD
The Board of Trustees recommends that the Shareholders adopt the
following resolution:
RESOLVED, that the first sentence of Section 3.3 of the Trust's
Amended and Restated Declaration of Trust be and hereby is deleted in its
entirety and replaced with the following:
The Class A Trustees shall be entitled to receive $20,000
per year for their services as Trustees plus $1,000 for each meeting of the
Board attended in person and $500 for each meeting of the Board attended
via telephonic conference call.
The affirmative vote of the holders of a majority of the outstanding
shares is required to adopt the foregoing resolution.
5. PROPOSAL TO ADOPT THE BANYAN STRATEGIC REALTY TRUST 1997
OMNIBUS STOCK AND INCENTIVE PLAN
On May 14, 1997, the Board of Trustees adopted, subject to shareholder
approval, the 1997 Omnibus Stock and Incentive Plan (the "Plan") to allow
the Trust to make stock-based awards as part of the Company's compensation.
A total of 1.0 million shares of the Trust's shares of beneficial interest
is issuable under the Plan. Subject to shareholder approval of the Plan,
the Board intends to award options to purchase a total of 41,000 shares to
various executives and employees of the Trust, exclusive of the Trust's
president, Leonard G. Levine, who receives performance based compensation
pursuant to his Employment Agreement. The Plan provides for incentive
stock options, non-statutory stock options, stock appreciation rights,
performance shares and units. The Board believes that the Plan will
successfully advance the Trust's long-term financial success by permitting
it to attract and retain outstanding executive talent and motivate superior
performance by encouraging and providing a means for participants to obtain
an ownership interest in the Trust. The affirmative vote of the holders of
a majority of the shares of beneficial interest present, in person or by
proxy, is necessary for approval of the Plan. The complete text of the
Plan is set forth in Annex C hereto and should be read in its entirety by
Shareholders.
<PAGE>
ADMINISTRATION AND ELIGIBILITY
The Plan will be administered by the Board of Trustees or a committee
thereof, each of whom will be a "disinterested person" within the meaning
of Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act") or any similar rule which may subsequently be in effect
("Rule 16b-3") and each of whom is an "outside director" within the meaning
of Internal Revenue Code Section 162(m)(4)(c)(i) and the regulations
promulgated thereunder. The Plan requires the Company to fully indemnify
the Trustees or the committee against losses, costs, expenses and
liabilities arising from actions taken or failure to act under the Plan.
The Board is authorized to grant awards under the Plan to those employees
(including executive officers) and trustees of the Trust and its
subsidiaries as the Board selects, in its discretion. The Board may
delegate any of its authority under the Plan to persons it deems
appropriate (such as officers of the Trust) to the extent that delegation
would not prevent the Plan from complying with Rule 16b-3 or Internal
Revenue Code Section 162(m)(4)(c)(i).
OPTIONS AND APPRECIATION RIGHTS
The Plan authorizes the Board to grant options to employees or
trustees in number and on terms determined by the Board; provided, however,
that each person serving as a Class A Trustee on the tenth business day
after final adjournment of the Trust's annual meeting convened on July
8, 1997 will receive options to acquire 2,000 Shares, and provided
further that each person serving as a Class A Trustee ten business days
after the final adjournment of each succeeding annual meeting will be
granted options to purchase 2,000 Shares.
Each grant of an option must be evidenced by an agreement between the
parties specifying the exercise price, the duration of the option, the
number of Shares to which the option pertains and such other provisions as
the Board determines. This agreement will also specify whether the option
is intended to be an incentive stock option within the meaning of Internal
Revenue Code Section 422, or alternatively, a non-qualified stock option
not covered by this section of the Code. Subject to additional
limitations, the exercise price for each grant of an option under the Plan
may not be less than one hundred percent (100%) of the fair market value of
a Share on the date of grant provided that with respect to an incentive
stock option, the fair market value may not exceed the maximum limitation
under Section 422 in the first year that the option may be exercised;
provided that the incentive options exceeding the limitation will be
treated as non-qualified stock options. Options granted under the Plan
will be exercisable at such times and subject to such restrictions and
conditions as determined by the Board. These terms and conditions need not
be the same for each grant or for each participant. Each option granted to
an employee will expire at the time determined by the Board at the time of
grant; provided, however, that, subject to additional limitations in
certain cases, no option may be exercised later than the tenth (10th)
anniversary date of its grant. The Plan permits optionees, with certain
exceptions, to pay the exercise price of options in cash or Shares (valued
at fair market value on the date of exercise) or a combination thereof.
The Plan also authorizes the Board to grant appreciation rights to
employee participants (including executive officers). An appreciation
right entitles the grantee to receive upon exercise an amount determined by
multiplying (a) the difference between the fair market value of a Share on
the date of exercise over the grant price; or (b) the number of Shares
covered by the appreciation right. At the Board's discretion the Trust may
pay amounts due to the holder in the form of Shares (valued at its fair
market value on the date of exercise), cash or a combination thereof.
The Board may grant freestanding or tandem appreciation rights or any
combination of these forms. The grant price of a freestanding right will
be equal to the fair market value of a Share on the date of grant. The
grant price of tandem rights will be equal to the exercise price of the
related option. Tandem rights may be exercised for all or part of the
Shares subject to the related options upon the surrender of the right to
exercise the equivalent portion of the related option. A tandem right may
be exercised only with respect to the Shares for which its related option
is then exercisable. Each grant of an appreciation right will be evidenced
by an agreement specifying the grant price, the term of the right, and such
other provisions as the Board determines. The term of an appreciation
right granted under the Plan may not exceed ten (10) years.
PERFORMANCE AWARDS
The Plan authorizes the Board to grant performance awards to employee
participants in the form of either grants of performance shares/units (each
performance share representing one Share) or performance units representing
an amount established by the Board at the time of the award (which amount
may, without limitation, be equal to the fair market value of one Share).
The Board will set performance goals which will determine the number and/or
value of the performance shares or units paid to a participant.
When earned, performance awards will be paid in a single lump sum
following the close of the performance period in Shares, cash or a
combination thereof. At the Board's discretion, recipients of performance
awards may receive any dividends declared with respect to shares earned in
connection with performance shares/units and may also be granted the right
to exercise voting rights with respect to those Shares.
RESTRICTED STOCK OR RESTRICTED STOCK EQUIVALENTS
The Plan authorizes the Board to grant restricted stock to employee
participants in amounts and subject to the restrictions determined by the
Board. Stock certificates evidencing restricted Shares will be held by the
Trust and restricted Shares may not be sold, transferred, pledged, assigned
or otherwise alienated or hypothecated during the restricted period.
During the restricted period, the Board will retain custody of any
distributions (other than regular cash dividends) made or declared with
respect to restricted Shares. Other than these restrictions on transfer,
the participant will have all the rights of a holder of such Shares of
restricted stock.
VESTING AND CANCELLATION PROVISIONS
Except for stock options awarded to Class A Trustees, Awards granted
under the Plan will vest and be exercisable in installments as follows:
(i) to the extent of 33.3% of the number of Shares commencing on the first
anniversary of the date of grant; (ii) to the extent of an additional 33.3%
of Shares commencing on the second anniversary of the date of grant; and
(iii) to the extent of an additional 33.4% of Shares commencing on the
third anniversary of the date of grant; provided that the Board may
accelerate vesting in the event of a Participant's death, permanent
disability or retirement in accordance with the Trust's retirement policy
or where the Board determines that acceleration is in the Company's best
interest provided further that no Award will vest if, to do so, would
create a situation in which the exercise of the Award would result in an
"excess parachute payment" within the meaning of Section 280G of the Code.
Stock options granted to the Class A Trustees will vest and be exercisable
in installments as follows: (i) to the extent of 50.0% of the number of
Shares commencing on the first anniversary of the date of grant; and (ii)
to the extent of 50.0% of the number of Shares commencing on the second
anniversary of the date of grant. If the participant does not, in any
given period, purchase all of the Shares subject to the award, the
participant's right to purchase any Shares not purchased in the period will
continue until the expiration or sooner termination of the award, except to
the extent provided otherwise in the Plan. Except as otherwise provided
herein or in the Plan, as a condition to the grant of any award to any
employee, the participant must remain in the continuous employ of the
Company or its subsidiaries for the period of time specified by the Board
in the Plan.
<PAGE>
Except as otherwise provided, awards granted to employees are
exercisable only prior to "termination of employment." A participant will
be considered to incur a "termination of employment" on the latest date on
which the participant no longer is, for whatever reason, an officer or
employee of the Trust or its subsidiaries ("Termination of Employment").
If a participant incurs a Termination of Employment due to death or
permanent and total disability or retirement, all awards granted under the
Plan and outstanding on the date of the Termination of Employment will be
exercisable to the extent provided in the participant's Plan Agreement.
Stock options granted to a Class A Trustee are exercisable only so long as
the individual continues to hold office; provided, however, that if the
individual ceases to hold office due to death, permanent and total
disability or expiration of the individual's term of office after the
individual attains his 75th birthday, all awards granted under the Plan
will be exercisable in accordance with the individual's Plan Agreement.
PLAN AGREEMENTS
Each award granted under the Plan will be evidenced by a written Plan
Agreement specifying, among other things, the period for which the award is
granted, the number of Shares covered by the award, the exercise price and
the exercise schedule. The grant and exercise of awards under the Plan are
subject to all applicable federal, state and local laws, rules and
regulations and, if required, any approvals by any government or regulatory
agency.
TERMS OF THE PLAN; AMENDMENT AND ADJUSTMENT
No awards may be granted under the Plan after July 9, 2007 .
The Plan may be terminated by the Board at any time with respect to options
and appreciation rights which have not been granted. In addition, the
Board may amend the Plan from time to time, without the authorization or
approval of the Shareholders, but no amendment may impair the rights of the
holder of any award without such holder's consent. Any such amendment
could increase the cost of the Plan to the Trust.
The Plan provides that in the event of a stock dividend or stock
split, or a combination or other increase or reduction in the number of
issued Shares, the Board may, in order to prevent dilution or enlargement
of rights under awards make such adjustments in the number and type of
Shares authorized by the Plan and covered by outstanding awards under the
Plan and the price thereof. The Board may provide in any award agreement
that, in the event of a merger, consolidation, reorganization, sale or
exchange of substantially all of the assets or termination or dissolution
of the Trust, any of which could involve a change in control of the Trust,
the rights under outstanding awards may be accelerated or adjustments may
be made in order to prevent the dilution or enlargement of rights
thereunder.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended only as a brief summary of the
federal income tax rules relevant to stock options, appreciation rights,
performance awards, restricted stock and supplemental cash payments. These
rules are highly technical and subject to change. The following discussion
is limited to the federal income tax rules relevant to the Trust and to
individuals who are citizens or residents of the United States. The
discussion does not address the state, local or foreign income tax rules
relevant to stock options, appreciation rights, performance awards,
restricted stock and supplemental cash payments. Employees are urged to
consult their personal tax advisors with respect to the federal, state,
local and foreign tax consequences relating to stock options, appreciation
rights, performance awards, restricted stock and supplemental cash
payments.
<PAGE>
INCENTIVE STOCK OPTIONS ("ISO"). A participant who is granted an ISO
recognizes no income upon grant or exercise of the option. However, the
excess of the fair market value of the Shares on the date of exercise over
the option exercise price is an item includible in the optionee's
alternative minimum taxable income. An optionee may be required to pay an
alternative minimum tax even though the optionee receives no cash with
which to pay such tax upon exercise of the ISO.
If the optionee holds the Shares acquired upon exercise of the ISO for
at least two years from the date of grant and at least one year following
exercise (the "Statutory Holding Periods"), the optionee's gain, if any,
upon a subsequent disposition of the Shares, is taxed as long-term capital
gain. If the optionee disposes of Shares acquired pursuant to the exercise
of an ISO before satisfying the Statutory Holding Periods (a "Disqualifying
Disposition"), the optionee may recognize both compensation income and
capital gain in the year of disposition. The amount of the compensation
income generally equals the excess of (i) the lesser of the amount realized
on disposition or the fair market value of the Shares on the exercise date
over (ii) the exercise price. The balance of the gain realized on such a
disposition, if any, is long- or short-term capital gain depending on
whether the Shares have been held for more than one year following exercise
of the ISO.
Special rules apply for determining an optionee's tax basis in and
holding period for common stock acquired upon the exercise of an ISO if the
optionee pays the exercise price of the ISO in whole or in part with
previously-owned Shares. Under these rules, the optionee does not
recognize any income or loss from delivery of Shares (other than Shares
previously acquired through the exercise of an ISO and not held for the
Statutory Holding Periods) in payment of the exercise price; provided
however, that if an optionee pays the exercise price of an ISO in whole or
in part with previously-owned Shares that were acquired upon the exercise
of an ISO and that have not been held for the Statutory Holding Periods,
the optionee will recognize compensation income (but not capital gain)
under the rules applicable to Disqualifying Dispositions. The optionee's
tax basis in and holding period for the newly-acquired Shares will be
determined as follows: (i) as to the number of newly-acquired Shares equal
to those of the previously-owned Shares delivered, so that the optionee's
tax basis in and holding period for the newly-acquired Shares will be equal
to the previously owned Shares delivered; the optionee's basis in and
holding period (for capital gain, but not Disqualifying Disposition,
purposes) for the previously-owned Shares will carry over to the newly-
acquired Shares on a share-for-share basis; (ii) as to the remaining newly-
acquired Shares, the optionee's basis will be zero (or, if part of the
exercise price is paid in cash, the amount of such cash divided by the
number of such remaining newly-acquired Shares), and the optionee's holding
period will begin on the date such Shares are transferred. Under proposed
regulations, any Disqualifying Disposition is deemed made from Shares with
the lowest basis first.
The Trust is not entitled to any deduction with respect to the grant
or exercise of an ISO or the subsequent disposition by the optionee of the
Shares acquired if the optionee satisfies the Statutory Holding Periods.
If these holding periods are not satisfied, the Trust is entitled to a
deduction in the year the optionee disposes of the Shares in an amount
equal to the optionee's compensation income.
NON-STATUTORY STOCK OPTIONS. A participant who is granted a non-
statutory stock option generally recognizes no income upon grant of the
option. At the time of exercise, however, the optionee recognizes
compensation income equal to the difference between the exercise price and
the fair market value of the Shares received on the date of exercise. This
income is subject to income and employment tax withholding. The Trust is
entitled to an income tax deduction corresponding to the compensation
income recognized by the optionee in the year that the income is recognized
by the optionee.
<PAGE>
When an optionee disposes of Shares received upon the exercise of a
non-statutory stock option, the optionee will recognize capital gain or
loss equal to the difference between the sales proceeds received and the
optionee's basis in the stock sold. The optionee's capital gain will be
long- or short-term, depending upon whether the stock sold was held more
than one year. The Trust will not receive a deduction for any gain
recognized by the optionee.
If an optionee pays the exercise price for a non-statutory option
entirely in cash, the optionee's tax basis in the Shares received equals
the stock's fair market value on the exercise date, and the optionee's
holding period begins on the day after the exercise date. If, however, an
optionee pays the exercise price of a non-statutory option in whole or in
part with previously-owned Shares, then the optionee's tax basis in and
holding period for the newly-acquired Shares will be determined as follows:
(i) as to the number of newly acquired Shares equal to the previously-owned
Shares delivered, the optionee's basis in and holding period for the
previously-owned Shares will carry over to the newly-acquired Shares on a
share-for-share basis; (ii) as to each remaining newly-acquired Share, the
optionee's basis will equal the Share's value on the exercise date, and the
optionee's holding period will begin on the day after the exercise date.
SPECIAL TREATMENT OF CERTAIN OFFICERS. An optionee who is an
executive officer of the Trust is considered an "insider" for purposes of
Section 16 of the Exchange Act and thus is subject to suit under Section
16(b) of the Exchange Act for sale of property occurring within six months
of receipt of such property (the "Section 16(b) Restriction"). Under
current SEC rules, in the case of stock received pursuant to the exercise
of an option, such six month period begins on the date the option is
granted. Under Section 83(c)(3) of the Internal Revenue Code and the
regulations thereunder, the Section 16(b) Restriction is considered a
"substantial risk of forfeiture" with respect to stock received by an
insider.
As a result of the Section 16(b) Restriction, an optionee who is an
executive officer of the Trust generally recognizes taxable income six
months after the grant of a non-statutory stock option (i.e., on the date
the Section 16(b) restriction lapses) if the optionee exercises such option
within such six month period unless the optionee files a Section 83(b)
Election with the Internal Revenue Service within 30 days of exercise to
recognize taxable income on the exercise date. A "Section 83(b) Election"
is an election to recognize income on the date that property subject to a
substantial risk of forfeiture is received rather than on the date such
substantial risk of forfeiture lapses. If an optionee exercises an option
more than six months after the date it was granted, the optionee recognizes
income on the exercise date.
The measure of the optionee's compensation income is the difference
between the fair market value of the Shares on the date the optionee
recognizes income with respect to such Shares, and the option exercise
price. The Trust is entitled to an income tax deduction for compensation
income taxed to the optionee. Any gain the optionee realizes on the
subsequent disposition of the Shares will receive long- or short-term
capital gain treatment depending (except in the case of Shares the holding
period of which is determined by reference to the holding period of
previously-owned Shares exchanged therefor) upon whether the Shares have
been held for more than one year following the date upon which the amount
of his or her compensation income was determined.
Optionees who are insiders are also subject to special treatment with
respect to ISOs. For alternative minimum tax purposes, if an ISO is
exercised by an insider within six months of the date it was granted, the
insider's alternative minimum taxable income is measured on the value of
the Shares on the date such six months period lapses, rather than such
value on the exercise date.
<PAGE>
APPRECIATION RIGHTS. A participant who is granted an appreciation
right generally recognizes no income upon the grant of the appreciation
right. At the time of exercise, however, the participant shall recognize
compensation income equal to any cash received and the fair market value of
any Shares received. This income is subject to withholding. The Trust is
entitled to an income tax deduction corresponding to the ordinary income
recognized by the participant.
PERFORMANCE AWARDS. The grant of a performance award does not
generate taxable income to the participant or an income tax deduction to
the Trust. Any cash and the fair market value of any Shares received as
payment in respect of a performance award will constitute ordinary income
to the participant (in the case of a participant who is an insider, the
fair market value of the Shares six months after receipt will be used to
measure income, unless a Section 83(b) Election is filed). The
participant's income is subject to income and employment tax withholding.
The Trust will be entitled to an income tax deduction corresponding to the
ordinary income recognized by the participant.
RESTRICTED STOCK. A participant who is granted restricted stock
generally does not recognize income at the time of the grant unless the
individual makes a Section 83(b) Election to have the grant taxed as
compensation income at the date of receipt, with the result that any future
appreciation (or depreciation) in the value of the Shares granted will be
taxed as capital gains (or loss) upon a subsequent sale of the Shares.
However, if the participant does not make a Section 83(b) Election, then
the grant shall be taxed as compensation income at the full fair market
value on the date that the restrictions imposed on the Shares expire.
Unless a participant makes a Section 83(b) Election, any dividend paid on
Shares subject to the restrictions is compensation income to the
participant and compensation expense to the Trust. Any compensation income
a participant recognizes from a grant of restricted stock is subject to
income and employment tax withholding. The Trust is entitled to an income
tax deduction for any compensation income taxed to the participant.
PAYMENT OF WITHHOLDING TAXES. The Trust will have the power to
withhold, or require a participant to remit to the Trust an amount
sufficient to satisfy any federal, state, local or foreign withholding tax
requirements on any grant or exercise made pursuant to the 1996 Plan.
However, to the extent permissible under applicable tax, securities and
other laws, the Board may, in its sole discretion, permit the participant
to satisfy a tax withholding requirement by delivering Shares previously
owned by the participant or directing the Trust to apply Shares to which
the participant is entitled as a result of the exercise of an option of the
lapse of a period of restriction, to satisfy such requirement.
RECOMMENDATION OF THE BOARD. The Board of Trustees recommends
that the shareholders adopt the following resolution:
RESOLVED, that the Banyan Strategic Realty Trust 1997 Omnibus Stock
and Incentive Plan as set forth in Annex C to this Proxy Statement be and
hereby is approved.
The affirmative vote of a majority of the votes cast by shareholders
present in person or by proxy and eligible to vote at the Annual Meeting,
assuming a quorum being present, is required to adopt the foregoing
resolution.
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth information with respect to the Trust's
executive officers. Each officer is elected by the Trustees and serves
until his successor is elected and qualified or until his death,
resignation or removal by the Trustees:
Other Principal Occupation(s) Office & Year
Name Age During Past Five Years First Elected
- ---- --- ---------------------------- -------------
Leonard G. Levine 50 Mr. Levine has been President President, 1990
of the Trust since 1990. He
also serves as President of
Banyan Strategic Land Fund II
and is a Director of Banyan
Management Corp.
Neil D. Hansen 50 Mr. Hansen has been First Vice First Vice
President of the Trust since President, 1991
1991. He also serves as
First Vice President of Banyan
Strategic Land Fund II and
Banyan Management Corp.
Mr. Hansen is also a certified
public accountant.
Robert G. Higgins 45 From 1990 to 1992, Mr. Higgins Vice President
was a contract partner at the and
law firm of Chapman and Cutler. General
He is an attorney at law Counsel,
admitted to the bar in the 1992;
States of Illinois, Minnesota Secretary, 1995
and Texas. Mr. Higgins also
serves as Vice President,
General Counsel and Secretary
of Banyan Strategic Land Fund II
and Banyan Management Corp.
Mr. Higgins also operates a
sole practice of law.
Joel L. Teglia 35 From 1991 to 1994, Mr. Teglia Vice President
was the Controller for Banyan and
Management Corp. Mr. Teglia Chief Financial
also serves as Vice President Officer, 1994
and Chief Financial Officer of
Banyan Strategic Land Fund II
and Banyan Management Corp.
He is a certified public
accountant.
Jay E. Schmidt 45 From 1992 to 1995 Mr. Schmidt Vice President-
served as Vice President of Acquisitions,
Acquisitions for Banyan 1995
Management Corp. He was
appointment Vice President of
the Trust in 1995. He is also
an attorney and is admitted
to the bar in the State of
Wisconsin and is a licensed
real estate broker.
<PAGE>
COMPENSATION OF TRUSTEES AND EXECUTIVE OFFICERS
A. TRUSTEE COMPENSATION
The Trustees are paid an annual fee of $15,000, payable quarterly,
plus $875 for each Board meeting, including meetings of the audit
committee, attended in person and $250 an hour for each Board meeting,
including meetings of the audit committee, attended via telephonic
conference call. In addition, each Trustee is reimbursed for out-of-pocket
expenses incurred in attending meetings of the Board.
<PAGE>
<TABLE>
B. EXECUTIVE COMPENSATION
Compensation paid to executive officers of the Trust for the years ended December 31, 1996, 1995 and 1994 is
as follows:
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION (1) AWARDS PAYOUTS
-------------------------------- ----------------------- -------
OTHER RESTRICTED
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
YEAR SALARY BONUS COMPENSATION AWARD(S) SARs (#) PAYOUTS COMPENSATION
---- ------ ----- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leonard G. Levine 1996 $189,247 $ 66,985 n/a $ 7,700(2) n/a n/a n/a
President and Chief 1995 $184,812 $111,739 n/a $24,899(2) n/a n/a n/a
Executive Officer 1994 $179,900 n/a n/a n/a n/a n/a n/a
Jay E. Schmidt 1996 $154,615 $ 65,000(3) n/a n/a n/a n/a n/a
Vice President- 1995 $148,136 $ 27,000(3) n/a n/a n/a n/a n/a
Acquisitions 1994 n/a n/a n/a n/a n/a n/a n/a
<FN>
(1) Compensation for the all other executives, with the exception of Mr. Schmidt, of the Trust for 1996, 1995
and 1994 was less than $100,000 per individual.
(2) See incentive compensation program disclosure below.
(3) Mr. Schmidt's 1996 and 1995 bonuses were discretionary and based upon job performance pursuant to an annual
review. Mr. Schmidt is not awarded any other compensation by the Trust. The $27,000 bonus represents
Mr.Schmidt's 1994 bonus paid in 1995. During 1996, Mr. Schmidt was paid a bonus equal to $30,000 for the year
ended December 31, 1995 and $35,000 for the year ended December 31,1996.
</TABLE>
<PAGE>
Mr. Levine serves as Chief Executive Officer of the Trust pursuant to
an employment agreement entered into with the Trust by Mr. Levine on
January 1, 1990. The Agreement expires on December 31, 1997. Under the
contract, Mr. Levine's base salary is adjusted on January 1 of each year
based on increases in the "consumer price index". For the year ended
December 31, 1996, Mr. Levine was paid a base salary of $184,812.
Mr. Levine is eligible to receive compensation under an incentive
program included in his contract. Effective January 1,1993, Mr. Levine
earns incentive compensation based on the recovery on foreclosed real
estate assets owned by the Trust as of December 31, 1992 and on the
performance of the Trust's reinvestment activities. In particular, Mr.
Levine will earn incentive compensation on foreclosed real estate assets
equal to : (i) 1% of the amount of the Trust's secured claims which are
converted to cash, and (ii) 3% of the Trust's unsecured claims which are
converted to cash. Mr. Levine is paid incentive compensation earned on the
Trust's foreclosed activities as soon as practical after the end of each
calendar year without regard to whether he is employed by the Trust on the
date of payment. Mr. Levine's annual incentive compensation earnings from
reinvestment activities are based on reinvestment returns, adjusted for
unrealized losses, to the Trust in excess of a set index, based on the
annual yield of five-year Treasury Notes plus 100 basis points ("investment
hurdle") as of January 1 of each year, according to the following: (i) $500
for each basis point by which the Trust's rate of return from reinvestment
activities exceeds the investment hurdle up to 500 basis points; and (ii)
$250 per each basis point by which the rate of return from reinvestment
activities exceeds the investment hurdle plus 500 basis points. The
investment hurdle for the year ended December 31, 1995 was 8.88%.
Incentive compensation earned on reinvestment activities is paid 80%
in cash and 20% in shares ("Award Shares") of the Trust on March 15 of the
year following the period for which the incentive was earned. The Award
Shares are subject to forfeiture and certificates representing the Award
Shares are held by the Trust pending satisfaction of the vesting
requirements, for the benefit of Mr. Levine until the earlier of: (i)
December 31, 1997; (ii) the termination of Mr. Levine's employment by the
Trust without just cause; or (iii) the permanent disability or death of Mr.
Levine. For the year ended December 31, 1995, Mr. Levine's incentive
compensation earned on recovery of foreclosed activities and returns on
reinvestment activities was $36,185 and $38,500, respectively. The $36,185
in incentive compensation earned by Mr. Levine during 1995 on recovery of
foreclosed assets is comprised of: $19,315 which is equal to 1% of the
amount of the Trust's secured claims converted to cash, and $16,870 equal
to 3% of the Trust's unsecured claims converted to cash. In 1996, Mr.
Levine was paid $66,985 representing 80% of his 1995 incentive in cash and
1,833 Award Shares valued at $4.20 per share or $7,700 representing 20% in
Award Shares of the Trust. For the year ended December 31, 1994, Mr.
Levine's incentive compensation earned on recovery of foreclosed activities
and return on reinvestment activities was $12,139 and $124,500,
respectively. Payment of Mr. Levine's 1994 incentive compensation occurred
during the second quarter of 1995 with the payment of $111,740,
representing 80% of his incentive, in cash and 6,036 Award Shares valued at
$4.125 per share or $24,899 representing 20% in Award Shares of the Trust.
The total Award Shares held by the Trust on behalf of Mr. Levine are 7,869.
For the year ended December 31, 1993, Mr. Levine did not earn any incentive
compensation from foreclosed activities or reinvestment activities.
Either Mr. Levine or the Trust can terminate the employment agreement
at any time upon 90 days written notice. If the Trust terminates the
agreement for cause, or Mr. Levine voluntarily terminates, the Trust will
pay all salary and incentive compensation earned through the date of
termination. In the event of Mr. Levine's death or permanent disability,
he is entitled to all incentive compensation earned through the date of his
disability or death plus any disability or life insurance proceeds in the
amount of two times his annual salary which is consistent with standard
insurance benefits of all Banyan Management Corp. personnel, but he is not
entitled to any other severance payments. If his employment is terminated
<PAGE>
without cause following a change of control (as defined in the employment
agreement) the Trust is obligated to pay Mr. Levine's salary during the
remainder of the employment period and must pay him all incentive
compensation which he would have earned if all the Trust's assets had been
converted into cash and all proceeds were distributed. If Mr. Levine is
terminated without cause but no change of control has occurred, he will
receive a severance payment equal to one year's salary plus all incentive
compensation earned through the date of his termination (including
incentive compensation based upon assets converted into cash within one
year following his termination of the Trust had he received an "expression
of interest" prior to Mr. Levine's termination), plus an amount equal to
the full cost of continuing Mr. Levine's health benefits for one year.
BOARD OF TRUSTEES REPORT ON EXECUTIVE COMPENSATION
This report was prepared by the members of the Trust's board of
trustees (the "Board"), all of whom are independent. The Board does not
have a separate compensation committee. Instead, the Board as a whole
establishes and administers compensation policies for the Trust's principal
executive officers.
The Board is guided by the following principles in establishing
executive compensation: (1) attracting and retaining outstanding executive
officers familiar with the Trust's business; and (2) ensuring that a
substantial portion of executive compensation is variable and tied to
quantifiable measures of the Trust's performance. These principles are
discussed in more detail below.
Chief Executive Compensation
- ----------------------------
In early 1990, the Board suspended the Trust's advisory relationship
with VMS Realty Partners which was subsequently terminated and hired
Leonard G. Levine to serve as the Trust's president and chief executive
officer. Since the focal point of the Trust's business plan at that time
was to gain control of the assets securing mortgage loans made by the Trust
which were in default, a substantial portion of Mr. Levine's compensation
was tied to the Trust's recovery of both secured and unsecured claims.
In mid-1992, the Board authorized investment of the cash recovered on
the secured and unsecured claims (the "Investible Cash") and subsequently
amended Mr. Levine's contract effective as of October 1, 1992. Under this
amended contract, which expires December 31, 1997, Mr. Levine receives a
base salary of $184,812 per year plus incentive compensation tied in part
to recoveries on the remaining secured and unsecured claims converted into
cash on or after January 1, 1993 and in part to the returns earned on the
Investible Cash which is invested in new real estate assets. The base
salary is subject to annual adjustments tied to increases in the Consumer
Price Index.
In establishing Mr. Levine's compensation package, the Board reviewed
industry compensation studies compiled by independent consultants and
considered Mr. Levine's experience and knowledge of the real estate market
in general and the Trust asset base in particular. In an effort to (i)
create a compensation package which would be attractive to a highly
talented executive; (ii) encourage the liquification of the assets of the
Trust which had been obtained through foreclosure and workout proceedings;
and (iii) create an inducement to improve the Trust's overall performance,
the Board designed a program under which Mr. Levine earns incentive
compensation based on recoveries of secured and unsecured claims equal to:
(i) 1% of the amount of the secured claims existing as of January 1, 1990,
converted to cash on or after January 1, 1993 and prior to the end of Mr.
