UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 1-9885
Banyan Mortgage Investment Fund
(Exact name of Registrant as specified in its charter)
Delaware 36-3465359
(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)
Registrant's telephone number, including area code (312) 553-9800
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES (x). NO ( ).
Shares of common stock outstanding as of November 13, 1996: 47,307,527.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
1996 1995
ASSETS
Cash and Cash Equivalents $ 2,908,740 $ 316,012
Interest Receivable on
Cash and Cash Equivalents 33,698 ---
Repair, Improvement and Real
Estate Tax Escrows 676,617 775,754
------------ ------------
3,619,055 1,091,766
------------ ------------
Investment in Real Estate:
Land 55,322,493 55,379,003
Developments in Progress 30,874,934 30,872,769
Real Estate Held for Sale 10,003,846 17,176,845
------------ ------------
Net Investment in
Real Estate 96,201,273 103,428,617
------------ ------------
Net Investment in Real
Estate Venture --- 1,097,363
Deferred Financing Costs
(Net of Accumulated
Amortization of $647,345
and $399,831 for 1996 and
1995, respectively) 2,009,425 909,365
Other Assets 1,459,517 2,606,403
------------ ------------
Total Assets $103,289,270 $109,133,514
============ ============
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Liabilities
Accounts Payable and
Accrued Expenses $ 1,197,620 $ 1,686,511
Interest Payable 397,413 1,268,553
Real Estate Taxes Payable 115,088 384,500
Mortgage Loans Payable 34,171,494 33,625,737
------------ ------------
Total Liabilities 35,881,615 36,965,301
------------ ------------
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 (CONTINUED)
(UNAUDITED)
1996 1995
Stockholders' Equity
Shares of Common Stock,
$0.01 Par Value,
100,000,000 Shares
Authorized, 47,327,627
Shares Issued 351,713,450 348,205,447
Accumulated Deficit (284,294,479) (276,025,918)
Treasury Stock, at Cost,
20,100 Shares of Common
Stock (11,316) (11,316)
------------ ------------
Total Stockholders' Equity 67,407,655 72,168,213
------------ ------------
Total Liabilities and
Stockholders' Equity $103,289,270 $109,133,514
============ ============
Book Value Per Share of
Common Stock (47,307,527
and 39,822,304 Shares
Outstanding for 1996 and
1995, respectively) $ 1.42 $ 1.81
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
INCOME
Interest on Cash and Cash
Equivalents $ 124,648 $ 164,037
Operating Property Income 232,094 1,010,011
----------- ------------
Total Income 356,742 1,174,048
----------- ------------
EXPENSES
Expenses From Property
Activities:
Operating Property Expenses 259,857 342,135
Development Property Expenses 1,681,862 1,104,937
Repairs and Maintenance 91,088 138,992
Real Estate Taxes 377,755 239,133
Depreciation 16,211 308,928
----------- ------------
Total Expenses From Property
Activities 2,426,773 2,134,125
----------- ------------
Other Expenses:
Stockholder Expenses 131,417 261,638
Directors' Fees, Expenses
and Insurance 243,065 360,547
Other Professional Fees 1,013,525 160,532
General and Administrative 1,446,242 1,010,822
Recovery of Losses on
Mortgage Loans, Notes
and Interest Receivable (425,395) (495,591)
Interest Expense and Amorti-
zation of Deferred Loan
Costs 5,010,977 1,916,817
----------- ------------
Total Other Expenses 7,419,831 3,214,765
----------- ------------
Total Expenses 9,846,604 5,348,890
----------- ------------
Operating Loss (9,489,862) (4,174,842)
Net Income (Loss) From
Operations of Real Estate
Venture 947,420 (158,361)
Gain on Dispositions of
of Real Estate 273,881 4,390
----------- ------------
Net Loss $(8,268,561) $ (4,328,813)
=========== ============
Net Loss Per Share of Common
Stock (Based on Weighted
Average Number of Shares
Outstanding of 43,454,694
and 39,753,225 during 1996
and 1995, respectively) $ (0.19) $ (0.11)
=========== ============
The accompanying notes are an integral part of the consolidated financial
statements.
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
INCOME
Interest on Cash and Cash
Equivalents $ 59,236 $ 21,525
Operating Property Income --- 209,978
----------- -----------
Total Income 59,236 231,503
----------- -----------
EXPENSES
Expenses From Property
Activities:
Operating Property Expenses --- 131,734
Development Property
Expenses 608,653 337,804
Repairs and Maintenance 19,213 40,489
Real Estate Taxes 143,951 79,726
Depreciation 5,404 102,976
----------- -----------
Total Expenses From Property
Activities 777,221 692,729
----------- -----------
Other Expenses:
Stockholder Expenses 20,724 24,959
Directors' Fees, Expenses
and Insurance 82,000 106,077
Other Professional Fees 363,558 33,089
General and Administrative 453,926 380,861
Recovery of Losses on
Mortgage Loans, Notes
and Interest Receivable (6,423) ---
Interest Expense and Amorti-
zation of Deferred Loan
Costs 1,494,966 596,519
----------- -----------
Total Other Expenses 2,408,751 1,141,505
----------- -----------
Total Expenses 3,185,972 1,834,234
----------- -----------
Operating Loss (3,126,736) (1,602,731)
Net Loss from Operations
of Real Estate Venture (33,910) (67,645)
Gain (Loss) on Dispositions
of Real Estate 210,790 (3,168)
----------- -----------
Net Loss $(2,949,856) $(1,673,544)
=========== ===========
Net Loss Per Share of Common
Stock (Based on Weighted
Average Number of Shares
Outstanding of 47,307,527
and 39,774,530 during 1996
and 1995, respectively) $ (0.06) $ (0.04)
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<CAPTION>
Common Stock Accumulated Treasury
Shares Amount Deficit Stock Total
<S> <C> <C> <C> <C> <C>
Stockholders'
Equity,
December 31,
1995 39,842,404 $348,205,447 $(276,025,918) $(11,316) $72,168,213
Issuance of
Stock 7,466,666 3,500,000 --- --- 3,500,000
Award Shares
Issued 18,557 8,003 --- --- 8,003
Net Loss --- --- (8,268,561) --- (8,268,561)
---------- ------------ ------------- -------- -----------
Stockholders'
Equity,
September 30,
1996 47,327,627 $351,713,450 $(284,294,479) $(11,316) $67,407,655
========== ============ ============ ======== ===========
<FN> The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
CASH FLOWS FROM OPERATING
ACTIVITIES:
NET LOSS: $(8,268,561) $(4,328,813)
Adjustments to Reconcile Net
Loss to Net Cash Used In
Operating Activities:
Depreciation 16,211 308,928
Amortization of Deferred
Loan Costs 247,514 248,385
Provision (Recovery) for Bad
Debts 56,000 (6,000)
Gain on Disposition of
Real Estate (273,881) (4,390)
Net (Income) Loss From
Operations of Real Estate
Venture (947,420) 158,361
Deferred Interest Payable on
Mortgage Loans --- 1,014,751
Net Change In:
Interest Receivable on Cash
and Cash Equivalents (33,698) 55,354
Real Estate Tax Escrow (28,681) (31,597)
Other Assets (583,421) 191,903
Accounts Payable and
Accrued Expenses (488,891) 695,091
Real Estate Taxes
Payable (269,412) 200,929
Interest Payable 153,911 987,764
----------- -----------
Net Cash Used In
Operating Activities (10,420,329) (509,334)
----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds From Sale of
Real Estate 9,370,614 1,012,150
Increase in Developments in
Progress (211,293) (6,011,317)
Decrease (Increase) in
Repair and Improvement
Escrow 127,818 (165,636)
Net, Distributions From
Real Estate Venture 2,044,783 15,901
Purchases of Land and
Property Improvements --- (212,968)
----------- -----------
Net Cash Provided by (Used In)
Investing Activities 11,331,922 (5,361,870)
----------- -----------
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (CONTINUED)
(UNAUDITED)
1996 1995
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payment of Mortgage Loans
Payable (479,294) (1,040,645)
Payment of Deferred
Financing Costs (1,347,574) ---
Issuance of Common Stock
and Award Shares of
Common Stock 3,508,003 42,951
----------- -----------
Net Cash Provided by (Used In)
Financing Activities 1,681,135 (997,694)
----------- -----------
Net Increase (Decrease) in
Cash and Cash Equivalents 2,592,728 (6,868,898)
Cash and Cash Equivalents at
Beginning of Period 316,012 8,040,629
----------- -----------
Cash and Cash Equivalents at
End of Period $2,908,740 $ 1,171,731
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
Readers of this quarterly report should refer to Banyan Mortgage
Investment Fund's (the "Fund") audited consolidated financial statements for the
year ended December 31, 1995, which are included in the Fund's 1995 Annual
Report, as certain footnote disclosures which substantially duplicate those
contained in such audited statements have been omitted from this report. In the
opinion of management, all adjustments necessary for a fair presentation have
been made to the accompanying consolidated financial statements as of September
30, 1996 and for the nine months and quarters ended September 30, 1996 and 1995.
