<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 20, 1996.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
BANYAN MORTGAGE INVESTMENT FUND
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6552 36-3465359
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification No.)
</TABLE>
150 SOUTH WACKER DRIVE
SUITE 2900
CHICAGO, ILLINOIS 60606
(312) 553-9800
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive office)
LEONARD G. LEVINE
BANYAN MORTGAGE INVESTMENT FUND
150 SOUTH WACKER DRIVE
SUITE 2900
CHICAGO, ILLINOIS 60606
(312) 553-9800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
With a Copy to:
<TABLE>
<S> <C>
MICHAEL J. CHOATE, ESQ. KAREN A. ANDERSEN, ESQ.
SHEFSKY FROELICH & DEVINE LTD. DAVIS WRIGHT TREMAINE
444 NORTH MICHIGAN AVENUE 1501 4TH AVENUE
SUITE 2500 SUITE 2600
CHICAGO, ILLINOIS 60611 SEATTLE, WASHINGTON 98101
(312) 527-4000 (206) 622-3150
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement and after appropriate stockholder action.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.01 per share........................ 4,386,986 $10,784,000 $3,718.62
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Calculated in accordance with Rule 457(f)(2) and represents the book value
of RGI U.S. Holdings, Inc. as of June 30, 1996.
(2) A filing fee in the amount of $7,128.85 was paid in connection with the
filing of the preliminary proxy statement on July 16, 1996.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
BANYAN MORTGAGE INVESTMENT FUND
CROSS-REFERENCE SHEET
Pursuant to Rule 404(a) of Regulation C and Item 501(b) of Regulation S-K
showing the location in the Proxy Statement/Prospectus of the information
required by Part I of Form S-4.
<TABLE>
<CAPTION>
LOCATION OR HEADING IN
ITEM OF FORM S-4 PROXY STATEMENT/PROSPECTUS
---------------------------------------- -----------------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Facing Page of Registration Statement; Outside
Front Cover Page of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... Available Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information........... Outside Front Cover Page of Proxy
Statement/Prospectus; Summary; Risk Factors;
Banyan; RGI/US
4. Terms of the Transaction................ Summary; Matters to be Considered by
Stockholders--Proposal Number One; Description
of Securities
5. Pro Forma Financial Information......... Summary; Unaudited Pro Forma Condensed
Consolidated Financial Data
6. Material Contracts with the Company
Being Acquired.......................... Summary; Matters to be Considered by
Stockholders--Proposal Number One
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters...................... *
8. Interests of Named Experts and
Counsel................................. Summary; Matters to be Considered by
Stockholders--Proposal Number One; Legal
Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to
S-3 Registrants......................... *
11. Incorporation of Certain Information by
Reference............................... *
12. Information with Respect to S-2 or S-3
Registrants............................. *
13. Incorporation of Certain Information by
Reference............................... *
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants....... Available Information; Banyan
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to
S-3 Companies........................... *
16. Information with Respect to S-2 or S-3
Companies............................... *
17. Information with Respect to Companies
Other Than S-2 or S-3 Companies......... Available Information; RGI/US
D. VOTING AND MANAGEMENT INFORMATION
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
LOCATION OR HEADING IN
ITEM OF FORM S-4 PROXY STATEMENT/PROSPECTUS
---------------------------------------- -----------------------------------------------
<C> <S> <C>
18. Information if Proxies, Consents or
Authorizations are to be Solicited...... Outside Front Cover Page of Proxy
Statement/Prospectus; Available Information;
Summary; Matters to be Considered by
Stockholders; Stockholder Proposals
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited,
or in an Exchange Offer................. *
</TABLE>
- -------------------------
* Item is omitted because answer is negative or Item is inapplicable.
<PAGE> 4
[BMIF LETTERHEAD]
SUBJECT TO COMPLETION SEPTEMBER , 1996
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders of
Banyan Mortgage Investment Fund ("Banyan") to be held at the Metropolitan Club,
233 South Wacker Drive, 67th Floor, Chicago, Illinois 60606, on November 26,
1996, at 3:00 p.m., local time (the "Annual Meeting").
At the Annual Meeting, the holders of shares of Banyan's common stock (the
"Stockholders") will be asked to consider and vote upon, among other things, the
merger of RGI U.S. Holdings, Inc. ("RGI/US") with and into Banyan (the "Merger")
and a proposal to effect a one for twenty-five reverse split of the Company's
common stock. In the Merger, all of the outstanding shares of common stock of
RGI/US will be converted into 4,386,986 shares of Banyan's common stock,
assuming approval of the reverse stock split. Banyan will be the surviving
corporation after the Merger. The sole stockholder of RGI/US, RGI Holdings, Inc.
("RGI Holdings") will own approximately 75% of Banyan's outstanding common stock
and all other Banyan stockholders will own approximately 25% of Banyan's
outstanding common stock after the Merger.
Details of the proposed Merger and certain additional information regarding
Banyan and RGI/US are contained in the attached Proxy Statement/Prospectus,
which you are encouraged to read carefully. On May 21, 1996, RGI Holdings (a)
purchased 7,466,666 shares (298,666 shares after giving effect to the reverse
stock split) of authorized but unissued shares of Banyan's common stock (the
"Private Placement"), (b) purchased loans previously made to Banyan by a group
of lenders for which Morgens, Waterfall, Vintiadis & Company, Inc. served as
agent (the "Morgens Loan") and by Societe Generale, Southwest Agency (the "SoGen
Loan"), both of which were in default at the time of purchase by RGI Holdings
(the "Loan Purchase"), and (c) modified the terms of the Morgens Loan and the
SoGen Loan (the "Loan Modifications"). The board of directors of Banyan believes
that the Private Placement, Loan Purchase, Loan Modifications and the proposed
Merger will benefit the Stockholders in many ways, including providing Banyan
with: (i) a capital infusion to continue implementing its business plan; (ii)
forbearance with respect to certain existing defaults under the Morgens Loan and
the SoGen Loan and an opportunity to restructure or refinance these loans, and
(iii) an opportunity to diversify its portfolio by entering into new markets and
businesses.
The board of directors of Banyan has received a written opinion, dated May
20, 1996, from Josephthal Lyon & Ross ("Josephthal"), Banyan's advisor, to the
effect that, as of the date of the opinion and based upon and subject to certain
matters stated therein, the consideration to be paid by Banyan pursuant to the
Merger is fair to Banyan and its stockholders from a financial point of view.
The opinion of Josephthal, which will be updated on the closing date of the
Merger, is attached to the accompanying Proxy Statement/Prospectus as Annex C
and should be read carefully by Stockholders for a description of the matters
considered, the assumptions made and limitations on the review undertaken by
Josephthal in arriving at its opinion. For a description of the opinion, the
financial analyses performed in connection with the opinion and the fee
arrangements in respect of Josephthal's services, see information under "Matters
to be Considered by Stockholders--Proposal Number One--Opinion of Advisor."
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND BELIEVES
THAT THE MERGER IS FAIR AND IN THE BEST INTEREST OF BANYAN AND ITS STOCKHOLDERS,
AND UNANIMOUSLY RECOMMENDS THAT ALL STOCKHOLDERS VOTE FOR THE MERGER AND THE
OTHER PROPOSALS PRESENTED TO THE STOCKHOLDERS.
<PAGE> 5
Letter to Shareholders
, 1996
Page 2
In addition to voting on the Merger, you are being asked to vote on
proposals to effect a one for twenty-five reverse stock split of the Company's
common stock, to adopt an Amended and Restated Certificate of Incorporation and
to elect three directors, provided that certain of the nominees, if elected,
will take office only if the Merger is consummated. In the event the nominees
are not elected, the Merger may not be consummated. Approval of the Merger, the
reverse stock split and the Amended and Restated Certificate each require the
affirmative vote of Stockholders owning a majority of Banyan's outstanding
shares of common stock. Accordingly, whether or not you plan to attend the
Annual Meeting, please complete, sign and date the accompanying proxy card and
return it in the enclosed prepaid envelope. You may revoke your proxy in the
manner described in the accompanying Proxy Statement/Prospectus at any time
before it has been voted at the Annual Meeting. If you attend the Annual
Meeting, you may vote in person, even if you have previously returned your proxy
card. Your prompt cooperation will be greatly appreciated. This solicitation is
authorized by and is made on behalf of Banyan's board of directors.
Sincerely,
BANYAN MORTGAGE INVESTMENT FUND
Robert G. Higgins
Vice-President, Secretary
and General Counsel
cc: Walter E. Auch, Sr. (w/encl.)
Robert M. Ungerleider (w/encl.)
Kenneth L. Uptain (w/encl.)
<PAGE> 6
BANYAN MORTGAGE INVESTMENT FUND
150 SOUTH WACKER DRIVE
SUITE 2900
CHICAGO, ILLINOIS 60606
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Banyan Mortgage Investment Fund:
The Annual Meeting of Stockholders of Banyan Mortgage Investment Fund, a
Delaware corporation ("Banyan"), will be held at the Metropolitan Club, 233
South Wacker Drive, 67th Floor, Chicago, Illinois, 60606, central daylight time,
on November 26, 1996, at 3:00 p.m., (the "Annual Meeting") for the following
purposes:
1. To consider and vote upon a proposal to merge RGI U.S. Holdings, Inc.
("RGI/US") with and into Banyan (the "Merger"), pursuant to the
Agreement and Plan of Merger, dated as of April 12, 1996, by and among
RGI/US, RGI Holdings, Inc. and Banyan as amended and restated as of May
20, 1996 and further amended as of September 17, 1996 (the "Merger
Agreement");
2. To consider and vote upon a proposal to amend Banyan's certificate of
incorporation to reclassify, combine and convert each twenty-five issued
and outstanding shares of Banyan's common stock into one issued and
outstanding share;
3. To consider and vote upon a proposal to adopt the Amended and Restated
Certificate of Incorporation (the "Restated Certificate") that, among
other things, changes Banyan's name to "Legend Properties, Inc.";
4. To elect three directors to hold office until the next Annual Meeting of
Stockholders or otherwise as provided in the Restated Certificate; and
5. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The proposed Merger and other important matters are explained in the
attached Proxy Statement/ Prospectus and the accompanying Annual Report to
stockholders, which you are urged to read carefully.
Only stockholders of record at the close of business on October 9, 1996 are
entitled to receive notice of and to vote at, the Annual Meeting or any
adjournment thereof. A complete list of eligible stockholders will be available
for inspection at Banyan's offices for at least ten days prior to the Annual
Meeting.
A PROXY STATEMENT/PROSPECTUS AND FORM OF PROXY ARE ENCLOSED. IT IS IMPORTANT
THAT YOU PROMPTLY FILL IN, SIGN, DATE AND MAIL THE PROXY IN THE ENCLOSED
ENVELOPE SO THAT YOUR SHARES MAY BE VOTED REGARDLESS OF WHETHER OR NOT YOU
EXPECT TO ATTEND THE ANNUAL MEETING.
By Order of the Board of Directors
Robert G. Higgins
Vice-President, Secretary and General
Counsel
, 1996
Banyan's 1995 Annual Report on Form 10-K is enclosed with this notice.
<PAGE> 7
SUBJECT TO COMPLETION SEPTEMBER 20, 1996
BANYAN MORTGAGE INVESTMENT FUND
PROXY STATEMENT
AND
PROSPECTUS
-------------------------
This Proxy Statement and Prospectus ("Proxy Statement/Prospectus") is being
furnished to the holders of common stock, par value $.01 per share, of Banyan
Mortgage Investment Fund, a Delaware corporation ("Banyan"), in connection with
the solicitation of proxies by the board of directors of Banyan for use at an
Annual Meeting of Stockholders of Banyan to be held at the Metropolitan Club,
233 South Wacker Drive, 67th Floor, Chicago, Illinois 60606, on November 26,
1996, at 3:00 p.m., central daylight time, and at any adjournments thereof (the
"Annual Meeting"). This Proxy Statement/Prospectus also constitutes the
Prospectus of Banyan with respect to the issuance of 4,386,986 shares of
Banyan's common stock to be issued to RGI Holdings, Inc. ("RGI Holdings"), the
sole stockholder of RGI U.S. Holdings, Inc. ("RGI/US", and together with RGI
Holdings, "RGI"), in connection with the merger of RGI/US with and into Banyan
(the "Merger"). Banyan's common stock is currently listed on the New York Stock
Exchange (the "NYSE") and the Chicago Stock Exchange under the symbol "VMG." The
Company anticipates that trading in the Company's shares will cease on the NYSE
immediately prior to the effectiveness of the Merger at which time the shares
will be included for quotation on the Nasdaq SmallCap Market. See "Risk
Factors--Exchange Listing," and Matters to be Considered by Stockholders --
Proposal Number Two. On [ ,] 1996, the closing price for Banyan's
common stock as reported by the NYSE Composite Tape was [$ per share.]
This Proxy Statement/Prospectus relates to the proposed merger of RGI/US
with and into Banyan, pursuant to the Agreement and Plan of Merger, dated as of
April 12, 1996 as amended and restated as of May 20, 1996 and further amended as
of September 17, 1996, by and among Banyan, RGI/US and RGI Holdings (the "Merger
Agreement"). Banyan will be the surviving entity in the Merger and upon
completion of the Merger, the separate corporate existence of RGI/US will cease.
After the Merger, the Company's name will be Legend Properties, Inc. At the time
the Merger becomes effective, all of the issued and outstanding shares of RGI/US
common stock, no par value per share, will be converted into 4,386,986 newly-
issued shares of Banyan's common stock. Completion of the Merger is subject to
the satisfaction or waiver of various conditions, including: (i) approval of the
Merger Agreement by the affirmative vote of a majority of the outstanding shares
of Banyan (which may not be waived); (ii) approval of a proposal to amend
Banyan's certificate of incorporation to reclassify, combine and convert each
twenty-five issued and outstanding shares of Banyan's common stock into one
issued and outstanding share, by the affirmative vote of a majority of the
outstanding shares of Banyan; (iii) adoption of the Restated Certificate by the
affirmative vote of a majority of the outstanding shares of Banyan; and (iv)
election of Walter E. Auch, Sr., Olav Revhaug and Fred E. Welker, III
(collectively, the "Nominees") as directors of Banyan (collectively, the
"Proposals"). The three Nominees receiving the highest numbers of the votes of
the shares present in person or represented by proxy at the Annual Meeting will
be elected as directors. With respect to the vote on the Merger Agreement, RGI
Holdings has agreed to vote its shares of Banyan common stock in proportion to
the vote of all other Stockholders. If the Merger Agreement is approved and the
Restated Certificate is adopted, the Company will change its name to Legend
Properties, Inc.
-------------------------
FOR CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING THE MERGER,
SEE "RISK FACTORS" WHICH BEGIN ON PAGE 13.
All information contained in this Proxy Statement/Prospectus with respect
to Banyan has been provided by Banyan. All information contained in this Proxy
Statement/Prospectus with respect to RGI/US has been provided by RGI/US or RGI
Holdings.
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to Banyan's stockholders on or about , 1996. A
stockholder who has given a proxy may revoke it at any time prior to its
exercise.
-------------------------
The date of this Proxy Statement/Prospectus is , 1996.
<PAGE> 8
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES OFFERED BY THIS
PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION
TO OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION OF AN OFFER, OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR THE ISSUANCE OR SALE OF ANY
SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH OR INCORPORATED HEREIN
SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Banyan is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and information statements
and other information with the Securities and Exchange Commission (the
"Commission"). These reports, proxy statements and other information statements
can be inspected and copied at the public reference facilities maintained by the
Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C., 20549 and may be available at the following Regional Offices of the
Commission: Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois, 60661; and New York Regional
Office, Public Reference Room, Seven World Trade Center, 13th Floor, New York,
New York, 10048. Copies of this material can be obtained at prescribed rates
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C., 20549. In addition, reports, proxy
statements and other information concerning Banyan can be inspected at the
office of the New York Stock Exchange, 20 Broad Street, New York, New York,
10005, on which Banyan's common stock is listed.
ii
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY.................................... 1
The Companies............................ 1
Proposed Merger.......................... 1
Annual Meeting........................... 2
Recommendations of the Board of
Directors.............................. 2
Alternatives to the Merger............... 3
Opinion of Advisor....................... 3
Risk Factors............................. 4
Interest of Certain Persons.............. 5
Effective Time of the Merger............. 5
Conditions to the Merger................. 5
The Reverse Split........................ 6
Appraisal Rights......................... 6
Federal Income Tax Consequences.......... 6
Termination.............................. 6
Termination Fees and Expenses............ 6
Accounting Treatment..................... 7
No Solicitation of Other Transactions.... 7
Management of the Company................ 7
Distribution and Dividend Policy......... 7
Restated Certificate..................... 7
Special Note on Forward-Looking
Statements............................. 8
Historical and Unaudited Pro Forma
Condensed Consolidated Selected
Financial Data......................... 9
RISK FACTORS............................... 13
Significant Dilution; Conflicting
Interests of RGI Holdings.............. 13
Substantial Debt Obligations and Terms of
Debt................................... 13
Need for Additional Capital.............. 13
Exchange Listing......................... 14
Uncertain Impact of Stock Split on Market
Price of Shares........................ 14
Reliance of Josephthal on Management's
Financial Forecast and Valuation
Report................................. 14
Potential Conflicts...................... 15
Termination Payments if Merger Fails to
Occur.................................. 15
Possibility of Future Net Losses......... 15
Real Estate Investment Risks............. 15
Construction and Development
Activities............................. 16
Lack of Geographic Diversification....... 16
Obligations With Respect to Certain
Properties............................. 16
Concentration of Tenants at the Lynwood
Center................................. 17
Government Regulations................... 17
Uncertainty of Combining Home Ownership
with Assisted Living................... 18
Liability and Insurance.................. 18
Litigation............................... 18
Loss of Tax Benefits..................... 18
Book Value Not Reflective of Current
Realizable Value....................... 19
Bankruptcy Risks......................... 19
Issuance of Preferred Stock or Common
Stock.................................. 19
Shares Available for Future Sale......... 19
Dividend Policy.......................... 19
No Appraisal Rights for Stockholders..... 19
MATTERS TO BE CONSIDERED BY STOCKHOLDERS... 20
Purpose of the Meeting................... 20
Proposal Number One: To consider and vote
upon a proposal to merge RGI/US with
and into Banyan........................ 21
Background of and Reasons for the
Merger................................. 21
Reasons for the Merger; Recommendation of
the Board of Directors of Banyan....... 25
Opinion of Advisor....................... 26
Description of the Merger Agreement...... 28
General.................................. 28
Effective Time of the Merger............. 28
Conditions to the Merger................. 28
Certain Covenants........................ 29
Termination.............................. 29
Termination Amount and Expenses.......... 29
Certain Tax Consequences of
the Merger............................. 29
Regulatory Approvals..................... 30
Accounting Treatment..................... 31
Nasdaq Listing........................... 31
Appraisal Rights......................... 31
Vote Required............................ 31
Proposal Number Two: To consider and vote
upon a proposal to amend Banyan's
certificate of incorporation to
reclassify, combine and convert each
twenty-five issued and outstanding
shares of Banyan's common stock into
one issued and outstanding share....... 31
Proposal Number Three: To consider and
vote upon a proposal to adopt the
Restated Certificate................... 32
Proposal Number Four: To elect the three
Nominees as Directors.................. 33
Director Compensation.................... 34
Executive Compensation................... 34
Executive and Directors' Stock Option
Plan................................... 35
Certain Relationships and Related
Transactions........................... 38
BANYAN..................................... 40
Business Operations...................... 40
Property Operations...................... 40
Environmental............................ 42
Legal Proceedings........................ 42
Market For Banyan's Shares and Related
Shareholder Matters.................... 44
Other Information........................ 45
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 46
Changes In and Disagreements with
Accountants on Accounting and Financial
Disclosure............................. 49
RGI/US..................................... 51
Business Operations...................... 51
Property Operations...................... 51
Management's Discussion and Analysis of
Financial Condition and Results of
Operation.............................. 55
MANAGEMENT OF THE COMPANY.................. 61
DESCRIPTION OF SECURITIES.................. 61
</TABLE>
iii
<PAGE> 10
<TABLE>
<S> <C>
MATERIAL AGREEMENTS....................... 63
Morgens Loan Modification............... 63
SoGen Loan Modification................. 63
Registration Rights Agreement........... 63
Construction Contract................... 63
OTHER MATTERS............................. 64
LEGAL MATTERS............................. 64
EXPERTS................................... 64
STOCKHOLDER PROPOSALS..................... 64
GLOSSARY.................................. 65
INDEX TO FINANCIAL
STATEMENTS.............................. F-1
ANNEX A -- AGREEMENT AND PLAN OF MERGER... A-1
ANNEX B -- AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION............ B-1
ANNEX C -- OPINION OF JOSEPHTHAL LYON &
ROSS.................................... C-1
ANNEX D -- CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION............ D-1
</TABLE>
iv
<PAGE> 11
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement/Prospectus and the Annexes hereto relating to the
proposed Merger of RGI/US with and into Banyan, pursuant to which the separate
corporate existence of RGI/US will cease. This summary does not purport to
contain all material information relating to the Merger and the Merger Agreement
and is qualified in its entirety by the more detailed information and financial
statements contained in this Proxy Statement/Prospectus. Stockholders of Banyan
should read carefully this Proxy Statement/Prospectus and the Annexes attached
hereto in their entirety. Unless the context indicates otherwise, all references
to Banyan and RGI/US include their respective subsidiaries and affiliated
entities. References to the "Company" include Banyan both before and after the
Merger, as the context requires. Unless otherwise indicated, the information
contained in this Proxy Statement/Prospectus and the Annexes hereto do not give
effect to the proposed reverse stock split. Defined terms are listed in the
Glossary at the end of this Proxy Statement/Prospectus.
THE COMPANIES
BANYAN MORTGAGE INVESTMENT FUND
Banyan is a Delaware corporation whose primary assets include interests in
three undeveloped or partially developed parcels of land aggregating
approximately 5,300 acres. Specifically, Banyan has an interest in various
general partnerships and through these partnerships controls the ownership of a
2,254-acre parcel located in Charles County, Maryland ("Chapman's Landing") and
a 2,554-acre parcel located in Prince William County, Virginia
("Southbridge/Wayside"). Banyan also owns a controlling interest in a limited
partnership which owns a 565-acre parcel located six miles east of Monterey,
California ("Laguna Seca Ranch"). Banyan's executive offices are located at 150
S. Wacker Drive, Suite 2900, Chicago, Illinois 60606 and its telephone number is
(312) 553-9800.
RGI/US
RGI/US is a Washington corporation and a wholly-owned subsidiary of RGI
Holdings, which is an indirect majority-owned subsidiary of Resource Group
International Inc. ("RGI Inc."). RGI Inc. is an indirect subsidiary of RGI
(Antilles) N.V., a Netherlands Antilles limited liability company ("RGI
Antilles"). Kjell I. Rokke, a Norwegian citizen, owns 67.32% of the outstanding
common stock in RGI Antilles.
RGI/US owns, operates and develops real estate through two wholly-owned
subsidiaries, Grand Harbor Associates, Inc. ("Grand Harbor Associates") and
American Property Investments, Inc. ("American Property Investments"). Grand
Harbor Associates owns a 90% interest in corporations that own: (i) Grand
Harbor, a 772-acre residential golf community development project located in
Vero Beach, Florida; (ii) Oak Harbor, a 116-acre planned 352-unit adult
retirement community also located in Vero Beach, Florida; and (iii) the Royal
Palm Convalescent Center, a skilled nursing center licensed for 72 beds and
located in Vero Beach, Florida in close proximity to Oak Harbor. American
Property Investments owns a 164,724 square foot shopping center located in
Lynnwood, Washington (the "Lynnwood Center"). RGI/US has listed the Lynnwood
Center for sale. If the Lynnwood Center is sold prior to the Effective Date of
the Merger, the Company will receive the net proceeds from the sale on the
Effective Date. RGI/US' executive offices are located at U.S. Bank Centre, 1420
5th Avenue, 42nd Floor, Seattle, Washington 98101-2333, and its telephone number
is (206) 464-0200.
PROPOSED MERGER
The board of directors of each of Banyan and RGI/US have approved the
Merger and the Merger Agreement, a copy of which is attached hereto as Annex A.
Upon fulfillment (or waiver) of the conditions set forth in the Merger
Agreement, at the Effective Time: (i) RGI/US will be merged with and into Banyan
with Banyan being the surviving entity; and (ii) all of the issued and
outstanding shares of RGI/US common stock, no par value per share ("RGI/US
Common Stock") will be converted into 4,386,986 newly-issued shares of
1
<PAGE> 12
Banyan's common stock. Each share of Banyan's common stock issued and
outstanding immediately prior to the Effective Time will remain outstanding.
On May 21, 1996, RGI Holdings purchased 7,466,666 shares (298,666 shares
after giving effect to the reverse stock split) of authorized but unissued
shares of Banyan's common stock for $.46875 per share ($11.71 per share after
giving effect to the reverse stock split), or an aggregate purchase price of
$3.5 million (the "Private Placement"). In addition, RGI Holdings purchased
loans previously made to Banyan by a group of lenders for which Morgens,
Waterfall, Vintiadis & Co., Inc. ("Morgens") served as agent (the "Morgens
Loan") and by Societe Generale, Southwest Agency (the "SoGen Loan").
Contemporaneously with the purchase of the loans, Banyan and RGI Holdings
entered into agreements modifying the terms of these loans. As of July 31, 1996,
the outstanding principal amounts of the Morgens Loan and the SoGen Loan were
$24.3 million and $6.4 million, respectively. See "Matters to be Considered by
Shareholders--Proposal One--Description of the Merger Agreement--General" and
"Material Agreements--Morgens Loan Modification" and "--SoGen Loan
Modification." If the Merger is approved, RGI Holdings will own approximately
75% of Banyan's outstanding common stock. If the Merger is not approved, RGI
Holdings will own approximately 16% of Banyan's outstanding common stock and
will continue to hold approximately 88% of Banyan's indebtedness.
ANNUAL MEETING
Only holders of Banyan's common stock at the close of business on October
9, 1996 (the "Record Date") will be entitled to notice of and to vote at the
Annual Meeting. At the Annual Meeting, holders of Banyan's common stock on the
Record Date (the "Stockholders") will consider and vote upon: (i) the Merger
Agreement; (ii) the Reverse Split (as defined below); (iii) the Restated
Certificate; and (iv) the election of the Nominees. Stockholders are not being
asked to vote upon the Private Placement or the purchase of the Morgens Loan and
the SoGen Loan by RGI Holdings, the provisions of which are contained in Article
I of the Merger Agreement. Therefore, disapproval of the Merger Agreement will
have no effect on these transactions except as contemplated by the agreement
between the Company and RGI Holdings regarding modification of the Morgens Loan.
See "Matters to be Considered by Stockholders" and "Material Agreements--Morgens
Loan Modification."
As of the Record Date, directors, Nominees and executive officers of
Banyan, all of whom have indicated that they will vote all of their shares of
Banyan's common stock for each of the proposals, were owners of approximately
257,067 shares of Banyan's common stock (10,283 shares after giving effect to
the reverse stock split), representing less than 1% of the outstanding shares of
Banyan's common stock. As of the Record Date, RGI Holdings owned approximately
16% of Banyan's common stock, and RGI Inc., an indirect parent of RGI Holdings,
owned an additional 160,000 shares of Banyan's common stock (6,400 shares after
giving effect to the reverse stock split), representing approximately 0.3% of
the outstanding shares.
Shares represented by properly executed proxies in the accompanying form
received by Banyan's board of directors prior to the Annual Meeting will be
voted at the Annual Meeting. Shares not represented by properly executed proxies
will not be voted. If a Stockholder specifies a choice with respect to any
matter to be acted upon, the Shares represented by that proxy will be voted as
specified. If the Stockholder does not specify a choice in an otherwise properly
executed proxy, with respect to any proposal referred to therein, the Shares
represented by that proxy will be voted with respect to that proposal in
accordance with the recommendations of Banyan's board of directors described
herein. A Stockholder who signs and returns a proxy in the accompanying form may
revoke it by: (i) giving written notice of revocation to Banyan before the proxy
is voted at the Annual Meeting; (ii) executing and delivering a later-dated
proxy; or (iii) attending the Annual Meeting and voting the Shares in person.
See "Matters to be Considered by Stockholders--Quorum and Voting Rights;
Proxies."
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
Banyan's board of directors believes that the Merger is fair to, and in the
best interests of, Banyan and its Stockholders and has unanimously approved, and
recommends that the Stockholders vote for, the Merger and the actions
contemplated by the Merger Agreement including approval of a proposal to amend
Banyan's
2
<PAGE> 13
certificate of incorporation to reclassify, combine and convert each twenty-five
issued and outstanding shares of Banyan's common stock into one issued and
outstanding share (the "Reverse Split"), adoption of the Restated Certificate
and election of the Nominees. The primary factors that the board considered in
reaching its recommendation were its belief that: (i) Banyan is in need of a
capital infusion to continue implementing its business plan; (ii) stockholder
value is enhanced by continuing development of Banyan's properties; (iii) the
purchase of the Morgens Loan and the SoGen Loan and the subsequent loan
modifications provide Banyan with enhanced financial flexibility; and (iv) the
Merger presents Banyan with an opportunity to diversify its portfolio and enter
into new markets and new businesses. In making its recommendation, the board
also considered the opinion of Josephthal Lyon & Ross Incorporated
("Josephthal"), Banyan's advisor, that the consideration to be paid by Banyan
pursuant to the Merger is fair from a financial point of view, to Banyan and its
stockholders. See "Matters to be Considered by Stockholders--Proposal Number
One--Reasons for the Merger; Recommendation of the Board of Directors of Banyan"
and "--Opinion of Advisor."
ALTERNATIVES TO THE MERGER
If the Merger is not approved, it is unlikely that Banyan would have
adequate resources to continue implementing its business plan since the loan
modifications will expire on December 31, 1996, and Banyan likely would not be
able to service its existing indebtedness. Banyan would then need to seek
alternative sources of capital, merge with another party, liquidate its assets,
restructure its financial affairs under the Federal Bankruptcy Code or seek some
other type of restructuring. A restructuring or other reorganization under the
Bankruptcy Code or otherwise may result in the Stockholders losing their entire
interest. RGI Holdings currently is Banyan's largest single secured creditor
and, in the event of a restructuring or other reorganization, the claims of RGI
Holdings as a secured creditor would likely have priority over the claims or
interests of unsecured creditors and Stockholders.
OPINION OF ADVISOR
On April 12, 1996, Josephthal initially delivered a written opinion to
Banyan's board of directors to the effect that, as of that date, based upon the
facts and circumstances as they existed at that time and subject to certain
limitations, the consideration to be paid by Banyan pursuant to the Merger is
fair, from a financial point of view, to Banyan and its stockholders. In
rendering this opinion, Josephthal: (i) reviewed the Merger Agreement (as of
April 12, 1996) and certain related documents; (ii) reviewed certain publicly
available financial information concerning Banyan and certain internal financial
analyses and other information furnished to it by Banyan and RGI/US; (iii) held
discussions with members of the senior management of Banyan and RGI/US regarding
the business and prospects of Banyan and RGI/US; (iv) compared certain financial
and stock market information for Banyan with similar information for certain
other companies whose securities are publicly-traded; (v) reviewed the financial
terms of certain recent business combinations; (vi) relied upon an appraisal of
the capital stock of RGI/US; and (vii) performed such other studies and analyses
and considered such other factors as it deemed relevant, in whole or in part.
Thereafter, RGI, Banyan and Josephthal focused on the tax issues raised by the
Net Asset Valuation Report. Subsequently, RGI/US and Banyan agreed to enter into
a tax indemnification agreement. The parties were, however, unable to agree upon
the specific terms and conditions of the tax indemnification agreement
addressing these tax issues. After RGI Holdings agreed to reduce the number of
shares which it would receive upon merging RGI/US with and into Banyan from
approximately 151 million to approximately 109 million (4,386,986 after giving
effect to the Reverse Split) Josephthal agreed to issue its opinion on May 20,
1996, based on the facts and circumstances as they existed at that time and
subject to certain limitations. A copy of the full text of the written opinion
of Josephthal dated May 20, 1996, which sets forth the assumptions made,
procedures followed, matters considered and limits of its review, is attached as
Annex C to this Proxy Statement/Prospectus, and should be read in its entirety.
See "Matters to be Considered by Stockholders--Proposal Number One--Opinion of
Advisor."
3
<PAGE> 14
RISK FACTORS
In evaluating the Merger and the other proposals set forth herein,
Stockholders should consider the following risk factors which are more fully
described under the heading "RISK FACTORS" below.
- The Stockholders, except RGI Holdings, will experience significant
dilution as a result of the Merger and RGI Holdings will be able to take
certain actions which may disenfranchise Banyan's other Stockholders.
- The Company will have substantial debt obligations, and its ability to
service its debt and other obligations depends in part on factors outside
its control.
- The Company will require substantial additional capital in order to
complete its business plans, and this additional capital may not be
available on acceptable terms, if at all. In addition, to the extent the
Company sells additional common stock, Stockholders may be further
diluted.
- The Company will not satisfy the listing standards imposed by the New
York Stock Exchange for an original listing following completion of the
Merger and will not satisfy the criteria for inclusion on the Nasdaq
SmallCap Market if the Reverse Split is not approved.
- There can be no assurance that the market price of the Company's common
stock after the Reverse Split will be 25 times the market price that would
have existed without the Reverse Split, or that the price following the
Reverse Split will either equal, exceed, or remain in excess of, the
market price that would have existed without the Reverse Split.
- Josephthal's opinion is based in part upon projected financial results
prepared by Banyan's management which have not been reviewed or passed
upon by third parties and on an appraisal of the Capital Stock of RGI/US
with respect to which Josephthal did not perform any independent analysis.
- Certain contractual relationships pose a conflict of interest that may
cause the Company to incur costs higher than the Company might otherwise
incur in the absence of these relationships.
- If the Merger fails to occur, Banyan may be required to pay RGI a
termination fee, repurchase the shares of Banyan common stock purchased in
the Private Placement and reimburse RGI for its expenses.
- There can be no assurance that the Company will ever generate sufficient
cash flow to pay dividends to the Stockholders, and the Company may
continue to incur net losses.
- Real property investments and projects under development and construction
are subject to numerous risks that are not always susceptible to
prediction or control.
- The Company's properties will be concentrated in two geographic areas,
and therefore the Company will be susceptible to economic weakness or
recession in either of these two areas.
- The Company's obligations to other minority partners or investors in its
properties may prevent the Company from implementing certain policies or
taking certain actions that it might otherwise be able to implement or
take.
- A default or bankruptcy filing by one or more of the major tenants at the
Lynnwood Center could reduce the Company's revenues and the sale value of
the Lynnwood Center.
- The Company will be subject to a variety of land use and zoning,
environmental, and healthcare laws and regulations as well as the
Americans with Disabilities Act. Noncompliance with any of these laws and
regulations could subject the Company to substantial fines, penalties or
remedial measures.
- The concept of combining home ownership with assisted living services has
not been widely tested, may not be successful, and also subjects the
Company to competition from other assisted living providers.
- Successful claims against the Company could exceed its liability
insurance coverage.
4
<PAGE> 15
- If the Company does not prevail in litigation involving Laguna Seca
Ranch, the Company could incur substantial damages.
- The Merger will limit the Company's ability to utilize its existing
tax-loss-and-credit carryforwards.
- The future value of the Company's assets is subject to numerous
contingencies, including the completion of construction and development,
and the current realizable value may differ significantly from the
carrying value of these assets.
- If Banyan were to default on its indebtedness, Banyan may be required to
file for protection under the Federal Bankruptcy Code, and the
Stockholders may lose their entire interest.
- The issuance of a substantial number of shares of preferred stock or
common stock by the Company after the Merger could adversely affect the
market price of the Company's common stock and its ability to raise
capital in the future.
INTEREST OF CERTAIN PERSONS
Leonard G. Levine, President of Banyan, will be entitled to receive
payments aggregating approximately $1.2 million as a result of the "change of
control" provisions contained in an employment agreement entered into with
Banyan in 1990 (and subsequently amended December 31, 1992 and February 8,
1995). Although Mr. Levine would receive payments were Banyan to liquidate its
assets, the amount payable to Mr. Levine will likely be greater if the Merger is
completed than if Banyan had liquidated its assets and distributed the proceeds
to the Stockholders. See "Matters to be Considered by Stockholders--Proposal
Number One--Background of and Reasons for the Merger."
EFFECTIVE TIME OF THE MERGER
The Merger will become effective at the time that a certificate of merger
is filed in the Office of the Secretary of State of Delaware and a plan of
merger is filed in the Office of the Secretary of Washington (the date of such
filings being hereinafter referred to as the "Effective Date" and the time of
the latest to occur of such filing being hereinafter referred to as the
"Effective Time"). Since the Merger, in the opinion of the NYSE, constitutes the
acquisition of Banyan by RGI/US the NYSE has advised the Company that it would
be required to file an original listing application in order to continue the
listing of the Company's shares of common stock. The Company does not, however,
believe that it will be able to satisfy certain of the quantitative criteria
established by the NYSE or the Chicago Stock Exchange (the "CSE") for an
original listing on either exchange. As a result, the Company filed an
application with, and has been conditionally approved for listing on, The Nasdaq
SmallCap Market. The approval is conditioned upon the Company's ability to meet
the minimum bid price requirement after the Merger and the Reverse Split. See
"Matters to be Considered by Stockholders--Proposal Number Two." If the Merger
is not approved, the Company would be subject to the NYSE's standard for a
continued listing. From time to time, the Company's market capitalization has
fallen below the level required for a continued listing on the NYSE. There can
be no assurance that the Company would be able to comply with the NYSE's
continued listing standards or that the NYSE would not take steps to delist the
Company's shares if the Company is unable to satisfy the continued listing
criteria. Further, if the Reverse Split is not approved, the Company's shares
will not qualify for inclusion on The Nasdaq SmallCap Market. If the Proposals
are approved and the Company's financial condition improves, the Company will
attempt to qualify its shares for inclusion on The Nasdaq National Market.
CONDITIONS TO THE MERGER
The respective obligations of Banyan and RGI/US to effect the Merger are
subject to the satisfaction or waiver of certain conditions precedent including,
among others: (i) approval of the Merger Agreement by the requisite vote of the
Stockholders (which may not be waived); (ii) the receipt of a written opinion by
each of Banyan and RGI/US from their respective counsel to the effect that the
Merger will constitute a reorganization within the meaning of section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code");
(iii) receipt of all necessary governmental authorizations, permits, approvals
and consents of securities or "blue sky" commissions; (iv) receipt by Banyan of
an updated opinion from
5
<PAGE> 16
Josephthal that the consideration to be paid by Banyan pursuant to the Merger is
fair from a financial point of view to Banyan and its stockholders; and (v)
expiration or termination of the waiting period (and any extension thereof)
under the Hart-Scott-Rodino Act (the "HSR Act"). See "Matters to be Considered
by Stockholders--Proposal Number One--Conditions to the Merger."
THE REVERSE SPLIT
If the Merger Agreement is approved, immediately prior to the Effective
Time, Banyan will effect the Reverse Split. No fractional shares of common stock
will be issued in connection with the Reverse Split, but in lieu thereof, the
Company will pay a cash adjustment in respect of any such fractional interest in
an amount equal to the fractional interest multiplied by the average trading
price of a share of common stock for the five days preceding the Annual Meeting.
If the Reverse Split is approved, but the Merger Agreement is not approved,
Banyan will effect the Reverse Split five business days after final adjournment
of the Annual Meeting. The Restated Certificate will be adopted only if the
Merger Agreement is approved. If the Merger Agreement is not approved, then the
Reverse Split will be effected by amending Banyan's existing Certificate of
Incorporation. See Annex D for a text of the proposed amendment which the
Company would adopt in that instance.
APPRAISAL RIGHTS
Under the Delaware General Corporation Law ("Delaware Law"), Stockholders
are not entitled to appraisal rights in connection with the Merger. See "Matters
to be Considered by Stockholders--Proposal Number One--Appraisal Rights."
FEDERAL INCOME TAX CONSEQUENCES
Shefsky Froelich & Devine Ltd., counsel for Banyan, has delivered an
opinion to Banyan that, on the basis of facts, representations and assumptions
set forth in the opinion: (i) the Merger will be treated for United States
federal income tax purposes as a reorganization within the meaning of Section
368(a)(1)(A) of the Code so that no gain or loss will be recognized by Banyan as
a result of the Merger; and (ii) Stockholders will not recognize any taxable
income or gain as a result of the Merger or the Reverse Split except to the
extent of amounts received in lieu of fractional shares, a portion of which will
produce taxable gain or loss. See "Matters to be Considered by
Stockholders--Proposal Number One--Certain Tax Consequences of the Merger" and
"Matters to be Considered by Stockholders--Proposal Number One--Conditions to
the Merger."
TERMINATION
The Merger Agreement may be terminated and abandoned by the parties at any
time prior to the Effective Time, whether before or after approval of the Merger
by the Stockholders, in a number of circumstances, including, among others: (i)
by the mutual consent of the boards of directors of RGI/US, RGI Holdings and
Banyan; (ii) by Banyan, if the Fairness Opinion is not updated by Josephthal by
the Effective Time or has been withdrawn prior to the Annual Meeting; (iii) by
either RGI/US, RGI Holdings or Banyan if the Stockholders do not approve the
Merger and the related matters at the Annual Meeting; (iv) by Banyan, if
Banyan's board of directors approves an acquisition proposal from a third party;
and (v) if the Effective Date has not occurred by December 31, 1996. See
"Matters to be Considered by Stockholders--Proposal Number One--Termination."
