UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[ 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 0-16886
Banyan Strategic Land Fund II
----------------------------------------------
(Name of Small Business Issuer in its charter)
Delaware 36-3465422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 South Wacker Drive, Chicago, Illinois 60606
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (312) 553-9800
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Shares of Common Stock
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the Issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES X . NO .
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ X ]
The Issuer's revenues for the fiscal year ended December 31, 1996 were
$76,632. Shares of common stock outstanding as of March 10, 1997:
9,936,421. The aggregate market value of the Issuer's shares of common
stock held by non-affiliates on such date was approximately $11,064,121.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit index located on page 25 of sequentially numbered pages.
Transitional Small Business Disclosure Format: YES . NO X .
TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . 1
ITEM 2. DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . 4
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . 7
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION OR PLAN OF OPERATION. . . . . . . . . . . . . . . . . . . . . 9
ITEM 7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . 16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . 16
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 10. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . 19
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . 24
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS OPERATION
The Issuer, Banyan Strategic Land Fund II (the "Fund"), is a Delaware
corporation, organized pursuant to a Certificate of Incorporation filed on
April 14, 1987 under the name VMS Strategic Land Fund II. The Fund's name
was changed to its current name in 1991.
The Fund was originally established to invest primarily in short-term,
junior, predevelopment and construction mortgage loans. The borrowers
subsequently defaulted on these mortgage loan obligations, adversely
affecting the Fund. As a result of these defaults, the Fund suspended the
making of new loans, except for advances of additional funds under
circumstances in which it is deemed necessary to preserve the value of
existing collateral, including instances where it has foreclosed upon or
taken title, directly or indirectly, to the collateral. The Fund also
suspended distributions to stockholders. In 1990, the Fund implemented a
plan designed to preserve its assets and manage its properties acquired
through foreclosure or otherwise until they would be disposed of in an
orderly manner. On February 25, 1997, the Directors of the Fund authorized
management to engage an investment banking firm for purposes of evaluating
strategic alternatives for maximizing shareholder value.
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 or Plan of
Operation". 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 including the Fund's ability to
successfully dispose of its assets that are currently pending sale pursuant
to the existing agreements and the Fund's ability to favorably resolve the
litigations (discussed below). Actual results could differ materially from
those projected in the forward-looking statements. The Fund undertakes no
obligation to update these forward-looking statements to reflect future
events or circumstances.
The Fund is currently finalizing the zoning and development rights for
its Rancho Malibu project. Upon final approval by the Los Angeles County
Board of Supervisors, it is the Fund's intent to reassess all options
regarding the Rancho Malibu project, including all alternatives from site
development to a bulk land sale. The BSLT/BSLFII H Street Partnership (the
"H Street Venture"), of which the Fund owns a 47% partnership interest, has
completed and obtained the zoning, entitlement and historic preservation
for the development of an approximately 330,000 square foot commercial
building on the H Street site in Washington, D.C. On March 20, 1997, the H
Street Venture sold approximately 3,500 square feet of the H Street
Venture's land to the United States General Services Administration ("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 received net sales
proceeds of approximately $1,829,000, of which approximately $860,000 is
the Fund's share. The Fund recognized no gain or loss on this sale. In
addition, the H Street Venture has entered into an agreement with an
unaffiliated third party to sell the building and land remaining after the
GSA sale for $9,000,000. The sale is 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. On December 20, 1996, the Fund entered into an
agreement to sell the Lindfield Tract D property to an unaffiliated third
party for a purchase price of $675,000. The closing is scheduled to take
place no later than June 30, 1997. The Fund also holds a 0.3% beneficial
interest in a liquidating trust, established for the benefit of a group of
unsecured creditors of a previous borrower of the Fund, which holds
interests in various assets. See Item 2, Description of Property, and Item
6, Management Discussion and Analysis, for further details regarding the
Fund's assets as discussed above.
As of December 31, 1996,the Fund held a receivable from Northholme
Partners ("Northholme"). Northholme Partners, of which the Fund holds an
80% limited partnership interest, was created by the Fund and a partner of
the Anden Group on August 31, 1992. On September 2, 1992, the Fund and
Northholme entered into a Loan Agreement whereby the Fund committed to lend
Northholme $700,000. The Fund's participant in the loan, Eugene S.
Rosenfeld, bears 20% of the risk of the loan and is entitled to 20% of the
benefits. The loan pertains to a 1,000-acre parcel located north of Los
Angeles, California (the "Whittaker Parcel"). During the year ended
December 31, 1995, Northholme obtained the zoning and entitlement approval
on the property. As of December 31, 1996, the carrying balance of the
Northholme loan was $560,000. As of December 31, 1996, the Fund has
advanced $491,625 as additional partnership advances to the Northholme
Partnership for costs associated with the completion of the zoning and
entitlement work for the Whittaker Property per the Partnership Agreement
which advance earns interest at a rate of 12%. The Northholme Partnership
Agreement provides for the Fund's partnership advances to be repaid prior
to the repayment of the Fund's mortgage loans. For financial reporting
purposes, these advances are recorded in other assets on the Fund's Balance
Sheet.
Pursuant to a deed-in-lieu of foreclosure settlement agreement with
Westholme Partners in 1994, the Fund received a note collateralized by an
undeveloped land parcel commonly known as the Hemet IV land parcel with a
current carrying value of $225,000. It is the Fund's intent to sell its
interest in the Hemet IV loan during the next twelve months. See Note 3,
"Loans Receivable", of the Notes to Consolidated Financial Statements for
further details regarding the above notes.
OTHER INFORMATION
The Fund's real property investments are subject to competition
regarding the size and location of similar types of properties in the
vicinities in which they are located. Competition for the H Street Venture
is affected by the availability of similar sites zoned for development of
commercial office buildings in metropolitan Washington, D.C. Competition
for the Rancho Malibu property includes similar large tracts of land and
individual lots suitable for development of single family homes.
Approximate quarterly occupancy levels for the operating property are in
the table in Item 2. The Fund has no real property investments located
outside the United States. The Fund does not segregate revenue or assets
by geographic region, since such a presentation would not be significant to
an understanding of the Fund's business taken as a whole.
The Fund has four employees who serve as executive officers.
The Fund 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 Fund did not
incur any material environmental expenditures nor does it anticipate making
any such expenditures for the year ended December 31, 1997.
On March 20, 1996, the Fund notified the Internal Revenue Service of
its intent to revoke its tax election to be treated as a real estate
investment trust ("REIT") under section 856(c) (1) of the Internal Revenue
Code of 1986, as amended, in order to avoid the adverse tax effects
associated with the potential disposition or development of its various
real estate assets consisting of undeveloped land for which a REIT
structure is not intended. Pursuant to the revocation of tax election
856(c) (1), effective January 1, 1996, the Fund is taxable as a "C"
corporation and therefore is no longer required to meet certain pre-
determined distribution, asset and income requirements. Previously, the
Fund had elected to be treated as a REIT under Sections 856-860 of the
Internal Revenue Code for the years ended December 31, 1995, 1994 and 1993.
As of December 31, 1996, the Fund had net operating loss carry forwards of
approximately $40,039,000.
<TABLE>
ITEM 2. DESCRIPTION OF PROPERTY
As of December 31, 1996, the Fund held ownership interests through its wholly owned subsidiaries in the
properties as set forth in the table below:
<CAPTION>
Name, Type and Date
Location of Property Size Acquired Description
- --------------------- ---------- ---------- --------------------
<S> <C> <C> <C>
H Street Assemblage
Washington, D.C.
Land Parcel 17,000 sq. ft. 06/05/92 47% general partnership interest
in a partnership which has fee simple
title to this property (a)
Victor Building 55,900
sq. ft. g.l.a.
Rancho Malibu
Land Parcel
Malibu, CA 274 acres 07/01/92 98.6% general partnership in a
joint venture partnership (b)
Lindfield D
Land Parcel
Kissimmee, FL 8.5 acres 03/10/94 Fee ownership of land (b)
<FN>
- --------------------
(a) Reference is made to Note 6, "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 Fund has
acquired this real property.
(b) Reference is made to Note 4, "Foreclosed Real Estate Held for Sale", of Notes to Consolidated Financial
Statements filed with this annual report for additional description of these real property investments.
</TABLE>
The following is a list of occupancy levels as of the end of each
quarter for 1996 and 1995 for the Fund's sole operating property:
1996
-----------------------------------------
at 3/31 at 6/30 at 9/30 at 12/31
------- ------- ------- --------
Victor Office Building
Washington, D.C.. . . . . . . 53% 51% 52% 64%
1995
-----------------------------------------
at 3/31 at 6/30 at 9/30 at 12/31
------- ------- ------- --------
Victor Office Building
Washington, D.C.. . . . . . . 50% 56% 55% 55%
ITEM 3. LEGAL PROCEEDINGS
RANCHO MALIBU
Rancho Malibu is owned by a joint venture (the "Venture") between the
Fund and Legend Properties, Inc. (f/k/a Banyan Mortgage Investment Fund).
From and after the Venture's acquisition of the property in 1992, zoning
and entitlement efforts and approvals have been challenged by various
lawsuits.
On June 17, 1996, a homeowners association neighboring the property
filed an action entitled La Chusa Highlands Property Owners Association,
Inc. v. Los Angeles County, et al., Los Angeles County Superior Court Case
No. BS039789 (the "La Chusa Litigation"), challenging the aforesaid
approvals. The Fund, Legend Properties, Inc. and the Venture are named as
real parties in interest.
The La Chusa Litigation was tried before a Court on January 27, 1997.
On February 5, 1997, the Court issued its ruling, granting the Petitioner's
Writ and remanding the matter to the County Board of Supervisors for
further action on three separate grounds: (i) the Supervisors' prior
analysis and findings relating to the consistency of the Projects' cul de
sacs and streets with certain County of Los Angeles Code provisions
restricting the length of cul de sacs to 1,000 feet were deemed inadequate;
(2) a proposed deed restriction requiring the Venture to "diligently seek"
approval for a second living unit on five of the forty-six lots was held to
be too abstract to comply with the low income housing requirement of state
law and (3) the court found that the county acted improperly when it
approved the Project in January of 1996 and later approved a Supplemental
Environmental Impact Report ("SEIR") in May of 1996.
The Court's order specifically rejected challenges to the Projects'
entitlements predicated on (i) the adequacy of the Supervisors' analysis of
the environmental impacts of the Project under the SEIR, (ii) the
consistency of the Project with the County General Plan; (iii) the approval
of a sewage treatment plant and (iv) the density of the Project under the
Hillside Management Ordinance.
The Fund is currently considering its alternatives in view of the
decision. The Court entered a final judgement in the La Chusa Litigation
on March 25, 1997. The Fund is presently considering and may pursue any or
all of the following alternatives: (i) move for new trial with the Court;
(ii) appeal the judgement; (iii) seek further action by the Supervisors to
address three issues specified by the Court and to reinstate the
entitlements set aside by the Court; and (iv) settlement of the La Chusa
Litigation.
In an earlier action, the Venture challenged the General Plan and the
Environmental Impact Report adopted by the City of Malibu on Nov. 20, 1995
in a lawsuit entitled BMIF/BSLFII Rancho Malibu Limited Partnership v. City
of Malibu, Los Angeles County Superior Court Case No. SS006374. On July
31, 1996, the Venture and the City of Malibu executed and delivered a
settlement agreement which, among other things, resulted in a dismissal of
the lawsuit challenging the city's General Plan and which precludes the
city from challenging the Venture's entitlements before any public body (in
the absence of a significant requested change). The city is also precluded
by the settlement agreement from participating in the La Chusa Litigation.
BMC WESTHOLME LITIGATION
On June 16, 1994, Coastal Group, Inc. brought an action against
Westholme Partners, (an entity in which the Fund has a limited partnership
interest), Bank of America (f/k/a Continental Bank, N.A.) ("CINB"), BMC
Westholme Corp., (a wholly owned subsidiary of the Fund); the Anden Group
("Anden"), William A. Brandt, Jr. and Kent Kneblekamp in the New Jersey
Superior Court, Middlesex County. The case was subsequently removed to the
United States District Court for the District of New Jersey and assigned
case # 94-3010. The case involves a real estate development project
located in New Jersey known as "Winding River."
BMC Westholme Corp. was served with Summons and Complaint in June of
1994, but was not actively involved in the various motions and other
procedural matters which extended for approximately thirty months. On
February 10, 1997, BMC Westholme Corp. filed its Answer and began to take a
more active role in the case.
The plaintiff's complaint has been substantially reduced by favorable
rulings, entered October 3, 1996, on various motions to dismiss whereby ten
of plaintiff's sixteen counts were dismissed and another count was limited
in scope. The complaint now alleges breach of contract, unjust enrichment,
breach of the implied covenant of good faith and fair dealing, fraudulent
transfer and also seeks relief under a theory of promissory estoppel and
requests the creation of a constructive trust for the benefit of plaintiff.
The case arises from a failed development and a subsequent foreclosure
filed by defendant CINB. The plaintiff contends, among other things, that
CINB and BMC Westholme conspired with Anden to deprive the plaintiff of its
interest in the Winding River project, damaging the plaintiff's reputation
as a homebuilder and causing it to lose business opportunities. The amount
in controversy exceeds $6 million, although the Fund believes that if there
is any liability to the plaintiffs in this matter, it rests with defendants
other than BMC Westholme Corp. The case is currently in the discovery
phase, with a series of depositions scheduled in the first week of April,
1997.
The ultimate outcome of these matters cannot be determined at this
time, however, in the opinion of management of the Fund, the eventual
outcome of these matters will not have a material adverse effect on the
financial position of the Fund. The financial statements do not include
any adjustments for liability, if any, arising from these matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Fund did not submit any matter to a vote of its security holders
during the fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Fund's shares are included for quotation on the NASDAQ National
Market System (symbol - VSLF). The table below shows the quarterly high
and low bid prices as reported by NASDAQ National Market System for the
years ended December 31, 1996 and 1995:
SHARE PRICE
Quarter ------------------------
Ended 1996 1995
- ------- ------ -------
3/31 High $1.406 $ 1.406
Low $1.250 $ 1.125
6/30 High $1.350 $ 1.750
Low $1.234 $ 1,250
9/30 High $1.375 $ 1.688
Low $1.234 $ 1.188
12/31 High $1.250 $ 1.375
Low $ .813 $ 1.188
As a result of the defaults by borrowers on the Fund's mortgage loans,
the resultant interruption in the Fund's cash flow, the uncertainties
regarding its assets and the Fund's future cash requirements, and the
modest size of the Fund's cash position, the Fund has paid no distributions
since 1990. The Fund will continue to periodically evaluate its
distribution policy as cash proceeds are recovered from the disposition of
its assets. The Fund's management currently does not anticipate commencing
distributions in the foreseeable future.