These adjustments made to the financial statements, as presented, are all of a
normal recurring nature to the Fund, unless otherwise indicated.
1. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements, as of September 30,
1996, include the accounts of the Fund, its wholly-owned subsidiaries and
Chapman's Landing, Southbridge, Wayside Village and Laguna Seca Ranch
partnerships in which the Fund owns, indirectly through wholly-owned
subsidiaries, controlling 50% general partnership interests. Losses from these
partnerships are allocated to the minority interest partners to the extent of
their respective investments in the partnerships. Since the minority partners
have made no investment in the partnerships and are not obligated to fund losses
in excess of their investment, their minority interest in each instance
currently has no value. Therefore, all of the above partnerships' losses as of
September 30, 1996 have been allocated to the Fund. Profits may be allocated pro
rata to the minority interest partners to the extent that net proceeds generated
from the projects exceed priority returns payable to the Fund. All intercompany
balances and transactions have been eliminated in consolidation. The
consolidated financial statements also include the Fund's 50% interest in the
VST/VMIF Oakridge Partnership accounted for on the equity method.
2. PLAN OF MERGER, MORTGAGE LOANS PAYABLE, AND BASIS OF PRESENTATION
On April 12, 1996, the Fund entered into an Agreement and Plan of Merger,
which was subsequently amended on May 20, and September 17, 1996, (the "Amended
Merger Agreement") with RGI Holdings, Inc. ("RGI Holdings") and its wholly owned
subsidiary, RGI U.S. Holdings,Inc. ("RGI U.S." or collectively "RGI"). Closing
of the merger is subject to certain conditions including a favorable vote by the
holders of a majority of the issued and outstanding shares of the Fund's stock.
On May 21, 1996, RGI Holdings (i) paid $3,500,000 to acquire 7,466,666 shares
($0.46875 per share) or approximately 16% of the Fund's outstanding common stock
(which amount has been included in the Fund's weighted average number of shares
outstanding as of the date hereof) (ii) purchased the loan made to the Fund in
October, 1994 by a group of lenders for which Morgens, Waterfall, Vintiadis &
Co., Inc. served as agent (the "Morgens Loan") and (iii) purchased the loan made
to a subsidiary of the Fund by Societe Generale ("SoGen Loan") which is secured
by a first mortgage on the Fund's Wayside property and a portion of the
Southbridge property. In addition, Mr. Kenneth Uptain, President of RGI
Holdings and RGI U.S., was named to fill a vacant seat on the Fund's Board of
Directors.
Both the Morgens Loan and the SoGen Loan were in default, and concurrent
with the purchase of these loans by RGI Holdings, the Fund and RGI Holdings
entered into agreements modifying each loan. Under these modification
agreements, RGI Holdings has agreed that, among other things, prior to December
31, 1996 it will not accelerate either the Morgens Loan or the SoGen Loan nor
foreclose on any collateral securing such loans based upon (i) any events of
default occurring before May 15, 1996; or (ii) any non-monetary defaults
occurring after May 15, 1996 but before the merger is completed or the Amended
Merger Agreement is terminated; or (iii) as a result of the execution of the
Amended Merger Agreement as described above.
RGI Holdings also agreed to capitalize and add to the outstanding
principal balance of the Morgens Loan the interest payment due on January 1,
1996 in the approximate amount of $1,025,000. The outstanding principal balance
of the Morgens Loan as of September 30, 1996 was $24,258,788. Additionally, if
the Merger is consummated, the terms of the Morgens Loan will be further
modified to reduce the interest rate on the Morgens Loan from 17.5% per annum to
Prime plus 2% per annum. The merger will also result in the real estate assets
owned by RGI U.S. being merged into the Fund. The proceeds from the subsequent
sales of any of the RGI U.S. real estate assets can then be used to repay the
Morgens Loan. Finally, the original Morgens Loan provisions that required the
outstanding principal balance to be reduced to $11,000,000 by September 30, 1997
and prohibited prepayment of the entire loan prior to September 30, 1996 will be
eliminated and the entire loan will become due and payable on September 30,
1998. A portion of the proceeds from the sale of stock to RGI were used to pay
(i) interest for the period from January 1, 1996 through March 31, 1996, which
was due April 1, 1996, in the amount of approximately $1,179,000 and (ii)
$500,000 loan restructuring fee. In the event that the merger is not
consummated on or before December 31, 1996 (as the same may be extended by
mutual agreement) or if RGI is unable to obtain the consent of its lender to a
subordination of the lien created in favor of RGI for the purpose of placing
construction financing on any of the Fund's development projects, then the loan
restructuring fee will be applied against future interest payments due. As of
September 30, 1996 the Fund had treated the $500,000 fee paid to RGI Holdings as
a deferred financing cost but it is not being amortized pending the vote on the
merger and completion of construction financing for the Fund's various
development projects. As part of RGI Holding's acquisition of the Morgens Loan,
outstanding warrants to purchase 4,380,000 shares of common stock of the Fund
which were issued to the previous lenders were cancelled. Also, RGI allowed the
Fund to utilize for general business purposes, without requiring application
against debt, the net proceeds from the sale of the Oakridge and 120 S. Spalding
properties, in the aggregate amount of approximately $8,683,000. RGI Holdings
will, however, require the Fund to apply exclusively for the repayment of debt
any proceeds generated from the sale or joint venture development of the Laguna
Seca Ranch and 50% of the net cash proceeds generated by developed lot or raw
land sales at the Southbridge, Wayside Village and Chapman's Landing properties.