Levine's employment; and (ii) 3% of the unsecured claims existing as of
January 1, 1990, converted to cash on or after January 1, 1993 and prior to
the end of Mr. Levine's employment. Mr. Levine also earns incentive
compensation based on the returns achieved, over a "hurdle rate," on the
Investible Cash. The Board has set a "hurdle" rate for each calendar year
<PAGE>
equal to the yield on a five-year Treasury Note as of January 1 of each
calendar year plus 100 basis points (the "Index"). Mr. Levine earns
incentive compensation equal to: (i) $500 for each basis point by which
the Trust's rate of return on the Investible Cash exceeds the Index up to
the Index plus 500 basis points; and (ii) $250 for each basis point by
which the rate of return on the Investible Cash exceeds the Index plus 500
basis points. None of Mr. Levine's incentive compensation is tied to the
Trust's stock performance since the Board believes that the Trust's share
price is not the best measure of management performance. Instead, the
Board has tied Mr. Levine's incentive compensation to performance of the
Trust's portfolio, which, in the Board's view, is a more accurate barometer
of the strength of the Trust's management. The hurdle rate for the year
ended December 31, 1995 was 8.88%.
Twenty percent of the incentive compensation Mr. Levine earns from the
return on the Investible Cash is paid in the form of shares of common stock
in the Trust (the "Award Shares") which are subject to forfeiture under
certain circumstances. The incentive compensation earned in respect to the
Trust's reinvestment activities is calculated on a cumulative basis from
January 1, 1993 through the earlier of December 31, 1997 or Mr. Levine's
termination. If such cumulative incentive compensation for reinvestment
activities results in an amount which is less than the annual incentive
compensation from reinvestment activities previously paid, all or a portion
of the Award Shares previously issued shall be forfeited and returned to
the Trust in order to reconcile the overpayment.
In respect of fringe benefits, the Board has elected to grant to Mr.
Levine such fringe benefits as are available to other employees of the
Trust and Banyan Management Corp. These include life insurance in an
amount not less than twice his base salary. If Mr. Levine becomes disabled
during the employment period, he is to be paid 100% of his salary for six
months following his disability. He is also entitled to any other benefits
which the Trust or Banyan Management Corp. may provide for their other
salaried employees. This package of fringe benefits is, in the Board's
view, in keeping with industry standards.
Other Executive Compensation
- ----------------------------
The Trust does not have any other principal executive officers who
earn base salaries and bonus in excess of $100,000, other than Jay E.
Schmidt, as described above under Executive Compensation. The Board has
not established any long-term incentive plans for Mr. Schmidt or any other
person. Instead, Mr. Levine makes recommendations to the Board regarding
each executive officer's base salary and bonus after considering each
executive's job function and performance. With respect to Mr. Schmidt, his
salary and bonus are adjusted annually based upon (i) the performance of
the Trust's reinvestment portfolio; (ii) a subjective evaluation of Mr.
Schmidt's performance in acquiring appropriate properties for the Trust's
portfolio at the best possible price; and (iii) his overall contribution to
the success of the Trust.
The Board believes its executive compensation policies enable the
Trust to attract, motivate and retain senior management by providing a
competitive total compensation opportunity based upon performance.
Competitive based salaries that reflect the individual's level of
responsibility and annual, variable performance-based cash incentive awards
are important elements of the Trust's cash compensation philosophy. The
Board believes that the proposed 1997 Omnibus Stock and Incentive Plan will
provide the Board with added flexibility in attracting and retaining key
management personnel.
BOARD OF TRUSTEES,
WALTER E. AUCH, SR.
NORMAN M. GOLD
MARVIN A. SOTOLOFF
<PAGE>
PERFORMANCE GRAPH
The graph below compares the cumulative total Shareholder return on
the Shares of the Trust for the last five fiscal years with the cumulative
total return on the Standard & Poor's 500 Index and the National
Association of Real Estate Investment Trusts, Inc. ("NAREIT") Equity REIT
Total Return Index for all equity REITs over the same period (assuming the
investment of $100 in the Trust's Shares, the S&P 500 Total Return Index
and the NAREIT Equity REIT Total Return Index on December 31, 1990, and the
reinvestment of all dividends). In the performance graph provided for the
Stockholder Proxy Statement for the year ended December 31, 1994, the Trust
utilized the NAREIT Equity Index for comparison to industry or peer
performance. Pursuant to NAREIT's 1995 inaugural compilation of a Equity
REIT Total Return Index, which excludes REITs operating Health Care
Facilities, management of the Trust has elected to use the NAREIT Equity
REIT Total Return Index, excluding Health Care REITs, for comparison to
industry or peer performance, and believes that it provides a more
meaningful comparison in assessing the Trust's performance for 1995 based
on property type.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG THE COMPANY, THE S&P 500 TOTAL RETURN INDEX
AND THE NAREIT EQUITY TOTAL RETURN INDEX
YEAR-END DATA 1992 1993 1994 1995 1996
- ------------- ---- ---- ---- ---- ----
BSRT 95.48 119.89 131.02 148.22 148.62
S&P 500 Index 107.67 118.43 119.97 154.88 202.74
NAREIT Equity Index
(without Health Care) 120.66 143.23 147.52 168.48 229.82
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Administrative costs, primarily salaries and general and
administrative expenses are incurred on the Trust's behalf by Banyan
Management Corp. ("BMC"). BMC is owned by the Trust, Banyan Strategic Land
Fund II and Legend Properties, Inc. (f/k/a Banyan Mortgage Investment Fund)
(the "Banyan Funds"). Mr. Levine is the president of BMC but he receives
no additional compensation for his services to that entity. Messrs.
Teglia, Hansen, Higgins and Schmidt are employees of the Trust but are paid
by BMC. The portion of their time which is allocable to the Trust is
included in the administrative costs for which BMC is reimbursed by the
Trust. The trustees of the Trust, together with Mr. Levine, serve as
directors of BMC but receive no additional compensation. All costs
incurred by BMC on behalf of each entity for which it provides
administrative services are allocable to the Trust and these other entities
based upon the actual number of hours spent by BMC personnel on matters
related to that particular entity. BMC does not "mark-up" or include any
profit component in the costs allocated to the entities including the
Trust. The Trust's allocated share of costs for the years ended December
31, 1996, 1995 and 1994, aggregated $1,275,374, $1,443,434, and $1,185,409,
respectively. As one of its administrative services, BMC serves as the
paying agent for general and administrative costs of the Trust. As part of
providing this payment service, BMC maintains a bank account on behalf of
the Trust. As of December 31, 1996, the Trust had a net payable due to BMC
of $2,845.
<PAGE>
SHAREHOLDER PROPOSALS
Shareholder proposals for the 1997 Annual Meeting of Shareholders must
be received by the Trust at its executive office in Chicago, Illinois, on
or prior to February 10, 1998 for inclusion in the Trust's proxy
statement for that meeting. Any Shareholder proposal must meet the
requirements set forth in the rules of the Securities and Exchange
Commission relating to Shareholder proposals.
OTHER MATTERS
As of the date of this Proxy Statement, no business other than that
discussed above is to be acted upon at the Meeting. If other matters not
known to the Board should, however, properly come before the Meeting, the
persons appointed by the signed proxy intend to vote it in accordance with
their best judgment.
Banyan Strategic Realty Trust
By the order of the Board of Trustees,
Leonard G. Levine
President
Chicago, Illinois
June 10, 1997
Additional copies of the Banyan Strategic Realty Trust 1996 Annual
Report and Form 10-K filed with the Securities and Exchange Commission will
be supplied to Shareholders without charge. Requests for the Report should
be directed to:
Banyan Strategic Realty Trust
c/o Investor Relations Department
150 S. Wacker Drive, Suite 2900
Chicago, IL 60606
(312) 683-3671
YOUR VOTE IS IMPORTANT. THE PROMPT RETURN OF
PROXIES WILL SAVE THE TRUST THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES. PLEASE PROMPTLY
MARK, SIGN, DATE AND RETURN THE ENCLOSED
PROXY IN THE ENCLOSED ENVELOPE.
<PAGE>
ANNEX A
AMENDMENT
TO
SECOND AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amendment to Second Amended and Restated Employment Agreement
(this "Amendment") is made and entered into as of March 19, 1997 by and
between Leonard G. Levine (the "Executive") and Banyan Strategic Realty
Trust (the "Fund").
RECITALS:
A. The parties previously entered into a Second Amended and
Restated Employment Agreement made as of December 31, 1992 (the "Employment
Agreement").
B. The parties desire to amend certain provisions of the
Employment Agreement.
NOW THEREFORE, in consideration of the promises, mutual covenants and
agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Fund and
the Executive agree as follows:
1. AMENDMENT OF EMPLOYMENT AGREEMENT. Subject to the conditions
set forth in Section 2 hereof, the Employment Agreement is amended as
follows:
a. SECTION 6(c) is deleted in its entirety and replaced by
the following:
Payment of the Additional Compensation computed under this
Section 6 shall be made on March 15 of the year following the period for
which the award is made. One hundred percent (100%) of the award shall be
paid in shares of the Fund ("Award Shares"), provided that for fiscal years
ended prior to January 1, 1996; the Additional Compensation shall be paid
80% in cash and 20% in Award Shares. The Award Shares issued pursuant to
this Section 6(c) shall not be transferred prior to the date which is
seventy-five (75) days after the Computation Date (as defined in
Section 6(d) (the "Vesting Date")); provided that eighty percent (80%) of
the Award Shares distributed to the Executive in respect of Additional
Compensation earned for the fiscal year ended December 31, 1996 shall
immediately vest upon Stockholder Approval as defined in SECTION 2 of this
Amendment (the "Additional Incentive Shares") and may be immediately
transferred, pledged or otherwise freely alienated in compliance with the
registration requirements of federal and state securities law or exemptions
therefrom following such Stockholder Approval. The Award Shares, except
for the Additional Incentive Shares, shall be subject to forfeiture in
accordance with the provisions of Section 6(d) and any Certificate
representing all or any portion of the Award Shares shall bear an
appropriate legend and shall be held by the Fund in trust for the Executive
pending the lapse of the forfeiture provisions under Section 6(d). At the
request of Executive, the Additional Incentive Shares may be separately
certificated. The number of Award Shares distributable to the Executive
shall be based upon the average closing price of the Fund's stock for the
five (5) business days ended prior to December 31 of the calendar year for
which the payments are made. Subject to the provisions of Section
2(b)(iii)-(iv) of this Amendment, the Executive shall be entitled to
receive and retain all dividends paid on the Award Shares held by him,
including those shares held in trust by the Fund for the Executive. The
Fund, at its sole cost, shall take all reasonable steps necessary to cause
the filing of a registration statement and listing application
<PAGE>
to be effective as soon after the Vesting Date as practical,
with respect to the Award Shares, with the appropriate regulatory bodies,
on terms more fully set forth in the Registration Rights Agreement to be
entered into pursuant to the provisions of Section 3 of this Amendment.
b. SECTION 6(d) shall be amended and restated in its
entirety as follows:
(d) As soon as practicable after December 31, 1997, or, if
earlier, upon the termination of the Executive's employment ("Computation
Date") the computation provided in Section 6(b) will be computed on a
cumulative basis covering the period January 1, 1993 through the
Computation Date; provided, however, that for such computation the Adjusted
Cash Flow shall also include all unrealized profits and gains generated in
connection with Reinvestment Activities. In connection therewith, the
parties further agree that the definition of "Net Income" in Section 6(a)
of the Employment Agreement shall exclude the financial accounting effect
of straight lining rents.
(i) In the event that the total cumulative Additional
Compensation as recomputed at the Computation Date exceeds the aggregate
Additional Compensation paid to the Executive, the Fund shall award to the
Executive, no later than the Vesting Date, a number of Award Shares equal
in value to this excess (the "Final Award Shares").
(ii) In the event that the cumulative Additional
Compensation as recomputed at the Computation Date is less than the
aggregate amount of the Additional Compensation paid to the Executive, all
or a portion of the Award Shares, except for the Additional Incentive
Shares (the "Forfeitable Shares"), shall be forfeited and returned to the
Fund. In determining the amount of the Forfeitable Shares, each Award
Share shall be valued at the average price at which the Shares were valued
when issued to the Executive under Section 6(c). For example, if the
Executive holds 100,000 Award Shares with an average value determined under
Section 6(c) at the time of issue of $3.00 and the cumulative Additional
Compensation at the Computation Date is determined to be $45,000 less than
the amount actually paid to the Executive, the Executive shall return up to
15,000 Forfeitable Shares to the Fund without regard to the actual current
value of those shares. Certificates representing the balance of any Award
Shares shall be delivered to the Executive promptly after the Vesting Date.
(iii) Payment of the Additional Compensation computed
under this Section 6(d) shall be made no later than the Vesting Date.
Except as provided herein, all of the Additional Compensation under this
Section 6(d) shall be payable in Award Shares. The number of Final Award
Shares to be issued pursuant to Section 6(d)(i) above shall be calculated
by dividing the Additional Compensation computed under Section 6(d) by
the average closing price of the Fund's stock for the five (5) business
days ended prior to December 31, 1997. The Final Award Shares shall:
(A) bear appropriate legends; and (B) be transferrable only in compliance
with the registration requirements of federal and state securities law or
exemptions therefrom.
<PAGE>
c. SECTION 17(a) is deleted in its entirety and replaced by
the following:
(a) NOTICE. Any notice required or permitted hereunder
shall be made in writing (i) either by actual delivery of the notice into
the hands of the party thereunder entitled, or (ii) by the mailing of the
notice in the United States mail, certified or registered mail, return
receipt requested, all postage prepaid and addressed to the party to who
the notice is to be given at the party's respective address set forth
below, or such other address as the parties may from time to time designate
by written notice as herein provided.
As addressed to the Fund:
Banyan Strategic Realty Trust
Suite 2900
150 South Wacker Drive
Chicago, Illinois 60606
With a copy to:
Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, Illinois 60611
Attention: Michael J. Choate
As addressed to the Executive:
Leonard G. Levine
Suite 2900
150 South Wacker Drive
Chicago, Illinois 60606
With a copy to:
Saitlin Patzik Frank & Samotny Ltd.
150 S. Wacker Drive
Suite 900
Chicago, Illinois 60606
Attention: Alan B. Patzik
The notice shall be deemed to be received in case (i) on the date of
its actual receipt by the party entitled thereto and in case (ii) on the
date of its mailing.
<PAGE>
2. APPROVALS.
a. Effectiveness of the Amendment is subject, to the extent
required, to: (i) approval of the Fund's stockholders on or before thirty
days after the Fund's Annual Meeting, including any adjournments or
postponements thereof (the "Final Approval Date"), at which the issuance of
the Award Shares is submitted to a vote of the Fund's Stockholders
("Stockholder Approval"), unless extended by agreement of the parties; and
(ii) approval of the Nasdaq of the inclusion of the Award Shares and the
Final Award Shares in the Nasdaq National Market System ("Nasdaq
Approval"). The Fund shall use its best efforts to promptly obtain
Stockholder Approval and Nasdaq Approval, as well as any other consents or
approvals which may be required. Pending Stockholder Approval and Nasdaq
Approval, the Fund shall issue the Award Shares issuable in respect of the
Additional Compensation for the year ended December 31, 1996 into escrow to
be held for the Executive's benefit pending such approvals. The Executive
shall be entitled to all distributions paid by the Fund in respect of the
shares held in escrow. If Stockholder Approval and NASDAQ Approval is
obtained by the Final Approval Date, the Fund shall release the Additional
Incentive Shares from escrow to the Executive as soon as practicable, but
in no event later than five (5) business days after receipt of the last
approval. These shares may not be transferred by the Executive except in
compliance with federal and state securities law or an exemption therefrom.
These shares shall have the benefit of the Registration Rights Agreement
described in Section 3 hereof.
b. If either Stockholder Approval or Nasdaq Approval is not
obtained by the Final Approval Date then: (i) the amendments contemplated
by SECTION 1 hereof shall be null and void and the terms and conditions of
the Employment Agreement shall remain in full force and effect unless
amended, waived or altered by the parties; (ii) the Additional Incentive
Shares shall be immediately cancelled (the "Cancelled Shares");
(iii) Executive shall be paid, in cash, an amount equal to the Additional
Compensation which had been previously paid through the issuance of the
Cancelled Shares, and thereafter, all Additional Compensation due in
connection with the Agreement shall be paid 20% in the form of Award Shares
and 80% in cash; and (iv) Executive shall be entitled to be paid interest
on the Additional Compensation paid to it pursuant to (iii) above in
respect of the Cancelled Shares at the same rate as dividends are then
being paid in respect of the Fund's shares, with any dividends theretofore
received in respect of the Cancelled Shares credited against the interest
due. For purposes of this paragraph, the rate at which dividends are then
being paid on the Fund's shares shall be deemed to be the percentage which
the dividend payable with respect to the Cancelled Shares bears to the cash
value. For this purpose, cash value shall mean eighty percent (80%) of the
Additional Compensation payable under SECTION 6(c).
c. If the Executive is not employed by the Fund on
January 1, 1998, pursuant to a new Employment Agreement with the Fund
acceptable to Executive, then, notwithstanding the provisions of
SECTION 6(d), as amended, the Executive shall have the option, exercisable
in his sole discretion, to require the Fund to pay the Executive 80% of the
Additional Compensation for the fiscal year ended December 31, 1997 and/or
all of the Additional Compensation due Executive under SECTION 6(c) AND
6(d) in cash no later than the Vesting Date.
<PAGE>
3. REGISTRATION RIGHTS. Subject to the provisions of
SECTION 6(c), as soon as practicable, the parties shall enter into a
registration rights agreement on usual and customary terms and conditions
granting the Executive the right to cause the Fund to register any or all
of the Award Shares or the Final Award Shares for resale by the Executive.
The Registration Rights Agreement shall generally provide for the
following:
a. Each registration shall be effected by the Fund at its
expense;
b. The Executive shall be entitled to a separate
registration statement with regard to the shares issued under each of (i)
Section 6(c) hereof in 1997 and relating to the Fund's 1996 performance and
(ii) Section 6(c) issued in 1998 and relating to the Fund's 1997
performance and shares issued under Section 6(d);
c. The Executive shall have reasonable piggyback rights; and
d. The Fund shall maintain these registration statements in
effect, and update registration statements as required, to enable Executive
to periodically sell, in his discretion, shares thereunder until such time
as the subject shares are freely saleable pursuant to the provisions of
Rule 144 promulgated under the Securities Act of 1933, as amended.
In the event the parties hereto fail to enter into a mutually
agreeable Registration Rights Agreement by the Final Approval Date,
Executive may, at its option, elect to treat this Amendment as if one of
the approvals required by Section 2(b) hereof had not been received and
effect a termination of this Amendment as set forth therein.
4. AGREEMENTS AS TO PAST CALCULATIONS AND METHODOLOGIES.
a. PREVIOUS CALCULATIONS AND METHODOLOGIES. The parties
hereto agree and acknowledge that each has been represented by competent
professionals and together with these professionals has had an opportunity
to review the formulas set forth in the Employment Agreement for use in
calculating the compensation payable to Executive pursuant to Sections 5
and 6, thereunder, the methodology pursuant to which those formulas have
been applied to calculate the compensation and the amounts determined to be
due to Executive through the date hereof as a result of such formulas and
the applied methodology. In connection therewith, the parties hereto
acknowledge and agree that the formulas set forth in the Agreement for
calculating the compensation, the methodology applied (to date) in
calculating the amounts due pursuant to those formulas and the amounts
calculated to date have been due and payable to Executive through the date
hereof are accurate and each waives any and all rights he or it may have to
recalculate the formulas, modify the methodology applied in the calculation
or alter the amount of the compensation heretofore paid.
b. FUTURE CALCULATIONS AND METHODOLOGIES. The parties
hereto acknowledge and agree that the formulas set forth in the Agreement
for purposes of determining the compensation payable to Executive pursuant
to Sections 5 and 6 of the Employment Agreement and the methodology applied
by the Fund in its prior calculations of the amounts due is appropriate and
the parties hereto further agree and acknowledge that all future
calculations of amounts due Executive for additional compensation pursuant
to Sections 5 and 6 of the Employment Agreement shall be calculated using
the formula set forth therein, applying the methodology utilized in the
past as modified by this Amendment to the Employment Agreement. In
connection therewith, the parties hereto specifically acknowledge the
existence of a memo dated October 17, 1996 from
<PAGE>
Joel L. Teglia to the Board of Trustees of the Fund and agree
that the methodology and calculations set forth therein are appropriate and
shall be applied, on a consistent basis, in all future calculations of
amounts due as compensation pursuant to the Sections 5 and 6 of the
Employment Agreement.
5. MISCELLANEOUS PROVISIONS.
a. 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.
b. Further Assurances. Each party agrees to execute and
deliver such additional instruments and documents and to take all such
other actions as any of the other parties may reasonably request from time
to time in order to effect the provisions, purposes and intent of this
Amendment.
c. ENTIRE AGREEMENT; EFFECT ON OTHER AGREEMENTS. This
Amendment constitutes the entire understanding of the parties with respect
to the amendment of the Employment Agreement and may be modified only in
accordance with the provision of the Employment Agreement governing
amendments. Upon execution of this Amendment, all references in the
Employment Agreement, and any document executed or delivered in connection
therewith, shall be deemed to be references to the Employment Agreement as
amended, supplemented or modified by this Amendment.
d. SEVERABILITY. If any provision of this Amendment shall,
for any reason, be held unenforceable, such provision shall be severed from
this Amendment unless, as a result of such severance, this Amendment fails
to reflect the basic intent of the parties. If this Amendment continues to
reflect the basic intent of the parties, then the invalidity of such
specific provision shall not affect the enforceability of any other
provision herein, and the remaining provisions shall remain in full force
and effect.
e. COUNTERPARTS. This Amendment may be executed in two or
more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute
one and the same Amendment.
f. HEADINGS. The descriptive headings of this Amendment are
inserted for convenience only and do not constitute a part of this
Amendment.
g. NO STRICT CONSTRUCTION. This Amendment has been mutually
negotiated and drafted by the parties and no presumption or rule of
contract construction or interpretation by or against a party shall be made
on the basis of the party which might otherwise be charged with drafting
this Amendment.
h. REFERENCES. As used herein, all provisions shall include
the masculine, feminine, neuter, singular and plural thereof, wherever the
context and facts require such construction.
i. RECITALS. The recitals set forth in this Amendment are
incorporated by reference herein and made a part hereof, as if fully
rewritten.
<PAGE>
IN WITNESS WHEREOF, this Amendment is entered into on the day and year
first written above.
BANYAN STRATEGIC REALTY TRUST
By: /s/ Robert G. Higgins
Name: Robert G. Higgins
Title: Vice President General Counsel
EXECUTIVE:
/s/ Leonard G. Levine
Leonard G. Levine
<PAGE>
ANNEX B
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED DECLARATION OF TRUST
BANYAN STRATEGIC REALTY TRUST (the "Trust"), a Massachusetts business
trust organized and existing under and by virtue of the laws of the
Commonwealth of Massachusetts, DOES HEREBY CERTIFY:
FIRST: That on May 14, 1997, the Board of Trustees of the Trust duly
adopted the following resolution setting forth a proposed amendment to the
Trust's Amended and Restated Declaration of Trust declaring the amendment
to be advisable. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the first sentence of Section 3.3 of the Trust's
Amended and Restated Declaration of Trust be, and hereby is, deleted in its
entirety and replaced with the following:
"The Class A Trustees shall be entitled to receive $20,000 per year
for their services as Trustees plus $1,000 for each meeting of the Board
attended in person and $500 for each meeting of the Board attended via
telephonic conference call."
<PAGE>
ANNEX C
BANYAN STRATEGIC REALTY TRUST (the "Company")
1997 OMNIBUS STOCK AND INCENTIVE PLAN
I. GENERAL.
The purpose of this 1997 Omnibus Stock and Incentive Plan (the
"Plan") is to link the personal interests of participants in the Plan to
those of the Company's stockholders by granting participants nonqualified
stock options, incentive stock options, stock appreciation rights,
restricted stock, performance shares and performance units. By doing so,
the Company believes it will be able to retain and attract those highly
competent individuals upon whose judgment, initiative and leadership the
Company's success in large measure depends. Subject to approval by the
holders of the Company's shares of beneficial interest, the Plan shall
become effective July 9, 1997 (the "Effective Date") and will
remain in effect, subject to the Board's right to terminate or amend at any
time until all the Shares subject to the Plan have been purchased or
acquired, but in no event may an award be granted on or after July 9,
2007.
II. ADMINISTRATION.
The Board shall have plenary authority in its discretion, but subject
to the express provisions of the Plan, to administer the Plan, including:
(i) determining the size and types of Awards as well as the terms and
conditions of each Award; (ii) determining which Persons may participate in
the Plan; (iii) prescribing, amending or rescinding rules and regulations
relating to the Plan; (iv) determining the terms and provisions (and
amendments thereof) of the respective Plan Agreements (which need not be
identical), including the terms and provisions (and amendments) as required
in the Board's judgment to conform to any change in law or regulation
applicable thereto; and (v) making all other determinations deemed
necessary or advisable for administrating the Plan. The Board may form a
committee to exercise its authority hereunder provided that the committee
must be comprised of no less than three Persons, all of whom must be
Independent Trustees.
Each Award granted hereunder must be evidenced by minutes of a
meeting or the unanimous written consent of the Board. Except for Awards
granted to the Independent Trustees, the Board may at any time, and from
time to time, amend or suspend the Plan. Except as otherwise provided in
the Plan, the Board may modify, extend, replace or renew outstanding Awards
under the Plan, or accept the surrender of outstanding Awards (to the
extent not yet otherwise exercised) and grant new Awards in substitution
therefore. Notwithstanding the foregoing, no amendment or suspension of
the Plan without the written consent of a Participant may alter or impair
the rights of the Participant under any Award previously granted to the
Participant. The Board's determination on the foregoing matters will be
conclusive.
III. ELIGIBILITY.
Except as provided herein, all Employees or Trustees of the Company
are eligible to participate in the Plan. The Board shall select, from
among the eligible Trustees and Employees, those Persons to whom Awards may
be granted.
<PAGE>
IV. TYPES OF AWARDS.
(A) STOCK OPTIONS
(i) GRANT/EXERCISE. The Board may grant Options to
Participants in number and on terms determined by the Board; provided,
however, that each Person serving as an Independent Trustee on the tenth
business day after final adjournment of the Company's annual meeting
convened on July 8, 1997 shall receive an Option to acquire 2,000
Shares, and provided further that each Person serving as an Independent
Trustee ten business days after the final adjournment of each succeeding
annual meeting will be granted an Option to purchase 2,000 Shares.
Each grant of an Option must be evidenced by a Plan Agreement
specifying the Exercise Price, the duration of the Option, the number of
Shares to which the Option pertains, and such other provisions as the Board
determines. The Plan Agreement will also specify whether the Option is
intended to be an ISO within the meaning of Code Section 422, or
alternatively an NQSO not covered by Code Section 422; provided that an ISO
may only be granted to Employees. The Exercise Price for each grant of an
Option under this Plan may not be less than one hundred percent (100%) of
the Fair Market Value of a Share on the date of grant and provided further
that: (i) the Fair Market Value with respect to an ISO may not exceed the
maximum limitation in Section 422 of the Code in the first year that the
option may be exercised; provided that the incentive options exceeding the
limitations will be treated as non-qualified stock options; (ii) the
exercise price may not be less than 100% of Fair Market Value on the date
of grant with respect to an ISO granted to any individual who at the time
of grant owns more than 10% of the total voting power of the Company (a
"10% Owner").
Options granted hereunder will be exercisable at such times and
be subject to such restrictions and conditions as the Board may determine
in each instance. These terms and conditions need not be the same for each
grant or for each Participant. Each Option granted to an Employee will
expire at the time determined by the Board at the time of the grant;
provided, however, that no Option may be exercised later than the tenth
(10th) anniversary date of its grant, or in the case of ISOs granted to a
10% Owner, five (5) years.
(ii) PAYMENT. Options must be exercised by the delivery of a
written notice of exercise to the Company, setting forth the number of
Shares with respect to which the Option is to be exercised, accompanied by
full payment for the Shares. The Exercise Price must be paid in either:
(a) cash or its equivalent; (b) by tendering previously acquired Shares
having an aggregate Fair Market Value at the time of exercise equal to the
total Exercise Price (provided that the Shares which are tendered must have
been held by the Participant for at least six (6) months prior to their
tender to satisfy the Option Price); or (c) by a combination of (a) and
(b). The Board also may allow cashless exercise as permitted under the
Federal Reserve Board's Regulation T, subject to applicable securities law
restrictions, or by any other means which the Board determines to be
consistent with the Plan's purpose and applicable law. Subject to any
governing rules or regulations, as soon as practicable after receipt of a
written notification of exercise and full payment, the Company will deliver
Share certificates in an appropriate amount based upon the number of Shares
purchased under the Option(s) to the Participant, in the Participant's
name.
<PAGE>
(iii) RESTRICTIONS ON TRANSFERABILITY. The Board, in its sole
discretion, may impose restrictions on the transfer of any Shares acquired
pursuant to the exercise of an Option. Further, no ISO granted under the
Plan may be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. All ISOs granted to a Participant under the Plan will be
exercisable during the lifetime of the Participant, only by the Participant
or in the event of Disability by the Participant's legal representative.
Except as otherwise provided in a Participant's Plan Agreement, no NQSO
granted hereunder may be sold, transferred, pledged, assigned or otherwise
alienated or hypothecated, other than by will or by the laws of descent and
distribution. All NQSOs granted to a Participant hereunder will be
exercisable during the lifetime of the Participant, only the Participant or
in the event of Disability by the Participant's legal representative.
(iv) TERMINATION. Each Plan Agreement will set forth the
extent to which the Participant may exercise Options following termination
of the Participant's employment or trusteeship with the Company. These
provisions need not be uniform among all Plan Agreements and may reflect
distinctions based on the reasons for termination, all in the Board's
discretion.
(b) STOCK APPRECIATION RIGHTS
(i) GRANT/EXERCISE. The Board may grant SARs to any Employee
Participants in number and on terms and conditions determined by the Board.
The Board may grant Freestanding SARs, Tandem SARs or any combination of
these forms. The grant price of a Freestanding SAR will be equal to the
Fair Market Value of a Share on the date of grant of the SAR. The grant
price of Tandem SARs will be equal to the Exercise Price of the related
Option. Tandem SARs may be exercised for all or part of the Shares subject
to the related Option upon the surrender of the right to exercise the
equivalent portion of the related Option. A Tandem SAR may be exercised
only with respect to the Shares for which its related Option is then
exercisable. Notwithstanding any other provision of this Plan to the
contrary, with respect to a Tandem SAR granted in connection with an ISO:
(a) the Tandem SAR will expire no later than the expiration of the
underlying ISO; (b) the value of the payout with respect to the Tandem SAR
may not exceed one hundred percent (100%) of the difference between the
Exercise Price of the underlying ISO and the Fair Market Value of the
Shares subject to the underlying ISO at the time the Tandem SAR is
exercised; and (c) the Tandem SAR may be exercised only when the Fair
Market Value of the Shares subject to the ISO exceeds the Exercise Price of
the ISO. Freestanding SARs may be exercised on terms and conditions set
forth by the Board. Each grant of an SAR will be evidenced by a Plan
Agreement specifying the grant price, the term of the SAR, and such other
provisions as the Board determines. The term of an SAR granted under the
Plan as determined by the Board, in it sole discretion, may not, in any
event, exceed ten (10) years.