The Fund's ability to make future distributions to its stockholders is
dependent upon, among other things: (i) the Fund's ability, in respect of
its interest in the H Street Venture, to sell the property pursuant to the
existing agreements; (ii) the Fund's ability to favorably resolve the La
Chusa Litigation which impacts the Rancho Malibu property; and (iii) the
Fund's ability to control its property level and Fund level operating
expenses.
At March 10, 1997, there were 6,446 record holders of the Fund's
shares of common stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
OR PLAN OF OPERATION
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. The Fund
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 Fund's cash and cash equivalents balance at December 31, 1996 and 1995
was $145,335 and $549,309, respectively. In addition, at December 31, 1995
the Fund owned $626,946 in investment securities which were immediately
convertible to cash. This decrease in total cash and cash equivalents of
$403,974 is a result of the Fund's use of $1,834,388 in cash for operating
activities, offset against $1,430,414 cash earned through investing
activities.
Cash Flow From Operating Activities: Net cash used in operating
activities decreased by approximately $3.1 million for the year ended
December 31, 1996 to approximately $1.8 million from approximately $4.9
million for the same period in 1995. This decrease is a result of a
decrease in net operating loss due to a reduction in legal and entitlement
costs relating to the Rancho Malibu property, and nonrecurring costs
incurred in 1995 relating to the Key Biscayne litigation and the Fund's
tender offer.
Cash Flow From Investing Activities: For the year ended December 31,
1996, net cash provided by investing activities was approximately $1.4
million compared to approximately $21 million for the same period in 1995.
This decrease of approximately $19.6 million is due primarily to the
decrease in proceeds from the sale of foreclosed real estate held for sale
from approximately $22.5 million in 1995 to approximately $659,000 in 1996.
The 1996 amount is attributable to proceeds received from the disposition
of Westholme assets. The 1995 amount reflects proceeds from the Key
Biscayne settlement partially offset by the repayment of amounts advanced
to it by Banyan Strategic Realty Trust ("BSRT") totaling $730,000 with
respect to the H Street Venture.
Cash Flow From Financing Activities: For the year ended December 31,
1996, the Fund had no financing activity. The cash utilized by financing
activities of approximately $15.8 million for the year ended December 31,
1995 was the result of the tender offer made by the Fund which resulted in
the purchase by the Fund of 9,309,747 shares at $1.70 per share for a total
purchase price of $15,826,570.
The Fund's future liquidity needs are dependent upon, among other
things: (i) the Fund's ability, in respect of its interest in the H Street
Venture, to sell the property pursuant to the existing agreements; (ii) the
Fund's ability to favorably resolve the La Chusa Litigation which impacts
the Rancho Malibu property; and (iii) the Fund's ability to control its
property level and Fund level operating expenses.
As of December 31, 1996 and 1995, the Fund's mortgage loan portfolio
consisted of three and two loans, respectively, with carrying values
totaling $1,035,000 and $785,000, respectively. During the year ended
December 31, 1996, the Fund received final principal and interest payments
on the Hemet Phase III loan totalling $261,225.
RESULTS OF OPERATIONS
Total income for the year ended December 31, 1996 was $76,632 as
compared to $416,440 and $104,451 for the years ended December 31, 1995 and
1994, respectively. The decrease of approximately $340,000 for 1996 from
1995 is due primarily to a decrease in income on investments offset
partially by an increase in interest earned on loans. Income on
investments decreased in 1996 due to a decrease in cash available for
investment. Interest on loans increased due to an increase in loans
receivable. The increase of approximately $312,000 for 1995 from 1994 was
due to an increase in income earned on investments offset partially by a
decrease in interest earned on loans. The increase in income on
investments during 1995 was due to an increase in cash available for
investment as a result of the proceeds received on March 17, 1995 from the
resolution of the Key Biscayne litigation and cash proceeds received as a
result of 1995 sales of various land parcels. See Property Activities and
Dispositions below for details on land sales. The decrease in interest on
loans during 1995 was due primarily to a decrease in loans receivable.
Loans receivable decreased in 1995 when compared to 1994 due to the
Westholme Partners Notes I and II foreclosures which occurred in March of
1994.
Total expenses for the year ended December 31, 1996 were $4,652,090
as compared to $7,714,609 and $29,862,035 for the years ended December 31,
1995 and 1994, respectively. The decrease in 1996 as compared to 1995 is
due to a decrease in property operating expenses of $2,379,732 and total
other expenses of $682,787. The decrease in total expenses for 1995
compared to 1994 is due to a decrease of $21,455,266 in property operating
expenses and $692,160 in total other expenses.
The decrease in total property operating expenses for 1996 when
compared to 1995 is primarily due to a decrease in net loss from operations
of foreclosed real estate held for sale and a non-recurring provision for
loss on foreclosed real estate held for sale in 1995. The decrease in the
net loss from operations of foreclosed real estate held for sale is due to
a reduction in legal and entitlement costs relating to the Rancho Malibu
property subsequent to the approval of the project by the Los Angeles
County Board of Supervisors as discussed below. The provision for loss on
foreclosed real estate held for sale of $4,200,000 in 1995 reflects a
writedown in the Fund's interest in the Rancho Malibu property. See
Property Activities and Dispositions below for further details. Further
contributing to the decrease in total expenses from property operating
expenses during 1996 is a net gain from disposition of foreclosed real
estate held for sale of $68,190 during 1996 as compared to a net loss from
disposition of foreclosed real estate held for sale of ($97,347) during
1995. See below for further details regarding the disposition of the
Fund's various property interests during 1996. Partially offsetting these
decreases in total property operating expenses during 1996 is an increase
in net loss from operations of real estate venture relating to the Fund's
interest in the H Street property. See discussion below for further
details regarding the operating results of the H Street property.
The decrease in property operating expenses for 1995 when compared to
1994 is due to a decrease in all expense categories under expenses from
property operating activities. Interest on advances from affiliates
decreased due primarily to the repayment of advances that occurred pursuant
to the Fund's settlement of the Key Biscayne litigation. See Property
Activities and Dispositions below for further details on the Key Biscayne
settlement. In addition, during March 1995, the Fund repaid all
outstanding advances to BSRT relating to the H Street Venture thereby
creating a further decrease in interest on advances. The decrease in net
loss on disposition of properties, note receivable and foreclosed real
estate held for sale recorded in 1995 and 1994 relate to the sale of assets
received from the March 1994 foreclosures of the Fund's Westholme Partners
Notes I and II loans. See below for details regarding the assets sold
during 1995. As a result of the Key Biscayne settlement, net loss from
operations of foreclosed real estate held for sale decreased approximately
$1,172,000 in 1995 when compared to 1994 due to the elimination of real
estate tax expense and other holding costs associated with the Fund's
interest in the Key Biscayne project. In addition, eight of the Fund's
land parcels were sold during 1994 resulting in the elimination of certain
holding and operating costs which further decreased the net loss from
operations of foreclosed real estate held for sale by approximately
$180,000. These decreases were partially offset by an increase in Rancho
Malibu expenses of approximately $124,000 in 1995 when compared to 1994 due
to costs associated with finalizing the zoning and development rights in
1995. During 1995, the Fund recorded a provision for loss on foreclosed
real estate held for sale of $4,200,000 reflecting a writedown in the
Fund's interest in the Rancho Malibu property. See Property Activities and
Dispositions below for further details. During 1994, the Fund recorded a
$20,899,566 provision for loss on foreclosed real estate held for sale of
which $19,699,566 related to the Key Biscayne Settlement with THSP and
$1,200,000 related to the Fund's recognition of a valuation allowance
recorded against the carrying value of the assets received pursuant to the
Westholme foreclosure in March 1994. See below for discussion regarding
the increase in income from operations of real estate venture of $2,857,867
in 1995 as compared to 1994.
Total other expenses decreased by $682,787 for 1996 as compared to
1995 and decreased by $692,160 for 1995 as compared to 1994. The decrease
in total other expenses during 1996 is due primarily to decreases in
stockholder expenses, directors fees, expenses and insurance, other
professional fees and general and administration expenses. Stockholder
expenses decreased in 1996 as compared to the same period in 1995 due to
the non-recurring costs paid in 1995 associated with the Fund's tender
offer. Director's fees, expenses and insurance decreased due to a decrease
in the premium for insurance coverage of approximately $146,000 and a
decrease in director's fees and other compensation of approximately $24,000
as a result of a decrease in the number of meetings held and the number of
directors on the Fund's Board. Other professional fees decreased because
the legal costs incurred in 1995 relating to the Key Biscayne litigation
and the Fund's tender offer were nonrecurring. The decrease in general and
administrative expenses was due primarily to a decrease in expenses of
Banyan Management Corp. ("BMC") which were allocated to the Fund based on
the amount of hours spent by BMC personnel on Fund related matters. The
decrease in the hours required to be spent by BMC personnel on Fund matters
in 1996 is a result of the completion of the Key Biscayne Settlement, the
tender offer in 1995 and a reduction in hours in 1996 associated with the
Rancho Malibu litigation and entitlement activities. In addition, during
1996 and 1995, the Fund recorded $2,475 and $23,727, respectively, as
recoveries of losses on loans, notes, interest receivable and class action
settlement costs and expenses relating to cash distributions received
regarding the Fund's interest in the liquidating trust.
The decrease in total other expenses in 1995 when compared to 1994
reflects decreases in directors' fees, expenses and insurance and other
professional fees. In addition, the Fund recorded a $23,727 recovery of
losses on loans, notes, interest receivable and class action settlement
costs and expenses during 1995 relating to cash distributions received
regarding the Fund's interest in the liquidating trust. During 1994, the
Fund recorded a $17,769 net provision for losses on loans, notes, interest
receivable and class action settlement costs and expenses. The $17,769
recorded in 1994 relates to a $242,603 recovery of class action settlement
costs and expenses relating to the release of an escrow established as part
of the class action settlement of the VMS securities litigation, a $14,628
cash distribution received in respect of the Fund's interest in a
liquidating trust which was offset by a $275,000 provision relating to the
Fund's Hemet IV mortgage loan. Director's fees, expenses and insurance
decreased due to a decrease in the number of meetings held during 1995 as
compared to the same period in 1994 and a decrease in the insurance
premium. Other professional fees decreased due to nonrecurring legal costs
incurred in 1994 relating to the Fund's Key Biscayne litigation. These
changes were partially offset by increases in stockholder expenses and
general and administrative expenses. Stockholder expenses increased due to
the nonrecurring costs paid in 1995 associated with the Fund's tender
offer. General and administrative expenses increased as a result of
additional administrative expenses associated with the Rancho Malibu
litigation and entitlement activities.
During the year ended December 31, 1996, the Fund recorded a net loss
of $2,927,490 from the operations of a real estate venture as compared to
net income of $33,488 when compared to 1995. This net income (loss)
includes the Fund's 47% interest in 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 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 $2,820,000 is the Fund'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 had been necessitated by this
sale. The H Street Venture received net sales proceeds of approximately
$1,829,000, of which approximately $860,000 is the Fund's share. The Fund
recognized no gain or loss on this sale. Pursuant to the agreement with an
unaffiliated third 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 Fund's share of the net income from the H Street Assemblage for
1995 compared to 1994 increased by $2,857,867 since the 1994 results were
negatively impacted by a reduction in the book value in the amount of
$5,500,000 of which $2,585,000 is the Fund'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 Assemblage for 1995 as
compared to 1994 was further due to a reduction in legal costs as compared
to 1994 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.
On a quarterly basis, management reviews the mortgage loans in the
Fund's portfolio and records appropriate loss provisions. The provisions
are based upon a number of factors, including management's analyses of the
value of the collateral and, in certain cases, ongoing negotiations
regarding disposition of this collateral, as well as consideration of the
general business conditions affecting the Fund's portfolio. Management
also reviews the investment properties held by the Fund on a quarterly
basis and, when it has been determined that a permanent impairment in the
value of a given property has occurred, the carrying value of the property
is then written down to its fair market value. During the years 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 Fund's share of the H Street
Assemblage valuation allowance for the years ended December 31, 1994 and
1996 is $2,585,000 and $2,820,000, respectively. The Fund did not record
any valuation allowances against its portfolio of mortgage loans for the
year ended December 31, 1995.
These changes for the year ended December 31, 1996 resulted in a net
loss of $4,575,458 ($0.46 per share) as compared to a net loss of
$7,298,169 ($.52 per share) and a net loss of $29,757,584 ($1.55 per share)
in 1995 and 1994, respectively.
PROPERTY ACTIVITIES AND DISPOSITIONS
On May 25, 1994, Banyan Strategic Land Fund II and its subsidiary,
VSLF II Key Biscayne Hotel Corp. (collectively referred to as the "Fund")
filed in Illinois a multi-count complaint against THSP Associates Limited
Partnership II ("THSP"), formerly known as Banyan Mortgage Investors L.P.
III and its affiliate, VMLP III Key Biscayne Villas Limited Partnership, an
Illinois limited partnership, (collectively referred to as the
"Partnership"). On March 16, 1995, the Fund executed a settlement
agreement with the Partnership. Pursuant to the settlement agreement, on
March 17, 1995, the Fund received cash and other consideration totalling
approximately $24,700,000 and the Fund then transferred to THSP ownership
of the Fund's 22-acre site in Key Biscayne, Florida. The Fund also
released all claims it had asserted to an adjacent parcel owned by THSP.
In addition, the Fund and THSP consensually terminated all pending
litigation and exchanged mutual releases.
Of the $24,700,000 settlement received in 1995, the Fund received
approximately $21,500,000 in cash. The remaining $3,200,000 was used to
pay approximately $1,500,000 in closing costs and prorations and to
discharge the Fund's liability of approximately $1,700,000 due to THSP for
advances made to the Fund pursuant to a prior agreement between the Fund
and THSP. As a result of the settlement, the Fund recorded a year-end
valuation provision of approximately $19,700,000 during 1994 which
represented the difference between the net book value of the Fund's
investment in the Key Biscayne project less the settlement amount as
reduced by closing costs and prorations. As a result of the settlement of
the litigation with THSP, a major uncertainty was removed which had
negatively impacted the Fund. The amount of the settlement was less than
the net book value of the Key Biscayne Property, but the Fund's ability to
fully recover its carrying value was contingent upon its ability to jointly
develop the Key Biscayne project with THSP. As the litigation and
settlement negotiations evolved, it became evident to management of the
Fund that joint development of the Key Biscayne property would occur, if at
all, only after a costly and protracted legal battle.
Rancho Malibu is a 274-acre parcel of undeveloped land north of
Malibu, California. On July 1, 1992 a joint venture (the "Venture")
between the Fund and Legend Properties, Inc. (f/k/a Banyan Mortgage
Investment Fund) ("Legend"), acquired title to the property pursuant to a
deed in lieu of foreclosure agreement. The Fund owns a 98.6% general
partner interest in the Venture while Legend holds the remaining 1.4%
interest as a limited partner.