TERMINATION FEES AND EXPENSES
Each party to the Merger Agreement is generally required to bear its own
fees and expenses, including fees and expenses of counsel and other advisors. If
the Merger is not consummated and there has not been an "RGI/US Decline in
Value" (as defined herein), Banyan could be required to pay termination fees to
RGI/US and RGI Holdings. In particular, if the Merger is not consummated
because: (i) the Banyan board has withdrawn its recommendation; (ii) Banyan has
breached its representations, warranties, covenants or agreements contained in
the Merger Agreement; or (iii) the Banyan board has approved an Acquisition
6
<PAGE> 17
Proposal (as defined herein) then, in each case, Banyan will be required to pay
RGI a termination fee of $1.0 million and repurchase all of the Shares purchased
by RGI Holdings in the Private Placement at a price equal to $1.00 per share.
Similarly, if the Merger Agreement is terminated because the Stockholders of
Banyan do not approve the Merger, then Banyan will be required to reimburse
RGI/US and RGI Holdings for their expenses (including without limitation, fees
for attorneys, accountants and appraisers).
ACCOUNTING TREATMENT
For financial reporting purposes, the Merger will be treated as a
recapitalization of RGI/US, with RGI/US as the acquiror of Banyan. From and
after the Effective Date, the historical financial statements of the Company
will be those of RGI/US. See "Historical and Unaudited Pro Forma Condensed
Consolidated Financial Data."
NO SOLICITATION OF OTHER TRANSACTIONS
Under the Merger Agreement, Banyan has agreed not to initiate, solicit or
encourage any inquiries from any person or group with respect to any: (i) merger
or business combination involving Banyan or any of its subsidiaries; or (ii)
acquisition of 10% or more of the assets or any equity interest in Banyan or any
of its subsidiaries (each, an "Acquisition Proposal"), other than the
transactions contemplated by the Merger Agreement. Notwithstanding the above,
Banyan or Banyan's board of directors may take any of these actions to the
extent that the board, after consultation with and based upon the advice of
counsel, determines in good faith that action is required to comply with the
board's fiduciary duties under Delaware law.
MANAGEMENT OF THE COMPANY
Assuming the election of the Nominees, from and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable law, the directors of the Company will be Messrs. Walter E. Auch,
Sr., Robert M. Ungerleider, Kenneth L. Uptain, Olav Revhaug and Fred E. Welker,
III. Upon completion of the Merger, the current officers of Banyan will resign
and it is anticipated that Kenneth L. Uptain will be appointed President and
Chief Executive Officer and Raymond J. Whitty will be appointed Chief Financial
Officer of the Company. For information concerning these persons, see
"Management of the Company."
DISTRIBUTION AND DIVIDEND POLICY
Banyan did not declare any distributions during the fiscal years ended
December 31, 1995 and 1994 and does not contemplate paying cash dividends until
the Company generates a sustainable stream of cash flow in excess of its capital
needs.
RESTATED CERTIFICATE
The following discussion, which summarizes the proposed changes to the
Certificate of Incorporation, does not purport to be complete and is qualified
in its entirety by reference to the Amended and Restated Certificate of
Incorporation (the "Restated Certificate"). See "Matters to be Considered by
Stockholders--Proposal Number Three" and "Description of Securities."
Life of the Company. The Restated Certificate changes the duration of the
Company's existence from definite (terminating on December 31, 2008) to
perpetual.
Capitalization. Under the Restated Certificate, the Company will be
authorized to issue up to 100.0 million shares of common stock. Immediately
prior to the Effective Time, Banyan will effect the Reverse Split. No fractional
shares of common stock will be issued in connection with the Reverse Split, but
in lieu thereof, the Company shall pay a cash adjustment in respect of any such
fractional interest in an amount equal to the fractional interest multiplied by
the average trading price of a share of common stock for the five days preceding
the Annual Meeting.
7
<PAGE> 18
Authorized Preferred Stock. Under the Restated Certificate, the board will
be authorized to issue up to five million shares of preferred stock, $0.01 par
value per share, in one or more series, with such rights and preferences as
determined by the board.
Change of Corporate Name. The Restated Certificate changes Banyan's name to
"Legend Properties, Inc."
Board of Directors. Under the Certificate of Incorporation, Banyan is
required to have not less than three (3) nor more than nine (9) directors, who
serve three (3) year terms that are staggered so that one-third of the directors
are eligible for election each year. Under the provisions of the Restated
Certificate, the number of directors is fixed from time to time as provided in
the bylaws of the Company ("Bylaws"), which can be amended by either the board
or the Company's stockholders. Moreover, the Restated Certificate does not
mandate a staggered board. The Company believes that annual elections for all
directors will increase director accountability and improve communications
between directors and stockholders. Moreover, staggered boards are generally
believed to have the effect of delaying or preventing a change in control of the
corporation. Since RGI Holdings will own 75% of the Company's outstanding common
stock, the board does not believe that a staggered board is necessary. The
Certificate of Incorporation mandates that any director or the entire board of
directors may be removed at any time, but only for cause and only by the
affirmative vote of the holders of eighty percent (80%) or more of the
outstanding shares entitled to vote in the election of directors. The Restated
Certificate is silent with respect to removal of directors, however, under
Delaware Law, in the absence of a staggered board, directors may be removed with
or without cause by the affirmative vote of the holders of a majority of the
outstanding shares.
If the Merger Agreement is not approved, and the Restated Certificate is
approved, the board may abandon the Restated Certificate in accordance with
Delaware law.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Certain statements in this Summary and under the captions "Risk Factors,"
"Matters to be Considered by Stockholders," "Banyan," "RGI/US" and "Investment
Policies" and elsewhere in this Proxy Statement/ Prospectus, constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance, or achievements
of the Company to be materially different from any future results, performance,
or achievements expressed or implied by these forward-looking statements. Actual
results could differ materially from those projected in the forward-looking
statements based upon, among other things, the risk factors set forth elsewhere
in this Proxy Statement/Prospectus under "Risk Factors."
8
<PAGE> 19
HISTORICAL AND UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED SELECTED FINANCIAL DATA
Legend Properties, Inc. Pro Forma Condensed Consolidated Selected Financial Data
as of and for the Six Months Ended June 30, 1996
and for the Year Ended December 31, 1995
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
Cash, Cash Equivalents and Restricted Cash...................... $ 30,053,996 --
Real Estate..................................................... $118,952,318 --
Properties Owned................................................ 8 --
Total Assets.................................................... $172,145,094 --
Mortgage Loans and Notes Payable................................ $120,335,100 --
Accounts Payable and Accrued Expenses........................... $ 18,140,094 --
Total Revenue................................................... $ 19,521,860 $26,846,248
Total Costs..................................................... $ 13,187,129 $19,473,734
Selling, General & Administrative Expenses...................... $ 5,056,461 $ 9,958,197
Net Other Expense............................................... $ 5,005,896 $ 9,903,366
Net Loss........................................................ $ (2,643,982) $(12,018,750)
Net Loss Per Share of Common Stock(1)........................... $ (0.42) $ (1.91)
</TABLE>
- ------------------
(1) For the Company's pro forma periods ended June 30, 1996 and December 31,
1995, the number of shares of stock used for calculating the net loss per
share was 6,279,288.
9
<PAGE> 20
BANYAN SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------------------ ---------------------------
1991 1992 1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and Cash
Equivalents............. $ 4,167,997 $ 2,605,685 $ 3,750,553 $ 8,040,629 $ 316,012 $ 2,405,531 $ 6,647,172
============= ============= ============= ============= ============= ============= =============
Investment in Real
Estate(1)............... $177,203,644 $127,100,840 $127,562,429 $110,493,745 $103,428,617 $113,885,869 $ 96,146,824
============= ============= ============= ============= ============= ============= =============
Properties Owned.......... 15 10 8 5 5 5 5
============= ============= ============= ============= ============= ============= =============
Total Assets.............. $201,583,955 $135,816,276 $136,227,364 $124,667,926 $109,133,514 $122,254,069 $108,054,320
============= ============= ============= ============= ============= ============= =============
Mortgage Loans Payable.... $ 79,392,447 $ 35,472,262 $ 33,307,035 $ 31,932,645 $ 33,625,737 $ 31,780,184 $ 34,371,494
============= ============= ============= ============= ============= ============= =============
Total Income.............. $ 12,303,971 $ 5,184,375 $ 4,975,764 $ 3,600,930 $ 1,399,918 $ 942,545 $ 297,506
============= ============= ============= ============= ============= ============= =============
(Recovery of) Provision
for Losses on Mortgage
Loans, Notes, and
Interest Receivable and
Class Action Settlement
Costs and Expenses...... $ 723,513 $ 178,000 $ (7,916,073) $ (1,095,800) $ (906,629) $ (495,591) $ (418,972)
============= ============= ============= ============= ============= ============= =============
Provision for Losses on
Investment Properties... $ 11,567,252 $ 1,900,000 $ 4,650,000 $ 9,000,000 $ 12,900,000 $ -- $ --
============= ============= ============= ============= ============= ============= =============
Income (Loss) Before
Extraordinary Item...... $(21,030,711) $ (5,603,869) $ 1,139,858 $(12,096,171) $(18,544,207) $ (2,655,269) $ (5,318,705)
============= ============= ============= ============= ============= ============= =============
Net Income (Loss)......... $(21,030,711) $ (5,603,869) $ 1,139,858 $ (9,282,279) $(18,544,207) $ (2,655,269) $ (5,318,705)
============= ============= ============= ============= ============= ============= =============
Income (Loss) Per Share of
Common Stock Before
Extraordinary Item...... $(0.53) $(0.14) $0.03 $(0.30) $(0.47) $(0.07) $(0.13)
============= ============= ============= ============= ============= ============= =============
Net Income (Loss) Per
Share of Common
Stock(2)................ $(0.53) $(0.14) $0.03 $(0.23) $(0.47) $(0.07) $(0.13)
============= ============= ============= ============= ============= ============= =============
</TABLE>
- -------------------------
(1) Represents the carrying amount of Banyan's Investment in Real Estate less
accumulated depreciation and valuation adjustments for losses on investment
properties.
(2) For the year ended December 31, 1995, a weighted average number of shares
(39,770,637) was used for calculating Net Income (Loss) Per Share due to the
issuance of 79,909 shares of common stock during the third quarter of 1995.
For the year ended December 31, 1994, a weighted average number of shares
(39,724,995) was used for calculating Net Income (Loss) Per Share due to the
issuance of a total of 53,101 shares of common stock during the second
quarter of 1994. The shares outstanding for 1993 are 39,689,294. For the
year ended December 31, 1992 a weighted average number of shares
(39,690,132) was used for calculating Net Income (Loss) Per Share of Common
Stock due to the acquisition of 20,100 Shares of Common Stock by Banyan on
January 16, 1992 which are being treated as treasury stock for financial
statement presentation. The shares outstanding for 1991 are 39,709,394. For
the six months ended June 30, 1995 and 1996, a weighted average number of
shares of 39,742,395 and 41,507,108, respectively, were used for calculating
Net Income (Loss) Per Share due to the issuance of shares of common stock
during 1995 as described above and the issuance of shares of common stock to
RGI Holdings pursuant to the Private Placement in May 1996.
10
<PAGE> 21
QUARTERLY RESULTS OF OPERATIONS
The following is a summary of the quarterly results of Banyan's operations
for the six months ended June 30, 1996 and for the years ended December 31, 1995
and 1994.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
JUNE 30, 1995 SEPTEMBER 30, 1995 DECEMBER 31, 1995 MARCH 31, 1996 JUNE 30, 1996
------------- ------------------ ----------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Total Income..................... $ 325,174 $ 231,503 $ 225,870 $ 215,912 $ 81,594
Recovery of Losses on Mortgage
Loans, Notes, Interest
Receivable and Class Action
Settlement Costs and
Expenses....................... -- -- 411,038 418,972 --
Provision for Losses on
Investment in Real Estate(1)... -- -- 12,900,000 -- --
Operating Expenses............... 1,995,161 1,834,234 1,897,147 3,711,283 3,368,321
Income (Loss) From Operations of
Real Estate Venture............ (47,087) (67,645) (55,155) 979,831 1,499
Gain (Loss) on Disposition of
Real Estate.................... 6,541 (3,168) -- -- 63,091
------------- ------------------ ----------------- -------------- -------------
Net Loss(2)...................... $(1,710,533) $ (1,673,544) $ (14,215,394) $ (2,096,568) $(3,222,137)
============ ================= ================= ============== ============
Net Loss Per Share of Common
Stock(2)....................... $(0.04) $(0.04) $(0.36) $(0.05) $(0.07)
============ ================= ================= ============== ============
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1994 JUNE 30, 1994 SEPTEMBER 30, 1994 DECEMBER 31, 1994 MARCH 31, 1995
-------------- ------------- ------------------ ----------------- --------------
<S> <C> <C> <C> <C> <C>
Total Income.................... $1,213,720 $ 972,571 $ 688,699 $ 725,940 $ 617,371
Recovery of Losses on Mortgage
Loans, Notes, Interest
Receivable and Class Action
Settlement Costs and
Expenses...................... 796,985 -- -- 298,815 495,591
Provision for Losses on
Investment in Real
Estate(1)..................... -- -- -- 9,000,000 --
Operating Expenses.............. 2,151,917 2,361,020 1,541,806 1,810,863 2,015,086
Income (Loss) From Operations of
Real Estate Venture........... (50,202) (163,596) 717,948 (62,059) (43,629)
Arbitration Award............... -- 3,768,743 (518,743) --
Gain (Loss) on Disposition of
Real Estate................... (35,423) 2,864,083 226,264 (174,310) 1,017
-------------- ------------- ------------------ ----------------- --------------
Income (Loss) Before
Extraordinary Item............ (226,837) (2,456,705) 609,848 (10,022,477)
Forgiveness of Debt............. -- -- -- 2,813,892
-------------- ------------- ------------------ ----------------- --------------
Net Income (Loss)(3)............ $ (226,837) $(2,456,705) $ 609,848 $ (7,208,585) $ (944,736)
============== ============ ================= ================= ==============
Income (Loss) Per Share of
Common Stock Before
Extraordinary Item............ $(0.01) $(0.06) $0.02 $(0.25)
============== ============ ================= =================
Net Income (Loss) Per Share of
Common Stock(3)............... $(0.01) $(0.06) $0.02 $(0.18) $(0.02)
============== ============ ================= ================= ==============
</TABLE>
- -------------------------
(1) During the quarters ended December 31, 1995 and 1994, Banyan recorded an
additional provision for losses on investment properties of $12,900,000 and
$9,000,000, respectively.
(2) For the first and second quarters of 1995, Net Income (Loss) per share is
computed using 39,742,395 shares then outstanding. On August 25, 1995,
Banyan issued 79,909 shares of common stock to Leonard G. Levine, its
President, according to his employment agreement. Accordingly, Net Income
(Loss) per share is computed using 39,774,532 shares representing the
weighted average number of shares outstanding during the third quarter. For
the fourth quarter of 1995, 39,822,304 shares were used to compute Net
Income (Loss) per share. For the first quarter of 1996, Net Income (Loss)
per share is computed using 39,822,304 shares then outstanding. For the
second quarter of 1996, Net Income (Loss) per share is computed using
43,191,912 shares then outstanding as a result of Banyan's issuance of
18,557 shares of common stock to Leonard G. Levine, its President, according
to his employment agreement and the issuance of 7,466,666 shares of common
stock to RGI Holdings on May 21, 1996 pursuant to the Private Placement.
(3) For the first quarter of 1994, Net Income (Loss) per share is computed using
the 39,689,294 shares then outstanding. On April 29, 1994, Banyan issued
50,437 shares of its common stock to Leonard G. Levine, its President,
according to the terms of his employment agreement and 2,664 shares of its
common stock on May 31, 1994 in connection with the exercise of certain
vested options granted to certain officers of Banyan and employees of BMC
pursuant to the Executive and Directors Stock Option Grant Plan approved by
Banyan's shareholders in June of 1993. Accordingly, Net Income (Loss) per
share is computed using 39,725,119 shares representing the weighted average
number of shares outstanding during the second quarter. There were
39,742,395 shares outstanding during the third and fourth quarters of 1994.
11
<PAGE> 22
RGI/US SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------------- --------------------------
1991 1992 1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and Cash
Equivalents.............. $ 98,187 $ 396,908 $ 63,098 $ 430,819 $ 578,906 $ 448,837 $ 1,366,548
============ ============ ============ ============ ============ ============ ============
Investment in Real
Estate(1)................ $17,899,164 $15,704,445 $13,450,635 $14,153,666 $21,984,169 $16,312,999 $ 68,487,445
============ ============ ============ ============ ============ ============ ============
Properties Owned........... 2 2 3 3 3 3 3
============ ============ ============ ============ ============ ============ ============
Notes and Interest
Receivables from Related
Parties.................. $ 3,229,201 $ 3,386,589 $ 6,729,696 $17,883,808 $16,239,419 $28,165,773 $ 1,875,345
============ ============ ============ ============ ============ ============ ============
Total Assets............... $23,325,030 $22,318,056 $24,930,057 $36,061,717 $40,555,418 $46,599,079 $110,517,987
============ ============ ============ ============ ============ ============ ============
Mortgage Loans Payable..... $16,328,274 $14,484,520 $12,619,520 $21,435,774 $23,288,065 $32,128,745 $ 71,080,753
============ ============ ============ ============ ============ ============ ============
Notes and Interest Payables
to Related Parties....... $ 6,148,767 $10,725,504 $15,892,081 $17,521,229 $25,728,682 $18,244,408 $ 14,882,853
============ ============ ============ ============ ============ ============ ============
Total Revenue.............. $ 1,628,348 $ 1,982,850 $ 2,427,854 $ 2,410,407 $ 2,088,247 $ 1,170,997 $ 19,289,766
============ ============ ============ ============ ============ ============ ============
(Loss) Before Extraordinary
Item..................... $(2,004,857) $(3,446,864) $(2,491,127) $(1,504,261) $(4,069,032) $ (962,423) $ (183,740)
============ ============ ============ ============ ============ ============ ============
Net Income (Loss).......... $(2,004,857) $(3,446,864) $(2,491,127) $ 971,097 $(4,069,032) $ (962,423) $ (183,740)
============ ============ ============ ============ ============ ============ ============
Income (Loss) Per Share of
Common Stock Before
Extraordinary Item(2).... $ -- $ -- $ (2,491) $ (1,504) $ (4,069) $ (962) $ (184)
============ ============ ============ ============ ============ ============ ============
Net Income (Loss) Per Share
of Common Stock(2)....... $ -- $ -- $ (2,491) $ 971 $ (4,069) $ (962) $ (184)
============ ============ ============ ============ ============ ============ ============
</TABLE>
- -------------------------
(1) Investment in Real Estate includes investments in Grand Harbor and Oak
Harbor through December 31, 1995. Six Months Ended June 30, 1996, includes
total real estate assets of Grand Harbor and Oak Harbor.
(2) RGI/US was incorporated in December 1993. Financial data prior to December
1993 is for certain predecessor companies. At December 31, 1993, 1994 and
1995 and at June 30, 1995 and 1996 there were 1,000 shares of RGI/US common
stock outstanding.
12
<PAGE> 23
RISK FACTORS
In addition to the other information contained in this Proxy
Statement/Prospectus, the following risk factors should be considered carefully:
SIGNIFICANT DILUTION; CONFLICTING INTERESTS OF RGI HOLDINGS
The Stockholders, except RGI Holdings, will experience significant dilution
of their ownership interest in the Company as a result of the Merger. Following
the Merger, RGI Holdings, the sole shareholder of RGI/US, will own approximately
75% of the Company's outstanding shares of common stock (compared to
approximately 16% prior to the Merger) while stockholders other than RGI
Holdings will own approximately 25% of the Company's outstanding shares of
common stock. Thus, RGI Holdings will have significant influence over the
Company's management and operation and may take actions which have a material
adverse effect on the other Stockholders. The terms of both the Restated
Certificate and the Bylaws would permit RGI Holdings to take certain actions
which may disenfranchise the Company's other stockholders, such as unilaterally
amending the Bylaws. Also, since the Restated Certificate does not grant the
stockholders cumulative voting rights, RGI Holdings will be able to elect all of
the Company's directors. In addition, RGI Holdings holds approximately 88% of
the Company's outstanding indebtedness and may take actions to protect its
interest as a creditor, which actions may be inconsistent with the interests of
the Company or its other stockholders.
SUBSTANTIAL DEBT OBLIGATIONS AND TERMS OF DEBT
As of June 30, 1996, Banyan's debt obligations aggregated approximately
$34.4 million, and RGI/US' debt obligations aggregated approximately $86.0
million. After giving effect to the Merger, the Company's pro forma debt
obligations as of June 30, 1996 aggregated approximately $120.4 million, of
which approximately $6.7 million matures by December 31, 1996, an additional
$34.6 million matures by December 31, 1997, an additional $38.9 million matures
by December 31, 1998 and an additional $40.2 million matures thereafter. In
connection with the Private Placement, RGI Holdings purchased the Morgens Loan,
and has agreed, at the Effective Time, to adjust the interest rate on the debt
under the Morgens Loan from 17.5% to the prime rate plus 200 basis points.
However, if the Effective Date does not occur before December 31, 1996, then the
interest rate will remain unchanged. See "Material Agreements--Morgens Loan
Modification." Banyan has a policy against incurring indebtedness, whether
secured or unsecured, in excess of 300% of its net assets. As of June 30, 1996,
the ratio of debt to net assets for Banyan was 49%. Following the Merger, the
Company will not have a policy against incurring indebtedness in excess of any
predetermined ratio. Therefore, it is possible that following the Merger, the
Company could incur indebtedness beyond what Banyan's policy would have
permitted before the Merger. A substantial increase in the Company's leverage
ratio would increase both its debt service costs and the risk of default on its
indebtedness. See "Investment Policies."
The Company's ability to service its debts and other obligations when they
become due will depend on various factors affecting its properties, such as
operating expenses and construction schedules, which, in turn, may be adversely
affected by general and local economic conditions. Certain expenditures, such as
loan payments and real estate taxes, are not necessarily decreased by events
adversely affecting revenues generated by the properties. The cost of developing
properties may, therefore, exceed the income derived from the sale of lots or
homes. Therefore, the Company may have to obtain funds from other sources to
operate and maintain a property in order to protect its investment. A failure to
make required payments on the Company's indebtedness when due could result in a
loss of the property securing these obligations and would have a material
adverse effect on the Company's results of operations and financial condition.
NEED FOR ADDITIONAL CAPITAL
The monies provided to the Company by the Private Placement, the Morgens
Loan Modification and the anticipated sale of assets (primarily Laguna Seca
Ranch and the Lynnwood Center) will not be sufficient to allow the Company to
complete its business plans for its remaining properties. There can be no
assurance that additional capital will be available to the Company or that, if
available, the terms and conditions will be
13
<PAGE> 24
acceptable to the Company or will not be dilutive to the Company's stockholders,
including RGI Holdings. A failure to secure additional capital when needed would
have a material adverse effect on the Company's results of operation and
financial condition. See "Banyan--Property Operations" and "--Management's
Discussion and Analysis of Financial Condition and Results of Operations."
EXCHANGE LISTING
Since the Merger, in the opinion of the NYSE, constitutes the acquisition
of Banyan by RGI/US, the NYSE has advised the Company that it would be required
to file an original listing application in order to continue the listing of the
Company's shares on the NYSE. The Company does not, however, believe that it
would be able to satisfy certain of the quantitative standards imposed by the
NYSE or the CSE for an original listing. The Company 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 if the Merger
Agreement is approved. Differences in the method of operation between The Nasdaq
SmallCap Market ("Nasdaq") and the NYSE may, however, have a material adverse
effect on individuals attempting to purchase or sell shares of the Company's
common stock. For example, the spread between the bid and the ask price may be
wider on the Nasdaq than on the NYSE or the CSE. Further, the Nasdaq does not
maintain a specialist system and the market on the Nasdaq for the Company's
shares may not be as liquid as the market for the Company's shares on the NYSE
or possibly the CSE. If the Merger Agreement is not approved, the Company would
be subject to the NYSE's standards for a continued listing. From time to time,
the Company's market capitalization has fallen below the level required for a
continued listing on the NYSE. There can be no assurance that the Company would
be able to comply with the NYSE's continued listing standards or that the NYSE
would not take steps to delist the Company's shares if the Company was unable to
satisfy the continued listing criteria. If the Reverse Split is not approved,
the Company will not qualify for inclusion of its shares of common stock on the
Nasdaq. In this case, if the Company did not satisfy the continued listing
standards of the NYSE and if the CSE took action to delist the Company's shares,
there likely would not be an organized market for trading in the Company's
shares. Further, even if the Reverse Split is approved, there can be no
assurance that the Company's shares of common stock will continue to trade at a
minimum bid price of $3.00 per share. If the Company's shares do not trade at a
minimum bid price of $3.00 per share, or if the Company is unable to satisfy
other criteria for continued listing on the Nasdaq, then the Nasdaq may take
action to remove the Company's shares from inclusion on the Nasdaq.
UNCERTAIN IMPACT OF REVERSE SPLIT ON MARKET PRICE OF SHARES
There can be no assurance that the market price of the common stock after
the Reverse Split will be twenty-five times the market price that would have
existed without the Reverse Split, or that the price following the Reverse Split
will either equal or exceed or remain in excess of the market price that would
have existed without the Reverse Split.
RELIANCE OF JOSEPHTHAL ON MANAGEMENT'S FINANCIAL FORECAST AND VALUATION REPORT
The opinion of Josephthal that the consideration to be paid by Banyan
pursuant to the Merger is fair to Banyan and its Stockholders from a financial
point of view is based, in part, upon projected financial results prepared by
Banyan's management. These results have not been reviewed or passed upon by an
independent third party. Josephthal's opinion is also based, in part, upon a
valuation report of the capital stock of RGI/US (the "Capital Stock Valuation
Report") prepared by Coopers & Lybrand L.L.P. ("C&L"). Josephthal did not
perform any independent analysis of the Capital Stock Valuation Report. See
"Matters to be Considered by Stockholders--Proposal Number One--Opinion of
Advisor." Further, the financial projections contained in the information
provided to Josephthal by Banyan's management is subject to contingencies, the
occurrence of which is beyond management's control. The Company's ability to
actually realize the results projected in the information provided to Josephthal
depends upon numerous factors including, among other things, efficiently
integrating the management of properties owned by each of Banyan and RGI/US,
securing additional capital to complete the pending developments on time and on
budget and the Company's ability to modify business plans in a timely manner to
address changing needs and operating environments. All material
14
<PAGE> 25
events and circumstances cannot be anticipated or accurately predicted, and some
unanticipated events and circumstances are likely to occur. Accordingly, there
may be material differences between the projected results of operations and the
actual results of operations.
POTENTIAL CONFLICTS
Banyan Executive. Leonard G. Levine, President of Banyan, is entitled to
receive payments aggregating approximately $1.2 million as a result of the
"change of control" provisions contained in an employment agreement entered into
with Banyan in 1990 (as subsequently amended December 31, 1992 and February 8,
1995, the "Employment Agreement"). Although Mr. Levine also would receive
payments were Banyan to liquidate its assets, the amount payable to Mr. Levine
will likely be greater if the Merger is completed than if Banyan liquidates its
assets and distributes the proceeds to the Stockholders. See "Matters to be
Considered by Stockholders--Proposal Number Four--Executive Compensation."
Construction Contract. Proctor Construction Company ("Proctor") has
provided all development and construction services at Grand Harbor and Oak
Harbor since RGI/US acquired the projects in 1991. Donald C. Proctor is the
majority shareholder of Proctor, and an affiliate of Mr. Proctor owns 10% of
corporations that own Grand Harbor and Oak Harbor. This exclusive contract is in
effect until December 31, 1999, and is based on the cost of the work plus a 7%
overhead fee and a 5% profit fee, half of which is payable to Grand Harbor
Associates. There can be no assurance that RGI/US has purchased these services
at prevailing market rates. The Company anticipates continuing this relationship
following the Merger and may therefore incur costs for construction and
development services at these properties in excess of those which would prevail
in an arm's-length relationship. See "Material Agreements--Construction
Contract."
TERMINATION PAYMENTS IF MERGER FAILS TO OCCUR
Under the Merger Agreement, RGI/US is entitled to a fee of $1.0 million
(the "Termination Fee") and Banyan must repurchase the shares of Banyan's common
stock purchased by RGI Holdings in the Private Placement at a price equal to
$1.00 per share (the "Share Repurchase") if the Banyan board withdraws its
recommendation of the Merger and Banyan accepts an Acquisition Proposal (as
defined in the Merger Agreement) from another person or entity. Further, if the
Proposals are not approved, Banyan is required to reimburse RGI/US for the
expenses which it incurred in pursuing the Merger. These obligations may
adversely affect third parties who may otherwise be interested in making
Acquisition Proposals to Banyan which may be on terms more favorable to Banyan
and its stockholders than those made by RGI.
POSSIBILITY OF FUTURE NET LOSSES
Banyan has recorded net losses in two of the last three years ended
December 31, 1995, and no assurance can be given that the Company will not incur
net losses in the future. After giving effect to the Merger, on a pro forma
basis, for the year ended December 31, 1995, the Company would have sustained a
net loss of $12 million and, for the six months ended June 30, 1996, the Company
would have sustained a net loss of $2.6 million.
REAL ESTATE INVESTMENT RISKS
Real property investments are subject to certain risks that are not always
susceptible to prediction or control. The cash flow generated by, and capital
appreciation realized from, real property investments may be adversely affected
by the national and regional economic climate (which, in turn, may be adversely
impacted by plant closings, industry slow-downs, income tax rates, interest
rates, demographic changes and other factors), local real estate conditions
(such as oversupply of, or reduced demand for rental space or housing in the
area), the attractiveness of the properties, zoning and other regulatory
restrictions, competition from other land developers or developments, increased
operating costs (including maintenance costs, insurance premiums and real estate
taxes), perceptions by tenants or potential buyers of the safety, convenience
and attractiveness of the property and the willingness of the owner of the
property to provide capable management and adequate maintenance. Neither
Banyan's properties nor RGI/US' development properties currently generate
sufficient cash flow to meet operating expenses, including debt service, and
development-oriented expenditures. In light
15
<PAGE> 26
of the foregoing factors, there can be no assurance that the Company's
properties will be salable at a price or prices sufficient to recover costs. In
the event the Company is forced to sell a property, the Company may find that it
may sustain a loss due to the inherent lack of liquidity in such an investment.
The cash flow generated by, or capital appreciation from, real property
investments may also be adversely affected by changes in governmental
regulations, zoning or tax laws, potential environmental or other legal
liabilities and changes in interest rates. Real estate investments, particularly
development properties, are also relatively illiquid and, therefore, the
Company's ability to vary its portfolio promptly in response to changes in
economic or other conditions will likely be limited.
CONSTRUCTION AND DEVELOPMENT ACTIVITIES
The Company anticipates continuing substantial residential construction at
Oak Harbor and Grand Harbor following the Merger. The Company will own 90%
interests in these properties and be substantially responsible for funding the
costs associated with these activities. The Company may also engage in
residential construction at both the Chapman's Landing and Southbridge/Wayside
properties. In general, a project under development and construction is subject
to numerous risks including delays in construction, certain of which (for
example, acts of God, labor strikes or shortages of supplies) may not be
controllable, and quality of construction, which depends upon a number of
factors including the professional capabilities of the contractor(s), site
constraints, adherence to plans and specifications, adequacy of supervision, and
financial ability of the developer to bear any unanticipated additional costs of
construction. Similarly, development and construction activities generally
require various governmental and other approvals and permits, the issuance or
granting of which cannot be assured. There can be no assurance the Company will
be able to secure all entitlements and permits necessary to complete the
development and construction of each of its properties. Further, these
activities require the expenditure of funds on, and the devotion of management's
time to, projects which may not be completed or which, if completed, may not be
completed on time or on budget. Likewise, financing may not be available on
favorable terms for construction and development projects, and delays in
completing construction and development could result in increases in debt
service costs.
RGI/US currently provides, and following the Merger the Company will
continue to provide, certain warranties with respect to the quality of the
construction of the homes built at Grand Harbor and Oak Harbor. In addition,
Florida law requires homebuilders to provide for certain additional warranties
that cannot be disclaimed. Regardless of whether there are actual deficiencies
in the quality of materials used or the construction of the homes built at Grand
Harbor and Oak Harbor, the Company could face contractual or other legal claims
from homeowners at Grand Harbor or Oak Harbor for alleged breaches of these
warranties. RGI/US is currently in the process of entering into settlement
agreements with 55 homeowners at Grand Harbor regarding alleged defects in homes
constructed by a third party before RGI/US purchased Grand Harbor. The cost of
settling, or the failure to settle, future claims could have a material adverse
effect on the Company's results of operations and financial condition.
LACK OF GEOGRAPHIC DIVERSIFICATION
Each of the Chapman's Landing and Southbridge/Wayside properties is located
in close proximity to Washington, D.C. Similarly, Grand Harbor and Oak Harbor
are both located in Vero Beach, Florida. Economic weakness or recession in
either of these two areas, or the occurrence of other adverse circumstances,
could have a material adverse effect on the Company's results of operation and
financial condition.
OBLIGATIONS WITH RESPECT TO CERTAIN PROPERTIES
Banyan has an ownership interest in each of the general partners of the
partnerships that own Chapman's Landing, Southbridge/Wayside and Laguna Seca
Ranch. The partnership agreements for each of the entities owning these
properties generally grant Banyan management control over these properties
(including decisions relating to sale, refinancing and the selection of property
managers). Nevertheless, Banyan may have certain obligations to other partners
in those partnerships which it will need to consider when making decisions that
16
<PAGE> 27
affect the particular property. Thus, the Company may not be able to implement
certain policies or take certain actions that it might otherwise be able to
implement or take in the absence of these obligations.
CONCENTRATION OF TENANTS AT THE LYNNWOOD CENTER
As of June 30, 1996, three tenants at the Lynnwood Center accounted for
approximately 74% of the annual rental revenue for this property. If one or more
of these tenants were to default on its lease or file for bankruptcy or
reorganization, the Company's revenues could be reduced thereby reducing
substantially the amount realized by the Company from a sale of the Lynnwood
Center.
GOVERNMENT REGULATION
Land Use and Zoning. Although neither Banyan nor RGI is aware of
contemplated changes in land use and zoning regulations affecting their
respective properties, federal, state and local regulations may be promulgated
which could have the effect of restricting or curtailing certain uses of land or
existing structures or requiring renovation or alteration of these structures.
Any restrictions on the anticipated development of the properties of Banyan or
RGI/US could affect the market for and price of the lots or homes and prevent or
delay sales. Furthermore, obtaining any additional permits or other consents of
local governments for development of properties may require public hearings and
meetings with public officials and community groups. There can be no assurance
that some or all of the entitlements relating to Banyan's properties or those of
RGI/US will not be revoked or modified in the future. From time to time,
governmental entities have imposed limitations on the development of certain
areas because of perceived overbuilding or for other reasons. In addition, it
may be difficult or impossible to modify existing zoning to respond to changing
market conditions in order to increase the realizable value of the property. Any
revocation or modification, or refusal to modify existing entitlements, could
have a material adverse effect on the Company's results of operations and
financial condition.
Environmental Matters. Under various federal, state and local laws,
ordinances and regulations, an owner, operator, manager or developer of real
estate may be liable for the cost of removing or remediating certain hazardous
or toxic substances (including asbestos-containing materials) on, under or in
real estate owned, operated, managed or developed. These enactments often impose
liability without regard to whether the owner, operator, manager or developer
knew of, or was responsible for, the presence of the hazardous or toxic
substances. The cost of any required remediation and the liability therefor as
to any property is generally not limited under these enactments and could exceed
the value of the property or the aggregate assets of the owner, operator,
manager or developer. The presence of hazardous or toxic substances, or the
failure to properly remediate these substances, may adversely affect an owner's
ability to sell or rent the property, or to borrow money using the property as
collateral. In addition, liability may be imposed for releasing asbestos-
containing materials into the air. In connection with owning and operating its
properties, the Company may be potentially liable for these costs. The Company
does not maintain insurance for any of these potential environmental liabilities
and does not anticipate securing any such insurance following completion of the
Merger.
Americans With Disabilities Act. Under the Americans with Disabilities Act
of 1990 (the "ADA"), all public accommodations are required to meet certain
federal requirements related to access and use by disabled persons. These
requirements became effective in 1992. The ADA has separate compliance
requirements for "public accommodations" and "commercial facilities" but
generally requires that buildings be made accessible to people with
disabilities. Noncompliance with the ADA requirements could result in the
imposition of fines by the federal government or an award of damages to private
litigants.
Healthcare Regulations. RGI/US' healthcare operations in the State of
Florida, including the Royal Palm Convalescent Center, are, and after the Merger
will continue to be, subject to varying degrees of regulation and licensing by
health or social service agencies and other regulatory authorities. Changes in
the laws or new interpretations of existing laws can have a significant effect
on methods and costs of doing business. Currently, no federal rules explicitly
define or regulate assisted living. In addition, the Royal Palm Convalescent
Center does not accept Medicare or Medicaid reimbursement. However, federal,
state or local
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laws or regulatory procedures which might adversely affect assisted living
businesses could be expanded or imposed and changes to licensing and
certification standards could have a material adverse effect on the Company's
results of operations and financial condition.
UNCERTAINTY OF COMBINING HOME OWNERSHIP WITH ASSISTED LIVING
The concept of combining home ownership with assisted living services as
RGI is attempting at Oak Harbor has not been widely tested, and may not be
successful. The failure of the assisted living portion of the Oak Harbor project
to attract residents could have a material adverse effect on the Company's
results of operations or financial condition. The long-term care industry is
highly competitive and the Company expects that the assisted living business, in
particular, will become more competitive in the future. Oak Harbor will compete
with numerous other companies providing similar long-term care alternatives,
such as home health agencies, home life care providers, community-based service
programs, nursing homes, retirement communities and convalescent centers which
may be significantly larger and better capitalized. This potential increased
competition could limit Oak Harbor's ability to attract residents or expand its
assisted living business and could have a material adverse effect on the
Company's results of operations and financial condition.
LIABILITY AND INSURANCE
The Company anticipates maintaining sufficient liability insurance to cover
any legal claims made against it by third parties. There can be no assurance,
however, that the Company will be able to obtain liability insurance or that, if
coverage is available, the coverage will be available on acceptable terms. In
addition, claims in excess of the Company's insurance coverage or claims not
covered by the Company's insurance, such as claims for punitive damages, may
arise. A successful claim against the Company not covered by, or in excess of,
the Company's insurance could have a material adverse effect on the Company's
financial condition and results of operations. Claims against the Company,
regardless of their merit or eventual outcome, may also reduce the Company's
ability to attract residents or expand its business and would require management
to devote time to matters unrelated to operating the Company's business.
LITIGATION
The Company is subject to legal claims made against it by third parties,
and additional claims may be filed against it in the future. Banyan is a party
to litigation in California and Illinois in which a third party seeks
compensation arising from, among other things, the transfer to an affiliate of
the Company of title to Laguna Seca Ranch. If the Company does not prevail in
this litigation, it is possible that the Company could incur substantial
damages, which could have a material adverse effect upon the Company's financial
condition and results of operations. See "Banyan--Legal Proceedings."
LOSS OF TAX BENEFITS
Section 382 of the Code limits the use of losses and tax attributes by a
company that has undergone an "ownership change." Generally, an "ownership
change" will occur if one or more stockholders, each of whom owns 5% or more of
Banyan's stock, increase their aggregate percentage ownership by more than 50
percentage points over the lowest percentage of stock owned by those
stockholders over the preceding three year period. For this purpose, all holders
who hold less than 5% of Banyan's stock are generally treated as one 5%
stockholder. In addition, certain attribution rules are applied in determining
the level of the stock ownership of a particular stockholder. The Merger will
constitute an "ownership change" with respect to Banyan thereby limiting the
amount of taxable income after the ownership change which may be offset by
existing tax loss and tax credit carryforwards. If the ownership change occurs
at any time other than the end of Banyan's taxable year (December 31), Banyan
will be required to allocate its income or loss between the pre-change and
post-change period. This allocation must generally be accomplished by prorating
taxable income and loss between the pre-change and post-change period based on
the relative number of days in each period. Any loss allocated to the period
following the ownership change will be subject to the annual Section 382
limitation. If the annual limitation in a year after the ownership change occurs
exceeds its taxable income, the amount of loss not used will be added to the
annual limitation in the following year. Since the value of
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Banyan's assets may be less than the aggregate tax basis of Banyan's assets,
Banyan may be subject to the built-in loss limitations set forth in Section
382(h) of the Code. Built-in losses recognized in the period beginning with the
ownership change date and ending with the last day of the fifth taxable year
after the ownership change will be subject to the annual carry-over limitations.
BOOK VALUE NOT REFLECTIVE OF CURRENT REALIZABLE VALUE
The Company currently evaluates the carrying value of its real property
assets and other assets on an ongoing basis relying on a number of factors,
including operating results, business plans, budgets and economic projections.
In addition, the Company considers nonfinancial data such as continuity of
personnel, changes in the operating environment, competitive information, market
trends and client and business relationships. A change in any or all of these
factors could result in an impairment in value of the Company's assets. The
future value of these assets is subject to numerous contingencies, including the
completion of construction and development. The current realizable value may
differ significantly from the carrying value of these assets.
BANKRUPTCY RISKS
If the Company were to default on its indebtedness, it may be required to
restructure its financial affairs under the Federal Bankruptcy Code or seek some
other type of restructuring. A restructuring or other reorganization under the
Bankruptcy Code or otherwise may result in the Stockholders losing their entire
interest.