(ii) PAYMENT. Upon exercise of an SAR, the Company will pay
the Participant an amount determined by multiplying:
(a) the difference between the Fair Market Value of a
Share on the date of exercise over the grant price; by
(b) the number of Shares with respect to which the SAR
is exercised.
At the Board's discretion, the Company may pay amounts due a
Participant on exercise of any SAR in cash, Shares of equivalent value, or
in some combination thereof. The Board's determination regarding the form
of SAR payout will be set forth in the Plan Agreement pertaining to the
grant of the SAR.
<PAGE>
(iii) TERMINATION. Each Plan Agreement relating to an SAR will
set forth the extent to which a Participant may exercise the SAR following
termination of the Participant's employment or trusteeship with the Company
and/or its Subsidiaries. These provisions will be determined in the
Board's discretion and need not be uniform among all SARs issued pursuant
to the Plan and may reflect distinctions based on the reasons for
termination.
(iv) RESTRICTIONS ON TRANSFERABILITY. Unless provided
otherwise in a Participant's Plan Agreement, no SAR granted under the Plan
may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. All SARs granted to a Participant under the Plan will be
exercisable during the Participant's lifetime, only by the Participant or
in the event of Disability by the Participant's legal representative.
(c) RESTRICTED STOCK
(i) GRANT. The Board may grant Shares of Restricted Stock to
any Employee Participants in amounts determined by the Board. Each grant
of Restricted Stock must be evidenced by a Plan Agreement specifying the
Restricted Period, the number of Shares of Restricted Stock granted, and
such other provisions as determined by the Board.
(ii) RESTRICTIONS. Except as provided in the Participant's
Plan Agreement, the Shares of Restricted Stock granted hereunder may not be
sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated until the end of the applicable Restricted Period established
by the Board. All rights with respect to the Restricted Stock granted to a
Participant under the Plan will be available during the Participant's
lifetime, and only to the Participant. The Board may also impose such
other conditions and/or restrictions on any Shares of Restricted Stock as
it deems advisable, including requiring that Participants pay a stipulated
purchase price for each Share of Restricted Stock or that the Company or
individual achieve certain performance goals or other restrictions under
applicable federal or state securities laws. The Company may retain the
certificates representing Shares of Restricted Stock in the Company's
possession until all of the conditions and/or restrictions applicable to
these Shares have been satisfied.
Except as provided in the Participant's Plan Agreement, the
Shares of Restricted Stock covered by each Restricted Stock grant made
under the Plan will become freely transferable by the Participant after the
last day of the applicable Restricted Period.
(iii) VOTING RIGHTS/DISTRIBUTIONS. Participants holding Shares
of Restricted Stock granted hereunder may be granted the right to exercise
full voting rights with respect to those Shares during the Restricted
Period. During this time, Participants holding Shares of Restricted Stock
may be credited with regular cash dividends paid in respect of the
underlying Shares. The Board may apply any restrictions to the dividends
that it deems appropriate. Without limiting the generality of the
preceding sentence, if the grant or vesting of Restricted Shares granted to
a Covered Employee is designed to comply with the requirements of the
Performance-Based Exception, the Board may apply any restrictions it deems
appropriate to the payment of dividends declared with respect to the
Restricted Stock, such that the dividends and/or the Restricted Stock
maintain eligibility for the Performance-Based Exception.
<PAGE>
(iv) TERMINATION. Each Plan Agreement will set forth the
extent to which the Participant may receive unvested Restricted Stock
following termination of the Participant's employment or trusteeship with
the Company. These provisions will be determined in the Board's
discretion, need not be uniform among all Shares of Restricted Stock issued
pursuant to the Plan, and may reflect distinctions based on the reasons for
termination; provided, however, that, except in the cases of terminations
connected with a Change in Control and terminations by reason of death or
disability, the vesting of Shares of Restricted Stock which qualify for the
Performance-Based Exception and which are held by Covered Employees will
occur at the time they otherwise would have, but for the termination.
(d) PERFORMANCE UNITS AND PERFORMANCE SHARES
(i) GRANT/VALUE. The Board may grant Performance Units
and/or Performance Shares to any Employee Participant in such amounts and
upon such terms as determined by the Board. Each Performance Unit will
have an initial value that is established by the Board at the time of
grant. Each Performance Share will have an initial value equal to the Fair
Market Value of a Share on the date of grant. The Board will set
performance goals in its discretion which will determine the number and/or
value of Performance Units/Shares paid to a Participant. For these
purposes, the time period during which the performance goals must be met
will be called a "Performance Period."
(ii) EARNING OF PERFORMANCE UNITS/SHARES. After the
applicable Performance Period has ended, the holder of Performance
Units/Shares will be entitled to receive a payout on the number and value
of Performance Units/Shares earned by the Participant over the Performance
Period.
(iii) TIME AND FORM OF PAYMENT. Payment of Performance
Units/Shares earned by a Participant will be made in a single lump sum
following the close of the applicable Performance Period. The Board, in
its sole discretion, may cause the Company to pay any Performance
Units/Shares in the form of cash or in Shares (or in a combination thereof)
which have an aggregate Fair Market Value equal to the value of the earned
Performance Units/Shares at the close of the applicable Performance Period.
Any such Shares may be granted subject to any restrictions deemed
appropriate by the Board. The determination of the Board with respect to
the form of payout will be set forth in the Participant's Plan Agreement.
At the Board's discretion, Participants may be entitled to
receive any dividends declared with respect to Shares which have been
earned in connection with the grant of Performance Units/Shares which have
been earned, but not yet distributed to Participants, provided that these
dividends will be subject to the same accrual, forfeiture, and payout
restrictions applicable to dividends earned in respect of Shares of
Restricted Stock. In addition, Participants may, at the discretion of the
Board, be entitled to exercise voting rights with respect to these Shares.
(iv) TERMINATION. Unless determined otherwise by the Board,
if a Participant is terminated by reason of death, disability, or
retirement during a Performance Period, the Participant will receive a
payout of the Performance Units/Shares which is prorated, as specified by
the Board in its discretion. If a Participant is terminated for any
reason, all Performance Units/Shares will be forfeited by the Participant
to the Company unless determined otherwise by the Board. Generally,
payment of Performance Units/Shares earned by a Participant will be made at
a time specified by the Board in its sole discretion and set forth in the
Participant's Plan Agreement. Notwithstanding the foregoing, with respect
to Covered Employees who retire during a Performance Period, payments will
be made at the same time as payments are made to Participants who did not
terminate employment during the applicable Performance Period.
<PAGE>
(v) RESTRICTIONS ON TRANSFER. Except as otherwise provided
in a Participant's Plan Agreement, Performance Units/Shares may not be
sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. All SARs granted to a Participant under the Plan will be
exercisable during the Participant's lifetime, only by the Participant or
in the event of Disability by the Participant's legal representative.
V. SHARES SUBJECT TO THE PLAN, MAXIMUM AWARDS, RESTRICTIONS AND
VALUATION.
(a) NUMBER OF SHARES
The stock subject to the Awards granted under this Plan will be the
Company's shares of beneficial interest, par value $0.01, and any other
stock or security resulting from the adjustment thereof or substitution
therefor. There shall be 1.0 million Shares reserved and available for
Awards granted hereunder. The Shares issued upon exercise of an Award may
be authorized and unissued Shares, or Shares issued and reacquired by the
Company.
(b) RELEASE OF SHARES
If any Award granted hereunder is cancelled, expires or terminates
for any reason without having been exercised in full, the Shares subject to
the Award will not thereafter be available for grant under this Plan except
if and to the extent issued to a Participant under the Plan in replacement
for outstanding Awards surrendered by the Participant.
(c) ADDITIONAL RESTRICTIONS ON SHARES
In addition to the restrictions on transfer which the Board may
impose on the Shares issuable on exercise of an Award or on the Award
itself, all Shares issued upon the exercise of an Award and the Awards will
be subject to applicable federal and state laws, rules and regulations
including, as may be required, approval by any government or regulatory
agency. The Company may cause any Shares or Awards to be properly marked
with a legend or other notation reflecting the limitations on transfer.
Fractional Shares will not be delivered, but will be rounded to the next
lower number of Shares.
(d) STOCK VALUATION
Any determination of the value or closing price of the Shares
required by the Plan shall be determined in accordance with the following
provisions, as applicable (which value or closing price shall be referred
to herein as the "Fair Market Value per Share," or for a group of Shares a
total "Fair Market Value"):
(i) if, on the relevant date, the Shares are traded on a
national or regional securities exchange or on the NASDAQ National Market,
on the basis of the closing sale price on the principal securities exchange
on which the Shares may then be traded or, if there is no sale on the
relevant date, then on the last previous day on which a sale was reported;
(ii) if, on the relevant date, the Shares are not listed on
any securities exchange or traded on the NASDAQ National Market, but
otherwise are publicly-traded and reported on NASDAQ, on the basis of the
mean between the closing bid and asked quotations in the over-the-counter
market as reported by NASDAQ; but if there are no bid and asked quotations
in the over-the-counter market as reported by NASDAQ on that date, then the
mean between the closing bid and asked quotations in the over-the-counter
market as reported by NASDAQ on the last previous day any bid and asked
prices were quoted; and
(iii) if, on the relevant date, the Shares are not publicly-
traded as described in (i) or (ii), in good faith by the Board.
<PAGE>
VI. PLAN AGREEMENTS, VESTING AND CANCELLATION PROVISIONS.
(a) PLAN AGREEMENTS
Each Award granted hereunder will be evidenced by a written Plan
Agreement specifying, among other things, the period for which the Award is
granted, the number of Shares covered by the Award, the Exercise Price and
the exercise schedule. The grant and exercise of Awards hereunder are sub-
ject to all applicable federal, state and local laws, rules and regulations
and, if required, any approvals by any government or regulatory agency.
(b) EXERCISE OF AWARDS
Except for Stock Options awarded to the Independent Trustees, Awards
granted hereunder will generally vest and be exercisable in installments as
follows: (i) to the extent of 33.3% of the number of Shares commencing on
the first anniversary of the date of grant; (ii) to the extent of an
additional 33.3% of Shares commencing on the second anniversary of the date
of grant; and (iii) to the extent of an additional 33.4% of Shares
commencing on the third anniversary of the date of grant; provided that the
Board may accelerate vesting in the event of a participant's death,
permanent disability or retirement in accordance with the Company's
retirement policy or where acceleration of vesting is, in the Board's
judgment, in the Company's best interest provided further that no Award
will vest if, to do so, would create a situation in which would result in
an "excess parachute payment" within the meaning of Section 280G of the
Code. Stock Options granted to the Independent Trustees hereunder will
vest and be exercisable in installments as follows: (i) to the extent of
50.0% of the number of Shares commencing on the first anniversary of the
date of grant; and (ii) to the extent of 50.0% of the number of Shares
commencing on the second anniversary of the date of grant. If the
Participant does not, in any given period, purchase all of the Shares
subject to the Award, the Participant's right to purchase any Shares not
purchased in the period will continue until the expiration or sooner
termination of the Award, except to the extent provided otherwise in the
Plan Agreement. Except as otherwise provided herein or in a Plan
Agreement, as a condition to the grant of an award to any Employee, the
Participant must remain in the continuous employ of the Company or its
subsidiaries for the period of time specified by the Board in the Plan
Agreement. To exercise an Award, the Participant must give written notice
to the Company's Vice President General Counsel at the Company's office at
Suite 2900, 150 South Wacker Drive, Chicago, Illinois 60606 (or the office
which is the successor main office or which is otherwise designated as the
office to which notice is to be given) of the number of Shares to be
acquired and make any arrangements with the Vice President General Counsel
as are acceptable to the Vice President General Counsel to satisfy the
Participant's federal, state and local tax withholding obligations and
satisfy the Participant's obligation under the Plan and the Plan Agreement.
(k) CANCELLATION OF AWARDS
Except as otherwise provided, Awards granted to Employees are
exercisable only prior to "termination of employment" as defined herein. A
Person will be considered to incur a "termination of employment" on the
latest date on which the Person no longer is, for whatever reason, an
officer or Employee of the Company or its subsidiaries ("Termination of
Employment"). Notwithstanding anything herein to the contrary, if a
Participant incurs a Termination of Employment due to death or permanent
and total disability or retirement in accordance with the Company's
retirement policy, all Awards granted under the Plan and outstanding on the
date of the Termination of Employment will be exercisable to the extent
provided in the Participant's Plan Agreement. Stock options granted to an
Independent Trustee are exercisable only so long as the individual con-
tinues to hold office; provided, however, that if the individual ceases to
hold office due to death, permanent and total disability or expiration of
the individual's term of office after the individual attains his 75th
birthday, all Awards granted under the Plan will be exercisable in
accordance with the individual's Plan Agreement.
<PAGE>
VII. PROVISIONS APPLICABLE TO THE PLAN.
(a) INVESTMENT REPRESENTATION
If the disposition of Shares acquired on exercise of any Award is not
covered by a then current registration statement under the Securities Act
of 1933, as amended (the "Securities Act"), and is not otherwise exempt
from registration, the Shares will be restricted against transfer to the
extent required by the Securities Act or regulations thereunder. Each Plan
Agreement will contain a requirement that, on demand by the Board, the
individual exercising an Award will state in writing, as a condition
precedent to each exercise, that the Participant is acquiring the Shares
for investment only and not for resale or with a view to distribution. The
Board may set forth in a Plan Agreement other terms and conditions relating
to the registration or qualification of the Shares under federal or state
securities laws as it desires.
(b) EFFECT OF CERTAIN CHANGES
(i) ADJUSTMENTS. If the Company declares a stock dividend,
stock split, combination or exchange of shares, recapitalization or other
change in the capital structure (including, but not limited to, a split-up,
spin-off, split-off or distribution to Company stockholders other than a
normal cash dividend), sells all or a substantial portion of its assets (if
measured on either a stand-alone or consolidated basis), undertakes a
reorganization, rights offering, share offering, partial or complete
liquidation, or any other corporate transaction or event involving the
Company and having an effect similar to any of the foregoing, then the
Board may adjust or substitute, as the case may be, the number of Shares
available for Awards under the Plan, the number of Shares covered by
outstanding Awards, the exercise price per Share of outstanding Awards, any
target Fair Market Value per Share that the Shares are required to reach
for all or a portion of any Awards to vest, and any other characteristics
or terms of the Awards as the Board deems necessary or appropriate to
equitably reflect the effects of those changes to the Award holders;
provided, however, that any fractional Shares resulting from the adjustment
shall be eliminated by rounding to the next lower whole number of Shares
with appropriate payment for the fractional Shares as determined by the
Board. The Board may waive any limitations set forth in or imposed
pursuant to the terms and conditions of the Plan or a Plan Agreement so
that all Awards, from and after a date prior to the effective date of an
event specified above or a Change in Control (as defined herein), will be
exercisable in full.
(ii) DISSOLUTION, LIQUIDATION, TRUST SEPARATION OR DIVISION.
If the Board proposes to dissolve or liquidate the Company or the Company
is involved in any other corporate transaction or event and having effects
on the Awards similar to any of the foregoing, the Board may terminate each
outstanding Award granted under the Plan as of a date fixed by the Board;
provided, however, that not less than thirty (30) days prior written notice
of the date so fixed shall be given to each Participant (or Beneficiary),
who shall have the right, during the thirty (30) days preceding such date,
to exercise all Awards, whether or not otherwise exercisable, as to all or
any part of the Shares covered thereby.
(iii) MERGER, CONSOLIDATION, OR SALE OF ASSETS. If the Company
is merged into or consolidated with another entity under circumstances
where the Company is not the surviving corporation, or the Company sells or
otherwise disposes of all or a substantial portion of its assets or is
involved in any other transaction or event which has an effect on the
Shares or Awards similar to the foregoing, then all Awards outstanding
under the Plan will immediately vest and become exercisable at that time
and the Board may cancel all outstanding Awards as of the effective date of
any
<PAGE>
transaction or event; provided that not less than thirty (30) days
prior written notice of the date so fixed for cancellation shall be given
to each Participant (or Beneficiary), who shall have the right, during the
thirty (30) days preceding the effective date of the transaction or event,
to exercise all Awards, whether or not otherwise exercisable, as to all or
any part of the Shares covered thereby.
(iv) CERTAIN MERGERS AND CONSOLIDATIONS. The provisions of
this Section VII(b) will not apply to a merger or consolidation in which
the Company is the surviving entity and Shares are not converted into or
exchanged for stock, securities of any other entity, cash or any other
thing of value.
(v) DEFINITION OF SHARES. In the event of a change in the
Company's Shares as presently constituted, the Shares resulting from any
change shall be deemed to be the Shares within the meaning of the Plan.
(vi) DETERMINATION OF THE BOARD. The Board shall make all
adjustments required under this Section VII(b). All adjustments shall be
final, binding and conclusive.
(vii) LIMITATIONS. The grant of an Award pursuant to the Plan
will not in any way affect the Company's right or power to make
adjustments, reclassifications, reorganizations or changes to its capital
or business structures or to merge or to consolidate or to dissolve,
liquidate, sell or transfer all or part of its business or assets.
(c) WITHHOLDING OBLIGATIONS
The Participant or Beneficiary may satisfy any withholding obligation
under the Plan or a Plan Agreement by requesting the Company to withhold
and not transfer or issue Shares with a Fair Market Value equal to the
withholding obligation, otherwise issuable or transferable to the
Participant pursuant to the exercise of an Award. The provisions of this
Section VII(c) will apply and be available to any Participant who, on the
date of exercise of an Award may be subject, in the Company's opinion, to
Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations thereunder (a "Section 16(b)
Optionee") only if, and to the extent that: (i) the Participant requests
withholding of the Shares not earlier than six (6) months subsequent to the
date of the grant of the Participant; or (ii) the election by the
Participant otherwise complies with the exemptive provisions of Rule 16b-3
under the Exchange Act as determined in the sole opinion of the Company's
General Counsel. If a Participant is issued Shares without making an
election as described in this Section VII(b) and if the date on which the
amount of tax withholding is determined is deferred until at least six
months after the exercise date of the Award, the Board may require as a
condition to issuance of Shares that the Participant tender to the Company
the proper number of Shares to satisfy the withholding obligation on the
date the tax withholding is determined. Any right or election of a
Participant under this Section VII(b) will be subject to the approval of
the Board. With respect to persons subject to Section 16 of the Exchange
Act, transitions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the
extent any provision of this Plan or any action by the Board fails to so
comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Board.
(d) RIGHTS WITH RESPECT TO CONTINUANCE OF EMPLOYMENT
The Plan and any Award granted under the Plan will not confer upon
any Participant any right to continued employment by the Company or its
subsidiaries, nor shall the Plan or any Plan Agreement interfere in any way
with the right of the Company or its subsidiaries, subject to other
agreements with the Participant, to terminate a Participant's employment at
any time.
<PAGE>
(e) NOTICE TO THE COMPANY OF OPTIONEE'S ELECTION
Any Participant exercising an election under Section 83 of the Code
to have the receipt of Shares hereunder taxed currently, without regard to
the restrictions imposed under the Plan or a Plan Agreement or law, must
give notice to the Company of the election immediately upon making the
election.
(f) INDEMNIFICATION OF THE BOARD
In addition to such other rights of indemnification as they may have
as Board members, and to the extent permitted by law, the members of the
Board shall be indemnified and held harmless by the Company and each direct
or indirect subsidiary of the Company against the reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection
with the defense of any action, suit or proceeding, or in connection with
any appeal thereof, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan
or any Award granted thereunder, and against all amounts paid by them in
settlement thereof (provided the settlement is approved by the Company's
legal counsel) or paid by them in satisfaction of a judgment in any action,
suit or proceeding, except if the Board member is found, in a non-
appealable decision, to have been grossly negligent in performing its
duties or where the Board member's misconduct is found to be gross, wanton
or willful; provided that within sixty (60) days after institution of any
action, suit or proceeding a Board member shall in writing offer the
Company the opportunity, at its own expense, to handle and defend the
action.
(g) BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan is to be paid in case of
the Participant's death before the Participant receives any or all of the
benefits. Each designation will revoke all prior designations by the same
Participant, and must be in a form prescribed by the Company and will be
effective only when filed by the Participant in writing with the Company
during the Participant's lifetime. In the absence of any designation,
benefits remaining unpaid at the Participant's death shall be paid to the
Participant's estate.
(h) DEFERRALS
The Board may permit or require a Participant to defer the receipt of
cash or the delivery of Shares that would otherwise be due to the
Participant by virtue of the exercise of an Option or SAR, the lapse or
waiver of restrictions with respect to Restricted Stock, or the
satisfaction of any requirements or goals with respect to Performance
Units/Shares. If a Participant makes any deferral, the Board shall, in its
discretion, establish rules and procedures before paying the deferred
amounts.
(i) AMENDMENT, MODIFICATION AND TERMINATION
Subject to the terms of the Plan, the Board may alter, amend, suspend
or terminate the Plan in whole or in part. The Board may make adjustments
in the terms and conditions of, and the criteria included in, Awards in
recognition of unusual or nonrecurring events affecting the Company or the
financial statements of the Company or of changes in applicable laws,
regulations or accounting principles, whenever the Board determines that
such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made
available under the Plan; provided that no such adjustment may be
authorized to the extent that such authority would be inconsistent with the
requirements of Section 162(m) of the Code, as from time to time amended.
No termination, amendment or modification of the Plan shall adversely
affect in any material way any Award previously granted under the Plan,
without the written consent of the Participant holding the Award.
<PAGE>
(j) COMPLIANCE WITH CODE SECTION 162(m)
At all times when Code Section 162(m) is applicable, all Awards
granted under this Plan must comply with the requirements of Code
Section 162(m); provided, however, that if the Board determines that
compliance is not desired with respect to any Award or Awards available for
grant under the Plan, then compliance with Code Section 162(m) will not be
required. In addition, if changes are made to Code Section 162(m) to
permit greater flexibility with respect to any Award or Awards available
under the Plan, the Board may, subject to this Article 15, make any
adjustments it deems appropriate.
(k) PLAN BINDING ON SUCCESSORS
Except as provided herein, the Plan shall be binding on the
successors and assigns of the Company.
(l) INTERPRETATION AND GOVERNING LAW
Whenever necessary or appropriate in this Plan and where the context
admits, the singular term and the related pronouns shall include the plural
and the masculine and feminine gender. The Plan shall be construed and
enforced according to the internal laws of the State of Delaware.
VIII. DEFINITIONS
(a) "Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations of the Exchange Act.
(b) "Award" means, individually or collectively, a grant under this
Plan of Nonqualified Stock Options, Incentive Stock Options, Stock
Appreciation Rights, Restricted Stock, Performance Shares or Performance
Units.
(c) "Beneficial Owner" or "Beneficial Ownership" shall have the
meaning ascribed to such term in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act.
(d) "Board" or "Board of Trustees" means the Board of Trustees of
the Company.
(e) "Change of Control" shall mean that the members of the Board of
Trustees of the Company as of the date of the relevant Plan Agreement fail
to constitute a majority of the members of the Board of Trustees of the
Company; provided, however, that if a Participant has consented to the
appointment or election of an individual who becomes a new member of the
Board of Trustees, for purposes of this definition, the new member shall be
treated as if he were a member of the Board of Trustees as of the date of
the Plan Agreement.
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(g) "Committee" means any committee appointed by the Board to
administer Awards to Participants. Any such committee shall be comprised
entirely of Trustees.
(h) "Company" means Banyan Strategic Realty Trust, a Massachusetts
business trust, including any and all Subsidiaries and Affiliates, and any
successor thereto as provided herein.
(i) "Covered Employee" means a Participant who, as of the date of
vesting and/or payout of an Award, as applicable, is one of the group of
"covered employees," as defined in the regulations promulgated under Code
Section 162(m), or any successor statute.
<PAGE>
(j) "Disability" shall have the meaning ascribed to such term in
the Participant's governing long-term disability plan or, if no such plan
exists, at the discretion of the Board.
(k) "Effective Date" shall have the meaning ascribed to such term
in Section I hereof.
(l) "Employee" means any employee of the Company or its
Subsidiaries or Affiliates. Trustees who are employed by the Company shall
be considered Employees under this Plan.
(m) "Employee Participant" shall mean any Participant who is an
Employee.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
(o) "Exercise Price" means the price at which a Share may be
purchased by a Participant pursuant to an Award.
(p) "Fair Market Value" shall have the meaning set forth in
Section V(D) hereof.
(q) "Freestanding SAR" means an SAR that is granted independently
of any Options.
(r) "Incentive Stock Option" or "ISO" means an option to purchase
Shares and which is designated as an Incentive Stock Option intended to
meet the requirements of Code Section 422.
(s) "Independent Trustee" shall mean a member of the Board who is
not an Employee or officer of the Company or its Subsidiaries and who is
not an Affiliate of the Company or its Subsidiaries except by virtue of
being a member of the Board.
(t) "Insider" shall mean an individual who is, on the relevant
date, an officer, trustee or ten percent (10%) beneficial owner of any
class of the Company's equity securities that is registered pursuant to
Section 12 of the Exchange Act, all as defined under Section 16 of the
Exchange Act.
(u) "Nonqualified Stock Option" or "NQSO" means an option to
purchase Shares which is not intended to meet the requirements of Code
Section 422.
(v) "Option" means an Incentive Stock Option or Nonqualified Stock
Option.
(w) "Participant" means an Employee or Trustee who has been
selected to receive an Award or who has outstanding an Award granted under
the Plan.
(x) "Performance-Based Exception" means the performance-based
exception from the tax deductibility limitations of Code Section 162(m).
(y) "Performance Share" means an Award of Shares subject to
performance standards.
(z) "Performance Unit" means an Award of Shares, options or other
securities subject to performance standards granted to a Participant.
(aa) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) thereof.
<PAGE>
(bb) "Plan Agreement" means the individual agreements entered into
between the Company and each Participant receiving grants hereunder and
setting forth the terms and conditions applicable to the relevant Award.
(cc) "Restricted Period" means the period during which the transfer
of Shares of Restricted Stock is limited in some way and the Shares are
subject to a substantial risk of forfeiture, as provided herein.
(dd) "Restricted Stock" means an Award Shares subject to
restrictions on transfer granted to a Participant.
(ee) "Retirement" shall have the meaning ascribed to such term in
the Company's tax-qualified retirement plan or as determined by the Board.
(ff) "Shares" means the shares of beneficial interest of the
Company.
(gg) "Stock Appreciation Right" or "SAR" means an Award, granted
alone or in connection with a related Option, designated as an SAR.
(hh) "Subsidiary" means any corporation, partnership, joint venture,
or other entity in which the Company has a majority voting interest.
(ii) "Tandem SAR" means an SAR that is granted in connection with a
related Option, the exercise of which requires forfeiture of the right to
purchase a Share under the related Option (and when a Share is purchased
under the Option, the Tandem SAR shall similarly be canceled).
(jj) "Trustee" shall mean a member of the Company's Board of
Trustees.
<PAGE>
ENCLOSURE
- ---------
Form 10-K as filed for the fiscal year ended December 31, 1996
enclosed with this notice.
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 0-15465
Banyan Strategic Realty Trust
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Massachusetts 36-3375345
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 South Wacker Drive, Chicago, IL 60606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (312) 553-9800
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:
Shares of Beneficial Interest
(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 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 ]
Shares of beneficial interest outstanding as of March 10, 1997: 10,478,971
The aggregate market value of the Registrant's shares of beneficial
interest held by non-affiliates on such date was approximately $44,419,848.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit index located on page 36 of sequentially numbered pages.
<PAGE>
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . .1
ITEM 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . .4
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . .8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . .8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SHARES AND RELATED
SHAREHOLDER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . . . . . . . . . . 28
PART III
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE
REGISTRANT. . . . . . . . . . . . . . . . . . . . . . . 29
ITEM 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . 31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . 35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
The Registrant, Banyan Strategic Realty Trust (the "Trust"), is a
Massachusetts business trust, organized pursuant to a Declaration of Trust
filed March 14, 1986 under the name VMS Strategic Land Trust. The Trust
amended its Declaration of Trust to change its name to Banyan Strategic
Realty Trust in 1993. The Trust was originally established to invest
primarily in short-term, junior and pre-construction mortgage loans to
borrowers which planned to acquire and develop strategically located
properties not then utilized at their highest and most profitable use. In
early 1990, the Trust, in response to the majority of its borrowers'
decisions to cease making payments on their mortgage loans due to their
liquidity problems, ceased funding the mortgage loans. The trustees
established and implemented the Principal Recovery Plan in order to
preserve and protect the Trust's assets. Subsequently, the independent
trustees authorized management to begin reinvestment of the cash generated
by the Principal Recovery Plan.
As of December 31, 1996, the Trust owned, through various subsidiaries
or partnerships which it controls, interests in industrial, residential,
commercial and retail real estate assets located throughout the Midwestern
and Southeastern portion of the United States and Washington, D.C. In
particular, the Trust's real estate interests include seven industrial
complexes aggregating 1,368,500 square feet of gross leasable area, two
apartment complexes consisting of a total of 822 units, five commercial
office sites consisting of 561,100 square feet of gross leasable area and
one retail center which contains 321,800 square feet of gross leasable
area. The Trust has elected to be taxed as a real estate investment trust
("REIT") under Internal Revenue Code Sections 856-860 and therefore, does
not generally incur a Trust level tax liability so long as 95% of its
taxable income is distributed to shareholders and it meets certain asset
and income tests as well as other requirements. The Trust has made
distributions equal to $0.10 per share for the last twenty-six consecutive
quarters through the quarter ending December 31, 1996.
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 headed
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." 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. See "Factors
Affecting the Trust's Business Plan" below. The Trust undertakes no
obligation to update these forward-looking statements to reflect future
events or circumstances.
BUSINESS
The Trust's current business plan is to invest its remaining cash and
cash equivalents and cash proceeds generated by financing secured by
existing property interests into additional real estate assets and to
manage these real estate assets in a manner which will increase the Trust's
cash flow over time. During the year ended December 31, 1996, the Trust
acquired ownership interests in the properties commonly known as the
Midwest Office Center and 6901 Riverport Drive and sold its interest in the
Karfad loan portfolio to an unaffiliated third party. See Item 7,
"Management's Discussion and Analysis" for further details regarding these
acquisitions and the sale of the Karfad loan portfolio. From April 1993
through December 31, 1996, the Trust has acquired interests in fifteen
properties and a mortgage loan portfolio, obtained a $30,000,000 line of
<PAGE>
credit and completed other mortgage and bond financing secured by its
various property interests. See Item 2, "Properties," for a detailed
listing of the Trust's property interests. As of December 31, 1996, the
book value of the fifteen operating properties and investment in the
H Street Assemblage, net of accumulated deprecation, is $108,203,486.
The Trust expects to fund its future liquidity needs with the cash
flow generated by its operating properties, cash proceeds derived from the
mortgage financing secured by certain property interests, draws on its
Modified Line (defined below) with American National Bank, the sale of the
H Street Assemblage property and interest earned on the Trust's short-term
investments. These sources, as well as the Trust's cash and cash
equivalents, are expected to be sufficient to meet its reasonably
anticipated needs for liquidity and capital resources in the near future
and to provide cash proceeds for distributions to shareholders. The Trust
plans to continue making additional investments in operating properties
utilizing cash proceeds to be provided from the financing sources described
above. In the event additional financing cannot be obtained, the Trust's
ability to make future real estate acquisitions would be impaired. The
other sources of cash described above are expected to provide the Trust
with the cash necessary to meet its operating expenses and other general
corporate needs and to continue the $0.10 per share quarterly distribution
throughout 1997. See "Factors Affecting the Trust's Business Plan" below
for a discussion of the factors which may influence the Trust's ability to
achieve this plan.