From the acquisition date, the Venture has engaged in zoning and
entitlement activities which have been opposed by the City of Malibu and
various citizen groups. The city initiated two separate legal actions
intended to preclude the issuance of a Coastal Development Permit, both of
which were ultimately resolved in favor of the Venture.
Concurrent with the aforementioned litigation, the Venture pursued
entitlements before the Board of Supervisors for the County of Los Angeles.
In September 1995, the Los Angeles County Regional Planning Commission, by
a 3 to 2 vote, approved a revised plan to develop a fifty-one unit housing
community on the Rancho Malibu property. The Los Angeles County Regional
Planning Commission's approval was appealed to the Los Angeles County Board
of Supervisors. On May 14, 1996, the Los Angeles County Board of
Supervisors approved a compromise project to create forty-six single family
lots. These approvals are specified in Los Angeles County CUP No. 91-
315(3), Oak Tree Permit No. 91-315(3) and Tentative Tract No. 46277
(revised), approved May 14, 1996. On June 17, 1996, a neighboring
homeowners association filed an action entitled La Chusa Highlands Property
Owners Association, Inc. v. Los Angeles County, et al., Los Angeles County
Superior Court Case No. BS039789 (the "La Chusa Litigation"), challenging
the aforesaid approvals. The Fund, Legend and the Venture are named as
real parties in interest. See Item 3 Legal Proceedings for further
details.
During the year ended December 31, 1996 and 1995, the Venture expended
approximately $705,000 and $1,604,000, respectively, on Rancho Malibu
relating to entitlement activities, holding costs and litigation. These
costs, treated as capital contributions to the Venture by the Fund, were
included in total expenses from property operating activities on the Fund's
consolidated statements of income and expenses. As a result of the
decrease in number of units approved for residential development from
fifty-one units to the agreed upon forty-six units as discussed above, the
Fund recorded a $4,200,000 valuation allowance against the property during
the quarter ended December 31, 1995. For the year ended December 31, 1994,
the Fund incurred approximately $1,481,000 of costs related to entitlement
work and litigation which costs were capitalized. As of December 31,
1996, the Fund's carrying balance for the property is $9,961,991.
The realization of this carrying value is based on the present intent
of the Fund to finalize the zoning and development rights and then assess
all options regarding the Rancho Malibu project, including all alternatives
ranging from site development to a bulk land sale. In the event that the
final zoning rights and entitlements are again challenged, further
modified, or approval is postponed, management of the Fund estimates that
the net proceeds to be realized from the sale of the Rancho Malibu property
would potentially be less than its current carrying value.
During 1990, the Fund and Banyan Strategic Realty Trust ("BSRT")
acquired title to a property known as the H Street Assemblage located in
Washington, D.C. On June 5, 1992, the Fund and BSRT formed a joint venture
(the "Venture") to pursue its development rights. The Fund has a 47%
interest in the Venture while BSRT has the remaining 53%. This property
consists of a 17,000 square feet parcel of vacant land located in downtown
Washington D.C. including an adjacent 55,900 square foot office building.
The entire property is zoned for office development. See above for
discussions regarding the operations of the H Street Assemblage.
The Lindfield Tract A property is a land parcel which consists of 13
acres and is zoned tourist-commercial within a multi-use planned unit
development, located in Kissimmee (near Orlando), Florida. On October 15,
1996, the Fund sold its interest in the Lindfield Tract A property to an
unaffiliated third party for a sales price of $700,000. Pursuant to the
sale, the Fund received cash proceeds of approximately $387,000, net of
prorations for closing costs of approximately $63,000, and a $250,000
secured purchase money mortgage note (the "Note"). As a result of the
sale, the Fund recognized a book gain on disposition of approximately
$37,100. The Note bears interest at a fixed rate of 8% per annum, and
requires quarterly payments of interest. Final payment of accrued interest
and outstanding principal balance of the Note is due and payable upon its
maturity date of October 15, 1997. The Fund had obtained ownership of the
Lindfield Tract A property pursuant to a deed in lieu of foreclosure
settlement on its Westholme loans.
Hemet Phase III is an approximately 19-acre land parcel zoned for the
development of 75 single family home lots located in Hemet, California. On
April 18, 1996, the Fund sold its interest in the Hemet Phase III property
to an unaffiliated third party for a sales price of $385,000. Pursuant to
the sale, the Fund received cash proceeds of approximately $126,000, net of
prorations for closing costs of approximately $11,000, and a $248,000
collateralized promissory note. The Fund recognized a gain on disposition
of approximately $31,100. The Note bears interest at a fixed rate of 10%
per annum, requires monthly payments of interest and matures on April 18,
1997. The Fund obtained ownership of the Hemet Phase III property pursuant
to a deed in lieu of foreclosure settlement on its Westholme loans. During
the year ended December 31, 1996, the Fund received final principal and
interest payments of $248,000 and $13,225, respectively, on the Note. The
Fund has no further interest in the Hemet Phase III property.
On February 15, 1996, the Fund sold the remaining eleven single family
home lots of the total fourteen single family home lots in the Lake Rogers
development to an unaffiliated third party for approximately $165,000.
After prorations for closing costs of approximately $19,000, the Fund
received net proceeds of approximately $146,000 and recognized a loss of
approximately $77,300 which was reflected in the consolidated statements of
income and expenses for the year ended December 31, 1995. The Fund
recognized no gain or loss on the sale of the Lake Rogers property for the
year ended December 31, 1996. The Fund had obtained ownership of the Lake
Rogers property pursuant to a deed in lieu of foreclosure settlement on its
Westholme loans.
On December 18, 1995, the Fund sold the Lancaster property to an
unaffiliated third party for approximately $326,000. After prorations for
closing costs of approximately $18,000 and payment of assumed liabilities
of approximately $189,500, the Fund received net proceeds of approximately
$118,500 and recognized a loss of approximately $57,100.
On December 15, 1995, the Fund sold the remaining eight acres of the
total fourteen acres of the Lindfield Multi-family property to an
unaffiliated third party for approximately $686,100. After prorations for
closing costs of approximately $81,200, the Fund received net proceeds of
approximately $604,900 and recognized a gain of approximately $55,000.
On June 20, 1995, the Fund sold the Palmdale property to an
unaffiliated third party for approximately $350,300. After prorations for
closing costs of approximately $24,600 and payment of assumed liabilities
of approximately $178,200, the Fund received net proceeds of approximately
$147,500 and recognized a loss of approximately $49,300 on the sale.
On June 16, 1995, the Fund sold six of the eleven lots comprising the
Lindfield's Single Family property to an unaffiliated third party for
$54,000. After prorations for closing costs of approximately $900 and
payment of assumed liabilities of approximately $900, the Fund received net
proceeds of approximately $52,200 and recognized a gain of approximately
$9,500 on the sale. On November 28, 1995, the Fund sold the remaining five
Lindfield's Single Family property lots to an unaffiliated third party for
$64,000. After prorations for closing costs of approximately $7,700, the
Fund received net proceeds of approximately $56,300 and recognized a gain
of approximately $21,900 from the sale of these five lots.
Northholme Partners ("Northholme"), of which the Fund holds an 80%
limited partnership interest, was created by the Fund and a partner of The
Anden Group on August 31, 1992. On September 2, 1992, the Fund and
Northholme entered into a loan agreement whereby the Fund committed to lend
Northholme $700,000. The Fund's participant in the loan, Eugene S.
Rosenfeld, bears 20% of the risk of the loan and is entitled to 20% of the
benefits. The loan pertains to a 1,000-acre land parcel located north of
Los Angeles, California (the "Whittaker Parcel"). During the year ended
December 31, 1995, Northholme obtained zoning and entitlement approval on
the property. It is the intent of Northholme to market its interest which
it anticipates will generate cash proceeds sufficient to fully discharge
the Fund's loan. In the event, the Fund does not fully recover its
carrying value, the Fund's overall liquidity position would not be
materially affected. As of December 31, 1996, the carrying balance of the
Northholme loan is $560,000. Pursuant to a deed-in-lieu of foreclosure
settlement agreement with Westholme Partners in 1994, the Fund received an
interest in a note collateralized by an undeveloped land parcel commonly
known as the Hemet IV land parcel with a current carrying value of
$225,000. It is the Fund's intent to sell its interest in the Hemet IV
loan during 1997. See Note 3, "Loans Receivable", of the Notes to
Consolidated Financial Statements for further details regarding these
notes. As of December 31, 1996, the Fund has advanced $491,625 as
additional partnership advances to the Northholme Partnership for costs
associated with the completion of the zoning and entitlement work for the
Whittaker Property per the Partnership Agreement which advance earns
interest at a rate of 12%. The Northholme Partnership Agreement provides
for the Fund's partnership advances to be repaid prior to the repayment of
the Fund's mortgage loans. For financial reporting purposes, these
advances are recorded in other assets on the Fund's Balance Sheet.
ITEM 7. FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements on Page F-1 of this
Report.
ITEM 8. 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.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors and executive officers of the Fund are:
Walter E. Auch, Sr. Director
Gerald L. Nudo Director
Robert M. Ungerleider Director
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
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 director of the Fund
since 1987. Mr. Auch is also a trustee of Banyan Strategic Realty Trust
and a director of Legend Properties, Inc. (f/k/a Banyan Mortgage Investment
Fund) and Banyan Management Corp.
GERALD L. NUDO, age 47, is senior vice president of the investment
banking firm of Mesirow Realty Finance, Inc., a subsidiary of Mesirow
Financial Corp., since 1990. Mr. Nudo received his Bachelor of Science
Degree from Northwestern University and his Masters Degree in Business
Administration from the University of Chicago Graduate School of Business.
Mr. Nudo is also a certified public accountant and a licensed real estate
broker in Illinois. Mr. Nudo has been a director of the Fund since 1987.
He is also a director of Banyan Management Corp.
ROBERT M. UNGERLEIDER, age 55, is presently the President of Pilot
Books, a book publisher located in Greenport, New York, and practices law
with and is of counsel to the firm of Felcher Fox & Litner P.C. in New
York, New York. He has founded, developed and sold a number of start-up
ventures including Verifone Finance, an equipment leasing business,
SmartPage, a paging service company and Financial Risk Underwriting Agency,
Inc., an insurance agency specializing in financial guarantee transactions.
Prior to these endeavors, Mr. Ungerleider practiced real estate and
corporate law in New York City for ten years. Mr. Ungerleider received his
B. A. Degree from Colgate University and his Law Degree from Columbia
University Law School. Mr. Ungerleider has been a director of the Fund
since 1987. Mr. Ungerleider is also a director of Legend Properties, Inc.
(f/k/a Banyan Mortgage Investment Fund) and Banyan Management Corp.
LEONARD G. LEVINE, age 50, has been president of the Fund as well as
Banyan Management Corp. and Banyan Strategic Realty Trust 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 Fund as
well as Banyan Management Corp. and Banyan Strategic Realty Trust 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.
ROBERT G. HIGGINS, age 45, has been vice president and general counsel
of the Fund as well as Banyan Management Corp. and Banyan Strategic Realty
Trust 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 separate sole practice of law.
JOEL L. TEGLIA, age 35, has been vice president and chief financial
officer of the Fund, as well as Banyan Management Corp. and Banyan
Strategic Realty Trust 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.
ITEM 10. EXECUTIVE COMPENSATION
A. DIRECTOR COMPENSATION
The Directors 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 Director is reimbursed for out-of-
pocket expenses incurred in attending meetings of the board.
B. EXECUTIVE COMPENSATION
Compensation paid to executive officers of the Fund for the years
ended December 31, 1996, 1995 and 1994 are as follows:
Annual Compensation
Other
Annual
Compen-
Year Salary Bonus (2) sation
---- -------- --------- --------
Leonard G. Levine, 1996 $108,141 $217,135 n/a
President and Chief 1995 $105,606 $ 27,612 n/a
Executive Officer 1994 $102,800 $ 78,425 n/a
Long-Term Compensation
Awards Payouts
Restricted All Other
Stock Options/ LTIP Compen-
Awards (2) SARs (#) Payouts sation
----------- --------- ------- ---------
Leonard G. Levine, n/a n/a n/a n/a
President and Chief ($19,606) n/a n/a n/a
Executive Officer $19,606 n/a n/a n/a
(1) Total compensation for the next three highest paid executives of the
Fund for 1996, 1995 and 1994 was less than $100,000 per individual.
(2) Pursuant to Mr. Levine's employment agreement the incentive amounts
which were earned in 1995, 1994 and 1993 were paid or awarded to him by the
Fund in 1996, 1995 and 1994, respectively.
Mr. Levine serves as Chief Executive Officer of the Fund pursuant to
an employment agreement entered into with the Fund by Mr. Levine on January
1, 1990. The agreement originally was scheduled to expire on December 31,
1997 but has been automatically extended until December 31, 1998. Under
the employment agreement, the employment period automatically renews for
one year unless the agreement is terminated by either the Fund or Mr.
Levine on or before March 31, of the last year of the then current
employment period. 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 $108,141.
Mr. Levine is eligible to receive incentive compensation based on the
Fund satisfying certain performance standards set forth in the contract.
In particular, Mr. Levine earns incentive compensation based and calculated
on the following four components: (i) 1.00% of the Fund's collateralized
claims which are converted into cash; (ii) 3.00% of the Fund's unsecured
claims which are converted into cash; (iii) 0.1% of all cash distributions
of capital; and (iv) .14% of all distributions of income to shareholders of
the Fund.
Incentive compensation earned is paid 80% in cash and 20% in shares
("Award Shares") of the Fund on March 15 of the year following the period
for which the incentive was earned. On April 28, 1995, the Board of
Directors amended Mr. Levine's employment agreement with respect to the
issuance of Award Shares and the previously issued shares were returned to
the Fund and cancelled. Mr. Levine will not receive actual shares of the
Fund's Common Stock as Award Shares. Under Mr. Levine's amended employment
agreement, an "Award Share" has been redefined to mean the right to receive
a cash bonus equal to: (i) the value of one share of Common Stock of the
Fund; and (ii) any distributions of the Fund with respect to a share of
Common Stock between the grant date and the settlement date. The value of
an Award Share on a grant date and on a settlement date will be the average
closing price of the Fund's shares of Common Stock for the five business
days ended at the grant date or the settlement date, as the case may be.
Mr. Levine will continue to receive twenty percent (20%) of his Incentive
Compensation in Award Shares. At the time upon which Mr. Levine determines
to dispose of Award Shares, Mr. Levine will notify the Fund of the number
of Award Shares he wishes to tender and he will receive from the Fund a
cash bonus equal to the value of the Award Shares tendered to the Fund.