ISSUANCE OF PREFERRED STOCK OR COMMON STOCK
If the Restated Certificate is adopted, the Company's board of directors
will have the authority to cause the issuance of preferred stock in one or more
series or classes with such designations, preferences and rights and such
qualifications, limitations or restrictions as determined by the board. The
issuance of preferred stock or common stock could have a dilutive or other
material adverse effect on the holders of the Company's shares of common stock.
SHARES AVAILABLE FOR FUTURE SALE
Following the Merger, RGI Holdings will own approximately 75% of the
Company's outstanding shares of common stock. These shares are subject to resale
restrictions but a portion may, in certain circumstances, be registered for
sale. Sales of a substantial number of these shares of common stock in the
public market after the Merger or the perception that sales could occur could
adversely affect the market price of the common stock and the Company's ability
to raise capital in the future in the equity markets. See "Material
Agreements--Registration Rights Agreement."
DIVIDEND POLICY
Banyan has not paid cash dividends since the first quarter of 1990 and the
Company does not contemplate paying cash dividends until sustainable development
activity has begun on all of the projects and the Company generates cash flow in
excess of its capital needs. There can be no assurance that the Company will
ever generate sufficient cash flow to pay dividends to its stockholders. In
addition, certain of the Company's loan agreements prohibit the payment of
dividends. If the Company issues preferred stock with a dividend, the
stockholders' right to receive dividends, if any, will be subordinated to that
of the holders of preferred stock. See "Banyan--Market for Banyan's Shares and
Related Shareholder Matters" and "Description of Securities --Dividend Rights
and Restrictions."
NO APPRAISAL RIGHTS FOR STOCKHOLDERS
Under Delaware Law, the Stockholders will not have appraisal rights in
connection with the Merger.
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MATTERS TO BE CONSIDERED BY STOCKHOLDERS
PURPOSE OF THE MEETING
At the Annual Meeting, which will be held at the Metropolitan Club, 233
South Wacker Drive, 67th Floor, Chicago, Illinois 60606, on November 26, 1996,
at 3:00 p.m., local time, Stockholders will be asked to consider and vote upon
the following proposals:
<TABLE>
<S> <C>
PROPOSAL NUMBER ONE: To consider and vote upon a proposal to merge RGI/US with and
into Banyan.
PROPOSAL NUMBER TWO: To consider and vote upon a proposal to amend Banyan's
certificate of incorporation to reclassify, combine and
convert each twenty-five issued and outstanding shares of
Banyan's common stock into one issued and outstanding share.
PROPOSAL NUMBER THREE: To consider and vote upon a proposal to adopt the Restated
Certificate.
PROPOSAL NUMBER FOUR: To elect the three Nominees as directors.
</TABLE>
QUORUM AND VOTING RIGHTS; PROXIES
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
an inspector of election appointed for the meeting and will determine whether or
not a quorum is present. The presence in person or by properly executed proxy of
the holders of a majority of the issued and outstanding shares of Banyan's
common stock entitled to vote at the Annual Meeting is necessary to constitute a
quorum at the Annual Meeting. Abstentions and broker non-votes will be treated
as shares that are present at the Annual Meeting for purposes of determining
whether a quorum exists. Except with respect to Proposal Number Four,
abstentions and broker non-votes will have the effect of votes against the
proposals.
Stockholders are entitled to one vote per share. Only holders of Banyan's
common stock at the Record Date will be entitled to notice of and to vote at the
Annual Meeting. As of the Record Date, directors and executive officers of
Banyan, all of whom have indicated that they will vote all of their shares of
Banyan's common stock for each of the proposals, were owners of approximately
257,067 shares of Banyan's common stock, representing less than 1% of the
outstanding shares of Banyan's common stock. As of the Record Date, RGI Holdings
owned approximately 16% of the Company's common stock, and RGI Inc. held 160,000
shares of Banyan's common stock, representing approximately 0.4% of the
outstanding shares.
All of the proposals described above other than the election of directors
(in which the three individuals receiving the highest number of votes will be
elected as directors) must be approved by the affirmative vote of the majority
of the outstanding shares. With respect to Proposal Number One, RGI Holdings has
agreed to vote its 7,466,666 shares of Banyan's common stock in proportion to
the vote of all other Stockholders; provided that shares owned by RGI Holdings
will be counted in establishing the presence of a quorum.
All shares of Banyan's common stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in such proxies. Shares not
represented by properly executed proxies will not be voted. If no instructions
are indicated in an otherwise properly executed proxy, the Shares of Banyan's
common stock will be voted in favor of the Proposals and the Nominees. A
stockholder who has given a proxy may revoke it at any time prior to its
exercise by: (i) giving written notice thereof to the board of directors of
Banyan before the proxy is voted at the Annual Meeting; (ii) signing and
returning a later-dated proxy; or (iii) attending the Annual Meeting and voting
the shares in person. Mere attendance at the Annual Meeting will not by itself
have the effect of revoking the proxy.
Banyan will bear the cost of soliciting proxies. Brokerage firms,
fiduciaries, nominees and others holding shares of Banyan's common stock for
beneficial owners will be reimbursed for the out-of-pocket expenses in
forwarding proxy materials to these beneficial owners. In addition to the use of
the mails, proxies may be solicited by directors, officers and employees of
Banyan or Banyan Management Corp. ("BMC"), who will not be specifically
compensated for these services, by means of personal calls upon, or telephonic,
telegraphic
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or telecopy communications with, stockholders or their representatives. In
addition, Corporate Investor Communications, Inc. has been engaged by Banyan to
act as proxy solicitors and will receive a fee of $6,000 plus expenses.
PROPOSAL NUMBER ONE: TO CONSIDER AND VOTE UPON A PROPOSAL TO MERGE RGI/US WITH
AND INTO BANYAN.
BACKGROUND OF AND REASONS FOR THE MERGER
Banyan believes that the level of its capital and ability to raise
additional capital when needed is integral to its ability to maximize
shareholder value. For several years, Banyan's capital was provided from cash
generated from certain of Banyan's operations, interest on short-term
investments, cash proceeds from the sale of certain properties and distributions
received in respect of Banyan's interests in liquidating trusts established for
the benefit of creditors, including Banyan, by VMS Realty Partners and its
affiliates.
Banyan also supplemented its capital needs through various borrowings. In
June 1992, Banyan entered into an agreement with Heller Financial, Inc. pursuant
to which Heller agreed to loan Banyan approximately $10.5 million. The proceeds
of this loan were primarily utilized to fund the costs associated with
development activities on the Wayside Village property, and entitlement efforts
at the Chapman's Landing, Southbridge and Laguna Seca Ranch properties as well
as for general corporate purposes. Borrowings under this loan were subsequently
repaid from the proceeds received by Banyan on sale of certain of its
properties. In October 1994, Banyan completed a refinancing by entering into the
Morgens Loan. The proceeds from the Morgens Loan, aggregating approximately
$20.5 million, were used or designated for use to repay existing indebtedness
($12.4 million) and to pay loan closing costs, general operating expenses and
zoning and development costs associated with Banyan's development properties
($8.1 million). Banyan also restructured its obligations under the SoGen Loan
and entered into a revolving loan facility with SoGen in the principal amount of
$2.0 million to fund specific costs associated with completing lots for sale to
home builders at the Wayside Village parcel. Funding under this revolving credit
facility was subject to Banyan satisfying prefunding conditions set forth in the
loan documents. Due to a dispute between Banyan and SoGen which lasted
approximately nine months, Banyan was unable to draw any funds under this
facility. See "Banyan--Management's Discussion and Analysis of Financial
Conditions and Results of Operations." In addition, delays in the entitlement
process that Banyan was unable to control, prevented Banyan from continuing to
implement its business plan for Chapman's Landing in a timely manner, which
increased the holding costs incurred by Banyan. Further, since Banyan was unable
to make draws on the SoGen facility, Banyan was unable to complete development
of lots at the Wayside Village parcel. Due to the dispute with SoGen, Banyan did
not make interest payments due on the SoGen Loan which resulted in SoGen
declaring the loan in default. In October 1995, SoGen also cancelled the
revolving credit facility and demanded immediate repayment of all sums due under
the SoGen Loan, amounting to approximately $6.4 million.
These delays and lost lot sales also substantially contributed to a
deficiency in Banyan's capital resulting in Banyan's inability to service its
obligations under the Morgens Loan. In an effort to conserve its cash resources,
Banyan did not make interest payments on the Morgens Loan which were due on
January 1, 1996 and April 1, 1996 aggregating approximately $2.0 million.
Morgens notified Banyan that failure to make these interest payments constituted
an "event of default" under the loan agreement evidencing the Morgens Loan, but
did not exercise any of its rights and remedies under those documents against
Banyan in an effort to provide Banyan with an opportunity to restructure its
debt obligations.
Due to the deficiencies in its capital, the board directed management to
increase its efforts to secure additional funding. During the course of these
efforts, Banyan's management engaged in discussions with numerous parties, none
of which resulted in any offers or indications of interest until Banyan was
approached by representatives of RGI in late January 1996. In early February,
representatives of both Banyan and RGI met to discuss the initial terms of a
business combination between the parties, and shortly thereafter representatives
from Banyan toured certain of the properties owned by RGI/US (the "RGI/US
Properties"). These discussions culminated in the parties entering into a
confidentiality agreement and subsequently a letter of intent under which RGI
Holdings agreed to provide Banyan with a cash infusion (both equity and debt)
and to merge RGI/US with and into Banyan.
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On February 27, 1996, Banyan convened a special meeting of its board to
discuss the RGI proposal. Mr. Levine, Banyan's President, provided the members
of the board with an overview of the RGI organization and its properties. The
board, management and Banyan's counsel then discussed the terms contained in the
letter of intent and information about the business plans for each RGI/US
Property, particularly the Oak Harbor property. Mr. Levine advised the Board
that rather than make both an equity and debt investment, RGI was willing to
make an equity investment and to purchase the Morgens Loan and SoGen Loan. He
noted that RGI was willing to modify the terms of each loan if it was successful
in purchasing these loans. Mr. Levine noted that it was unlikely that either
Morgens or SoGen would modify these loans in a similar manner. In addition, Mr.
Levine apprised the board of another proposal regarding a possible investment in
Banyan which had been recently received by Banyan's management. Mr. Levine
contrasted this proposal with the RGI proposal and discussed the assumptions
underlying management's analysis of each proposal. The board subsequently
directed Mr. Levine to continue negotiating with RGI as well as with the other
entity which had made overtures regarding a possible investment and directed Mr.
Levine to seek the services of an investment banker to evaluate and advise the
board on the overall fairness of any transaction entered into by Banyan.
Following this meeting, Banyan's management continued discussions with
representatives of RGI and the other party regarding a possible investment.
Management ultimately concluded that the other party's proposal was unworkable
and would not provide the capital needed by Banyan to continue implementing its
business plans. Concurrently, officers of Banyan, certain employees of BMC and
Banyan's counsel commenced due diligence investigations of RGI/US, RGI Holdings,
and the RGI/US Properties. Similarly, negotiations commenced with RGI/US and RGI
Holdings regarding the terms of a definitive agreement and plan of merger.
These discussions continued for several weeks with each side exchanging
multiple proposals. On March 27, 1996, the board once again convened a special
meeting to review the status of discussions with RGI. At this meeting, the board
was informed of, and discussed extensively, the strategic rationale for, and the
potential risks and benefits of, the proposed merger with RGI/US, as well as the
material terms of the draft merger agreement. The board and management also
discussed the other party's proposal and management's conclusion that the
proposal was unworkable and unlikely to provide Banyan with capital needed to
continue implementing its business plan. The board also interviewed two
investment banking firms as candidates to serve as adviser to the board in
connection with the Merger and discussed and reviewed a financial analysis
prepared by Banyan's chief financial officer. As part of this analysis,
management discussed the ongoing negotiation between Banyan and RGI regarding
the purchase of each of the Morgens Loan and the SoGen Loan. Mr. Levine advised
the board that RGI was directly negotiating with Morgens regarding the purchase
of the Morgens Loan and added that RGI had agreed to return to the Company the
warrants which were issued to the holders of the Morgens Loan so they could be
cancelled. The board and management then discussed the efforts made by
management to evaluate certain of the RGI/US Properties, and, in particular, the
assisted care concept being marketed at the Oak Harbor property. The board and
management discussed the assumptions underlying management's financial analysis
including, but not limited to, the discount rates utilized in present valuing
the cashflow projections under the merger scenario and the liquidation scenario.
These projections indicated greater value to the stockholders from the proposed
merger and related transactions than from a liquidation of Banyan's assets. In
addition, the board and management discussed issues concerning the management of
Banyan on a post-merger basis. Mr. Levine indicated that no resolution had been
reached in discussions with RGI regarding the composition of a post-merger
management team, but he indicated that existing management would likely continue
following the closing of the Private Placement for some period of time, although
he noted that RGI would likely designate an individual to fill the vacancy
currently existing on Banyan's board. Mr. Levine indicated that that designee
would likely be Mr. Kenneth Uptain, who had been principally involved in
negotiating the Merger on behalf of RGI. Finally, the board and management, with
the assistance of counsel, reviewed a memorandum prepared by Banyan's general
counsel summarizing the salient terms of the draft merger agreement including,
but not limited to, the conditions under which Banyan could terminate the merger
agreement, as well as the instances in which Banyan would be obligated to pay
break-up and termination fees to RGI. The board concluded that the payment of
the break-up and termination fees provided for in the draft merger agreement
were reasonable in relation to the
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objectives being sought by Banyan, in particular noting that these fees were
necessary to entice RGI to engage in these discussions.
Following the March 27th meeting, Mr. Levine, with the assistance of
counsel and the other members of Banyan's management, continued to negotiate the
substantive terms of the merger agreement with representatives of RGI. Each
party continued its due diligence investigation during this time period, and on
April 1, 1996, Banyan received a draft copy of a valuation of the net assets of
RGI/US prepared for RGI (the "Net Asset Valuation Report"). A special meeting of
the board of directors was convened on April 4, 1996 to discuss formally
engaging one of the two parties who had made presentations at the March 27th
meeting to serve as an adviser to render a fairness opinion to the board. Mr.
Levine also provided the board with an update on the status of discussions with
RGI and reviewed the Net Asset Valuation Report. The board decided to engage
Josephthal to serve as an adviser for purposes of rendering a fairness opinion
on the transaction. The board made its decision based upon, among other things,
the board's prior relationship with Josephthal, which had performed advisory
work previously for Banyan, and on the fact that Josephthal's fees were in a
range which the board believed was reasonable in relation to the nature of the
transaction and Banyan's financial position. The board was also advised that the
preliminary net asset valuation of RGI/US had yielded a value of approximately
$71 million, which would have resulted in the issuance of approximately 151
million shares to RGI Holdings in the Merger. Mr. Levine apprised the board of
the issues that management would raise with RGI and C&L regarding the
preparation of its Capital Stock Valuation Report. See "--Opinion of Advisor."
He also advised the board that representatives of both Banyan and Josephthal
would review the assumptions utilized in the preparation of the Net Asset
Valuation Report and that management would also review the results. The board
and management also discussed the substantive changes which had occurred in the
negotiations since the last board meeting. Mr. Levine advised the board of RGI's
negotiations to purchase the Morgens Loan and the SoGen Loan. Mr. Levine noted
that as part of the consideration surrounding modification of these loans and to
take account of downward pressure on the Company's stock price, he had discussed
lowering the price at which RGI Holdings would purchase shares from Banyan from
$.50 per share to $.46875 per share. The Board agreed with Mr. Levine's
recommendation but noted that a Merger Agreement should not be signed, even if
all the substantive terms were agreed upon, until Banyan was provided with
evidence of a written agreement between RGI and the holders of the Morgens Loan.
Management and the board also further discussed the "liquidation" analysis
prepared by management and which reflected management's best estimate of
Banyan's value assuming that each of Banyan's properties were sold in an orderly
basis in their current condition. Mr. Levine reported that this liquidation
analysis yielded an "equity" value of approximately $26 million for Banyan which
Mr. Levine noted was less per share than the projected value of the Merger even
taking into consideration the substantial dilution that existing stockholders
would realize in the Merger. The board and management also again discussed the
financial projections which had been prepared by management and presented to the
board at the meeting held on March 27th. The board asked for additional time to
study the materials and asked for supplementary information regarding various
provisions in the draft merger agreement and agreed to meet the following week.
A special meeting of the board was subsequently convened on April 8, 1996.
The board was apprised of the status of negotiations with RGI and management
answered questions concerning the materials provided to the board at the
previous meeting. The board was advised that representatives of both Banyan's
management and Josephthal had met with representatives of C&L to review the
methodologies and assumptions utilized in preparing the Net Asset Valuation
Report. The board and management also discussed a memorandum prepared at the
board's request detailing the Company's obligation to Mr. Levine if he were
terminated without cause following completion of the proposed merger and
comparing it to the Company's obligation to Mr. Levine if the assets were
liquidated. Mr. Levine advised the board that he would be entitled to
approximately $1.2 million as compared to approximately $880,000 (based on a
hypothetical scenario) that he would be entitled to receive if Banyan liquidated
its properties and distributed the proceeds to the stockholders. The board and
management also continued to study the business plan presented to Banyan by RGI
and made available to the board for its review. The board and management engaged
in extensive discussion regarding the projections and assumptions utilized by
RGI in preparing its business plan and the board questioned Banyan's management
on the reasonableness of the assumptions utilized in the projections. Management
advised the board that it had prepared its own internal projections based on the
RGI business
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plan and was slightly more conservative in its assumptions. Mr. Levine noted
that this internal plan served as the basis for management's negotiations and
discussions with RGI and that based on this "modified" plan, management believed
that the proposed Merger, Private Placement and loan modifications provided
significant benefits to Banyan and its stockholders. The board directed Mr.
Levine to continue negotiations with RGI and to specifically engage in
additional discussions with RGI regarding the future management of the entity on
a post-merger basis.
Management, with the assistance of counsel, continued to negotiate the
substantive terms of the Merger Agreement with representatives of RGI
culminating in a draft agreement which management concluded was on terms and
conditions favorable to Banyan and its stockholders. A special meeting of the
board of directors was convened on April 11, 1996 to discuss this draft
agreement, as well as to question representatives from Josephthal on the results
of its analysis. Representatives of Josephthal summarized their work, advising
the board that they had visited certain of Banyan's properties near Washington,
D.C., as well as reviewed drafts of Banyan's annual report on Form 10-K, the
draft merger agreement presented to the board at this meeting, as well as the
liquidation analysis prepared by Banyan's management. Josephthal then advised
the board that, pending completion of the Net Asset Valuation Report, it was
prepared to issue an opinion to the board that the consideration to be paid by
Banyan as reflected in the draft merger agreement presented to the board for its
review and consideration was fair to Banyan and its stockholders from a
financial point of view. Josephthal provided the board with a review of the
methodology which it utilized in coming to this conclusion and answered
questions from the board relating to that analysis. See "--Opinion of Advisor"
for further discussion of the methodology utilized by Josephthal.
The board, management and representatives of Josephthal discussed the
particular difficulty associated with establishing orderly liquidation values,
especially in light of the substantial acreage owned by Banyan. Following this
discussion, the board advised management that they had completed their review of
the materials furnished to them in the prior few weeks and authorized Mr. Levine
to execute and deliver the Merger Agreement substantially in the form discussed
at this meeting subject to any changes which management believed were necessary
to effectuate the intent of the agreement.
Subsequent to this board meeting, management of Banyan and representatives
of Josephthal engaged in extensive discussions with RGI regarding the Net Asset
Valuation Report. In particular, representatives of each of RGI, Banyan and
Josephthal focused on the fact that the "net assets" of RGI/US and not the
capital stock of RGI/US had been valued. Mr. Levine was informed on April 12,
1996 by representatives of RGI that a valuation of the capital stock of RGI/US,
as opposed to a valuation of the net assets, would reduce the value of RGI/US by
approximately $20 million due to potential tax liabilities. Representatives of
each of the parties proceeded to negotiate a solution to the issue. Banyan's
management concluded that some, if not all, of the taxes could be reduced by use
of Banyan's net operating losses. Further, Banyan concluded that if RGI agreed
to reimburse the Company in the event that tax liability was incurred on the
sale of the RGI/US Properties, then the potential tax liability would not alter
the economics of the transaction. Mr. Levine confirmed that Josephthal would not
alter its fairness opinion if Banyan were able to negotiate an acceptable tax
indemnification agreement. Banyan then suggested, and RGI agreed to, the concept
of a tax indemnification agreement pursuant to which RGI Holdings and its parent
entity would agree to indemnify the Company for any tax liability which the
Company might incur in connection with future sales of RGI/US Properties or tax
liabilities which the Company might incur on the sale of properties owned by
Banyan on the date of the merger which tax liability would not have been
incurred but for the use of Banyan's net operating loss carryforwards to shield
prior gain recognized by the Company on the sale of RGI/US Properties. RGI and
Banyan agreed to negotiate the specific terms and conditions of the tax
indemnification agreement before closing the Private Placement. Consequently,
Banyan executed and delivered the Merger Agreement with RGI/US and agreed to
convert all of the outstanding shares of common stock of RGI/US into
approximately 151 million shares of Banyan's common stock on the effective date
of the merger. Drafts of the tax indemnification agreement were subsequently
distributed for discussion and review among the parties following the execution
and delivery of the Merger Agreement.
Negotiations continued between RGI and Banyan over the terms and conditions
of the tax indemnification agreement as well as the agreements modifying the
Morgens Loan and the SoGen Loan. In addition,
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C&L issued the Capital Stock Valuation Report which valued the capital stock of
RGI/US. The Capital Stock Valuation Report specifically took into account the
potential corporate level federal and state income tax liabilities associated
with the RGI/US Properties. The Capital Stock Valuation Report concluded that
the value of the RGI/US capital stock was approximately $51.4 million. The
Private Placement was originally scheduled to close on May 15, 1996. On May 14,
1996, a special meeting of the board of directors of Banyan was convened at
which time the board was informed that the Private Placement would likely not
close on May 15. Mr. Levine advised the board that discussions were ongoing
between Banyan and RGI/US over the terms and conditions of the tax
indemnification agreement but that as of the date of that meeting, no agreement
had been reached. In addition, Mr. Levine advised the board that agreements
modifying the Morgens Loan and the SoGen Loan between Banyan and RGI Holdings
had also not been concluded. The board and management engaged in a discussion of
the impact of the RGI transaction on the tax position of Banyan and provided
management with additional thoughts and comments on the proposed tax
indemnification agreement. The board and management also discussed the impact of
the proposed loan modification agreements on Banyan and how these modification
agreements would be impacted by approval or nonapproval of the Merger. For
additional discussion regarding the loan modification agreements, see "Material
Agreements--Morgens Loan Modification; SoGen Loan Modification" below. Mr.
Levine also advised the board that RGI had indicated that following the Merger,
Mr. Uptain would become President of the Company and management functions would
be shifted from Chicago to Seattle. Mr. Levine advised the board that for at
least one year, the Company would likely utilize the administrative services
provided by BMC, and that discussions were under way concerning the shifting of
several BMC employees to Banyan's payroll.
Discussion subsequently continued, but the parties were unable to agree
upon the specific terms and conditions of the tax indemnification agreement. The
issue was resolved when RGI Holdings agreed to reduce the number of shares which
it would receive upon merging RGI/US with and into Banyan from approximately 151
million to approximately 109 million to take into account the capital stock
valuation. On May 16, 1996, another special meeting of the board of directors
was convened wherein Mr. Levine advised the board on RGI's agreement on the
valuation issues, as well as the status of the loan modification agreements. The
board and management also discussed overtures made to Banyan by one of Banyan's
shareholders indicating a desire to make an investment in Banyan on terms
similar to the Private Placement but without any proposal to purchase the
Morgens Loan and the SoGen Loan. The board evaluated this offer and concluded
that it was inadequate. The board then directed management to proceed with the
RGI transaction. After completing documentation of the loan modification
agreements and receiving the final Capital Stock Valuation Report, the parties
completed the Private Placement on May 21, 1996.
On August 27, 1996 the Company's board of directors discussed the
desirability of proposing the Reverse Split. Mr. Levine advised the board that
the Reverse Split was a necessary element in the Company's efforts to qualify
its shares of common stock for inclusion on the Nasdaq. Mr. Levine explained
that Nasdaq requires entities included on the Nasdaq to have a minimum bid price
of $3.00 per share. As of September 13, 1996, the board authorized Mr. Levine to
propose the Reverse Split for a vote of the Stockholders and the Company and RGI
subsequently amended the Merger Agreement to, among other things, give effect to
the Reverse Split by reducing the number of shares issuable to RGI Holdings upon
completion of the Merger from approximately 109 million to approximately 4.3
million shares.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS OF BANYAN
Banyan's board of directors believes that the Merger is fair to, and in the
best interests of, Banyan and its stockholders. ACCORDINGLY, THE BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, AND THE ACTIONS
CONTEMPLATED THEREBY INCLUDING THE REVERSE SPLIT, ADOPTION OF THE RESTATED
CERTIFICATE AND THE ELECTION OF THE NOMINEES AND UNANIMOUSLY RECOMMENDS THAT ITS
STOCKHOLDERS APPROVE EACH PROPOSAL AND ELECT THE NOMINEES. In reaching this
determination, the
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board of directors consulted with Banyan's management, as well as its financial
advisor, legal counsel and accountants, and considered a number of factors
including but not limited to:
(i) Banyan's need for additional capital to continue implementing its
business plans;
(ii) RGI Holdings' willingness, as part of the overall transaction, to
purchase the Morgens Loan and the SoGen Loan and to provide the Company
with enhanced flexibility by amending certain provisions contained in the
loan agreements evidencing these loans;
(iii) the likelihood that the sale of Banyan's real properties in
their "as is" state would result in less value to Banyan's stockholders
than if the business plans for each asset were to continue to be
implemented;
(iv) the board's receipt of an opinion from Josephthal that the
consideration to be paid by Banyan pursuant to the Merger is fair from a
financial point of view to Banyan and its stockholders; and
(v) the belief that the merger with RGI/US presents Banyan with an
opportunity to diversify its portfolio and enter into new markets and new
businesses.
The board balanced these factors against a number of factors which it
considered as negative aspects of the Merger, including without limitation the
following:
(i) the transactions contemplated by the Merger Agreement including
the Private Placement dilute substantially the interests of the
Stockholders, except RGI Holdings;
(ii) the Merger will result in a change of control of the Company;
(iii) Banyan may have to pay substantial amounts of money to RGI/US or
RGI Holdings if the board withdraws its recommendation of the Merger and
pursues an alternative transaction even if the alternative transaction is
in the Stockholders' best interests;
(iv) Banyan has no previous experience in the assisted living business
being conducted at the Oak Harbor property which exposes the Company to an
entirely different set of risks than previously faced by Banyan; and
(v) Banyan's ability to utilize its net operating losses and tax loss
carryforwards will be substantially limited by the Merger.
After balancing these factors, the board concluded that the Merger and the
transactions contemplated by the Merger Agreement, including the Private
Placement and the modifications to the Morgens Loan and SoGen Loan, were in the
best interests of Banyan and its stockholders.
OPINION OF ADVISOR
In connection with the Merger, the Company engaged Josephthal Lyon & Ross
to render an opinion to the board as to the fairness, from a financial point of
view, of the consideration to be paid by Banyan. No limitations were imposed on
Josephthal by the Company's board or management with respect to the
investigations made or procedure followed by Josephthal in preparing and
rendering its opinion, and the Company's board and management cooperated fully
with Josephthal in connection therewith. Josephthal rendered its initial opinion
to the board on April 12, 1996 that, based upon the facts and circumstances as
they existed at that time and subject to certain limitations, the consideration
to be paid by Banyan in the Merger is fair to Banyan and its stockholders from a
financial point of view. Thereafter, RGI, Banyan and Josephthal focused on the
tax issues raised by the Net Asset Valuation Report. Subsequently, RGI/US and
Banyan agreed to enter into a tax indemnification agreement. The parties were,
however, unable to agree upon the specific terms and conditions of the tax
indemnification agreement. After RGI Holdings agreed to reduce the number of
shares which it would receive upon merging RGI/US with and into Banyan from
approximately 151 million to approximately 109 million to take into account the
capital stock valuation, Josephthal agreed to issue its opinion on May 20, 1996,
based upon the facts and circumstances as they existed at that time and subject
to certain limitations. A copy of Josephthal's May 20, 1996 opinion is attached
as Annex C to this
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Proxy Statement/Prospectus. The following summarizes the analysis that
Josephthal used in arriving at its opinion.
Transaction Analysis. Assuming a value per share of Banyan's common stock
issued in the Merger of $.46875, Josephthal noted that the aggregate
consideration to be received by the sole shareholder of RGI/US pursuant to the
Merger would be approximately $51.4 million.
Liquidation Analysis. In analyzing Banyan's existing properties, and in
light of Banyan's default under the Morgens Loan and the SoGen Loan, Josephthal
performed a discounted cash flow analysis of the present value of the projected
liquidation cash flows to be received in an orderly liquidation of Banyan's
properties based on projections provided by Banyan's management. These
projections were based upon certain values for properties that were under
contract to be sold or had been sold as of April 29, 1996 as well as offers and
estimated auction prices for other properties provided by third parties. For
purposes of its analysis, Josephthal utilized discount rates ranging from 15.0%
to 25.0% and assumed a liquidation period through the end of fiscal year
December 31, 1998. This analysis resulted in reference ranges of per share value
of $.43 to $.50.
Reliance on Appraisal of RGI/US Capital Stock. In analyzing the value of
RGI/US' capital stock, Josephthal relied exclusively on the Capital Stock
Valuation Report prepared by C&L. This report utilized an income approach
incorporating discounted cash flow models to value the respective RGI/US
Properties. The Capital Stock Valuation Report concluded that the value of the
capital stock of RGI/US was approximately $51.4 million. Josephthal took note of
the fact that C&L did not perform any analyses with respect to any of the assets
of Banyan, and did not comment upon the fairness of the proposed Merger.
Josephthal was also advised by C&L that the Capital Stock Valuation Report did
not constitute an audit, examination, review or compilation of historical or
prospective financial information conducted in accordance with Generally
Accepted Auditing Standards or with standards established by the American
Institute of Certified Public Accountants and that accordingly, C&L was unable
to, and did not, express any opinion or any other form of assurance with respect
to the financial information contained in the Capital Stock Valuation Report.
Comparable Companies Analysis. Josephthal reviewed and compared the
financial and market performance of the following group of nine publicly traded
real estate development companies with that of Banyan: Banyan Mortgage Investors
L.P.; Banyan Strategic Realty Trust; Banyan Strategic Land Fund II; Killearn
Properties, Inc; Cadiz Land Company, Inc.; Catellus Development Corp.;
Resurgence Properties, Inc.; Bresler & Reiner, Inc.; and Blue Ridge Real Estate
Co. Josephthal selected these companies on the basis of various factors,
including each company's primary focus as a real estate company engaged in
property development. Josephthal examined certain publicly available financial,
operating and stock market performance data, including enterprise value (defined
as the equity market value adjusted by adding net debt and deducting marketable
securities and estimated cash proceeds from the exercise of certain stock
options) as a multiple of latest 12 months ("LTM") revenues and operating
earnings and equity market value as a multiple of net earnings, book value and
next fiscal year estimated earnings. Josephthal applied certain of these
multiples to Banyan's LTM revenues and book value for the twelve months prior to
December 31, 1995. The median implied equity values for Banyan were $.16 per
share based on revenues and $1.40 per share based upon book value.
Comparable Transactions Analysis. Using publicly available information,
Josephthal analyzed the implied purchase prices and transaction multiples in the
following selected merger and acquisition transactions since March 1994
involving real estate companies: Public Storage Properties/Storage Equities,
Inc.; New Mexico & Arizona Land Co./Sun NE LLC; Koll Management
Services/Unknown; and HIP Properties/JER Partners II LLC. The analysis
considered the multiple of enterprise value to revenues and operating income and
the multiple of equity values to earnings and book value. In addition,
Josephthal reviewed and analyzed the premiums paid by the acquirors over the
closing prices of the targets on the last trading day prior to each transaction
announcement date. Since none of the foregoing transactions involved companies
with similar business and financial characteristics or real estate assets as
Banyan, Josephthal did not derive an equity valuation reference range for Banyan
based on this analysis and considered such analysis to be less significant than
the other analyses performed by Josephthal.
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Stock Trading History Analysis. Based on publicly available information,
Josephthal reviewed the history of the closing prices and volume for Banyan's
common stock and compared the closing prices of Banyan's common stock with the
effective per share price of $.47 implied by the $51.4 million valuation of
RGI/US and the terms of the Merger Agreement. Josephthal observed that between
April 16, 1995 and April 15, 1996 (the date of the Merger announcement),
Banyan's common stock traded in a range of $.75 to $.41 per share.
Banyan's board of directors retained Josephthal based upon its experience
and expertise as a nationally recognized investment banking and advisory firm.
Josephthal's relationship with Banyan dates from April 1994, when Josephthal was
engaged to provide financial advisory services to Banyan and its affiliates, for
which Josephthal received customary fees.
In consideration for Josephthal's services in connection with the Merger,
Banyan has paid Josephthal a fee of $100,000 and has agreed to pay Josephthal an
additional $25,000 upon Josephthal's delivery of confirmation of its opinion
dated May 20, 1996. In addition, Banyan has agreed to reimburse Josephthal for
its out-of-pocket expenses.
DESCRIPTION OF THE MERGER AGREEMENT
This Proxy Statement/Prospectus summarizes the material terms of the Merger
Agreement. This discussion is subject to and qualified in its entirety by
reference to the Merger Agreement, a copy of which is attached to this Proxy
Statement/Prospectus as Annex A and which is incorporated herein by reference.
General. Banyan entered into the Merger Agreement with RGI/US and RGI
Holdings dated as of April 12, 1996, and amended and restated as of May 20, 1996
and as further amended September 17, 1996. As contemplated by the Merger
Agreement, on May 21, 1996, RGI Holdings purchased 7,466,666 shares (298,666
after giving effect to the Reverse Split) of authorized but unissued shares of
Banyan's common stock for $.46875 per share, or an aggregate purchase price of
$3.5 million. In addition, RGI Holdings purchased the Morgens Loan and the SoGen
Loan and entered into agreements modifying the terms and conditions governing
each loan. At May 31, 1996, the aggregate principal amounts outstanding under
the Morgens Loan and the SoGen Loan were $24.2 million and $6.4 million,
respectively. Under the terms of the modification of the Morgens Loans, RGI
Holdings agreed to terminate all of the warrants previously issued in connection
with the Morgens Loan. See "Material Agreements--Morgens Loan Modification" and
"--SoGen Loan Modification."
Banyan used a portion of the proceeds from the Private Placement to pay:
(i) approximately $1.2 million in interest on the Morgens Loan and a $500,000
loan restructuring fee to RGI Holdings; and (ii) $319,782 in interest, and
$302,708 in late fees and legal fees, on the SoGen Loan.
Subject to the terms and conditions of the Merger Agreement, RGI/US will be
merged with and into Banyan in accordance with Delaware Law and the Washington
Business Corporation Act ("Washington Law"), the separate existence of RGI/US
will cease, and Banyan will be the surviving company, although Banyan's name
will be changed to Legend Properties, Inc. In connection therewith, all of the
issued and outstanding shares of RGI/US Common Stock will be converted into
4,386,986 newly-issued shares of Banyan's common stock. As a result, RGI
Holdings will own approximately 75% of Banyan's common stock.
Effective Time of the Merger. The Merger, if approved and adopted by the
requisite stockholder votes and if all other conditions set forth in the Merger
Agreement are satisfied or waived, will become effective upon the filing of a
certificate of merger in the Office of the Secretary of State of Delaware in
accordance with Delaware Law and a plan of merger in the Office of the Secretary
of State of Washington in accordance with Washington Law.
Conditions to the Merger. The obligations of each party to effect the
Merger are conditioned upon, among other things, the satisfaction or waiver of
each of the following conditions: (i) the truth and accuracy of all of the
representations and warranties made by each party; (ii) completion by each party
of their respective covenants contained in the Merger Agreement; (iii) receipt
of legal opinions by each party from their respective legal counsel as to
certain legal matters; (iv) receipt of all written consents, assignments,
waivers or authorizations required to effect the Merger; and (v) receipt of
"comfort letters" by each party from their
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respective independent public accountants. In addition, Banyan will not be
obligated to proceed with the Merger unless the board receives confirmation of
the Fairness Opinion from Josephthal at the Merger Closing.
The respective obligations of each party to effect the Merger are further
conditioned on, among other things: (i) approval of the Reverse Split; (ii)
adoption of the Restated Certificate; (iii) election of the Nominees to the
board; and (iv) expiration or termination of the waiting period (and any
extension thereof) under the HSR Act, if applicable.
Certain Covenants. During the time period between the closing of the
Private Placement and the Effective Time or termination of the Merger Agreement
(whichever occurs first) the parties have agreed to conduct their respective
businesses in the ordinary course. In addition, Banyan has agreed not to
solicit, initiate or encourage the making of any Acquisition Proposal, or engage
in negotiations with any person or entity that has made an Acquisition Proposal,
or negotiate any Acquisition Proposal, or except as required by law, disclose
any nonpublic information relating to Banyan or any of Banyan's Subsidiaries or,
afford access to its properties, books or records. Nevertheless, Banyan or
Banyan's board of directors may take any of these actions to the extent that the
board, after consultation with and based upon the advice of counsel, determines
in good faith that action is required to comply with the board's fiduciary
duties under Delaware Law.
Termination. The Merger Agreement may be terminated and abandoned at any
time prior to the Effective Time, whether before or after approval of the Merger
and the Merger Agreement, by the stockholders of Banyan, in a number of
circumstances including: (i) the mutual consent of the parties; (ii) by Banyan,
if the Fairness Opinion has not been confirmed or has been withdrawn; (iii) by
any of the parties if the Stockholders do not approve the Merger and the related
proposals; (iv) by Banyan if the board approves an Acquisition Proposal; (v) by
RGI/US or RGI Holdings, if the board withdraws its recommendation of the Merger
or approves an Acquisition Proposal; (vi) by Banyan if a material adverse change
has occurred in that there has been a ten percent (10%) or greater decline in
the fair market value of the capital stock of RGI/US on the date of the Merger
as compared to that reported in the Capital Stock Valuation Report unless RGI/US
elects to recompute the number of shares of Banyan's common stock to be received
by RGI Holdings in the Merger to reflect the decline in value; and (vii) by any
party if the Effective Date has not occurred by December 31, 1996.
Termination Amount and Expenses. Except as set forth below, each party is
required to bear its own fees and expenses, including fees and expenses of
counsel and other advisors. Banyan may, however be required to pay certain fees
to RGI/US and RGI Holdings if the board withdraws its recommendation of the
Merger, or approves an Acquisition Proposal; or if Banyan breaches its
representations, warranties, covenants or agreements contained in the Merger
Agreement. In each case, Banyan is required to pay to RGI/US a termination fee
of $1.0 million and to repurchase the shares purchased by RGI Holdings in the
Private Placement at a price equal to $1.00 per share. Similarly, if the Merger
Agreement is terminated because the Stockholders do not approve the Merger, then
Banyan is required to reimburse RGI/US and RGI Holdings for their respective
expenses (including without limitation, fees of attorneys, accountants, and
appraisers) incurred in pursuing the Merger and related transactions.
Certain Tax Consequences of the Merger. The following discussion summarizes
certain Federal income tax consequences of the Merger. The discussion does not
address all aspects of Federal income taxation that may be relevant to
particular shareholders and may not be applicable to shareholders who are not
citizens or residents of the United States, or who will acquire their Banyan
common stock pursuant to the exercise or termination of employee stock options
or otherwise as compensation, nor does the discussion address the effect of any
applicable foreign, state, local or other tax laws. This discussion assumes that
all shareholders of RGI/US and Banyan hold their stock in the applicable
companies as capital assets within the meaning of Section 1221 of the Code. EACH
STOCKHOLDER SHOULD CONSULT THEIR OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF
FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
THE FOLLOWING DISCUSSION MAY NOT APPLY TO PARTICULAR CATEGORIES OF HOLDERS
OF SHARES OF BANYAN'S COMMON STOCK SUBJECT TO SPECIAL TREATMENT
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UNDER THE CODE, SUCH AS FOREIGN HOLDERS AND HOLDERS WHOSE SHARES WERE
ACQUIRED PURSUANT TO THE EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS
COMPENSATION. BANYAN'S STOCKHOLDERS ARE URGED TO CONSULT WITH THEIR TAX ADVISORS
TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING ANY STATE,
LOCAL OR OTHER TAX CONSEQUENCES OF THE MERGER.
In the opinion of Shefsky Froelich & Devine Ltd., counsel to Banyan: (i)
the Merger will, under current law, constitute a tax-free reorganization under
Section 368(a) of the Code, and Banyan and RGI/US will each be a party to the
reorganization within the meaning of Section 368(b) of the Code; and (ii) the
Reverse Split will constitute a "recapitalization" qualifying as a
reorganization under Section 368(a)(1)(E) of the Code. In rendering such
opinions, counsel has relied upon written representations and covenants of
Banyan, RGI/US and RGI Holdings. No ruling has been sought from the Internal
Revenue Service as to the Federal income tax consequences of the Merger or the
Reverse Split, and the opinion of counsel set forth below is not binding on the
Internal Revenue Service or any court.
The following Federal income tax consequences will arise for the
Stockholders and Banyan from the Merger and the Reverse Split:
1. The Merger will not be a taxable event for the Banyan Stockholders
because they will continue to hold the same Banyan common stock they owned
before the Merger. Therefore, the Banyan Stockholders will not recognize
gain or loss for federal income tax purposes from the Merger, and will
continue to have the same tax basis and holding period for their shares of
Banyan common stock after the Merger.