Upon acquisition of the SoGen Loan by RGI Holdings, the $287,702 of
interest due as of December 31, 1995 was capitalized and added to the
outstanding loan balance of $6,360,000 which was partially offset by cash
proceeds from lot sales at Wayside Village that were held in escrow by SoGen.
The principal balance of the loan as of September 30, 1996 was $6,397,702. The
principal balance of the loan, after adding interest, was reduced by
approximately $317,000 which primarily represents the net proceeds released from
escrow by SoGen in respect to the sale of four lots at the Wayside property
which occurred on April 9, 1996. The outstanding principal balance subsequent
to the modification is $6,330,706. Using a portion of the proceeds from the
sale of stock to RGI, the Fund paid interest for the period January 1, 1996
through April 30, 1996 in the amount of $319,782 and also paid late fees and
legal fees in the amount of $302,708. No additional payments of principal or
interest are required until the earlier of (i) fifteen days after the merger
closing, (ii) termination of the Amended Merger Agreement or (iii) the merger
closing deadline of December 31, 1996. The maturity date of the SoGen Loan is
December 31, 1997. The $2,000,000 revolving loan agreement, executed by SoGen
and the Fund in 1994, under which no funds were ever disbursed, was cancelled
and released. The Fund and SoGen also exchanged mutual releases of liability.
Subject to the approval the holders of a majority of the shares of the
Fund's issued and outstanding stock of the Fund's stockholders, RGI U.S. will
be merged with and into the Fund, the Fund's certificate of incorporation will
be amended to convert each twenty-five shares issued and outstanding of the
Fund's common stock into one issued and outstanding share (the "Reverse
Split"). Additionally, the name of the Fund will be
changed to Legend Properties, Inc. After giving effect to
the Reverse Split, all outstanding shares of RGI U.S.
will be converted into 4,386,986 shares of the Fund's common stock including the
$3,500,000 issued in private placement to RGI. As a result, the percentage of
the Fund's common stock that RGI Holdings will own if the merger is consummated
will be approximately 75%. The merger and related issues as discussed above
will be presented for a stockholder vote to all stockholders of record at the
close of business on October 9, 1996 at the Fund's Annual Meeting which has been
scheduled for November 26, 1996.
The accompanying consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and the
classification of assets that would result from the default under the Morgens
Loan or the SoGen Loan in consideration of the completion of the initial closing
of the merger. Specifically, the carrying amount of the Fund's development real
estate continues to be evaluated for impairment based on recognition and
measurement criteria governing assets to be used in operations without regard to
the defaults. If the merger is not completed the classification of the Fund's
development real estate may be changed to "held for disposal" thereby possibly
necessitating a valuation allowance to reflect such assets at current disposable
fair market value.
3. RECLASSIFICATIONS
Certain reclassifications have been made to the previously reported 1995
consolidated financial statements in order to provide comparability with the
1996 consolidated financial statements. The reclassifications have not changed
the 1995 operating results.
4. TRANSACTIONS WITH AFFILIATES
Administrative costs, primarily salaries and general and administrative
expenses, are incurred on behalf of the Fund by Banyan Management Corp. ("BMC"),
which is reimbursed by the Fund at cost. 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 the total number of BMC personnel hours. The
Fund's allocable share of costs for the nine months ended September 30, 1996 and
1995 aggregated $1,068,505 and $835,765, 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 September 30, 1996,
the Fund had a net payable due to BMC of $40,467. The net payable is included
in the accounts payable and accrued expenses in the Fund's consolidated balance
sheet.
5. INVESTMENT IN REAL ESTATE VENTURE
On February 5, 1996, the VST/VMIF Oakridge Partnership (the "Oakridge
Venture") of which the Fund owns a 50% interest through a wholly-owned
subsidiary, sold a total of 180 acres to an unaffiliated party for approximately
$4,600,000. In addition, on March 1, 1996, the Oakridge Venture sold an
additional 25-acre parcel to an unaffiliated party for approximately $2,200,000.
The Oakridge Venture utilized the proceeds to repay a first mortgage loan
collateralized by the Oakridge property in the amount of $1,916,617. After
repayment of the mortgage loan, interest and other closing costs, the Oakridge
Venture received net proceeds from the aforesaid sales of $4,180,505 (including
$467,928 of deposits received during 1995) of which $2,090,253 was distributed
to the Fund in respect of its 50% interest in the Oakridge Venture. The Fund
recognized a gain equal to approximately $1,051,000. On August 25, 1996 the
Oakridge Venture sold the remaining five-acre parcel of the Oakridge property.
The sale generated net cash proceeds after closing costs and other prorations of
$424,254 of which $212,127 was distributed to the Fund in respect of its 50%
interest. The Fund recognized a loss on the sale equal to approximately $
28,000. As a result of the sale the Oakridge Venture has no further assets and
any known liabilities.
6. RECOVERY OF LOSSES ON LOANS, NOTES AND INTEREST RECEIVABLE
For the nine months ended September 30, 1996 and 1995 the Fund received
cash distributions of $444,663 and $566,783, respectively, in respect of its
interests in two liquidating trusts established for the benefit of the unsecured
creditors (including the Fund) of VMS Realty Partners and its affiliates
("VMS"). The Fund has treated $425,395 and $495,591, respectively, of these
amounts as a recovery of amounts previously charged to losses on mortgage loans,
notes and interest receivable in its consolidated statement of income and
expenses. As of December 31, 1995, a total of $127,468 of the 1995 distributions
had been recorded as a liability to the Class Action Settlement Fund
representing the Fund's share of amounts due under the terms of the previously
settled VMS securities litigation. This amount in addition to $19,268 due from
the distributions received during 1996 was paid by the Fund to the Class Action
Settlement Fund on July 28, 1996.
7. LITIGATION AND CONTINGENCIES
Illinois Litigation
On September 1, 1995, an action was filed in the Circuit Court of Cook
County, Illinois entitled: Monterey County Partners et al v. BMIF Monterey
County Limited Partnership et al; (the "Illinois Litigation"). BMIF Monterey
County Limited Partnership (the "Ownership Partnership") is controlled by a
subsidiary of the Fund and it holds the ownership interest in the Laguna Seca
project. The complaint seeks: (i) the removal of the Fund's wholly-owned
subsidiary, BMIF Monterey County Corp. as the general partner of the Ownership
Partnership; (ii) declaratory relief that BMIF Monterey County Corp. is not
entitled to any "priority return" or "preferred return" on its capital account
in the Ownership Partnership; (iii) avoidance of an alleged fraudulent transfer
whereby the Ownership Partnership became the owner of the Laguna Seca Ranch
project after the default in 1991 on the Fund's former mortgage loan; (iv) an
accounting; and (v) a constructive trust to be created for the benefit of one of
the plaintiffs.
The Fund filed an Answer, Counterclaim and Third Party Complaint on March
29, 1996. All parties have been served with and have answered initial discovery
requests, all scheduled depositions have been completed and the litigants are
presently producing documents and responding to certain supplemental written
discovery.