OTHER INFORMATION
The Trust's business and real estate property operations are not
seasonal and are subject to competition regarding rental rates and property
operations of similar types of properties in the vicinities in which they
are located. All of the Trust's existing properties are, and all of the
properties that it may acquire in the future are expected to be, located in
areas that include numerous other commercial/industrial/retail/residential
properties, many of which may be deemed to be more suitable to a potential
tenant than the Trust's properties. The resulting competition could have a
material adverse effect on the Trust's ability to lease its properties and
to increase the rentals charged on existing leases. See Item 2,
"Properties", for approximate occupancy levels for the Trust's properties
which are set forth on a quarterly basis.
The Trust has no real property investments located outside the United
States. The Trust does not segregate revenue nor assets by geographic
region, and such a presentation is not applicable and would not be
significant to an understanding of the Trust's business taken as a whole.
The Trust has five employees, each of whom serves as an executive
officer.
The Trust reviews and monitors compliance with federal, state and
local provisions which have been enacted or adopted regulating the
discharge of material into the environment, or otherwise relating to the
protection of the environment. For the year ended December 31, 1996, the
Trust did not incur any material capital expenditures for environmental
control facilities nor does it anticipate making any such expenditures for
the year ended December 31, 1997.
<PAGE>
ACQUISITION AND DISPOSITIONS SUBSEQUENT TO DECEMBER 31, 1996
PHOENIX BUSINESS PARK
On January 15, 1997, the Trust acquired a 100% ownership interest in a
three building office/industrial complex known as Phoenix Business Park
located in northeast Atlanta, Georgia, for a purchase price of
approximately $5,432,000, including liabilities assumed at acquisition.
The three buildings contain approximately 110,600 square feet of gross
leasable area. The Phoenix Business Park property was constructed in 1979
and was 100% occupied with 13 tenants upon acquisition. The Trust utilized
$100,000 of cash reserves for the acquisition with the remainder of the
purchase price provided for by a draw on the Trust's line of credit.
HALLMARK VILLAGE APARTMENTS
On September 28, 1993, BSRT Hallmark Village Limited Partnership,
("BHVLP"), a limited partnership consisting of the Trust, a subsidiary of
the Trust and HVA General Partnership, acquired the Hallmark Village
Apartments for a purchase price, including liabilities at acquisition, of
approximately $6 million. On March 11, 1997, BHLVLP sold the Hallmark
property to an unaffiliated third party for a sales price of approximately
$6.5 million, after credits made to the purchaser at closing. The Trust
received net sales proceeds of approximately $5.8 million which were used
to pay down a portion of the Trust's Revolving Line of Credit. The Trust
recognized a gain on disposition of approximately $100,000 as a result of
the sale.
H STREET ASSEMBLAGE
On December 11, 1990, the Trust acquired title to the property known
as the Victor Building located in Washington D.C. pursuant to an agreement
with Banyan Strategic Land Fund II ("BSLFII"). On June 5, 1992, the Trust
and BSLFII formed a joint venture (the "Venture"). The Trust has a 53%
interest in the Venture while BSLFII has the remaining 47%. This property
consists of 17,000 square feet of undeveloped land in downtown Washington,
D.C. plus an approximately 55,900 square foot office building.
On March 20, 1997, the Venture sold approximately 3,500 square feet of
the Venture's land to the United States General Services Administration
("GSA") for a purchase price of $1,680,000. GSA also paid the Venture
$150,000 as reimbursement of expenses that the Venture incurred in
anticipation of this transaction. The Venture received net sales proceeds
of approximately $1,829,000 of which approximately $969,000 is the Trust's
share. The Trust recognized no gain or loss on the sale. The Venture
obtained all required approvals from various government agencies for the
modifications necessary to the existing approved design for the proposed
building on the Venture's remaining property that had been necessitated by
this sale.
During the quarter ended December 31, 1996, the Venture recorded a
valuation allowance in the amount of $6,000,000, of which $3,180,000 is the
Trust's share, as a result of the above mentioned agreement with GSA and a
sales contract with an unaffiliated third party to purchase the H Street
Assemblage. The Venture's carrying value for the property after the write
down is based on the anticipated cumulative sales proceeds pursuant to the
sales contract and the agreement with GSA. Pursuant to the sales contract,
the Venture has agreed to sell the land remaining after the GSA sale for
$9,000,000 subject to a due diligence period of 60 days for the buyer. The
reduction in the carrying value of $6,000,000 reflects the carrying costs
and closing costs the Venture anticipates to incur in order to complete the
aforementioned transactions.
<PAGE>
<TABLE>
ITEM 2. PROPERTIES
As of December 31, 1996, the Trust owned interests, directly or indirectly through its wholly owned
subsidiaries, in the properties as set forth in the table below:
<CAPTION>
Name and Location Date Property
of Property Size Acquired Description Type
- ----------------- ---------- ---------- -------------------- -----------
<S> <C> <C> <C> <C>
H Street 06/05/92 A 53% General Partner
Assemblage, interest in a partnership
Washington, D.C. which has fee simple title
to this property (a)
- Land parcel 17,000 sq. ft. Land Parcel
- Victor Building 55,900 sq. ft.
g.l.a. Commercial
Milwaukee Industrial 235,800 sq. ft. 04/30/93 A 1% General and 84%
Properties g.l.a. Limited Partner interest
Metropolitan in a joint venture
Milwaukee, WI partnership (b) Industrial
Colonial Courts of 350 Units 06/17/93 A 1% General and 74%
Westland Apartments Limited Partner interest
Columbus, OH in a joint venture
partnership (b) Residential
Hallmark Village 472 Units 09/28/93 A 1% General and 89%
Apartments Limited Partner interest
Clarksville, IN in a joint venture
partnership (b) Residential
Elmhurst Metro Court 140,800 sq. ft. 11/30/93 A 1% General and 84%
Elmhurst, IL g.l.a. Limited Partner interest
in a joint venture
partnership (b) Industrial
Colonial Penn Buildings 79,200 sq. ft. 03/22/94 Fee ownership of land and
Tampa Bay, FL g.l.a. improvements (b) Commercial
Florida Power and 83,100 sq. ft. 03/22/94 Fee ownership of land and
Light Building g.l.a. improvements (b) Commercial
Sarasota, FL
Willowbrook 84,300 sq. ft. 06/16/95 A 1% General and 84%
Industrial Court g.l.a. Limited Partner interest
Willowbrook, IL in a joint venture
partnership (b) Industrial
<PAGE>
Name and Location Date Property
of Property Size Acquired Description Type
- ----------------- ---------- ---------- -------------------- -----------
Northlake Tower 321,800 sq. ft. 07/28/95 Leasehold interest pursuant
Shopping Center g.l.a. to a ground lease and
Atlanta, GA (through a 1% General and
80.9% Limited Partner
interest in a joint venture
partnership) (b) Retail
Quantum Business Center 182,200 sq. ft. 09/26/95 Fee ownership of land and
Louisville, KY g.l.a. improvements (b) Industrial
Lexington Business 316,200 sq. ft. 12/05/95 Fee ownership of land and
Center g.l.a. improvements (b) Industrial
Lexington, KY
Newtown Distribution 87,100 sq. ft. 12/05/95 Fee ownership of land and
Center g.l.a. improvements (b) Industrial
Lexington, KY
Woodcrest Office Park 265,900 sq. ft. 12/19/95 A 1% General and 84%
Tallahassee, FL g.l.a. Limited Partner interest
in a joint venture
partnership (b) Commercial
Midwest Office Center 77,000 sq. ft. 4/18/96 A 1% General and 84%
Oakbrook, IL g.l.a. Limited Partner interest
in a joint venture
partnership (b) Commercial
6901 Riverport Drive 322,100 sq. ft. 11/19/96 Leasehold interest pursuant
Louisville, KY g.l.a. to bond financing and
ownership of improvements (b) Industrial
<FN>
- ---------------
(a) Reference is made to Note 7 "Investment in Joint Venture", of Notes to Consolidated Financial Statements
filed with this annual report for a description of the joint venture partnership through which the Trust has
acquired this real property.
(b) Reference is made to Note 5 "Investment in Real Estate", of Notes to Consolidated Financial Statements
filed with this annual report for additional description of these real property investments.
</TABLE>
<PAGE>
<TABLE>
The following is a list of occupancy levels as of the end of each quarter for 1996 and 1995 at each of the
Trust's operating properties:
<CAPTION>
1996 1995
--------------------------------- ----------------------------------
at 3/31 at 6/30 at 9/30 at 12/31 at 3/31 at 6/30 at 9/30 at 12/31
------- ------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Victor Building, Office Building
Washington, D.C. . . . . . . . . . . . 53% 51% 52% 64% 50% 56% 56% 55%
Milwaukee Industrial Properties
Metro Milwaukee, WI. . . . . . . . . . 98% 100% 100% 100% 98% 98% 95% 100%
Colonial Courts of Westland Apartments
Columbus, OH . . . . . . . . . . . . . 95% 94% 92% 95% 89% 87% 91% 94%
Hallmark Village Apartments
Clarksville, IN. . . . . . . . . . . . 82% 82% 84% 82% 85% 92% 96% 88%
Elmhurst Metro Court
Elmhurst, IL . . . . . . . . . . . . . 92% 92% 86% 92% 94% 95% 91% 92%
Colonial Penn Bldg.
Tampa Bay, FL. . . . . . . . . . . . . 100% 100% 100% 100% 100% 100% 100% 100%
Florida Power & Light Building
Sarasota, FL . . . . . . . . . . . . . 93% 93% 98% 98% 90% 90% 90% 93%
Willowbrook Industrial Court
Willowbrook, IL. . . . . . . . . . . . 77% 100% 90% 93% N/A 93% 83% 76%
Northlake Tower Shopping Center
Atlanta, GA . . . . . . . . . . . . . 98% 98% 98% 98% N/A N/A 98% 98%
<PAGE>
1996 1995
--------------------------------- ----------------------------------
at 3/31 at 6/30 at 9/30 at 12/31 at 3/31 at 6/30 at 9/30 at 12/31
------- ------- ------- -------- ------- ------- ------- --------
Quantum Business Center
Louisville, KY . . . . . . . . . . . . 92% 93% 94% 93% N/A N/A 91% 93%
Lexington Business Center
Lexington, KY. . . . . . . . . . . . . 80% 80% 91% 95% N/A N/A N/A 79%
Newtown Distribution Center
Lexington, KY. . . . . . . . . . . . . 95% 97% 97% 89% N/A N/A N/A 97%
Woodcrest Office Park
Tallahassee, FL. . . . . . . . . . . . 93% 94% 91% 95% N/A N/A N/A 95%
Midwest Office Center
Oakbrook, IL . . . . . . . . . . . . . N/A 96% 97% 96% N/A N/A N/A N/A
6901 Riverport Drive
Louisville, KY . . . . . . . . . . . . N/A N/A N/A 100% N/A N/A N/A N/A
<FN>
A "N/A" indicates that the property was not owned by the Trust at the end of the quarter.
The occupancy levels are based on the total number of units for the apartment complexes and the gross leasable
area occupied at each commercial, industrial and retail property space as of the end of each quarter.
Historically, occupancy levels generally do not fluctuate significantly during the quarter.
</TABLE>
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Trust is not aware of any material pending legal proceedings as of
March 10, 1997, nor were any proceedings terminated during the quarter
ended December 31, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Trust did not submit any matter to a vote of its shareholders
during the fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SHARES AND RELATED SHAREHOLDER MATTERS
The Trust's shares are included for quotation on the NASDAQ National
Market (symbol - VLANS). The table below shows the quarterly high and low
bid prices reported by NASDAQ and the amount of cash distributions paid per
share for the years ended December 31, 1996 and 1995:
1996
----
Quarter Share Per Share Declaration
Ended Price Distributions Date
- ------- ----- ------------- -----------
3/31 High $4.875 $0.10 4/8/96
Low $3.750
6/30 High $4.500 $0.10 7/9/96
Low $3.938
9/30 High $4.625 $0.10 10/4/96
Low $4.000
12/31 High $5.000 $0.10 1/9/97
Low $3.875
1995
----
Quarter Share Per Share Declaration
Ended Price Distributions Date
- ------- ----- ------------- -----------
3/31 High $4.500 $0.10 4/6/95
Low $4.125
6/30 High $4.625 $0.10 7/7/95
Low $4.125
9/30 High $5.000 $0.10 10/5/95
Low $4.125
12/31 High $4.625
Low $4.000 $0.10 1/5/96
<PAGE>
On January 9, 1997, the Trust declared a cash distribution for the
quarter ended December 31, 1996 of $0.10 per share payable February 20,
1997 to shareholders of record on January 22, 1997.
During 1996 and 1995, $0.13 and $0.28, respectively, of the
distributions paid represented a return of capital.
The Trust's ability to make future distributions to its shareholders
is dependent upon, among other things: (i) sustaining the operating
performance of its existing real estate investments through scheduled
increases in base rents under existing leases and through general
improvement in the real estate markets where the Trust's properties are
located reflected in changes in base rents attributable to new or
replacement leases; (ii) the operating performance of future acquisitions
and (iii) the Trust's level of operating expenses.
As of March 10, 1997, there were 4,128 record holders of shares of
beneficial interest.
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA (1)
<CAPTION>
For the Years Ended December 31,
1996 1995 1994 1993 1992
------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues . . . . . . . . . $21,404,318 $12,902,369 $8,833,801 $4,127,149 $ 3,964,333
Net Income (Loss). . . . . (1,757,260) 2,600,045 (912,492) (617,272) 1,517,453
Net Income (Loss)
Per Share. . . . . . . . (0.17) 0.25 (0.09) (0.06) 0.13
BALANCE SHEET DATA
(at year end)
Mortgage Loans
Receivable, Net (2). . . --- 5,433,094 5,136,229 4,891,462 ---
Investment in Real
Estate, Net. . . . . . . 102,489,727 87,862,970 40,161,412 21,769,471 ---
Investment in Real
Estate Ventures. . . . . 5,713,759 8,895,678 10,697,791 13,668,332 14,920,215
Total Assets . . . . . . . 116,534,205 110,764,772 74,084,351 69,360,043 69,934,583
Mortgage Loans and
Bonds Payable. . . . . . 59,081,023 49,022,181 13,400,695 3,986,373 ---
Shareholders'
Equity . . . . . . . . . 50,934,438 56,875,404 58,440,712 63,541,645 69,590,425
OTHER DATA
Funds From Operations
(3)(6) . . . . . . . . . 3,689,010 3,333,940 2,846,530 792,692 N/A
Real Estate Net
Operating Income
(4)(6) . . . . . . . . . 9,497,917 5,360,807 4,087,680 1,125,220 N/A
Number of Property
Interests Owned . . . . 15 13 8 6 2
Weighted Average
Number of Shares . . . . 10,478,410 10,474,079 10,471,102 10,518,047 11,537,364
Cash Distribution
Per Share of
Beneficial
Interest (5) . . . . . $ 0.40 $ 0.40 $ 0.40 $ 0.40 $ 0.40
<PAGE>
<FN>
- ------------
(1) The above selected financial data should be read in conjunction with the consolidated financial statements
and the related notes appearing elsewhere in this annual report.
(2) Represents the carrying amount of the mortgage loans, which is equal to the face amount of the loans less
unamortized loan fees, net of loan discounts of $1,436,587, $1,808,716 and $2,116,636 for 1995, 1994 and 1993,
respectively. See Note 2, Mortgage Loans Receivable, of Notes to Consolidated Financial Statements for further
details.
(3) The Trust considers funds from operations ("FFO") to be an appropriate measure of the performance of an
equity REIT. FFO is generally defined as net income computed in accordance with generally accepted accounting
principles, less extraordinary unusual and nonrecurring items, less gains (or losses) from debt restructuring and
sales of property plus depreciation and amortization and after adjustments for unconsolidated partnerships and
joint ventures in which the REIT holds an interest. The Trust cautions shareholders that the calculation of FFO
may vary from entity to entity and as such the presentation of FFO by the Trust may not be comparable to other
similarly titled measures of other reporting companies. All FFO amounts reflect the definition recommended by the
National Association of Real Estate Investment Trusts, as modified in 1995 to eliminate amortization of deferred
financing costs previously added back to net income when computing FFO. FFO for the years ended December 31, 1994
and 1993 were therefore restated for comparison purposes.
(4) Real estate net operating income ("RENOI") is defined as total revenue excluding income on investments less
operating property expenses, repairs and maintenance, real estate taxes, ground lease expense and depreciation
and amortization.
(5) Based on 10,478,410 weighted average shares outstanding for 1996, 10,474,079 weighted average shares
outstanding for 1995, 10,471,102 weighted average shares outstanding for 1994, 10,518,047 weighted average shares
outstanding for 1993 and 11,537,364 shares outstanding for 1992.
(6) Effective January 1, 1993, the Trust initiated its reinvestment plan to invest its cash and cash equivalents
into new real estate assets. FFO and RENOI for the year ended December 31, 1992 are therefore not comparable to
the years ended December 31, 1993 through 1996.
</TABLE>
<PAGE>
<TABLE>
QUARTERLY RESULTS OF OPERATIONS
The following is a summary of the quarterly results of operations for the years ended December 31, 1996 and
1995.
<CAPTION>
1996
For the three months ended:
-----------------------------------------------------------------
March 31 June 30 September 30 December 31
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total Revenue $ 5,176,653 $ 5,440,777 $ 5,284,942 $ 5,501,946
Recovery of Losses on Loans, Notes
and Interest Receivable --- --- 14,059 2,510
Operating Expenses (4,409,752) (4,621,024) (4,666,593) (5,698,155)
----------- ----------- ----------- -----------
Operating Income (Loss) 766,901 819,753 632,408 (193,699)
Minority Interest in Consolidated
Partnerships (102,553) (117,934) (128,903) (132,021)
Income (Loss) of Real Estate Ventures (38,307) (58,707) 19,649 (3,223,847)
----------- ----------- ----------- -----------
Net Income (Loss) $ 626,041 $ 643,112 $ 523,154 $(3,549,567)
=========== =========== =========== ===========
Earnings (Loss) Per Share of
Beneficial Interest $ 0.06 $ 0.06 $ 0.05 $ (0.34)
=========== =========== =========== ===========
<PAGE>
1995
For the three months ended:
-----------------------------------------------------------------
March 31 June 30 September 30 December 31
----------- ------------ ------------ ------------
Total Revenue $ 2,509,475 $ 2,658,097 $ 3,453,623 $ 4,281,174
Recovery of Losses on Loans, Notes
and Interest Receivable 155,834 --- --- 9,124
Operating Expenses (2,010,811) (2,228,171) (2,801,724) (3,720,465)
----------- ----------- ----------- -----------
Operating Income 654,498 429,926 651,899 569,833
Minority Interest in Consolidated
Partnerships (16,942) (7,521) (55,896) (97,755)
Income (Loss) of Real Estate Ventures 26,623 365,977 256,674 (177,271)
----------- ----------- ----------- -----------
Net Income $ 664,179 $ 788,382 $ 852,677 $ 294,807
=========== =========== =========== ===========
Earnings Per Share of Beneficial
Interest $ 0.06 $ 0.08 $ 0.08 $ 0.03
=========== =========== =========== ===========
<FN>
Net income for the three months ended March 31, June 30 and September 30, 1995 reflects a reduction of
$20,216, $83,951 and $104,425, respectively, from amounts originally reported to reflect adjusted allocation of
administration costs from Banyan Management Corp.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Certain statements in this Annual Report that are not historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Discussions containing forward-
looking statements may be found in this section and in the section headed
"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. See "Factors
Affecting the Trust's Business Plan" below. The Trust undertakes no
obligation to update these forward-looking statements to reflect future
events or circumstances.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents consist of cash and short-term investments.
The Trust's cash and cash equivalents balance at December 31, 1996 and 1995
was $3,805,260 and $5,500,215, respectively. The decrease in total cash
and cash equivalents of $1,694,955 is due to the use of $11,969,271 in
investing activities, an amount which exceeds the $5,401,784 cash generated
from operating activities and $4,872,532 of cash obtained by financing
activities.
Cash Flow From Operating Activities: Net cash provided by operating
activities increased by approximately $2.6 million for the year ended
December 31, 1996 to approximately $5.4 million from approximately $2.8
million for the same period in 1995. This increase is primarily due to the
net operating income generated by the properties acquired in 1996 and the
six properties acquired in the final seven months of 1995.
Cash Flow From Investing Activities: During the year ended December
31, 1996, the Trust utilized approximately $12 million in investing
activities compared to approximately $44.7 million for the same period in
1995. The cash flow used for investing activities for the year ended
December 31, 1996 was used to acquire the Midwest Office Center (the
"Midwest Property") and 6901 Riverport Drive (the "Riverport Property")
properties for approximately $15 million (see Property Acquisitions and
Other Information below for further detail), approximately $339,000 to pay
liabilities assumed at closing, capital improvements at its various
properties in the amount of approximately $1.9 million, offset by proceeds
from the sale of mortgage loans receivable in the amount of approximately
$5.4 million. (See below for further discussion regarding the 1996 sale of
the Trust's interest in the Karfad Loan Portfolio). During the same period
in 1995, the Trust paid approximately $47.8 million to acquire the
Willowbrook, Northlake, Lexington, Newtown, Woodcrest and Quantum
properties and approximately $1.2 million for capital improvements at its
properties, offset by approximately $2.2 million of proceeds received from
the sale of the Plaza at Westminster property in June 1995 (proceeds from
the sale of the Trust's investment in the real estate venture),
approximately $1 million in net proceeds from the sale of investment
securities, approximately $730,000 in repayment of amounts due from Banyan
Strategic Land Fund II (the Trust's joint venture partner in the H Street
Assemblage property) and approximately $165,000 received in respect of the
Trust's interest in a liquidating trust.
<PAGE>
The Trust did not have any mortgage loans receivable as of December
31, 1996. As of December 31, 1995, the Trust's mortgage loan portfolio
consisted of five mortgage loans receivable with an aggregate carrying
value of $5,433,094. During the year ended December 31, 1996, the Trust
received principal and interest payments totalling $14,742 and $467,958,
respectively. During the year ended December 31, 1995, the Trust received
principal and interest payments totalling $43,817 and $658,249,
respectively. Karfad Associates (the "Borrower"), which was indebted to
the Trust pursuant to the Karfad loan in the original principal amount of
$5,849,266 (the "Loan"), failed to make the required interest payments due
on the first of each month from January through May of 1996 resulting in a
foreclosure and a direct action against the guarantors. On May 17, 1996,
the Trust entered into a Settlement Agreement (the "Agreement") and two
loan sale agreements with the Borrower and a party affiliated with the
Borrower pursuant to which the Loan, as well as four related loans to
parties affiliated with the Borrower (collectively the "Loan Portfolio"),
were to be sold at an amount equal to the Trust's December 31, 1995
carrying value for the Loan Portfolio totalling approximately $5,440,000.
On June 28 and July 31, 1996, the Trust completed the sale of the Loan
Portfolio. In addition, the Borrower made all interest payments due
pursuant to the terms of the original remaining four loans in the Loan
Portfolio and the Loan from January 1, 1996 through the date of sale in the
amount of approximately $407,000. As of July 31, 1996, the Trust has no
further interest in the Loan Portfolio.
Cash Flow From Financing Activities: For the year ended December 31,
1996, the Trust generated cash flow from financing activities of
approximately $4.9 million compared to approximately $32.6 million for the
same period in 1995. The cash flow provided by financing activities for
the year ended December 31, 1996 was primarily generated from the receipt
of approximately $21.6 million of proceeds from bonds and mortgage loans
payable, approximately $7.3 million of which consisted of proceeds from a
first mortgage loan secured by the Woodcrest property, $5.7 million of
which represents bond proceeds received in connection with the acquisition
of the Riverport property, approximately $3.3 million of which consisted of
proceeds from a first mortgage loan secured by the Midwest property and the
balance of which was drawn on the Trust's line of credit (see below).
During the year ended December 31, 1996, the Trust also executed a first
mortgage loan secured by the Florida Power and Light building in the amount
of $6.2 million and utilized the proceeds from the loan to reduce its
borrowing on the Trust's line of credit. (See Property Acquisitions and
Other Information below for details). Primarily offsetting these proceeds
were principal payments on mortgage loans and bonds payable aggregating
approximately $11.6 million, $10.9 million of which represents a paydown of
the Trust's line of credit and approximately $700,000 of which represents
principal payments on additional mortgage loans and bonds payable. In
addition, the Trust paid approximately $637,000 of deferred financing
costs, distributions to shareholders of approximately $4.2 million and
distributions to minority partners of approximately $358,000.
For the year ended December 31, 1995, the Trust received approximately
$35.8 million of proceeds from mortgage loans payable which represents
funds used to acquire the Willowbrook, Northlake and Quantum properties and
amounts drawn on the Trust's line of credit to acquire the Lexington and
Newtown properties. In addition, the Trust received contributions from
minority partners of approximately $1.8 million, including $1.5 million
from the joint venture partner in the entity owning the Northlake property.
Offsetting these proceeds during the year ended December 31, 1995 were
distributions paid to shareholders of approximately $4.2 million, deferred
financing costs of approximately $597,000 and principal payments on
mortgage loans of approximately $185,000.
<PAGE>
LINE OF CREDIT
On December 13, 1994, the Trust executed a Revolving Line of Credit
(the "Original Line") with American National Bank and Trust Company of
Chicago ("ANB") in the amount of $15 million. On December 15, 1995, the
Trust and ANB entered into an agreement modifying the Original Line by
increasing the amount the Trust could borrow from $15,000,000 to
$30,000,000 (the "Modified Line"). On January 7, 1997, the Trust and ANB
entered into an agreement further modifying the Modified Line by decreasing
the amount that the Trust could borrow from $30 million to $20 million (the
"Amended Line"). During the initial term of the Original Line and any
extension, the Trust must pay interest only at the rate of LIBOR plus 2.25%
or Prime plus .25% at the election of the Trust which currently equals
approximately 7.6% to 8.5% per annum on any draws under the Amended Line.
In addition, the Trust is required to pay the Bank an unused facility fee
of .5% per annum multiplied by the average portion of the Amended Line that
is undrawn from time to time. Under the Amended Line, the term of the
borrowing facility was extended from December 14, 1997 to May 31, 1998. As
of December 31, 1995, the Trust had utilized approximately $25,724,000
available under the Modified Line. On March 13 and July 15, 1996, the
Trust used the proceeds from mortgage loans collateralized by the Florida,
Power and Light and Woodcrest Office Park properties, to pay down the
revolving line of credit in the amounts of $6.2 million and $7 million
respectively. In addition, on April 15, 1996, the Trust replaced a $5.6
million letter of credit previously issued by ANB which had been
collateralized by the Modified Line with an irrevocable letter of credit in
the same amount from Citizen's National Bank of Evansville (See Property
Acquisitions and Other Information below for more details). The Trust
borrowed $1 million under the Modified Line for the acquisition of the
Midwest Office Park property in April 1996. On June 28 and July 31, 1996,
the Trust sold its interest in the Karfad loan portfolio. On August 1,
1996, the Trust used a portion of the Karfad loan portfolio net sales
proceeds to pay down $3.9 million of the Modified Line. On November 19,
1996, the Trust borrowed $4.4 million under the Modified Line for the
acquisition of the Riverport Property. As a result of the above
transactions, as of December 31, 1996, the Trust had an outstanding balance
of $8.4 million of the $30 million available under the Modified Line.
The Trust's objective is to provide cash distributions to its
shareholders from cash generated from the Trust's operations. Cash
generated from operations is not equivalent to the Trust's net operating
income as determined under generally accepted accounting principles. Due
to certain unique operating characteristics of real estate companies, the
real estate investment trust ("REIT") industry has adopted a standard which
it believes more accurately reflects operating property performance. Funds
From Operations ("FFO") is defined by the National Association of Real
Estate Investment Trusts as net income computed in accordance with
generally accepted accounting principles, less extraordinary unusual and
nonrecurring items, excluding gains (or losses) from debt restructuring and
sales of property plus depreciation and amortization and after adjustments
for unconsolidated partnerships and joint ventures in which the REIT holds
an interest. The Trust cautions shareholders that the calculation of FFO
may vary from entity to entity and as such the presentation of FFO by the
Trust may not be comparable to other similarly titled measures of other
reporting companies. FFO is not intended to be a measure of the cash
generated by a REIT nor the REIT's capacity to pay distributions. However,
a REIT's distribution can be analyzed in comparison to FFO in a similar
manner as a company that is not a REIT would compare its distribution to
net operating income.
For the years ended December 31, 1996, 1995, and 1994, the Trust's
operations generated FFO of $3.7 million, $3.3 million and $2.8 million,
respectively. FFO increased for the year ended December 31, 1996 as
compared to the years ended December 31, 1995 and 1994 as a result of the
Trust's 1994, 1995, and 1996 property acquisitions.
<PAGE>
FFO for the years ended December 31, 1996, 1995, and 1994 is
calculated as follows:
1996 1995 1994
----------- ----------- -----------
Net Income (Loss) $(1,757,260) $ 2,600,045 $ (912,492)
Plus:
Depreciation expense 2,355,360 1,300,205 853,063
Depreciation included
in Operations of
Real Estate Ventures 30,475 50,382 69,743
Lease Commission
Amortization 97,699 34,787 22,886
Less:
Minority Interest
Share of Depreci-
ation Expense (228,011) (110,813) (42,155)
Minority Interest
Share of Lease
Commission
Amortization (12,684) (4,418) (2,289)
Recovery of Losses
on Loans, Notes
and Interest
Receivable (16,569) (164,958) (57,226)
Franchise Tax Fees
Accrued 40,000 38,000 ---
Valuation Allowance
Included in Operations
of Real Estate Venture 3,180,000 --- 2,915,000
Gain on Disposition
of Investment in
Real Estate Venture --- (409,290) ---
----------- ----------- -----------
Funds From Operations $ 3,689,010 $ 3,333,940 $ 2,846,530
=========== =========== ===========
The Trust expects to fund its future liquidity needs with the cash
flow obtained from its operating properties, cash proceeds derived from
mortgage financing either on a long term basis or utilizing the Amended
Line secured by the Trust's remaining unencumbered properties (Colonial
Penn, Phoenix Business Park, Lexington and Newtown properties), sale of the
H Street Assemblage property and interest earned on the Trust's short-term
investments. The Trust believes that these sources, as well as the Trust's
cash and cash equivalents, are sufficient to meet the Trust's reasonably
anticipated needs for liquidity and capital resources in the near future
and to provide cash proceeds for distributions to shareholders.
<PAGE>
RESULTS OF OPERATIONS
GENERAL
At December 31, 1996, the Trust owned seven industrial complexes
aggregating 1,368,500 square feet of gross leasable area, two apartment
complexes consisting of a total of 822 units, five commercial office
properties consisting of 561,100 square feet of gross leasable area and one
retail center containing 321,800 square feet of gross leasable area. During
1994, the Trust acquired the Colonial Penn and Florida Power and Light
Commercial Office buildings. During 1995, the Trust acquired Willowbrook
Industrial Court, Northlake Tower Shopping Center, Quantum Business Center,
Lexington Distribution Center, Newtown Distribution Center and the
Woodcrest Office Park property. During 1996, the Trust acquired interests
in the Midwest Office Center and 6901 Riverport Drive properties and sold
its interest in the Karfad loan portfolio to an unaffiliated third party.