The cash bonus from the Award Shares attributable to distributions will be
paid currently for all distributions declared for stockholders of record
between the grant date and the settlement date. Shares of Common Stock
previously issued as Award Shares were converted into cash bonus shares as
described above on April 28, 1995, as provided for in the amended
employment agreement. The amendment is intended to preserve the original
intent of the Award Shares which was to further align the interests of Mr.
Levine with those of the Fund's stockholders. All Award Shares shall be
forfeited by Mr. Levine if he fails to be employed by the Fund on December
31, 1997, unless such failure is due to death or permanent disability or
termination without just cause.
On March 1, 1996 and March 24, 1995, Mr. Levine was paid $217,135 and
$27,612, representing 80% of his 1995 and 1994 incentive, respectively.
The 43,083 and 6,136 Award Shares valued at $1.26 and $1.125 per share, or
$54,284, and $6,903 for 1995 and 1994, respectively, represents 20% of Mr.
Levine's incentive and will be held by the Fund, 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 Fund without just cause; or (iii) the permanent disability or death
of Mr. Levine. All Award Shares shall be forfeited by Mr. Levine if he
fails to be employed by the Fund on December 31, 1997, unless such failure
is due to death or permanent disability or termination without just cause.
Mr. Levine will be entitled to all distributions paid on shares held by the
Fund for his benefit.
Either Mr. Levine or the Fund can terminate the employment agreement
at any time upon 90 days written notice. If the termination is by the Fund
for cause or by Mr. Levine voluntarily, all incentive compensation not
previously paid to Mr. Levine is forfeited and he is not entitled to any
severance payment. In the event of Mr. Levine's death or permanent disabi-
lity, 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 without cause following a change of control (as defined in the
agreement) the Fund 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 as if all the Fund'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 by the Fund had he received an "expression
of interest" prior to Mr. Levine's termination), plus an amount equal to
the full cost of Mr. Levine's benefits for one year.
C. EXECUTIVE AND DIRECTORS STOCK OPTION PLAN
On June 30, 1994, the stockholders approved and adopted the 1994
Executive and Directors Stock Option Plan (the "Plan"). The Plan granted
the Board of Directors the authority to issue up to 1,000,000 shares of the
Fund's common stock for stock option awards. The Plan consists of an
Executive Option Grant Program and a Director Option Grant Program. Under
the Director Option Grant Program, each of the Directors, in consideration
of their length of service on the board received an option to acquire
50,000 shares. The exercise price of the options initially granted to the
Board of Directors under the Director Option Grant Program was $1.125. No
executive is eligible to receive options under the Director Option Grant
Program.
The Board administers the Executive Option Grant Program and has the
authority to determine, among other things, the individuals to be granted
Executive Options, the exercise price at which shares may be acquired, the
number of shares subject to each option and the exercise period of each
option. The Board is also authorized to construe and interpret the
Executive Option Grant Program and to prescribe additional terms and
conditions of exercise in option agreements and provide the form of option
agreement to be utilized with the Executive Option Grant Program. No
Director is eligible to receive options under the Executive Option Grant
Program.
Options granted under both programs are not transferable except by
will or by the laws of descent and distribution, and are exercisable during
an optionee's lifetime only by the optionee or the appointed guardian or
legal representative of the optionee. Upon the: (a) death or permanent and
total disability of an optionee; or (b) retirement in accord with the
Fund's retirement practices, any unexercised options will be exercisable at
any time within one year in the case of (a) and ninety days in the case of
(b) (but in no case beyond the expiration date specified in the Option
Agreement). If, while unexercised options remain outstanding under the
Plan, the Fund ceases to be a publicly-traded company, or if the Fund
merges with another entity or a similar event occurs, all options
outstanding under the Plan shall immediately become exercisable at that
time.
The Plan requires the optionee to pay, at the time of exercise, for
all shares acquired on exercise in cash, shares, or in the case of the
Executive Option Program, other forms of consideration acceptable to the
Board.
If the Fund declares a stock dividend, splits its stock, combines or
exchanges its shares, or engages in any other transactions which results in
a change in capital structure such as a merger, consolidation, dissolution,
liquidation or similar transaction, the Board may adjust or substitute, as
the case may be, the number of shares available for options under the Plan,
the number of shares covered by outstanding options, the exercise price per
share of outstanding options, any target price levels for vesting of the
options and any other characteristics of the options as the Board deems
necessary to equitably reflect the effects of those changes on the option
holders.
On April 16, 1996, July 11, 1995 and January 18, 1994 the Board
granted initial options totalling 90,000, 90,000 and 90,000 shares,
respectively, to management under the program, at a price of $1.25, $1.50
and $1.125 per share, respectively (the closing price as reported by NASDAQ
National Market System on the day of the grant of options).
Pursuant to the terms of the grants, options for all shares granted
under the Executive Option Grant Program are exercisable and vested in
installments as follows: (1) 33.3% of the number of shares commencing on
the first anniversary of the date of grant; (ii) an additional 33.3% of the
shares commencing on the second anniversary of the date of the grant; and
(iii) an additional 33.4% of shares commencing on the third anniversary of
the date of grant. Options for all shares as granted under the Director
Option Grant Program are exercisable in installments as follows: (i) 50.0%
of the number of shares commencing on the first anniversary of the date of
grant; and (ii) an additional 50.0% of the number of shares commencing on
the second anniversary of the date of grant. The Board is granted
discretion to determine the term of each option granted under the Executive
Option Grant Program, but in no event will the term exceed ten years and
one day from the date of grant.
Stock Options granted or exercised by executive officers for the year
ended December 31, 1996, are as follows:
<TABLE>
STOCK OPTION GRANTS IN 1996 FISCAL YEAR
<CAPTION>
Potential Realized Value
Number of % of Total at Assumed Annual Rates
Securities Options of Stock Price Appreci-
Underlying Granted to Exercise ation for Option Term
Options Employees in or Base Expiration ------------------------
Name Granted Fiscal Year Price Date 5% 10%
- ---- ---------- ------------ ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Leonard G. Levine 60,000 67% $1.25 Apr. 16, 2006 $47,167 $119,531
</TABLE>
<TABLE>
AGGREGATED STOCK OPTION EXERCISES DURING 1996
AND DECEMBER 1996 OPTION VALUES
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at December 31 at December 31
-------------------- --------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
- ---- --------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Leonard G. Levine -- $ -- 60,000/180,000 $ -- / $ --
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 10, 1997, no person owns of record or is known by the Fund
to own more than five percent (5%) of the outstanding shares of common
stock of the Fund. The following table sets forth the ownership of shares
owned directly and indirectly by the directors and officers of the Fund as
of March 10, 1997.
Amount of
Title Name of Beneficial Percent of
of Class Beneficial Owner Ownership Interest
- ---------- -------------------- ---------- -----------
Shares of Leonard G. Levine, 74,647 Less than 1%
Common Stock President Shares
Shares of Gerald L. Nudo, 5,000 Less than 1%
Common Stock Director Shares
Shares of Robert M. Ungerleider, 6,000 Less than 1%
Common Stock Director Shares
Shares of Walter E. Auch, Sr., 16,000 Less than 1%
Common Stock Director Shares
Shares of All Directors and 101,647 Less than 1%
Common Stock Officers of the Fund, Shares
as a group (7 persons)
See Item 10, Executive Compensation, for information on Stock Options
of the Fund held by officers and directors pursuant to the 1994 Executive
and Director's Stock Option Plan.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Administrative costs, primarily salaries and general and
administrative expenses, are incurred on the Fund's behalf by Banyan
Management Corp. ("BMC"). BMC is owned by the Fund, Banyan Strategic
Realty Trust, 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 and Higgins are employees of the Fund but are paid
by BMC. The portion of their time which is allocable to the Fund is
included in the administrative costs for which BMC is reimbursed by the
Fund. 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 Fund 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 Fund. The Fund's allocable
share of costs for the years ended December 31, 1996, 1995 and 1994,
aggregated $269,508, $557,899 and $593,964, respectively. As one of its
administrative services, BMC serves as the paying agent for general and
administrative costs of the Fund. As part of providing this payment
service, BMC maintains a bank account on behalf of the Fund. As of
December 31, 1996, the Fund had a net payable due to BMC of $2,180.
Reference is made to Note 9, "Transactions with Affiliates," of the
Notes to the Consolidated Financial Statements for the amount of
administrative costs paid to, and a description of various transactions
with BMC.
ITEM 13. 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) Exhibit Number Description
(10) Material Contracts
(i) Executive Stock Option Agreement dated
April 16, 1996
(21) Subsidiaries of the Fund
The following exhibits are incorporated by reference from
the Registrant's Registration Statement on Form S-11 (file number 33-
13585), referencing the exhibit number used in such Registration Statement.
Exhibit Number Description
(3)(i) Certificate of Incorporation
(3)(ii) By-Laws
The following exhibit is incorporated by reference from
the Registrant's Annual Report on Form 10-KSB for the year ended December
31, 1995:
Exhibit Number Description
(10) Material Contracts
(i) Second Amendment of Leonard G. Levine's
Employment Contract dated December 31, 1992
(ii) First Amendment to Second Amended and
Restated Employment Agreement for Leonard G. Levine dated December 31, 1992
(iii) Directors Stock Option Agreement dated
July 15, 1994
(iv) Executive Stock Option Agreements dated
July 1, 1994 and July 11, 1995.
(b) No Reports on Form 8-K were filed during the quarter ended December
31, 1996.
(c) See Item 13(a)(3) above.
(d) None.
An annual report will be sent to the shareholders subsequent to this
filing and the Fund will furnish copies of such reports to the Commission
at that time.
SIGNATURES
IN ACCORDANCE WITH Section 13 or 15(d) of the Exchange Act, the Issuer
has caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BANYAN STRATEGIC LAND FUND II
By: /s/ Leonard G. Levine Date: April 11, 1997
Leonard G. Levine, President
IN ACCORDANCE WITH the Exchange Act, this Annual Report has been
signed below by the following persons on behalf of the Issuer 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 and
Chief Financial and Accounting Officer
By: /s/ Walter E. Auch, Sr. Date: April 11, 1997
Walter E. Auch, Sr., Director
By: /s/ Gerald L. Nudo Date: April 11, 1997
Gerald L. Nudo, Director
By: /s/ Robert M. Ungerleider Date: April 11, 1997
Robert M. Ungerleider, Director
SIGNATURES
IN ACCORDANCE WITH Section 13 or 15(d) of the Exchange Act, the Issuer
has caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BANYAN STRATEGIC LAND FUND II
By: ____________________________________ Date: April 11, 1997
Leonard G. Levine, President
IN ACCORDANCE WITH the Exchange Act, this Annual Report has been
signed below by the following persons on behalf of the Issuer and in the
capacities and on the dates indicated.
By: ____________________________________ Date: April 11, 1997
Leonard G. Levine, President
By: ____________________________________ Date: April 11, 1997
Joel L. Teglia, Vice President and
Chief Financial and Accounting Officer
By: ____________________________________ Date: April 11, 1997
Gerald L. Nudo, Director
By: ____________________________________ Date: April 11, 1997
Walter E. Auch, Sr., Director
By: ____________________________________ Date: April 11, 1997
Robert M. Ungerleider, Director
EXHIBIT 10
EXHIBIT 10(i)
- -------------
FORM OF
BANYAN STRATEGIC LAND FUND II
1996 EXECUTIVE AND DIRECTOR STOCK OPTION AGREEMENT
EXECUTIVE OPTION GRANT PROGRAM
THIS OPTION AGREEMENT is made as of the 16th day of April, 1996 by
and between BANYAN STRATEGIC LAND FUND II (the "Fund"), and (see Schedule
A) ("Optionee"). All definitions contained in the Banyan Strategic Land
Fund II 1994 Executive and Director Stock Option Plan ("Plan") are hereby
incorporated by reference and shall have the same meanings in this
Agreement as are contained in the Plan.
WHEREAS, Optionee is employed by the Fund, its subsidiaries or Banyan
Management Corp. and in the course of this employment provides services to
the Fund, its subsidiaries or Banyan Management Corp. and whereas by
affording an opportunity to purchase Shares (as defined below), the Fund
desires to provide additional motivation to the Optionee to achieve long-
term growth in stockholder equity.
NOW, THEREFORE, in consideration of the premises, the mutual
covenants hereinafter set forth, and other good and valuable consideration,
the Fund and Optionee agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions of the
Plan and this Option Agreement, the Fund hereby grants to the Optionee the
option to purchase an aggregate of 7,500 shares of the Fund's Common Stock
("Shares"). The Options granted hereunder are designated as non-qualified
stock options and are not incentive stock options as described in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. PURCHASE PRICE. The price per share at which Shares may be
acquired on exercise shall be the closing price of the Fund's Shares on
April 16, 1996 ($1.25).
3. EXERCISE SCHEDULE. Subject to becoming exercisable earlier as
provided in the Plan, and subject to the provisions of SECTION 4 of this
Agreement, the Options granted hereunder shall 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, however, that if the Optionee shall die or become permanently or
totally disabled or retire in accordance with the Fund's or Banyan
Management Corp.'s retirement procedures, then all options granted
hereunder shall become immediately exercisable.
4. PERIOD AND CANCELLATION. The exercise period of each Option
shall terminate ten years and one day from the date of grant, unless sooner
terminated as provided in this Option Agreement or under the Plant. The
exercise period of each Option shall also terminate on Optionee's
Termination of Employment except if:
(i) the Termination of Employment is due to: (a) the
death or permanent and total disability of the Optionee; or (b) the
retirement in accordance with the Fund's or Banyan Management Corp.'s
retirement practices; then any unexercised Options to acquire Shares will
become immediately exercisable (without regard to meeting or complying with
the other vesting provisions of the Option Agreement or the Plan), as of
the date of death, disability or retirement and may be exercised by the
Optionee, the Optionee's legal representative or Optionee's
Beneficiary(ies), as the case may be, at any time within one year in the
case of (a) and ninety (90) days in the case of (b);
(ii) the Termination of Employment is due to any reason
other than as described in subsection (i) above, any unexercised Options
which have vested pursuant to the terms of this Option Agreement and the
Plan on or before the Termination of Employment must be exercised by the
Optionee, his or her legal representative or his or her Beneficiary (ies)
within 30 days after the date of termination; or
(iii) the employment is terminated in the manner
described in subsection (i) above (other than by death) and the Optionee
dies prior to the expiration of the applicable exercise period set forth
therein, the Options may be exercise by his or her legal representative or
his or her Beneficiary(ies) within the remainder of the period that would
have been applicable to the Optionee prior to the Optionee's death.