The Plaintiffs later filed a Third Amendment Complaint which purports to
add Mr. Levine and Banyan Management Corp. as parties and also adds the Fund and
RGI Holdings Inc. as parties. On August 9, 1996, the Fund answered certain
counts of the Third Amended Complaint and responded to other counts by moving to
strike and dismiss or for judgment. On November 12, 1996, the Court on the
defendants' motions, dismissed with prejudice the counts in Plaintiffs'
Complaint which sought (i) removal of the general partner; (ii) avoidance of a
fraudulent transfer and creation of a $4,800,000 capital account in favor of the
plaintiffs and (iii) avoidance of the deed of trust and guarantee in favor of
the Fund's lenders on a theory of fraudulent transfer. The Court also dismissed
two counts in Plaintiffs' Complaint which sought recovery based upon a theory of
conspiracy to interfere with a contractual relationship or business advantage,
but gave the plaintiffs until December 3, 1996 to attempt to replead these
counts. Finally, the Court, on defendant's motion, ordered the partnership
dissolved.
A trial on the issues remaining after the court order of November 12, 1996
will commence on January 13, 1997.
California Litigation
On October 10, 1995, an action was filed in the Superior Court of Monterey
County, California entitled: Monterey County Partners, et al. v. BMIF Monterey
County Limited Partnership, et al; (the "California Litigation").
The California Litigation alleges fraudulent transfer and conspiracy and
seeks the following as remedies: (i) to set aside the Deed of Trust and the
obligations of the Ownership Partnership under a guaranty provided for in the
Morgens Loan, (ii) to quiet title to the Laguna Seca Ranch project, declaring
null and void the interest of the various defendant lenders which arise under
the Deed of Trust and (iii) an award of attorneys' fees and costs.
The California Court encouraged the parties to attempt to agree upon a
schedule for conducting discovery and a trial in the Illinois Litigation while
the California Litigation would remain in suspense. On September 13, 1996, the
plaintiffs presented a motion to the California Court to enforce a prior
stipulation and to set a trial date in California. On September 17, 1996 the
California Court denied plaintiffs's motion and set a status date for January
31, 1997. None of the defendants have answered the California complaint.
The Fund believes that the Illinois Litigation and the California
Litigation are totally without merit and intends to vigorously defend both cases
as well as vigorously prosecute the counterclaim and the third complaint in the
Illinois Litigation. The partnership agreement which creates and governs the
Ownership Partnership requires an unsuccessful litigant or its representative
whose claim is based upon or related to the partnership agreement to pay the
reasonable attorneys' fees of its opponent. The Fund intends to seek
reimbursement of all attorneys' fees expended or incurred in defense of the
Illinois Litigation and the California Litigation.
Delaware Litigation
On October 31, 1996, a class action lawsuit was filed in Delaware state
court by two of the Fund's stockholders against the Fund and certain of its
directors and officers, including Leonard G. Levine, Neil D. Hansen, Robert G.
Higgins, Walter E. Auch, Sr. and Robert M. Ungerlieder. The complaint seeks,
among other things, to require an auction of the Fund, to enjoin or rescind the
proposed merger with RGI/U.S. Holdings, Inc. ("RGI") and monetary damages. Upon
the plaintiffs' motion, discovery in the litigation was placed on an expedited
basis and is currently proceeding. A hearing on the plaintiffs' motion for a
preliminary injunction is scheduled for November 21, 1996. The Fund believes
the suit is without merit and that the Fund and the individual defendants intend
to vigorously contest the allegations.
8. DISPOSITION OF REAL ESTATE
On April 22, 1996 the Fund sold the 120 S. Spalding property to an
unaffiliated third party for $7,450,000. After payment of selling commissions of
$186,250 and transfer taxes and title charges of $23,290 the Fund received net
proceeds of $7,240,460. The Fund recorded a net gain on disposition of real
estate of $67,460.
During the nine months ended September 30, 1996, the Fund sold four single
family lots to a home developer at the Fund's Wayside Village Development. The
sale of these lots generated gross sales proceeds of $261,556. After payment of
closing costs of $288, the Fund received net cash proceeds of $261,268 related
to the sales. The sale of these lots resulted in an aggregate net loss on
disposition of real estate of $4,369.
During the nine months ended September 30, 1995, the Fund sold 17 single
family lots to a home developer at the Fund's Wayside Development. The sale of
these lots generated gross sales proceeds of $1,029,830. After payment of
closing costs of $17,680, the Fund received net cash proceeds of $1,012,150
related to the sales. The sale of these lots resulted in an aggregate net gain
on disposition of real estate of $4,390.
9. AWARD SHARES
On June 4, 1996, the Fund issued 18,557 shares of its common stock to
Leonard G. Levine, its President, in payment of incentive compensation earned by
Mr. Levine for the fiscal year ended December 31, 1995. Pursuant to Mr.
Levine's amended employment agreement, all incentive amounts earned subsequent
to January 1, 1993 are paid 80% in cash and 20% in shares of the Fund ("Award
Shares"). The number of Award Shares issued is based on the average closing
price of the Fund's common stock for the last five business days of the year in
which the incentive is earned. Mr. Levine's incentive compensation earned
during 1995 was $40,013. The cash portion equal to $32,010 was paid to Mr.
Levine on August 16, 1996. On June 4, 1996 18,557 Award Shares
were issued and valued at a price equal to $0.43125 per
share representing $8,003. The Award Shares are subject
to restrictions on transfer and are held in escrow by the
Fund, pending satisfaction of the vesting requirements included in Mr. Levine's
contract which provides that the shares will fully vest on 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.
Mr. Levine will, however, lose his right to these Award Shares if he is not
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 is
entitled to all dividends paid on shares held by the Fund for his benefit. The
Award Shares are included in the total shares outstanding of the Fund effective
June 4, 1996 for the purpose of calculating Net Income Per Share of Common Stock
based on the Weighted Average Number of Shares Outstanding.
10. OTHER ASSETS
On November 19, 1991 the Fund entered into an agreement with the senior
lender ("Citibank") regarding the Fund's subordinated loan collateralized by the
950 L'Enfant Plaza (the "Property"). The Property is an eight-story office
building located in downtown Washington, D.C. with 232,000 square feet of net
rentable space with two parking levels located in a four-building complex called
L'Enfant Plaza. The agreement provided for the Fund to receive 2.5% of the
monthly cash flow from the operation of the Property, which provided
approximately $150,000 in cash flow to the Fund annually, and 4% of the gross
sales proceeds upon sale of the Property. In return, the agreement required the
Fund to release its mortgage loan and consent to Citibank's foreclosure
against the borrower. The Property was sold by Citibank to an unaffiliated
third party on June 28, 1996 for approximately $46,750,000. On August 15, 1996,
the Fund received its initial distribution in respect of its share of the sales
proceeds from the Property in the amount of $1,868,886. The sale resulted in
the Fund's recognition of gain on disposition of its carried interest in the
Property in the amount of approximately $210,800. The Fund's interest in the
Property had been recorded on the Fund's Consolidated Balance Sheet as an Other
Asset. The Fund retained its 4% interest in certain reserves which were
required to be set aside at the time of closing. The Fund anticipates receipt
of its final distribution in respect of this transaction in the amount of
approximately $50,000 on or before June 30, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Since early 1990, the Fund's liquidity and capital has been provided
primarily from foreclosed asset dispositions and proceeds from financings
collateralized by the Fund's assets and to a lesser extent from property
operations and distributions in respect of the Fund's interest in two
liquidating trusts. These sources have not, however, produced enough capital to
permit the Fund to continue implementing its business plans as described below
for each of its properties and to fund ongoing operating expenses. As described
below, delays in the entitlement and zoning process, most of which were beyond
the Fund's control, caused the Fund to incur additional costs and expenses over
and above those originally contemplated. These delays further reduced the Fund's
capital since it was unable to sell certain parcels which the Fund had
contemplated selling to supplement its capital needs. In addition, the Fund's
business plan for the Wayside Village parcel was negatively impacted by the
Fund's unsuccessful attempt to draw funds under the revolving line of credit
previously agreed to with Societe Generale,
Southwest Agency (the "SoGen Loan"). The Fund was not
able to draw on the line of credit while it awaited SoGen's
approval of a form of a proposed sales contract and a subordination agreement
with a lot purchaser, a process which took approximately nine months. At the
same time, however, a dispute arose over SoGen's obligation to reimburse, under
the line of credit, costs incurred by the Fund at the Wayside Village parcel.