For further discussion regarding the sale of the Karfad loan portfolio see
Liquidity and Capital Resources above. See Property Acquisitions and
Other Information below for a more detailed description of the assets
acquired during 1996.
The Trust is entitled to receive a cumulative preferred return of 12%
compounded annually on its total capital contribution in each of the joint
ventures holding title to the Milwaukee Industrial, Elmhurst Metro Court,
Willowbrook Industrial Court, Midwest Office Center, Northlake Tower
Shopping Center, Woodcrest Office Park and Hallmark Village Apartments
properties. During the year ended December 31, 1996, all the properties,
with the exception of Hallmark Village, generated sufficient cash flow from
operations to pay the Trust in excess of its 12% preferred return earned on
contributed equity. The Trust sold its interest in the Hallmark Village
property on March 11, 1997. See Item 1, "Business", for further details.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
Real estate net operating income before interest expense (herein
defined as total revenue excluding income on investments less operating
property expenses, repairs and maintenance, real estate taxes, ground lease
expense and depreciation and amortization) increased from approximately
$5.4 million in 1995 to approximately $9.5 million in 1996. Acquisitions
made during 1995 and 1996 contributed approximately $4.9 million to net
operating income in 1996 offset by a decrease of approximately $594,000 in
interest and amortized discount on mortgage loans which resulted from the
sale of the Karfad loans. See below for further discussions of the changes
in revenues and expenses for the year ended December 31, 1996 as compared
to the year ended December 31, 1995.
Total revenues increased by approximately $8.5 million to $21,404,318
from $12,902,369 primarily due to the acquisitions made during 1995 and
1996 which accounted for approximately $9.2 million of this increase during
the year ended December 31, 1996. On a "same-store" basis (comparing the
results of operations of the properties owned during the year ended
December 31, 1996, with the results of operations of the same properties
owned during the year ended December 31, 1995), property revenues increased
from $8,590,000 in 1995 to $8,930,000 in 1996 or approximately $340,000, a
4% increase. This increase in property revenue was due primarily to an
increase in average occupancy at the Colonial Courts of Westland apartments
of 94% for the year ending December 31, 1996 as compared to 90% for the
same period in 1995 and scheduled rent increases at the Trust's industrial
and office properties. Partially offsetting these improvements was a
decrease in interest and amortized discount on mortgage loans of
approximately $594,000 and a decrease in income on investments of
approximately $475,000. Interest and amortized discount on mortgage loans
decreased due to the Trust's termination of the amortization of the
purchase discount as of January 1, 1996 on the Karfad Loan and sale of the
loan portfolio as discussed above. Interest income on investments
decreased due to the reduction in cash available for investment resulting
<PAGE>
primarily from the investment of cash in the assets acquired during 1996
and the last seven months of 1995 and the paydown of the Modified Line.
See Property Acquisitions and Other Information for further discussion
regarding the Trust's acquisitions of the Midwest Office Center and 6901
Riverport Drive properties. See Liquidity and Capital Resources above for
detail regarding the sale of the Trust's interest in the Karfad Loan
Portfolio.
Total expenses increased by approximately $8.8 million to $19,378,955
from $10,596,213 due primarily to the acquisitions made during 1995 and
1996 which accounted for approximately $6.7 million of this increase during
the year ended December 31, 1996. On a "same-store" basis, total expenses
increased from $7,909,000 in 1995 to $10,017,000 in 1996 or approximately
$2.1 million, a 20% increase. This increase in total expenses is due
primarily to increases in general and administrative and interest expense.
General and administrative expenses increased as a result of an increase in
executive incentive compensation earned on the Trust's investment
activities. During the year ended December 31, 1996, the Trust accrued
approximately $399,000 relating to incentive compensation earned by Mr.
Levine, the Trust's president, based on the 1996 actual results of the
Trust's investments. In addition, the Trust accrued an additional $650,000
of incentive compensation expenses reflecting the estimated unrealized gain
on the Trust's real estate assets. See Item 11, Executive Compensation,
for further details regarding incentive compensation earned and
modifications made to the president's employment contract with the Trust.
Interest expense increased by approximately $321,000 as a result of the
Trust's execution of a mortgage loan in the amount of $6,200,000
collateralized by the Florida Power and Light property during March 1996.
In addition, a decrease in recoveries of amounts previously charged against
losses on loans, notes, and interest receivable of $164,958 during 1995 as
compared to $16,569 during 1996, which resulted from distributions in
respect of the Trust's interest in the liquidating trust, also contributed
to the increase in total expenses. See Property Acquisitions and Other
Information below for further details regarding the Trust's interest in the
liquidating trust. The remaining increase in total expenses on a "same-
store" basis, resulted from increases in repairs and maintenance, property
operating and depreciation and amortization expense for the properties
owned by the Trust prior to January 1, 1995.
During the year ended December 31, 1996, the Trust realized a net loss
from the operation of real estate ventures of ($3,301,212) compared to
income of $472,003 for the same period in 1995. This net loss during 1996
represents the Trust's share (53%) of the loss incurred by the real estate
venture known as the H Street Venture. The H Street Venture owns an office
building with approximately 55,900 square feet of gross leasable area (the
"Victor Building") and an adjacent land parcel consisting of 17,000 square
feet (the "H Street Assemblage") located in Washington, D.C. The net
income from operations of real estate ventures of $472,003 for the year
ended December 31, 1995 resulted from the income from operations and gain
on the sale of the Plaza at Westminster property of $434,240 and income
from operations of $37,763 on the H Street Assemblage. The Plaza at
Westminster property was sold in June 1995 to an unaffiliated third party.
The net loss in 1996 is due primarily to a reduction in the book value of
the H Street Assemblage during 1996 in the amount of $6,000,000, of which
$3,180,000 is the Trust's share. The H Street Venture's carrying value for
the property after this reduction is based on the anticipated cumulative
sales proceeds pursuant to an agreement with an unaffiliated third party
and the sale of a portion of the H Street Venture's land to the United
States General Services Administration ("GSA"). On March 20, 1997, the H
Street Venture sold approximately 3,500 square feet of the H Street
Venture's land to the GSA for a purchase price of $1,680,000. GSA also
paid the H Street Venture $150,000 as reimbursement of expenses that the H
Street Venture incurred in anticipation of this transaction. The H Street
Venture has obtained all required approvals from various government
agencies for the modifications necessary to the existing approved design
for the proposed building on the H Street Venture's remaining property that
have been necessitated by this sale. The H Street Venture received net
sales proceeds of approximately $1,829,000, of which approximately $969,000
is the Trust's share. Pursuant to the agreement with an unaffiliated third
<PAGE>
party, the H Street Venture has agreed to sell the building and land
remaining after the GSA sale for $9,000,000 subject to a due diligence
period of 60 days for the buyer. The closing is scheduled to take place no
later than July 25, 1997. The reduction in the book value of $6,000,000
reflects the carrying costs and closing costs the H Street Venture
anticipates to incur in order to complete the aforementioned transactions.
The Trust's share of income from the H Street Assemblage for 1995
compared to 1994 increased by $3,466,364 since the 1994 results were
negatively impacted by a reduction in the book value of the H Street
Assemblage during 1994 in the amount of $5,500,000, of which $2,915,000 is
the Trust's share. The write-down was due to the H Street Venture revising
its strategy from holding the property in anticipation of potential
development to marketing the property for sale. This increase in net
income for the H Street property for 1995 as compared to 1994 was further
due to a reduction in legal costs relating to the completion of a real
estate tax appeal which reduced the property's assessed taxable value.
During 1995, the H Street Venture recorded approximately $433,000 in real
estate tax refunds and interest thereon, relating to taxes paid in 1992 and
1993, resulting in a decrease in real estate tax expense of approximately
$457,000 for the year ended December 31, 1995 when compared to the same
period in 1994. In addition, legal and entitlement costs for 1995
decreased when compared to 1994 since the costs incurred during 1994
included nonrecurring payments for professional services associated with
obtaining the historic preservation rights.
The factors discussed above resulted in a consolidated net loss of
($1,757,260) or ($0.17) per share for the year ended December 31, 1996 as
compared to consolidated net income of $2,600,045 or $0.25 per share for
the year ended December 31, 1995.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
Real estate net operating income before interest expense increased
from $4,087,680 in 1994 to $5,360,807 in 1995. Acquisitions made during
1994 and 1995 contributed approximately $1.4 million to net operating
income in 1995. On a "same-store" basis, real estate net operating income
decreased by approximately $121,000 due mainly to an increase in property
operating and repairs and maintenance expenses at the Trust's Hallmark
Village property. See below for further discussions of the changes in
revenues and expenses for the year ended December 31, 1995 as compared to
the year ended December 31, 1994.
Total revenue increased by approximately $4.1 million to $12,902,369
in 1995 from $8,833,801 in 1994 due primarily to the assets acquired after
January 1, 1994 which account for approximately $3.4 million of this
increase. On a "same-store" basis (comparing the results of operations of
the properties owned during the year ended December 31, 1995, with the
results of operations of the same properties owned during the year ended
December 31, 1994) property operating revenues increased by approximately
$346,000 due to an increase in total revenue at the Trust's Elmhurst Metro
Court and Hallmark Village Apartment properties. Total revenue at the
Elmhurst property increased by approximately $181,000 due primarily to
annual rent adjustments in 1995 made pursuant to tenant lease agreements.
The remaining increase of approximately $165,000 is attributable to an
increase in revenue at the Hallmark property resulting from the Trust's
aggressive collection efforts in 1995 which reduced delinquent rental
payments and an increase in occupancy to 88% at December 31, 1995 as
compared to 80% for the same period in 1994. Interest income on investments
increased due to the increase in cash available for investment derived from
the proceeds received on financing of the Elmhurst and Colonial Courts
properties which were held as cash reserves until the 1995 acquisitions. A
further increase in cash available for investment resulted from the Trust's
receipt of net proceeds from its share of the Westminster sale in June
1995. The remaining increase in total revenue of approximately $76,000
represents an increase in interest income and amortized discount on the
Karfad loan portfolio.
<PAGE>
Total expenses increased from $6,742,322 in 1994 to $10,596,213 in
1995, an increase of approximately $3.9 million. The Trust's acquisitions
during 1994 and 1995 accounted for approximately $2.8 million of this
increase. On a "same-store" basis, interest expense and amortization of
deferred loan fees increased by approximately $629,000 relating primarily
to interest expense and costs associated with obtaining mortgage loans
collateralized by the Elmhurst and Colonial Courts properties in December
1994. On a "same-store" basis, the remaining increase in expenses resulted
primarily from increases in repairs and maintenance, real estate tax
expense and property operating expenses for the properties owned by the
Trust prior to January 1, 1994.
Management reviews the properties owned by the Trust on a quarterly
basis and, when it has been determined that a permanent impairment in the
value of a given property has occurred, the property's carrying value is
then written down to its fair market value. During the quarters ended
December 31, 1994 and 1996, the H Street Venture recorded a $5,500,000 and
$6,000,000 valuation allowance, respectively, relating to the H Street
Assemblage, pursuant to its decision to sell the property rather than to
pursue the redevelopment of the property. The Trust's share of the H
Street Assemblage valuation allowance for the quarters ended December 31,
1994 and 1996 is $2,915,000 and $3,180,000, respectively. The Trust did
not record any valuation allowances against its portfolio of mortgage loans
or operating properties for the year ended December 31, 1995.
The factors discussed above resulted in consolidated net income for
the year ended December 31, 1995 of $2,600,045 or $0.25 per share as
compared to a consolidated net loss of $912,492 or $0.09 per share in 1994.
PROPERTY ACQUISITIONS AND OTHER INFORMATION
On November 19, 1996, the Trust acquired a 100% leasehold interest in
a property located at 6901 Riverport Drive in Louisville, Kentucky. The
leasehold interest converts to a fee simple ownership interest upon
maturity and/or repayment of the bond financing as discussed below. The
6901 Riverport Drive property ("Riverport property") is a single story
industrial/distribution building consisting of approximately 322,100 gross
leasable area. The property is situated on 50 acres of land of which
approximately 20 acres are vacant. The vacant land is zoned for the
construction of approximately 300,000 of additional square feet of bulk
warehouse or office/service space. The Riverport property was built in
1985 and is currently 100% leased to two tenants. The Apparel Group, a
distributor of clothing sold to large department and discount stores,
occupies approximately 175,700 square feet pursuant to a lease which
expires January 31, 2000. The remaining 146,400 square feet are occupied
by Exel Logistics, a logistics firm, pursuant to a lease which expires on
July 31, 2000.
The leasehold interest in the Riverport property was acquired by the
Trust for a purchase price of $9,992,000. The Trust utilized $200,000 of
cash reserves for the acquisition and assumed a lease obligation. The
property is encumbered by tax-exempt Industrial Revenue Bond financing with
an outstanding principal balance in the amount of $5,700,000 issued by
Jefferson County, Kentucky. The remainder of the acquisition price was
provided for by a draw upon the Trust's line of credit. The lease assumed
requires monthly payment of variable rate interest which is due the first
of each month and annual principal payments in the amount of $300,000 which
are due and payable each December 1 to and including December 1, 2014, the
maturity date. Under the terms of the lease, the lease payments are equal
to the required principal and interest payments on the bonds. An
irrevocable letter of credit was issued as additional collateral for the
bond financing which matures in December 1999. The bank issuing the letter
of credit has a secured interest in the property. The Trust is required to
pay a letter of credit fee of 1.5% annually. The variable interest rate on
the bonds as of February 1997 was 3.4%. Real estate taxes for the
Riverport property have been waived by Jefferson County until such time as
the outstanding principal of the bond financing is fully retired.
<PAGE>
On March 13, 1996, the Trust executed a nonrecourse first mortgage
loan collateralized by the Florida Power and Light office building. The
loan, in the amount of $6,200,000, bears interest at a fixed rate of 7.21%
per annum, matures on April 1, 2003 and requires monthly payments of
principal based upon a twenty-three year amortization schedule with a
balloon payment of approximately $5,255,000 due upon maturity. The loan
contains a prepayment penalty which is based on a formula to provide yield
maintenance protection to the Lender. The loan proceeds were utilized to
reduce borrowings under the Trust's revolving line of credit in the amount
of $6,200,000.
On April 18, 1996, Banyan/Morgan Milwaukee Limited Partnership
("BMMLP"), a joint venture between a subsidiary of the Trust, which is a
general partner of BMMLP, and an affiliate of Morgan Realty Partners
("Morgan"), a general partner of BMMLP, acquired the Midwest Property, a
single-story office building which consists of approximately 77,000 square
feet of gross leasable area located in Oakbrook Terrace, Illinois
(metropolitan Chicago) for a purchase price, including liabilities assumed
at acquisition, of approximately $4,987,000. The Trust contributed capital
to BMMLP upon acquisition of the property of approximately $1,692,000, of
which the Trust borrowed $1,000,000 under its line of credit. The Trust
contributed an additional $147,000 for cash reserves which are held by
BMMLP for improvements and lease-up at the property. The Trust is
entitled to receive a cumulative preferred return of 12% compounded
annually on its total capital contribution to BMMLP. After the Trust
receives its preferred return, any excess cash from operations is
distributed 85% to the Trust and 15% to Morgan. The acquisition was made
subject to a nonrecourse first mortgage loan collateralized by the property
in the principal amount of $3,295,000 which bears interest at a fixed rate
of 7.13% per annum, matures on May 1, 2003, and requires monthly payments
of principal based upon a twenty-two year amortization schedule. The loan
requires a balloon payment for the remaining unpaid principal balance of
approximately $2,733,000 at maturity. The loan contains a prepayment
penalty of 7% of the outstanding principal loan balance in year one,
decreasing by 1% thereafter through the loan's maturity date.
On July 15, 1996, BSRT Woodcrest Office Park Limited Partnership
("BWOPLP"), a limited partnership among a subsidiary of the Trust, as
general partner, and Mr. Daniel Smith and the Trust as limited partners,
executed a nonrecourse first mortgage loan collateralized by the Woodcrest
Office Park property. The loan, in the amount of $7,250,000, bears
interest at a fixed rate of 8.25% per annum, matures on August 1, 2003 and
requires monthly payments of principal based upon a twenty-five year
amortization schedule with a balloon payment of approximately $6,435,000
due upon maturity. The loan proceeds were utilized to reduce borrowings by
$7,000,000 under the Trust's revolving line of credit with American
National Bank. The loan contains a prepayment penalty of 7% of the
outstanding principal balance in year one, decreasing by 1% thereafter
through the loan's maturity date of August 1, 2003.
On December 14, 1994, a limited partnership consisting of the Trust, a
wholly-owned subsidiary and an unrelated third party, which holds title to
the Colonial Courts property, completed a $5,500,000 tax-exempt bond
financing secured by the Colonial Courts property. The bond was
collateralized by a $5,624,315 letter of credit issued by American National
Bank and Trust Company ("original LOC") as a draw against the Trust's line
of credit (See Liquidity and Capital Resources above for further details).
The bonds have a thirty year term and require monthly payments of interest
only based upon the weekly low floater tax exempt bond rate. The weekly
low floater bond rate as of December 31, 1996 equaled 3.83%.
<PAGE>
On April 15, 1996, the partnership replaced the original LOC with an
irrevocable letter of credit in the amount of $5,624,315 issued by Citizens
National Bank of Evansville ("Replacement LOC"). The bonds are also
secured by a first mortgage on the Colonial Courts property. The
Replacement LOC is confirmed by an irrevocable direct pay letter of credit
in the amount of $5,624,315 provided by the Federal Home Loan Bank of
Indianapolis ("FHLB"). The Replacement LOC and the FHLB letter of credit
have a term of five years with an option for an additional five year term.
The annual fee for the Replacement LOC is equal to one percent (1%) of the
letter of credit amount or $56,243. The annual fee for the FHLB letter of
credit is approximately $2,800. In consideration of its assistance in
obtaining the Replacement LOC and in accordance with the Trust's
obligations under the partnership agreement, the Trust increased the
limited partnership interest of PHC General Partnership ("PHC") in the BSRT
Colonial Courts Limited Partnership from 10% to 25%. The PHC ownership
percentage change became effective May 1, 1996 for financial reporting
purposes.
The Trust has received cash of $58,658, $562,337 and $347,557 during
1996, 1995 and 1994, respectively, in respect of its interest in a
liquidating trust established for the benefit of the unsecured creditors
(including the Trust) of VMS Realty Partners and its affiliates ("VMS"),
former affiliates of the Trust. The Trust has recorded $16,569, $164,958
and $57,226, respectively, of these amounts as recovery of losses on
mortgage loans, notes and interest receivable in its consolidated statement
of income and expenses. The remainder of $729,799 was recorded as a
liability to the Class Action Settlement Fund representing the Trust's
share of amounts due under the terms of the previously settled VMS
securities litigation.
On January 25, 1994, the Trust received net proceeds of $134,986 as a
recovery of payments previously made into an escrow established as part of
the 1992 Class Action Settlement of the VMS securities litigation. The
escrow was established to provide trustees of the Trust with monies to fund
the cost of any litigation in which they might be named as defendants
following settlement of the class action. Subsequently, the trustees
released the proceeds from the escrow and the Trust purchased an insurance
policy to cover the officers and trustees.
FACTORS AFFECTING THE TRUST'S BUSINESS PLAN
GENERAL FACTORS AFFECTING SHARE PRICE. The market price of the Shares
may fluctuate in response to a variety of factors, including but not
limited to: (i) variations in the Trust's quarterly operating results
including changes in FFO; (ii) the gain or loss of tenants at Trust
properties; (iii) general risks, changes or trends in the real estate
industry; (iv) increased competition with other entities or persons engaged
in the same business; (v) legislative or regulatory changes; and (vi) a
change in management of the Trust. In addition, the stock market has in the
past experienced extreme price and volume fluctuations which have affected
the market price of securities of companies for reasons frequently
unrelated to the operating performance of these companies. These broad
market fluctuations may adversely affect the market price of the Shares.
FACTORS AFFECTING OPERATING RESULTS. In addition to the factors
discussed above in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," other factors may affect the Trust's
liquidity and capital resources as well as results of operations including
but not limited to: (i) the Trust's ability to secure mortgage financing
for its Lexington and Newtown properties on terms acceptable to the Trust;
(ii) delays in the sale of, or the inability to sell, the H Street
Assemblage; (iii) the Trust's ability to deploy cash available for
investment in operating properties generating yields greater than the
interest rate paid by the Trust on its indebtedness; (iv) the continued
occupancy by, and the financial solvency of, the major tenants at the
Trust's Colonial Penn, Florida Power and Light, Woodcrest Office Park and
6901 Riverport Drive properties; (v) ability to re-lease space as leases
expire on terms at least as favorable as the terms of existing leases since
<PAGE>
approximately 24% of the tenant leases at the Trust's properties are
scheduled to expire in 1997; and (vi) market conditions and rental rates
where the Trust's properties are located.
GENERAL REAL ESTATE INVESTMENT RISKS. Real property investments are
subject to certain risks that may not always be predicted or controlled.
The cash flow generated by, and capital appreciation realized from, real
property investments may be adversely affected by the national and regional
economic climate (which, in turn, may be adversely impacted by plant
closings, industry slow-downs, income tax rates, interest rates,
demographic changes and other factors), local real estate conditions (such
as oversupply of, or reduced demand for rental space in the area), the
attractiveness of the properties, zoning and other regulatory restrictions,
competition from other land developers or developments, increased operating
costs (including maintenance costs, insurance premiums and real estate
taxes), perceptions by tenants or potential buyers of the safety,
convenience and attractiveness of the property and the willingness of the
owner of the property to provide capable management and adequate
maintenance. In light of the foregoing factors, there can be no assurance
that the cash flow generated by, and capital appreciation realized from,
the Trust's properties will be sufficient to cover expenses or recover
costs.
The cash flow generated by, or capital appreciation from, real
property investments may also be adversely affected by changes in
governmental regulations, zoning or tax laws, potential environmental or
other legal liabilities and changes in interest rates. Real estate
investments are also relatively illiquid. Therefore, the Trust's ability to
vary its portfolio promptly in response to changes in economic or other
conditions is limited, which may result in losses if the Trust is forced to
sell a property.
RISKS ASSOCIATED WITH THE RECENT ACQUISITION OF MANY OF THE
PROPERTIES; LACK OF OPERATING HISTORY. The Trust acquired all of its
properties within the last five years, and acquired eight of its properties
since June 1995. The most recently acquired properties may have
characteristics or deficiencies unknown to the Trust that may impact their
value or revenue potential. It is also possible that the operating
performance of the most recently acquired properties may decline under the
Trust's management.
The Trust is currently experiencing a period of rapid growth. As the
Trust acquires additional properties, the Trust will be subject to risks
associated with managing new properties, including lease-up and tenant
retention. In addition, the Trust's ability to manage its growth
effectively will require it to successfully integrate its new acquisitions
into its existing management structure. No assurances can be given that
the Trust will be able to successfully integrate such properties or
effectively manage additional properties, or that newly acquired properties
will perform as expected.
POTENTIAL INABILITY TO REPAY OR REFINANCE INDEBTEDNESS AT MATURITY.
The Trust is subject to risks normally associated with debt financing,
including the risk that the Trust's cash flow will be insufficient to meet
required payments of principal and interest, the risk that any indebtedness
will not be able to be refinanced or that the terms of any such refinancing
will be less favorable than the terms of the expiring indebtedness. The
Trust anticipates that scheduled principal payments due in connection with
the Trust's indebtedness will total approximately $859,000 and $12.8
million for the fiscal years ended December 31, 1997 and December 31, 1998,
respectively.
<PAGE>
POTENTIAL EFFECT OF RISING INTEREST RATES ON TRUST'S VARIABLE RATE
DEBT. Advances under the Modified Line bear interest at variable rates and
the interest rate payable on bonds issued for the benefit of the Trust are
subject to periodic adjustments based on the then current market interest
rates. In addition, the Trust may incur other variable rate indebtedness
in the future. Increases in interest rates on such indebtedness would
increase the Trust's interest expense, which could adversely affect the
Trust's financial condition and results of operations. See "--Liquidity
and Capital Resources" above.
CONCENTRATION OF TENANTS AT SIGNIFICANT PROPERTIES. At each of the
Trust's Colonial Penn, Florida Power and Light, Woodcrest Office Park and
6901 Riverport Drive properties, one or two tenants occupy all or a
substantial majority of the leased space. If one or more of the tenants at
these properties were to default on its lease or file for bankruptcy or
reorganization, the Trust's revenues could be reduced, particularly if the
Trust were unable to re-lease the vacant space on comparable terms and
conditions. Therefore, the bankruptcy or default by one of these tenants
could have an adverse effect on the Trust's financial condition and results
of operations.
COMPETITION FOR TENANTS. The Trust competes with numerous other
entities in attracting tenants to lease its space. Some of the competing
properties may be newer, better located or owned by parties better
capitalized than the Trust. An increase in the number of competitive
properties in a particular area could have a material adverse effect on:
(i) the ability to lease space in the properties (or in newly acquired or
developed properties); and (ii) the rents charged.
COMPETITION IN ACQUIRING PROPERTY. In seeking to acquire additional
property, the Trust competes with many other entities, some of which have
greater financial and managerial resources than the Trust. There can be no
assurance that the Trust will be able to acquire additional properties on
terms and conditions which are consistent with the Trust's business plan,
if at all.
RESTRICTIONS ON RE-LEASING SPACE. Tenant leases often grant tenants
the exclusive right to sell certain types of merchandise or provide certain
types of services within a property, or limit other tenants' right to sell
such merchandise or provide such services. Certain leases at Northlake
Tower Shopping Center contain these types of restrictions, which may limit
the number and types of prospective tenants for vacant space at this
property.
SUBSTANTIAL DEBT OBLIGATIONS. As of December 31, 1996, the Trust's
indebtedness aggregated approximately $59 million and the ratio of debt to
net assets for the Trust was 58%. The Trust's ability to service its debts
and other obligations when they become due depends on, among other things,
the Trust's ability to secure additional capital and the properties'
ability to generate sufficient cash flow to meet the Trust's cash needs for
operating expenses and debt service payments. Certain expenditures, such as
loan payments and real estate taxes, are not necessarily decreased by
events adversely affecting revenues or expenses at the property level. If
the Trust fails to make required payments on its indebtedness, the Trust
could lose the property securing these obligations, which would have a
material adverse effect on the Trust's financial condition and results of
operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT -- TAX
LIABILITIES AS A CONSEQUENCE OF FAILURE TO QUALIFY AS A REIT. The Trust
has elected to be taxed as a REIT under Sections 856 through 860 of the
Code, and the Trust believes that it has been organized and has operated in
such a manner so as to qualify as a REIT for federal income tax purposes.
Although the Trust believes that it will remain organized and will continue
<PAGE>
to operate so as the qualify as a REIT, no assurance can be given that the
Trust has so qualified or will be able to remain so qualified. Qualifica-
tion as a REIT involves the satisfaction of numerous requirements (in
certain instances, on an annual and quarterly basis) set forth in highly
technical and complex Code provisions for which there are only limited
judicial and administrative interpretations, and may be affected by various
factual matters and circumstances not entirely within the Trust's control.
In the case of a REIT, such as the Trust, that holds a substantial portion
of its assets in partnership form, the complexity of these Code provisions
and the applicable Treasury Regulations that have been promulgated
thereunder is even greater. Further, no assurance can be given that future
legislation, new Treasury Regulations, administrative interpretations or
court decisions will not significantly change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification. The Trust, however, is not aware of any pending proposal to
amend the tax laws that would materially and adversely affect its ability
to operate in such a manner so as to qualify as a REIT.
If the Trust were to fail to qualify as a REIT with respect to any
taxable year, the Trust would not be allowed a deduction in computing its
taxable income from amounts distributed to its stockholders, and would be
subject to federal income tax (including any applicable alternative minimum
tax) on its taxable income at regular corporate rates. As a result, any
net earnings of the Trust available for investment or distribution to
stockholders would be reduced for the year or years involved because of the
Trust's additional tax liability, and distributions to stockholders would
no longer be required to be made. Moreover, unless entitled to relief
under certain statutory provisions, the Trust would also be ineligible for
qualification as a REIT for the four taxable years following the year
during which such qualification was lost. Although the Trust believes it
has operated and currently intends to operate in a manner designed to allow
it to continue to qualify as a REIT, future economic, market, legal, tax or
other considerations may cause it to determine that it is in the best
interests of the Trust and its stockholders to revoke the REIT election.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. To maintain its status as a
REIT for federal income tax purposes, the Trust generally will be required
each year to distribute to its stockholders at least 95% of its taxable
income (excluding any net capital gain and after certain adjustments). In
addition, the Trust will be subject to a 4% nondeductible excise tax on the
amount, if any, by which certain distributions paid by it with respect to
any calendar year are less than the sum of 85% of its ordinary income for
such year plus 95% of its capital gain net income for such year plus 100%
of its undistributed income from prior taxable years.
The Trust intends to make distributions to its stockholders to comply
with the 95% distribution requirement of the Code and to avoid the
nondeductible excise tax described above. The Trust anticipates that cash
flow from operations, will be sufficient to enable it to pay its operating
expenses and meet the distribution requirements of a REIT, but no
assurances can be given that this will be the case. In addition,
differences in timing between: (i) the actual receipt of income and the
actual payments of expenses; and (ii) the inclusion of such income and the
deduction of such expenses in arriving at taxable income of the Trust could
leave the Trust without sufficient cash to enable it to meet the REIT
distribution requirements. Accordingly, the Trust could be required to
borrow funds or liquidate investments on adverse terms to comply with such
requirements. The requirement to distribute a substantial portion of the
Trust's taxable income could also cause the Trust to have to distribute
amounts that would otherwise be spent on future acquisitions, unanticipated
capital expenditures or repayment of debt, which would require additional
borrowings or sales of assets to fund the costs of such items and could
restrict the Trust's ability to expand at a pace necessary to remain
competitive.
<PAGE>
FINITE LIFE OF THE TRUST. The Trust is a finite life entity. Under
the Declaration of Trust, the Trustees are required to use reasonable
efforts to terminate the Trust by October 17, 2001; provided that the
Trustees are required to determine in good faith that the termination is in
the shareholders' best interest. Unless the Declaration of Trust is amended
to either extend the termination date or to eliminate the termination date
entirely, the Trust: (i) may be unable to obtain capital, either debt or
equity or renew existing financing on terms and conditions acceptable to
the Trust, if at all; (ii) may be forced soon after the termination date to
liquidate properties at prices below those which might prevail if the Trust
was not forced to liquidate its portfolio. Any of these factors could have
an adverse effect on the Trust's financial condition and results of
operations.
POTENTIAL INCREASES IN CERTAIN TAXES AND REGULATORY COMPLIANCE COSTS.
Increases in income, service or transfer taxes are generally not passed
through to tenants under leases and may, therefore, adversely affect the
Trust's cash flow and its ability to make distributions to stockholders.
The Trust's properties are also subject to various federal, state and local
regulatory requirements, such as those imposed by the Americans with
Disabilities Act (the "ADA"), which require all public accommodations and
commercial facilities to meet certain federal standards related to access
and use by disabled persons, and state and local fire and life safety
standards. Failing to comply with the ADA could result in the imposition
of fines by governmental authorities or an award of damages to private
litigants. The Trust believes that its existing properties are in
substantial compliance with these regulatory requirements. However,
existing statutes or rules may be amended or new statutes or rules may be
adopted, each of which may have an adverse effect on the Trust's financial
condition and results of operations.