Termination of the exercise period shall result in termination and
cancellation of the Options. For purposes of this Option Agreement,
"disability" of the Optionee shall be deemed to have occurred if the
Optionee has suffered permanent and total physical or mental illness,
injury or infirmity of such a nature, degree or effect as to render the
Optionee substantially unable to perform his or her duties at the same
level as previously performed for the Fund, one of its subsidiaries or
Banyan Management Corp. The Board shall determine, according to the facts
then available to them, whether and when disability has occurred and the
date of disability shall be the date of any such determination.
5. METHOD OF OPTION EXERCISE. An Optionee shall exercise Options
by delivering written notice of intent to exercise to the Fund's Vice
President General Counsel at the Fund's principal office located 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 as the Board may direct). Each notice
shall: (i) state the Optionee's election to exercise the Option and the
number of Shares in respect of which the Option is being excised; (ii) be
signed by the person or persons exercising the Option; (ii) be accompanied
by proof, reasonably satisfactory to the Fund's General Counsel, of the
right of the person or persons to exercise the Option if the Option is
being exercised by any person or persons other than the Optionee; and (iv)
be accompanied by payment, in cash, Shares or any other form of payment
acceptable to the Board. An Option shall not have been exercised unless
all the preceding provisions of this paragraph shall have been complied
with and, for all purposes of this Option Agreement, the date of the
exercise of the Option with respect to any particular Shares shall be the
date on which the notice, proof (if required), and payment shall all have
been received by the General Counsel. The certificate or certificates for
the Shares as to which the Option shall have been so exercised shall be
registered in the name of the person or persons so
exercising the Option and shall be delivered to or upon the written order
of the person or persons exercising the Option as soon as practicable after
receipt by the General Counsel of the notice, proof (if required) and
payment. Delivery shall be made at the principal office of the Fund, or at
any other place as the Board shall have designated by notice. The purchase
price of any Shares as to which Options shall be exercised shall be paid in
full at the time of the exercise.
6. CHANGE IN CONTROL. Notwithstanding the provisions of SECTION 3
of this Agreement, if while unexercised Options remain outstanding under
the Option Agreement and an Optionee's employment by the Fund or by Banyan
Management Corp. is terminated due to a Change in Control (as defined
below), all outstanding Options shall become exercisable from and after the
date of the termination of the Optionee's employment.
For the purposes of this SECTION 6, the term "Change in Control" shall mean
that the members of the Board of Directors of the Fund as of the date this
Agreement is executed fail to constitute a majority of the members of the
Board of Directors of the Fund; provided, however, that if the Optionee has
consented to the appointment or election of an individual who becomes a new
member of the Board of Directors, for the purposes of this paragraph, that
new member shall be treated as if he were a member of the Board of
Directors as of the date this Agreement is executed.
7. NO RIGHTS AS STOCKHOLDER. The Optionee shall have no rights as
a stockholder with respect to Shares covered by the Option until the date
of issuance of a stock certificate for the Shares; no adjustment for cash
dividends, or otherwise, shall be made if the record date therefor is prior
to the date of exercise of the Option.
8. REQUIREMENTS OF LAW. The Fund may issue or deliver
certificates for Shares prior to: (i) listing of the Shares on any stock
exchange on which the Shares may then be listed; (ii) registering or
qualifying the Shares under federal or state law; provided, however, the
Fund shall not issue or deliver certificates for Shares prior to an
Optionee tendering to the Fund those documents or payment as the Board may
deem necessary to satisfy any applicable withholding obligation for the
Fund to obtain a deduction on its federal, state or local tax return with
respect to the exercise of an Option. If the disposition of Shares
acquired on exercise of any Option is not covered by a then current
registration statement under the Securities Act and is not otherwise exempt
from registration, the acquired Shares shall be restricted against transfer
to the extent required by the Securities Act or regulations thereunder.
Furthermore, on demand by the Board, the individual exercising an Option
shall state in writing, as a condition precedent to each exercise, that the
Optionee is acquiring the Shares for investment only and not for resale or
with a view to distribution. In addition, any certificates for Shares
issued pursuant to the terms of this Option Agreement or the Plan shall
bear the following or similar legend:
The shares of common stock represented by this certificate have
not been registered under the Securities Act of 1933, as amended, or under
the securities laws of any state and may not be sold or transferred except
upon registration or receipt by the Fund of an opinion of counsel in form
and substance satisfactory to the Fund, that registration is not required
for sale or transfer.
No Shares may be sold, transferred, or otherwise alienated or hypothecated
so long as the certificate evidencing the Shares bears this legend.
9. CAUSE TO BE REGISTERED UNDER THE ACT. The Board may, in its
discretion, register the Shares acquired by the Optionees under the
Securities Act. Further, if at any time the Fund proposes to register any
of its equity securities under the Securities Act, whether or not for its
own account, and there exist Shares which cannot be sold under an existing
registration statement or Rule 144(k) (or any similar provision then
enforced), then the Fund shall give written notice of the proposed filings
to the holders of the Shares at least 20 days before the anticipated filing
date. This notice shall offer the holders the opportunity to register the
Shares. The Fund shall register all Shares with respect to which the Fund
has received written requests for inclusion therein within 15 business days
after notice has been duly given to the applicable holder. The holder of
restricted Shares shall be permitted to withdraw all or any part or the
restricted Shares from this registration at any time prior to the effective
date of the registration.
10. NON-TRANSFERABILITY. The Option shall not be assigned,
transferred (except as herein provided), pledged, or hypothecated in any
way (whether by operation of law or otherwise), other than by will or the
laws of descent and distribution. The Option is exercisable during an
Optionee's lifetime only by the Optionee or the appointed guardian or legal
representative of the Optionee, and no Option shall be subject to
execution, attachment, or similar process. Any attempted assignment,
transfer, pledge, hypothecation, or other disposition contrary to the
provisions hereof, and the levy of any attachment or similar process upon
the Option shall be null and void and without effect. The Fund shall have
the right to terminate the Option upon any assignment, transfer, pledge,
hypothecation, other disposition of the Option, or level of attachment or
similar process, by notice to that effect to the person then entitled to
exercise the Option; provided, however, that termination of the Option
hereunder shall not prejudice any rights or remedies which the Optionee,
the Fund or any subsidiary of the Fund may have under this Option Agreement
or otherwise.
11. CHANGES IN FUND'S CAPITAL STRUCTURE. The existence of the
Option shall not affect in any way the right or authority of the Fund or
its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Fund's capital
structure or its business, or any merger or consolidation of the Fund, or
any issue of bonds, debentures, preferred or prior preference stock ahead
of or affecting the Common Stock or the rights thereof, or the dissolution
or liquidation of the Fund, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding, whether
of a similar character or otherwise.
12. BOARD ACTION FINAL. Any dispute or disagreement which shall
arise under, as a result of, or in any way relate to the interpretation or
construction of this Agreement or the Plan shall be determined by the
Board. Any such determination made hereunder shall be final, binding, and
conclusive for all purposes.
13. WITHHOLDING. The Optionee and Fund agree that the Fund shall
have no obligation to issue or transfer Shares upon the exercise of the
Option, unless and until the Optionee or Beneficiary shall have reasonably
satisfied the obligation of the Fund and any of its
subsidiaries or Banyan Management Corp. or with respect to the withholding
of federal, state or local taxes, or in order to reasonably sustain a right
of the Fund to a tax deduction under federal, state or local law with
respect to the exercise of an Option. At the election of the Optionee or
the Beneficiary, as the case may be, the Fund's or Banyan Management
Corp.'s withholding obligation may be satisfied by the Optionee or
Beneficiary tendering cash, or Shares previously owned by the Optionee or
directing that a number of Shares be withheld from issuance upon the
exercise of an Option (or any combination of any of the foregoing) as the
Board reasonably determines necessary to satisfy the obligation of the Fund
or any of its subsidiaries, or Banyan Management Corp.'s, or in order to
sustain a right of the Fund or Banyan Management Corp.'s to a tax deduction
under federal, state or local law with respect to the exercise of an
Option.
14. CONDITION OF EMPLOYMENT. The Plan, this Option Agreement and
any Option granted under the Plan and this Option Agreement shall not
confer upon any Optionee any right to continued employment by the Fund, its
subsidiaries or Banyan Management Corp., nor shall they interfere in any
way with the right of the Fund, its subsidiaries or Banyan Management
Corp., to, subject to other agreements with the Optionee, terminate an
Optionee's employment at any time.
15. PLAN CONTROLLING. This Option Agreement is executed pursuant
to the provisions of the Plan and is subject to all of the provisions of
the Plan which shall be controlling.
16. SUCCESSORS AND ASSIGNS. This Option Agreement shall inure to
the benefit of and be binding upon each successor and assign of the Fund.
All obligations imposed upon the Optionee or his Beneficiary and all rights
granted to the Fund, hereunder or as stipulated in the Plan shall be
binding upon the Optionee's or the Beneficiary's heirs, legal
representatives, and successors.
17. CHOICE OF LAWS. This Agreement shall be construed and enforced
according to the internal laws of the State of Delaware.
IN WITNESS WHEREOF, the Fund has caused this Agreement to be executed
by its duly authorized officers, and the Optionee has hereunto set his hand
and seal, as of the day and year first above written.
BANYAN STRATEGIC LAND FUND II
By:
------------------------------
Its:
------------------------------
------------------------------
(Optionee)
Schedule A
Optionee Number of Shares
Leonard G. Levine 60,000
Neil D. Hansen 7,500
Robert G. Higgins 7,500
Joel Taglia 7,500
EXHIBIT 21
SUBSIDIARIES OF BANYAN STRATEGIC LAND FUND II
NAME OF SUBSIDIARY STATE OF ORGANIZATION
VSLFII Odlum Farm Corp. Illinois
VSLF II H Street Corp. Illinois
BSLFII Merger Corp. Illinois
BSLF II Rancho Malibu Corp. Illinois
BSLT/BSLFII H Street Partnership Illinois
BMC Hemet Corp. Illinois
BMC Weeds Corp. Illinois
BSLF II Banden Merger Corp. Illinois
BSLF II Westholme - Florida Corp. Illinois
BMIF/BSLFII Rancho Malibu
Limited Partnership Illinois
BMC Banden Corp. California
BMC Rancho Malibu Corp. California
BMC Westholme Corp. California
Westholme Partners* California
BMC Anden Group Corp. California
BMC Northholme Corp. California
Northholme Partners* California
Eastholme Partners* California
BSLF II Westholme - California Corp. California
* California Limited Partnerships
BANYAN STRATEGIC LAND FUND II
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
Report of Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-3
Consolidated Statements of Income and Expenses
For the Years Ended December 31, 1996, 1995 and 1994 F-4 to F-5
Consolidated Statements of Stockholders' 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-24
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.
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of Banyan Strategic Land Fund II
We have audited the accompanying consolidated balance sheets of Banyan
Strategic Land Fund II as of December 31, 1996 and 1995, and the related
consolidated statements of income and expenses, stockholders' 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 Fund'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 Land Fund II 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 24, 1997
<TABLE>
BANYAN STRATEGIC LAND FUND II
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 and 1995
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 145,335 $ 549,309
Interest Receivable on Investments. . . . . . . . . . . . . . . . . . . --- 3,754
Interest Receivable on Loans. . . . . . . . . . . . . . . . . . . . . . 118,821 59,470
Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . . --- 626,946
Loans Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,035,000 785,000
Foreclosed Real Estate Held for
Sale, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,611,991 11,700,657
Investment in Real Estate Venture . . . . . . . . . . . . . . . . . . . 4,300,865 7,122,492
Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 551,868 822,592
------------ ------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,763,880 $ 21,670,220
============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities
Accounts Payable and Accrued Expenses . . . . . . . . . . . . . . . . . $ 266,903 $ 630,500
Accrued Real Estate Taxes . . . . . . . . . . . . . . . . . . . . . . . 32,715 ---
------------ ------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 299,618 630,500
------------ ------------
Stockholders' Equity
Shares of Common
Stock, $0.01 Par Value,
50,000,000 Authorized,
19,266,268 Shares Issued. . . . . . . . . . . . . . . . . . . . . . . 170,927,133 170,927,133
Accumulated Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (138,608,664) (134,033,206)
Treasury Stock at Cost, 9,329,847 Shares. . . . . . . . . . . . . . . . (15,854,207) (15,854,207)
------------ ------------
Total Stockholders' Equity. . . . . . . . . . . . . . . . . . . . . . . 16,464,262 21,039,720
------------ ------------
Total Liabilities and Stockholders' Equity. . . . . . . . . . . . . . . $ 16,763,880 $ 21,670,220
============ ============
Book Value Per Share of Common Stock
(9,936,421 Shares Outstanding) . . . . . . . . . . . . . . . . . . . $ 1.66 $ 2.12
============ ============
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<TABLE>
BANYAN STRATEGIC LAND FUND II
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
INCOME
Income From Lending and Investing Activities:
Interest on Loans . . . . . . . . . . . . . . . . . . $ 72,576 $ 40,710 $ 75,815
Income on Investments . . . . . . . . . . . . . . . . 4,056 375,730 28,636
------------ ------------ ------------
Total Income From Lending and Investing Activities. . 76,632 416,440 104,451
------------ ------------ ------------
EXPENSES
Expenses From Property Operating Activities:
Interest on Advances From Affiliates. . . . . . . . . --- 17,712 304,022
(Gain) Loss on Disposition of Properties,
Note Receivable and Foreclosed Real
Estate Held for Sale, Net . . . . . . . . . . . . . (68,190) 97,347 537,179
Net Loss From Operations of Foreclosed
Real Estate Held for Sale . . . . . . . . . . . . . 771,999 1,729,460 2,901,151
Loss (Income) From Operations of Real
Estate Venture. . . . . . . . . . . . . . . . . . . 2,927,490 (33,488) 2,824,379
Provision for Loss on Foreclosed Real
Estate Held for Sale. . . . . . . . . . . . . . . . --- 4,200,000 20,899,566
------------ ------------ ------------
Total Expenses From Property Operating Activities . . 3,631,299 6,011,031 27,466,297
------------ ------------ ------------
Other Expenses:
Stockholder Expenses. . . . . . . . . . . . . . . . . 96,830 231,700 196,728
Directors' Fees, Expenses and Insurance . . . . . . . 197,081 373,968 507,313
Other Professional Fees . . . . . . . . . . . . . . . 150,216 244,328 843,038
General and Administrative. . . . . . . . . . . . . . 579,139 877,309 830,890
(Recovery of) Provision for Losses on Loans,
Notes, Interest Receivable and Class
Action Settlement Costs and Expenses. . . . . . . . (2,475) (23,727) 17,769
----------- ------------ ------------
Total Other Expenses. . . . . . . . . . . . . . . . . 1,020,791 1,703,578 2,395,738
----------- ------------ ------------
BANYAN STRATEGIC LAND FUND II
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES - CONTINUED
1996 1995 1994
------------ ------------ ------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . 4,652,090 7,714,609 29,862,035
------------ ------------ ------------
Net Loss. . . . . . . . . . . . . . . . . . . . . . . . $ (4,575,458) $ (7,298,169) $(29,757,584)
============ ============ ============
Net Loss Per Share of Common Stock (Based on
the Weighted Average Number Shares Outstand-
ing of 9,936,421, 13,946,474 and 19,257,962,
Respectively) . . . . . . . . . . . . . . . . . . . . $ (.46) $ (0.52) $ (1.55)
============ ============= ============
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<TABLE>
BANYAN STRATEGIC LAND FUND II
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
<CAPTION>
Common Stock
-------------------------- Accumulated Treasury
Shares Amount Deficit Stock Total
----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Stockholders' Equity,
December 31, 1993. . . . 19,266,268 $170,927,133 $(96,977,453) $ (27,637) $ 73,922,043
Award Shares Issued . . . 17,428 19,606 --- --- 19,606
Net Loss. . . . . . . . . --- --- (29,757,584) --- (29,757,584)
----------- ------------ ------------ ------------ ------------
Stockholders' Equity,
December 31, 1994. . . . 19,283,696 170,946,739 (126,735,037) (27,637) 44,184,065
. . . . . . . . . . . . .