This dispute was never resolved and resulted in the cancellation of the sales
contract and SoGen's refusal to fund any money under the revolving line of
credit. As a result of this and other factors, the Fund's board directed
management to increase its efforts to secure additional capital. These efforts
culminated in the proposed merger of RGI U.S. Holdings, Inc. ("RGI/U.S.") with
and into the Fund (the "Merger").
The board of directors of each of the Fund and RGI/U.S. have approved the
Merger and the Agreement and Plan of Merger, dated as of April 12, 1996 and as
subsequently amended on May 20 and September 7, 1996 by and among RGI/U.S., RGI
Holdings, Inc. ("RGI Holdings") and the Fund (the "Amended Merger Agreement").
Upon fulfillment or waiver of the conditions set forth in the Amended Merger
Agreement, at the effective time thereunder (the "Effective Time"): (i)
RGI/U.S. will be merged with and into the Fund with the Fund being the surviving
entity; (ii) the Fund's certificate of incorporation will be amended to, among
other things, convert each twenty-five shares issued and outstanding of the
Fund's common stock into one issued and outstanding share (the "Reverse Split");
and (iii) the name of the Fund will be changed to Legend Properties, Inc.
After giving effect to the Reverse Split, all of the issued and outstanding
shares of RGI/U.S. common stock, no par value per share ("RGI/U.S. Common
Stock"), will be converted into 4,386,986 newly-issued shares of the Fund's
common stock. The proposed Merger and related issues as discussed above will be
presented for a vote to all stockholders of record as at the close of business
on October 9, 1996 at the Fund's Annual Meeting which has been scheduled for
November 26, 1996.
On May 21, 1996, RGI Holdings purchased 7,466,666 shares of authorized but
unissued shares of the Fund's common stock for $.46875 per share, or an
aggregate purchase price of $3.5 million (the "Private Placement"). In
addition, RGI Holdings purchased (i) the SoGen Loan and (ii) a loan previously
made to the Fund by a group of lenders for which Morgens, Waterfall, Vintiadis &
Co., Inc. served as agent (the "Morgens Loan"). Contemporaneously with the
purchase of the loans, the Fund and RGI Holdings entered into agreements
modifying the terms of the these loans. At September 30, 1996, the outstanding
principal amounts of the Morgens Loan and the SoGen Loan were $24.3 million and
$6.4 million, respectively. If the Merger is consummated, RGI Holdings will
own approximately 75% of the Fund's outstanding common stock. If the Merger is
not consummated, RGI Holdings will own approximately 16% of the Fund's
outstanding common stock and will continue to hold approximately 90% of the
Fund's indebtedness.
In the event the Merger is consummated, in the opinion of the New York
Stock Exchange ("NYSE"), the Merger would effectively constitute an acquisition
of the Fund by RGI/U.S. Accordingly, the NYSE has advised the Fund that the
merged entity would be required to file an original listing application and
comply with the original listing criteria in order to continue the listing of
the Fund's shares on the NYSE. The Fund does not, however, believe that the
merged entity would be able to satisfy certain of the quantitative standards
imposed by the NYSE for an original listing. Therefore, the Fund has filed an
application, and, subject to satisfying certain conditions, has been approved to
include its shares of common stock for quotation on the Nasdaq SmallCap Market
("Nasdaq") if the Merger is consummated. Differences in the method of operation
between the Nasdaq and the NYSE may have an adverse effect upon individuals
attempting to purchase or sell shares of the Fund's common stock. If the Merger
is not consummated, the Fund would remain subject to the NYSE's standards for a
continued listing. In the event the Merger is not consummated, there can be no
assurance that the Fund would be able to comply with the NYSE's continued
listing standards or that the NYSE would not take steps to delist the Fund's
shares if the Fund was unable to satisfy the continued listing criteria. If the
Reverse Split is not approved at the stockholders meeting, the Fund will not
qualify for inclusion of its shares of common stock on the Nasdaq. In addition,
even if the Reverse Split is approved, there can be no assurance that the Fund's
shares of common stock will continue to trade at a Nasdaq minimum bid price of
$3.00 per share and thus the Nasdaq may take action to remove the Fund's shares
from inclusion on the Nasdaq.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents consist of cash and short-term investments. The
Fund's cash and cash equivalents balance at September 30, 1996 and December 31,
1995 was approximately $2.9 million and $316,012, respectively. This increase in
cash and cash equivalents is attributable to an increase in cash flow from
investing activities of approximately $11.3 million and cash flow from financing
activities of approximately $1.7 million. Also contributing to the increase in
cash and cash equivalents was cash flow of $425,395 from the Fund's receipt of
cash distributions in respect of its interests in two liquidating trusts and
income from property operating activities. Partially offsetting the increase in
cash and cash equivalents was the payment of expenses and capitalized items
related to the operating and development properties and the payment of the
Fund's debt obligations and operating expenses.
Cash Flows From Operating Activities: Net cash utilized in operating
activities increased by approximately $9.9 million for the nine ended September
30, 1996 to approximately ($10.4 million) from approximately ($509,334) for the
same period in 1995. This increase was due primarily to an increase in net loss
to approximately ($8.3 million) from ($4.3 million), for the nine months ended
September 30, 1996 when compared to the similar period in 1995. The increase
in net loss for the nine months ended September 30, 1996 is primarily the result
of an increase in development property expenses of $576,925 and an increase in
interest expense and deferred loan costs of approximately $3.1 million, with
respect to the Fund's SoGen Loan and Morgens Loan. The increases in these
expenses are due to the Fund's change in accounting treatment of development and
interest costs related to its development properties. For the nine months ended
September 30, 1996 the Fund has elected to treat as an expense rather than a
capitalized item, all interest related to the Morgens Loan and SoGen Loan and
other development and holding costs associated with these properties due to
delays in the infrastructure development at its Wayside Village and Chapman's
Landing projects. These development and holding costs had been capitalized and
recorded as developments in progress for the nine months ended September 30,
1995. Also contributing to the increase in cash outflow from operating
activities for the nine months ended September 30, 1996 was a decrease in
property operating activities as a result of the Fund's sale of its 120 S.
Spalding property in April 1996.