2. Banyan will not recognize gain or loss as a result of the Merger.
3. Banyan will recognize neither gain nor loss from the transactions
occurring pursuant to the Reverse Split, including the exchange of the
shares of Banyan common stock and the payment of cash in lieu of fractional
shares.
4. The receipt of shares of Banyan common stock pursuant to the
Reverse Split will produce neither gain nor loss, but the Stockholders who
receive cash in lieu of fractional shares will be considered to have had
such fractional shares redeemed by Banyan and hence will recognize gain or
loss based on the rules in Section 302 of the Code. Under these rules,
redemption payments will be considered either: (i) a dividend producing
ordinary income to the extent of current or accumulated earnings and
profits; or (ii) payments in exchange for stock producing capital gain or
loss, and the determination focuses on whether the payments are considered
essentially equivalent to a dividend. Banyan does not consider the payments
in lieu of fractional shares to be essentially equivalent to a dividend,
and will report the payments as being in exchange for the fractional share.
Any gain or loss recognized as a result of the receipt of such payments
will be capital gain or loss equal to the difference between the cash
received and the portion of the Stockholder's basis in stock allocable to
such fractional share interest. If the payments in lieu of fractional
shares are treated as a dividend, the tax consequences will be as follows:
(i) ordinary income to the extent of current earnings and profit as
computed under Section 316 of the Code, of which Banyan currently has none;
(ii) a tax free distribution to the extent of the Stockholder's basis in
the fractional shares, which will depend on each Stockholder's tax
situation; and (iii) capital gain for the remaining amount received.
The opinion referred to above has been filed as an exhibit to this Proxy
Statement/Prospectus.
Regulatory Approvals. The HSR Act and the rules and regulations thereunder
provide that certain transactions may not be consummated until required
information and materials have been furnished to the Department of Justice and
the Federal Trade Commission and certain waiting periods have expired or been
terminated. The respective obligations of Banyan and RGI/US to consummate the
Merger are conditioned upon all waiting periods (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act having expired or
been terminated. See "Matters to be Considered by Stockholders--Proposal Number
One--Conditions to the Merger."
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Notwithstanding the termination of any waiting period under the HSR Act, at
any time before or after the consummation of the Merger, either the Department
of Justice or the Federal Trade Commission could take such action under the
antitrust laws as either deems necessary or desirable in the public interest, or
certain other persons could take action under the antitrust laws, including
seeking to enjoin consummation of the Merger.
RGI/US and Banyan are not currently aware that any other material
governmental permits, approvals, consents or similar actions are required for
consummation of the Merger, except for compliance with applicable federal and
state securities laws and applicable laws or regulations of applicable foreign
jurisdictions.
Accounting Treatment. For accounting purposes, the Merger will be treated
as a recapitalization of RGI/US, with RGI/US as the acquiror of Banyan. From and
after the Effective Date, the historical financial statements of the Company
will be those of RGI/US.
Nasdaq Listing. It is a condition to the parties' obligations to complete
the Merger that all of the shares of the Company's common stock be approved for
inclusion, subject to certain conditions, on the Nasdaq. See "Matters to be
Considered by Stockholders--Proposal Number One--Conditions to the Merger."
Appraisal Rights. Under Delaware Law, stockholders of Banyan are not
entitled to appraisal rights in connection with the Merger.
THE BOARD OF DIRECTORS OF BANYAN HAS UNANIMOUSLY APPROVED THE MERGER, THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREIN AND UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AND THE
TRANSACTIONS CONTEMPLATED THEREBY. SEE "MATTERS TO BE CONSIDERED BY
STOCKHOLDERS--PROPOSAL NUMBER ONE-- BACKGROUND OF AND REASONS FOR THE MERGER"
AND "--REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS OF
BANYAN."
Vote Required. The proposal to approve the Merger Agreement must be
approved by the affirmative vote of a majority of the outstanding shares of
Banyan. With respect to the vote on this issue, RGI Holdings has agreed to vote
its 7,466,666 shares of common stock in proportion to the vote of all other
Stockholders. Stockholders are not being asked to vote upon the Private
Placement or the purchase of the Morgens Loan and the SoGen Loan by RGI Holdings
the provisions of which are contained in Article I of the Merger Agreement.
Therefore, disapproval of the Merger Agreement will have no effect on these
transactions except as contemplated by the agreement between the Company and RGI
Holdings regarding modification of the Morgens Loan. See "Material
Agreements--Morgens Loan Modification."
PROPOSAL NUMBER TWO: TO CONSIDER AND VOTE UPON A PROPOSAL TO AMEND BANYAN'S
CERTIFICATE OF INCORPORATION TO RECLASSIFY, COMBINE AND CONVERT EACH TWENTY-FIVE
ISSUED AND OUTSTANDING SHARES OF BANYAN'S COMMON STOCK INTO ONE ISSUED AND
OUTSTANDING SHARE.
The Company's shares of common stock are currently listed for trading on
the NYSE and the CSE. Since the Merger, in the opinion of the NYSE constitutes
the acquisition of Banyan by RGI/US the NYSE advised the Company that it would
be required to file an original listing application in order to continue the
listing of the Company's shares on the NYSE. The Company does not, however,
believe that it can satisfy certain of the quantitative listing criteria
established by the NYSE or the CSE for an original listing. As a result, the
Company applied to have its shares of common stock included for quotation on The
Nasdaq SmallCap Market and has been conditionally approved for listing. This
approval is subject to the Company's ability to meet the $3.00 minimum bid price
requirement after the proposed Merger and the Reverse Split. As a result, the
Company is proposing the Reverse Split pursuant to which each twenty five shares
of the Company's issued and outstanding common stock will be reclassified,
combined and converted into one issued and outstanding share of common stock.
The Company believes that the Reverse Split should result in the Company's
shares trading at a bid price of at least $3.00 per share. On ,
1996, the closing price of the Company's shares as reported on the NYSE was
$ per share. Each Stockholder's percentage interest in the Company and
proportional voting power will remain unchanged as a result of the Reverse Split
31
<PAGE> 42
except for minor differences resulting from the treatment of fractional shares.
Similarly, the rights and privileges of the holders of the common stock will be
unaffected. The Company's board of directors has established a record date of
October 9, 1996 for the Reverse Split (the "Split Record Date"). All holders of
record on the Split Record Date will become the holders of one share of the
Company's Common Stock for each twenty-five shares that are owned by the holder
on the Split Record Date. No fractional shares will be issued in connection with
the Reverse Split. In lieu of fractional shares, the Company will pay a cash
adjustment in respect of each fractional interest equal to the fractional
interest multiplied by the average trading price of a share of common stock for
the five days preceding the Annual Meeting. Each existing certificate
representing shares of the Company's common stock will, until surrendered or
exchanged as described below, be deemed, for all corporate purposes, to evidence
ownership of the whole number of shares of the Company's common stock as a
appropriately adjusted for the Reverse Split, and if transferred or sold, will
automatically be reissued in the transferee's name in the new post-split number
of shares. If the Merger Agreement is approved, the conversion of the shares of
common stock will occur immediately prior to the Effective Time and the Restated
Certificate will reflect the effect of the Reverse Split. If the Merger
Agreement is not approved, but the Reverse Split is approved, then Article
Fourth of the Company's existing Certificate of Incorporation will be amended to
reflect the effect of the Reverse Split. The text of this proposed amendment is
attached as Annex D to this Proxy Statement/Prospectus. If approved, the Reverse
Split will occur without any further action on the part of Stockholders and
without regard to the date or dates certificates representing shares of the
Company's common stock are, at the option of the Stockholders, physically
surrendered for transfer or exchange. If the Company's shares begin trading on
the Nasdaq and the Company's financial performance improves to a level which
allows the Company to qualify for inclusion of its shares on The Nasdaq National
Market (the "Nasdaq NMS") then the Company will seek to satisfy the listing
criteria for the Nasdaq NMS. There can be no assurance, however, that the
Company will be able to meet the Nasdaq NMS listing criteria at any time in the
future.
THE BOARD OF DIRECTORS OF BANYAN HAS UNANIMOUSLY APPROVED THE REVERSE SPLIT
AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE TO APPROVE THE REVERSE
SPLIT.
Vote required. The approval of the Reverse Split requires the affirmative
vote of a majority of the outstanding shares of Banyan.
PROPOSAL NUMBER THREE: TO CONSIDER AND VOTE UPON A PROPOSAL TO ADOPT THE
RESTATED CERTIFICATE.
As a condition to the completion of the Merger, Banyan is seeking a vote of
the Stockholders to adopt the Restated Certificate. The discussion set forth
below does not purport to be complete and is subject to and qualified in its
entirety by reference to Delaware Law and also to the Certificate of
Incorporation and the full text of the Restated Certificate set forth as Annex B
to this Proxy Statement/Prospectus.
Capitalization. The Company will be authorized to issue 100.0 million
shares of common stock all of which are to be one class and having a par value
of $0.01 per share. At the Effective Time each twenty-five issued and
outstanding shares of the Company's common stock will thereby and thereupon be
combined into one share of the Company's common stock. No fractional shares of
common stock will be issued in connection with the Reverse Split, but in lieu
thereof, the Company will pay a cash adjustment in respect of any such
fractional interest in an amount equal to the fractional interest multiplied by
the average trading price of a share of common stock for the five days preceding
the Annual Meeting.
Authorized Preferred Stock. The Restated Certificate authorizes the board
to issue up to five million shares of preferred stock, $0.01 par value per
share, in one or more series, with such rights and preferences as determined by
the board of directors. Pursuant to this provision, the board may, without
stockholder approval, authorize the issuance of preferred stock which ranks
senior to the common stock with respect to the payment of dividends and the
distribution of assets upon liquidation and may issue preferred stock with
voting and conversion rights which could adversely affect the voting power of
the holders of common stock. While the Company has no present intention of
issuing shares of preferred stock, the authorization of preferred stock will
32
<PAGE> 43
give the Company flexibility to issue the shares to raise additional capital.
See "Risk Factors--Need for Additional Capital" and "Description of Securities."
Change of Corporate Name and Stated Duration. The Restated Certificate
changes Banyan's name to "Legend Properties, Inc." to reflect the new identity
of the Company after the Merger. BMC owns the rights to the name "Banyan
Mortgage Investment Fund", and after the anticipated termination of the BMC
Administrative Services Agreement, the Company will not be entitled to further
use of the name. Under the Certificate of Incorporation, Banyan's corporate
existence is due to terminate on December 31, 2008 unless extended. Under the
Restated Certificate this limitation on duration has been deleted, so that like
most corporations, the Company will have an unlimited life.
Board of Directors. Under the Certificate of Incorporation, Banyan is
required to have not less than three (3) nor more than nine (9) directors, each
of whom serves three (3) year terms that are staggered so that one-third of the
directors are eligible for election each year. Under the Restated Certificate,
the number of directors is fixed from time to time as provided in the Company's
Bylaws, which can be amended by either the board or the Company's stockholders.
Moreover, the Restated Certificate will eliminate a staggered board. The Company
believes that annual elections for all directors will increase director
accountability and improve communications between directors and stockholders.
Moreover, staggered boards are generally believed to have the effect of delaying
or preventing a change in control of the corporation. Since RGI Holdings will
own 75% of the Company's outstanding common stock, the board does not believe
that a staggered board is necessary. The Certificate of Incorporation mandates
that any director or the entire board of directors may be removed at any time,
but only for cause and only by the affirmative vote of the holders of eighty
percent (80%) or more of the outstanding shares entitled to vote in the election
of directors. The Restated Certificate is silent with respect to removal of
directors; provided, however, in the absence of a staggered board, under
Delaware Law directors may be removed with or without cause by the affirmative
vote of the holders of a majority of the outstanding shares.
THE BOARD OF DIRECTORS OF BANYAN HAS UNANIMOUSLY APPROVED THE RESTATED
CERTIFICATE AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL
AND ADOPTION OF THE RESTATED CERTIFICATE. SEE "MATTERS TO BE CONSIDERED BY
STOCKHOLDERS--PROPOSAL NUMBER ONE--BACKGROUND OF AND REASONS FOR THE MERGER" AND
"--REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS OF BANYAN."
Vote Required. The approval and adoption of the Restated Certificate is
subject to approval of Proposal Number One and requires the affirmative vote of
a majority of the outstanding shares of Banyan. If Proposal Number One is not
approved, and the Restated Certificate is approved, the board may abandon the
Restated Certificate in accordance with Delaware law.
PROPOSAL NUMBER FOUR: TO ELECT THE THREE NOMINEES AS DIRECTORS.
As a condition to the completion of the Merger, the Banyan board has
nominated the Nominees to serve as directors of the Company until the next
annual meeting of stockholders or as otherwise provided in the Company's
governing organizational documents or Delaware law. Unless instructions to the
contrary are given, the persons named as proxy voters in the accompanying proxy,
or their substitutes, will vote for the following nominees with respect to all
proxies received by Banyan. If any nominee should become unavailable for any
reason, the votes will be cast for a substitute nominee designated by the board.
Banyan has no reason to believe that any of the nominees named will be unable to
serve if elected. The Nominees are as follows: Walter E. Auch, Sr. (who is
currently a member of the board of directors), Olav Revhaug and Fred E. Welker,
III. Biographies of the Nominees appear below:
WALTER E. AUCH, SR. was the chairman and chief executive officer of the
Chicago Board Options Exchange from 1979 to 1986. Prior to that time, he was
executive vice president, director and a member of the executive committee of
PaineWebber. Mr. Auch is a director of Pimco L.P., Geotek Communications, 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
33
<PAGE> 44
since 1988. Mr. Auch is a trustee of Banyan Strategic Realty Trust and a
director of Banyan Strategic Land Fund II and BMC.
OLAV REVHAUG has been the Chief Financial Officer and Secretary of RGI Inc.
since August 1994. He is also a director of RGI Antilles, Brooks Sports, Inc.,
RGI Distribution, Inc. and RGI Industries, Inc., and the secretary of Alaska Net
Company and RGI Inc., and the secretary/treasurer of Rena Box Packaging, Inc.,
all of which are affiliated with RGI Antilles. From December 1986 to April 1994,
Mr. Revhaug was Chief Financial Officer of Gresvig ASA, a sporting goods company
based in Norway and affiliated with RGI Antilles. Mr. Revhaug owns 76,923
shares, or approximately 0.1%, of the outstanding stock of RGI Antilles.
FRED E. WELKER, III has been the President of Realty Financial Advisors,
Inc., a real estate investment banking firm, since January 1993. From 1982 to
1992, Mr. Welker was the Executive Vice President for the Southeast Regional
Office of Sonnenblick--Goldman Company, a real estate investment banking firm.
From 1981 to 1982, Mr. Welker was Vice President--Joint Ventures for American
Savings & Loan Association, and from 1976 -1981 he was a commercial loan officer
with First Federal of Broward (now Glendale Federal).
Other members of the board of directors, not standing for election are:
ROBERT M. UNGERLEIDER is presently practicing law with and is of counsel to
the firm of Lane Felcher Kurlander & Fox 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 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 Banyan since 1988. Mr. Ungerleider is a
director of BMC and Banyan Strategic Land Fund II.
KENNETH L. UPTAIN has been the President and Director of RGI/U.S., RGI
Holdings and RGI Real Estate since August 1994. He is also a director of RGI
Antilles and RGI Inc. Since 1988, he has been the President and a Director of
The Resource Group, Inc., a real estate development company affiliated with RGI
Inc. Mr. Uptain was elected to the Banyan board in May 1996 in connection with
the Private Placement and pursuant to the Merger Agreement. Mr. Uptain owns
777,815 shares or approximately 1.2% of RGI Antilles.
DIRECTOR COMPENSATION
The Directors of Banyan have been, and the independent directors (those who
are neither officers of the Company nor affiliated with RGI or any related
entity) of the Company will continue to be 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 of Banyan has been and each director of the
Company will continue to be, reimbursed for out-of-pocket expenses incurred in
attending meetings of the board.
EXECUTIVE COMPENSATION
Compensation paid to executive officers of the Company for the years ended
December 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------
AWARDS PAYOUTS
---------- -------
ANNUAL COMPENSATION SECURITIES
--------------------------------- RESTRICTED UNDERLYING
OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
YEAR SALARY BONUS(2) COMPENSATION AWARD(2) SARS(#) PAYOUTS COMPENSATION
---- -------- -------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leonard G. Levine...... 1995 $105,606 $171,805 n/a $ 42,951 n/a n/a n/a
President(1) 1994 102,800 231,166 n/a 58,002 n/a n/a n/a
1993 100,000 -- n/a n/a n/a n/a n/a
</TABLE>
- -------------------------
(1) No other executive officer earned more than $100,000 in salary and bonus.
(2) Pursuant to Mr. Levine's employment agreement the incentive amounts which
were earned in the current year are paid or awarded to him by the Company in
the following year.
34
<PAGE> 45
Mr. Levine serves as Chief Executive Officer of Banyan pursuant to the
Employment Agreement, which expires December 31, 1998 and under which Mr. Levine
is paid a salary equal to $105,606 per year, adjusted on January 1 of each year
based on increases in the "consumer price index". Mr. Levine is also eligible to
receive compensation under an incentive program included in his Employment
Agreement. Since January 1, 1993, Mr. Levine has been eligible to earn incentive
compensation based and calculated on the following four components: (i) 1.0% of
the amount of the Company's collateralized claims existing as of December 31,
1992, which are converted into cash; (ii) 3.0% of the amount of the Company's
unsecured claims which are converted into cash; (iii) 0.1% of all distributions
of capital; and (iv) .14% of all distributions of income to stockholders of the
Company.
All incentive amounts earned by Mr. Levine are paid 80.0% in cash and 20.0%
in shares of the Company's common stock (the "Award Shares") on or before March
15 of the year following the period for which the incentive is earned. The table
above sets forth the incentive compensation earned by Mr. Levine during the last
three fiscal years. Mr. Levine received 79,909 Award Shares (issue price equal
to $0.537 per share) and 50,437 Award Shares (issue price equal to $1.15 per
share) in respect of incentive compensation earned by Mr. Levine for the fiscal
years ended December 31, 1994 and December 31, 1993 respectively. In addition,
Mr. Levine received 18,577 Award Shares (issue price equal to $0.43125 per
share) for the fiscal years ended December 31, 1995. The Award Shares issued to
Mr. Levine are held in trust by the Company, pending satisfaction of the vesting
requirements contained in the Employment Agreement. Mr. Levine will vest on the
earlier of: (i) December 31, 1997; (ii) the termination of Mr. Levine's
employment by the Company without just cause; or (iii) the permanent disability
or death of Mr. Levine. Mr. Levine is, however, entitled to receive any
dividends paid in respect of Award Shares prior to satisfying the vesting
requirements. If Mr. Levine is not employed by the Company on December 31, 1997,
these Award Shares will be forfeited unless the reason he is not employed is due
to his death or permanent disability, or if he was terminated without just
cause. The incentive compensation earned by Mr. Levine during the fiscal year
ended December 31, 1994 is comprised of: (i) $203,941 in respect of
collateralized claims converted into cash; and (ii) $10,815 in respect of
unsecured claims converted into cash. The incentive compensation earned by Mr.
Levine during the fiscal year ended December 31, 1993 is comprised of: (i)
$51,972 in respect of collateralized claims converted into cash; and (ii)
$237,196 in respect of unsecured claims converted into cash.
The Employment Agreement can be terminated at any time upon 90 days written
notice by either Mr. Levine or the Company. If the Company terminates the
agreement for cause or Mr. Levine voluntarily terminates the agreement, all
incentive compensation not previously paid to Mr. Levine is forfeited and he is
not entitled to any severance payment. If Mr. Levine dies or becomes permanently
disabled, he is entitled to all incentive compensation earned through the date
of his disability or death. Mr. Levine also receives the same disability and
life insurance benefits as all other BMC employees. If his employment is
terminated without cause following a change of control (as defined in the
agreement) the Company is obligated to pay Mr. Levine's salary during the
remainder of the employment period plus incentive compensation equal to that
which he would have earned if all of the Company's assets had been converted
into cash and all proceeds were distributed on the date of termination. RGI
Holdings has advised Mr. Levine that it will likely cause the Company to
terminate Mr. Levine following completion of the Merger. Under the Employment
Agreement, the Merger will constitute a "change of control" under the Employment
Agreement. As a result, Mr. Levine will be entitled to receive payments
aggregating approximately $1.2 million. 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 in accordance with
an expression of interest received by the Company prior to Mr. Levine's
termination), plus an amount equal to the full cost of Mr. Levine's COBRA
benefits for one year.
EXECUTIVE AND DIRECTORS' STOCK OPTION PLAN
On June 25, 1993, the stockholders approved and adopted the 1993 Executive
and Directors' Stock Option Plan (the "Plan"). The Plan grants the board
authority to issue up to 1.0 million shares of the Company's common stock under
the Plan. Under the Plan, each director holding office on the tenth business
35
<PAGE> 46
day after adjournment of the annual meeting automatically receives an option to
acquire 25,000 shares (1,000 shares after giving effect to the Reverse Split).
The options granted to the directors vest 50.0% upon the first anniversary of
the date of the grant and 50.0% upon the second anniversary of the date of the
grant and expire ten years from the date of the grant. The exercise price for
the options granted to the directors in 1995, 1994 and 1993 is $0.625, $0.6875
and $0.625 per share, respectively.
The board administers the Executive Option Grant Program portion of the
Plan 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 the Plan 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: (i) death or permanent and total disability of an
optionee; or (ii) retirement in accord with the Company's or BMC's retirement
practices, then any unexercised options to acquire shares will be exercisable at
any time within one year in the case of (i) and ninety days in the case of (ii)
(but in no case beyond the expiration date specified in the Option Agreement).
In addition, if the Administrative Services Agreement between the Company and
BMC is terminated, each holder of options who is also an employee of BMC at the
time of the termination who is not thereafter immediately hired by the Company
may exercise any unexercised option for a period of one year from the date of
the termination of the Administrative Services Agreement. If, while unexercised
options remain outstanding under the Plan, the Company ceases to be a
publicly-traded company, or if the Company merges with another entity or a
similar event occurs, all options outstanding under the Plan immediately shall
become exercisable.
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 Grant Program, other forms of consideration acceptable to the board. If
the Company declares a stock dividend, splits its stock, combines or exchanges
its shares, or engages in any other transactions which result 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.
Pursuant to the Plan, the board granted options to purchase the indicated
number of shares of the Company's common stock on the dates indicated: 121,000
on May 16, 1996; 121,000 on February 8, 1995; and 120,000 on January 12, 1994 to
the Company's officers and certain BMC personnel under the plan, at exercise
prices of $0.4375 per share, $0.50 per share, and $1.125 per share,
respectively.
Pursuant to the terms of the grants, options for all shares granted under
the Executive Option Grant Program are exercisable and vest 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. The board is
granted discretion to determine the term of each option granted under the
Executive Option Grant Program, but in no event may the term exceed ten years
and one day from the date of grant. The Merger will constitute a "change in
control" under the Plan, accelerating the vesting requirements and making each
option granted under the Plan immediately exercisable.
36
<PAGE> 47
All options granted under the Plan will be automatically deemed adjusted to
give effect to the Reverse Split if it is approved. Stock options granted to or
exercised by named executive officers for the year ended December 31, 1995, are
as follows:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZED
---------------------------------------------------- VALUE
% OF TOTAL AT ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS IN FISCAL OR BASE EXPIRATION ------------------
NAME GRANTED(1) YEAR PRICE DATE 5% 10%
- --------------------------------- ---------- ---------- -------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Leonard G. Levine................ 80,000 66% $ 0.50 Feb. 9, 2005 $25,156 $63,750
</TABLE>
- -------------------------
(1) The remainder of the 1995 stock options were granted to employees of the
Company and BMC.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION/SAR
VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS OPTIONS
ACQUIRED AT DECEMBER 31, AT DECEMBER 31,
ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
- ----------------------------------------- -------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Leonard G. Levine........................ -- $ -- 80,000/160,000 $--/$--
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the ownership interest in the shares of
Banyan's common stock, par value $0.01 per share, owned directly or indirectly
as of August 26, 1996 by: (i) entities known by Banyan (based on filings made
with the Commission on Schedule 13D) to be the beneficial owner of more than
five percent
37
<PAGE> 48
(5%) of the outstanding shares of Banyan's common stock; and (ii) the directors,
principal officers and Nominees of Banyan:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE
(IF REQUIRED) OF BENEFICIAL OWNERSHIP PERCENT
OF BENEFICIAL OWNER OF SHARES OF CLASS
--------------------------------------------------- ----------------------- --------
<S> <C> <C>
RGI Holdings, Inc.(1).............................. 7,466,666 15.8%
U.S. Bank Centre
1420 Fifth Avenue, 42nd Floor
Seattle, Washington 98101
Gabriel Capital, L.P............................... 2,952,400 6.2%
c/o Lawrence G. Goodman, Esq.
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
Walter E. Auch, Sr................................. 16,000 *
Robert M. Ungerleider.............................. 39,000 *
Leonard G. Levine.................................. 166,903 *
Neil D. Hansen..................................... 12,664 *
Robert G. Higgins.................................. 22,500 *
Olav Revhaug....................................... -0- *
Fred E. Welker, III................................ -0- *
Kenneth L. Uptain.................................. -0- *
Shares owned by all Directors, Officers and
Nominees of the Company, as a group (8 persons).... 257,067
</TABLE>
- -------------------------
* Less than 1.0%
(1) RGI Inc., of which RGI Holdings is an indirect subsidiary, also owns 160,000
shares of Banyan's common stock. RGI Holdings disclaims beneficial ownership
of these 160,000 shares. The shares beneficially owned by RGI Holdings are
pledged to Fokus Bank ASA as security for a loan agreement between RGI
Holdings and Fokus Bank ASA.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Administrative costs, primarily salaries (except for Mr. Levine's salary)
and certain general and administrative expenses, are incurred on Banyan's behalf
by BMC, which is reimbursed by Banyan at cost for the expenses. BMC is owned by
Banyan, Banyan Short Term Income Trust, Banyan Strategic Realty Trust, and
Banyan Strategic Land Fund II (the "Banyan Funds"). Mr. Levine is a director and
is the president of BMC but he receives no additional compensation for services
rendered in this capacity. Messrs. Teglia, Hansen and Higgins are officers of
both Banyan and BMC although they are compensated for their services to both
entities by BMC which is then reimbursed by Banyan for the portion of these
costs which relate to services performed by these individuals on behalf of
Banyan. Messrs. Auch and Ungerleider serve as directors of BMC but receive no
additional compensation for their service as directors of BMC. Costs allocated
to Banyan and the other Banyan Funds to which BMC provides administrative
services are based upon the actual number of hours spent by BMC personnel on
matters related to that particular entity. Banyan's allocated share of costs for
the years ended December 31, 1995, 1994 and 1993 aggregated $1,092,081,
$1,141,675 and $971,321, respectively. As one of its administrative services,
BMC serves as the paying agent for general and administrative costs of Banyan.
As part of providing this payment service, BMC maintains a bank account on
behalf of Banyan. As of June 30, 1996, Banyan had a net payable due to BMC of
$184,857. If BMC's Administrative Services Agreement with the Company is
terminated, the Company will be required to pay BMC a termination fee of
$350,000, plus an adjustment to reflect changes in the consumer price index
since
38
<PAGE> 49
January 1, 1994. Following the Merger, the Company may continue to obtain
certain services from BMC at rates to be agreed to by BMC and the Company.
In January 1993, Kenneth L. Uptain, the President of RGI/US and RGI
Holdings and a member of the board of directors of Banyan since May 1996, loaned
Grand Harbor Associates $543,750. The note, which bore an interest rate of 7.0%,
was converted into equity of RGI Inc. in 1994 and into equity of RGI Antilles in
1995. In each of fiscal 1994 and 1995, Grand Harbor Associates paid $100,000 in
consulting fees to KL Associates, Inc., a corporation of which Mr. Uptain is the
sole shareholder.
THE BOARD OF DIRECTORS OF BANYAN UNANIMOUSLY RECOMMENDS ELECTION OF THE
NOMINEES.
Vote Required. The three individuals receiving the highest vote totals will
be elected as directors. If the Merger is not approved by the Stockholders, and
Messrs. Revhaug and Welker have been elected to the board of directors, each
will resign effective immediately. Mr. Auch will, however, continue to serve on
the board. The Company does not anticipate immediately filling any vacancies
that would be created by the resignation of Messrs. Revhaug and Welker.
39
<PAGE> 50
BANYAN
BUSINESS OPERATIONS
A substantial portion of Banyan's assets, measured by their respective
carrying values, is comprised of interests in three undeveloped or partially
developed parcels of land, aggregating approximately 5,600 acres; two of which
are located in close proximity to Washington D.C. (Southbridge/Wayside and
Charles County) and one of which is located in Monterey County, California
(Laguna Seca Ranch). These properties are in various stages of entitlement or
development and were acquired by Banyan through foreclosure proceedings or deeds
in lieu thereof from borrowers which had defaulted on loans that Banyan made to
these borrowers. These properties are owned in partnerships which Banyan
controls and of which it effectively owns the entire economic interest since the
interests of the limited partners in each of these partnerships (the general
partners of which also are owned by Banyan) are subordinated to a priority
return on investment to Banyan and Banyan believes that the proceeds that may be
generated from these properties will likely be less than the amounts due to
Banyan.
Banyan believes that the market for the sale of large tracts of undeveloped
land is currently limited and consequently has attempted to enhance the value of
these parcels by selectively developing these parcels and by modifying their
zoning and entitlements. With the exception of the Laguna Seca Ranch, Banyan
believes that there is a substantial difference between the potential value
which might be realized if the parcels are further developed and zoned, and the
immediate salable value of these parcels. In the case of Laguna Seca Ranch,
however, Banyan believes that the difference between the property's "as is"
value and its value after further development is not substantial due to the
property's uniquely attractive location and smaller size.
PROPERTY OPERATIONS
The following sets forth a description of Banyan's primary real estate
assets. The business plans described herein are subject to numerous risks and
uncertainties which are more fully discussed under the section headed "Risk
Factors." If the Company is unable to secure capital to meet its future needs,
the Company's business plan for each property will likely be materially revised,
which may have a material adverse effect on the Company's financial conditions
and results of operations.
Southbridge/Wayside. Southbridge/Wayside is a 2,554-acre land assemblage
located along the Potomac River in the eastern portion of Prince William County,
Virginia. The project is located approximately 24 miles south of Washington, DC
and is accessible both by interstate highway and by commuter rail service. For
financing reasons, the assemblage is actually owned in two separate
partnerships. The assemblage commonly known as Wayside Village (Phase I of
Southbridge) is comprised of approximately 506 acres and, prior to being
acquired by the Company, received zoning entitlement for the development of a
maximum of 2,224 residential units and 280,000 square feet of commercial space.
Banyan's business plan for this parcel, however, contemplates the development of
lots for 1,706 units comprised of single family, townhome and multi-family lots.
Banyan believes this plan best maximizes the value of this parcel based on
existing and anticipated market conditions, even though it is zoned for greater
density. If market conditions change, Banyan can increase, to a certain extent,
the proportion of multi-family lots to be developed under existing zoning. If
Banyan elects to develop additional multi-family lots beyond that currently
entitled, such a change would likely require approval of local zoning
authorities. The other portion of the assemblage known as the Southbridge parcel
is comprised of approximately 2,048 acres, which is comprehensively zoned for
4,400 residential units and 4.2 million square feet of commercial space. The
property overlooks approximately two miles of the Potomac River. Development of
the Southbridge parcel will likely take 15-20 years. Banyan anticipates
beginning development of the Southbridge parcel as soon as the inventory of lots
at the Wayside Village parcel is substantially depleted or a major commercial
tenant is located for the site.
Since acquiring its interest in the Southbridge/Wayside project, Banyan has
invested approximately $30.6 million to fund infrastructure, development,
entitlement and other costs associated with the project with substantially all
of the investment being made in the Wayside Village parcel. As of August 28,
1996 there were 1,124 unfinished residential lots and land sufficient to
accommodate 280,000 square feet of commercial space available for development
and sale under the current development plan for the Wayside portion of the
project.
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To date, Banyan has sold 582 residential lots to builders, who have constructed
and sold 70 single family houses and 410 townhomes. Banyan currently has a
contract to sell an additional 29 single family lots (three each quarter) to PC
Homes. Banyan previously had a contract to sell 242 lots. In April 1996,
Richmond American Homes ("Richmond") exercised its right to terminate a contract
to purchase 242 lots which it had previously executed, since Banyan was unable
to deliver finished lots to Richmond. Banyan anticipates that approximately
$12.3 million will be required to complete the development of the Wayside
portion of the project which it anticipates completing in stages to minimize the
amount of external capital which will be required to complete this portion of
the project. Banyan expects to utilize a portion of the proceeds received from
sale of the property commonly known as 120 South Spalding to fund a portion of
these costs. The remaining capital needs are projected at approximately $35
million, which Banyan hopes to fund by establishing a revolving construction
line with a commercial bank and making draws, when needed, against that line.
The Company will not initiate substantial development activities at
Southbridge/Wayside until construction financing has been obtained. See "Risk
Factors--Substantial Debt Obligations and Terms of Debt."
Chapman's Landing. Chapman's Landing is a 2,254-acre parcel of land zoned
for a master-planned community located along the Potomac River in the western
portion of Charles County, Maryland, approximately 20 miles from Washington,
D.C. The project is included in the overall comprehensive development for
Charles County, Maryland and for 4,600 residential units, including
approximately 2,300 single-family lots and approximately 2,300 townhome and
multi-family lots, and 2.26 million square feet of commercial space. The Company
anticipates developing Chapman's Landing in five phases over a period of 15 to
20 years. Since acquiring its interest in Chapman's Landing in 1991, Banyan has
invested approximately $12.3 million to fund marketing, entitlement, and
carrying costs of the project. Banyan intends to begin work on infrastructure
site improvements, and the development of the initial phase, consisting of 576
residential lots for sale to commercial home builders in the fourth quarter of
1996 or first quarter of 1997. As of August 28, 1996, Banyan had executed a
total of two sales contracts with home developers for an aggregate of
approximately 166 residential finished lots. These contracts are subject to
normal and customary terms and conditions including due diligence, feasibility
studies and other performance contingencies. Banyan is also negotiating to sell
additional finished lots or development sites with several other national and
regional builders and developers.
Banyan anticipates that it will need approximately $29 million to continue
the initial phase of developing 576 lots at Chapman's Landing. Banyan will
attempt to fund these amounts by drawing against a revolving construction
facility which the Company intends to establish with a commercial bank, and from
proceeds of lot sales at the Chapman's Landing project. The Company will not
initiate substantial development activities at Chapman's Landing until
construction financing has been obtained.
Laguna Seca Ranch. Laguna Seca Ranch is a 565-acre parcel of land with
entitlement for approximately 253 residential units, including 160 single family
lots, 93 multi-family lots, and an 18-hole golf course. In 1991, Banyan acquired
a controlling interest in a limited partnership which owns this parcel, which is
located approximately four miles east of the City of Monterey. Banyan currently
intends to sell the Laguna Seca Ranch property and to apply the proceeds to
repay a portion of the Morgens Loan which is now held by RGI Holdings. In
contrast to both the Southbridge/Wayside and Chapman's Landing projects, Banyan
believes that the Laguna Seca Ranch project is readily salable due to its size
and location.
Other Properties. Banyan is a limited partner, with a 1.4% interest in, a
partnership which is a limited partner of a partnership which owns 274 acres of
undeveloped land known as Rancho Malibu, located north of Malibu, California.
Banyan does not have any management authority in this partnership.
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The table below sets forth a list of Banyan's property interests as of
August 28, 1996:
<TABLE>
<CAPTION>
NAME, TYPE AND DATE
LOCATION OF PROPERTY SIZE ACQUIRED DESCRIPTION
- -------------------------- ----------- -------- --------------------------------------------
<S> <C> <C> <C>
Chapman's Landing 2,254 acres 3/5/91 a 51% interest in a general partnership
Land Parcel which provides for prioritized return of
Charles County, MD investment
Southbridge 2,048 acres 5/16/91 a 51% interest in a general partnership
Land Parcel which provides for prioritized return of
Prince William County, VA investment
Wayside Village 506 acres 5/16/91 a 51% interest in a general partnership
Residential Development which provides for a prioritized return of
Prince William County, VA investment
Laguna Seca Ranch 565 acres 9/4/91 a 50% interest in a limited partnership
Land Parcel which provides for a prioritized return of
Monterey County, CA investment
Rancho Malibu 270 acres 7/1/92 a 1.4% limited partnership interest in a
Land Parcel limited partnership
Los Angeles County, CA
</TABLE>
ENVIRONMENTAL
Under various federal, state and local laws, ordinances and regulations, an
owner, operator, manager or developer of real estate may be liable for the cost
of removing or remediating certain hazardous or toxic substances (including
asbestos-containing materials) on, under or in real estate owned, operated,
managed or developed. These enactments often impose liability without regard to
whether the owner, operator, manager or developer knew of, or was responsible
for, the presence of the hazardous or toxic substances. The cost of any required
remediation and the liability therefor as to any property is generally not
limited under these enactments and could exceed the value of the property and/or
the aggregate assets of the owner, operator, manager or developer. The presence
of hazardous or toxic substances, or the failure to properly remediate these
substances, may adversely affect an owner's ability to sell or rent the
property, or to borrow money using the property as collateral. In addition,
liability may be imposed for releasing asbestos-containing materials into the
air. In connection with owning and operating its properties, the Company may be
potentially liable for these costs. Banyan does not maintain insurance for any
of these potential environmental liabilities and does not anticipate securing
any such insurance following completion of the Merger. Neither Banyan nor RGI is
aware of any environmental condition on or affecting any of their respective
properties that could be material, nor has Banyan or RGI/US been notified by any
governmental agency of any noncompliance liability or other environmental
condition on or affecting any of their respective properties.
LEGAL PROCEEDINGS
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, case number 95 CH 8456 (the "Illinois
Litigation"). The plaintiffs in the Illinois Litigation are as follows: (i)
Monterey County Partners, a partnership which itself is a partner of Banyan'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; (ii) Investors Liquidating Trust, a Delaware
Trust which has been alleged to own 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 the 99% limited partnership
interest in VMS Laguna Seca Limited Partnership and (iii) VMTGZ Mortgage
Investors, L.P. II, the principal beneficiary of Investors Liquidating Trust.
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Named in the case as defendants, in addition to the Ownership Partnership
and BMIF Monterey County Corp. were: (i) Leonard G. Levine, President of Banyan
and (ii) BMC, the company which provides administrative services to Banyan
pursuant to an Administrative Services Agreement. Mr. Levine and BMC were
subsequently dismissed from this litigation, but have been named in a Third
Amended Complaint.
The original complaint seeks: (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 Banyan's former mortgage loan to Monterey County Partners upon which
Banyan 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. has been stricken. An amended Count I
eliminates the request that Kimball Small Residential Properties, Inc. be named
as the replacement general partner.
Banyan 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 and
its partners. The Third Party Complaint seeks monetary damages against Kimball
Small Management and Kimball Small Residential Properties, Inc., which were
associated with Monterey County Partners. All parties have served and answered
discovery requests and produced documents. Depositions of certain parties and
others have been noticed and are presently being taken.
The parties appeared before the Illinois Court on April 3, 1996, upon the
defendants' motion, to request the Court to impose a discovery and trial
schedule. The Illinois Court ordered that if the parties conclude discovery by
September 13, 1996, a trial date would be set in September 1996 or shortly
thereafter.
On May 14, 1996, the Plaintiff 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, Banyan, RGI Realty, Inc., Morgens, Mr. Levine and BMC. The Plaintiff
then filed a Third Amended Complaint which purports to add Mr. Levine and BMC as
parties and also adds Banyan and RGI Holdings as parties. On August 9, 1996,
Banyan and certain other defendants answered certain counts of the Third Amended
Complaint and responded to other counts by moving to strike and dismiss and for
judgment.
Banyan 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 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. Banyan intends to seek
reimbursement of all attorneys' fees expended or incurred in the Illinois
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 number 105280 (the "California
Litigation").
The plaintiff entity, which is a partner with Banyan'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 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 guaranty of the
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<PAGE> 54
Morgens Loan, (ii) to quiet title to the Laguna Seca project, declaring null and
void the interest of the various defendant lenders which arises 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. The parties appeared before the Illinois
Court on April 3, 1996, upon the defendants' motion, to request the Court to
impose a discovery and trial schedule. The Illinois Court ordered that if the
parties conclude discovery by September 13, 1996, a trial date would be set as
soon as possible, perhaps as soon as September 1996. On April 19, 1996, the
parties reported to the California Court the schedule that had been promulgated
in the Illinois Litigation. The California Court then ordered that provided
discovery is completed by August 31, 1996, and a trial commences in Illinois
during September of 1996 and is completed by December 1996, no further action
will be taken in California. Otherwise, all issues may be tried in the
California Court.
None of the defendants has yet answered the California complaint. Banyan
believes that the California Litigation is totally without merit and intends to
vigorously defend it. The partnership agreement which creates 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. Banyan intends to seek reimbursement of all
attorneys' fees expended or incurred in the California Litigation.
Banyan is not aware of any other material pending legal proceedings as of
August 26, 1996.