POSSIBLE ENVIRONMENTAL LIABILITIES. Under various federal, state and
local environmental laws, ordinances and regulations, a current or previous
owner or operator of real estate may be required to investigate and clean
up hazardous or toxic substances or petroleum product releases at the
property and may be held liable to a governmental entity or to third
parties for property damage and for investigation and clean-up costs that
these parties incur in connection with the contamination. These laws
typically impose clean-up responsibility and liability without regard to
whether the owner knew of or caused the presence of the contaminants, and
the liability under these laws has been interpreted to be joint and several
unless the harm is divisible and there is a reasonable basis for allocating
responsibility. The costs of investigating, remediating or removing
substances may be substantial, and the presence of these substances, or the
failure to properly remediate the contamination on a property, may
adversely affect the owner's ability to sell or rent the property or to
borrow using the property as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic substances at a disposal or
treatment facility also may be liable for the costs of removing or
remediating a release of hazardous or toxic substances at the disposal or
treatment facility, whether or not the person owns or operates the
facility. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs incurred
in connection with the contamination. Finally, the owner of a site may be
subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from such site.
The Trust is not aware of any environmental liability that the Trust
believes would have a material adverse effect on the Trust's business,
assets or results of operations taken as a whole. There can be no
assurance, however, that the Trust would have knowledge of all conditions
giving rise to potential environmental liabilities subsequent to its
acquisition of a property since the Trust has ordered Phase I Environmental
Assessments only as part of its acquisition due diligence for each of its
properties and has only ordered Phase II Environmental Assessments in
limited circumstances when necessitated. Moreover, there can be no
assurance that: (i) future laws, ordinances or regulations will not impose
any material environmental liability; or (ii) the current environmental
condition of the Trust's properties will not be affected by tenants, by the
<PAGE>
condition of land or operations in the vicinity of the Trust's properties
(such as the presence of underground storage tanks), or by third parties
unrelated to the Trust. Any expenditures associated with environmental
liabilities of the Trust could have an adverse effect on the Trust's
financial condition and results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements on Page F-1 of this
Report.
See Item 6, Selected Financial Data, for the supplemental financial
information specified by Item 302 of Regulation S-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no changes in, or disagreements with, the accountants
on any matter of accounting principles, practices or financial statement
disclosure.
<PAGE>
PART III
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT
The trustees and executive officers of the Trust are as follows:
Walter E. Auch, Sr. Trustee
Norman M. Gold Trustee
Marvin A. Sotoloff Trustee
Leonard G. Levine President
Neil D. Hansen First Vice President
Robert G. Higgins Vice President and
Secretary/
General Counsel
Joel L. Teglia Vice President/
Chief Financial Officer
Jay E. Schmidt Vice President/Acquisitions
WALTER E. AUCH, SR., age 75, was the chairman and chief executive
officer of the Chicago Board Options Exchange. Prior to that time, he was
executive vice president, director and a member of the executive committee
of Paine Weber. Mr. Auch is a director of Pimco L.P., Geotek Industries,
Smith Barney Concert Series Funds, Smith Barney Trak Fund, Nicholas
Applegate Funds and Fort Dearborn Fund, and a trustee of Hillsdale College
and the Arizona Heart Institute. Mr. Auch has been a trustee of the Trust
since 1986. Mr. Auch is also a director of Banyan Strategic Land Fund II,
a director of Legend Properties, Inc. (f/k/a Banyan Mortgage Investment
Fund) and Banyan Management Corp.
NORMAN M. GOLD, age 66, is a senior partner in the law firm of
Altheimer & Gray and has actively practiced law for over 40 years,
specializing in tax, corporate and real estate law. Mr. Gold is also a
director of Banyan Management Corp. and a trustee of New Plan Realty Trust.
Mr. Gold has been a trustee of the Trust since 1986. Mr. Gold is a
certified public accountant and a member of the Chicago and American Bar
Associations.
MARVIN A. SOTOLOFF, age 53, is regional vice president of Premisys
Marketing Services, Inc., effective July 1993, a division of Premisys Real
Estate Services, Inc. Prior to joining Premisys Marketing Services, Inc.,
Mr. Sotoloff was executive vice president of The Palmer Group Ltd., a
company involved in real estate brokerage, development and property
management, concentrating on commercial real estate. He is a past
president of the Chicago Office Leasing Brokers Association, a licensed
real estate broker and a member of the Illinois and Pennsylvania Bar
Associations. Mr. Sotoloff has been a trustee of the Trust since 1986.
Mr. Sotoloff is also a director of Banyan Management Corp.
LEONARD G. LEVINE, age 50, has been president of the Trust as well as
Banyan Management Corp. and Banyan Strategic Land Fund II since 1990. In
addition, he has been a director of Banyan Management Corp. since 1990. He
received a B.S./B.A. Degree in Accounting from Roosevelt University and a
Masters Degree in Taxation from DePaul University. His areas of specialty
include real estate syndications, estate planning and taxation of closely-
held corporations. Mr. Levine is also a certified public accountant and a
licensed real estate broker.
NEIL D. HANSEN, age 50, has been first vice president of the Trust as
well as Banyan Management Corp. and Banyan Strategic Land Fund II since
1991. He received a B.S. Degree in Finance from the University of Illinois
and a Master of Management Degree from Northwestern University. He is a
certified public accountant.
<PAGE>
ROBERT G. HIGGINS, age 45, has been vice president and general counsel
of the Trust as well as Banyan Management Corp. and Banyan Strategic Land
Fund II since 1992, and secretary of these entities since 1995. From 1990
to 1992, Mr. Higgins was a contract partner at the law firm of Chapman and
Cutler. Mr. Higgins' legal experience has concentrated in the areas of
real estate development, finance, acquisition, land use, sales, lending,
syndications, general corporate and business practice. Mr. Higgins is
admitted to the bar in the States of Illinois, Minnesota and Texas. He
received a B.A. Degree in Government from the University of Notre Dame and
a J.D. from Loyola University of Chicago. Mr. Higgins also owns and
operates a sole practice of law.
JOEL L. TEGLIA, age 35, has been vice president and chief financial
officer of the Trust, as well as Banyan Management Corp. and Banyan
Strategic Land Fund II since 1994. Prior to assuming the responsibilities
of his current position, Mr. Teglia held the position of Controller for
Banyan Management Corp. from 1991 to 1994. He received a B.B.A. Degree in
Accounting from the University of Notre Dame. Mr. Teglia is a certified
public accountant.
JAY E. SCHMIDT, age 45, became vice president of the Trust in 1995.
Prior to being appointed as a vice president of the Trust, Mr. Schmidt
served as vice president of acquisitions for Banyan Management since 1992
as an acquisition executive on behalf of the Trust. Prior to 1992, Mr.
Schmidt had been an independent real estate consultant and broker. He
received a B.A. degree in Government from Franklin & Marshall College and a
J.D. from the University of Wisconsin. Mr. Schmidt is admitted to the bar
in the State of Wisconsin and is a licensed real estate broker.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
A. TRUSTEE COMPENSATION
The Trustees are paid an annual fee of $15,000, payable quarterly,
plus $875 for each board meeting, including meetings of the audit
committee, attended in person and $250 an hour for each board meeting,
including meetings of the audit committee, attended via telephonic
conference call. In addition, each Trustee is reimbursed for out-of-pocket
expenses incurred in attending meetings of the board.
B. EXECUTIVE COMPENSATION
Compensation paid to executive officers of the Trust for the years
ended December 31, 1996, 1995 and 1994 are as follows:
Annual Compensation (1)
Other
Annual
Compen-
Year Salary Bonus sation
---- -------- -------- --------
Leonard G. Levine, 1996 $189,247 $ 66,985 n/a
President and Chief 1995 $184,812 $111,739 n/a
Executive Officer 1994 $179,900 $ -- n/a
(2)
Jay E. Schmidt, 1996 $154,615 $ 65,000 n/a
Vice President/ 1995 $148,136 $ 27,000 n/a
Acquisitions (3) 1994 n/a n/a n/a
Long-Term Compensation (1)
Awards Payouts
Restricted All Other
Stock Options/ LTIP Compen-
Year Award(s) SARs (#) Payouts sation
---- ----------- --------- ------- ---------
Leonard G. Levine, 1996 $ 7,700 n/a n/a n/a
President and Chief 1995 $ 24,899 n/a n/a n/a
Executive Officer 1994 n/a n/a n/a n/a
(2)
Jay E. Schmidt, 1996 n/a n/a n/a n/a
Vice President/ 1995 n/a n/a n/a n/a
Acquisitions (3) 1994 n/a n/a n/a n/a
- ----------
(1) Compensation for all other executives of the Trust for 1996, 1995 and
1994 was less than $100,000 per individual.
(2) See incentive compensation program disclosure below.
(3) Mr. Schmidt's 1996 and 1995 bonuses were discretionary and based
upon job performance pursuant to an annual review. Mr. Schmidt is not
awarded any other compensation by the Trust. The $27,000 bonus represents
Mr. Schmidt's 1994 bonus paid in 1995. During 1996, Mr. Schmidt was paid a
bonus equal to $30,000 for the year ended December 31, 1995 and $35,000 for
the year end December 31, 1996.
<PAGE>
Mr. Levine serves as Chief Executive Officer of the Trust pursuant to
an employment agreement entered into with the Trust by Mr. Levine on
January 1, 1990. The Agreement expires on December 31, 1997 (the
"Employment Period"). The Employment Period will be automatically renewed
for another one year period unless Mr. Levine or the Trust terminates Mr.
Levine's employment by giving written notice of termination on or before
June 30, 1997. Under the contract, Mr. Levine is paid a salary which is
adjusted on January 1 of each year based on increases in the "consumer
price index". For the year ended December 31, 1996, Mr. Levine was paid a
base salary of $189,247.
Mr. Levine is eligible to receive incentive compensation based on the
Trust satisfying certain performance standards set forth in the contract.
In particular, Mr. Levine earns incentive compensation based on the
recovery on real estate assets owned by the Trust as of December 31, 1992
("foreclosed activities") and on the performance of the Trust's assets
acquired subsequent to January 1, 1993 ("reinvestment activities"). Mr.
Levine earns incentive compensation on foreclosed real estate assets equal
to: (i) 1% of the amount of the Trust's collateralized claims existing as
of January 1, 1990 which are converted to cash, and (ii) 3% of the Trust's
unsecured claims existing as of January 1, 1990 which are converted to
cash. Mr. Levine is paid incentive compensation earned on the Trust's
foreclosed activities as soon as practical after the end of each calendar
year without regard to whether he is employed by the Trust on the date of
payment. Mr. Levine's annual incentive compensation from reinvestment
("Annual Incentive Compensation") activities is based on the return
generated by the Trust's assets, adjusted for unrealized losses, in excess
of the annual yield on five-year Treasury Notes plus 100 basis points as of
January 1 of each year, according to the following: (i) $500 for each
basis point by which the Trust's rate of return from reinvestment
activities exceeds the above index up to 500 basis points, and (ii) $250
per each basis point by which the rate of return from reinvestment
activities exceeds the above index plus 500 basis points. The index for
the years ended December 31, 1996, 1995 and 1994 was 6.39%, 8.88% and
6.29%, respectively. The rate of return from reinvestment activities for
the years ended December 31, 1996, 1995 and 1994 was 17.31%, 9.65% and
8.78%, respectively.
At December 31, 1997, or upon termination of Mr. Levine's employment
by the Trust, whichever is earlier, ("the Computation Date") the annual
incentive compensation earnings from reinvestment activities, as defined,
will be computed on a cumulative basis covering the period January 1, 1993
through the Computation Date (the "Cumulative Incentive Compensation").
This cumulative calculation will also include all unrealized profits and
gains on the Trust's real estate assets. As of December 31, 1996, the
Trust has recorded $650,000 as its estimate of Cumulative Incentive
Earnings with respect to the unrealized profits and gains on the Trust's
assets. If a disagreement in value exists between Mr. Levine and the
Trustees in computing unrealized profits and gains, a mutually agreed upon
appraiser will be retained to appraise the properties with the result
binding on both parties. If the Cumulative Incentive Compensation is less
than the aggregate amount of incentive compensation previously paid to Mr.
Levine, all or a portion of any Award Shares (defined below) previously
issued to Mr. Levine will be forfeited by Mr. Levine and canceled by the
Trust. For these purposes, the Award Shares will be valued at the average
price at which the shares were valued when issued to Mr. Levine. If the
Cumulative Incentive Compensation is greater than the amounts previously
paid to Mr. Levine, the difference will be paid to Mr. Levine in Cumulative
Incentive Award Shares (defined below) by the Trust within seventy five
days after the Computation Date.
For the years ended December 31, 1994 and 1995, incentive compensation
earned on reinvestment activities was paid 80% in cash and 20% in shares of
beneficial interest of the Trust ("Award Shares") on March 15 of the year
following the period for which the incentive was earned. The Trust and Mr.
Levine have reached an agreement in principle to amend Mr. Levine's
agreement. Under the amendment, all of the incentive compensation earned
by Mr. Levine for the fiscal years ended December 31, 1996 and 1997 plus
<PAGE>
all of the Cumulative Incentive Compensation will be paid in shares of the
Trust's stock rather than a portion in cash and a portion in stock. The
additional share issuances are subject to approval by the Trust's
shareholders at the annual meeting which will likely take place sometime
during the second calendar quarter of 1997. All other material terms of
the employment contract remained unchanged. The Award Shares that are
issuable in respect of the 20% of Mr. Levine's Annual Incentive
Compensation are subject to forfeiture and certificates representing these
forfeitable shares are restricted as to transfer and held in escrow by the
Trust, pending satisfaction of the vesting requirements. Mr. Levine will
vest in these shares on the earlier of (i) seventy-five days subsequent to
December 31, 1997; (ii) the termination of Mr. Levine's employment by the
Trust without just cause; or (iii) the permanent disability or death of Mr.
Levine. The issue price of any Award Shares, except for the shares which
are issuable in respect of the Cumulative Incentive Compensation, is based
upon the average closing price of the Trust's shares for the five business
days ended prior to December 31 of the year in question. The issue price
for the shares issued in respect of the Cumulative Incentive Compensation
is $3.75 per share.
For the year ended December 31, 1996, Mr. Levine's incentive
compensation earned on recovery of foreclosed activities and returns on
reinvestment activities was $4,701 and $394,500, respectively. These
amounts do not include the estimated $650,000 of Cumulative Incentive
Earnings that the Trust accrued as of December 31, 1996. The $4,701 in
incentive compensation earned by Mr. Levine during 1996 on recovery of
foreclosed assets is comprised of: $2,941 in respect of the Trust's
collateralized claims and $1,760 in respect of the Trust's unsecured
claims. In 1997, Mr. Levine will be issued 95,636 in Award Shares in
respect of his 1996 incentive valued at $4.125 per share. For the year
ended December 31, 1995, Mr. Levine's incentive compensation earned on
recovery of foreclosed activities and returns on reinvestment activities
was $36,185 and $38,500, respectively. The $36,185 in incentive
compensation earned by Mr. Levine during 1995 on recovery of foreclosed
assets is broken down as follows: $19,315 in respect of the Trust's
collateralized claims and $16,870 in respect of the Trust's unsecured
claims as discussed above. During 1996, Mr. Levine was paid $66,985
representing 80% of his 1995 incentive in cash and 1,833 Award Shares
valued at $4.20 per share or $7,700 representing 20% in Award Shares of the
Trust. As of December 31, 1994, Mr. Levine's incentive compensation earned
on recovery of foreclosed activities and return on reinvestment activities
was $12,139 and $124,500, respectively. The $12,139 incentive compensation
earned by Mr. Levine during 1994 on recovery of foreclosed assets is in
respect of the Trust's unsecured claims as discussed above. Payment of Mr.
Levine's 1994 incentive compensation occurred during the second quarter of
1995 with the payment of $111,739 representing 80% of his incentive in cash
and 6,036 Award Shares valued at $4.125 per share or $24,899 representing
20% in Award Shares of the Trust pursuant to his employment contract.
The employment agreement may be terminated by either Mr. Levine or the
Trust at any time upon 90 days written notice. If the Trust terminates his
employment, for cause, or Mr. Levine voluntarily terminates his employment,
the Trust will pay all salary and incentive compensation earned through the
date of termination. In the event of Mr. Levine's death or permanent
disability, Mr. Levine is entitled to all incentive compensation earned
through the date of his disability or death plus any disability or life
insurance proceeds in the amount of two times his annual salary. This is
consistent with standard insurance benefits of all Banyan Management Corp.
personnel, however, Mr. Levine is not entitled to any other severance pay-
ments. If Mr. Levine's employment is terminated without cause following a
change of control (as defined in the employment agreement) the Trust is
obligated to pay Mr. Levine's salary during the remainder of the employment
period and must pay Mr. Levine all incentive compensation which he would
have earned if all the Trust's assets had been converted into cash and all
proceeds were distributed. If Mr. Levine is terminated without cause but
no change of control has occurred, he will receive a severance payment
equal to one year's salary plus all incentive compensation earned through
the date of his termination (including incentive compensation based upon
assets converted into cash within one year following his termination of the
<PAGE>
Trust had Mr. Levine received an "expression of interest" prior to Mr.
Levine's termination), plus an amount equal to the full cost of continuing
Mr. Levine's health benefits for one year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following entities are known by the Trust to be the beneficial
owners of more than 5% of the outstanding shares of beneficial interest as
of March 10, 1997.
Amount of
Title of Name and Address of Beneficial Percentage
Class Beneficial Owners Ownership of Shares
- -------- ------------------- ---------- ----------
Shares of Fidelity Management & 1,110,550 10.6%
Beneficial Research Corp.
Interest 82 Devonshire Street
Boston, MA 02109
Shares of Magten Asset Management Corp. 1,762,105 16.8%
Beneficial 350 East 21st Street
Interest New York, NY 10010
The following table sets forth the ownership of shares owned directly
and indirectly by the trustees and officers of the Trust as of March 10,
1997:
Amount of
Title of Beneficial Percentage
Class Beneficial Owners Ownership of Interest
- -------- ------------------- ---------- -----------
Shares of Leonard G. Levine, 16,869 Shares Less than 1%
Beneficial President
Interest
Shares of Neil D. Hansen, 8,373 Shares Less than 1%
Beneficial First Vice President
Interest
Shares of Jay E. Schmidt 2,000 Shares Less than 1%
Beneficial Vice President
Interest
Shares of All Trustees and 27,242 Shares Less than 1%
Beneficial Officers of the Trust,
Interest as a group (8 persons)
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Administrative costs, primarily salaries and general and
administrative expenses, are incurred on the Trust's behalf by Banyan
Management Corp. ("BMC"). BMC is owned by the Trust, Banyan Strategic Land
Fund II and Legend Properties, Inc. (f/k/a Banyan Mortgage Investment Fund)
(the "Banyan Funds"). Mr. Levine is the president of BMC but receives no
additional compensation for his services to that entity. Messrs. Teglia,
Hansen, Higgins and Schmidt are employees of the Trust but are paid by BMC.
The portion of their time which is allocable to the Trust is included in
the administrative costs for which BMC is reimbursed by the Trust. The
directors/trustees of all Banyan Funds serve as directors of BMC but
receive no additional compensation. All costs incurred by BMC on behalf of
each entity for which it provides administrative services are allocable to
the Trust and these other entities based upon the actual number of hours
spent by BMC personnel on matters related to that particular entity. BMC
does not "mark-up" or include any profit component in the costs allocated
to the entities including the Trust. The Trust's allocated share of costs
for the years ended December 31, 1996, 1995 and 1994, aggregated
$1,275,374, $1,443,434, and $1,185,409, respectively. As one of its
administrative services, BMC serves as the paying agent for general and
administrative costs of the Trust. As part of providing this payment
service, BMC maintains a bank account on behalf of the Trust. As of
December 31, 1996, the Trust had a net payable due to BMC of $2,845.
Reference is made to Note 8, "Transactions with Affiliates," of Notes
to the Consolidated Financial Statements for the amount of administrative
costs paid to, and a description of various transactions with, BMC.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
(1)(2) The financial statements indicated in Part II, Item 8,
Financial Statements and Supplementary Data.
(3) Exhibits
Exhibit Number Description
-------------- -----------
Exhibit (10) Material Contracts
(i) Fourth Amendment to Loan Agreement
dated January 7, 1997 regarding the Registrant's Revolving Line of Credit
with American National Bank of Chicago.
(ii) Second Amendment to Note dated
January 7, 1997 regarding the Registrant's Revolving Line of Credit with
American National Bank of Chicago.
Exhibit (21) Subsidiaries of the Trust
Exhibit (27) Financial Data Schedule
The following exhibits are incorporated by reference from the
Trust's Registration Statement on Form S-11 (file number 33-4169),
referencing the exhibit number used in such Registration Statement.
Exhibit Number Description
-------------- -----------
(3)(b) By-Laws dated March 13, 1986.
(3)(c) and (3)(d) Amended and Restated Declaration of Trust
dated as of August 8, 1986, as amended on March 8, 1991 and May 1, 1993.
Exhibit (10) Material Contracts
(i) Amended Employment Agreement of
Leonard G. Levine dated January 1, 1990.
(ii) Second Amended and Restated
Employment Contract of Leonard G. Levine dated December 31, 1992.
(iii) Amendment to Loan Agreement dated
December 1, 1994; Second Amendment to Loan Agreement dated December 21,
1994 and Third Amendment to Loan Agreement dated December 18, 1995
regarding the Registrant's Revolving Line of Credit with American National
Bank of Chicago.
(iv) First Amendment to Note dated
December 18, 1995 regarding the Registrant's Line of Credit with American
National Bank of Chicago.
<PAGE>
(b) The following report on Form 8-K was filed during the quarter ended
December 31, 1996:
A current report on Form 8-K was filed on December 4, 1996 wherein
Item 2 disclosed the Registrant's acquisition of the 6901 Riverport Drive
property.
(c) See Item 14(a)(3) above.
(d) None.
<PAGE>
SIGNATURES
PURSUANT to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BANYAN STRATEGIC REALTY TRUST
By: /s/ Leonard G. Levine Date: April 11, 1997
Leonard G. Levine, President
PURSUANT to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ Leonard G. Levine Date: April 11, 1997
Leonard G. Levine, President
By: /s/ Joel L. Teglia Date: April 11, 1997
Joel L. Teglia, Vice President
of Finance and Administration,
Chief Financial and Accounting Officer
By: /s/ Norman M. Gold Date: April 11, 1997
Norman M. Gold, Trustee
By: /s/ Walter E. Auch, Sr. Date: April 11, 1997
Walter E. Auch, Sr., Trustee
By: /s/ Marvin A. Sotoloff Date: April 11, 1997
Marvin A. Sotoloff, Trustee
<PAGE>
EXHIBIT 10
<PAGE>
EXHIBIT 10 (i)
- --------------
FOURTH AMENDMENT TO LOAN AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AGREEMENT ("Fourth Amendment") is dated
as of January 7, 1997 by and between BANYAN STRATEGIC REALTY TRUST, a
Massachusetts business trust ( "Borrower"), and AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO, a national banking association ("Lender").
WHEREAS, Borrower and Lender entered into a Loan Agreement dated as
of December 1, 1994 (the "Original Loan Agreement") relating to a loan made
by Lender to Borrower in the maximum principal amount outstanding at any
time not to exceed the lesser of (i) $15,000,000, and (ii) sixty percent
(60%) of the Collateral Value of all of the Designated Properties and
Designated Debt Instruments, as more fully set forth in the Original Loan
Agreement; and
WHEREAS, Borrower and Lender entered into that certain Amendment to
Loan Agreement dated as of December 1, 1994 (the "First Amendment")
pursuant to which certain Designated Properties, Designated Debt Properties
and Property Owners were withdrawn from the Original Loan Agreement; and
WHEREAS, Borrower and Lender entered into that certain Second
Amendment to Loan Agreement dated as of December 21, 1994 (the "Second
Amendment") pursuant to which a Designated Property and Property Owner were
withdrawn from the Original Loan Agreement; and
WHEREAS, Borrower and Lender entered into that certain Third Amended
Loan Agreement dated as of December 18, 1995 (the "Third Amendment")
pursuant to which, among other things, Borrower and Lender increased the
amount set forth in subclause (i) of the first Recital paragraph herein
from $15,000,000 to $30,000,000 (the Original Loan Agreement, the First
Amendment, the Second Amendment and the Third Amendment are hereinafter
collectively referred to as the "Loan Agreement"); and
WHEREAS, Borrower and Lender desire to further amend the Loan
Agreement as herein set forth.
NOW, THEREFORE, for and in consideration of the mutual covenants
herein contained, Borrower and Lender do hereby agree as follows:
1. Definitions. Capitalized terms used in this Fourth Amendment but
not otherwise defined herein shall have the meaning ascribed to them in the
Loan Agreement.
2. Other Documents. Concurrent herewith Borrower is amending or
causing to be amended the Note. All references in the Loan Agreement to the
"Note" are hereafter deemed to be references to the Note as amended
concurrent herewith by the Second Amendment to Note, and as the same may
hereafter be renewed, restated, replaced, extended or amended from time to
time.
3. Loan Conversion Date. The definition of "LOAN CONVERSION DATE"
set forth in the "DEFINITIONS" section of the Loan Agreement is hereby
deleted in its entirety and the following substituted therefor:
"LOAN CONVERSION DATE. May 31, 1997, or earlier as provided in
Paragraph D of Article I hereof."
4. Loan Maturity Date. The definition of "LOAN MATURITY DATE" set
forth in the "DEFINITIONS" section of the Loan Agreement is hereby deleted
in its entirety and the following substituted therefor:
"LOAN MATURITY DATE. May 31, 1998, being the date upon which
the final payment of all principal and interest on the Loan is due, or such
earlier date that the Loan is due in the case of an Event of Default or as
otherwise provided herein or in the Note or Reimbursement Agreement."
<PAGE>
5. Loan Amount.
a. In Paragraph A of Article I of the Loan Agreement, the phrase
"Thirty Million and no/100 Dollars ($30,000,000)" is hereby deleted and the
following substituted therefor: "Twenty Million and no/100 Dollars
($20,000,000)".
b. All references in Paragraph F of Article I of the Loan
Agreement to the sum of "$30,000,000" shall be deemed to be references to
the sum of "$20,000,000".
6. Fee. Borrower shall pay to Lender a one time non-refundable
commitment fee for the extension of the Loan Maturity Date of Fifty
Thousand and 00/100 Dollars ($50,000), representing one quarter of one
percent (.25%) of the Twenty Million and 00/100 Dollars ($20,000,000) Loan
maximum, which shall be due and payable upon execution of this Amendment by
Borrower. This fee is in addition to and not in lieu of the Letter of
Credit fee, as and when applicable, and the unused facility fee. If the
Loan Maturity Date shall be further extended for an additional year (i.e.,
until May 31, 1999) then one half (1/2) of said commitment fee shall be
credited against any commitment fee that may then be imposed by Lender in
respect of said additional extension; provided, however, that the
provisions of this sentence shall not be deemed to obligate Lender to grant
any such additional extension nor to limit any commitment fee or other fee
in respect thereof.
7. Total Debt to Total Shareholder's Equity. The ratio of 1.0:1.0
set forth in Paragraph Q(3) of Article III of the Loan Agreement is hereby
changed to 2.0:1.0.
8. Sarasota: $6,200,000 Note. The parties hereto acknowledge that
the $6,200,000 Note previously secured or guaranteed by and indemnified
against in the Mortgages and Additional Collateral Documents has prior to
this date been assigned pursuant to the terms of the Third Amendment;
accordingly, effective as of said assignment, (a) the maximum principal
amount of the Note returned to $30,000,000 (subject to this Fourth
Amendment and the Second Amendment to Note executed concurrent herewith,
pursuant to which such amount is now being reduced to $20,000,000, and
further subject to the limitations set forth therein), (b) the said
reference to $23,800,000 in the Note, the Loan Agreement and the Mortgages
and Additional Collateral Documents returned to a reference to $30,000,000
(subject to this Fourth Amendment and the Second Amendment to Note executed
concurrent herewith, pursuant to which such amount is now being reduced to
$20,000,000), (c) the Mortgages and Additional Collateral Documents
securing, guaranteeing or granting indemnities in respect of the Note
and/or the $6,200,000 Note and which relate to, solely, the Sarasota
Designated Property no longer secured, guaranteed or granted indemnities,
or otherwise had any force or effect, in respect of the Note or the Loan
Agreement, and (d) the Mortgages and Additional Collateral Documents
securing, guaranteeing or granting indemnities in respect of the Note
and/or the $6,200,000 Note and which relate to the collateral other than
the Sarasota Designated Property, no longer secured, guaranteed or granted
indemnities, or otherwise had any force or effect, in respect of the
$6,200,000 Note.
9. Kentucky Properties. Prior to the date hereof, (a) Borrower has
caused BSRT Lexington Corp., an Illinois corporation, to transfer the
Kentucky I Property and its other assets to BSRT Lexington Trust, a
Massachusetts business trust, and (b) Borrower has caused BSRT Newtown
Corp., an Illinois corporation, to transfer the Newtown Property and its
other assets to BSRT Newtown Trust, a Massachusetts business trust.
Borrower represents and warrants that it owns all of the shares of
beneficial interest in BSRT Lexington Trust and BSRT Newtown Trust, free
and clear of any liens, claims or encumbrances.
<PAGE>
10. Designated Properties. The parties hereto agree and acknowledge
that upon the effective date of the matters set forth in this Fourth
Amendment, the Designated Properties, Designated Debt Properties and the
Property Owners shall be as set forth on Exhibit "A" attached hereto and
made a part hereof.
11. Representations and Warranties. Without limitation of any
representations and warranties in the Loan Agreement, or of any of the
provisions hereof, Borrower hereby represents, warrants and covenants as
follows:
a. All representations and warranties made by Borrower in the Loan
Agreement are true and correct on and as of the date hereof. All such
representations and warranties, together with all covenants and agreements
of Borrower set forth in the Loan Agreement, are hereby remade on and as of
the date hereof.
b. The representations and warranties made in Paragraph A of
Article II of the Original Loan Agreement apply to this Fourth Amendment in
the same manner as applicable therein to the Original Loan Agreement, and
also apply to the documents being executed pursuant hereto in the same
manner as applicable therein to the Note, Mortgages and Additional
Collateral Documents.
The representations and warranties contained in this Fourth Amendment are
true as of the date hereof and will be true and will be deemed remade at
and as of the date of any disbursement of the proceeds of the Loan, except
for the necessary effect of the transactions contemplated by the Loan
Agreement as amended by this Fourth Amendment.
12. Deliveries. In connection with the matters set forth in this
Fourth Amendment, Borrower will deliver or cause to be delivered to Lender
the following documents each in form, substance and execution and showing
solely matters satisfactory to Lender:
a. Second Amendment to Note, executed by Borrower.
b. Amendments to the Mortgages and Additional Collateral
Documents.
c. Certified resolutions of the Trustees of Borrower authorizing
the execution by Borrower of this Fourth Amendment, the documents provided
herein by Borrower and the Property Owners (and their predecessors in
interest) and the rendering of full performance herein and therein; and
certified resolutions to such effect of the Property Owners (and their
predecessors in interest).
d. Such other documents and instruments as are required pursuant
hereto whether as conditions precedent to any of Lender's obligations, or
otherwise, or pursuant to any one or more of the Note, Mortgages, or any of
them, any one or more of the items of Additional Collateral Documents or
any amendment to any of the foregoing and such other certifications,
evidence of organization, qualification and good standing, attorneys'
opinions and documents as Lender may require.