Elimination of Award
Shares Issued. . . . . . (17,428) (19,606) --- --- (19,606)
Acquisition of
9,309,747 Shares of
Treasury Stock, at
Cost . . . . . . . . . . --- --- --- (15,826,570) (15,826,570)
Net Loss. . . . . . . . . --- --- (7,298,169) --- (7,298,169)
----------- ------------ ------------ ------------ -------------
Stockholders' Equity,
December 31, 1995. . . . 19,266,268 170,927,133 (134,033,206) (15,854,207) 21,039,720
Net Loss . . . . . . . . (4,575,458) (4,575,458)
------------ ------------ ------------ ------------ ------------
Stockholders' Equity,
December 31, 1996 . . . 19,266,268 $170,927,133 $(138,608,664) $(15,854,207) $ 16,464,262
============ ============ ============= ============ ============
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<TABLE>
BANYAN STRATEGIC LAND FUND II
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS. . . . . . . . . . . . . . . . . . . . . . . . $ (4,575,458) $ (7,298,169) $ (29,757,584)
Adjustments to Reconcile Net Loss
to Net Cash (Used In) Provided
By Operating Activities:
(Recovery of) Provision for Losses
on Loans, Notes, Interest
Receivable and Class Action
Settlement Costs and Expenses . . . . . . . . . . . (2,475) (23,727) 260,372
Provision for Loss on Foreclosed Real
Estate Held for Sale. . . . . . . . . . . . . . . . --- 4,200,000 20,899,566
(Gain) Loss from Disposition of
Properties, Note Receivable and
Foreclosed Real Estate Held for Sale,
Net . . . . . . . . . . . . . . . . . . . . . . . . (68,190) 97,347 537,179
Net Loss (Income) From Operations of
Real Estate Venture . . . . . . . . . . . . . . . . 2,927,490 (33,488) 2,824,379
Net Change In:
Interest Receivable on Investments. . . . . . . . . . 3,754 (3,754) 49,896
Interest Receivable on Loans. . . . . . . . . . . . . (59,351) (30,856) (69,807)
Other Assets. . . . . . . . . . . . . . . . . . . . . 270,724 (577,166) (64,528)
Accounts Payable and Accrued Expenses . . . . . . . . (363,597) (1,119,571) 260,501
Accrued Real Estate Taxes . . . . . . . . . . . . . . 32,715 (170,769) 158,809
Due to Affiliates . . . . . . . . . . . . . . . . . . --- --- (20,841)
------------ ------------ ------------
Net Cash Used In Operating Activities . . . . . . . . . (1,834,388) (4,960,153) (4,922,058)
------------ ------------ ------------
BANYAN STRATEGIC LAND FUND II
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1996 1995 1994
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Investment Securities . . . . . . . . . . --- (2,134,482) ---
Proceeds from Sale of Investment Securities . . . . . 310,007 778,331 ---
Principal Payments on Investment Securities . . . . . 316,939 728,925 ---
Recovery of (Provision For) Losses on Loans,
Notes, Interest Receivable and Class
Action Settlement Costs and Expenses. . . . . . . . 2,475 23,727 17,098
Collection of (Investment In) Loans
Receivable, Net . . . . . . . . . . . . . . . . . . 248,000 16,000 (134,426)
Investments in Real Estate Venture. . . . . . . . . . (105,863) 4,054 (222,473)
Proceeds from the Sale of Foreclosed
Real Estate Held for Sale . . . . . . . . . . . . . 658,856 22,479,900 2,172,611
Proceeds from the Sale of Note Receivable. . . . . . --- --- 200,000
Forfeited Proceeds from Sales Contracts . . . . . . . --- 58,086 121,977
Cash Received Upon Loan Foreclosure . . . . . . . . . --- --- 900,000
Payment of Liabilities Assumed at
Foreclosure of Real Estate. . . . . . . . . . . . . --- (87,699) (254,083)
Investment in Foreclosed
Real Estate Held for Sale . . . . . . . . . . . . . --- (90,947) (229,495)
(Payment To) Due to Affiliates. . . . . . . . . . . . --- (730,229) 627,267
------------ ------------ ------------
Net Cash Provided By Investing Activities . . . . . . . 1,430,414 21,045,666 3,198,476
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of Treasury Stock . . . . . . . . . . . . --- (15,826,570) ---
------------ ------------ ------------
Cash Used in Financing Activities . . . . . . . . . . . --- (15,826,570) ---
------------ ------------ ------------
Net (Decrease) Increase in Cash
and Cash Equivalents. . . . . . . . . . . . . . . . . (403,974) 258,943 (1,723,582)
Cash and Cash Equivalents
at Beginning of Year. . . . . . . . . . . . . . . . . 549,309 290,366 2,013,948
------------ ------------ ------------
Cash and Cash Equivalents
at End of Year. . . . . . . . . . . . . . . . . . . . $ 145,335 $ 549,309 $ 290,366
============ ============ ============
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
BANYAN STRATEGIC LAND FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION
Banyan Strategic Land Fund II (the "Fund") was organized as a
corporation under the laws of the State of Delaware, pursuant to the
Certificate of Incorporation filed April 14, 1987.
The accompanying consolidated financial statements include the
accounts of the Fund and its wholly-owned subsidiaries and consolidated
ventures which hold title to the Fund's properties. In April 1996, the
Fund acquired 100% of the outstanding shares of BMC Banden Corp. The
assets and liabilities of this wholly-owned subsidiary have not been
consolidated as they have been accorded no value. All intercompany
balances and transactions have been eliminated in consolidation. The
Fund's 47% interest in the H Street Assemblage is accounted for on the
equity method as an investment in real estate joint venture.
B. INVESTMENT SECURITIES
Investment securities are classified as available for sale and carried
at fair value 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 a level yield method.
C. 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 Fund
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 Fund intends to
pursue collection of all amounts contractually due from the borrowers.
D. LOANS RECEIVABLE
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 114 and No. 118, Accounting by Creditors
for Impairment of a Loan ("FAS 114/118"). The adoption of FAS 114/118 by
the Fund effective January 1, 1995 did not have any impact on the carrying
value of the Fund's loans in the financial statements as of December 31,
1996 or 1995.
E. FORECLOSED REAL ESTATE HELD FOR SALE
Foreclosed real estate held for sale is recorded at the lesser of the
mortgage loan balance plus costs incurred on behalf of the borrower or the
estimated fair market value at the date of foreclosure.
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of," under which the Fund 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 Fund
adopted Statement No. 121 in the fourth quarter effective January 1, 1995
with no effect on the accompanying financial statements.
BANYAN STRATEGIC LAND FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
F. INCOME TAXES
On March 20, 1996, the Fund notified the Internal Revenue Service of
its intent to revoke its tax election to be treated as a real estate
investment trust ("REIT") under section 856(c) (1) of the Internal Revenue
Code of 1986, as amended, in order to avoid the adverse tax effects
associated with the potential disposition or development of its various
real estate assets consisting of undeveloped land for which a REIT
structure is not intended. Pursuant to the revocation of tax election
856(c) (1), effective January 1, 1996, the Fund is taxable as a "C"
corporation and therefore is no longer required to meet certain pre-
determined distribution, asset and income requirements. Previously, the
Fund had elected to be treated as a REIT under Sections 856-860 of the
Internal Revenue Code for the years ended December 31, 1995, 1994 and 1993.
In order to qualify, the Fund was required to distribute at least 95% of
its taxable income to stockholders and meet certain asset and income tests
as well as other requirements. However, if these requirements had not
been met as of December 31, 1995, loss of REIT status would not have
significantly affected the Fund's tax position.
Beginning in 1996, income taxes are accounted for in accordance with
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes".
G. CASH EQUIVALENTS
The Fund considers all highly liquid debt instruments with a maturity
of three months or less when purchased to be cash equivalents.
H. VALUATION OF STOCK OPTIONS
The Fund's Stock Options awarded pursuant to its 1994 Directors and
Executive Option Plans are accounted for in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees."
I. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. INVESTMENT SECURITIES
The Fund did not hold any investment securities at December 31, 1996.
The Fund's investment securities portfolio at December 31, 1995 was as
follows:
BANYAN STRATEGIC LAND FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Amortized Cost
Net of Principal
Name of Each Issue and Paydowns Received
Name of Each Issuer Dec. 31, 1995 (2)
- ---------------------- ------------------
Federal Home Loan
Mortgage Corp., 6.0%,
7/05/95-6/25/2014 (1) . . . . . . . . $ 369,502
Collateralized
Mortgage Security
Corp., 9.0%,
7/05/95-6/25/2007 . . . . . . . . . . 257,444
----------
$ 626,946
==========
(1) The Guaranteed REMIC Pass-Through Certificate is guaranteed as to
timely payment of principal and interest by the Federal National Mortgage
Association. The maturity of the principal of the above investment
security is dependent upon the repayment of the underlying U.S. Agency
sponsored mortgages. The rate of repayment is dependent upon the current
market level of interest rates on mortgage loans as it relates to the
interest rates of the mortgages underlying each REMIC security. The
maturity of the investment security, under the market conditions as of the
fourth quarter of 1995, is expected to be from June 25, 2007 to June 25,
2014. These expectations may change as interest rates on mortgage loans
change.
(2) The estimated market value of the Fund's investment securities
as of December 31, 1995 approximates its carrying value.
3. LOANS RECEIVABLE
The Fund's loan portfolio at December 31, 1996 consists of the following
loans:
Borrowing Partnership/
Property Pledged as
Collateral/Interest Carrying Interest
Rate/Maturity Date Face Amount Amount Receivable
- ---------------------- ------------ ---------- ----------
Northholme Partners . . . . . . $ 560,000 $ 560,000 $ 114,599
Development Agreement
on Whittaker Parcel (a)
Interest Rate: 11%
Maturity Date: 7/31/97
Hemet IV. . . . . . . . . . . . 500,000 225,000 ---
Land Parcel
Interest Rate: 10%
Maturity Date: (b)
Lindfield Tract A . . . . . . . 250,000 250,000 4,222
Land Parcel (c)
Interest Rate: 8%
Maturity Date: 10/15/97
---------- ---------- ----------
Total Investment in
Loans Receivable. . . . . . . $1,310,000 $1,035,000 $ 118,821
========== ========== ==========
BANYAN STRATEGIC LAND FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------
(a) Northholme Partners ("Northholme"), of which the Fund holds an
80% limited partnership interest, was created by the Fund and a partner of
The Anden Group on August 31, 1992. On September 2, 1992, the Fund and
Northholme entered into a loan agreement whereby the Fund committed to lend
Northholme $700,000. The maturity date of the Northholme loan has been
subsequently extended to July 31, 1997. The loan pertains to a 1,000-acre
land parcel located north of Los Angeles, California (the "Whittaker
Property"). The partner associated with the Anden Group, Eugene S.
Rosenfeld, owns a 20% participation in the loan. The loan originally
required monthly payments of interest only with the principal plus accrued
interest due at maturity. As a result of Northholme's inability to
generate current cash proceeds sufficient to meet the monthly interest
payments, the Fund agreed to modify the terms of loan on July 31, 1994.
Pursuant to the July 31, 1994 modification, payment of interest on the loan
is to be deferred until the earlier of the loan's maturity date or upon
receipt of cash proceeds from the sale or refinancing of the Whittaker
Property. As a result of the loan modification, the Northholme loan has
also been placed on nonaccrual status effective January 1, 1995. As of
December 31, 1996, the Fund has advanced $491,625 as additional partnership
advances to the Northholme Partnership for costs associated with the
completion of the zoning and entitlement work for the Whittaker Property
per the Partnership Agreement which advance earns interest at a rate of
12%. The Northholme Partnership Agreement provides for the Fund's
partnership advances to be repaid prior to the repayment of the Fund's
mortgage loans. For financial reporting purposes, these advances are
recorded in other assets on the Fund's Balance Sheet. Based on the Fund's
valuation estimates of the underlying collateral it has determined that the
loan and all subsequent advances plus accrued interest are deemed
collectible as of December 31, 1996.
(b) During 1994, in connection with a restructuring of Anden, the
Fund was conveyed an interest in a first mortgage loan collateralized by a
parcel of land located in Hemet, California. The borrower is Hemet Phase
IV Partners L.P., an affiliate of the Anden Group. The Fund recorded its
interest in the loan acquired at $500,000 as of the date of foreclosure.
During 1994, the Fund recorded a provision for losses on loans, notes and
interest receivable relating to the Hemet IV loan in the amount of
$275,000. The interest rate on the loan is 10%. Interest and principal on
the loan shall be due and payable upon the sale or disposition of the
collateral. Pursuant to the Fund's valuation of the underlying collateral,
the note has been placed on non-accrual status.
(c) The Lindfield Tract A property is a land parcel which consists
of 13 acres and is zoned tourist-commercial within a multi-use planned
unit development, located in Kissimmee (near Orlando), Florida. On
October 15, 1996, the Fund sold its interest in the Lindfield Tract A
property to an unaffiliated third party for a sales price of $700,000.
Pursuant to the sale, the Fund received cash proceeds of $372,000, net of
prorations and closing costs of approximately $78,000, and a $250,000
secured purchase money mortgage note (the "Note"). The Note bears interest
at a fixed rate of 8% per annum, and requires quarterly payments of
interest. Final payment of accrued interest and outstanding principal
balance of the Note is due and payable upon its maturity of October 15,
1997.