MARKET FOR BANYAN'S SHARES AND RELATED SHAREHOLDER MATTERS
Although Banyan's shares of common stock are listed on both the New York
Stock Exchange and the Chicago Stock Exchange, they trade principally on the New
York Stock Exchange under the symbol, "VMG." As described herein, upon
completion of the Merger, the Company's shares of common stock will be included
for quotation on the Nasdaq SmallCap Market and will no longer be listed on the
NYSE. See "Matters to be Considered by Stockholders--Proposal Number Two" and
"Risk Factors--Exchange Listing." The following table sets forth the range of
high and low closing share prices as reported by the New York Stock Exchange for
the periods indicated below:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR 1994
First Quarter.............................................. $1.250 $0.938
Second Quarter............................................. 0.938 0.625
Third Quarter.............................................. 0.938 0.688
Fourth Quarter............................................. 0.875 0.500
FISCAL YEAR 1995
First Quarter.............................................. 0.687 0.375
Second Quarter............................................. 0.750 0.625
Third Quarter.............................................. 0.687 0.437
Fourth Quarter............................................. 0.500 0.375
FISCAL YEAR 1996
First Quarter.............................................. 0.500 0.468
Second Quarter............................................. 0.500 0.375
Third Quarter through September , 1996................... -- --
</TABLE>
Banyan has not declared any dividends on the common stock since the first
quarter of 1990 and the Company does not contemplate paying cash dividends
unless the Company generates a sustainable stream of cash flow in excess of its
capital needs. In addition, certain of Banyan's loan agreements prohibit the
payment of dividends. If the Company issues preferred stock with a dividend, the
Stockholders' right to receive dividends, if any, will be subordinated to that
of the holders of preferred stock. See "--Management's Discussion and
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<PAGE> 55
Analysis of Financial Condition and Results of Operations" and "Description of
Securities--Dividend Rights and Restrictions."
As of September 12, 1996, there were 10,188 record holders of Banyan's
shares of common stock.
OTHER INFORMATION
Banyan'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. The business of Banyan is not seasonal and Banyan does no foreign
nor export business. Banyan has no real property investments located outside of
the United States. Banyan does not segregate revenue or assets by geographic
region, and such a presentation is not applicable and would not be significant
to an understanding of Banyan's business taken as a whole.
Banyan has one employee and four executive officers. Banyan 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, 1995, Banyan did not incur any material capital expenditures for
environmental control facilities nor does it anticipate making any expenditures
for environmental control facilities for the year ended December 31, 1996.
Banyan elected to be treated as a real estate investment trust ("REIT")
under Internal Revenue Code Sections 856-860 during the fiscal years ended
December 31, 1993 and 1994. On January 30, 1995, Banyan notified the Internal
Revenue Service of its intent to revoke the tax election to be treated as a REIT
under section 856(c)(1) of the Internal Revenue Code of 1986, as amended, in
order to enable it to develop its tracts of undeveloped land and to avoid the
adverse tax effect of being deemed a dealer of real property. Pursuant to the
revocation of tax election 856(c)1, Banyan will be taxed as a "C" corporation
for the year ended December 31, 1995.
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<PAGE> 56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR BANYAN
OVERVIEW
Since early 1990, Banyan's liquidity and capital has been provided
primarily from foreclosed asset dispositions and proceeds from financings
collateralized by Banyan's assets and to a lesser extent from property
operations and distributions in respect of Banyan's interest in two liquidating
trusts. Historically, these sources have not produced enough capital to permit
Banyan to continue implementing its business plans 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 out of Banyan's control,
caused Banyan to incur additional costs and expenses beyond those originally
contemplated. These delays further reduced Banyan's capital since it was unable
to sell certain parcels which Banyan had contemplated selling to supplement its
capital needs. In addition, Banyan's business plan for the Wayside Village
parcel was negatively impacted by its inability to draw funds under the
revolving line of credit previously agreed to with SoGen. Banyan was not able to
draw on the line of credit until SoGen approved the form of sales contract and
negotiated a subordination agreement with a lot purchaser acceptable to SoGen--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 Banyan at the Wayside Village parcel. This dispute was never
resolved and resulted in cancellation of the sales contract. Consequently,
Banyan's board directed the Company to increase its efforts to secure additional
capital. See "Proposal Number One--Background of and Reasons for the Merger."
These efforts culminated in the proposed merger with RGI described herein.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents consist of cash and short-term investments.
Banyan's cash and cash equivalents balance at June 30, 1996 and December 31,
1995 was approximately $6.6 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 $9.3 million and cash flow from financing
activities of approximately $2.1 million. Also contributing to the increase in
cash and cash equivalents was cash flow of $418,972 from Banyan'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 development properties and the payment of Banyan's operating
expenses.
CASH FLOWS FROM OPERATING ACTIVITIES: Net cash utilized in operating
activities increased by approximately $4.2 million for the six months ended June
30, 1996 to approximately ($5.1 million) from approximately ($890,000) for the
same period in 1995. This increase was due primarily to an increase in net loss
to approximately ($5.3 million) from ($2.6 million), for the six months ended
June 30, 1996 and 1995, respectively. The increase in net loss for the six
months ended June 30, 1996 is primarily the result of an increase in development
property expenses of $306,000 and an increase in interest expense and deferred
loan costs of approximately $2.2 million, with respect to Banyan's Wayside
Village, Chapman's Landing and Laguna Seca Ranch properties. The increases in
these expenses are due to Banyan's change in accounting treatment of development
and interest costs for its development properties. For the six months ended June
30, 1996 Banyan has elected to treat as an expense all interest related to the
Morgens Loan and SoGen Loans and other development and holding costs 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 six months ended June 30, 1995.
Also contributing to this increase in cash outflow for the six months ended June
30, 1996 was a decrease in property operating activities as a result of Banyan's
sale of its 120 S. Spalding property in April 1996.
CASH FLOWS FROM INVESTING ACTIVITIES: During the six months ended June 30,
1996, Banyan generated cash flow from investing activities of approximately $9.3
million compared to a net outflow of cash for the same period in 1995 of
approximately ($3.8 million). The increase in cash flow from investing
activities for the six months ended June 30, 1996 is primarily due to Banyan'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
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<PAGE> 57
$261,000 from the sale of four lots at the Wayside Village development and
Banyan's receipt of its 50% share of cash proceeds from the VST/VMIF Oakridge
Partnership in the amount of approximately $1.8 million from the sale of 205
acres of the Oakridge property. The remaining five acres of the Oakridge
property were sold on August 23, 1996. Banyan's outflow of cash from investing
activities for the six months ended June 30, 1995 is primarily the result of
cash expenditures on developments in progress, purchase of land and property
improvements, and for repairs and improvement escrows in the amounts of
approximately ($4.1 million), ($180,000) and ($256,000), respectively pursuant
to the development activities regarding the Wayside Village, Chapman's Landing
and Laguna Seca Ranch properties. Partially offsetting these cash expenditures
for the six months ended June 30, 1995 was the receipt of approximately $707,000
in cash proceeds from the sale of lots at the Wayside Village development.
CASH FLOWS FROM FINANCING ACTIVITIES: For the six months ended June 30,
1996 Banyan generated cash flow from financing activities of approximately $2.1
million compared to cash used in financing activities of approximately
($977,000) for the same period in 1995. The increase in cash flow from financing
activities for the six months ended June 30, 1996 when compared to the same
period in 1995 is due primarily to Banyan'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 Banyan for deferred financing
costs of approximately ($1.1 million) associated with the restructuring of the
Morgens Loan and SoGen Loan. In addition, for the six months ended June 30,
1996, Banyan utilized approximately ($280,000) in cash proceeds derived
primarily from the sale of the four lots at Wayside Village for principal
repayments on the SoGen Loan. The net cash outflow of approximately ($977,225)
for the six months ended June 30, 1995 was due to principal payments made by
Banyan on its mortgage loans collateralized by the Wayside Village and
Southbridge properties in the amounts of ($477,225) and ($500,000),
respectively.
RESULTS OF OPERATIONS: YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEARS ENDED
DECEMBER 31, 1994 AND 1993
Total income for the years ended December 31, 1995, 1994 and 1993 was
approximately $1.4 million, $3.6 million and $5.0 million, respectively. The
decrease in total income for the year ended December 31, 1995 compared to the
same period in 1994 was due primarily to a decrease in operating property
revenue of approximately $2.2 million. This decrease is primarily attributable
to a decline in rental income at the 120 S. Spalding property brought about by a
65% decrease in occupancy which occurred when City National Bank vacated the
premises in March 1995. Total income for the year ended December 31, 1994
decreased by approximately $1.4 million when compared to the same period in 1993
due also to a decrease in operating property revenue of approximately $1.5
million. This decrease was due in part to the fact that the Cascades Apartments
property was sold in May 1994 which caused rental income on a year-to-year basis
to decrease approximately $1.2 million. In addition, the 9025 Wilshire Blvd.
building (which was sold in September 1994) was unoccupied for most of 1994 due
to structural damage caused by the Los Angeles area earthquake which further
contributed to a decrease in operating property revenue.
Expenses from property operations for the years ended December 31, 1995,
1994 and 1993 were approximately $15.6 million, $11.9 million and $8.5 million,
respectively. The increase in expenses from property operations for the year
ended December 31, 1995, when compared to the same period in 1994, was primarily
attributable to an increase of approximately $3.9 million in the provision for
losses on investment properties and an increase of approximately $708,000 in
development property expenditures. The increase in the loss provision was caused
in part by Banyan's decision to reduce the carrying value of certain properties
to reflect diminutions in value brought about by extended holding periods
(Wayside Village and Laguna Seca Ranch) and a decision to sell rather than
redevelop the 120 S. Spalding property. In particular, during 1995 Banyan
reduced the carrying value of the Wayside Village parcel ($6.0 million), Laguna
Seca Ranch ($3.3 million) and 120 S. Spalding ($3.6 million).
The increase of approximately $3.4 million, in expenses from property
operations for the year ended December 31, 1994 when compared to the same period
in 1993 was primarily attributable to an increase of $4.3 million in the
provision for losses on investment properties from $4.7 million in 1993 to $9.0
million in 1994. The increase in valuation allowances was caused by the same
factors which led to the valuation
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allowances in 1995. For the year ended December 31, 1994, Banyan reduced the
carrying value of 120 S. Spalding ($6.0 million) and Wayside Village ($3.0
million).
Total other expenses (recoveries) for the year ended December 31, 1995 and
1994 were approximately $4.1 million and $3.8 million, respectively. The
increase was due primarily to an increase in interest expense and amortization
of deferred loan and other costs as well as a decrease in the recovery of losses
on mortgage loans, notes, interest receivable and class action settlement costs
and expenses. The increase in interest expense and amortization of deferred loan
and other costs of approximately $700,000 is due primarily to the accrual of
interest on the Morgens Loan offset by decreases in stockholder expenses,
directors' fees, expenses and insurance, other professional fees, and general
and administrative expenses.
The Company's results in 1994 were also negatively impacted by the
non-recurring charge of approximately $3.2 million to reflect the cost of an
arbitration award made to Banyan Mortgage Investors L.P. II ("BMLPII"), acting
for itself and on behalf of THSP Associates L.P. II ("THSP") (formerly Banyan
Mortgage Investors L.P. III). This award resulted from an arbitration between
the parties regarding the amount of compensation, if any, owed by Banyan to
BMLPII in consideration for BMLPII's agreement to relinquish, and take no action
with respect to its interests in certain Beverly Hills, California properties
commonly known as the Buckeye properties of which Banyan took control in 1990.
In contrast, 1994 results were positively impacted by gains which Banyan
recognized from the disposition of real estate in the amount of approximately
$2.8 million and from an additional gain of approximately $2.8 million relating
to the forgiveness of indebtedness previously encumbering Wayside Village.
RESULTS OF OPERATIONS: SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1995.
Total income for the six months ended June 30, 1996 and 1995 was $297,506
and $942,545, respectively. Total income for the quarters ended June 30, 1996
and 1995 was $81,594 and $325,174, respectively. This decrease was due primarily
to a decrease in operating property income. Operating property income for the
six months ended June 30, 1996 and 1995 was $232,094 and $800,033, respectively.
For the quarters ended June 30, 1996 and 1995, operating property income was
$26,535 and $268,773, respectively. 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 was a decrease in
interest income from cash and cash equivalents due to the decrease in cash
available for investment.
Expenses from property activities for the six months ended June 30, 1996
and 1995 were approximately $1.6 million and $1.4 million, respectively. For the
quarters ended June 30, 1996 and 1995, the expenses from property activities
were $828,073 and $685,493, respectively. This increase was attributable to the
increase in development property expenses, real estate taxes and bad debt
expense. Development property expenses increased for the six months ended June
30, 1996 when compared to the same period in 1995. This increase was 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 period in 1995. Bad debt expense increased by
$67,000 during the six months ended June 30, 1996 when compared to the six
months ended June 30, 1995 due to write-offs taken regarding the settlement of
certain receivables at the 120 S. Spalding property during the first quarter of
1996 as well as the recognition of recoveries of certain receivables during the
first quarter of 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 six months ended June 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 six months ended June 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 six months ended June 30, 1996 and 1995 were
$5,011,080 and $2,073,260, respectively. For the quarters ended June 30, 1996
and 1995, total other expenses were $2,540,248 and $1,309,668, respectively.
This increase is primarily attributable to an increase of approximately $2.2
million
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<PAGE> 59
and $934,818 in interest expense and amortization of deferred loan costs for the
six months ended June 30, 1996 when compared to the six months ended June 30,
1995 and for the quarter ended June 30, 1996 when compared to the same period in
1995, respectively, due to Banyan's election to treat as an expense all interest
related to the Chapman's Landing, Laguna Seca Ranch and Wayside Village
properties during the six months and quarter ended June 30, 1996 periods which
had been capitalized during the same periods in 1995.
Also contributing to the increase in other expenses for the six months and
the quarter ended June 30, 1996 when compared to the same periods in 1995, was
the increase of $522,524 and $243,496, respectively, in other professional fees
and general and administrative expenses. General and administrative expenses
increased due primarily to an increase in the expenses of BMC which were
allocated to Banyan based on the amount of hours spent by BMC personnel on
Banyan-related matters. A significant amount of hours were required by BMC
personnel, during the six months and quarter ended June 30, 1996, relating to
efforts to sell a portion of the Oakridge property and all of 120 S. Spalding as
well as negotiating and finalizing the terms of the Merger Agreement.
During the six months ended June 30, 1996 and 1995, Banyan received cash
distributions of $418,972 and $566,783, respectively, in respect of its
interests in two liquidating trusts established for the benefit of the unsecured
creditors (including Banyan) of VMS Realty Partners and its affiliates ("VMS").
For the six months ended June 30, 1996 and 1995 Banyan has treated $418,972 and
$495,591, respectively, of these amounts, as a recovery of losses on loans,
notes and interest receivables. A total of $127,471 of these distributions has
been treated, as of December 31, 1995 and June 30, 1996, as a liability to the
Class Action Settlement Fund representing Banyan's share of amounts due as
required per the terms of the previously settled VMS securities litigation.
These amounts were subsequently paid on July 28, 1996. There were no
distributions received during the quarters ended June 30, 1996 and 1995 and
Banyan does not anticipate receiving significant distributions pursuant to these
interests in the future.
Partially offsetting these increases are the decreases in stockholder
expenses and directors' fees, expenses and insurance. Stockholder expenses for
the six months and quarter ended June 30, 1996 decreased when compared to the
same periods in 1995 due to the decision to delay the annual meeting, proxy
costs, mailing and the printing costs associated with Banyan's annual reports
and meeting until the merger, as discussed above, can be voted on by Banyan's
Stockholders. Directors' fees, expenses and insurance for the six months and
quarter ended June 30, 1996 decreased when compared to the same periods in 1995
due to improved premium rates received for directors' and officers' insurance.
Banyan received distributions equal to $981,330 representing its share of
the Oakridge Venture's income for the six months ended June 30, 1996 as compared
to a net loss of ($90,716) for the same period in 1995. The increase in the
income for 1996 when compared to 1995 is primarily attributable to the
$1,050,936 gain on the sale of 205 acres in February and March of 1996.
Partially offsetting this gain was a $69,606 loss on operations for the six
months ended June 30, 1996. Banyan's share of the Oakridge Venture's net income
for the quarter ended June 30, 1995 was $1,499 compared to a ($47,087) operating
loss for the same period in 1995. The increase in income for the quarter is
primarily attributable to the sale of a portion of the property in 1995 and
1996, which reduced the operating costs of the venture.
During the six months and quarter ended June 30, 1996 Banyan recognized a
gain on disposition of real estate of $63,091. This consists of a gain on
disposition of $67,460 for the 120 S. Spalding property and a loss of ($4,369)
related to the sale of four lots at the Wayside Village property. For the six
months and quarter ended June 30, 1995, Banyan recognized a gain on the
disposition of real estate in the amount of $7,558 and $6,541, respectively,
related to lot sales at the Wayside Village property.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On December 18, 1995, Banyan was informed by C&L that it was resigning as
Banyan's independent accountant effective immediately. At no time during the two
years prior to their resignation did C&L's report on Banyan's financial
statements contain an adverse opinion or a disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope, or accounting principles.
C&L's decision was based solely on its own considerations and was not made based
on any action taken or not taken by Banyan's board of directors. At no
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<PAGE> 60
time during C&L's engagement as Banyan's principal accountant were there any
disagreements between Banyan and C&L on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
Effective December 21, 1995, Banyan has engaged the independent accounting
firm of Ernst and Young LLP ("E&Y") to serve as Banyan's principal independent
accountant, to audit Banyan's financial statements. At no time during Banyan's
two most recent fiscal years, or any subsequent interim period, did Banyan (or
someone on its behalf) consult E&Y regarding: (i) the application of accounting
principles to a specified transaction, either completed or proposed or the type
of audit opinion that might be rendered on Banyan's financial statements; or
(ii) any matter that was either the subject of a disagreement between Banyan and
its principal accountant or a reportable event.
The Capital Stock Valuation Report and the Net Asset Valuation Report were
prepared by C&L in connection with its engagement by RGI. This engagement was
unrelated to C&L's prior appointment as independent accountants to Banyan.
50
<PAGE> 61
RGI/US
BUSINESS OPERATIONS
RGI/US was incorporated in the state of Washington in December 1993 and is
a wholly-owned subsidiary of RGI Holdings. RGI Holdings is a majority-owned
subsidiary of RGI Inc., which is an indirect subsidiary of RGI Antilles. Kjell
I. Rokke, a Norwegian citizen, owns 67.32% of the outstanding shares of RGI
Antilles. RGI/US owns, operates and develops real estate through two
wholly-owned subsidiaries, Grand Harbor Associates and American Property
Investments.
Grand Harbor Associates owns a 90% interest in certain corporations that
own: (i) Grand Harbor, a 772-acre residential golf community development project
located in Vero Beach, Florida; (ii) Oak Harbor, a 116-acre planned 352-unit
retirement community also located in Vero Beach, Florida; and (iii) the Royal
Palm Convalescent Center, a skilled nursing center licensed for 72 beds and
located in Vero Beach, Florida. American Property Investments owns a 164,724
square foot shopping center located in Lynnwood, Washington.
PROPERTY OPERATIONS
The following sets forth a description of RGI/US's primary real estate
assets. The business plans described herein are subject to numerous risks and
uncertainties which are more fully discussed under the section headed "Risk
Factors." If the Company is unable to secure capital to meet its future needs,
the Company's business plan for each property will likely be materially revised,
which may have a material adverse effect on the Company's financial condition
and results of operations.
Grand Harbor. Grand Harbor is an 772-acre residential golf community
located along the Indian River in Vero Beach, Florida, with two 18-hole
championship golf courses and waterfront access with a marina containing 144
slips ranging from 30 to 100 feet in length. The slips are available to be
leased on a daily, monthly or annual basis. The residences at Grand Harbor are
clustered in individual communities affording views of the surrounding golf
courses and scenic waterways. Development of Grand Harbor began in 1987 with a
U.S. savings and loan providing approximately $115 million in acquisition and
infrastructure financing. The Resolution Trust Corporation acquired Grand Harbor
in 1990 and most development and construction activities at Grand Harbor were
terminated. After the acquisition of Grand Harbor by affiliates of RGI, the
marina and clubhouse were completed and housing development continued.
Grand Harbor offers two 18-hole championship golf courses that both opened
in 1989: a Harbor Course designed by Pete Dye and a River Course designed by Joe
Lee. The 28,000 square foot Grand Harbor clubhouse, serving both courses, opened
in 1994 and also serves as a social center for Grand Harbor residents. Grand
Harbor maintains 24-hour security service, together with a variety of amenities,
including eight clay tennis courts and a separately located ocean-front beach
club. In 1992, Grand Harbor received an ENVY, a residential environmental award
from the Florida Association of Realtors.
Grand Harbor and Oak Harbor collectively received zoning entitlements for
the development of a maximum of 2,688 residential units. RGI/US' business plan,
however, contemplates the development of 1,103 residential units at Grand Harbor
and 352 residential units at Oak Harbor. RGI/US believes this plan best
maximizes the value of these parcels based on existing and anticipated market
conditions, even though these parcels are zoned for greater density. If market
conditions change, the Company can increase, to a certain extent, the proportion
of multi-family lots to be developed under existing zoning. If the Company
elects to develop additional multi-family lots beyond that currently entitled,
such a change would likely require approval of local zoning authorities.
Grand Harbor currently offers single-family detached homes, townhomes,
duplexes and low-rise condominiums with sales prices ranging from approximately
$200,000 to approximately $900,000 with sizes ranging from 1,600 square feet to
over 4,000 square feet. In addition, there are golf course and waterfront
undeveloped lots available at sales prices ranging from $165,000 to over
$500,000. When RGI/US acquired Grand Harbor in 1991, approximately 265
residences had been sold. Since the acquisition, through July 31, 1996, 307
additional residences have been sold. These include all product types offered at
Grand Harbor (lots,
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<PAGE> 62
condominiums, duplexes, villas and single family homes). Based on the current
development plans, approximately 537 additional residences are planned for Grand
Harbor. Grand Harbor has received governmental approvals for approximately
484,000 square feet of commercial space and 241,000 square feet of office space.
Currently, Grand Harbor has not developed any commercial or office space.
RGI/US currently derives revenue from the construction and sale of
single-family homes, condominiums and individual lots; rental income from
residential units and marina docks; and the operation of harbor and club
facilities. In conjunction with offering residential units for sale, Grand
Harbor offers four (4) types of equity memberships in the Grand Harbor Golf and
Beach Club: (i) full memberships for $32,500; (ii) golf and tennis memberships
for $20,000; (iii) tennis memberships for $7,500; and (iv) social memberships
for $5,000. Upon the completion of sale of the equity memberships, Grand Harbor
will turn over management and control of the Grand Harbor Golf and Beach Club to
its members.
Oak Harbor. Oak Harbor is a 116-acre planned luxury country club retirement
community with planned on-site health facilities to be located adjacent to Grand
Harbor. Upon the opening of the Oak Harbor clubhouse, which is scheduled for
early 1997, Oak Harbor members will receive daily meals, transportation,
housekeeping, social activities and access to optional health care. Community
amenities will included a 36,000 square foot clubhouse with a community hall,
arts & crafts room, hobby shop, game room, library and a fitness center; a
24-room on-site assisted care health facility; a nine-hole golf course designed
by Joe Lee; and a total of 352 planned residences consisting of different types
of condominiums, cottages and villas. Oak Harbor provides the opportunity to own
a home within a community offering on-site health care and club activities. A
discussion of Oak Harbor's zoning entitlements is included under "--Grand
Harbor" above.
Currently, facilities and residences are under construction at Oak Harbor,
but have not been completed. The clubhouse, golf course, all roads and related
infrastructure and the first fifteen villa and cottage homes are scheduled to be
completed in late 1996, although full-service club activities are not scheduled
to commence until early 1997. A 24-unit condominium complex is scheduled to be
completed in early 1997. RGI/US anticipates that the on-site assisted care
health facility will be completed in mid-1997.
Oak Harbor will offer condominiums and single-family homes ranging in price
from $205,000 to $635,000 and ranging in size from 1,178 to 2,850 square feet.
All residences will have emergency call systems and trained health professionals
will be available 24 hours a day. Three levels of health care including skilled,
assisted-living and home healthcare will be available to Oak Harbor residents at
a cost in addition to the monthly dues described below.
The Oak Harbor Club requires a $25,000 initial club deposit from all of its
members. Upon the re-sale of an Oak Harbor residence, the $25,000 initial club
deposit is refundable subject to the new member paying his or her deposit. In
addition, there is an initiation fee equal to ten percent (10%) of the purchase
price of the residence. This fee may be deferred until the residence is resold,
but will then equal the greater of 10% of the initial purchase price or 10% or
the subsequent sale price of the residence. The Oak Harbor Club is a non-equity
club and Oak Harbor will not turn over management and control to its members.
Monthly dues, ranging from $1,650 for a single person to $2,150 for a couple,
will include, among other things, one meal per day, transportation around Vero
Beach, weekly housekeeping and linen service, and 24-hour emergency call
service.
As of July 31, 1996, RGI/US had entered into sales contracts for 36 Oak
Harbor residences. RGI/US anticipates delivery of these homes in late 1996 and
early 1997. These sales are subject to a non-refundable deposit of 20% of the
sales price, but are typically subject to cancellation by the purchaser under
specified circumstances such as the purchaser becoming incapable of independent
living. Although Oak Harbor is a retirement community, all residents must be
capable of independent living to join the Oak Harbor Club.
The Royal Palm Convalescent Center. In 1994 RGI/US acquired the Royal Palm
Convalescent Center ("Royal Palm"), which was established in 1965. Royal Palm is
a skilled nursing facility licensed for 72 beds and is regulated by the State of
Florida Agency for Health Care Administration. As of July 31, 1996, Royal Palm
operated 51 beds, all of which were occupied. Royal Palm accepts only patients
who pay privately and does not accept Medicaid or Medicare reimbursement.
Monthly rates range from approximately $3,500 for a
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semi-private room to approximately $5,600 for a private suite. These prices
include lodging, meals and basic nursing services. Pharmaceutical charges, most
medical supplies, physical therapy and other items ordered by attending
physicians are additional. Royal Palm will provide Oak Harbor residents with
preferred admission once the Oak Harbor Club opens.
The Lynnwood Center. The Lynnwood Center is a neighborhood retail shopping
center located on an approximately 14.35-acre site in Lynnwood, Washington,
approximately 20 miles north of Seattle, Washington. The Lynnwood Center is
listed for sale; if it is sold prior to the Effective Date of the Merger, the
Company will receive the net proceeds from the sale on the Effective Date. The
Lynnwood Center currently has 16 tenants, including anchor tenants Pay Less
Drugs, Safeway and The Sports Authority. Overall average occupancy of the
Lynnwood Center at December 31, 1995 and 1994 was 88.42% and 80.87%,
respectively, and was 93.4% as of June 30, 1996.
The Lynnwood Center represented 16.8% of RGI/US's total assets based on
book value and 6.0% of RGI/US's total revenues as of June 30, 1996. Annual
rentals range from $5.42 to $20.07 per square foot. The 1995 property tax rate
was 1.24%, resulting in a tax of approximately $142,800 (including special
assessments), substantially all of which is reimbursed by tenants under their
leases.
The following tables and the notes thereto describe the Lynnwood Center.
<TABLE>
<CAPTION>
PERCENT OF GLA ANNUALIZED BASE
GLA LEASED AS OF ANNUALIZED BASE RENTAL PER SQUARE
YEAR ACQUIRED (SQUARE FEET)(1) 6/30/96 RENTAL REVENUES(2) FEET(3)
- ----------------------------------- ---------------- -------------- ------------------ -----------------
<S> <C> <C> <C> <C>
1987............................ 164,724 93.4% $2,024,761 $ 12.29
</TABLE>
- -------------------------
(1) Excludes 30,080 square feet of land leased at an annual rent of $53,499 to a
service station not attached to the retail mall. The tenant does not pay any
common area cost allocation and is directly responsible for insurance and
property taxes.
(2) Amounts shown reflect annualized base rental revenue as of June 30, 1996.
Annualized base rental revenue (total and per square foot) includes $53,499
of annual rent from the service station described in Note 1 above and
excludes: (a) percentage rents; (b) additional charges paid for by tenants
including common area maintenance, real estate taxes and other expense
reimbursements; and (c) future contractual rent escalations.
(3) Calculated as total annualized base rental revenue divided by gross leasable
area ("GLA") as of June 30, 1996.
The following table sets forth the occupancy rate (as a percentage of GLA)
and the average effective annual rental revenue per square foot for each of the
fiscal years ended December 31, 1991, 1992, 1993, 1994, and 1995.
<TABLE>
<CAPTION>
FISCAL YEAR OCCUPANCY RATE AS A AVERAGE ANNUAL RENTAL
DECEMBER 31 PERCENT OF GLA REVENUE PER SQUARE FOOT
------------------------------------------- ------------------- -----------------------
<S> <C> <C>
1995(1).................................. 88.42% $ 12.06
1994 .................................. 80.87 10.49
1993 .................................. 96.43 12.28
1992 .................................. 98.02 12.11
1991 .................................. 78.14 9.29
</TABLE>
- -------------------------
(1) Due to demolition and construction, GLA in 1995 averaged 129,647 square feet
as compared to GLA in 1994 of 156,923 square feet.
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The Lynnwood Center Tenants. The following table sets forth information
regarding space leased to tenants which, in each case, individually occupy more
than 10% of the gross leasable area at the Lynnwood Center as of June 30, 1996.
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE
GLA PERCENT ANNUALIZED ANNUALIZED
(SQUARE OF TOTAL BASE RENTAL BASE RENTAL RENEWAL
TENANT FEET) GLA REVENUE(1) REVENUE EXPIRATION DATE OPTIONS
- ---------------------------- ------- -------- ----------- ----------- ----------------- --------
<S> <C> <C> <C> <C> <C> <C>
Safeway, Inc................ 56,892 34.5% $ 673,841 33.3% July 31, 2020 25 years
Sports Authority............ 42,538 25.8 588,726 29.1 December 31, 2010 35 years
Payless Stores.............. 21,774 13.2 239,949 11.9 May 31, 2010 35 years
</TABLE>
- -------------------------
(1) Amounts shown reflect annualized base rental revenue as of June 30, 1996.
Annualized rental revenue (total and per square foot) excludes: (a)
percentage rents; (b) additional charges paid for by tenants including
common area maintenance, real estate taxes and other expense requirements;
and (c) future contractual rent escalations.
The Lynnwood Center Tenant Lease Expirations. The following table sets
forth retail and office lease expirations for the next ten years at the Lynnwood
Center assuming that no renewal options are exercised.
<TABLE>
<CAPTION>
PERCENT OF 1995
ANNUALIZED BASE RETAIL BASE
APPROXIMATE RENTAL REVENUE RENT
RETAIL LEASE NO. OF LEASES LEASED GLA UNDER EXPIRING REPRESENTED BY
EXPIRATION YEAR EXPIRING (SQUARE FEET) LEASES EXPIRING LEASES
- ------------------------------------------ ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
December 31,
1996(1)................................... 2 2,640 $ 42,240 2.1%
1997...................................... 1 1,403 25,956 1.3
1998...................................... 3 3,620(2) 109,227 5.5
1999...................................... -- -- -- --
2000...................................... 3 4,355 71,658 3.6
2001...................................... 2 9,838 170,350 8.6
2002...................................... -- -- -- --
2003...................................... -- -- -- --
2004...................................... -- -- -- --
2005...................................... -- -- -- --
2006...................................... -- -- -- --
--- ------- --------- ----
11 21,856 $ 419,431 21.1%
=== ======= ========= ====
</TABLE>
- -------------------------
(1) The 1996 retail lease expiration year is from July 1996 through December
1996.
(2) Excludes land leased to a service station operator.
DEPRECIATED PROPERTIES
<TABLE>
<CAPTION>
DECEMBER 31, 1995 LIFE FOR PURPOSES
PROPERTY FEDERAL TAX BASIS RATE METHOD OF DEPRECIATION
- ----------------------------------------- ----------------- ------ ------------- -----------------
<S> <C> <C> <C> <C>
Buildings and improvements............... $ 9,025,000 3.17% straight-line 31.5
Furniture, fixtures and equipment........ 25,000 14.29% straight-line 7
Land improvements........................ 1,600,000 3.17% straight-line 31.5
Land..................................... 10,075,000 -- -- --
</TABLE>
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As of August 1, 1996 RGI/US owned interests in the following properties:
<TABLE>
<CAPTION>
DATE
NAME, TYPE AND LOCATION AND PROPERTY SIZE ACQUIRED DESCRIPTION
- -------------------------------------------- ------------------ ------------- -------------
<S> <C> <C> <C>
Grand Harbor
Vero Beach, FL............................ 772 acres June 1991 90% interest
Oak Harbor
Vero Beach, FL............................ 116 acres June 1991 90% interest
Royal Palm Convalescent Center
Vero Beach, Florida....................... 20,000 square feet June 1994 90% interest
The Lynnwood Center
Lynnwood, WA.............................. 14 acres November 1987 100% interest
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
RGI/US was formed in December 1993 as a wholly-owned subsidiary of RGI
Holdings to organize the U.S. real estate holdings of RGI Inc. The consolidated
financial statements of RGI/US include the accounts of the following
wholly-owned subsidiaries: American Property Investments; Grand Harbor
Associates; and Grand Harbor Corporation, Inc. Two former wholly-owned
subsidiaries have been excluded from the RGI/US consolidated financial
statements as they were transferred out of RGI/US in April 1996 and will not be
merged into Banyan.
For financial reporting purposes, the Merger will be treated as a
recapitalization of RGI/US, with RGI/US as the acquiror of Banyan. From and
after the Effective Date, the historical financial statements of the Company
will be those of RGI/US.
Prior to January 1996, RGI/US' wholly-owned subsidiary, Grand Harbor
Associates, owned a 45% interest in the partnerships and corporations that own
Grand Harbor and Oak Harbor. RGI/US recorded these investments using the equity
method of accounting since it held more than a 20% interest in such entities,
but did not control them. In January 1996, Grand Harbor Associates purchased an
additional 45% interest in the partnerships and corporations that own Grand
Harbor and Oak Harbor, as well as interests in a finance company and a title and
escrow company. This business combination was accounted for under the purchase
method of accounting. RGI/US' unaudited pro forma consolidated balance sheet
gives effect to the acquisition as if it had occurred on December 31, 1995 and
the unaudited consolidated statement of operations for 1995 gives effect to the
transaction as if it occurred on January 1, 1995.
Through December 31, 1995, RGI/US' revenues primarily consisted of rental
revenue generated from the Lynnwood Center. The current business plan of RGI/US
is to focus on continuing the development of infrastructure, amenities and
residential units at Grand Harbor and Oak Harbor pursuant to approved zoning and
development plans. In connection with RGI/US' plan to focus on residential
development, RGI/US has listed the Lynnwood Center for sale. To the extent that
the Lynnwood Center is sold prior to the Effective Date, RGI/US has agreed with
Banyan that it will not distribute the net proceeds of the sale to its sole
stockholder prior to the Effective Time and will distribute such proceeds to the
Company at the Effective Time.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, December 31, 1995 and December 31, 1994, RGI/US' cash
and cash equivalents balance was $1.4 million, $579,000 and $431,000,
respectively. To date, operating cash flows have been generated primarily from
the operation of the Lynnwood Center. Both Grand Harbor and Oak Harbor required
liquidity support in 1995 that was funded through related party loans. Interest
on these related party loans was deferred to the maturity date of the loans.
This deferred interest, as noted below, was contributed to equity of RGI/US in
January 1996.
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<PAGE> 66
Significant remodeling activities took place at the Lynnwood Center in 1995
resulting in capital improvements of approximately $2.7 million. Cash flow
support from RGI/US for Grand Harbor and Oak Harbor operations amounted to
approximately $3.6 million. In addition, in June 1995, RGI/US refinanced the
Lynnwood Center resulting in a repayment of existing debt amounting to $10.7
million funded by a new mortgage loan of $12.6 million. This mortgage loan bears
interest at the prime rate plus .75% per annum and matures in June 1997.
Completion of the remodeling of the Lynnwood Center resulted in the mortgage
loan increasing to $14.5 million in the first quarter of 1996. In 1995, RGI Inc.
also provided additional loans of $150,000 as part of the overall refinancing of
the Lynnwood Center and $3.0 million to fund development costs at Grand Harbor
and Oak Harbor. These loans, as well as previous related party loans and accrued
interest amounting to $18.5 million, were contributed to equity of RGI/US in
January 1996.
Historically, RGI/US has used internally generated funds, third party
borrowings and funds from RGI-affiliated entities for construction and
development purposes. The business plan of the Company contemplates the
continued development of the Southbridge/Wayside project and Grand Harbor and
Oak Harbor and the initiation of development activities at the Chapman's Landing
project. The Company will likely sell Laguna Seca Ranch and the Lynnwood Center
in order to provide the Company liquidity for its planned development
activities.
As of June 30, 1996, Banyan's debt obligations aggregated approximately
$34.4 million, and RGI/US' debt obligations aggregated approximately $86.0
million. After giving effect to the Merger, the Company's pro forma debt
obligations as of June 30, 1996 aggregated approximately $120.4 million, of
which approximately $6.7 million matures by December 31, 1996, an additional
$34.6 million matures by December 31, 1997, an additional $38.9 million matures
by December 31, 1998 and an additional $40.2 million matures thereafter. In
connection with the Private Placement, RGI Holdings purchased the Morgens Loan,
and has agreed, at the Effective Time, to adjust the interest rate on the debt
under the Morgens Loan from 17.5% to the prime rate plus 200 basis points.
However, if the Merger Closing does not occur before December 31, 1996, then the
interest rate will remain unchanged. See "Material Agreements -- Morgens Loan
Modification." Following the Merger, the Company will not have a policy against
incurring indebtedness in excess of any predetermined ratio. A substantial
increase in the Company's leverage ratio would increase both its debt service
costs and the risk of default on its indebtedness. See "Risk Factors --
Substantial Debt Obligations and Terms of Debt" and "Investment Policies."
The Company's ability to service its debts and other obligations when they
become due will depend on various factors affecting its properties, such as
operating expenses and construction schedules, which, in turn, may be adversely
affected by general and local economic conditions. Certain expenditures, such as
loan payments and real estate taxes, are not necessarily decreased by events
adversely affecting revenues generated by the properties. The cost of developing
properties may exceed the income derived from the sale of lots or homes.
Therefore, the Company may have to obtain funds from other sources to operate
and maintain a property in order to protect its investment. A failure to make
required payments on the Company's indebtedness when due could result in a loss
of the property collateralizing these obligations and would have a material
adverse effect on the Company's results of operations and financial condition.
The Company's business plan for Southbridge/Wayside, Grand Harbor and Oak
Harbor contemplates development expenses through 1997 of approximately $67.0
million. RGI/US has obtained $49.0 million of construction financing for Grand
Harbor and Oak Harbor. The Company must arrange construction financing in an
amount estimated not to exceed maximum combined borrowings of $27.0 million in
order to undertake projected development costs of Southbridge/Wayside and
Chapman's Landing including $18.0 million anticipated through 1997.
The funds provided to the Company by the Private Placement, the
modification of the Morgens Loan and the anticipated sale of assets (primarily
Laguna Seca Ranch and the Lynnwood Center) will not be sufficient to allow the
Company to complete its business plans for each property. There can be no
assurance that additional capital will be available to the Company or that, if
available, the terms and conditions will be acceptable to the Company or will
not be dilutive to the Company's stockholders, including RGl Holdings.
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<PAGE> 67
A failure to secure additional capital when needed would have a material adverse
effect on the Company's results of operations and financial condition. See "Risk
Factors -- Need For Additional Capital."
RESULTS OF OPERATIONS
Years Ended December 31, 1995, 1994 and 1993
Total revenues for 1995, 1994 and 1993 were $2.1 million, $2.4 million and
$2.4 million, respectively. Total revenues for 1995 decreased by approximately
$322,000 or 13% from 1994 primarily due to a decrease of approximately $175,000
in rental revenue and a $100,000 one-time consulting fee that was earned in
1994. The decrease in rental revenue resulted from a 17% decrease in space
available for rent due to a renovation and retenanting plan implemented at the
Lynnwood Center during 1995. The renovation and retenanting plan was initiated
to accommodate a new major tenant and allowed for replacement of a number of
smaller tenants that were experiencing financial difficulty. Pursuant to the
renovation plan, four buildings comprising approximately 36,000 square feet of
gross leasable area were demolished and replaced with one new building
containing approximately 42,500 square feet of gross leasable area. Construction
of the new building was completed in November 1995. In addition, contributing to
the decline in total revenues for 1995 when compared to 1994 was a decrease of
approximately $47,000 in other revenue relating to consulting fees.
Total revenues for 1994 decreased by approximately $17,500 or 1% from 1993.
This decrease was due to a decline of approximately $292,000 in rental revenue
at the Lynnwood Center as a result of cancellation of three tenant leases
comprising approximately 25,000 square feet. Partially offsetting this decline
was an increase in other revenue of approximately $275,000 attributable to
consulting fees.
Total operating expenses for 1995, 1994 and 1993 were $1.1 million, $1.2
million and $1.2 million, respectively. The decrease in operating expenses of
approximately $92,000 for 1995 when compared to 1994 was due primarily to a
decrease in rental operations expenses of approximately $78,000 for 1995 when
compared to 1994 associated with the reduction in gross leasable area as a
result of the renovation and retenanting plan initiated in 1995. In addition,
general and administrative expenses decreased by approximately $14,000 for 1995
when compared to 1994 as a result of a one-time marketing expenses in 1994 of
$166,000 that was partially offset by a management fee paid to a related party
relating to Grand Harbor activities.
Total operating expenses for 1994 increased by approximately $56,000 when
compared to 1993. The increase in operating expenses for 1994 when compared to
1993 is primarily due to an increase in general, administrative and other
operating expenses aggregating approximately $186,000 due primarily to the one-
time marketing expenses incurred in 1994. Other operating expenses increased by
$100,000 for 1994 when compared to 1993 due to the payment of a consulting fee
of $100,000 to a corporation of which Kenneth L. Uptain is the sole shareholder.