Cash Flows From Investing Activities: During the nine months ended
September 30, 1996, the Fund generated cash flow from investing activities of
approximately $11.3 million compared to a net outflow of cash for the same
period in 1995 of approximately $5.4 million. The increase in cash flow from
investing activities for the nine months ended September 30, 1996 was primarily
due to the Fund's receipt of cash proceeds of approximately $7.2 million from
the sale of the 120 S. Spalding property, the receipt of cash proceeds of
approximately $1.9 million from the disposition of its interest in the 950
L'Enfant Plaza property, the receipt of cash proceeds of approximately $261,000
from the sale of four lots at the Wayside Village development and the Fund's
receipt of its 50% share of cash proceeds from the VST/VMIF Oakridge Partnership
in the amount of approximately $2 million from the sale of 210 acres of the
Oakridge property. The Fund's outflow of cash from investing activities for the
nine months ended September 30, 1995 is primarily the result of cash
expenditures on developments in progress, purchase of land and property
improvements, and repairs and improvement escrows of approximately $6 million,
$213,000 and $166,000, respectively pursuant to the development activities
regarding the Wayside Village, Chapmans Landing and Laguna Seca Ranch
properties. Partially offsetting these cash expenditures for the nine months
ended September 30, 1995 was the receipt of approximately $1 million in cash
proceeds from the sale of lots at the Wayside Village development.
Cash Flows from Financing Activities: For the nine months ended September
30, 1996 the Fund generated cash flow from financing activities of approximately
$1.7 million compared to cash used in financing activities of approximately $1
million for the same period in 1995. The increase in cash flow from financing
activities for the nine months ended September 30, 1996 when compared to the
same period in 1995 is due primarily to the Fund's receipt of approximately $3.5
million from RGI as discussed above. Partially offsetting the receipt of these
cash proceeds in 1996 were cash expenditures by the Fund for deferred financing
costs of approximately $1.3 million associated with the restructuring of the
Morgens Loan and SoGen Loan. In addition, for the nine months ended September
30, 1996, the Fund utilized approximately $479,000 in cash proceeds which were
partially derived primarily from the sale of the four lots at Wayside Village
plus cash from its working capital resources for principal repayments on the
SoGen Loan. The net cash outflow of approximately $1 million for the nine
months ended September 30, 1995 was due to principal payments made by the Fund
on its mortgage loans collateralized by the Wayside Village and Southbridge
properties in the amounts of $477,224 and $563,421, respectively.
Management of the Fund believes that its remaining cash and cash
equivalents and proceeds from the sale of its ancillary land parcels at its
development properties should provide sufficient capital to meet its reasonably
expected liquidity needs until completion of the merger. However, the Fund's
ability to implement and complete its business plans is dependent upon its
success in obtaining construction financing. If the proposed merger with RGI is
not approved by the Stockholders of the Fund, the Fund may be required to
dispose of portions of its core assets at fair market values which may likely be
below the carrying values as of September 30, 1996, in order to retire its debt.
RESULTS OF OPERATIONS
Total income for the nine months ended September 30, 1996 and 1995 was
$356,742 and $1,174,048, respectively. Total income for the quarters ended
September 30, 1996 and 1995 was $59,236 and $231,503, respectively. This
decrease was due primarily to a decrease in operating property income. Operating
property income for the nine months ended September 30, 1996 and 1995 was
$232,094 and $1,010,011, respectively. For the quarter ended September 30, 1995,
operating property income was $209,978. There was no operating property income
for the quarter ended September 30, 1996. This decrease is attributable to the
combination of a 65% decrease in occupancy at the 120 S. Spalding property which
occurred in late March 1995 and the subsequent sale of the 120 S. Spalding
property on April 22, 1996. Also contributing to this decline for the nine
months ended September 30, 1996 when compared to the prior year period was a
decrease in interest income from cash and cash equivalents due to a decrease in
the average balance of cash available for investment during the period.
Expenses from property activities for the nine months ended September 30,
1996 and 1995 were approximately $2.4 million and $2.1 million, respectively.
For the quarters ended September 30, 1996 and 1995, the expenses from property
activities were $777,221 and $692,729, respectively. This increase was
attributable to the increase in development property expenses and real estate
tax expense. Development property expenses increased for the nine months ended
September 30, 1996 when compared to the same period in 1995 due to the decision
to treat as an expense, interest and certain other development costs including
real estate taxes incurred in 1996. These expenses had been capitalized during
the same periods in 1995. Partially offsetting these increases in other
expenses were the decreases in depreciation, repairs and maintenance expenses
and operating property expenses. No depreciation was taken on the 120 S.
Spalding building during the nine months ended September 30, 1996 as the
valuation allowance taken in the fourth quarter of 1995 had reduced the
depreciable basis of the building to zero. Repair and maintenance expense and
operating property expenses decreased for the nine months ended September 30,
1996 when compared to 1995 due to the combination of a 65% decrease in occupancy
in late March 1995 and subsequent sale on April 22, 1996 of the 120 S. Spalding
building.
Total other expenses for the nine months ended September 30, 1996 and 1995
were $7.4 million and $3.2 million, respectively. For the quarters ended
September 30, 1996 and 1995, total other expenses were $2.4 million and $1.1
million, respectively. This increase is primarily attributable to an increase of
approximately $3.1 million and approximately $898,000 in interest expense and
amortization of deferred loan costs for the nine months and quarter ended
September 30, 1996, respectively, when compared to the prior year periods due to
the Fund's election to treat as an expense all interest related to the Chapman's
Landing, Laguna Seca Ranch and Wayside Village properties during the nine month
and quarter ended September 30, 1996 periods which had been capitalized during
the same periods in 1995. Also contributing to the increase in other expenses
for the nine months and the quarter ended September 30, 1996 when compared to
the same periods in 1995, was the increase of $1,288,413 and $403,534,
respectively, in other professional fees and general and administrative
expenses. Other professional fees increased primarily due to the legal
litigation related to the Laguna Seca Ranch property (See Part II - Other
Information for further details. General and administrative expenses increased
due primarily to an increase in the 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. In addition, a significant amount of hours
were required by BMC personnel, during the nine months and quarter ended
September 30, 1996, relating to efforts to sell the remaining portion of the
Oakridge Ventures property and 120 S. Spalding as well as negotiating and
finalizing the terms of the Amended and Restated Agreement and Plan of Merger.
Partially offsetting other expenses of the Fund, for the nine months ended
September 30, 1996 and 1995, was the receipt of cash distributions in the amount
of $444,663 and $566,783, respectively, in respect of its interests in two
liquidating trusts established for the benefit of the unsecured creditors
(including the Fund) of VMS Realty Partners and its affiliates ("VMS"). For the
nine months ended September 30, 1996 and 1995 the Fund has treated $425,395 and
$495,591, respectively, of these amounts, as a recovery of amounts previously
charged to losses on loans, notes and interest receivables. A total of $127,471
of the 1995 distributions had been treated, as of December 31, 1995 as a
liability to the Class Action Settlement Fund representing the Fund's share of
amounts due as required per the terms of the previously settled VMS securities
litigation. During the quarter ended September 30, 1996, a cash distribution
was received by the Fund pursuant to its interest in one of the liquidating
trusts in the amount of $25,690 of which $19,267 was required to be paid to the
Class Action Settlement Fund. On July 28, 1996, the Fund paid a total of
$146,738 to the Class Action Settlement Fund fulfilling all obligations to this
Fund. The Fund does not anticipate receiving significant distributions pursuant
to these interests in the future. Further offsetting these increases in other
expenses were the decreases in stockholder expenses and directors' fees,
expenses and insurance. Stockholder expenses for the nine months and quarter
ended September 30, 1996 decreased when compared to the same periods in 1995 due
to the decision to delay the annual meeting and its proxy mailing and printing
costs associated with the Fund's annual reports and meeting until the merger, as
discussed above, can be voted on by the Fund's Stockholders. Directors fees,
expenses and insurance for the nine months and quarter ended September 30, 1996
decreased when compared to the same periods in 1995 due to improved premium
rates received for directors' and officers' insurance.