If any one or more of the foregoing are not provided on or before execution
hereof by Lender, Lender will not be deemed to have waived its right to
require same and they will be provided by Borrower, notwithstanding such
execution, within thirty (30) days after request therefor by Lender.
13. Counterparts. This document may be executed in two (2) or more
counterparts, all of which taken together shall constitute one (1)
original.
<PAGE>
14. Headings. Section headings used herein are for reference and
convenience only and are not intended to be substantive and shall not be
deemed to limit or otherwise affect the interpretation of this Fourth
Amendment.
15. Conflict; Inconsistency. Except as amended by this Fourth
Amendment, the Loan Agreement shall remain in full force and effect. In the
event of any conflict or inconsistency between the terms and provisions of
the Loan Agreement and the terms and provisions of this Fourth Amendment,
the terms and provisions of this Fourth Amendment shall control to the
extent necessary to resolve such conflict or inconsistency. Upon full
execution of this Fourth Amendment, any references herein or elsewhere to
the Loan Agreement shall be deemed to be references to the Loan Agreement
as amended by this Fourth Amendment.
16. Successors: Assigns: Integration: Law. The provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and
their respective legal representatives, successors and assigns. This
instrument has been made, executed and delivered in the State of Illinois
and shall be governed by and construed in accordance with the laws of the
State of Illinois.
IN WITNESS WHEREOF the parties have executed this Fourth Amendment as
of the day and year first above set forth.
LENDER: BORROWER:
AMERICAN NATIONAL BANK AND TRUST BANYAN STRATEGIC REALTY TRUST, a
COMPANY OF CHICAGO, a national Massachusetts business trust
banking association
By: ____________________________ By: ___________________________
M. K. Babladelis Jay E. Schmidt
Vice President Its: Vice President
<PAGE>
EXHIBIT "A"
TO FOURTH AMENDMENT TO LOAN AGREEMENT
DESIGNATED PROPERTY PROPERTY OWNER
Fountain Square Office Building
(Colonial Penn Building) BSRT Fountain Square Corporation,
(Tampa, Florida) an Illinois corporation
Buildings A, C, D & F BSRT Lexington Trust, a
Lexington Business Center Massachusetts business trust
Lexington, Kentucky
("Kentucky I Property")
Building B BSRT Lexington B Corp.,
Lexington Business Center an Illinois corporation
1300 New Circle Road
Lexington, Kentucky
("Kentucky II Property")
Newtown Distribution Center BSRT Newtown Trust, a
Lexington, Kentucky Massachusetts business trust
("Newtown Property")
DESIGNATED DEBT PROPERTY PROPERTY OWNER
Hallmark Village Apartments BSRT Hallmark Village Limited
Clarksville, Indiana Partnership, an Illinois limited
partnership
<PAGE>
EXHIBIT 10 (ii)
- ---------------
SECOND AMENDMENT TO NOTE
This Second Amendment to Note dated as of January 7, 1997 ("Second
Amendment") is made by and between Banyan Strategic Realty Trust, a
Massachusetts business trust ("BSRT") and American National Bank and Trust
Company of Chicago, a national banking association (hereinafter, together
with its legal representatives, successors and assigns, referred to as
"ANB").
WHEREAS, BSRT has previously delivered to ANB that certain note dated
as of December 1, 1994 in the maximum principal amount of Fifteen Million
and no/100 Dollars ($15,000,000), subject to the limitations set forth
therein; and,
WHEREAS, BSRT has increased the maximum principal amount of the said
note from Fifteen Million and no/100 Dollars ($15,000,000) to Thirty
Million and no/100 Dollars ($30,000,00) pursuant to that certain First
Amendment to Note dated as of December 18, 1995, subject to the limitations
set forth therein (the said note, as so amended by the First Amendment to
Note, is hereinafter referred to as the "Note").
WHEREAS, BSRT desired to amend the Note, as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Other Documents. Capitalized terms used in this Second Amendment but
not otherwise defined herein shall have the meaning ascribed to them in the
Note. Concurrent herewith, BSRT is amending or causing to be amended the
Loan Agreement (pursuant to Fourth Amendment to Loan Agreement), the
Mortgages, and the Additional Collateral Documents. All references in the
Note to:
a. the "Loan Agreement" are hereafter deemed to be references to
the Loan Agreement, as previously amended and as amended concurrent
herewith, as the same may hereafter be renewed, restated, replaced,
extended or amended from time to time;
b. the "Mortgages" are hereafter deemed to be references to the
Mortgages as amended concurrent herewith, as the same hereafter may be
amended from time to time, and all Mortgages which are executed and
delivered to Lender concurrent herewith and which from time to time
hereafter may be executed and delivered to Lender as security for or
relating to the indebtedness and obligations as evidenced by any one or
more of the Note, Loan Agreement and Reimbursement Agreement, as same may
be amended from time to time;
c. the "Reimbursement Agreement" are hereafter deemed to be
references to any one or more Reimbursement Agreements hereafter executed
and delivered to Lender in respect of any one or more Letters of Credit
hereafter issued by Lender in respect of the Loan Agreement, as the same
may be amended from time to time; and
<PAGE>
d. the "Additional Collateral Documents" are hereafter deemed to
be references to the Additional Collateral Documents as amended concurrent
herewith, as the same may hereafter be amended from time to time, and all
other mortgages, documents and instruments (other than the Loan Agreement,
Mortgages and Reimbursement Agreement) which are executed and delivered to
Lender concurrent herewith and which from time to time hereafter may be
executed and delivered to Lender as security for or relating to the
indebtedness and obligations evidenced by any one or more of the Note, Loan
Agreement and Reimbursement Agreement, as same may be amended from time to
time.
2. Maturity Date. The Maturity Date set forth in paragraph 2G of the
Note is hereby changed from December 14, 1997 to May 31, 1998.
3. Loan Conversion Date. The Loan Conversion Date set forth in
paragraph 2G of the Note is hereby changed from December 14, 1996 to May
31, 1997.
4. Loan Amount. All references in the Note to "Thirty Million" or
"$30,000,000" are hereby amended to "Twenty Million" or "$20,000,000" as
the case may be.
5. Addendum to Note. The Addendum to Note which was attached to the
First Amendment to Note dated December 18, 1995 is hereby deleted
therefrom.
6. Conflict; Inconsistency. Except as amended by this Second Amendment,
the Note shall remain in full force and effect. In the event of any
conflict or inconsistency between the terms and provisions of the Note and
the terms and provisions of this Second Amendment, the terms and provisions
of this Second Amendment shall control to the extent necessary to resolve
such conflict or inconsistency.
7. Successors; Assigns. The provisions hereof shall be binding upon and
inure to the benefit of the parties hereto and their respective legal
representatives, successors and assigns. This instrument has been made,
executed and delivered in the State of Illinois and shall be governed by
and construed in accordance with the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have executed this Second Amendment
as of the date and year first written above.
BSRT: ANB:
BANYAN STRATEGIC REALTY TRUST, a AMERICAN NATIONAL BANK AND TRUST
Massachusetts business trust COMPANY OF CHICAGO, a national
banking association
BY: By:
---------------------------- --------------------------
Its: Its:
---------------------------- --------------------------
<PAGE>
EXHIBIT 21
<PAGE>
SUBSIDIARIES OF BANYAN STRATEGIC REALTY TRUST
NAME OF SUBSIDIARY STATE OF ORGANIZATION
------------------- ----------------------
Banyan/Morgan Milwaukee Limited Partnership Illinois
Banyan/Morgan Willowbrook Limited Partnership Illinois
BSLT/BSLFII H Street Partnership Illinois
BSLT Milwaukee Corp. Illinois
BSRT Colonial Courts Corp. Illinois
BSRT Colonial Courts Limited Partnership Illinois
BSRT Commerce Center Corp. Illinois
BSRT Fountain Square Corp. Illinois
BSRT Hallmark Village Corp. Illinois
BSRT Hallmark Village Limited Partnership Illinois
BSRT Lexington Corp. Illinois
BSRT Lexington Trust Massachusetts
BSRT Lexington B Corp. Illinois
BSRT/M&J Northlake Limited Partnership Illinois
BSRT Merger Corp. Illinois
BSRT Newtown Corp. Illinois
BSRT Newtown Trust Massachusetts
BSRT Northlake Festival Corp. Illinois
BSRT Riverport Corp. Illinois
BSRT Riverport Trust Massachusetts
BSRT/STM Business Center Trust Massachusetts
BSRT/STM Business Center Corp. Illinois
BSRT Willburr Corp. Illinois
BSRT Woodcrest Office Corp. Illinois
BSRT Woodcrest Office Park Limited Partnership Illinois
VSLT Ninth Street Corp. Illinois
BSRT Phoenix Business Park Corp. Illinois
Banyan/Morgan MOC Limited Partnership Illinois
BSRT Brook Corp. Illinois
BSRT Oklahoma Woodrun Corp. Illinois
BSRT Oklahoma Willowpark Corp. Illinois
BSRT Oklahoma Country Creek Corp. Illinois
BSRT Oklahoma Winchester Run Corp. Illinois
BSRT Port 95-1 Corp. Illinois
BSRT Port 95-2 Corp. Illinois
BSRT Port 95-3 Corp. Illinois
BSRT Butterfield Office Plaza, Inc. Illinois
<PAGE>
BANYAN STRATEGIC REALTY TRUST
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
Report of Independent Auditors F-2
Consolidated Balance Sheets, December 31, 1996 and 1995 F-3 to F-4
Consolidated Statements of Income and Expenses For
the Years Ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Shareholders' Equity For
the Years Ended December 31, 1996, 1995 and 1994 F-6
Consolidated Statements of Cash Flows For the Years
Ended December 31, 1996, 1995 and 1994 F-7 to F-8
Notes to Consolidated Financial Statements F-9 to F-30
All schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule
or because the information required is included in the consolidated
financial statements and notes thereto.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF BANYAN STRATEGIC REALTY TRUST
We have audited the accompanying consolidated balance sheets of Banyan
Strategic Realty Trust as of December 31, 1996 and 1995, and the related
consolidated statements of income and expenses, shareholders' equity and
cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements 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, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Banyan Strategic Realty Trust at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
March 20, 1997, except for Notes 12 and 13,
as to which the date is April 9, 1997.
<PAGE>
<TABLE>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<CAPTION>
Consolidated Consolidated
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
- ------
Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 3,805,260 $ 5,500,215
Interest Receivable on Investments . . . . . . . . . . . . . . . . . . . 46,313 70,352
Interest Receivable on Mortgage Loans. . . . . . . . . . . . . . . . . . --- 60,780
Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,194,425 528,029
------------ ------------
5,045,998 6,159,376
------------ ------------
Mortgage Loans Receivable (Net of Unamortized Discount). . . . . . . . . --- 5,433,094
Investment in Real Estate, at cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,956,094 12,809,994
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,210,415 74,343,233
Building Improvements. . . . . . . . . . . . . . . . . . . . . . . . . 5,015,673 3,046,838
------------ ------------
107,182,182 90,200,065
Less: Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . (4,692,455) (2,337,095)
------------ ------------
102,489,727 87,862,970
------------ ------------
Investment in Real Estate Venture. . . . . . . . . . . . . . . . . . . . 5,713,759 8,895,678
Deferred Financing Costs (Net of Accumulated
Amortization of $722,925 and $224,020,
Respectively). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,326,489 1,188,174
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,958,232 1,225,480
------------ ------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $116,534,205 $110,764,772
============ ============
<PAGE>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED BALANCE SHEETS - CONTINUED
DECEMBER 31, 1996 AND 1995
Consolidated Consolidated
1996 1995
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities
Accounts Payable and Accrued Expenses. . . . . . . . . . . . . . . . . . $ 2,481,253 $ 1,332,708
Accrued Real Estate Taxes. . . . . . . . . . . . . . . . . . . . . . . . 763,238 703,919
Mortgage Loans Payable . . . . . . . . . . . . . . . . . . . . . . . . . 48,181,023 43,522,181
Bonds Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,900,000 5,500,000
Accrued Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . 237,922 107,325
Unearned Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248,748 94,002
Security Deposit Liabilities . . . . . . . . . . . . . . . . . . . . . . 473,758 439,135
------------ ------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,285,942 51,699,270
------------ ------------
Minority Interest in Consolidated Partnerships . . . . . . . . . . . . . 2,313,825 2,190,098
Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares of Beneficial Interest, No Par
Value, Unlimited Authorization;
12,001,620 and 11,999,787 Shares
Issued, Respectively . . . . . . . . . . . . . . . . . . . . . . . . . 106,694,912 106,687,212
Accumulated Deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . (48,394,525) (42,445,859)
Treasury Shares at Cost, 1,522,649 Shares. . . . . . . . . . . . . . . . (7,365,949) (7,365,949)
------------ ------------
Total Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . 50,934,438 56,875,404
------------ ------------
Total Liabilities and Shareholders' Equity . . . . . . . . . . . . . . . $116,534,205 $110,764,772
============ ============
Book Value Per Share of Beneficial Interest
(10,478,971 and 10,477,138 Shares
Outstanding, respectively) . . . . . . . . . . . . . . . . . . . . . . $ 4.86 $ 5.43
============ ============
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Rental Income. . . . . . . . . . . . . . . . . . . . . $ 18,606,996 $10,118,609 $ 6,731,108
Operating Cost Reimbursement . . . . . . . . . . . . . 1,936,392 918,914 523,792
Miscellaneous Tenant Income. . . . . . . . . . . . . . 259,844 194,335 238,175
Interest and Amortized Discount on Mortgage Loans. . . 441,725 1,036,052 959,565
Income on Investments. . . . . . . . . . . . . . . . . 159,361 634,459 381,161
----------- ----------- -----------
Total Revenue. . . . . . . . . . . . . . . . . . . . . . 21,404,318 12,902,369 8,833,801
----------- ----------- -----------
EXPENSES . . . . . . . . . . . . . . . . . . . . . . . .
Operating Property Expenses. . . . . . . . . . . . . . 4,296,266 2,785,740 1,939,320
Repairs and Maintenance. . . . . . . . . . . . . . . . 2,378,139 1,256,444 823,669
Real Estate Taxes. . . . . . . . . . . . . . . . . . . 1,748,105 1,153,797 726,022
Interest Expense . . . . . . . . . . . . . . . . . . . 4,011,218 1,583,645 342,700
Ground Lease Expense . . . . . . . . . . . . . . . . . 871,471 376,130 ---
Depreciation and Amortization. . . . . . . . . . . . . 2,453,059 1,334,992 875,949
General and Administrative . . . . . . . . . . . . . . 3,125,509 2,036,367 2,177,513
Amortization of Deferred Loan Fees
and Financing Costs. . . . . . . . . . . . . . . . . 511,757 234,056 49,361
Recovery of Losses on Loans, Notes and
Interest Receivable. . . . . . . . . . . . . . . . . (16,569) (164,958) (192,212)
----------- ----------- -----------
Total Expenses . . . . . . . . . . . . . . . . . . . . . 19,378,955 10,596,213 6,742,322
----------- ----------- -----------
Income Before Minority Interest and Income
(Loss) from Operations of Real Estate Ventures . . . . 2,025,363 2,306,156 2,091,479
Minority Interest in Consolidated Partnerships . . . . . (481,411) (178,114) (55,718)
Income (Loss) from Operations of Real Estate Ventures. . (3,301,212) 472,003 (2,994,361)
Gain on Disposition of Property. . . . . . . . . . . . . --- --- 46,108
----------- ----------- -----------
Net Income (Loss). . . . . . . . . . . . . . . . . . . . $(1,757,260) $ 2,600,045 $ (912,492)
=========== =========== ===========
Earnings (Loss) Per Share of Beneficial Interest
(10,478,410, 10,474,079 and 10,471,102
Weighted Average Number of Shares Outstanding,
respectively). . . . . . . . . . . . . . . . . . . . . $ (0.17) $ 0.25 $ (0.09)
=========== =========== ===========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
Shares of
Beneficial Interest
------------------------- Accumulated Treasury
Shares Amount Deficit Shares Total
--------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Shareholders' Equity,
December 31, 1993 . . . . . . 11,993,751 $106,662,313 $(35,754,719) $(7,365,949) $ 63,541,645
Net Loss . . . . . . . . . . . --- --- (912,492) --- (912,492)
Distributions Paid . . . . . . --- --- (4,188,441) --- (4,188,441)
---------- ------------ ------------ ----------- ------------
Shareholders' Equity,
December 31, 1994 . . . . . . 11,993,751 106,662,313 (40,855,652) (7,365,949) 58,440,712
Award Shares Issued. . . . . . 6,036 24,899 --- --- 24,899
Net Income . . . . . . . . . . --- --- 2,600,045 --- 2,600,045
Distributions Paid . . . . . . --- --- (4,190,252) --- (4,190,252)
---------- ------------ ------------ ----------- ------------
Shareholders' Equity,
December 31, 1995 . . . . . . 11,999,787 106,687,212 (42,445,859) (7,365,949) 56,875,404
Award Shares Issued. . . . . . 1,833 7,700 --- --- 7,700
Net Loss . . . . . . . . . . . --- --- (1,757,260) --- (1,757,260)
Distributions Paid . . . . . . --- --- (4,191,406) --- (4,191,406)
---------- ------------ ------------ ----------- ------------
Shareholders' Equity,
December 31, 1996 . . . . . . 12,001,620 $106,694,912 $(48,394,525) $(7,365,949) $ 50,934,438
=========== ============ ============ =========== ============
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
Consolidated Consolidated Consolidated
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS). . . . . . . . . . . . . . . . . . . . $(1,757,260) $ 2,600,045 $ (912,492)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:
Recovery of Losses on Loans, Notes and
Interest Receivable. . . . . . . . . . . . . . . . . (16,569) (164,958) (57,226)
Gain on Disposition of Property. . . . . . . . . . . . --- --- (46,108)
Amortization of Premium on Investment Securities . . . --- 10,596 66,474
Depreciation and Amortization. . . . . . . . . . . . . 2,964,816 1,569,048 925,310
Amortization of Discount on Mortgage Loans
Receivable . . . . . . . . . . . . . . . . . . . . . (34,547) (372,129) (307,920)
Net Loss (Income) From Operation of
Real Estate Ventures . . . . . . . . . . . . . . . . 3,301,212 (472,003) 2,994,361
Minority Interest Participation in
Consolidated Partnerships. . . . . . . . . . . . . . 481,411 178,114 55,718
Incentive Compensation Expense . . . . . . . . . . . . 729,700 3,500 28,300
Net Change In:
Interest Receivable on Mortgage Loans
and Investments. . . . . . . . . . . . . . . . . . . 84,819 6,154 88,074
Accounts Receivable. . . . . . . . . . . . . . . . . . (666,396) (420,357) 91,281
Other Assets . . . . . . . . . . . . . . . . . . . . . (748,230) (213,082) (323,072)
Accounts Payable and Accrued Expenses. . . . . . . . . 721,126 (42,961) 384,292
Accrued Interest Payable . . . . . . . . . . . . . . . 130,597 67,320 (571)
Accrued Real Estate Tax Payable. . . . . . . . . . . . 54,267 10,753 368,469
Unearned Revenue . . . . . . . . . . . . . . . . . . . 158,310 70,709 2,271
Security Deposit Liability . . . . . . . . . . . . . . (1,472) 16,479 16,361
----------- ----------- -----------
Net Cash Provided By Operating Activities. . . . . . . . 5,401,784 2,847,228 3,373,522
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Real Estate Assets. . . . . . . . . . . (15,013,282) (47,818,144) (18,650,295)
(Investments In) Distributions From Real
Estate Ventures, Net . . . . . . . . . . . . . . . . (119,293) 56,558 (23,820)
Proceeds from Sale of Mortgage Loans
Receivable. . . . . . . . . . . . . . . . . . . . . . 5,440,047 --- ---
Proceeds From Sale of Investment in
Real Estate Venture. . . . . . . . . . . . . . . . . --- 2,217,558 ---
Additions to Investment in Real Estate . . . . . . . . (1,968,835) (1,183,619) (647,367)
<PAGE>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Consolidated Consolidated Consolidated
1996 1995 1994
------------ ------------ ------------
Payment of Liabilities Assumed at Acquisition
of Real Estate Assets. . . . . . . . . . . . . . . . (339,219) 34,585 (374,519)
Proceeds From Sale of Real Estate. . . . . . . . . . . --- --- 97,435
Recovery of Losses on Loans, Notes and
Interest Receivable . . . . . . . . . . . . . . . . 16,569 164,958 114,298
Principal Payments of Investment Securities. . . . . . 22,365 --- 12,991,276
Proceeds from Sale and Maturities of
Investment Securities. . . . . . . . . . . . . . . . 817,314 2,500,000 ---
Purchase of Investment Securities. . . . . . . . . . . (839,679) (1,493,360) (1,017,236)
Investment Securities Sold to Affiliates . . . . . . . --- --- 1,372,373
Principal Collections on Mortgage Loans
Receivable . . . . . . . . . . . . . . . . . . . . . 14,742 43,817 36,742
Investment in Mortgage Loans Receivable. . . . . . . . --- --- (4,771)
Due from Affiliates. . . . . . . . . . . . . . . . . . --- 730,229 (442,354)
----------- ----------- -----------
Net Cash Used In Investing Activities. . . . . . . . . . (11,969,271) (44,747,418) (6,548,238)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Bonds and Mortgage Loans Payable . . . . 21,645,000 35,806,807 9,500,000
(Distributions To) Investment From
Minority Partners. . . . . . . . . . . . . . . . . . (357,684) 1,797,135 (69,840)
Deferred Financing Costs . . . . . . . . . . . . . . . (637,220) (597,134) (718,099)
Principal Payments on Mortgage Loans and
Bonds Payable. . . . . . . . . . . . . . . . . . . . (11,586,158) (185,321) (85,678)
Dividends Paid to Shareholders . . . . . . . . . . . . (4,191,406) (4,190,252) (4,188,441)
----------- ----------- -----------
Net Cash Provided By Financing Activities. . . . . . . . 4,872,532 32,631,235 4,437,942
----------- ----------- -----------
Net (Decrease) Increase In Cash and Cash Equivalents . . (1,694,955) (9,268,955) 1,263,226
Cash and Cash Equivalents at Beginning of Year . . . . . 5,500,215 14,769,170 13,505,944
----------- ----------- -----------
Cash and Cash Equivalents at End of Year . . . . . . . . $ 3,805,260 $ 5,500,215 $14,769,170
=========== =========== ===========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION
Banyan Strategic Realty Trust (the "Trust") was organized as a
business trust under the laws of the Commonwealth of Massachusetts,
pursuant to a Declaration of Trust filed March 14, 1986 under the name VMS
Strategic Land Trust.
The accompanying consolidated financial statements include the
accounts of the Trust, its wholly-owned subsidiaries and its controlled
Partnerships. All intercompany balances and transactions have been
eliminated in consolidation. Investment in Real Estate Ventures are
accounted for on the equity method.
B. DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the term of the related
loans using the level yield method.
C. INVESTMENT SECURITIES
Investment securities are classified as available for sale and carried
at fair value, as determined by quoted market prices, with unrealized gains
and losses reflected in the Statement of Shareholders' Equity. Realized
gains and losses are determined on a specific identification basis. The
basis of investment securities is adjusted for amortization of premiums and
discounts using the level yield method.
D. INVESTMENT IN REAL ESTATE
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of"
("FAS 121"), under which the Trust would be required to recognize
impairment losses for its properties when indicators of impairment are
present and a property's expected undiscounted cash flows are not
sufficient to recover the property's carrying amount. The Trust adopted
FAS 121 effective January 1, 1995 with no effect on the accompanying 1995
consolidated financial statements. During the quarter ended December 31,
1996, the venture owning the H Street Assemblage property recorded a
valuation allowance of $6,000,000, of which the Trust's share is
$3,180,000. See Note 7, Investment in Real Estate Venture, for further
details.
E. REVENUE RECOGNITION
Interest income is accrued when earned. The accrual of interest is
discontinued when the borrower acknowledges its inability to make payments
or when payments become contractually delinquent ninety days or more,
unless the loan is in the process of collection. Once a loan has been
placed in a non-accrual status, all cash received is applied against the
outstanding loan balance until such time as the borrower has demonstrated
an ability to make payments under the terms of the then current loan
agreement. That portion of accrued interest income which the Trust
considers to be unlikely of collection is reflected in the accompanying
consolidated statements of income and expenses in the provision for losses
on loans, notes and interest receivable. However, the Trust intends to
pursue collection of all amounts contractually due from the borrowers.
<PAGE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
F. MORTGAGE LOANS RECEIVABLE
Mortgage loans receivable in the accompanying consolidated balance
sheet is presented at net carrying value, which represents the outstanding
principal less unamortized purchased mortgage loan discounts plus any
associated unamortized deferred loan costs. Unamortized purchased mortgage
loan discounts and associated deferred loan costs are amortized over the
term of the loan using the level yield method.
The Financial Accounting Standards Board issued Statements of
Financial Accounting Standards Nos. 114 and 118 ("FAS 114/118"),
"Accounting by Creditors for Impairment of a Loan". The adoption of
FAS 114/118 by the Trust effective January 1, 1995 has not had any impact
on the carrying value of the Trust's mortgage loans or financial statements
as of December 31, 1995.
G. MARKET VALUE ADJUSTMENT OF FINANCIAL INSTRUMENTS
The Trust adopted in 1995 Statement of Financial Accounting Standards
No. 107 ("FAS 107"), "Disclosures about Fair Value of Financial
Instruments," which requires entities to disclose the fair value of all
financial assets and liabilities for which it is practicable to estimate.
Value is defined in FAS 107 as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. The Trust believes the carrying amount of its
financial instruments approximates fair value at December 31, 1996 and
1995, based upon (i) fixed rates on mortgage loans payable are comparable
to rates currently offered in the market, (ii) the variable rates on the
line of credit and bonds payable and (iii) the relatively short maturity of
the Trust's cash equivalents. The Trust has no other financial
instruments.
H. INCOME TAXES
For the years ended December 31, 1996, 1995 and 1994, the Trust
continued to be treated as a real estate investment trust ("REIT") under
Internal Revenue Code Sections 856-860. In order to qualify, the Trust was
required to distribute at least 95% of its taxable income to shareholders
and meet asset and income tests as well as certain other requirements.
As of December 31, 1996, Investment in Real Estate and Investment in
Real Estate Ventures has a gross and net basis, respectively, of
$107,182,182 and $12,313,038, respectively, for income tax purposes.
Additionally, investment in liquidating trust with a tax basis of $840,100
has not been accorded any value for financial reporting purposes.
As of December 31, 1996, the Trust has a net operating loss carry-
forward of approximately $11,498,000 which will expire in 2005, 2006 and
2008.
I. CASH EQUIVALENTS
The Trust considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash and cash equivalents.
<PAGE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
J. USE OF ESTIMATES
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
K. RECLASSIFICATIONS
Certain reclassifications have been made to the previously reported
1995 and 1994 consolidated financial statements in order to provide
comparability with the 1996 consolidated financial statements. These
reclassifications have not changed the 1995 or 1994 results.
2. MORTGAGE LOANS RECEIVABLE
Karfad Associates (the "Borrower"), which was indebted to the Trust
pursuant to the Karfad loan in the original principal amount of $5,849,266
(the "Loan"), failed to make the required interest payments due on the
first of each month from January through May of 1996 resulting in a
foreclosure and a direct action against the guarantors. On May 17, 1996,
the Trust entered into a Settlement Agreement (the "Agreement") and two
loan sale agreements with the Borrower and a party affiliated with the
Borrower pursuant to which the Karfad Loan, as well as four related loans
to parties affiliated with the Borrower (collectively the "Loan
Portfolio"), were to be sold at an amount equal to the Trust's December 31,
1995 carrying value for the Loan Portfolio totalling approximately
$5,440,000. On June 28 and July 31, 1996, the Trust completed the sale of
the Loan Portfolio. In addition, the Borrower made all interest payments
due pursuant to the terms of the original remaining four loans in the Loan
Portfolio and the Loan from January 1, 1996 through the date of sale in the
amount of approximately $407,000. As a result of the Agreement, the Trust
terminated the recognition of income from the amortization of the Loan's
purchase discount effective January 1, 1996. As of July 31, 1996, the
Trust has no further interest in the Loan Portfolio.
<PAGE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1996 1995 1994
---------- ----------- -----------
Reconciliation of Net
Investment in Mortgage
Loans Receivable:
Balance at Beginning of Year . . . . $5,433,094 $5,136,229 $4,891,462
Additions During Year:
Deferred Loan Costs. . . . . . --- --- 4,771
Amortization of Discount
on Mortgage Loans
Receivable . . . . . . . . . 34,547 372,129 307,920
---------- ---------- ----------
Deductions During Year:
Proceeds From Sale of
Mortgage Loans
Receivable . . . . . . . . . (5,440,047) --- ---
Principal Collections
on Mortgage Loans. . . . . . (14,742) (43,817) (36,742)
Amortization of Deferred
Loan Costs . . . . . . . . . (12,852) (31,447) (31,182)
---------- ---------- ----------
(5,467,641) (75,264) (67,924)
---------- ---------- ----------
Balance at End of Year . . . . . . $ --- $5,433,094 $5,136,229
========== ========== ==========
<PAGE>
<TABLE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. MORTGAGE LOANS AND BONDS PAYABLE
The properties of the Trust as described below are subject to mortgage loans and bonds payable at December
31, 1996 and 1995 as follows:
Mortgage Mortgage
Loans and Loans and
Bonds Bonds Cash
Payable Payable Basis
Balance Balance Annual Final Estimated Interest
Property Pledged as of as of Interest Maturity Periodic Balloon Paid in
as Collateral 12/31/96 12/31/95 Rate Date Payment Payment 1996
- ---------------- ----------- ---------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
FIRST MORTGAGES:
Milwaukee Industrial
Portfolio,
Metropolitan
Milwaukee, WI (a). $ 3,707,416 $ 3,799,835 8% 10/01/98 $ 33,458 $3,511,074 $275,615
Elmhurst Metro
Court
Elmhurst, IL (b) . 3,908,390 3,954,132 8.83% 01/01/00 33,103 3,730,074 318,396
Colonial Courts
of Westland Apts.,
Columbus, OH (c) . 5,500,000 5,500,000 (c) 12/01/24 (c) 5,500,000 197,339
Willowbrook
Industrial
Court,
Willowbrook,
IL (d) . . . . . . 2,590,983 2,629,974 8.5% 07/01/02 22,050 2,281,280 203,557
Northlake Tower
Shopping Center,
Atlanta, GA. . . . 10,350,000 10,350,000 8.5% 08/01/05 73,313 10,350,000 879,750
<PAGE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Mortgage Mortgage
Loans and Loans and
Bonds Bonds Cash
Payable Payable Basis
Balance Balance Annual Final Estimated Interest
Property Pledged as of as of Interest Maturity Periodic Balloon Paid in
as Collateral 12/31/96 12/31/95 Rate Date Payment Payment 1996
- ---------------- ----------- ---------- --------- --------- --------- ---------- ----------
Quantum Business
Center,
Jefferson County,
KY . . . . . . . . 2,634,563 2,688,240 8% 04/25/01 22,641 2,320,254 195,372
Florida Power and
Light Building
Sarasota, FL (e) . 6,118,702 --- 7.21% 03/13/03 46,070 5,254,660 356,923
Woodcrest Office
Park
Tallahassee, FL
(f). . . . . . . . 7,212,899 --- 8.25% 08/01/03 57,163 6,434,628 277,061
Midwest Office
Center
Oakbrook, IL (d) . 3,258,070 --- 7.13% 05/01/03 24,760 2,741,057 144,875
6901 Riverport
Drive
Louisville, KY (g) 5,400,000 --- (g) 12/01/14 (g) (g) 32,163
FIRST MORTGAGE
LINE OF CREDIT:
Collateralized
by the Trust's
various property
interests (h). . . 8,400,000 20,100,000 (h) 5/31/98 (h) 8,400,000 999,570
----------- -----------
$59,081,023 $49,022,181
=========== ===========
</TABLE>
<PAGE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The principal balance of the Trust's mortgage loans and bonds are
scheduled to be repaid as follows:
1997 . . . . . . . . . . . . $ 858,769
1998 . . . . . . . . . . . . 12,765,534
1999 . . . . . . . . . . . 815,316
2000 . . . . . . . . . . . 4,516,794
2001 . . . . . . . . . . . . 3,087,295
Thereafter . . . . . . . . . . . . 37,037,315
-----------
Total . . . . . . . . . . . . $59,081,023
===========
(a) The loan contains a prepayment penalty which is based on a formula to
provide yield maintenance protection to the lender.