See "Certain Transactions." Partially offsetting these increases was a decrease
in rental operations expenses aggregating approximately $230,000 for 1994 when
compared to 1993. Rental operations expense decreased for 1994 when compared to
1993 due primarily to decreases of approximately $207,000 and $22,000 in bad
debt expense and depreciation and amortization expense, respectively.
For 1995, 1994 and 1993, operating income was approximately $1.0 million,
$1.2 million, and $1.3 million, respectively. The decrease in operating income
of approximately $200,000 for 1995 when compared to 1994 and $100,000 for 1994
when compared to 1993 was primarily the result of the lease terminations and the
implementation of the renovation and retenanting plan at the Lynnwood Center.
Due to the renovation and retenanting plan, average gross leasable area at the
Lynnwood Center amounted to approximately 130,000 square feet in 1995 and
157,000 square feet in each of 1994 and 1993. Average occupancy decreased
approximately fifteen percentage points between 1993 and 1994 and increased
approximately seven percentage points between 1994 and 1995. The new space was
not completely leased until late 1995 and therefore did not substantially
contribute to rental revenue for 1995. At December 31, 1995, the Lynnwood Center
was 91% occupied.
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"Equity in Losses of Investees" relates to Grand Harbor Associates' 45%
ownership interest in certain limited partnerships and corporations that own
Grand Harbor and Oak Harbor. For 1995, 1994 and 1993, RGI/US recognized losses
in the amounts of $3.1 million, $1.9 million and $1.9 million, respectively.
Prior to 1994, there were no operations for Oak Harbor. A breakdown of Grand
Harbor's and Oak Harbor's results of operations for 1995, 1994 and 1993 is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Grand Harbor.................................... $20,958,541 $30,773,765 $13,867,282
Oak Harbor...................................... 2,605,434 1,158,590 --
----------- ----------- -----------
Total Revenue................................ 23,563,975 31,932,355 13,867,282
----------- ----------- -----------
Cost of Sales
Grand Harbor.................................... 16,017,986 23,351,087 10,231,237
Oak Harbor...................................... 1,260,640 604,812 --
----------- ----------- -----------
Total Cost of Sales.......................... 17,278,626 23,955,899 10,231,237
----------- ----------- -----------
Operating and Other Expenses
Grand Harbor.................................... 10,352,589 10,188,794 7,788,439
Oak Harbor...................................... 2,730,995 2,055,659 --
----------- ----------- -----------
Total Operating and Other Expenses........... 13,083,584 12,244,453 7,788,439
----------- ----------- -----------
Net Loss Before Extraordinary Gain
Grand Harbor.................................... (5,412,034) (2,766,116) (4,152,394)
Oak Harbor...................................... (1,386,201) (1,501,881) --
----------- ----------- -----------
Total Net Loss Before Extraordinary Gain..... $(6,798,235) $(4,267,997) $(4,152,394)
=========== =========== ===========
Share of Net Loss Before Extraordinary Gain
Grand Harbor (45%).............................. (2,435,415) (1,244,752) (1,868,577)
Oak Harbor (45%)................................ (623,790) (675,846) --
----------- ----------- -----------
Total Share of Net Loss Before Extraordinary
Gain....................................... $(3,059,205) $(1,920,598) $(1,868,577)
=========== =========== ===========
</TABLE>
In each of 1995, 1994 and 1993, 43, 90 and 57 residential units were sold
at Grand Harbor for an average sales price of $298,000, $248,000 and $210,000,
respectively. Total revenues for Grand Harbor for 1995 declined when compared to
1994 due to a decrease in the number of residential units and club memberships
sold which was partially offset by an increase in the average sales price per
unit. Total revenues for 1994 increased when compared to 1993 due to an increase
in the number of residential units and club memberships sold as well as an
increase in the average sales price per unit. Total revenues for Grand Harbor
for 1995 and 1994 were also impacted by membership fees and other income related
to operation of the Grand Harbor Club of $4.6 million and $3.9 million,
respectively. Prior to January 1, 1994, all revenues and expenditures relating
to Grand Harbor Club operations were netted and capitalized to real estate
inventory as additional amenity costs. Net club operation losses of
approximately $2.3 million were capitalized from July 1991 (inception) to
December 31, 1993. The Grand Harbor Club was fully operational as of January 1,
1994, and results of operations of the Grand Harbor Club from January 1, 1994,
are included in current operations. Membership dues and other income for 1995
increased $756,000 when compared to 1994 due to increased membership and an
overall dues increase.
The decrease in the cost of sales for Grand Harbor in the amount of $7.3
million for 1995 when compared to 1994 was due to the reduction in units sold.
Other operating expenses for Grand Harbor remained relatively unchanged between
1995 and 1994 but increased approximately $2.4 million in 1994 over 1993 as a
direct result of the increase in sales activity.
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Oak Harbor acquired Royal Palm as of June 30, 1994. 1995 financial results
for Oak Harbor reflect a full year of operation of Royal Palm whereas 1994 only
includes six months.
There were no residential unit sales at Oak Harbor in 1995 or 1994. Total
cost of sales increased at Oak Harbor for 1995 when compared to 1994 due to a
full year of operation of Royal Palm. Other operating expenses in 1995 for Oak
Harbor increased by approximately $675,000. The increase was primarily due to
development, sales/marketing and interest expenditures incurred for only a
partial year in 1994 compared to a full year in 1995. This increase was
partially offset because of a write-off in 1994 of $578,000 in expenses relating
to application to the State of Florida for a Certificate of Need necessary for a
life care facility. This Certificate of Need was no longer necessary after the
acquisition of Royal Palm.
Interest income for 1995, 1994 and 1993 was $2.0 million, $1.3 million and
$329,000 respectively. The increase in interest income for 1995 of approximately
$764,000 when compared to 1994 and of approximately $1.0 million from 1993 to
1994 was due to an increase in interest income relating to RGI/US' loan to Grand
Harbor in the original principal amount of $12.0 million (the "1994 Grand Harbor
Loan") which was outstanding during all of 1995 and eleven months in 1994. Also,
RGI/US recognized $691,000 in additional interest income in 1995 as a result of
its loan to RGI Inc. in the original principal amount of $9.5 million which
became outstanding during the first quarter of 1995 and was repaid in December
1995.
Interest expense for 1995, 1994 and 1993 was $4.1 million, $2.6 million and
$2.2 million, respectively. Interest expense increased by approximately $1.5
million for 1995 when compared to 1994 primarily due to a loan received by
RGI/US in the original principal amount of $9.5 million in February 1995. The
loan proceeds were in turn utilized to provide a loan to RGI Inc. in an equal
amount. Interest expense associated with this loan amounted to $691,000. In
addition, in 1995 RGI/US incurred additional interest expense of approximately
$480,000 as a result of varying terms of related party loans during 1994. In
addition, RGI/US borrowed $12.0 million in 1994 to fund the 1994 Grand Harbor
Loan. This loan was paid down to $10.9 million by the end of 1994 and the
balance was outstanding for all of 1995. Interest expense associated with this
loan in 1995 increased by $200,000 due to the overall increase in interest rates
as well as the principal being outstanding for a full twelve months versus
eleven months in 1994. Interest expense for 1994 increased by approximately
$375,000 when compared to 1993. The increase in interest expenses for 1994 was
primarily due to RGI/US' incurrence in the first quarter of 1994 of the
indebtedness necessary to fund the 1994 Grand Harbor Loan. RGI/US incurred
interest expense of $753,000 for 1994 as a result of this borrowing which was
equal to the interest income received on the 1994 Grand Harbor Loan. RGI/US'
$753,000 increase in interest expense for 1994 was partially offset by a
decrease in interest expense of approximately $378,000 as a result of the
refinancing of the Lynnwood Center's mortgage loan and the restructuring of
various related party loans in 1994.
During 1994 RGI/US charged a $1.3 million brokerage fee to Grand Harbor for
certain loans. RGI/US has deferred a portion of the amount and is amortizing the
balance into income using the straight-line method over the term of the loan. In
1995 and 1994 RGI/US recognized $157,000 and $515,000 respectively, as income.
For 1994, RGI/US recognized an extraordinary gain in the amount of $2.5
million on its 45% share of Grand Harbor's extinguishment of debt.
The above changes resulted in net income (loss) of ($4.1 million), $971,000
and ($2.5 million) for 1995, 1994 and 1993, respectively.
Six Months Ended June 30, 1996 compared to Six Months Ended June 30, 1995
Results of operations for the six months ended June 30, 1996 include 100%
of the revenues and expenses of Grand Harbor and Oak Harbor reduced by 10%
minority interests whereas the results of operations for the six months ended
June 30, 1995 include RGI/US' 45% share of losses from Grand Harbor and Oak
Harbor under the equity method of accounting as "Equity in Losses of Investees".
As a result of this change, RGI/US believes that its financial statements as of
and for the six months ended June 30, 1996 are not comparable with its financial
statements as of and for the six months ended June 30, 1995. To allow for
comparability of period
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<PAGE> 70
to period variances, the results of operations for the six months ended June 30,
1996 are compared to pro forma results of operations for the six months ended
June 30, 1995 ("Pro Forma Six Months ended June 30, 1995"). The Pro Forma Six
Months ended June 30, 1995 information has been prepared as if the 45%
acquisition of interests had been made on January 1, 1995.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
(UNAUDITED)
------------------------
ACTUAL PRO FORMA
1996 1995
---------- ---------
<S> <C> <C>
Revenues:
Real estate sales.............................................. $13,178,354 10,975,960
Club operations................................................ 3,174,461 2,620,210
Patient service................................................ 1,288,125 1,148,239
Rent........................................................... 1,244,675 1,000,143
Other.......................................................... 404,151 343,661
---------- ---------
Total revenues............................................ 19,289,766 16,088,213
---------- ---------
Cost of sales:
Real estate.................................................... 9,249,477 6,933,590
Club operations................................................ 2,527,596 2,367,269
Patient service................................................ 664,742 602,512
Rent........................................................... 393,808 444,021
Other.......................................................... 44,896 43,250
---------- ---------
Total cost of sales....................................... 12,880,519 10,390,642
---------- ---------
Gross margin.............................................. 6,409,247 5,697,571
Selling, general and administrative expenses..................... 4,496,658 4,035,316
---------- ---------
Operating income.......................................... 1,912,589 1,662,255
---------- ---------
Other income (expense):
Brokerage fee.................................................. 78,542 78,542
Interest income................................................ 382,985 372,557
Interest expense............................................... (2,558,579) (3,535,102)
Other, net..................................................... (38,500) (9,895)
---------- ---------
Net other expense......................................... (2,135,552) (3,093,898)
========== =========
Loss before minority interests............................ (222,963) (1,431,643)
Minority interests............................................... 39,223 138,201
========== =========
Net loss.................................................. $ (183,740) (1,293,442)
========== =========
</TABLE>
Total revenues for the six months ended June 30, 1996 and for the Pro Forma
Six Months ended June 30, 1995 were $19.3 million and $16.1 million,
respectively. Real estate sales increased by $2.2 million to $13.2 million for
the six months ended June 30, 1996 from $11.0 million for the Pro Forma Six
Months ended June 30, 1995. Thirty-six Grand Harbor residential units were sold
in the first six months of 1996 at an average sale price of $326,000 as compared
to 28 units sold in the first six months of 1995 at an average sale price of
$335,000. The increase attributable to higher unit sales was partially offset by
fewer club memberships being sold in the first six months of 1996 as compared to
the comparable period in 1995. Club operations revenues increased $554,000 for
the six months ended June 30, 1996 to $3.2 million from $2.6 million for the Pro
Forma Six Months ended June 30, 1995. The club operations revenue increases for
the six months ended June 30, 1996 as compared to the Pro Forma Six Months ended
1995 were due primarily to the increase in overall membership and related
activities. Rent revenues increased $245,000 in the six months ended June 30,
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1996 as compared to the Pro Forma Six Months ended June 30, 1995 from $1.0
million to $1.2 million. The increase was the result of the new major tenant in
the Lynnwood Center in November of 1995. The average occupancy rate for the
Lynnwood Center for the six months ended June 30, 1996 and 1995 was 91% and 80%
respectively. In June 1996, RGI/US listed the Lynnwood Center for sale.
Cost of sales increased $2.5 million to $12.9 million for the six months
ended June 30, 1996 from $10.4 million for the Pro Forma Six Months ended June
30, 1995. Increases were primarily due to higher real estate sales and increased
membership in the club.
Real estate sales gross margin as a percentage of real estate sales
amounted to 30% for the six months ended June 30, 1996 compared to 37% for the
Pro Forma Six Months ended June 30, 1995. Gross margin percentages vary
materially based on the type of unit sold. Unit sales for 1995 included six
undeveloped lots that generated a significantly higher margin than completed
residence sales.
Selling, general and administrative expenses for the six months ended June
30, 1996 increased $461,000 to $4.5 million from $4.0 million in the Pro Forma
Six Months ended June 30, 1995. The increase for the six month period was
primarily due to the fact that the Oak Harbor sales organization was not fully
operational in 1995.
Interest expense decreased by approximately $972,000 for the six months
ended June 30, 1996 to $2.6 million from $3.5 million in the Pro Forma Six
Months ended June 30, 1995. These decreases were primarily as a result of the
conversion of related party payables to equity of RGI/US amounting to $21.7
million in January 1996.
INFLATION
RGI/US may be adversely affected during periods of high inflation,
primarily because of the impact of higher interest rates that may significantly
affect RGI/US' interest and construction costs. In addition, higher interest
rates could likely negatively impact the ability of purchasers to obtain
mortgage financing. In the last three years, inflation has not had a material
effect on RGI/US.
MANAGEMENT OF THE COMPANY
From and after the Effective Time, until successors are duly elected or
appointed and qualified in accordance with applicable law, the directors of the
Company will be Messrs. Walter E. Auch, Sr., Robert M. Ungerleider, Kenneth L.
Uptain, Olav Revhaug and Fred E. Welker, III. Upon completion of the Merger,
current officers of Banyan will resign and it is anticipated that Kenneth L.
Uptain will be appointed as President and Chief Executive Officer and Raymond J.
Whitty will be appointed Chief Financial Officer of the Company. The Company
anticipates utilizing the services of BMC following the Merger. Raymond J.
Whitty has served as a financial consultant to RGI since May 1996. From October
1995 until May 1996 he was an independent financial consultant. From August 1988
until September 1995, Mr. Whitty was the Chief Financial Officer of the Westin
Hotel Company. For information regarding Mr. Uptain, see "Matters to be
Considered by Stockholders -- Proposal Number Four."
DESCRIPTION OF SECURITIES
Banyan has 100.0 million authorized shares of common stock, par value of
$0.01 per share, of which 47,307,527 shares were outstanding, 997,336 were
reserved for issuance upon exercise of outstanding stock options (which may be
exercised prior to the Effective Time) and 20,100 shares were held as treasury
stock at August 28, 1996. The Restated Certificate would authorize the issuance
of up to 5.0 million shares of preferred stock, $0.01 par value per share,
39,894 of which have been reserved for issuance upon exercise of outstanding
stock options. Assuming approval of the Reserve Split, on a pro forma basis as
of August 28, 1996, the Company would have had 1,892,302 shares outstanding. See
"Matters to be Considered by Stockholders -- Proposal Number Two."
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Dividend Rights and Restrictions. The holders of Banyan's common stock are
entitled to receive dividends when and as declared by Banyan's board of
directors. Banyan did not declare distributions during the years ended December
31, 1995 and 1994 or in the first or second quarters of 1996 and does not
contemplate paying cash dividends until substantial development activity has
begun on all of the projects and a sustainable stream of cash flow in excess of
capital needs is available. In addition, certain of Banyan's loan agreements
prohibit the payment of dividends. If the Company issues preferred stock with a
dividend, the Stockholders' right to receive dividends, if any, will be
subordinated to that of the holders of preferred stock.
Election of the Company's Board of Directors. Under the Bylaws, the number
of directors is fixed at five (5), three (3) of which will be independent, and
all of the directors will serve a one year term, provided that Mr. Uptain's term
does not expire until 1997 and Mr. Ungerleider's term does not expire until
1998.
Removal of Directors. In accordance with the requirements of the Delaware
Law for corporations without classified boards, the Bylaws provide that
directors may be removed with or without cause, upon a vote by holders of a
majority of the shares of the Company's common stock entitled to vote at an
election of directors, which effectively entitles RGI Holdings to remove
directors.
Stockholder Amendments to Bylaws. The Bylaws permit stockholders to make
additional bylaws and to alter or repeal any other bylaws by a majority of the
shares eligible to vote.
Certain Provisions of the Delaware Corporation Law. Banyan is governed by
the provisions of Section 203 of the Delaware Corporation Law. In general, the
law prohibits a public Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
"Business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns (or within three
years, did own) 15% or more of the corporation's voting stock.
The Restated Certificate authorizes the Company to provide indemnification
of (and advancement of expenses to) directors, officers, agents and other
persons in excess of the indemnification and advancement otherwise permitted by
Delaware Law, subject only to limits with respect to actions for breach of duty
to the Company, the Stockholders, and others.
The existing certificate of incorporation and the Restated Certificate also
provide that a director of the Company shall not be personally liable to the
Company or its Stockholders for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its Stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware Law (governing unlawful dividends
or stock redemptions), or (iv) for any transaction from which the director
derived any improper personal benefit.
Indemnification of Directors and Others. The Bylaws are silent with respect
to indemnification of officers and directors but provide that expenses incurred
by an individual in his capacity as a director of the Company or in certain
other capacities in defending a civil or criminal action will be paid by the
Company in advance of the final disposition of the matter upon receipt of an
undertaking from the director to repay the sum advanced if it shall ultimately
be determined that he is not entitled to be indemnified by the Company pursuant
to the terms of the Delaware Law. The board believes that this provision offers
greater protection to directors and will encourage them to continue to serve the
Company because it gives greater assurance that litigation expenses will be
promptly advanced in cases where a director is sued in his capacity as a
director of the Company.
Certain Bylaw Provision. The Bylaws provide that special meetings of
Banyan's stockholders shall be called at the request of holders of at least
one-third of all Banyan's outstanding common stock.
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<PAGE> 73
Liquidation Rights. In the event of a liquidation, dissolution or winding
up of Banyan, the holders of Banyan's common stock are entitled to share ratably
in all of the assets of Banyan available for distribution to its stockholders.
Miscellaneous. The transfer agent and registrar for the Company's common
stock is First Chicago Trust Company of New York.
MATERIAL AGREEMENTS
The following agreements have been entered into by Banyan in connection
with the Merger or by RGI/US in connection with Oak Harbor and Grand Harbor:
MORGENS LOAN MODIFICATION
Banyan and RGI Holdings entered into an agreement modifying the terms of
the Morgens Loan on May 21, 1996 to: (i) capitalize all interest which had
accrued and was due on or before December 31, 1995; (ii) change the due date of
an interest payment from April 1, 1996 to May 21, 1996; (iii) delete the
prepayment prohibitions; (iv) add a new provision requiring the Company to make
principal payments equal to 50% of all net sale proceeds from the sale of
development properties and 100% of all net sale proceeds of non-development
properties; and (v) adjust, at the Effective Time, the pre-default interest rate
from 17.5% to the prime rate plus 200 basis points. If the Merger does not close
by December 31, 1996 (or the time period is not extended), then the interest
rate will remain at 17.5%. The modification agreement allows the Company to
retain the proceeds from the sale of the 120 South Spalding property and the
previous and proposed sales of parcels from the Oakridge property, totaling
$9.25 million, instead of making mandatory principal payments as would have been
required prior to modification. In addition, RGI Holdings has agreed that it
will not accelerate or commence any foreclosure proceeding on the loan with
respect to: (i) any defaults occurring prior to May 21, 1996; and (ii) any
non-monetary defaults occurring through the date of the Merger.
SOGEN LOAN MODIFICATION
Banyan and RGI Holdings entered into an agreement modifying the terms of
the SoGen Loan on May 20, 1996 to: (i) capitalize all interest which had accrued
and was due on or before December 31, 1995; (ii) delete the covenant requiring
Banyan to make mandatory prepayments on the loan (unless the Merger does not
close by December 31, 1996 and the time period is not extended); and (iii)
change the due date of interest payments so that interest due monthly from
January 1, 1996 through April 30, 1996 was due May 20, 1996. In addition, under
the terms of the modification agreement, the funds held in escrow from the sale
of properties at Wayside Village were released to RGI Holdings and applied
against the outstanding principal balance of the loan. RGI Holdings also has
agreed that it will not accelerate or commence any foreclosure proceeding on the
loan with respect to: (i) any default occurring prior to May 20, 1996; and (ii)
any nonmonetary defaults occurring through the date of the Merger.
REGISTRATION RIGHTS AGREEMENT
Pursuant to a registration rights agreement entered into as of May 21,
1996, upon Banyan's receipt of written request by RGI Holdings and in certain
circumstances, Banyan has agreed to register the securities held by RGI
Holdings, provided the aggregate proceeds of the securities exceed $1.0 million
In addition, if Banyan is registering securities on its own behalf or for
another stockholder, RGI Holdings may include its securities in Banyan's
registration statement. Banyan may defer the registration of the securities held
by RGI Holdings or limit the number of shares of its common stock to be
registered by RGI Holdings if Banyan determines that it would be detrimental to
Banyan not to do so.
CONSTRUCTION CONTRACT
Proctor has provided all development and construction services at Grand
Harbor and Oak Harbor since RGI/US acquired the projects in 1991. Donald C.
Proctor is the majority shareholder of Proctor, and an
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<PAGE> 74
affiliate of Donald Proctor owns 10% of corporations that own Grand Harbor and
Oak Harbor. Proctor has the exclusive right to provide all development and
construction services at both projects until December 31, 1999. This exclusive
contract is in effect until December 31, 1999, and is based on the cost of the
work plus a 7% overhead fee and a 5% profit fee, half of which is payable to
Grand Harbor Associates.
OTHER MATTERS
It is not expected that any matters other than those described in this
Proxy Statement/Prospectus will be brought before the Annual Meeting. If any
other matter is presented, however, it is the intention of the persons named in
Banyan's proxy to vote the proxy in accordance with their best judgment.
LEGAL MATTERS
The validity of the shares of Banyan's common stock to be issued pursuant
to the Merger will be passed upon for Banyan by Shefsky Froelich & Devine Ltd.
In addition, Shefsky Froelich & Devine Ltd. has delivered an opinion to Banyan
that: (i) the Merger will be treated for United States federal income tax
purposes as a reorganization within the meaning of Section 368(a)(1)(A) of the
Code; and (ii) the Reverse Split will not be treated as a stock distribution or
a transaction that has the effect of such a distribution. Accordingly, no gain
or loss will be recognized by Banyan as a result of the Merger and Stockholders
will not recognize any taxable income as a result of the Merger or the Reverse
Split except to the extent of amounts received in lieu of fractional shares, a
portion of which will produce taxable gain or loss.
EXPERTS
The consolidated balance sheet of Banyan as of December 31, 1994 and the
related consolidated statements of income and expenses, stockholders' equity and
cash flows for each of the years ended December 31, 1994 and 1993 have been
audited by Coopers & Lybrand L.L.P., independent certified public accountants,
as indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Banyan at December 31, 1995 and
for the year then ended have been audited by Ernst & Young LLP, independent
auditors as set forth in their report thereon and are included herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of RGI/US and certain subsidiaries,
and the combined financial statements of Grand Harbor Associates and Affiliates
as of December 31, 1995 and 1994, and for each of the years in the three-year
period ended December 31, 1995, and the combined financial statements of the Oak
Harbor Affiliated Companies as of December 31, 1995 and 1994, and for each of
the years then ended, have been included herein and in the registration
statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing. The report of KPMG Peat
Marwick LLP covering the RGI/US consolidated financial statements contains an
explanatory paragraph that states that the consolidated financial statements
were prepared to present the financial position, results of operations and cash
flows of the entities to be merged pursuant to the Merger Agreement with Banyan
and are not intended to be a complete presentation of RGI/US.
STOCKHOLDER PROPOSALS
Any stockholder who wishes to submit a proposal for consideration at
Banyan's 1996 Annual Meeting of Stockholders must have submitted the proposal to
the Company, 150 S. Wacker Drive, Suite 2900, Chicago, Illinois 60606,
Attention: Secretary. A stockholder's proposal must be received not later than
, 1997 for inclusion, if appropriate, in the Company's proxy
statement and form of proxy relating to its 1996 Annual Meeting (which will be
held in calendar year 1997).
64
<PAGE> 75
GLOSSARY
<TABLE>
<S> <C>
Acquisition Proposal.............................................................. 6
American Property Investments..................................................... 1
Annual Meeting.................................................................... 2
Banyan............................................................................ 1
BMC............................................................................... 19
Bylaws............................................................................ 7
C&L............................................................................... 13
Capital Stock Valuation Report.................................................... 13
Chapman's Landing................................................................. 1
Code.............................................................................. 5
Commission........................................................................ ii
Company........................................................................... 1
Delaware Law...................................................................... 5
E&Y............................................................................... 46
Effective Date.................................................................... 5
Effective Time.................................................................... 5
Employment Agreement.............................................................. 13
Exchange Act...................................................................... ii
GAAP.............................................................................. 17
Grand Harbor Associates........................................................... 1
HSR Act........................................................................... 5
Josephthal........................................................................ 2
Lynnwood Center................................................................... 1
Merger Agreement.................................................................. front cover
Merger............................................................................ front cover
Morgens Loan...................................................................... 2
Morgens........................................................................... 2
Nominees.......................................................................... front cover
NYSE.............................................................................. front cover
Private Placement................................................................. 2
Proctor........................................................................... 13
Record Date....................................................................... 2
Restated Certificate.............................................................. 6
RGI............................................................................... 1
RGI Antilles...................................................................... 1
RGI/US Properties................................................................. 20
RGI/US Common Stock............................................................... 1
RGI/US............................................................................ 1
Richmond.......................................................................... 38
Royal Palm........................................................................ 48
SoGen Loan........................................................................ 2
Southbridge/Wayside............................................................... 1
Stockholders...................................................................... 2
Stock Split....................................................................... 2
Termination Fee................................................................... 13
Washington Law.................................................................... 27
</TABLE>
65
<PAGE> 76
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LEGEND PROPERTIES, INC.
Pro Forma Condensed Consolidated Financial Information............................... F-4
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1996................... F-5
Pro Forma Condensed Consolidated Statement of Operations for the Six Months Ended
June 30, 1996...................................................................... F-6
Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December
31, 1995........................................................................... F-7
Notes to Pro Forma Condensed Consolidated Financial Information...................... F-8
RGI U.S. HOLDINGS, INC.
Independent Auditors' Report......................................................... F-11
Consolidated Balance Sheets as of December 31, 1995 and 1994......................... F-12
Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994 and
1993............................................................................... F-13
Consolidated Statements of Stockholder's Deficit for the Years Ended December 31,
1995, 1994 and 1993................................................................ F-14
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and
1993............................................................................... F-15
Notes to Consolidated Financial Statements........................................... F-16
Consolidated Balance Sheet as of June 30, 1996 (unaudited)........................... F-30
Consolidated Statements of Operations for the Six Months Ended June 30, 1996 and 1995
(unaudited)........................................................................ F-31
Consolidated Statement of Stockholder's Equity (Deficit) for the Six Months Ended
June 30, 1996 (unaudited).......................................................... F-32
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995
(unaudited)........................................................................ F-33
Notes to Unaudited Consolidated Financial Statements................................. F-35
GRAND HARBOR ASSOCIATES AND AFFILIATES
Independent Auditors' Report......................................................... F-39
Combined Balance Sheets as of December 31, 1995 and 1994............................. F-40
Combined Statements of Operations for the Years Ended December 31, 1995, 1994 and
1993............................................................................... F-41
Combined Statements of Changes in Owners Equity (Deficit) for Each of the Years in
the Three-Year Period Ended December 31, 1995...................................... F-42
Combined Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and
1993............................................................................... F-43
Notes to Combined Financial Statements............................................... F-44
THE OAK HARBOR AFFILIATED COMPANIES
Independent Auditors' Report......................................................... F-53
Combined Balance Sheets as of December 31, 1995 and 1994............................. F-54
Combined Statements of Operations for the Years Ended December 31, 1995 and 1994..... F-55
Combined Statements of Changes in Owners' Equity (Deficit) for the Years Ended
December 31, 1995 and 1994......................................................... F-56
Combined Statements of Cash Flows for the Years Ended December 31, 1995 and 1994..... F-57
Notes to Combined Financial Statements............................................... F-58
</TABLE>
F-1
<PAGE> 77
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUNDReports of Independent Auditors.................................................. F-65
Consolidated Balance Sheets at December 31, 1995 and 1994............................ F-67
Consolidated Statements of Income and Expenses for the Years Ended December 31, 1995,
1994 and 1993...................................................................... F-68
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1995, 1994 and 1993................................................................ F-69
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and
1993............................................................................... F-70
Notes to Consolidated Financial Statements........................................... F-71
Consolidated Balance Sheet at June 30, 1996 (unaudited).............................. F-85
Consolidated Statements of Income and Expenses for the Six Months Ended June 30, 1996
and 1995 (unaudited)............................................................... F-86
Consolidated Statement of Stockholders' Equity for the Six Months Ended June 30, 1996
(unaudited)........................................................................ F-87
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995
(unaudited)........................................................................ F-88
Notes to Consolidated Financial Statements........................................... F-89
</TABLE>
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.
F-2
<PAGE> 78
LEGEND PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
F-3
<PAGE> 79
LEGEND PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited Pro Forma Condensed Consolidated Balance Sheet as
of June 30, 1996 and unaudited Pro Forma Condensed Consolidated Statements of
Operation for the six months ended June 30, 1996 and for the year ended December
31, 1995 have been prepared to reflect the Merger and the adjustments described
in the accompanying notes. The pro forma condensed consolidated financial
information is based on the historical financial statements listed in the Index
on page F-1 and should be read in conjunction with those financial statements
and the notes thereto. The Pro Forma Condensed Consolidated Balance Sheet was
prepared as if the Merger occurred on June 30, 1996. The Pro Forma Condensed
Consolidated Statements of Operations were prepared as if the Merger occurred as
of the beginning of each period presented. The Pro Forma Condensed Consolidated
financial information is not necessarily indicative of the financial position or
results of operations which actually would have occurred if the Merger had been
consummated on the dates described, nor does it purport to represent the
Company's future financial position or results of operations.
F-4
<PAGE> 80
LEGEND PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
BANYAN LEGEND
RGI U.S. MORTGAGE PRO FORMA PROPERTIES, INC.
HOLDINGS INC. INVESTMENT FUND ADJUSTMENTS PRO FORMA
------------- --------------- ------------ ----------------
<S> <C> <C> <C> <C>
Assets:
Real Estate............................ $ 68,487,445 $ 96,146,824 $(45,681,951) $ 118,952,318
Property and Equipment................. 9,016,241 -- -- 9,016,241
Cash and Cash Equivalents.............. 1,366,548 6,647,172 8,013,720
Restricted Cash........................ 22,040,276 -- -- 22,040,276
Receivables............................ 1,875,345 -- 1,875,345
Deferred Financing Costs and Other
Assets............................... 7,732,132 5,260,324 (745,262) 12,247,194
------------- --------------- ------------ ----------------
$ 110,517,987 $ 108,054,320 $(46,427,213) $ 172,145,094
=========== ============ =========== ===========
Liabilities:
Mortgage Loans and Notes Payable....... $ 85,963,606 $ 34,371,494 $ -- $ 120,335,100
Accounts Payable and Accrued
Expenses............................. 13,059,884 3,325,315 1,754,895 18,140,094
------------- --------------- ------------ ----------------
99,023,490 37,696,809 1,754,895 138,475,194
Minority Interests..................... 710,781 -- -- 710,781
Stockholders' Equity................... 10,783,716 70,357,511 (48,182,108) 32,959,119
------------- --------------- ------------ ----------------
$ 110,517,987 $ 108,054,320 $(46,427,213) $ 172,145,094
=========== ============ =========== ===========
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial
Information.
F-5
<PAGE> 81
LEGEND PROPERTIES, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
BANYAN LEGEND
RGI U.S. MORTGAGE PRO FORMA PROPERTIES, INC.
HOLDINGS INC. INVESTMENT FUND ADJUSTMENTS PRO FORMA
------------- --------------- ----------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Real Estate Sales................... $ 13,178,354 $ -- $ -- $13,178,354
Club Operations..................... 3,174,461 -- -- 3,174,461
Patient Services.................... 1,288,125 -- -- 1,288,125
Rent................................ 1,244,675 232,094 -- 1,476,769
Other............................... 404,151 -- -- 404,151
------------- --------------- ----------- ----------------
Total Revenues........................ 19,289,766 232,094 -- 19,521,860
Costs:
Real Estate Sales................... 9,249,477 -- -- 9,249,477
Club Operations..................... 2,527,596 -- -- 2,527,596
Patient Services.................... 664,742 -- -- 664,742
Rent................................ 393,808 306,610 -- 700,418
Other............................... 44,896 -- -- 44,896
------------- --------------- ----------- ----------------
Total Costs........................... 12,880,519 306,610 -- 13,187,129
------------- --------------- ----------- ----------------
Gross Margin.......................... 6,409,247 (74,516) -- 6,334,731
Selling, General and Administrative
Expenses............................ 4,496,658 1,342,942 (783,139)(D) 5,056,461
------------- --------------- ----------- ----------------
Operating Income (Loss)............... 1,912,589 (1,417,458) 783,139 1,278,270
Other Income (Expense):
Interest Expense, net............... (2,558,579) (3,516,011) 164,103(B) (3,999,266)
1,911,221(C)
Interest Income..................... 382,985 65,412 -- 448,397
Other, net.......................... 40,042 (1,495,069) -- (1,455,027)
------------- --------------- ----------- ----------------
Net Other Expense..................... (2,135,552) (4,945,668) 2,075,324 (5,005,896)
------------- --------------- ----------- ----------------
Loss Before Equity in Income of
Investee and Minority Interests..... (222,963) (6,363,126) 2,858,463 (3,727,626)
Equity in Income of Investee.......... -- 981,330 -- 981,330
Gain on Sale of Real Estate........... -- 63,091 -- 63,091
Minority Interests.................... 39,223 -- -- 39,223
------------- --------------- ----------- ----------------
Net Loss.............................. $ (183,740) $(5,318,705) $2,858,463 $(2,643,982)
========== ============ ========= ===========
Net Loss Per Share.................... $ (0.42)
===========
Shares of Common Stock Outstanding.... 6,279,288
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial
Information.
F-6
<PAGE> 82
LEGEND PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
BANYAN
PRO FORMA MORTGAGE LEGEND
RGI U.S. PRO FORMA RGI U.S. INVESTMENT PRO FORMA PROPERTIES, INC.
HOLDINGS INC. ADJUSTMENTS(E) HOLDINGS INC. FUND ADJUSTMENTS PRO FORMA
------------- -------------- ------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Real Estate Sales........... $ -- $16,334,806(i) $16,334,806 $ -- $ -- $ 16,334,806
Club Operations............. -- 4,601,160(i)(iii) 4,601,160 -- -- 4,601,160
Patient Services............ -- 2,380,767(i) 2,380,767 -- -- 2,380,767
Rent........................ 1,872,392 -- 1,872,392 1,230,028 -- 3,102,420
Other....................... 215,855 211,240(i)(iii) 427,095 -- -- 427,095
------------- -------------- ------------- ----------- ----------- ----------------
Total Revenues............... 2,088,247 23,527,973 25,616,220 1,230,028 -- 26,846,248
Costs:
Real Estate Sales........... -- 10,937,011(i) 10,937,011 -- -- 10,937,011
Club Operations............. -- 5,004,028(i) 5,004,028 -- -- 5,004,028
Patient Services............ -- 1,260,640(i) 1,260,640 -- -- 1,260,640
Rent........................ 817,433 -- 817,433 1,277,675 -- 2,095,108
Other....................... 100,000 76,947(i) 176,947 -- -- 176,947
------------- -------------- ------------- ----------- ----------- ----------------
Total Costs.................. 917,433 17,278,626 18,196,059 1,277,675 -- 19,473,734
------------- -------------- ------------- ----------- ----------- ----------------
Gross Margin................. 1,170,814 6,249,347 7,420,161 (47,647) -- 7,372,514
Provision for Losses on Real
Estate...................... -- -- -- 12,900,000 (12,900,000)(A)
Selling, General and
Administrative Expenses..... 209,193 8,319,602 ( )(iii)(iv 8,528,795 1,429,402 -- 9,958,197
------------- -------------- ------------- ----------- ----------- ----------------
Operating Income (Loss)...... 961,621 (2,070,255) (1,108,634) (14,377,049) 12,900,000 (2,585,683)
Other Income (Expense):
Interest Expense, net....... (4,139,315) (3,987,491)(i)(iii) (8,126,806) (2,533,841) 339,628(B) (10,321,019)
Interest Income............. 2,032,182 (610,068)(i)(iii) 1,422,114 169,890 -- 1,592,004
Other, net.................. 135,685 279,655(i)(iii) 415,340 (1,589,691) -- (1,174,351)
------------- -------------- ------------- ----------- ----------- ----------------
Net Other Expense............ (1,971,448) (4,317,904) (6,289,352) (3,953,642) 339,628 (9,903,366)
------------- -------------- ------------- ----------- ----------- ----------------
Losses Before Equity in
Losses of Investees and
Minority Interests.......... (1,099,827) (6,388,159) (7,397,986) (18,330,691) 13,239,628 (12,489,049)
Equity in Losses of
Investees................... (3,059,205) 3,059,205(i) -- (213,516) -- (213,516)
Minority Interests........... -- 683,815(ii) 683,815 -- -- 683,815
------------- -------------- ------------- ----------- ----------- ----------------
Net Loss..................... $(4,069,032) $(2,645,139) $(6,714,171) $(18,544,207) $13,239,628 $(12,018,750)
============== ================= ============== ============= ============= ===============
Net Loss Per Share........... $ (1.91)
===============
Shares of Common Stock
Outstanding................. 6,279,288
===============
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial
Information.
F-7
<PAGE> 83
LEGEND PROPERTIES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
1. BASIS OF PRESENTATION
As more fully described below, the pro forma financial information reflects
the effects of the issuance by Banyan Mortgage Investment Fund ("Banyan")
in the Merger of 109,674,667 shares of its common stock, valued at its fair
market value of $.46875 per share as of the date of the initial execution
of the Merger Agreement, in exchange for all of the outstanding common
stock of RGI U.S. Holdings, Inc. ("RGI/US"). For accounting purposes, the
acquisition will be treated as a recapitalization of RGI/US with RGI/US as
the acquiror (reverse acquisition).
2. PRO FORMA ADJUSTMENTS -- BALANCE SHEET
For accounting purposes, the purchase price of Banyan by RGI/US is
calculated as follows:
<TABLE>
<S> <C>
Banyan common shares outstanding at June 30, 1996............... 47,307,527
Fair market value per share..................................... $.46875
----------
Purchase price.................................................. $22,175,403
==========
</TABLE>
The adjustment to the historical stockholders' equity of Banyan to
reflect the above purchase price is calculated as follows:
<TABLE>
<S> <C>
Banyan stockholders' equity at June 30, 1996.................... $70,357,511
Less purchase price............................................. (22,175,403)
----------
Adjustment to stockholders' equity.............................. $48,182,108
==========
</TABLE>
The pro forma adjustment in the accompanying Pro Forma Condensed
Consolidated Balance Sheet reflects (1) the above adjustment to equity,
(2) the accrual of certain termination costs ($1,186,000) and estimated
acquisition costs ($568,895), and (3) the write-off of deferred
financing costs ($745,262) related to the acquired long-term debt of
Banyan.
3. PRO FORMA ADJUSTMENTS -- STATEMENTS OF OPERATIONS
A. Reversal of Banyan's provision for losses on investment in real estate
obviated by the write-down of Banyan's investment in real estate
resulting from the purchase price allocation.
B. Reversal of amortization of deferred financing costs.
C. Reversal of debt default interest costs and late charges ($557,909)
and the capitalization of previously expensed interest ($1,353,312).
D. Capitalization of previously expensed pre-development costs.
E. On January 2, 1996 RGI/US increased its ownership interest in Grand
Harbor, a 777-acre residential golf community, and Oak Harbor, a planned
116-acre country club retirement community with on-site health
facilities, from 45% to 90%. The additional 45% interests were acquired
for cash consideration of $52,237 and a promissory note of $996,220. The
accompanying unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1995 gives effect to these
transactions as if they occurred on January 1, 1995.
Pro forma adjustments were made to reflect the following:
(i) To record the additional investment in the companies.
F-8
<PAGE> 84
LEGEND PROPERTIES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)
(ii) To record the minority interests in the properties and to allocate
the purchase price of the additional 45% equity interests.
(iii) To eliminate intercompany transactions between consolidated
entities.
(iv) To reduce amortization of intangibles and increase depreciation of
property and equipment resulting from the purchase price
allocation.
F-9
<PAGE> 85
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
Consolidated Financial Statements
(Pursuant to Proposed Merger)
December 31, 1995, 1994 and 1993
(With Independent Auditors' Report Thereon)
F-10
<PAGE> 86
INDEPENDENT AUDITORS' REPORT
The Board of Directors
RGI U.S. Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of RGI U.S.
Holdings, Inc., a wholly-owned subsidiary of RGI Holdings, Inc., and certain
subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholder's deficit and cash flows for each of the
years in the three-year period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management and have
been prepared pursuant to the basis of presentation and the Agreement and Plan
of Merger referred to in notes 1(b) and 10(b), respectively. Our responsibility
is to express an opinion on these consolidated 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.
The accompanying consolidated financial statements were prepared to present
the financial position, results of operations and cash flows of the entities to
be merged pursuant to the aforementioned Agreement and Plan of Merger and are
not intended to be a complete presentation of RGI U.S. Holdings, Inc.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of RGI U.S.