The Fund recognized net income of $947,420 representing its share of the
Oakridge Venture's income for the nine months ended September 30, 1996 as
compared to a net loss of ($158,361) for the same period in 1995. The increase
in the income for 1996 when compared to 1995 is primarily attributable to the
$1,023,036 gain on the sale of 210 acres during the first nine months of 1996.
Partially offsetting this gain was a $75,616 loss on operations for the nine
months ended September 30, 1996. The Fund's share of the Oakridge Venture's net
loss for the quarters ended September 30, 1996 and 1995 were ($33,910) and
($67,645), respectively. The decrease in net loss for the quarter ended
September 30, 1996 is primarily attributable to the sale of portions of the
property during 1995 and 1996 which reduced the operating costs of the property.
During the nine months and quarter ended September 30, 1996 the Fund
recognized a gain on disposition of real estate of $273,881 and $210,790,
respectively. The gain for the nine months ended September 30, 1996 consists of
a $210,790 gain on the Fund's disposition of its interest in 950 L'Enfant Plaza
, a $67,460 gain on the disposition of 120 S. Spalding and a ($4,369) loss
related to the sale of four lots at the Wayside Village property. For the nine
months and quarter ended September 30, 1995, the Fund recognized a gain (loss)
on the disposition of real estate in the amount of $4,390 and ($3,168),
respectively, related to lot sales at the Wayside Village property.
The combination of the above changes resulted in a net loss of $8,268,561
($0.19 per share) for the nine months ended September 30, 1996 as compared to a
net loss of $4,328,813 ($0.11 per share) for the same period in 1995. For the
quarters ended September 30, 1996 the Fund recorded net loss of $2,949,856
($0.06 per share) compared to net loss of $1,673,544 ($0.04 per share) for the
same period in 1995
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Illinois Litigation
On September 1, 1995, an action was filed in the Circuit Court of Cook
County, Illinois entitled: Monterey County Partners et al v. BMIF Monterey
County Limited Partnership et al; 95 CH 8456 (the "Illinois Litigation"). The
plaintiffs in the Illinois Litigation are as follows: (a) Monterey County
Partners, a partnership which itself is a partner with the Fund's subsidiary,
BMIF Monterey County Corp., in a partnership known as BMIF Monterey County
Limited Partnership (the "Ownership Partnership"), which is the entity that owns
the Laguna Seca project; (b) Investors Liquidating Trust, a Delaware Trust which
has been alleged to own (i) 100% of the common stock of VMS Laguna Seca, Inc.,
the 1% general partner of VMS Laguna Seca Limited Partnership, which is an
alleged 80% partner in Monterey County Partners; and (ii) the 99% limited
partnership interest in VMS Laguna Seca Limited Partnership; and (c) VMTGZ
Mortgage Investors, L.P.II, the principal beneficiary of Investors Liquidating
Trust.
Named in the case as defendants, in addition to the Ownership Partnership
and BMIF Monterey County Corp. were: (a) Leonard G. Levine, President of the
Fund and (b) Banyan Management Corp., the company which provides administrative
services to the Fund pursuant to an Administrative Services Agreement. Mr.
Levine and Banyan Management Corp. were subsequently dismissed from this
litigation, but were later named in a Third Amendment Complaint, and in
connection with the settlement of other litigation among BMC, Mr. Levine and
certain of the plaintiffs, BMC and Mr. Levine are presently negotiating the
terms and conditions of general releases which, when executed, will permanently
bar further action by the plaintiffs against them.
The original complaint sought: (i) the removal of BMIF Monterey County
Corp. as the general partner of the Ownership Partnership (BMIF Monterey County
Limited Partnership) and the replacement with Kimball Small Residential
Properties, Inc., a partner in Monterey County Partners as the new general
partner; (ii) declaratory relief that BMIF Monterey County Corp. is not entitled
to any "priority return" or "preferred return" on its capital account in the
Ownership Partnership; (iii) avoidance of an alleged fraudulent transfer whereby
the Ownership Partnership became the owner of the project after the default in
1991 on the Fund's former mortgage loan to Monterey County Partners upon which
the Fund had initiated foreclosure proceedings which culminated in the execution
of the Ownership Partnership agreement; and the creation of a capital account in
an amount not less than approximately $4,800,000 in favor of Monterey County
Partners; (iv) an accounting; and (v) a constructive trust to be created for the
benefit of one of the plaintiffs. Count I of the complaint, seeking the removal
of BMIF Monterey County Corp. as general partner and the replacement with
Kimball Small Residential Properties, Inc. was stricken on the Fund's motion. An
amended Count I eliminates the request that Kimball Small Residential
Properties, Inc. be named as the replacement general partner.
The Fund filed an Answer, Counterclaim and Third Party Complaint on March
29, 1996. The Counterclaim seeks a dissolution of the Ownership Partnership and
a wind-up of its affairs and monetary damages against Monterey County Partners.
The Counterclaim and Third Party Complaint seek monetary damages against Kimball
Small Management and Kimball Small Residential Properties, Inc., which entities
are associated with Monterey County Partners. All parties have served and
answered discovery requests. All scheduled depositions have been completed and
the litigants are responding to certain supplemental written discovery. In
addition, the parties are about to engage in expert discovery.
On May 14, 1996, the Plaintiffs filed a pleading entitled First
Amended Complaint To Remove and Replace General Partner, For Declaratory
Judgment, An Accounting, To Set Aside Fraudulent Transfers, To Quiet Title And
For Other Equitable Relief And For Damages which purports to name, as additional
defendants, the Fund, RGI Holdings, Inc., the various Morgens, Waterfall
Lenders, Mr. Levine and Banyan Management Corp.
The Plaintiffs later filed a Third Amendment Complaint which purports to
add Mr. Levine and Banyan Management Corp. as parties and also adds the Fund and
RGI Holdings Inc. as parties. On August 9, 1996, the Fund answered certain
counts of the Third Amendment Complaint and responded to other counts by moving
to strike and dismiss or for judgment. On November 12, 1996, the Court on the
defendants' motions, dismissed with prejudice the counts in Plaintiffs'
Complaint which sought (i) removal of the general partner; (ii) avoidance of a
fraudulent transfer and creation of a $4,800,000 capital account in favor of the
plaintiffs and (iii) avoidance of the deed of trust and guarantee in favor of
the Fund's lender on a theory of fraudulent transfer. The Court also dismissed
two counts in Plaintiffs' Complaint which sought recovery based upon a theory of
conspiracy to interfere with a contractual relationship or business advantage,
but gave the plaintiffs until December 3, 1996 to attempt to replead these
counts. Finally, the Court, on defendant's motion, ordered the partnership
dissolved.