(b) The loan contains a prepayment penalty of 5% of the outstanding
principal loan balance in year one, decreasing by 1% thereafter through the
loan's maturity date.
(c) On December 14, 1994, a limited partnership consisting of the Trust,
a wholly-owned subsidiary and an unrelated third party, which holds title
to the Colonial Courts property, completed a $5,500,000 tax-exempt bond
financing in connection with the Colonial Courts property. The bond was
collateralized by a $5,624,315 letter of credit issued by American National
Bank and Trust Company ("original LOC") as a draw against the Trust's line
of credit (see Note 3(h) below for further details). The bond has a
thirty year term and requires monthly payments of interest only based upon
the weekly low floater tax exempt bond rate. The weekly low floater bond
rate as of December 31, 1996 equaled 3.83%.
On April 15, 1996, the partnership replaced the original LOC with an
irrevocable letter of credit in the amount of $5,624,315 issued by Citizens
National Bank of Evansville ("Replacement LOC"). The bonds are also
secured by a first mortgage on the Colonial Courts property. The
Replacement LOC is confirmed by an irrevocable direct pay letter of credit
in the amount of $5,624,315 provided by the Federal Home Loan Bank of
Indianapolis ("FHLB"). The Replacement LOC and the FHLB letter of credit
have a term of five years with an option for an additional five year term.
The annual fee for the Replacement LOC is equal to one percent (1%) of the
letter of credit amount or $56,243. The annual fee for the FHLB letter of
credit is approximately $2,800. In consideration of its assistance in
obtaining the Replacement LOC and in accordance with the Trust's
obligations under the partnership agreement, the Trust increased the
limited partnership interest of PHC General Partnership ("PHC") in the BSRT
Colonial Courts Limited Partnership from 10% to 25%. The PHC ownership
percentage change became effective May 1, 1996 for financial reporting
purposes.
(d) The loan contains a prepayment penalty of 7% of the outstanding
principal loan balance in year one, decreasing by 1% thereafter through the
loan's maturity date.
<PAGE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(e) On March 13, 1996, the Trust executed a nonrecourse first mortgage
loan collateralized by the Florida, Power and Light office building. The
loan contains a prepayment penalty which is based on a formula to provide
yield maintenance protection to the Lender.
The Trust, at its discretion, has the right to adjust the interest
rate ("Adjusted Interest Rate") on the loan on April 1, 2001. The Adjusted
Interest Rate is computed based at a rate of 300 basis points over the two-
year U.S. Treasury rate as of December 18, 2000.
(f) On July 15, 1996, BSRT Woodcrest Office Park Limited Partnership , a
limited partnership among a subsidiary of the Trust, as general partner,
and Mr. Daniel Smith and the Trust as limited partners, executed a
nonrecourse first mortgage loan collateralized by the Woodcrest Office Park
property. The loan contains a prepayment penalty of 7% of the outstanding
principal balance in year one, decreasing by 1% thereafter through the
loan's maturity date.
(g) On November 19, 1996, the Trust acquired a 100% leasehold interest in
the property located at 6901 Riverport Drive (the"Riverport Property")
located in Louisville, Kentucky. The Trust utilized $200,000 of cash
reserves for the acquisition and assumed a lease obligation. The reminder
of the acquisition price was provided for by a draw upon the Trust's line
of credit. The property is encumbered by tax-exempt Industrial Revenue
Bond financing with an outstanding principal balance in the amount of
$5,700,000 issued by Jefferson County, Kentucky. The lease assumed requires
monthly payment of variable rate interest which is due the first of each
month and annual principal payments in the amount of $300,000 which are due
and payable each December 1 to and including December 1, 2014, the maturity
date. Under the terms of the lease, the lease payments are equal to the
required principal and interest payments on the bonds. An irrevocable
letter of credit was issued as additional collateral for the bond financing
which matures in December 1999. The bank issuing the letter of credit has
a secured interest in the property. The annual fee for the letter of
credit is equal to 1.5% of the letter of credit amount or $90,343. The
variable interest rate on the bonds as of December 1996 was 3.8%.
(h) On December 13, 1994, the Trust executed a Mortgage Loan Commitment
(the "Original Line") with American National Bank and Trust Company of
Chicago ("ANB") in the amount of $15,000,000. The Original Line was a
revolving line of credit with an initial term of two years. The Original
Line also provided for a one year extension subsequent to the initial two
year term with a balloon payment of principal required upon maturity,
December 14, 1997. During the initial term of the Original Line and any
extension, the Trust was required to pay interest only at the rate of LIBOR
plus 2.25% or Prime plus .25% at the election of the Trust which currently
equals approximately 7.6% to 8.5% per annum. A letter of credit fee of one
percent of the amount of the then outstanding Letter of Credit balance was
required to be paid quarterly. Mortgages on certain of the Trust's
properties and its mortgage loans receivable served as collateral for the
Original Line.
<PAGE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
On December 15, 1995, the Trust and ANB entered into an agreement
modifying the Original Line by increasing the amount the Trust could borrow
from $15,000,000 to $30,000,000 (the "Modified Line"). The Trust provided
the Bank additional collateral consisting of mortgages on certain
properties as well as pledges of the Trust's subsidiaries stock or
partnership interest in the entities owning said properties. The Trust
also paid a loan fee upon execution of the Modified Line in the amount of
$75,000, or .5% of the increase in the Original Line. All other terms, as
provided for under the Original Line, remain unchanged. In addition, the
Trust is required to pay the Bank an unused facility fee of.5% per annum
multiplied by the average portion of the Modified Line that is undrawn from
time-to-time.
As of December 31, 1995, the Trust had utilized approximately
$25,724,000 of the $30,000,000 available under the Modified Line. On March
13 and July 15, 1996, the Trust used the proceeds for mortgage loans
collateralized by the Florida Power and Light and Woodcrest Office Park
properties, to pay down the revolving line of credit in the amounts of
$6,200,000 and $7,000,000, respectively. In addition, on April 15, 1996,
the Trust replaced a $5,624,315 letter of credit previously issued by ANB
which had been collateralized by the Modified Line with an irrevocable
letter of credit in the same amount by Citizen's National Bank of
Evansville (See Note 3(a) above for details). The Trust borrowed
$1,000,000 under the Modified Line for the acquisition of the Midwest
Office Park property in April 1996. (See Note 5, Investment in Real
Estate, for further details.) On June 28 and July 31, 1996, the Trust sold
its interest in the Karfad loan portfolio (See Note 2, Mortgage Loans
Receivable, for further details). On August 1, 1996, the Trust used a
portion of the Karfad loan portfolio net sales proceeds to pay down
$3,900,000 of the Modified Line. On November 19, 1996, the Trust borrowed
$4,400,000 under the Modified Line for the acquisition of the leasehold
interest in the Riverport Property. (See Note 5, Investment in Real
Estate, for further details.) As a result of the above transactions, as of
December 31, 1996, the Trust had an outstanding balance of $8,400,000 of
the $30,000,000 available under the Modified Line.
4. GROUND LEASE
On July 28, 1995, BSRT/M&J Northlake Limited Partnership, a joint
venture between a subsidiary of the Trust and M&J Wilkow Retail Ltd.,
acquired a leasehold interest in a shopping center in Atlanta, Georgia
pursuant to a ground lease with a remaining term of sixty-two years. The
ground lease requires annual lease payments of $600,000 or $50,000 per
month through October 4, 2007 plus 7% of total annual gross rental income
commencing when gross rental income exceeds $2,000,000 from the operations
of the Northlake Property. The ground lease also requires that the Trust
pay property operating expenses, including real estate taxes.
5. INVESTMENT IN REAL ESTATE
As of December 31, 1996, the Trust's investment in real estate
consisted of the following:
<PAGE>
<TABLE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<CAPTION>
Costs Capitalized
Property & Location/ Initial Costs to the Trust Subsequent to Acquisition
Date of Construction/ ------------------------------- ------------------------------
Date Acquired/ Buildings & Buildings &
Method of Depreciation Land Improvements Land Improvements
- ---------------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Milwaukee Industrial Portfolio
Milwaukee, WI
1973-1980
4/30/93. . . . . . . . . . . . . . . . . . $ 532,800 $ 5,242,243 $ --- $ 634,090
Colonial Courts of Westland Apartments,
Columbus, OH
1963
6/17/93. . . . . . . . . . . . . . . . . . 697,034 2,947,186 --- 1,891,159
Hallmark Village Apartments
Clarksville, IN
1972
9/28/93. . . . . . . . . . . . . . . . . . 448,000 5,625,670 --- 718,827
Elmhurst Metro Court
Elmhurst, IL
1982
11/30/93 . . . . . . . . . . . . . . . . . 1,615,360 3,604,358 --- 235,506
Colonial Penn Office
Building, Tampa Bay, FL
1984
3/22/94. . . . . . . . . . . . . . . . . . 1,189,300 7,366,210 --- ---
Florida Power & Light Office
Building, Sarasota, FL
1991
3/22/94. . . . . . . . . . . . . . . . . . 1,700,000 8,366,922 --- 119,806
Willowbrook Industrial Court
Willowbrook, IL
1979
6/16/95. . . . . . . . . . . . . . . . . . 962,500 2,961,179 --- 148,861
<PAGE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Costs Capitalized
Property & Location/ Initial Costs to the Trust Subsequent to Acquisition
Date of Construction/ ------------------------------- ------------------------------
Date Acquired/ Buildings & Buildings &
Method of Depreciation Land Improvements Land Improvements
- ---------------------- ----------- ------------ ----------- ------------
Northlake Tower Shopping Center,
Atlanta, GA
1983-1984
7/28/95. . . . . . . . . . . . . . . . . . --- 17,143,993 --- 380,474
Quantum Business Center
Jefferson County, KY
1976-1980
9/26/95. . . . . . . . . . . . . . . . . . 900,000 4,164,685 --- 112,215
Lexington Business Center
Lexington, KY
1985
12/05/95 . . . . . . . . . . . . . . . . . 1,330,000 5,753,284 --- 313,544
Newtown Distribution Center
Lexington, KY
1981-1982
12/05/95 . . . . . . . . . . . . . . . . . 355,000 3,234,143 --- 14,032
Woodcrest Office Park
Tallahassee, FL
1967-1989
12/19/95 . . . . . . . . . . . . . . . . . 3,080,000 7,967,657 --- 291,658
Midwest Office Center
Oakbrook, IL (d)
1979
4/18/96. . . . . . . . . . . . . . . . . . 2,396,100 2,591,138 --- 155,501
6901 Riverport Drive
Louisville, KY (e)
1985
11/19/96 . . . . . . . . . . . . . . . . . 1,750,000 8,241,747 --- ---
----------- ----------- ----------- -----------
$16,956,094 $85,210,415 $ --- $ 5,015,673
=========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<CAPTION>
Gross Amount at which Carried
Property & Location/ at December 31, 1996 (a)(b)(c)
Date of Construction/ ----------------------------------------------
Date Acquired/ Buildings & Accumulated
Method of Depreciation Land Improvements Total Depreciation
- ---------------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Milwaukee Industrial Portfolio
Milwaukee, WI
1973-1980
4/30/93. . . . . . . . . . . . . . . . . . $ 532,800 $ 5,876,333 $ 6,409,133 $ 653,035
Colonial Courts of Westland Apartments,
Columbus, OH
1963
6/17/93. . . . . . . . . . . . . . . . . . 697,034 4,838,345 5,535,379 512,570
Hallmark Village Apartments
Clarksville, IN
1972
9/28/93. . . . . . . . . . . . . . . . . . 448,000 6,344,497 6,792,497 605,409
Elmhurst Metro Court
Elmhurst, IL
1982
11/30/93 . . . . . . . . . . . . . . . . . 1,615,360 3,839,864 5,455,224 331,052
Colonial Penn Office
Building, Tampa Bay, FL
1984
3/22/94. . . . . . . . . . . . . . . . . . 1,189,300 7,366,210 8,555,510 511,472
Florida Power & Light Office
Building, Sarasota, FL
1991
3/22/94. . . . . . . . . . . . . . . . . . 1,700,000 8,486,727 10,186,727 598,288
Willowbrook Industrial Court
Willowbrook, IL
1979
6/16/95. . . . . . . . . . . . . . . . . . 962,500 3,110,040 4,072,540 157,011
<PAGE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Gross Amount at which Carried
Property & Location/ at December 31, 1996 (a)(b)(c)
Date of Construction/ ----------------------------------------------
Date Acquired/ Buildings & Accumulated
Method of Depreciation Land Improvements Total Depreciation
- ---------------------- ----------- ------------ ----------- ------------
Northlake Tower Shopping Center, Atlanta, GA
1983-1984
7/28/95. . . . . . . . . . . . . . . . . . --- 17,524,468 17,524,468 622,439
Quantum Business Center
Louisville, KY
1976-1980
9/26/95. . . . . . . . . . . . . . . . . . 900,000 4,276,900 5,176,900 139,604
Lexington Business Center
Lexington, KY
1985
12/05/95 . . . . . . . . . . . . . . . . . 1,330,000 6,066,828 7,396,828 169,049
Newtown Distribution Center
Lexington, KY
1981-1982
12/05/95 . . . . . . . . . . . . . . . . . 355,000 3,248,175 3,603,175 88,298
Woodcrest Office Park
Tallahassee, FL
1967-1989
12/19/95 . . . . . . . . . . . . . . . . . 3,080,000 8,259,315 11,339,315 227,748
Midwest Office Center
Oakbrook, IL (d)
1979
4/18/96. . . . . . . . . . . . . . . . . . 2,396,100 2,746,639 5,142,739 51,147
6901 Riverport Drive
Louisville, KY (e)
1985
11/19/96 . . . . . . . . . . . . . . . . . 1,750,000 8,241,747 9,991,747 25,333
----------- ----------- ------------ -----------
$16,956,094 $90,226,088 $107,182,182 $ 4,692,455
=========== =========== ============ ===========
<PAGE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<FN>
- --------------------
(a) The aggregate cost of the above real estate at December 31, 1996 for Federal income tax purposes is
$107,182,182. For further details regarding encumbrances on the Trust's properties see Note 3, Mortgage Loans and
Bonds Payable.
(b) Reconciliation of real estate owned:
</TABLE>
<PAGE>
<TABLE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Balance at Beginning of Year . . . . . . . . . $ 90,200,065 $41,198,302 $21,954,819
Acquisitions During Year . . . . . . . . . . . 15,013,282 47,818,144 18,650,295
Sale of Property . . . . . . . . . . . . . . . --- --- (54,179)
Additions During Year. . . . . . . . . . . . . 1,968,835 1,183,619 647,367
------------ ----------- -----------
Balance at End of Year . . . . . . . . . . . . $107,182,182 $90,200,065 $41,198,302
============ =========== ===========
<FN>
(c) Depreciation expense is computed using the straight line method. Rates used in the determination of
depreciation are based upon the estimated useful life of the asset, primarily 40 years.
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Reconciliation of Accumulated Depreciation:
Beginning of Year. . . . . . . . . . . . . . . $2,337,095 $1,036,890 $ 185,348
Depreciation Expense . . . . . . . . . . . . . 2,355,360 1,300,205 853,063
Sale of Property . . . . . . . . . . . . . . . --- --- (1,521)
---------- ---------- ----------
Balance at End of Year . . . . . . . . . . . . $4,692,455 $2,337,095 $1,036,890
========== ========== ==========
<PAGE>
<FN>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(d) On April 18, 1996, Banyan/Morgan Milwaukee Limited Partnership ("BMMLP"), a joint venture between a
subsidiary of the Trust, which is a general partner of BMMLP, and an affiliate of Morgan Realty Partners
("Morgan"), a general partner of BMMLP, acquired the Midwest Office Center property (the "Midwest Property"). The
Trust contributed capital in BMMLP upon acquisition of the property of approximately $1,692,000 of which the Trust
borrowed $1,000,000 under its line of credit. The Trust contributed an additional $147,000 for cash reserves
held by BMMLP for improvements and lease-up.
The terms of the BMMLP partnership agreement, as originally established at the time of the acquisitions
of the Milwaukee Industrial, Elmhurst Metro Court and Willowbrook Industrial properties, were amended effective
May 1, 1996 as a result of the Midwest Property acquisition by BMMLP. Pursuant to the amended BMMLP partnership
agreement, any excess cash flow from operations, after the Trust receives its 12% preferred return on contributed
equity will be allocated 85% to the Trust and 15% to Morgan.
(e) A subsidiary of the Trust acquired a 100% leasehold interest in the property. See Note 3(g), Mortgage
Loans and Bonds Payable, for further details regarding this acquisition.
</TABLE>
<PAGE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
6. PRO FORMA INFORMATION
The following unaudited pro forma summary presents the results of
operations of the Trust as if the 1996 and 1995 property acquisitions had
occurred at the beginning of 1995, after giving effect to certain
adjustments, including increased depreciation and interest expense. The
unaudited pro forma summary information does not necessarily reflect the
results of operations as they would have been if the Trust acquired the
properties on January 1, 1995.
Year Ended December 31,
(Unaudited)
-----------------------------
1996 1995
----------- -----------
Revenues . . . . . . . . . . . . . . $23,351,377 $23,657,804
Net Income (Loss). . . . . . . . . . $(1,323,950) $ 5,643,367
Earnings (Loss) Per Share
of Beneficial Interest . . . . . . $ (0.13) $ 0.54
7. INVESTMENT IN JOINT VENTURE
H STREET ASSEMBLAGE
On December 11, 1990, the Trust acquired title to the property known
as the Victor Building located in Washington D.C. pursuant to an agreement
with Banyan Strategic Land Fund II ("BSLFII"). On June 5, 1992, the Trust
and BSLFII formed a joint venture (the "Venture") to pursue development
rights. The Trust has a 53% interest in the Venture while BSLFII has the
remaining 47%. This property consists of 17,000 square feet of undeveloped
land in downtown Washington, D.C. plus an approximately 55,900 square foot
office building. The entire property is zoned for office development.
The Venture has completed and obtained the zoning, entitlement and
historic preservation for the development of an approximately 330,000
square foot commercial office building on the H Street Assemblage. In
December 1994, based on the current market conditions in Washington, D.C.,
the Venture determined that it would be in its best interest to initiate
marketing efforts to sell the property rather than assume the risk
associated with the development of the property, thereby necessitating a
$5,500,000 valuation allowance. The Trust's share, $2,915,000, is included
in the loss from operations of real estate ventures in the Trust's 1994
Statement of Income and Expenses.
On March 20, 1997, the Venture sold approximately 3,500 square feet of
the Venture's land to the United States General Services Administration
("GSA") for a purchase price of $1,680,000. GSA also paid the Venture
$150,000 as reimbursement of expenses that the Venture incurred in
anticipation of this transaction. The Venture received net sales proceeds
of approximately $1,829,000, of which approximately $969,000 is the Trust's
share. The Trust recognized no gain or loss on the sale. The Venture
obtained all required approvals from various government agencies for the
modifications necessary to the existing approved design for the proposed
building on the Venture's remaining property that had been necessitated by
this sale.
<PAGE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
During the quarter ended December 31, 1996, the Venture recorded a
valuation allowance in the amount of $6,000,000 as a result of the above
mentioned agreement with GSA and a sales contract with an unaffiliated
third party to purchase the H Street Assemblage. The Trust's share,
$3,180,000, is included in the loss from operations of real estate ventures
in the Trust's 1996 Statement of Income and Expenses. The Venture's
carrying value for the property after the write down is based on the
anticipated cumulative sales proceeds pursuant to the sales contract and
the agreement with GSA. Pursuant to the sales contract, the Venture has
agreed to sell the land remaining after the GSA sale for $9,000,000 subject
to a due diligence period of 120 days for the buyer. The reduction in the
carrying value of $6,000,000 reflects the carrying costs and closing costs
the Venture anticipates to incur in order to complete the aforementioned
transactions.
Summary financial information for the H Street Assemblage as of
December 31, 1996, 1995 and 1994 is as follows:
<PAGE>
<TABLE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Investment Property Net. . . . . . . . . . . . $ 9,981,527 $16,039,027 $16,096,527
Other Assets . . . . . . . . . . . . . . . . . 251,403 255,923 23,014
Other Liabilities. . . . . . . . . . . . . . . (218,306) (276,780) (206,131)
Venture Partners' Equity . . . . . . . . . . . (4,300,865) (7,122,492) (7,093,058)
----------- ----------- -----------
Trust's Equity. . . . . . . . . . . . . . $ 5,713,759 $ 8,895,678 $ 8,820,352
=========== =========== ===========
Total Revenues. . . . . . . . . . . . . . $ 529,931 $ 469,337 $ 406,315
=========== =========== ===========
Net Income (Loss) . . . . . . . . . . . . $(6,228,702) $ 71,252 $(6,009,317)
=========== =========== ===========
</TABLE>
<PAGE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
8. TRANSACTIONS WITH AFFILIATES
Administrative costs, primarily salaries and general and
administrative expenses are incurred on the Trust's behalf by Banyan
Management Corp. ("BMC"). These costs are allocated to the Trust and other
entities to which BMC provides administrative services based upon the
actual number of hours spent by BMC personnel on matters related to that
particular entity in relation to the total number of BMC personnel hours.
The Trust's allocable share of costs for the years ended December 31, 1996,
1995 and 1994 aggregated $1,275,374, $1,443,434 and $1,185,409,
respectively. As one of its administrative services, BMC serves as the
paying agent for general and administrative costs of the Trust. As part of
providing this payment service, BMC maintains a bank account on behalf of
the Trust. At December 31, 1996 and 1995, the Trust had a net payable due
to BMC of $2,845 and $176,527, respectively. The net payable is included
in accounts payable and accrued expenses in the Trust's Consolidated
Balance Sheet.
9. DISTRIBUTIONS PAID AND PAYABLE
It has been the Trust's policy to distribute to its shareholders an
amount equal to at least 95% of taxable income. A portion of the
distributions paid during the subsequent year may be allocable to taxable
income earned in the prior year. Of the $4,191,406 of 1996 distributions
paid, $2,841,813 represents ordinary income and $1,349,593 represents a
return of capital. Of the $4,190,252 of 1995 distributions paid,
$1,221,232 represents ordinary income and $2,969,020 represents a return of
capital.
On January 9, 1997, the Trust declared a cash distribution for the
fourth quarter ended December 31, 1996, of $0.10 per share payable February
20, 1997 to shareholders of record on January 22, 1997.
10. MINIMUM RENTALS UNDER OPERATING LEASES
The Trust receives rental income from the rental of retail, commercial
and industrial space under operating leases. The following is minimum
future base rentals (excluding amounts representing executory costs such as
taxes, maintenance and insurance) on operating leases for the Trust's
industrial, commercial and retail projects held at December 31, 1996:
1997. . . . . . . . $17,415,967
1998. . . . . . . . 14,756,866
1999. . . . . . . . 12,472,192
2000. . . . . . . . 8,100,097
2001. . . . . . . . 5,723,520
Thereafter. . . . . 17,890,932
-----------
$76,359,574
===========
No single tenant at the Trust's operating properties constitutes ten
percent or more of total income from property operating activities.
The Trust is subject to the usual business risks regarding the
collection of the above-mentioned rentals.
<PAGE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
11. RECOVERY OF LOSSES ON LOANS, NOTES, INTEREST RECEIVABLE
The Trust has received cash of $58,658, $562,337 and $347,557 during
1996, 1995 and 1994, respectively, related to its interest in a liquidating
trust established for the benefit of the unsecured creditors (including the
Trust) of VMS Realty Partners and its affiliates ("VMS"), former affiliates
of the Trust. The Trust has recorded $16,569, $164,958 and $57,226,
respectively, of these amounts as recovery of losses on mortgage loans,
notes and interest receivable in its consolidated statement of income and
expenses. The remainder of $729,799 was paid to the Class Action
Settlement Fund representing the Trust's share of amounts due under the
terms of the previously settled VMS securities litigation.
On January 25, 1994, the Trust received net proceeds of $134,986 as a
recovery of payments previously made into an escrow established as part of
the 1992 Class Action Settlement of the VMS securities litigation. The
escrow was established to provide trustees of the Trust with monies to fund
the cost of any litigation in which they might be named as defendants
following settlement of the class action. Subsequently, the trustees
released the proceeds from the escrow and the Trust purchased an insurance
policy to cover the officers and trustees.
12. CUMULATIVE INCENTIVE COMPENSATION
Pursuant to the amended employment agreement of the Trust's president,
Leonard G. Levine, at December 31, 1997, or upon termination of Mr.
Levine's employment by the Trust, whichever is earlier, ("the Computation
Date") the annual incentive compensation earned on the performance of the
Trust's assets acquired subsequent to January 1, 1993 will be computed on a
cumulative basis covering the period January 1, 1993 through the
Computation Date (the "Cumulative Incentive Compensation"). This cumulative
calculation will also include all unrealized profits and gains on the
Trust's real estate assets. As of December 31, 1996, the Trust has
recorded $650,000 as its estimate of Cumulative Incentive Earnings with
respect to the unrealized profits and gains on the Trust's assets. If a
disagreement in value exists between Mr. Levine and the Trustees in
computing unrealized profits and gains, a mutually agreed upon appraiser
will be retained to appraise the properties with the result binding on both
parties. If the Cumulative Incentive Compensation is less than the
aggregate amount of incentive compensation previously paid to Mr. Levine,
all or a portion of any Award Shares (defined below) previously issued to
Mr. Levine will be forfeited by Mr. Levine and cancelled by the Trust. For
these purposes, the Award Shares will be valued at the average price at
which the shares were valued when issued to Mr. Levine. If the Cumulative
Incentive Compensation is greater than the amounts previously paid to Mr.
Levine, the difference will be paid to Mr. Levine in Cumulative Incentive
Award Shares (defined below) by the Trust within seventy five days after
the Computation Date.
13. AWARD SHARES AND WEIGHTED AVERAGE SHARES OUTSTANDING
On April 9, 1997, the Board of Trustees approved a modification to the
employment agreement of the Trust's president, Leonard G. Levine. Prior to
the modification, all incentive amounts earned by Mr. Levine subsequent to
January 1, 1993 were paid 80% in cash in the year following the period for
which the incentive was earned and 20% in shares of beneficial interest of
the Trust ("Award Shares"). Under the terms of the approved modification,
Mr. Levine will also receive shares of beneficial interest of the Trust
("Additional Award Shares") for the 80% of his incentive compensation for
the years ended December 31, 1996 and 1997 that would otherwise have been
paid in cash. In 1997, Mr. Levine will be issued 19,127 Award Shares
representing 20% of his 1996 incentive earnings and 76,509 Additional Award
<PAGE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Shares representing 80% of the 1996 Incentive Earnings that would have been
paid in cash. At the end of his contract, December 31, 1997, he will
further receive shares of beneficial interest of the Trust for all
cumulative incentive earnings ("Cumulative Incentive Award Shares"). The
issue price for Cumulative Incentive Award Shares will be $3.75 per share,
the closing price of the Trust's shares on March 19, 1997. (See Note 12
above for details.)
Effective April 22, 1996, the Trust issued 1,833 Award Shares to Mr.
Levine, valued at $4.20 per share or $7,700, representing 20% of Mr.
Levine's 1995 incentive compensation. All incentive amounts are due Mr.
Levine on or before March 15, of the year following the period for which
the incentive is earned. The Award Shares, but not Additional Award Shares
and Cumulative Incentive Award Shares, are restricted as to transfer and
held in escrow by the Trust, pending satisfaction of the vesting
requirements, for the benefit of Mr. Levine until the earlier of: (i)
December 31, 1997; (ii) the termination of Mr. Levine's employment by the
Trust without just cause; or (iii) the permanent disability or death of Mr.
Levine. The issue price of any Award Shares and Additional Award Shares is
based upon the average closing price of the Trust's shares for the five
business days ended prior to December 31 of the year in question. Pursuant
to the aforementioned April 9, 1997 modification to Mr. Levine's employment
agreement, all Award Shares and Additional Award Shares issued to Mr.
Levine are included in the total shares outstanding of the Trust when
calculating Net Income Per Share of Beneficial Interest Based on Weighted
Average Number of Shares Outstanding. Only Award Shares issued to Mr.
Levine will be forfeited by Mr. Levine if he fails to be employed by the
Trust on December 31, 1997, unless such failure is due to death or
permanent disability or termination without just cause. Mr. Levine is
entitled to receive his share (represented by the Award Shares, Additional
Award Shares and Cumulative Incentive Award Shares) of any cash
distributions paid by the Trust in consideration of outstanding shares.
14. SUBSEQUENT EVENTS
PHOENIX BUSINESS PARK
On January 15, 1997, the Trust acquired a 100% ownership interest in a
three building office/industrial complex known as Phoenix Business Park
located in northeast Atlanta, Georgia, for a purchase price of
approximately $5,432,000 including liabilities assumed at acquisition. The
three buildings contain approximately 110,600 square feet of gross leasable
area. The Phoenix Business Park property was constructed in 1979 and was
100% occupied with 13 tenants upon acquisition. The Trust utilized
$100,000 of cash reserves for the acquisition with the remaining balance
provided for by a draw on the Trust's line of credit.
HALLMARK VILLAGE APARTMENTS
On September 28, 1993, BSRT Hallmark Village Limited Partnership,
("BHVLP"), a limited partnership consisting of the Trust, a subsidiary of
the Trust and HVA General Partnership, acquired the Hallmark Village
Apartments for a purchase price, including liabilities at acquisition, of
approximately $6 million. On March 11, 1997, BHLVLP sold the Hallmark
property to an unaffiliated third party for a sales price of approximately
$6.5 million, after credits made to the purchaser at closing. The Trust
received net sales proceeds of approximately $5.8 million which were used
to pay down a portion of the Trust's Revolving Line of Credit. The Trust
recognized a gain on disposition of approximately $100,000 as a result of
the sale.