Holdings, Inc. and certain subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Seattle, Washington
June 7, 1996
F-11
<PAGE> 87
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(PURSUANT TO PROPOSED MERGER)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
------------ -----------
<S> <C> <C>
ASSETS
Rental property and improvements, net.............................. $ 18,588,184 $16,270,435
Cash and cash equivalents.......................................... 578,906 430,819
Accounts and notes receivable...................................... 71,344 95,324
Receivables from related parties................................... 16,239,419 17,883,808
Deferred rentals................................................... 428,000 342,000
Investments........................................................ 3,395,985 --
Deferred loan and lease costs, net of accumulated amortization of
$286,839 in 1995 and $227,133 in 1994............................ 1,198,506 1,038,779
Prepaid expenses and other assets.................................. 55,074 552
------------ -----------
$ 40,555,418 $36,061,717
=========== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Notes payable to bank.............................................. $ 23,288,065 $21,435,774
Note payable to tenant............................................. -- 650,000
Payables to related parties........................................ 25,728,682 17,521,229
Accounts payable................................................... 62,269 26,363
Accrued liabilities................................................ 27,009 121,399
Contract payable................................................... 1,500,000 --
Investments........................................................ -- 2,116,769
Deferred income.................................................... 628,334 785,417
Other liabilities.................................................. 16,618 31,293
Stockholder's deficit:
Common stock, no par value. Authorized, issued and outstanding
1,000 shares.................................................. 7,750 7,750
Accumulated deficit.............................................. (10,703,309) (6,634,277)
------------ -----------
Total stockholder's deficit.............................. (10,695,559) (6,626,527)
------------ -----------
Commitments, contingencies and subsequent events
$ 40,555,418 $36,061,717
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE> 88
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(PURSUANT TO PROPOSED MERGER)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Rent.................................................. $ 1,872,392 $ 2,047,485 $ 2,339,576
Other................................................. 215,855 362,922 88,278
----------- ----------- -----------
Total revenues................................ 2,088,247 2,410,407 2,427,854
----------- ----------- -----------
Operating expenses:
Rental operations..................................... 817,433 895,053 1,125,401
General and administrative............................ 209,193 223,537 37,140
Other................................................. 100,000 100,000 --
----------- ----------- -----------
Total operating expenses...................... 1,126,626 1,218,590 1,162,541
----------- ----------- -----------
Operating income.............................. 961,621 1,191,817 1,265,313
----------- ----------- -----------
Other income (expense):
Equity in losses of investees......................... (3,059,205) (1,920,598) (1,868,577)
Brokerage fee from investee........................... 157,083 514,583 --
Interest income, primarily related party.............. 2,032,182 1,267,775 329,332
Interest expense...................................... (4,139,315) (2,573,208) (2,198,561)
Other................................................. (21,398) 15,370 (18,634)
----------- ----------- -----------
Net other expense............................. (5,030,653) (2,696,078) (3,756,440)
----------- ----------- -----------
Loss before share of investee's extraordinary
gain........................................ (4,069,032) (1,504,261) (2,491,127)
Share of investee's extraordinary gain on extinguishment
of debt............................................... -- 2,475,358 --
----------- ----------- -----------
Net income (loss)............................. $(4,069,032) $ 971,097 $(2,491,127)
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE> 89
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
(PURSUANT TO PROPOSED MERGER)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
----------------------------------------------
NO PAR VALUE
COMMON STOCK TOTAL
--------------- ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT DEFICIT DEFICIT
------ ------ ------------ -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1992....................... -- $4,500 $ (5,107,003) $ (5,102,503)
Stockholder contribution............................ -- 1,250 -- 1,250
Issuance of no par value common stock pursuant to
formation of RGI U.S. Holdings, Inc............... 1,000 1,000 -- 1,000
Net loss.................................. -- -- (2,491,127) (2,491,127)
------ ------ ------------ -------------
Balances at December 31, 1993....................... 1,000 6,750 (7,598,130) (7,591,380)
Stockholder distribution............................ -- -- (7,244) (7,244)
Formation of Grand Harbor Corporation............... -- 1,000 -- 1,000
Net income................................ -- -- 971,097 971,097
------ ------ ------------ -------------
Balances at December 31, 1994....................... 1,000 7,750 (6,634,277) (6,626,527)
Net loss.................................. -- -- (4,069,032) (4,069,032)
------ ------ ------------ -------------
Balances at December 31, 1995....................... 1,000 $7,750 $(10,703,309) $ (10,695,559)
===== ====== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE> 90
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(PURSUANT TO PROPOSED MERGER)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................. $ (4,069,032) $ 971,097 $(2,491,127)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................... 446,548 485,585 508,074
Increase (decrease) in deferred income...................... (157,083) 785,417 --
Related party interest expense not paid..................... 1,333,505 209,703 532,297
Related party interest income not collected................. (232,801) (357,100) (281,905)
Equity in results of operations of investees:
Operating losses.......................................... 3,059,205 1,920,598 1,868,577
Extraordinary gain on extinguishment of debt.............. -- (2,475,358) --
Change in certain assets and liabilities:
Decrease (increase) in accounts and notes receivable...... 23,980 (3,864) 25,396
Decrease (increase) in prepaid expenses and other
assets................................................. (54,522) (552) 9,140
Increase in deferred rentals.............................. (86,000) (86,400) (86,400)
Increase (decrease) in accounts payable................... 35,906 9,539 (22,724)
Increase (decrease) in accrued liabilities................ (94,390) 48,026 (10,818)
Decrease in other liabilities............................. (14,675) (591) (23,150)
------------ ------------ -----------
Net cash provided by operating activities.............. 190,641 1,506,100 27,360
------------ ------------ -----------
Cash flows from investing activities:
Purchase of property and equipment............................ (1,204,591) -- (34,832)
Investments in affiliates..................................... (23,895) (567,226) (11,595)
Loans to related parties...................................... (13,090,099) (12,923,620) (3,085,273)
Collection of loans to related parties........................ 10,431,892 2,150,679 --
Other......................................................... -- (28,667) --
------------ ------------ -----------
Net cash used in investing activities.................. (3,886,693) (11,368,834) (3,131,700)
------------ ------------ -----------
Cash flows from financing activities:
Proceeds from notes payable to bank........................... 22,100,792 12,000,000 --
Repayment of notes payable to bank............................ (20,248,501) (3,183,746) (1,865,000)
Repayment of note payable to tenant........................... (650,000) -- --
Proceeds from loans from related parties...................... 3,150,000 2,939,405 9,762,174
Repayment of loans from related parties....................... (288,719) (1,519,960) (5,127,894)
Payment of loan fees.......................................... (219,433) -- --
Other......................................................... -- (5,244) 1,250
------------ ------------ -----------
Net cash provided by financing activities.............. 3,844,139 10,230,455 2,770,530
------------ ------------ -----------
Net increase (decrease) in cash and cash equivalents... 148,087 367,721 (333,810)
Cash and cash equivalents at beginning of year.................. 430,819 63,098 396,908
------------ ------------ -----------
Cash and cash equivalents at end of year........................ $ 578,906 $ 430,819 $ 63,098
============= ============= ============
Supplemental disclosure of cash flow information -- cash paid
during the year for interest.................................. $ 3,273,344 $ 3,367,498 $ 2,083,288
============= ============= ============
Supplemental schedule of noncash transactions:
Contribution of notes and interest receivable to investees.... $ 8,548,064 $ -- $ --
Increase in notes receivable and payable to parent............ $ 4,000,000 $ -- $ --
Purchase of property and equipment funded through contract
payable......................................................... $ 1,500,000 $ -- $ --
============= ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE> 91
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(PURSUANT TO PROPOSED MERGER)
DECEMBER 31, 1995, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
RGI U.S. Holdings, Inc. (formerly ASC Mundt, Inc.), a wholly-owned
subsidiary of RGI Holdings, Inc., was formed in December 1993 to organize the
ownership of the real estate holdings of RGI Real Estate, Inc. (RGI Real Estate)
in the United States. RGI Real Estate is the parent company of RGI Holdings,
Inc. The following entities are wholly-owned subsidiaries of RGI U.S. Holdings,
Inc. at December 31, 1995:
- American Property Investments, Inc. was formed effective June 30, 1995
and represented the combination and reorganization of a partnership and
its two corporate partners. The partnership, American Property Investment
Company, was previously formed for the purpose of acquiring, renovating
and operating the Lynnwood Shopping Center in Lynnwood, Washington in
1987. Prior to June 30, 1995, the partnership was 90% owned by Lynnwood
Center Enterprises, Inc. and 10% by Uptain Enterprises, Inc., subchapter S
corporations. Effective June 30, 1995, Lynnwood Center Enterprises, Inc.,
Uptain Enterprises, Inc. and the partnership were combined and reorganized
as a C corporation named American Property Investments, Inc. These
entities are hereinafter referred to collectively as API. Effective July
1, 1995, two stockholders of RGI U.S. Holdings, Inc.'s ultimate parent
contributed API to RGI U.S. Holdings, Inc.
- Grand Harbor Associates, Inc. (GHAI) was formed as a holding company in
1991 and owns a 45% interest in Grand Harbor Associates and affiliates
(GHAA) and a 45% interest in the Oak Harbor affiliated companies (OHA).
GHAA includes a general partnership, thirteen limited partnerships and
sixteen corporations and was formed in 1991 to acquire and develop
approximately 900 acres of real estate in Indian River County, Florida.
Grand Harbor (the development) is planned for approximately 850 mid to
high-end residential products. The development has numerous amenities and
facilities, including golf and beach clubs, two 18-hole championship golf
courses, tennis courts and a marina.
OHA includes six limited partnerships and seven corporations and was
formed in 1993 to develop a senior citizen country club community with an
on-site assisted living center and health clinic.
- Grand Harbor Corporation, Inc. (GHC) was formed as a holding company
during 1994 for certain bank debt, the proceeds of which were loaned to
GHAA.
- The Resource Group, Inc. and K.W. Properties, Inc. are two subsidiaries
which have been excluded from these financial statements as described in
note 1(b).
(b) Basis of Presentation
The consolidated financial statements include the accounts of RGI U.S.
Holdings, Inc. and certain of its wholly-owned subsidiaries, API, GHAI and GHC,
(collectively, the Company). The Resource Group, Inc. and K.W. Properties, Inc.,
both wholly-owned subsidiaries of RGI U.S. Holdings, Inc., have been excluded
from these consolidated financial statements as these entities are not included
as part of the merger with Banyan Mortgage Investment Fund [note 10(b)]. These
two subsidiaries were dividended to RGI Holdings, Inc. in April 1996. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
F-16
<PAGE> 92
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(PURSUANT TO PROPOSED MERGER) -- (CONTINUED)
(c) 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.
(d) Cash and Cash Equivalents
Cash and cash equivalents consist of cash, demand deposits with banks and
highly liquid investments with maturity dates of three months or less at the
date of acquisition. There were no cash equivalents at December 31, 1995 and
there were $245,082 at December 31, 1994.
(e) Rental Property and Improvements
Rental property and improvements are stated at cost. Significant additions
and improvements are capitalized while repairs and maintenance are expensed as
incurred. The carrying amount of rental property and improvements is evaluated
for impairment based on the discounted cash flows estimated to be generated by
the property in future periods.
Depreciation and amortization are provided using the straight-line method
over the assets' estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings and improvements.............................................. 15-31 years
Furniture and fixtures.................................................. 4-10 years
</TABLE>
Tenant improvements are amortized over the shorter of the assets' estimated
useful lives or the related lease term, generally 3 to 30 years.
(f) Investments
The Company's investments in the partnerships and corporations of GHAA and
OHA are recorded using the equity method of accounting as the Company has more
than 20%, but less than majority ownership in the partnerships and corporations
and exercises significant influence.
(g) Deferred Loan Costs
Deferred loan costs are amortized over the term of the related debt using
the straight-line method.
(h) Deferred Lease Costs
Deferred lease costs include leasing commissions and incentives which are
amortized using the straight-line method over the terms of the related leases.
Amortization of lease incentives is considered to be a reduction of rental
revenue.
(i) Revenue Recognition
The Company leases building space to tenants under operating leases with
terms ranging from 1 to 30 years. Rental revenue is recognized over the lease
terms using the straight-line method. Deferred rentals
F-17
<PAGE> 93
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(PURSUANT TO PROPOSED MERGER) -- (CONTINUED)
represent rental revenue recognized on the straight-line method in excess of
amounts presently due under the payment terms of the leases.
(j) Income Taxes
For portions of the periods presented, certain entities comprising the
Company were not taxable entities. Accordingly, the income tax effects of all
earnings or losses were passed directly to the partners and owners of these
entities, and the entities did not record any provision or benefit for income
taxes, nor any related assets or liabilities.
Commencing with the change in tax status of certain entities comprising the
Company, deferred income taxes are provided for the expected future tax
consequences of temporary differences between the reported amounts of assets and
liabilities and their tax bases. Deferred income tax liabilities are recognized
for taxable temporary differences, and deferred income tax assets are recognized
for deductible temporary differences. Deferred income tax assets are reduced by
a valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred income tax assets will not be
realized.
(k) Concentration of Assets
The majority of the Company's assets are real estate holdings which are
subject to possible fluctuating economic conditions. Such fluctuations can have
a significant impact on the market values, which could limit the potential
recovery of the properties' carrying values.
(l) New Accounting Standard
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (SFAS 121) which establishes accounting
standards for the impairment of long-lived assets and certain identifiable
intangibles, and goodwill related to those assets to be held and used. This
standard also applies to long-lived assets and certain identifiable intangibles
to be disposed of. SFAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company must adopt SFAS
121 in 1996. Management believes adoption of SFAS 121 will not significantly
impact the Company's consolidated financial position or results of operations.
(2) UNAUDITED PRO FORMA TAX INFORMATION
For portions of the periods presented, certain entities comprising the
Company were not taxable entities. Accordingly, the income tax effects of all
earnings or losses were passed directly to the partners and owners of these
entities, and the entities did not record any provision or benefit for income
taxes, nor any related assets or liabilities. Had the entities operated in the
taxable corporate form since inception, for the years ended December 31, 1995,
1994 and 1993, there would have been no benefit or expense for income taxes. A
100% valuation allowance would have been recorded based on the entities'
insufficient levels of taxable income available to recognize benefits of the net
operating loss carryforwards.
F-18
<PAGE> 94
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(PURSUANT TO PROPOSED MERGER) -- (CONTINUED)
(3) OTHER RELATED PARTY TRANSACTIONS
The following is a summary of other significant transactions and accounts
with related parties during 1995, 1994 and 1993 and as of December 31, 1995 and
1994:
(a) Management Fees
The Lynnwood Shopping Center was managed by The Resource Group (TRG), which
is related through common ownership, under a management agreement with API
through July 31, 1995. API was required under the agreement to pay TRG 4% of
rental income for the management services. Effective August 1, 1995, a third
party management company was hired to manage the Lynnwood Shopping Center under
a one-year contract. API is required under the new agreement to make payments in
the amount of 3.5% of gross rental revenue or $4,000 per month, whichever is
greater. After one year, the management agreement converts to a month-to-month
basis. Total management fees paid by API to TRG for 1995, 1994 and 1993 were
$59,651, $73,501 and $77,517, respectively.
GHAI was managed by TRG during 1995. Management fees were based on GHAI's
cash flow and amounted to $150,000 in 1995.
(b) Consulting and Other Fees
The Company received $215,855, $262,922 and $88,278 in 1995, 1994 and 1993,
respectively, from Proctor Construction Company, the general contractor of GHAA,
for consulting and other services. The owner of Proctor Construction Company
indirectly owns 10% of GHAA. The Company also received $100,000 in 1994 from TRG
for consulting services.
The Company paid $100,000 in 1995 and 1994 to K.L. Associates, an entity
owned by an officer of the Company, for consulting services. The Company also
paid approximately $44,000 to K.L. Associates for maintenance work performed at
the Lynnwood Shopping Center.
(c) Receivables
Receivables from related parties consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Unsecured note receivable from parent, interest only due
quarterly at LIBOR plus 1%, (6.7% at December 31, 1995)
principal due December 1997............................... $ 4,000,000 $ --
Note receivable from investee, interest only due monthly at
LIBOR plus 2.75% (8.45% at December 31, 1995), principal
due in annual installments ranging from $550,000 to
$1,950,000 from 1997 to 1999, remaining principal balance
of $6,500,000 due January 2000............................ 10,674,773 10,982,500
Note receivable, principal and interest at 10% to be paid
solely out of borrower's interest in the Grand Harbor/Oak
Harbor projects (Projects), outstanding principal due
December 2005, secured by the borrower's interest in the
Projects.................................................. 1,462,770 --
Unsecured notes receivable from investee, interest at rates
ranging from 8% to 10%, principal due from 1996 to 1998... -- 1,090,600
</TABLE>
F-19
<PAGE> 95
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(PURSUANT TO PROPOSED MERGER) -- (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Unsecured notes receivable from investee, interest due
quarterly at 10.875%, principal due June 2001............. $ -- $ 3,022,262
Unsecured notes receivable from investee, interest due
quarterly at 8% and 10%, principal due upon demand........ -- 1,182,875
Unsecured notes receivable from investee, interest at
15.875%, principal and interest due upon demand........... -- 519,218
Interest receivable......................................... 34,376 1,003,333
Other receivables........................................... 67,500 83,020
----------- -----------
Total receivables from related parties............ $16,239,419 $17,883,808
========== ==========
</TABLE>
- Interest income from related parties was $2,000,064, $1,172,560 and
$305,913 for 1995, 1994 and 1993, respectively.
- During 1994, the Company charged a $1,300,000 brokers fee to GHAA
relating to a loan. The Company has deferred a portion of the amount and
is amortizing the balance into income using the straight-line method over
the term of the loan. The deferred balance was $628,334 and $785,417 as of
December 31, 1995 and 1994, respectively.
- During 1995, the Company contributed $8,548,064 of notes receivable and
related accrued interest due from GHAA and OHA to such entities.
- During December 1995, and in conjunction with the January 1996
acquisitions discussed in note 10, the Company's parent paid $4,000,000 as
collateral to a bank on behalf of the Company in order to replace and
release the seller's collateral on a loan to GHAA. The Company recorded
both a receivable from and a payable to parent at December 31, 1995.
During 1996, the Company's parent assigned the collateral to the Company
as repayment of the receivable.
F-20
<PAGE> 96
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(PURSUANT TO PROPOSED MERGER) -- (CONTINUED)
(d) Payables
Payables to related parties consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Unsecured note payable to parent, interest at LIBOR plus 2%
(7.7% at December 31, 1995), principal and interest due
October 1999.............................................. $ 7,237,749 $ --
Unsecured notes payable to parent, interest at LIBOR plus 1%
(6.7% at December 31, 1995), principal and interest due
June 1998 to July 1999.................................... 12,895,921 9,895,921
Unsecured note payable to parent, interest only payable
quarterly at LIBOR plus 1% (6.7% at December 31, 1995),
principal due December 1997............................... 4,000,000 --
Unsecured notes payable to parent, interest only payable
quarterly at LIBOR plus 1% (6.7% at December 31, 1995),
principal due July to October 1999........................ -- 6,087,749
Unsecured note payable to an affiliate majority owned by the
Company's ultimate parent, interest at 8%, principal and
interest due January 1996................................. -- 1,000,000
Accrued interest............................................ 1,503,992 282,256
Other....................................................... 91,020 255,303
----------- -----------
$25,728,682 $17,521,229
========== ==========
</TABLE>
Subsequent to December 31, 1995, the foregoing payables, excluding the
$4,000,000 unsecured note payable to parent and related accrued interest, were
contributed to equity.
(e) Guarantees
The principal shareholder of the ultimate parent of the Company has
guaranteed up to approximately $13,500,000 of specific obligations of GHAA and
OHA as of December 31, 1995. The balance of these obligations as of December 31,
1995 was approximately $12,450,000.
(4) RENTAL PROPERTY AND IMPROVEMENTS
Rental property and improvements (Lynnwood Shopping Center) are stated at
cost and consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Buildings and improvements.................................. $ 9,054,334 $ 8,507,307
Furniture, fixtures and equipment........................... 26,558 33,285
Tenant improvements......................................... 215,767 1,124,140
----------- -----------
9,296,659 9,664,732
Less accumulated depreciation and amortization.............. 1,989,915 1,917,947
----------- -----------
7,306,744 7,746,785
Land........................................................ 11,281,440 8,523,650
----------- -----------
$18,588,184 $16,270,435
========== ==========
</TABLE>
F-21
<PAGE> 97
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(PURSUANT TO PROPOSED MERGER) -- (CONTINUED)
The Lynnwood Shopping Center was constructed in 1948. The Company acquired
the land, building and improvements in late 1987 for approximately $7,646,000,
of which land comprised approximately $4,308,000 and buildings and improvements
comprised $3,338,000. During 1990, the Company capitalized approximately
$700,000 of interest costs. No interest was capitalized in 1995, 1994 or 1993.
(5) INVESTMENTS
Investments at December 31, 1995 and 1994 represent 45% interests in GHAA
and OHA.
In January 1994, GHAA realized an extraordinary gain of $5,500,796 on an
early extinguishment of debt.
Summary combined financial information for GHAA and OHA follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Total assets................................................ $71,552,809 $72,781,414
========== ==========
Total liabilities........................................... $64,006,177 $77,485,346
========== ==========
Total owners' equity (deficit).............................. $ 7,546,632 $(4,703,932)
========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues.............................. $23,563,975 $31,932,355 $13,867,282
========== ========== ==========
Operating loss.................................. (2,788,209) (1,010,166) (1,384,405)
Other expenses, principally interest, net....... (4,010,026) (3,257,831) (2,767,989)
----------- ----------- -----------
Loss before extraordinary gain.................. (6,798,235) (4,267,997) (4,152,394)
Extraordinary gain on extinguishment of debt.... -- 5,500,796 --
----------- ----------- -----------
Net income (loss)..................... $(6,798,235) $ 1,232,799 $(4,152,394)
========== ========== ==========
</TABLE>
F-22
<PAGE> 98
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(PURSUANT TO PROPOSED MERGER) -- (CONTINUED)
(6) NOTES PAYABLE TO BANKS AND TENANT
Notes payable to banks and tenant consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Mortgage note payable to bank, interest only payable monthly
at the prime rate plus .75% (9.25% at December 31, 1995),
monthly principal and interest installments of
approximately $97,000 beginning July 1996 with the balance
due June 1997. If the Company is not in default, as
defined in the loan agreement, the due date may be
extended to June 30, 1998. As of December 31, 1995, the
Company was not in default................................ $12,600,792 $ --
Mortgage note payable to bank, interest only payable monthly
at LIBOR plus 2.75% (8.45% at December 31, 1995),
principal due in annual installments ranging from $550,000
to $1,950,000 from 1997 to 1999, remaining principal
balance of $6,550,000 due January 2000.................... 10,687,273 10,982,500
Mortgage note payable to bank, interest only payable monthly
at the prime rate plus .75%, principal due June 30,
1995...................................................... -- 10,453,274
----------- -----------
Total notes payable to banks...................... 23,288,065 21,435,774
Unsecured note payable to tenant, interest only payable
monthly at 9.7%, principal due upon demand................ -- 650,000
----------- -----------
$23,288,065 $22,085,774
========== ==========
</TABLE>
The $10,687,273 mortgage note payable to bank at December 31, 1995 is
secured by certain real estate of GHAA's and a percentage of the membership
equity payments received by GHAA. The $12,600,792 mortgage note payable to bank
at December 31, 1995 is secured by substantially all rental property and tenant
improvements and an assignment of leases and rent.
Scheduled principal maturities of notes payable to banks at December 31,
1995 are as follows:
<TABLE>
<S> <C>
1996............................................................ $ 79,800
1997............................................................ 14,358,265
1998............................................................ 800,000
1999............................................................ 1,500,000
2000............................................................ 6,550,000
-----------
$23,288,065
==========
</TABLE>
(7) LEASES
The Company leases space to tenants under noncancelable operating leases
with terms ranging from 1 to 30 years. Generally, the tenants are charged a
minimum rental and contingent rentals based on tenant
F-23
<PAGE> 99
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(PURSUANT TO PROPOSED MERGER) -- (CONTINUED)
revenues and are also obligated to reimburse the Company for certain operating
expenses. Approximate future minimum rentals under noncancelable leases in
effect at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996............................................................ $ 1,808,000
1997............................................................ 1,840,000
1998............................................................ 1,805,000
1999............................................................ 1,726,000
2000............................................................ 1,724,000
Thereafter...................................................... 26,109,000
-----------
$35,012,000
==========
</TABLE>
Two tenants comprised approximately 59%, 54% and 48% of rental income in
1995, 1994 and 1993, respectively. Contingent rentals were insignificant in
1995, 1994 and 1993.
(8) INCOME TAXES
The approximate tax effects of temporary differences and carryforwards that
give rise to significant portions of deferred tax assets and liabilities as of
December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Deferred tax assets:
Rental property and improvements............................. $ 725,000 $ --
Deferred income.............................................. 220,000 275,000
Investments.................................................. 810,000 --
Net operating loss carryforwards............................. 500,000 380,000
---------- --------
Total gross deferred tax assets...................... 2,255,000 655,000
Less valuation allowance....................................... 2,100,000 530,000
---------- --------
Net deferred tax assets.............................. 155,000 125,000
---------- --------
Deferred tax liabilities:
Deferred rent................................................ 150,000 --
Other........................................................ 5,000 --
Investments.................................................... -- 125,000
---------- --------
Total gross deferred tax liabilities................. 155,000 125,000
---------- --------
Net deferred tax liability........................... $ -- $ --
========= ========
</TABLE>
The valuation allowance increased by $1,570,000 and $155,000 in 1995 and
1994, respectively.
At December 31, 1995, the Company has a net operating loss carryforward of
$1,430,000 which expires in 2010.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, receivables, accounts
payable, and short- and long-term borrowings. In general, the Company believes
that the fair value of these financial instruments approximates their carrying
amounts based upon their short-term nature or upon current market indicators,
such as prevailing interest rates.
F-24
<PAGE> 100
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(PURSUANT TO PROPOSED MERGER) -- (CONTINUED)
(10) SUBSEQUENT EVENTS
(a) Acquisition
On January 2, 1996, GHAI, a 45% general partner in GHAA and OHA, purchased
Southmortgage Finance Co., a holding company for certain bank debt, the proceeds
of which were loaned to GHAA, and an additional 45% interest in GHAA, OHA and
Harbor Title and Escrow Co. Ltd. (collectively, the Acquired Companies). Harbor
Title and Escrow Co. Ltd. is a title and escrow company for GHAA and OHA. The
Acquired Companies were purchased from Andlinger Properties Capital L.P. for
cash consideration in the amount of $52,237 and a promissory note in the amount
of $996,220.
This business combination will be accounted for under the purchase method
of accounting. Accordingly, the purchase price will be allocated to the
underlying net assets acquired based upon their fair values. Results of
operations of acquired companies will be consolidated with those of the Company
from the date of acquisition.
The following Unaudited Pro Forma Consolidated Balance Sheet gives effect
to the transaction as if it had occurred on December 31, 1995. The Unaudited Pro
Forma Consolidated Statement of Operations for the year ended December 31, 1995
gives effect to the transaction as if it occurred on January 1, 1995.
The Unaudited Pro Forma Consolidated Financial Statements are presented for
informational purposes only and do not purport to represent what the Company's
consolidated financial position as of December 31, 1995 or results of operations
for the year then ended would actually have been had the acquisition, in fact,
occurred on December 31, 1995 or January 1, 1995, or the Company's consolidated
financial position or results of operations for any future period.
F-25
<PAGE> 101
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(PURSUANT TO PROPOSED MERGER) -- (CONTINUED)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
ACQUIRED PRO FORMA PRO FORMA
COMPANY COMPANIES ADJUSTMENTS BALANCES
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Real estate inventory................. $ -- $47,653,553 $ 348,642(c) $ 48,002,195
Rental property and improvements,
net................................. 18,588,184 -- -- 18,588,184
Cash and cash equivalents............. 578,906 156,777 (52,237)(a) 683,446
Restricted cash and investments....... -- 11,167,563 (2,118,650)(d) 9,048,913
Receivables from related parties...... 16,239,419 12,607,426 (22,735,005)(b) 6,111,840
Investments........................... 3,395,985 -- 1,048,457(a) --
(4,444,442)(c)
Intangibles, net...................... 4,566,236 (2,054,806)(c) 2,511,430
Other assets, net..................... 1,752,924 3,192,823 (974,681)(c) 3,991,821
20,755(c)
Property and equipment, net........... -- 5,014,645 354,493(c) 5,369,138
------------ ----------- ------------ ------------
$ 40,555,418 $84,359,023 $(30,607,474) $ 94,306,967
=========== ========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Notes payable......................... $ -- $30,286,282 $ 996,220(a) $ 31,222,502
(60,000)(b)
Notes payable to banks................ 23,288,065 10,674,773 -- 33,962,838
Payables to related parties........... 25,728,682 1,303,750 (1,303,750)(b) 25,728,682
Notes payable to owners............... -- 21,349,546 (21,349,546)(b) --
Contract payable...................... 1,500,000 -- -- 1,500,000
Other notes and liabilities........... 734,230 13,244,629 (2,118,650)(d) 11,838,500
Minority interests.................... -- -- 750,004(c) 750,004
Common stock.......................... 7,750 -- -- 7,750
Accumulated deficit................... (10,703,309) 7,500,043 (7,500,043)(c) (10,703,309)
------------ ----------- ------------ ------------
$ 40,555,418 $84,359,023 $(28,488,824) $ 94,306,967
=========== ========== =========== ===========
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated Financial Statements.
F-26
<PAGE> 102
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(PURSUANT TO PROPOSED MERGER) -- (CONTINUED)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ACQUIRED PRO FORMA PRO FORMA
COMPANY COMPANIES ADJUSTMENTS BALANCES
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales.................... $ -- $16,334,806 $ -- $16,334,806
Club operations...................... -- 4,623,735 (22,575)(d) 4,601,160
Patient service...................... -- 2,380,767 -- 2,380,767
Rent................................. 1,872,392 -- -- 1,872,392
Other................................ 215,855 311,240 (100,000)(d) 427,095
----------- ----------- ----------- -----------
Gross revenues............... 2,088,247 23,650,548 (122,575) 25,616,220
----------- ----------- ----------- -----------
Cost of sales:
Real estate.......................... -- 10,937,011 -- 10,937,011
Club operations...................... -- 5,004,028 -- 5,004,028
Patient service direct costs......... -- 1,260,640 -- 1,260,640
Rental operations.................... 817,433 -- -- 817,433
Other................................ 100,000 76,947 -- 176,947
----------- ----------- ----------- -----------
Total cost of sales.......... 917,433 17,278,626 -- 18,196,059
----------- ----------- ----------- -----------
Gross margin................. 1,170,814 6,371,922 (122,575) 7,420,161
Selling, general and administrative.... 209,193 9,207,177 (437,575)(d) 8,528,795
(450,000)(e)
----------- ----------- ----------- -----------
Operating income (loss)...... 961,621 (2,835,255) 765,000 (1,108,634)
----------- ----------- ----------- -----------
Other income (expense):
Equity in losses of investees........ (3,059,205) -- 3,059,205(c) --
Brokerage fee........................ 157,083 -- -- 157,083
Interest income...................... 2,032,182 1,329,804 (1,939,872)(d) 1,422,114
Interest expense..................... (4,139,315) (5,927,363) 1,939,872(d) (8,126,806)
Other, net........................... (21,398) 594,655 (315,000)(d) 258,257
----------- ----------- ----------- -----------
Net other expense............ (5,030,653) (4,002,904) 2,744,205 (6,289,352)
----------- ----------- ----------- -----------
Loss before minority
interests.................. (4,069,032) (6,838,159) 3,509,205 (7,397,986)
Minority interests in losses of
consolidated subsidiaries............ -- -- 683,815(c) 683,815
----------- ----------- ----------- -----------
Net loss..................... $(4,069,032) $(6,838,159) $ 4,193,020 $(6,714,171)
========== ========== ========= ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated Financial Statements.
F-27
<PAGE> 103
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(PURSUANT TO PROPOSED MERGER) -- (CONTINUED)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The Unaudited Pro Forma Consolidated Balance Sheet gives effect to the
business combination with the Acquired Companies on January 2, 1996 as if the
business combination had occurred on December 31, 1995. The Unaudited Pro Forma
Consolidated Statement of Operations for the year ended December 31, 1995 gives
effect to the business combination with the Acquired Companies as if it had
occurred on January 1, 1995.
The pro forma adjustments are based on the consideration exchanged and the
estimated fair value of the assets acquired and liabilities assumed.
(2) PRO FORMA ADJUSTMENTS
Pro forma adjustments were made to reflect the following:
(a) To record the additional investment in the Acquired Companies.
(b) To eliminate receivables and payables between the consolidated
entities.
(c) To eliminate the investment in and equity in losses of the
Acquired Companies and allocate the purchase price of the additional 45%
equity interest under the purchase method of accounting.
(d) To eliminate intercompany transactions between the consolidated
entities.
(e) To reduce amortization of intangibles and increase depreciation of
property and equipment resulting from the purchase price allocation.
(b) Agreement and Plan of Merger
Effective April 12, 1996 and as amended and restated effective May 20,
1996, an Agreement and Plan of Merger (the "Merger Agreement") was executed
among RGI U.S. Holdings, Inc., RGI Holdings, Inc. and Banyan Mortgage Investment
Fund (Banyan).
Subject to the approval of Banyan's stockholders and the satisfaction of
other conditions precedent, RGI U.S. Holdings, Inc. will be merged with and into
Banyan with all of the outstanding shares of RGI U.S. Holdings, Inc. being
converted into 109,674,667 shares of Banyan's common stock. The merger will
result in Banyan owning all of the Company. The merger is expected to be
consummated before the end of 1996.
For accounting purposes, if the merger is consummated, it will be treated
as a recapitalization of RGI U.S. Holdings, Inc., with RGI U.S. Holdings, Inc.
as the acquiror of Banyan. From and after the date that the Merger Agreement is
filed, the historical financial statements of Banyan will be those of RGI U.S.
Holdings, Inc.
On May 21, 1996, RGI Holdings, Inc. acquired 7,466,666 shares, or
approximately 16% of Banyan's common stock for $3,500,000 from Banyan.
On May 21, 1996, RGI Holdings, Inc. purchased from certain lenders loans
("Morgens Loan" and "SoGen Loan") previously made to Banyan in the amount of
approximately $30,800,000. The outstanding principal balances of these loans,
including interest converted to principal, at December 31, 1995 were
approximately $24,400,000 and $6,400,000, respectively. Banyan had not made the
January 1, 1996 or April 1, 1996 interest payments as required under the credit
agreement with Morgens, which constituted an event of default under the
agreement. In addition, Banyan was in default with respect to the SoGen Loan.
F-28
<PAGE> 104
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(PURSUANT TO PROPOSED MERGER) -- (CONTINUED)
Subsequent to the purchase by RGI Holdings, Inc., the Morgens Loan and the
SoGen Loan have been modified. Modifications to the terms of the Morgens Loan
include (i) a provision to capitalize all interest which had accrued and was due
on or before December 31, 1995; (ii) a provision that 50% and 100% of the net
sale proceeds from the sale of development properties and nondevelopment
properties, respectively, will be paid to reduce the loan; (iii) a provision
that the pre-default interest rate will be adjusted from 17.5% to the prime rate
plus 2% if the merger closes prior to December 31, 1996; (iv) a provision that
allows the proceeds received from the sale of the 120 South Spaulding and
Oakridge properties, totaling $9,250,000 to be retained rather than paid to
reduce the loan; and RGI Holdings, Inc. has agreed that it will not accelerate
or commence any foreclosure proceeding on the loan with respect to any defaults
occurring prior to May 21, 1996 and any nonmonetary defaults occurring through
the date of the merger.
Modifications to the terms of the SoGen Loan include (i) a provision to
capitalize all interest which had accrued and was due on or before December 31,
1995; (ii) a provision that deletes the requirement that Banyan make a mandatory
prepayment of the loan unless the merger does not close prior to December 31,
1996; (iii) a provision that funds held in escrow from the sale of properties at
Wayside Village will be released and used to reduce the principal balance of the
loan; and RGI Holdings, Inc. has agreed that it will not accelerate or commence
any foreclosure proceeding on the loan with respect to any defaults occurring
prior to May 20, 1996 and nonmonetary defaults occurring through the date of the
merger.
F-29
<PAGE> 105
RGI U.S.HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(PURSUANT TO PROPOSED MERGER)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
- -----------------------------------------------------------------------------
<S> <C>
Real estate inventory........................................................ $49,610,103
Rental property and improvements, net........................................ 18,446,237
Cash and cash equivalents.................................................... 1,366,548
Restricted cash and investments.............................................. 22,040,276
Receivables from related parties............................................. 1,875,345
Investments.................................................................. 431,105
Intangibles, net............................................................. 2,552,004
Other assets, net............................................................ 5,180,128
Property and equipment, net.................................................. 9,016,241
-----------
$110,517,987
===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
- -----------------------------------------------------------------------------
<S> <C>
Notes payable................................................................ $71,080,753
Payables to related parties.................................................. 14,882,853
Other liabilities............................................................ 13,059,884
Minority interests........................................................... 710,781
Stockholder's Equity:
Common stock, no par value. Authorized, issued and outstanding 1,000
shares.................................................................. 7,750
Additional paid in capital................................................. 21,663,015
Accumulated deficit........................................................ (10,887,049)
-----------
Total stockholder's equity......................................... 10,783,716
===========
$110,517,987
===========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-30
<PAGE> 106
RGI U.S.HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(PURSUANT TO PROPOSED MERGER)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Real estate sales............................................. $13,178,354 $ --
Club operations............................................... 3,174,461 --
Patient service............................................... 1,288,125 --
Rent.......................................................... 1,244,675 1,000,143
Other......................................................... 404,151 170,854
----------- -----------
Total revenues........................................ 19,289,766 1,170,997
----------- -----------
Cost of sales:
Real estate................................................... 9,249,477 --
Club operations............................................... 2,527,596 --
Patient service............................................... 664,742 --
Rent.......................................................... 393,808 486,032
Other......................................................... 44,896 50,000
----------- -----------
Total cost of sales................................... 12,880,519 536,032
----------- -----------
Gross margin.......................................... 6,409,247 634,965
Selling, general and administrative expenses.................... 4,496,658 83,394
----------- -----------
Operating income...................................... 1,912,589 551,571
----------- -----------
Other income (expense):
Equity in losses of investees................................. -- (622,817)
Brokerage fee................................................. 78,542 78,542
Interest income............................................... 382,985 276,903
Interest expense.............................................. (2,558,579) (1,191,705)
Other, net.................................................... (38,500) (54,917)
----------- -----------
Net other expense..................................... (2,135,552) (1,513,994)
----------- -----------
Loss before minority interests........................ (222,963) (962,423)
Minority interests.............................................. 39,223 --
----------- -----------
Net loss.............................................. $ (183,740) $ (962,423)
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-31
<PAGE> 107
RGI U.S.HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
(PURSUANT TO PROPOSED MERGER)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NO PAR VALUE
COMMON STOCK TOTAL
----------------- PAID IN ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT EQUITY(DEFICIT)
------ ------ ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995..... 1,000 $7,750 -- (10,703,309) (10,695,559)
Stockholder contribution.......... -- -- 21,663,015 -- 21,663,015
Net loss.......................... -- -- -- (183,740) (183,740)
------ ------ ---------- ----------- -----------
Balances at June 30, 1996......... 1,000 $7,750 21,663,015 (10,887,049) 10,783,716
====== ====== ========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-32
<PAGE> 108
RGI U.S.HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(PURSUANT TO PROPOSED MERGER)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $ (183,740) $ (962,423)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................ 831,612 215,150
Decrease in deferred income.............................. (78,542) (78,542)
Related party interest expense not paid.................. 326,805 666,752
Related party interest income not collected.............. (301,606) (116,400)
Equity in losses of investees............................ -- 622,817
Minority interests in losses............................. (39,223) --
Changes in certain assets and liabilities, net of effects
of acquisition:
Increase in real estate inventory...................... (1,607,908) --
Increase in other assets............................... (472,342) (51,602)
Increase in other liabilities.......................... 1,299,926 189,360
------------ ------------
Net cash provided by (used in) operating
activities........................................ (225,018) 485,112
------------ ------------
Cash flows from investing activities:
Increase in restricted cash and investments................. (8,978,696) --
Purchase of property and equipment.......................... (3,997,291) (181,484)
Loans to related parties.................................... (74,400) (10,850,042)
Collection of loans to related parties...................... 546,834 684,477
Investments and acquisitions, net of cash acquired.......... (326,565) --
------------ ------------
Net cash used in investing activities............... (12,830,118) (10,347,049)
</TABLE>
F-33
<PAGE> 109
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from notes payable................................. 27,796,481 21,308,290
Repayment of notes payable.................................. (21,901,068) (10,615,319)
Repayment of note payable to tenant......................... -- (650,000)
Proceeds from loans from related parties.................... 10,543,381 56,427
Repayment of contract payable............................... (1,500,000) --
Payment of loan fees........................................ (1,096,016) (219,443)
------------ ------------
Net cash provided by financing activities........... 13,842,778 9,879,955
------------ ------------
Net increase in cash and cash equivalents........... 787,642 18,018
Cash and cash equivalents at beginning of period.............. 578,906 430,819
Cash and cash equivalents at end of period.................... $ 1,366,548 $ 448,837
============ ============
Supplemental disclosure of cash flow information--
Cash paid during the period for interest.................... $ 2,615,841 $ 1,015,774
============ ============
Supplemental schedule of non-cash transactions:
Contribution to equity of notes and interest payable from
parent, net of receivable................................ $ 21,663,015 $ --
Increase in restricted cash and investments and decrease in
receivables from related parties......................... 4,012,667 --
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-34
<PAGE> 110
RGI U.S. HOLDINGS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RGI HOLDINGS, INC.)