BANYAN STRATEGIC LAND FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1996 1995 1994
----------- ----------- -----------
Reconciliation of
Loans Receivable:
Balance at Beginning
of Year . . . . . . . . . . $ 785,000 $ 801,000 $ 956,563
Additions During Year:
New Loans . . . . . . . . . 498,000 --- 675,426
Capitalized Interest
on Loans. . . . . . . . . --- --- 33,533
Amortization of
Loan Fees . . . . . . . . --- --- 2,227
---------- ---------- ----------
498,000 --- 711,186
---------- ---------- ----------
Deductions During Year:
Provision For Loan Losses . --- --- (275,000)
Principal Collections
on Loans. . . . . . . . . (248,000) (16,000) (41,000)
Loans Written-Off,
Foreclosed or Loans
in Substantive
Foreclosure . . . . . . . --- --- (550,749)
----------- ----------- -----------
(248,000) (16,000) (866,749)
----------- ----------- -----------
Balance at End of Year. . . . $ 1,035,000 $ 785,000 $ 801,000
=========== =========== ===========
4. FORECLOSED REAL ESTATE HELD FOR SALE
LINDFIELD TRACT D
The Lindfield Tract D property consists of an 8.5-acre parcel of land
zoned for commercial use within a multi-use planned unit development,
located in Kissimmee, Florida. As of December 31, 1996, the Fund's current
carrying value for this property is $650,000. On December 20, 1996, the
Fund entered into an agreement to sell the Lindfield Tract D property to an
unaffiliated third party for a purchase price of $675,000. The closing is
scheduled to take place no later than June 30, 1997.
RANCHO MALIBU
Rancho Malibu is a 274-acre parcel of undeveloped land north of
Malibu, California. On July 1, 1992, a joint venture (the "Venture")
between the Fund and Legend Properties, Inc. (f/k/a Banyan Mortgage
Investment Fund) ("Legend") acquired title to the property pursuant to a
deed in lieu of foreclosure agreement. The Fund owns a 98.6% general
partner interest in the Venture while Legend holds the remaining 1.4%
interest as a limited partner. The Venture's results are consolidated in
the accompanying financial statements.
From the acquisition date, the Venture has engaged in zoning and
entitlement activities which have been opposed by the City of Malibu and
various citizen groups. The city initiated two separate legal actions
intended to preclude the issuance of a Coastal Development Permit, both of
which were ultimately resolved in favor of the Venture.
BANYAN STRATEGIC LAND FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Concurrent with the aforementioned litigation, the Venture pursued
entitlements before the Board of Supervisors for the County of Los Angeles.
In September 1995, the Los Angeles County Regional Planning Commission, by
a 3 to 2 vote, approved a revised plan to develop a fifty-one unit housing
community on the Rancho Malibu property. The Los Angeles County Regional
Planning Commission's approval was appealed to the Los Angeles County Board
of Supervisors. On May 14, 1996, the Los Angeles County Board of
Supervisors approved a compromise project to create forty-six single family
lots. These approvals are specified in Los Angeles County CUP No. 91-
315(3), Oak Tree Permit No. 91-315(3) and Tentative Tract No. 46277
(revised), approved May 14, 1996. On June 17, 1996, a neighboring
homeowners association filed an action entitled La Chusa Highlands Property
Owners Association, Inc. v. Los Angeles County, et al., Los Angeles County
Superior Court Case No. BS039789 (the "La Chusa Litigation"), challenging
the aforesaid approvals. The Fund, Legend and the Venture are named as
real parties in interest.
The La Chusa Litigation was tried before a Court on January 27, 1997.
On February 5, 1997, the Court issued its ruling, granting the Petitioner's
Writ and remanding the matter to the County Board of Supervisors for
further action on three separate grounds: (i) the Supervisors' analysis
and findings relating to the consistency of the Projects' cul de sacs and
streets with certain County of Los Angeles Code provisions restricting the
length of cul de sacs to 1,000 feet were deemed inadequate; (2) a proposed
deed restriction requiring the Venture to "diligently seek" approval for a
second living unit on five of the forty-six lots was held to be too
abstract to comply with the low income housing requirement of state law and
(3) the court found that the county acted improperly when it approved the
Project in January of 1996 and later approved a Supplemental Environmental
Impact Report ("SEIR") in May of 1996.
The Court's order specifically rejected challenges to the entitlements
predicated on (i) the adequacy of the Supervisors' analysis of the
environmental impacts of the Project under the SEIR, (ii) the consistency
of the Project with the County General Plan; (iii) the approval of a sewage
treatment plant and (iv) the density of the Project under the Hillside
Management Ordinance.
The Fund is currently considering its alternatives in view of the
decision. The Court entered a final judgement in the La Chusa Litigation
on March 25, 1997. The Fund is presently considering and may pursue any or
all of the following alternatives: (i) move for new trial with the Court;
(ii) appeal the judgement; (iii) seek further action by the Supervisors to
address three issues specified by the Court and to reinstate the
entitlements set aside by the Court; and (iv) settlement of the La Chusa
Litigation.
In an earlier action, the Venture challenged the General Plan and the
Environmental Impact Report associated with it adopted by the City of
Malibu on Nov. 20, 1995 in a lawsuit entitled BMIF/BSLFII Rancho Malibu
Limited Partnership v. City of Malibu, Los Angeles County Superior Court
Case No. SS006374. On July 31, 1996, the Venture and the City of Malibu
executed and delivered a settlement agreement which, among other things,
resulted in a dismissal of the lawsuit challenging the city's General Plan
and which precludes the city from challenging the Venture's entitlements
before any public body (in the absence of a significant requested change).
The city is also precluded by the settlement agreement from participating
in the La Chusa Litigation.
BANYAN STRATEGIC LAND FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
During the year ended December 31, 1996 and 1995, the Venture expended
approximately $705,000 and $1,604,000, respectively, on Rancho Malibu
relating to entitlement activities, holding costs and litigation. These
costs, treated as capital contributions to the Venture by the Fund, were
included in total expenses from property operating activities on the Fund's
consolidated statements of income and expenses. As a result of the
decrease in number of units approved for residential development from
fifty-one units to the agreed upon forty-six units as discussed above, the
Fund recorded a $4,200,000 valuation allowance against the property during
the quarter ended December 31, 1995. For the year ended December 31, 1994,
the Fund incurred approximately $1,481,000 of costs related to entitlement
work and the litigation which were capitalized. As of December 31, 1996,
the Fund's carrying balance for the property is $9,961,991.
5. DISPOSITION OF FORECLOSED REAL ESTATE HELD FOR SALE AND
LOANS RECEIVABLE
The Lindfield Tract A property is a land parcel which consists of 13
acres and is zoned tourist-commercial within a multi-use planned unit
development, located in Kissimmee (near Orlando), Florida. On October 15,
1996, the Fund sold its interest in the Lindfield Tract A property to an
unaffiliated third party for a sales price of $700,000. Pursuant to the
sale, the Fund received cash proceeds of approximately $387,000, net of
prorations for closing costs of approximately $63,000, and a $250,000
secured purchase money mortgage note (the "Note"). The Fund will recognize
a book gain on disposition of approximately $37,100. The Note bears
interest at a fixed rate of 8% per annum, and requires quarterly payments
of interest. Final payment of accrued interest and outstanding principal
balance of the Note is due and payable upon its maturity date of October
15, 1997. The Fund had obtained ownership of the Lindfield Tract A
property pursuant to a deed in lieu of foreclosure settlement on its
Westholme loans.
Hemet Phase III is an approximately 19-acre land parcel zoned for the
development of 75 single family home lots located in Hemet, California. On
April 18, 1996, the Fund sold its interest in the Hemet Phase III property
to an unaffiliated third party (the "Purchaser") for a sales price of
$385,000. Pursuant to the sale, the Fund received cash proceeds of
approximately $126,000, net of prorations for closing costs of
approximately $11,000, and a $248,000 collateralized promissory note (the
"Note"). The Fund recognized a gain on disposition of approximately
$31,100. The Note bears interest at a fixed rate of 10% per annum,
requires monthly payments of interest and matures on April 18, 1997. The
Fund obtained ownership of the Hemet Phase III property pursuant to a deed
in lieu of foreclosure settlement on its Westholme loans. During the year
ended December 31, 1996, the Fund received final principal and interest
payments of $248,000 and $13,225, respectively, on the Note. The Fund has
no further interest in the Hemet Phase III property.
On February 15, 1996, the Fund sold the 11 remaining single family
home lots of the total 14 single family home lots in the Lake Rogers
development to an unaffiliated third party for approximately $165,000.
After prorations for closing costs of approximately $19,000, the Fund
received net proceeds of approximately $146,000 and recognized a loss of
approximately $77,300 which was reflected in the consolidated statements of
income and expenses for the year ended December 31, 1995. The Fund
recognized no gain or loss on the sale of the Lake Rogers property for the
year ended December 31, 1996. the Fund had obtained ownership of the Lake
Rogers property pursuant to a deed in lieu of foreclosure settlement on its
Westholme loans.
BANYAN STRATEGIC LAND FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
On December 18, 1995, the Fund sold the Lancaster property to an
unaffiliated third party for approximately $326,000. After prorations for
closing costs of approximately $18,000 and payment of assumed liabilities
of approximately $189,500, the Fund received net proceeds of approximately
$118,500 and recognized a loss of approximately $57,100.
On December 15, 1995, the Fund sold the remaining eight acres of the
total fourteen acres of the Lindfield Multi-family property to an
unaffiliated third party for approximately $686,100. After prorations for
closing costs of approximately $81,200, the Fund received net proceeds of
approximately $604,900 and recognized a gain of approximately $55,000.
On June 20, 1995, the Fund sold the Palmdale property to an
unaffiliated third party for approximately $350,300. After prorations for
closing costs of approximately $24,600 and payment of assumed liabilities
of approximately $178,200, the Fund received net proceeds of approximately
$147,500 and recognized a loss of approximately $49,300 on the sale.
On June 16, 1995, the Fund sold six of the eleven lots comprising the
Lindfield's Single Family property to an unaffiliated third party for
$54,000. After prorations for closing costs of approximately $900 and
payment of assumed liabilities of approximately $900, the Fund received net
proceeds of approximately $52,200 and recognized a gain of approximately
$9,500 on the sale. On November 28, 1995, the Fund sold the remaining five
Lindfield's Single Family property lots to an unaffiliated third party for
$64,000. After prorations for closing costs of approximately $7,700, the
Fund received net proceeds of approximately $56,300 and recognized a gain
of approximately $21,900. In addition, during the year ended December 31,
1995, the Fund received $12,000 in forfeited sales contract deposits from
potential buyers. These deposits were recorded against the carrying value
of the portfolio.
6. INVESTMENT IN JOINT VENTURE
On October 22, 1990, the Fund acquired title to the property
known as the H Street Assemblage located in Washington, D.C.
pursuant to an agreement with Banyan Strategic Realty Trust ("BSRT").
On June 5, 1992, the Fund and BSRT formed a joint venture (the
"Venture") to pursue its development rights. The Fund has a 47%
interest in the Venture while BSRT has the remaining 53%. 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 Fund's share of $2,585,000 is included in the loss from
operations of real estate venture in the Fund's 1994 Statement of
Income and Expenses.
BANYAN STRATEGIC LAND FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 $860,000 is the Fund's share. The Fund recognized no
gain or loss on the sale. The 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 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 as a result of the
above mentioned sale with GSA and an agreement with an unaffiliated
third party to purchase the H Street Assemblage. The Fund's share,
$2,820,000, is included in the loss from operations of real estate
venture in the Fund'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
sale and the agreement with an unaffiliated third party. Pursuant to
the agreement, the 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
Venture anticipates to incur in order to complete the aforementioned
transactions.
Summary financial information for the H Street Assemblage as of
December 31, 1996 and 1995 is as follows:
1996 1995
----------- -----------
Investment Property, Net. . . . . $ 9,981,527 $16,039,027
Other Assets. . . . . . . . . . . 251,403 255,923
Other Liabilities . . . . . . . . (218,306) (276,780)
Venture Partners', Equity . . . . (5,713,759) (8,895,678)
----------- -----------
Fund's Equity . . . . . . . . . $ 4,300,865 $ 7,122,492
=========== ===========
Total Revenues. . . . . . . . . . $ 529,931 $ 469,337
=========== ===========
Net Income (Loss) . . . . . . . . $(6,228,702) $ 71,252
=========== ===========
BANYAN STRATEGIC LAND FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
7. PROVISION FOR LOSS ON FORECLOSED REAL ESTATE HELD FOR SALE
KEY BISCAYNE
In 1990, title to 22 acres of property located in Key Biscayne,
Florida, was conveyed to the Fund under a deed-in-lieu of foreclosure
agreement. The Fund's parcel represented a portion of the "Key
Biscayne Project"; the remainder was owned by THSP Associates Limited
Partnership II ("THSP"), formerly known as Banyan Mortgage Investors
L.P. III. The Fund and THSP had been developing the Key Biscayne
Project pursuant to a Joint Development Agreement ("JDA") dated
September 17, 1990 to which the Fund and THSP were parties. As of
December 31, 1993, the Fund's carrying value for this property was
$42,740,410 which was based on the estimated value of the property
assuming completion of the development plan. During 1994, the Fund
and THSP engaged in extensive litigation in Florida and Illinois and
settlement negotiations involving the Key Biscayne Project. On March
16, 1995, the Fund executed a settlement agreement with THSP.
Pursuant to the settlement agreement, the Fund received cash and
other consideration totalling approximately $24,700,000 and
transferred to THSP ownership of the Fund's 22-acre site in Key
Biscayne, Florida. The Fund also released all claims it had asserted
to an adjacent parcel owned by THSP. In addition, the Fund and THSP
consensually terminated all pending litigation and exchanged mutual
releases.
Of the $24,700,000 settlement, the Fund received approximately
$21,500,000 in cash. The remaining $3,200,000 was used to pay
approximately $1,500,000 in closing fees and prorations and to
discharge the Fund's liability of approximately $1,700,000 due THSP
for advances made to the Fund pursuant to the JDA. The Fund also
reduced the Key Biscayne carrying value at December 31, 1994 for
legal and other costs of approximately $775,000 which were
anticipated related to the settlement. For the year ended
December 31, 1995, the Fund expended approximately $527,000 of the
total $775,000 anticipated costs. The remaining costs of
approximately $248,000 were expended during the first quarter of
1996. As a result of the settlement, the Fund recorded a loss
provision of approximately $19,700,000 as of December 31, 1994 which
represented the difference between the net book value of the Fund's
investment in the Key Biscayne project less the settlement amount as
reduced by closing fees and prorations.