A trial on the issues remaining after the court order of November 12, 1996
will commence on January 13, 1997.
The Fund believes the Illinois Litigation is totally without merit and
intends to vigorously defend the Illinois Litigation and to prosecute the
Counterclaim and the Third Party Complaint. The partnership agreement which
creates and governs the Ownership Partnership requires an unsuccessful litigant
or its representative whose claim is based upon or related to the partnership
agreement to pay the reasonable attorneys' fees of its opponent. The Fund
intends to seek reimbursement of all attorneys' fees expended or incurred in
defense of the Illinois Litigation.
California Litigation
On October 10, 1995, an action was filed in the Superior Court of Monterey
County, California entitled: Monterey County Partners, et al. v. BMIF Monterey
County Limited Partnership, et al; Case No. 105280 (the "California
Litigation").
The plaintiff entity, which is a partner with the Fund's subsidiary, BMIF
Monterey County Corp., in the limited partnership known as BMIF Monterey County
Limited Partnership, which owns the Laguna Seca Ranch property (the "Ownership
Partnership") has filed suit in its own name and derivatively on behalf of the
Ownership Partnership against the Ownership Partnership and each of the
participant entities in the Morgens Loan, which loan is partially guaranteed by
the Ownership Partnership, which partial guaranty is collateralized by a deed of
trust recorded against the Laguna Seca Ranch property.
The California Litigation alleges fraudulent transfer and conspiracy and
seeks the following as remedies: (i) to set aside the Deed of Trust and the
obligations of the Ownership Partnership under the Morgens Loan guaranty; (ii)
to quiet title to the Laguna Seca Ranch project, declaring null and void the
interest of Morgens under the Deed of Trust; and (iii) an award of attorneys'
fees and costs.
A motion to stay the California case, made by all defendants, was heard
and denied without prejudice on January 5, 1996. Subsequently, on March 8, 1996,
the court held a hearing on several motions to dismiss filed by all defendants.
The California Court encouraged the parties to attempt to agree upon a schedule
for conducting discovery and a trial in the Illinois Litigation while the
California Litigation would remain in suspense. On September 13, 1996, the
plaintiffs presented a motion to the California Court to enforce a prior
stipulation and to set a trial date in California. On September 17, 1996 the
California Court denied plaintiffs' motion and set a status date for January 31,
1997.
None of the defendants has yet answered the California complaint. The Fund
believes that the California Litigation is totally without merit and intends to
vigorously defend it. As stated above, the partnership agreement which creates
and governs the Ownership Partnership requires an unsuccessful litigant or its
representative whose claim is based upon or related to the partnership agreement
to pay the reasonable attorneys' fees of its opponent. The Fund intends to seek
reimbursement of all attorneys' fees expended or incurred in defense of the
California Litigation.
Delaware Litigation
On October 31, 1996, a class action lawsuit was filed in Delaware state
court by two of the Fund's stockholders against the Fund and certain of its
directors and officers, including Leonard G. Levine, Neil D. Hansen, Robert G.
Higgins, Walter E. Auch, Sr. and Robert M. Ungerlieder. The complaint seeks,
among other things, to require an auction of the Fund, to enjoin or rescind the
proposed merger with RGI/U.S. Holdings, Inc. ("RGI") and monetary damages. Upon
the plaintiffs' motion, discovery in the litigation was placed on an expedited
basis and is currently proceeding. A hearing on the plaintiffs' motion for a
preliminary injunction is scheduled for November 21, 1996. The Fund believes
the suit is without merit and the Fund and the individual defendants intend to
vigorously contest the allegations.
The Fund is not aware of any other material pending legal proceedings as
of November 13, 1996.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are included with this Report.
The following exhibits are incorporated by reference from the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995:
Exhibit Number Description
(2) Agreement and Plan of Merger dated as of April
12, 1996 by and among RGI U.S. Holdings, Inc.,
RGI Holdings Inc. and the Registrant.
(10)(i) Second Amendment of Leonard G. Levine's
Employment Contract dated December 31, 1992.
(10)(ii) Form of Director Stock Option Agreements dated
July 1, 1993, July 24, 1994 and July 7, 1995.
(10)(iii) Form of Executive Stock Option Agreements dated
July 1, 1993, January 12, 1994 and February 8, 1995.
(21) Subsidiaries of the Fund
The following exhibits are incorporated by reference from the Registrant's
Registration Statement on Form S-11 (file number 33-17597), referencing the
exhibit numbers used in such Registration Statement:
Exhibit Number Description
(3)(a) Restated Certificate of Incorporation
(3)(b) By-Laws
The following exhibit is incorporated by reference from the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994:
Exhibit Number Description
(10) Material Contracts
Description of Registrant Credit Agreements,
Notes and Warrants with Morgens Waterfall,
Vintiadis & Co. Inc., Exhibit 10(a) through
10(n).
The following exhibits are incorporated by reference from the Registrant's
Form 8-K report as filed with the Securities and Exchange Commission on May 29,
1996:
Exhibit Number Description
(2)(i) Amended and Restated Agreement and Plan of Merger dated as of
May 20, 1996 by and among RGI U.S. Holdings, Inc., RGI
Holdings, Inc. and the Fund.
(4)(i) Registration Rights Agreement dated as of May 21, 1996 between
RGI Holdings, Inc. and the Fund.
(10)(i) "Morgens" Loan Modification dated as of May 21, 1996 between
RGI Holdings, Inc. and the Fund.
(10)(ii) "Societe Generale" Loan Modifications dated May 21, 1996
between RGI Holdings, Inc. and VMIF Anden Wayside Venture and
VMIF Southbridge Venture
The following exhibit is incorporated by reference from the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996:
Exhibit Number Description
(3) Amended and Restated Bylaws of the Registrant dated July
1, 1996.
The following exhibit is incorporated by reference from the
Registrant's Form S-4 as filed on September 20, 1996:
Exhibit Number Description
(3) Amended and Restated Bylaws of the Registrant dated
September 18, 1996.
No reports were filed on Form 8-K during the quarter ended September
30, 1996.
SIGNATURES
PURSUANT to the requirements of the Securities Exchange Act of 1934, the
Fund has duly caused this Report to be signed on its behalf by the undersigned
thereunto duly authorized.
BANYAN MORTGAGE INVESTMENT FUND
By: /s/ Leonard G. Levine Date: November 13, 1996
Leonard G. Levine, President
By: /s/ Joel L. Teglia Date: November 13, 1996
Joel L. Teglia, Vice President,
Chief Financial and Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"This schedule contains summary financial
information extracted from Banyan Mortgage
Investment Fund Form 10-Q for the period
ended September 30, 1996 and is qualified
in its entirety by reference to such 10-Q."
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,908,740
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<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,619,055
<PP&E> 96,201,273
<DEPRECIATION> 0
<TOTAL-ASSETS> 103,289,270
<CURRENT-LIABILITIES> 1,710,121
<BONDS> 0
0
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<COMMON> 67,418,971
<OTHER-SE> (11,316)
<TOTAL-LIABILITY-AND-EQUITY> 103,289,270
<SALES> 0
<TOTAL-REVENUES> 356,742
<CGS> 0
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<OTHER-EXPENSES> 2,408,854
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<INCOME-PRETAX> (8,268,561)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,268,561)
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