RANCHO MALIBU
Rancho Malibu is a 274-acre parcel of undeveloped land north of
Malibu, California. On July 1, 1992, a joint venture (the "Venture")
between the Fund and Legend Properties, Inc. (f/k/a Banyan Mortgage
Investment Fund) ("Legend") acquired title to the property pursuant
to a deed in lieu of foreclosure agreement. The Fund owns a 98.6%
general partner interest in the Venture while Legend holds the
remaining 1.4% interest as a limited partner. As a result of the
decrease in number of units approved for residential development from
fifty-one units to the agreed upon forty-six units, the Fund recorded
a $4,200,000 valuation allowance against the property during the
quarter ended December 31, 1995. See Note 4 for further details.
BANYAN STRATEGIC LAND FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
8. RECOVERY OF LOSSES ON LOANS, NOTES, INTEREST RECEIVABLE
AND CLASS ACTION SETTLEMENT COSTS AND EXPENSES
The Fund has received cash of $2,475, $23,727 and $17,098 during
1996, 1995 and 1994 respectively, related to its interest in a
liquidating trust established for the benefit of the unsecured
creditors (including the Fund) of VMS Realty Partners and its
affiliates. The Fund has recorded $2,475, $23,727 and $14,628,
respectively, of these amounts as recovery of losses on mortgage
loans, notes and interest receivable in its consolidated statement of
income and expenses. The recovery for 1994 was partially offset by
the Fund's recognition of a loss on loans receivable of $275,000.
On January 25, 1994, the Fund received net proceeds of $242,603
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 the directors of
the Fund 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 directors have released the proceeds from
the escrow and the Fund has purchased an insurance policy to cover
the directors.
9. TRANSACTIONS WITH AFFILIATES
Administrative costs, primarily salaries and general and
administrative expenses, are incurred on the Fund's behalf by Banyan
Management Corp. ("BMC") and are reimbursed at cost by the Fund.
These costs are allocated to the Fund 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 total BMC personnel hours. The Fund's
allocable share of costs for the years ended December 31, 1996, 1995
and 1994 aggregated $269,508, $557,899 and $593,964, respectively.
As one of its administrative services, BMC serves as the paying agent
for general and administrative costs of the Fund. As part of
providing this payment service, BMC maintains a bank account on
behalf of the Fund. At December 31, 1996, the Fund had a net payable
due to BMC of $2,180. The net payable is included in accounts
payable and accrued expenses in the Fund's Consolidated Balance
Sheet. At December 31, 1995, the Fund had a net receivable due from
BMC of $261,566. The net receivable is included in other assets on
the Fund's Consolidated Balance Sheet.
10. ELIMINATION OF AWARD SHARES OUTSTANDING AND
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
On April 29, 1994, the Fund issued 17,428 shares of its common
stock to Leonard G. Levine, its President. Pursuant to Mr. Levine's
amended employment agreement, all incentive amounts earned subsequent
to January 1, 1993 are to be paid 80% in cash on or before March 15
of the year following the period for which the incentive is earned
and 20% in shares ("Award Shares") of the Fund. On March 1, 1996 and
March 24, 1995, Mr. Levine was paid $217,135 and $27,612,
representing 80% of his 1995 and 1994 incentive, respectively. The
43,083 and 6,136 Award Shares valued at $1.26 and $1.125 per share,
respectively, or $54,284, and $6,903 for 1995 and 1994, respectively,
represent 20% of Mr. Levine's incentive and will be held by the Fund,
BANYAN STRATEGIC LAND FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 Fund without just
cause; or (iii) the permanent disability or death of Mr. Levine. The
"Award Shares" were issued at a price equal to the average closing
price of the Fund's shares for the five business days ended prior to
December 31 of the respective year. At a meeting of the Fund's Board
of Directors on April 28, 1995, the Board of Directors amended Mr.
Levine's employment agreement with respect to the issuance of Award
Shares and the previously issued shares were returned to the Fund and
cancelled. Mr. Levine will no longer receive actual shares of the
Fund's Common Stock as Award Shares. Under Mr. Levine's amended
employment agreement, an "Award Share" has been redefined to mean the
right to receive a cash bonus equal to: (i) the value of one share
of Common Stock of the Fund; and (ii) any distributions of the Fund
with respect to a share of Common Stock between the Grant Date and
the Settlement Date. The value of an Award Share on a Grant Date and
on a Settlement Date will be the average closing price of the Fund's
shares of Common Stock for the five business days ended at the Grant
Date or the Settlement Date, as the case may be. Mr. Levine will
continue to receive twenty percent (20%) of his Incentive
Compensation in Award Shares. At the time upon which Mr. Levine
determines to dispose of Award Shares, Mr. Levine will notify the
Company of the number of Award Shares he wishes to tender and he will
receive from the Company a cash bonus equal to the value of the Award
Shares tendered to the Company. The cash bonus from the Award Shares
attributable to distributions will be paid currently for all
distributions declared for stockholders of record between the Grant
Date and the Settlement Date. Shares of Common Stock previously
issued as Award Shares were converted into cash bonus shares as
described above on April 28, 1995, as provided for in the amended
employment agreement. The 17,428 shares as previously issued on
April 29, 1994 have been excluded effective April 28, 1995 when
calculating Net Income Per Share of Common Stock Based on Weighted
Average Number of Shares Outstanding. See Note 12, Tender Offer, for
further details impacting the Fund's weighted average number of
shares outstanding. The Award Shares will continue to be subject to
the existing vesting provisions. The amendment is intended to
preserve the original intent of the Award Shares which was to further
align the interests of Mr. Levine with those of the Fund's
stockholders. All Award Shares shall be forfeited by Mr. Levine if
he fails to be employed by the Fund on December 31, 1997, unless such
failure is due to death or permanent disability or termination
without just cause.
11. STOCK OPTION PLAN
On June 30, 1994, the stockholders approved and adopted the 1994
Executive and Directors Stock Option Plan (the "Plan"). The Plan
granted the Board of Directors the authority to issue up to 1,000,000
shares of the Fund's common stock for stock option awards
("Options"). The Plan consists of an Executive Option Grant Program
and a Director Option Grant Program. Under the Director Option Grant
Program, each of the Directors, in consideration of their length of
service on the board received an option to acquire 50,000 shares.
The exercise price of the options initially granted to the Board of
Directors under the Director Option Grant Program was $1.125.
BANYAN STRATEGIC LAND FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Board administers the Executive Option Grant Program and has
the authority to determine, among other things, the individuals to be
granted Executive Options, the exercise price at which shares may be
acquired, the number of shares subject to each option and the
exercise period of each option. No Director is eligible to receive
options under the Executive Option Grant Program. On April 16, 1996,
July 11, 1995 and January 18, 1994 the Board granted, subject to
approval of the Plan by the stockholders, initial options totalling
90,000, 90,000 and 90,000, respectively, to management under the
program, at a price of $1.25, $1.50 and $1.125 per share,
respectively, (the closing price on the day of the grant of options).
Pursuant to the terms of the grants, options for all shares granted
under the Executive Option Grant Program will be exercisable and
vested in installments as follows: (i) 33.3% of the number of shares
commencing on the first anniversary of the date of grant; (ii) an
additional 33.3% of the shares commencing on the second anniversary
of the date of the grant; and (iii) an additional 33.4% of shares
commencing on the third anniversary of the date of grant. Options
for all shares as granted under the Director Option Grant Program
shall be exercisable in installments as follows: (i) 50% of the
number of shares commencing on the first anniversary of the date of
grant; and (ii) 50% of the number of shares commencing on the second
anniversary of the date of the grant. The Board is granted
discretion to determine the term of each Option granted under the
Executive Option Grant Program, but in no event will the term exceed
ten years and one day from the date of the grant. At December 31,
1996, 398,500 options for shares were outstanding of which 228,167
were exercisable. None of the granted options have been exercised.
The Fund has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25")
and related interpretations in accounting for its Options because, as
discussed below, the alternative fair value accounting provided for
under FASB Statement No. 123, "Accounting for Stock-Based
Compensation", ("SFAS No. 123") requires use of option valuation
models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Fund's
Options equals the market price of the underlying stock on the date
of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per
share is required by SFAS No. 123, and has been determined as if the
Fund had accounted for its Options under the fair value method of
that Statement. The fair value for the Options was estimated at the
date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1996 and 1995,
respectively; risk free interest rates of 6.48% and 6.09%; dividend
yields of 0% and 0%; volatility factors of the expected market price
of the Fund's common stock of .457 and .555; and a weighted-average
expected life of the options of three years. Because SFAS No. 123 is
applicable only to options granted subsequent to December 31, 1994,
its pro forma effect will not be fully reflected until 1997.
BANYAN STRATEGIC LAND FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of
Options.
The effects on 1996 and 1995 pro forma net income and pro forma
earnings per common share and common share equivalent of amortizing
to expense the estimated fair value of stock options are not
necessarily representative of the effects on net income to be
reported in future years due to such things as the vesting period of
the stock options, and the potential for issuance of additional stock
options in future years.
For purposes of pro forma disclosures, the estimated fair value
of the Options is amortized to expense over the Options' vesting
period. The pro forma effect of applying SFAS No. 123's fair value
method to the Fund's stock-based awards results in net income and
earnings per share that are not materially different from amounts
reported.
A summary of the Fund's stock option activity, and related
information for the years ended December 31, 1996, 1995 and 1994
follows:
Weighted Average
Shares Subject Exercise Price
to Option Per Share
-------------- ---------------
Balance at January 1, 1994. . . . -- --
Options granted . . . . . . . . 255,000 $1.125
-------- ------
Balance at December 31, 1994. . . 255,000 1.125
Options granted . . . . . . . . 90,000 1.500
Options canceled. . . . . . . . (20,000) 1.125
-------- ------
Balance at December 31, 1995. . . 325,000 1.229
Options granted . . . . . . . . 90,000 1.250
Options canceled. . . . . . . . (16,500) 1.295
-------- ------
Balance at December 31, 1996. . . 398,500 $1.231
======== ======
BANYAN STRATEGIC LAND FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
At December 31, 1996, 1995 and 1994, Options on 228,167,
100,333, and 0 shares, respectively, were exercisable and Options on
745,000, 675,000 and 601,500 shares, respectively, were available for
future grant. Exercise prices for Options outstanding at December
31, 1996 ranged from $1.125 to $1.50 per share. The remaining
weighted-average contractual life of these Options was 7.8 years.
12. TENDER OFFER
On May 5, 1995, the Fund commenced a tender offer for up to
10,000,000 shares of its stock at a price of $1.70 per share. The
tender offer expired at midnight on June 6, 1995. The trading price
of the Fund's stock on the last day prior to commencement of the
tender offer was $1.31 per share. The tender offer resulted in the
purchase by the Fund of 9,309,747 shares for a total purchase price
of $15,826,570. The shares purchased pursuant to the tender offer
have been excluded effective June 6, 1995 when calculating Net Income
Per Share of Common Stock Based on Weighted Average Number of Shares
Outstanding.
13. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts reported for income
tax purposes at December 31, 1996, are as follows:
Deferred tax assets:
Loans receivable. . . . . . . . . . . . . . . .$ 110,550
Mortgage loans in substantive foreclosure . . . 14,463,920
Foreclosed real estate held for sale, net . . . 4,163,988
Investment in partnership . . . . . . . . . . . 5,474,528
Investment in real estate venture . . . . . . . 2,331,465
Net operating loss carry forwards . . . . . . . 26,167,386
------------
Sub-total . . . . . . . . . . . . . . . . . . . 52,711,837
Less valuation allowance for
deferred tax assets . . . . . . . . . . . . .(37,205,801)
------------
Total deferred tax assets . . . . . . . . . . . 15,506,036
Deferred tax liabilities:
Note payable. . . . . . . . . . . . . . . . .(15,506,036)
------------
Net deferred tax assets . . . . . . . . . . . .$ --
============
As of December 31, 1996, the Fund had net operating loss carry
forwards of approximately $40,039,000 which expire as follows:
$18,817,000 in 2005; $11,647,000 in 2006; $281,000 in 2007;
$2,981,000 in 2008; $4,086,000 in 2009; $1,197,000 in 2010; and
$1,030,000 in 2011.
As of December 31, 1996, a consolidated subsidiary of the Fund
had net operating loss carry forwards of approximately $25,054,000
which expire as follows: $19,294,000 in 2007; $5,453,000 in 2008;
$84,000 in 2009; $113,000 in 2010; and $110,000 in 2011.
BANYAN STRATEGIC LAND FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
14. LITIGATION
On June 16, 1994, Coastal Group, Inc. brought an action against
Westholme Partners, (an entity in which the Fund has a limited
partnership interest), Bank of America (f/k/a Continental Bank, N.A.)
("CINB"), BMC Westholme Corp., (a wholly owned subsidiary of the
Fund); the Anden Group ("Anden"), William A. Brandt, Jr. and Kent
Kneblekamp in the New Jersey Superior Court, Middlesex County. The
case was subsequently removed to the United States District Court for
the District of New Jersey and assigned case # 94-3010. The case
involves a real estate development project located in New Jersey
known as "Winding River."
BMC Westholme Corp. was served with Summons and Complaint in
June of 1994, but was not actively involved in the various motions
and other procedural matters which extended for approximately thirty
months. On February 10, 1997, BMC Westholme Corp. filed its Answer
and began to take a more active role in the case.
The plaintiff's complaint has been substantially reduced by
favorable rulings, entered October 3, 1996, on various motions to
dismiss whereby ten of plaintiff's sixteen counts were dismissed and
another count was limited in scope. The complaint now alleges breach
of contract, unjust enrichment, breach of the implied covenant of
good faith and fair dealing, fraudulent transfer and also seeks
relief under a theory of promissory estoppel and requests the
creation of a constructive trust for the benefit of plaintiff.
The case arises from a failed development and a subsequent
foreclosure filed by defendant CINB. The plaintiff contends, among
other things, that CINB and BMC Westholme conspired with Anden to
deprive the plaintiff of its interest in the Winding River project,
damaging plaintiff's reputation as a homebuilder and causing it to
lose business opportunities. The amount in controversy exceeds $6
million, although the Fund believes that if there is any liability to
the plaintiffs in this matter, it rests with defendants other than
BMC Westholme Corp. The case is currently in the discovery phase,
with a series of depositions scheduled in the first week of April,
1997.
The ultimate outcome of this matter cannot be determined at this
time, however, in the opinion of management of the Fund, the eventual
outcome of this matter will not have a material adverse effect on the
financial position of the Fund. The financial statements do not
include any adjustments for liability, if any, arising from this
matter.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
BANYAN STRATEGIC LAND FUND II'S FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 145,335
<SECURITIES> 0
<RECEIVABLES> 1,153,821
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 264,156
<PP&E> 14,912,856
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,763,880
<CURRENT-LIABILITIES> 299,618
<BONDS> 0
<COMMON> 16,464,262
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,763,880
<SALES> 0
<TOTAL-REVENUES> 76,632
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,654,565
<LOSS-PROVISION> (2,475)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,575,458)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,575,458)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,575,458)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
</TABLE>