AND CERTAIN SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(PURSUANT TO PROPOSED MERGER)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
1. BASIS OF PRESENTATION
The consolidated financial statements and related notes have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures
normally included in consolidated financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The accompanying consolidated
financial statements and related notes should be read in conjunction with
the audited consolidated financial statements of the Company, and notes
thereto, for its fiscal year ended December 31, 1995.
The consolidated financial statements include the operations of RGI U.S.
Holdings, Inc. and certain of its wholly-owned subsidiaries, API, GHAI and
GHC (collectively, RGI/US) for all periods presented and the operations of
GHAA, OHA, Southmortgage Finance Co. and Harbor Title and Escrow Co. Ltd.
since their acquisition date of January 2, 1996. Resource Group, Inc. and
K.W. Properties, Inc., both wholly-owned subsidiaries of RGI/US, have been
excluded from these consolidated financial statements as those companies
are not included as part of the merger with Banyan Mortgage Investment
Fund. All significant intercompany accounts and transactions have been
eliminated in consolidation.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the results of the interim periods presented.
2. ACQUISITION
On January 2, 1996, GHAI, a 45% general partner in GHAA and OHA, purchased
Southmortgage Finance Co., a holding company for certain bank debt, the
proceeds of which were loaned to GHAA, and an additional 45% interest in
GHAA, OHA and Harbor Title and Escrow Co. Ltd. (collectively, the Acquired
Companies). Harbor Title and Escrow Co. Ltd. is a title and escrow company
for GHAA and OHA. The Acquired Companies were purchased from Andlinger
Properties Capital L.P. for cash consideration in the amount of $52,237 and
a promissory note in the amount of $996,220.
The business combination was accounted for under the purchase method of
accounting. Accordingly, the purchase price was allocated to the underlying
net assets acquired based upon their fair values. Results of operations of
acquired companies have been consolidated with those of RGI/US from the
date of acquisition.
The purchase price related to the acquisition was allocated as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fair value of assets acquired.............................................. $ 35,635
--------------
Liabilities................................................................ $ 34,587
Fair value of note payable and cash........................................ 1,048
--------------
$ 35,635
===========
</TABLE>
The unaudited pro forma consolidated statement of operations which follows
assumes the acquisition described above had been consummated on January 1,
1995. The calculations include adjustments to reduce amortization of
intangibles and other assets and increase depreciation of property and
equipment resulting from the purchase price allocation. All significant
intercompany transactions between the
F-35
<PAGE> 111
consolidated entities have been eliminated. The unaudited pro forma
consolidated statement of operations may not be indicative of results that
would have occurred if the acquisition had been consummated as of that date
or of the results that may be obtained in the future.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1995
--------------
(IN THOUSANDS)
<S> <C>
Total revenue.............................................................. $ 16,088
Cost of sales.............................................................. 10,391
--------------
Gross margin............................................................. 5,697
Selling, general and administrative expenses............................... 4,326
--------------
Operating income......................................................... 1,371
Other expense, net......................................................... (3,094)
--------------
Loss before minority interests........................................... (1,723)
Minority interests......................................................... 138
--------------
Net loss................................................................... $ (1,585)
===========
</TABLE>
3. STOCKHOLDER CONTRIBUTION
During the six month period ended June 30, 1996, notes and interest payable
to parent of approximately $21,700,000 were contributed to equity.
4. SIGNIFICANT EVENT
Effective April 12, 1996 and as amended and restated effective May 20,
1996, an Agreement and Plan of Merger (the "Merger Agreement") was executed
among RGI/US, RGI Holdings, Inc. and Banyan Mortgage Investment Fund
(Banyan).
Subject to the approval of Banyan's stockholders and the satisfaction of
other conditions precedent, RGI/US will be merged with and into Banyan with
all of the outstanding shares of RGI/US being converted into 109,674,667
shares of Banyan's common stock. The merger will result in Banyan owning
all of RGI/US. The merger is expected to be consummated before the end of
1996.
For financial reporting purposes, if the merger is consummated, it will be
treated as a recapitalization of RGI/US, with RGI/US as the acquirer of
Banyan. From and after the date that the Merger Agreement is filed, the
historical financial statements of Banyan will be those of RGI/US
On May 21, 1996, RGI Holdings, Inc. acquired 7,466,666 shares, or
approximately 16% of Banyan's common stock for $3,500,000 from Banyan.
On May 21, 1996, RGI Holdings, Inc. purchased from certain lenders loans
("Morgens Loan" and "SoGen Loan") previously made to Banyan in the amount
of approximately $30,600,000. The outstanding principal balances of these
loans, including interest converted to principal, at December 31, 1995 were
approximately $23,230,000 and $6,360,000, respectively. Banyan had not made
the January 1, 1996 or April 1, 1996 interest payments as required under
the credit agreement with Morgens, which constituted an event of default
under the agreement. In addition, Banyan was in default with respect to the
SoGen Loan.
Subsequent to the purchase by RGI Holdings, Inc., the Morgens Loan and the
SoGen Loan have been modified. Modifications to the terms of the Morgens
Loan include (i) a provision to capitalize all interest which had accrued
and was due on or before December 31, 1995; (ii) a provision that 50% and
100% of
F-36
<PAGE> 112
the net sale proceeds from the sale of development properties and
nondevelopment properties, respectively, will be paid to reduce the loan;
(iii) a provision that the pre-default interest rate will be adjusted from
17.5% to the prime rate plus 2% if the merger closes prior to December 31,
1996; (iv) a provision that allows the proceeds received from the sale of
the 120 South Spaulding and Oakridge properties, totaling $9,250,000 to be
retained rather than paid to reduce the loan; and RGI Holdings, Inc. has
agreed that it will not accelerate or commence any foreclosure proceeding
on the loan with respect to any defaults occurring prior to May 21, 1996
and any nonmonetary defaults occurring through the date of the merger.
Modifications to the terms of the SoGen Loan include (i) a provision to
capitalize all interest which had accrued and was due on or before December
31, 1995; (ii) a provision that deletes the requirement that Banyan make a
mandatory prepayment of the loan unless the merger does not close prior to
December 31, 1996; (iii) a provision that funds held in escrow from the
sale of properties at Wayside Village will be released and used to reduce
the principal balance of the loan; and RGI Holdings, Inc. has agreed that
it will not accelerate or commence any foreclosure proceeding on the loan
with respect to any defaults occurring prior to May 20, 1996 and
nonmonetary defaults occurring through the date of the merger.
F-37
<PAGE> 113
GRAND HARBOR ASSOCIATES
AND AFFILIATES
Combined Financial Statements
December 31, 1995, 1994 and 1993
(With Independent Auditors' Report Thereon)
F-38
<PAGE> 114
INDEPENDENT AUDITORS' REPORT
The Partners and Owners
Grand Harbor Associates and Affiliates:
We have audited the accompanying combined balance sheets of Grand Harbor
Associates and Affiliates as of December 31, 1995 and 1994, and the related
combined statements of operations, changes in owners' equity (deficit) and cash
flows for each of the years in the three-year period ended December 31, 1995.
These combined financial statements are the responsibility of the management of
the Partnership and its affiliates. Our responsibility is to express an opinion
on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Grand Harbor
Associates and Affiliates as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
February 16, 1996
F-39
<PAGE> 115
GRAND HARBOR ASSOCIATES AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Real estate inventory (notes 2, 4, 6 and 9)......................... $45,937,447 $44,888,694
Cash and cash equivalents........................................... 91,556 1,485,938
Restricted cash (note 4)............................................ 2,026,391 3,217,131
Notes receivable from owners........................................ -- 104,696
Notes receivable.................................................... 99,887 118,679
Due from affiliates, net............................................ 1,872,653 1,814,052
Member and other accounts receivable................................ 424,930 452,568
Property and equipment, net (notes 3 and 4)......................... 3,111,626 3,922,051
Other assets, net of accumulated amortization of $1,691,412 and
$1,046,421 at December 31, 1995 and 1994, respectively............ 2,092,537 2,632,526
----------- -----------
Total assets................................................... $55,657,027 $58,636,335
========== ==========
LIABILITIES AND OWNERS' EQUITY
Liabilities:
Notes payable (note 4)............................................ 21,370,835 21,164,580
Notes payable to owners (note 5).................................. 21,349,546 30,842,032
Accounts payable (note 9)......................................... 2,159,217 2,919,145
Accrued interest payable.......................................... 2,795 1,775,092
Accrued property taxes............................................ 685,798 --
Other liabilities................................................. 3,082,291 3,531,171
Membership dues paid in advance................................... 1,468,853 1,247,135
Associate membership deposits..................................... 1,261,351 1,593,000
----------- -----------
Total liabilities.............................................. 51,380,686 63,072,155
----------- -----------
Owners' equity (deficit) (note 5):
Grand Harbor Associates, Inc. .................................... 1,924,354 (1,996,119)
Andlinger Properties Capital L.P. ................................ 1,924,354 (1,996,119)
Grand Harbor Development Company.................................. 427,633 (443,582)
----------- -----------
Total owners' equity (deficit)................................. 4,276,341 (4,435,820)
----------- -----------
Commitments (notes 7, 9, 10 and 11)
$55,657,027 $58,636,335
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-40
<PAGE> 116
GRAND HARBOR ASSOCIATES AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Real estate sales..................................... $16,334,806 $26,905,840 $13,867,282
Club operations and property maintenance and
management......................................... 1,946,222 1,531,147 --
Membership dues....................................... 1,793,787 1,431,207 --
Club food and beverage sales.......................... 883,726 905,571 --
----------- ----------- -----------
Total revenues................................ 20,958,541 30,773,765 13,867,282
----------- ----------- -----------
Cost of sales:
Real estate........................................... 10,937,011 19,478,324 10,231,237
Club operations....................................... 4,645,787 3,440,800 --
Club food and beverage................................ 358,241 327,662 --
Other................................................. 76,947 104,301 --
----------- ----------- -----------
Total cost of sales........................... 16,017,986 23,351,087 10,231,237
----------- ----------- -----------
Gross margin.................................. 4,940,555 7,422,678 3,636,045
Selling, general and administrative expenses.......... 6,862,685 7,207,682 5,020,450
----------- ----------- -----------
Operating profit (loss)....................... (1,922,130) 214,996 (1,384,405)
Other income (expense):
Interest expense, net of capitalized interest of
$620,747, $575,092 and $474,356 for the years ended
December 31, 1995, 1994 and 1993, respectively..... (4,082,713) (3,487,211) (3,002,136)
Other, net............................................ 592,809 506,099 234,147
----------- ----------- -----------
Other expense, net............................ (3,489,904) (2,981,112) (2,767,989)
----------- ----------- -----------
Net loss before extraordinary gain............ (5,412,034) (2,766,116) (4,152,394)
Extraordinary gain on extinguishment of debt (note 4)... -- 5,500,796 --
----------- ----------- -----------
Net profit (loss)............................. $(5,412,034) $ 2,734,680 $(4,152,394)
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-41
<PAGE> 117
GRAND HARBOR ASSOCIATES AND AFFILIATES
COMBINED STATEMENTS OF CHANGES IN OWNERS' EQUITY (DEFICIT)
FOR EACH OF THE YEARS IN THE THREE-YEAR
PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
GRAND HARBOR ANDLINGER GRAND HARBOR TOTAL OWNERS'
ASSOCIATES, PROPERTIES DEVELOPMENT EQUITY
INC. CAPITAL L.P. COMPANY (DEFICIT)
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1992............... $(1,381,773) $(1,381,773) $ (307,060) $ (3,070,606)
Net loss.................................... (1,868,577) (1,868,577) (415,240) (4,152,394)
Contributed capital......................... 11,250 11,250 2,500 25,000
------------ ------------ ------------ -------------
Balances at December 31, 1993............... (3,239,100) (3,239,100) (719,800) (7,198,000)
Net profit.................................. 1,230,606 1,230,606 273,468 2,734,680
Contributed capital......................... 12,375 12,375 2,750 27,500
------------ ------------ ------------ -------------
Balances at December 31, 1994............... (1,996,119) (1,996,119) (443,582) (4,435,820)
Net loss.................................... (2,435,415) (2,435,415) (541,204) (5,412,034)
Contributed capital:
Cash...................................... 23,895 23,895 1,184,747 1,232,537
Conversion of notes payable and imputed
interest thereon to owners' equity
(note 5)............................... 6,331,993 6,331,993 227,672 12,891,658
------------ ------------ ------------ -------------
Balances at December 31, 1995............... $ 1,924,354 $ 1,924,354 $ 427,633 $ 4,276,341
========== ========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-42
<PAGE> 118
GRAND HARBOR ASSOCIATES AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from sales..................................... $ 22,417,307 $ 33,423,265 $ 17,099,762
Cash paid for real estate development and general
operations................................................. (23,547,194) (30,727,116) (27,173,182)
Interest received............................................ 69,197 173,807 61,291
Interest paid................................................ (4,199,031) (3,519,793) (2,982,415)
------------ ------------ ------------
Net cash used for operating activities................... (5,259,721) (649,837) (12,994,544)
------------ ------------ ------------
Cash flows from investing activities:
(Increase) decrease in restricted cash....................... 1,190,740 (2,362,127) 932,290
(Increase) decrease in notes receivable from owners.......... 22,938 (6,541) (6,540)
(Increase) decrease in notes receivable...................... (39,809) (1,696,731) 186,000
Purchase of property and equipment........................... -- -- (146,089)
Sale of property and equipment............................... 48,476 145,887 --
Decrease in membership equity deposits....................... -- (1,043,353) --
------------ ------------ ------------
Net cash provided by (used for) investing activities..... 1,222,345 (4,962,865) 965,661
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from borrowings under long-term debt................ 8,127,330 15,881,124 14,267,375
Repayment of notes payable................................... (7,921,075) (32,885,794) (4,612,120)
Proceeds from borrowings from owners......................... 1,704,657 24,000,000 4,800,000
Repayment of notes payable to owners......................... (500,455) (2,506,630) (1,550,120)
Capital contributed by owners................................ 1,232,537 -- 25,000
------------ ------------ ------------
Net cash provided by financing activities................ 2,642,994 4,488,700 12,930,135
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents..... (1,394,382) (1,124,002) 901,252
Cash and cash equivalents at beginning of year................. 1,485,938 2,609,940 1,708,688
------------ ------------ ------------
Cash and cash equivalents at end of year....................... $ 91,556 $ 1,485,938 $ 2,609,940
------------ ------------ ------------
Reconciliation of net profit (loss) to net cash used for
operating activities:
Net profit (loss)............................................ $ (5,412,034) $ 2,734,680 $ (4,152,394)
Depreciation and amortization................................ 1,222,193 1,183,849 786,870
Extraordinary gain on extinguishment of debt................. -- (5,500,796) --
Cancellation of accrued interest............................. 558,006 -- --
Loss on disposal of property and equipment................... 10,740 -- --
Changes in operating assets and liabilities:
(Increase) decrease in real estate inventory............... (874,744) 560,894 11,635,250)
Increase in other assets and accounts receivable........... (77,364) (2,011,108) (282,554)
Increase (decrease) in accounts payable.................... (759,928) 542,016 (657,750)
Increase (decrease) in accrued interest payable to
owners................................................... (53,577) 542,510 494,077
Increase (decrease) in accrued property taxes.............. 685,798 (413,449) (33,753)
Increase (decrease) in other liabilities................... (448,880) 1,040,505 1,157,274
Increase in membership dues paid in advance................ 221,718 298,894 108,103
Increase (decrease) in associate membership deposits....... (331,649) 372,168 1,220,833
------------ ------------ ------------
Net cash used for operating activities................... $ (5,259,721) $ (649,837) $(12,994,544)
============= ============= =============
</TABLE>
Supplemental schedule of noncash financing and investing activities:
During 1995, the partners converted notes payable of $10,614,932 and
imputed interest thereon of $2,276,726 to owners' equity (see note 5).
During 1995, $81,758 of notes payable to partners was reduced to $-0-
through a reduction in notes receivable from partners for the same amount.
See accompanying notes to combined financial statements.
F-43
<PAGE> 119
GRAND HARBOR ASSOCIATES AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Basis of Presentation
Grand Harbor Associates (the Partnership) was formed in 1991 under the
Florida Uniform Partnership Act to acquire and develop approximately 900 acres
of real estate in Indian River County, Florida. Grand Harbor (the Development)
is planned for approximately 850 mid to high-end residential products. The
Development has numerous amenities and facilities including golf and beach
clubs, two 18-hole championship golf courses, tennis courts and a marina.
The Partnership is a general partnership with Grand Harbor Associates,
Inc., Andlinger Properties Capital L.P., and Grand Harbor Development Company as
partners with respective partnership interests of 45%, 45%, and 10%. Net profits
or losses from operations are allocated to partners in a like manner based on
ownership interests.
The combined financial statements include the Partnership and its
affiliates. The affiliates include thirteen limited partnerships and sixteen
corporations. The Partnership owns a 99% limited partnership interest in eleven
of the limited partnerships. The entities that own the Partnership have a 99%
direct and indirect ownership of the two remaining limited partnerships, and
100% ownership of the sixteen corporations. All significant intercompany
accounts and transactions have been eliminated in combination.
These combined financial statements do not include the companies
collectively identified as Oak Harbor. The Oak Harbor entities have the same
ownership as the entities combined in these financial statements. The Oak Harbor
entities were not combined in these financial statements as the Oak Harbor
entities operate in a separate and distinct line of business.
(b) Real Estate Inventory
Real estate inventory is recorded at the lower of cost or estimated net
realizable value. Cost includes costs of land, common improvements, amenities,
completed residential units, construction in progress, and acquisition costs
related to legal, engineering, and other. Interest, real estate taxes and other
carrying costs are capitalized only for discrete parcels or units undergoing
active development. The costs of common improvements are allocated to discrete
parcels or units based on relative sales values or specific identification.
(c) Cash and Cash Equivalents
For purposes of the statement of cash flows, the Partnership considers all
highly liquid debt instruments with maturities of three months or less to be
cash equivalents, exclusive of its restricted cash.
(d) Property and Equipment
Property and equipment are recorded at cost, including an allocated amount
from the total purchase price of the development. Interest charges incurred on
the cost of assets developed or constructed for use in operations are
capitalized during the construction period. Depreciation is provided under
accelerated methods over the estimated useful lives, varying from 5 to 31.5
years, depending upon the type of depreciable asset.
(e) Other Assets
Other assets include organization costs which are amortized by the straight
line method over 60 months and deferred loan costs which are amortized over the
life of the related debt.
F-44
<PAGE> 120
GRAND HARBOR ASSOCIATES AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(f) Equity Membership Sales
The Partnership has the right to sell all equity memberships in the Grand
Harbor Golf and Beach Club and has complete discretion as to the use of the cash
generated from these sales. Income for equity membership sales is recognized as
sales are made and is included as real estate sales in the combined statements
of operations. Additionally, the Club assets are treated as an amenity and are
charged to cost of real estate sales as full equity memberships are sold.
(g) Membership Dues
Membership dues are billed on an annual basis and recognized ratably as
revenue over the year as earned.
(h) Associate Membership Deposits
Associate membership deposits will be refunded to the associate member at
the end of the associate membership term or cancellation of membership by the
member.
(i) Income Taxes
The Partnership is not subject to income taxes as the resulting income or
loss generated and their tax effects are passed through to the partners.
Affiliates of the Partnership that are partnerships will be treated similarly.
Affiliates of the Partnership that are "S" corporations will be treated as
partnerships. Affiliates of the Partnership that are "C" corporations are
subject to taxes and will report the effects of taxes within the combined
financial statements as operations occur. There were no significant tax effects
for the three years in the period ended December 31, 1995 and no significant
deferred tax assets or liabilities as of December 31, 1995 and 1994.
(j) Ownership Reporting
Due to the differences in entity organization (partnerships and
corporations), net assets of the combined entities are shown as owners' equity
with the respective interest of each owner. Results of operations are allocated
to each owner's account balance, based on the percentage of ownership interest.
(k) Disclosures About Fair Value of Financial Statements
The carrying amount reported in the balance sheet for cash and cash
equivalents, restricted cash, notes receivable, member and other accounts
receivable, and accounts payable approximates fair value because of the
immediate or short-term maturity of these instruments.
As of December 31, 1995 and 1994 the fair value of indebtedness
approximates its carrying value and was determined using market interest rates
for debt with similar maturities.
(l) Advertising Costs
Costs of advertising, promotion and marketing are charged to operations in
the year incurred.
(m) Reclassifications
Certain 1994 and 1993 combined balance sheet, statement of operations and
cash flow amounts have been reclassified to conform to the 1995 presentation.
F-45
<PAGE> 121
GRAND HARBOR ASSOCIATES AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(n) 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) REAL ESTATE INVENTORY
A summary of real estate inventory as of December 31, 1995 and 1994
follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land and improvements....................................... $14,109,200 $15,139,816
Completed residential units................................. 11,435,595 7,285,249
Construction in progress.................................... 13,382,830 15,017,173
Amenities-golf and beach club facilities, etc............... 7,009,822 7,446,456
----------- -----------
$45,937,447 $44,888,694
========== ==========
</TABLE>
Land and improvements include undeveloped land, lots held for resale,
completed roads, sewers, and landscaping.
Real estate inventory includes land with a cost of $7,758,000 that
underlies the development by the Oak Harbor Affiliated Companies (Oak Harbor).
This real estate will be conveyed to Oak Harbor in 1996. See also note 1(a).
The aggregate amounts of general and administrative costs charged to
inventory during 1995 and 1994 was approximately $414,000 and $531,000,
respectively. The amounts of general and administrative costs remaining in
inventory at December 31, 1995 and 1994 are estimated at $469,000 and $363,000,
respectively. Such estimates assume that costs have been removed from
inventories on a basis proportioned to the amounts of each cost element expected
to be charged to cost of sales.
(3) PROPERTY AND EQUIPMENT
A summary of property and equipment as of December 31, 1995 and 1994
follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Sales and administrative center:
Land...................................................... $ 75,565 $ 75,565
Building.................................................. 376,000 376,000
----------- -----------
451,565 451,565
----------- -----------
Harbor marina............................................... 2,701,444 2,678,563
Furniture and equipment..................................... 2,010,227 2,079,268
Autos and trucks............................................ 56,727 68,354
Construction in progress and other.......................... 2,617 251,883
----------- -----------
Total property and equipment...................... 5,222,580 5,529,633
Less accumulated depreciation and amortization.............. 2,110,954 1,607,582
----------- -----------
Net property and equipment........................ $ 3,111,626 $ 3,922,051
========== ==========
</TABLE>
F-46
<PAGE> 122
GRAND HARBOR ASSOCIATES AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Total depreciation expense for the above property and equipment amounted to
approximately $577,000 for 1995, $597,000 for 1994 and $620,000 for 1993.
(4) NOTES PAYABLE
Notes payable as of December 31, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Development note payable to bank, with total advances not to
exceed $5,000,000. ....................................... $ 3,020,000 $ 3,580,000
Construction note payable to bank, with total advances not
to exceed $7,500,000. .................................... 3,500,000 4,000,000
Construction note payable to bank, with total advances not
to exceed $12,500,000. ................................... 7,500,000 7,000,000
Construction revolving line of credit payable to bank,
interest payable monthly at prime plus .75% (9.25% at
December 31, 1995); secured by a first mortgage on certain
property and guarantees of the Partnership's owners. Total
advances are not to exceed $3,000,000. ................... 1,717,553 582,074
Note payable to bank, $600,000 to be repaid in 1996 and
$619,596 in 1997, with interest payable monthly at prime
plus .75% (9.25% at December 31, 1995); secured by a first
mortgage on certain property and guarantees of the
Partnership's owners. Total advances are not to exceed
$1,500,000. .............................................. 1,219,596 1,014,234
Note payable to bank, $600,000 to be repaid in 1996 and
$353,000 in 1997 with interest payable monthly at prime
plus .75% (9.5% at December 31, 1995); secured by a first
mortgage on certain property and guarantees of the
Partnership's owners. Total advances are not to exceed
$2,996,000. .............................................. 953,000 2,248,000
Note payable to bank, due on May 31, 1996, with interest
payable monthly at prime plus 1% (9.5% at December 31,
1995);
secured by a first mortgage on certain property and
guarantees
of the Partnership's owners. Total advances are not to
exceed $2,000,000. ....................................... 241,197 41,431
Note payable to bank, due on August 31, 1996, with interest
payable monthly at prime plus 1% (9.5% at December 31,
1995); secured by a first mortgage on certain property and
guarantees of the Partnership's owners. Total advances are
not to exceed $2,400,000. ................................ 469,830 338,724
Note payable to bank, due on July 28, 1996, with interest
payable monthly at prime plus .75% (9.25% at December 31,
1995); secured by a first mortgage on certain property and
guarantees of the Partnership's owners. Total advances are
not to exceed $1,500,000.................................. 785,947 826,267
Note payable to bank, due on July 28, 1996, with interest
payable monthly at prime plus .75% (9.25% at December 31,
1995); secured by a first mortgage on certain property and
guarantees of the Partnership's owners. Total advances are
not to exceed $3,000,000.................................. 1,755,712 1,473,850
</TABLE>
F-47
<PAGE> 123
GRAND HARBOR ASSOCIATES AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Unsecured note payable to Quality Life Services, Inc., an
affiliated entity through ownership by Oak Harbor, due on
demand, with interest payable quarterly at prime plus .50%
(9% at December 31, 1995). ............................... 60,000 60,000
Note payable, secured by a first mortgage on Harbor Fronts
Unit #102-H, due upon the earlier of September 12, 1996 or
the sale of the mortgaged property, with interest payable
monthly at 8%. ........................................... 98,500 --
Note payable, secured by a first mortgage on Harmony Island
Unit #G-22, due upon the earlier of October 13, 1996 or
the sale of the mortgaged property, with 8% interest
payable at maturity. ..................................... 45,500 --
Note payable, $1,000 due in 1996, 1997, 1998 and 1999....... 4,000 --
----------- -----------
Total notes payable.................................... $21,370,835 $21,164,580
========== ==========
</TABLE>
The $5,000,000 development note payable calls for the principal balance
over $2,000,000 to be repaid on June 12, 1996 and remaining unpaid principal to
be repaid on June 12, 1997. The $7,500,000 construction note calls for all
principal over $3,000,000 to be repaid on June 12, 1996 and the remaining unpaid
principal to be repaid on June 12, 1997. The $12,500,000 construction note calls
for all principal to be repaid on June 12, 2000. The total amount outstanding
under all three loans is not to exceed $18,500,000 in the aggregate. Interest is
paid monthly and is computed at the bank's cost of funds rate (not to exceed the
LIBOR rate plus .25%) plus 2.5%. The notes are secured by mortgages on real
estate inventory and property and equipment of the marina and club facilities
with a book value of approximately $18,393,000. In addition, 50 percent of the
membership equity payments are pledged as security and designated for retirement
of construction indebtedness.
The weighted average interest rate on short-term notes payable at December
31, 1995 and 1994 was 9.25% and 9.26%, respectively.
Aggregate maturities of long-term debt as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C> <C>
1996......................................................... $7,895,239
1997......................................................... 5,973,596
1998......................................................... 1,000
1999......................................................... 1,000
2000 and thereafter.......................................... 7,500,000
----------
Total...................................................... $21,370,835
==========
</TABLE>
The Partnership acquired the Grand Harbor Development in Indian River
County, Florida through issuance of a mortgage note payable to the Resolution
Trust Corporation. In January of 1994, the Company extinguished all debt due to
the Resolution Trust Corporation at a gain determined as follows:
<TABLE>
<S> <C>
Net carrying amount of debt extinguished........................ $24,404,907
Reacquisition price............................................. 18,904,111
-----------
Extraordinary gain on extinguishment of debt.................... $ 5,500,796
==========
</TABLE>
The extinguished debt was repaid with borrowings under a mortgage note
payable to owners.
F-48
<PAGE> 124
GRAND HARBOR ASSOCIATES AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(5) NOTES PAYABLE TO OWNERS
Notes payable to owners as of December 31, 1995 and 1994 consists of the
following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Notes payable to Grand Harbor Associates, Inc.:
Note payable to Grand Harbor Corporation.................. $10,674,773 $10,925,000
Various notes payable contributed to capital in 1995...... -- 4,455,137
Notes payable to Andlinger Properties Capital L.P. and
Corp.:
Note payable to Southmortgage Finance Corporation......... 10,674,773 10,925,000
Various notes payable contributed to capital in 1995...... -- 4,536,895
----------- -----------
Total notes payable to owners.......................... $21,349,546 $30,842,032
========== ==========
</TABLE>
The notes payable to Southmortgage Finance Corporation (SFC) and Grand
Harbor Corporation (GHC) represent borrowings by owners, under mortgage notes
payable, from Industri & Skipsbanken A/S and Sparebanken Moere, Norwegian
financial institutions. The borrowings were used to extinguish all debt due the
Resolution Trust Corporation. Each of the $10,674,773 notes payable call for the
principal balance over $10,800,000 to be repaid on January 14, 1996, all
principal over $8,850,000 to be repaid on January 14, 1997, all principal over
$8,050,000 to be repaid on January 14, 1998, all principal over $6,550,000 to be
repaid on January 14, 1999 and remaining unpaid principal to be repaid on
January 14, 2000. Interest is payable monthly at the bank's cost of funds rate
(not to exceed the LIBOR rate plus .5%) plus 2.75% and 2.25% for the SFC and GHC
notes, respectively. The mortgage notes payable are collateralized by certain
real estate inventory of the Partnership with a book value of approximately
$12,435,000. In addition, 50 percent of the membership equity payments are
pledged as security. The indebtedness is also secured by a second mortgage on
certain real estate inventory with a book value of approximately $14,306,000.
Under an agreement for the recapitalization of the Partnership dated
November 30, 1995, Grand Harbor Associates, Inc. and Andlinger Properties
Capital L.P., each owning a 45% partnership interest, agreed to convert notes
payable with principal balances totaling $10,614,932 to Partnership capital. As
part of the recapitalization, the notes payable were amended to reduce the
stated interest to zero percent effective from the date of the last interest
payment. Accordingly, interest has been imputed on these below market rate loans
in the amount of $2,276,726, which has also been treated as a contribution to
owners' equity.
Aggregate maturities of notes payable to owners as of December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C> <C>
1996......................................................... $ --
1997......................................................... 3,649,546
1998......................................................... 1,600,000
1999......................................................... 3,000,000
2000 and thereafter.......................................... 13,100,000
----------
Total...................................................... $21,349,546
==========
</TABLE>
(6) OPERATIONS OF GRAND HARBOR GOLF AND BEACH CLUB
The Partnership is required to operate the Grand Harbor Golf and Beach Club
(the Club) for the benefit of the members and to fund any operating deficits
until these operations are turned over to the equity members. The club
operations resulted in net operating losses of approximately $2,300,000 from
inception, July, 1991 to December 31, 1993, and such amounts have been
capitalized to real estate inventory as additional amenity costs. All planned
amenities, including the Club, were substantially complete as of
F-49
<PAGE> 125
GRAND HARBOR ASSOCIATES AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1993. Results of operations of the Club from January 1, 1994, until
these activities are turned over to the equity members, will be included in
current operating results. See also note 11.
(7) LEASES
The Partnership has entered into various leases for equipment which have
been accounted for as operating leases. A summary of lease commitments as of
December 31, 1995 is as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C> <C>
1996.......................................................... $306,330
1997.......................................................... 207,639
1998.......................................................... 126,094
1999.......................................................... 35,483
2000 and thereafter........................................... --
--------
Total minimum lease payments................................ $675,546
========
</TABLE>
Total lease expense under the above leases amounted to approximately
$351,000, $278,000 and $183,000 for 1995, 1994 and 1993, respectively.
The Partnership has entered into various sales-leaseback transactions on
certain real estate units for the purpose of using such units as models. The
leaseback periods range from six months to three years. Accordingly, rental
payments have been classified as lease expense and amounted to approximately
$228,000, $278,000 and $183,000 for 1995, 1994 and 1993, respectively. A summary
of lease commitments under these leases as of December 31, 1995 is as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C> <C>
1996.......................................................... $136,931
1997.......................................................... 67,000
1998.......................................................... 17,875
--------
Total minimum lease payments................................ $221,806
========
</TABLE>
(8) ADVERTISING
Advertising costs amounted to approximately $689,000, $615,000 and $688,000
for the years ended December 31, 1995, 1994 and 1993, respectively, and were
included in selling, general and administrative expenses in the accompanying
statement of operations.
(9) RELATED PARTY TRANSACTIONS
One of the Partnership's owners serves as the general contractor in
conjunction with the construction contracts. Construction contract payments made
during 1995, 1994 and 1993, to the general contractor amounted to approximately
$9,158,000, $16,768,000 and $13,666,000, respectively. Included in accounts
payable as of December 31, 1995 and 1994 are construction contract payables
under these contracts approximating $1,059,000 and $1,666,000, respectively.
Remaining commitments on these contracts as of December 31, 1995 approximated
$1,231,000.
During 1995, 1994 and 1993, the Partnership paid consulting fees amounting
to $180,000, $280,000 and $180,000 each, respectively, to Andlinger Properties
Capital Corp. and Grand Harbor Associates, Inc. and affiliates. In addition, a
fee of $1,300,000 was paid to Grand Harbor Associates, Inc. in 1994, for
assistance with the new financing which the owners received from IS Banken and
Sparebanken Moere.
F-50
<PAGE> 126
GRAND HARBOR ASSOCIATES AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(10) EMPLOYEE BENEFIT PLAN
Employees are eligible to participate in a 401(k) savings plan which became
effective January 1, 1994. Under the plan, a percentage of each employee's pay
may be contributed to various savings alternatives. The plan provides for the
Partnership to match 25% of the first 8% contributed by each participant. At the
discretion of the Board of Directors, the Partnership may make an additional
contribution at plan year end. The Partnership made matching contributions
totaling $20,300 during the year ended December 31, 1995. The Partnership also
provides certain administrative services at no charge and paid approximately
$2,400 for expenses related to the administration of the Plan during the year
ended December 31, 1995.
(11) COMMITMENTS
Construction commitments as of December 31, 1995 remaining on contracts in
progress approximated $1,249,000, including amounts disclosed in note 9.
Subsequent to December 31, 1995, the Partnership entered into new construction
contracts approximating $335,000.
The Partnership is contractually obligated to fund any operating losses of
the Grand Harbor Golf and Beach Club until these operations are turned over to
the equity members. The turnover of the Club to the equity members will be
required upon the sale of all equity memberships or, earlier, at the
Partnership's discretion, provided the Club has generated profitable operations
for the preceding 12 month period. The Partnership also has an obligation to the
community homeowner associations to fund a prorata portion of the annual
operating budgets and to subsidize any remaining operating deficits.
(12) WARRANTIES
The Partnership provides certain warranties with respect to the quality of
the construction of the homes built at Grand Harbor. In addition, Florida law
provides for certain warranties that cannot be disclaimed by a homebuilder. The
cost of settling, or the failure to settle, future claims could have a material
adverse effect on the Partnership's results of operations and financial
condition.
The Partnership is currently in the process of entering into settlement
agreements with a number of homeowners at Grand Harbor regarding alleged defects
in homes constructed by a third party before the properties were purchased by
the Partnership. The Partnership is seeking to reach a settlement agreement,
whereby the homeowners will pay for any needed repair work. Once the repairs are
completed the Partnership will reimburse these homeowners for all costs incurred
over a predetermined period. The Partnership will seek to have these costs
reimbursed by the construction company who originally built these homes. The
Partnership believes they will successfully recoup all expenses incurred in
meeting these anticipated settlement agreements.
(13) SUBSEQUENT EVENTS
On January 2, 1996, Grand Harbor Associates, Inc. acquired the 45% partner
interest of Andlinger Properties Capital L.P. and, therefore, became owner of a
90% interest in the Partnership.
F-51
<PAGE> 127
THE OAK HARBOR AFFILIATED COMPANIES
Combined Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
F-52
<PAGE> 128
INDEPENDENT AUDITORS' REPORT
The Partners and Owners
The Oak Harbor Affiliated Companies:
We have audited the accompanying combined balance sheets of The Oak Harbor
Affiliated Companies as of December 31, 1995 and 1994, and the related combined
statements of operations, changes in owners' equity (deficit) and cash flows for
the years then ended. These combined financial statements are the responsibility
of the management of the Company and its affiliates. Our responsibility is to
express an opinion on these combined 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 provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of The Oak Harbor
Affiliated Companies as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
February 16, 1996
F-53
<PAGE> 129
THE OAK HARBOR AFFILIATED COMPANIES
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Real estate inventory (notes 3 and 5)............................... $ 1,716,106 $ 470,067
Cash and cash equivalents........................................... 60,967 746,891
Restricted cash..................................................... 1,567,000 439,000
Restricted investments (note 5)..................................... 5,448,520 5,675,522
Patient accounts receivable......................................... 220,240 197,833
Notes receivable from affiliate (note 8)............................ 60,000 61,426
Property and equipment, net (notes 4 and 5)......................... 1,903,019 1,344,076
Goodwill, net of accumulated amortization of $300,690 and $100,230
at December 31, 1995 and 1994, respectively, (note 2)............. 2,706,227 2,906,687
Covenant not to compete, net of accumulated amortization of $206,658
and $68,886 at December 31, 1995 and 1994, respectively, (note
2)................................................................ 1,860,009 1,997,781
Other assets, net of accumulated amortization of $95,781 and $27,258
at December 31, 1995 and 1994, respectively....................... 353,694 305,796
----------- -----------
$15,895,782 $14,145,079
========== ==========
LIABILITIES AND OWNERS' EQUITY
Liabilities:
Notes payable (note 5)............................................ 8,911,424 9,349,998
Notes payable to affiliate (note 5)............................... 1,253,079 1,800,417
Notes payable to owners (note 6).................................. -- 1,868,000
Accounts payable.................................................. 434,760 509,411
Accrued interest payable.......................................... 177,158 224,610
Other liabilities................................................. 1,849,070 660,755
----------- -----------
Total liabilities.............................................. 12,625,491 14,413,191
Owners' equity (deficit) (note 6):
Grand Harbor Associates, Inc. .................................... 1,471,631 (120,650)
Andlinger Properties Capital L.P. ................................ 1,471,631 (120,650)
Grand Harbor Development Company.................................. 327,029 (26,812)
----------- -----------
Total owners' equity (deficit)................................. 3,270,291 (268,112)
----------- -----------
$15,895,782 $14,145,079
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-54
<PAGE> 130
THE OAK HARBOR AFFILIATED COMPANIES
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Revenues:
Patient service revenue........................................... $ 2,380,767 $ 1,045,528
Other revenue..................................................... 224,667 113,062
----------- -----------
Total revenues............................................ 2,605,434 1,158,590
----------- -----------
Expenses:
Patient service direct costs...................................... 1,260,640 604,812
General and administrative........................................ 2,210,873 1,200,578
Write-off of intangible assets (note 1(g))........................ -- 578,362
----------- -----------
Total expenses............................................ 3,471,513 2,383,752
----------- -----------
Operating loss............................................ (866,079) (1,225,162)
Other income (expense):
Interest income................................................... 393,537 197,909
Interest expense, net of capitalized interest of $128,847 and $-0-
for the years ended December 31, 1995 and 1994, respectively... (913,659) (474,628)
----------- -----------
Other expense, net........................................ (520,122) (276,719)
----------- -----------
Net loss.................................................. $(1,386,201) $(1,501,881)
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-55
<PAGE> 131
THE OAK HARBOR AFFILIATED COMPANIES
COMBINED STATEMENTS OF CHANGES IN OWNERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
GRAND
GRAND HARBOR ANDLINGER HARBOR TOTAL
ASSOCIATES, PROPERTIES DEVELOPMENT OWNERS'
INC. CAPITAL L.P. COMPANY EQUITY
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
(DEFICIT)
Balances at December 31, 1993................. $ 345 $ 345 $ 77 $ 767
Net loss...................................... (675,846) (675,846) (150,189) (1,501,881)
Contributed capital........................... 554,851 554,851 123,300 1,233,002
------------ ------------ ----------- -----------
Balances at December 31, 1994................. (120,650) (120,650) (26,812) (268,112)
Net loss...................................... (623,790) (623,790) (138,621) (1,386,201)
Contributed capital:
Cash........................................ -- -- 283,333 283,333
Conversion of notes payable and imputed
interest thereon to owners' equity (note
6)....................................... 2,216,071 2,216,071 209,129 4,641,271
------------ ------------ ----------- -----------
Balances at December 31, 1995................. $1,471,631 $ 1,471,631 $ 327,029 $ 3,270,291
========== ========= ========= ==========
</TABLE>
See accompanying notes to combined financial statements.
F-56
<PAGE> 132
THE OAK HARBOR AFFILIATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from patient services......................................... $ 3,793,749 $ 960,757
Cash paid to suppliers and employees........................................ (4,351,319) (1,920,025)
Interest received........................................................... 393,537 7,610
Interest paid............................................................... (866,687) (203,682)
----------- -----------
Net cash used by operating activities................................ (1,030,720) (1,155,340)
Cash flows from investing activities:
(Increase) decrease in notes receivable from affiliate...................... 1,426 (61,426)
Increase in restricted cash................................................. (1,128,000) (439,000)
Acquisition of assets of Royal Palm Convalescent Center (note 2)............ -- (500,000)
Purchase of property and equipment.......................................... (629,565) (112,305)
Sale of property and equipment.............................................. 26,512 --
Purchase of annuity investments............................................. -- (5,485,223)
Payments from annuity investments........................................... 227,002 --
----------- -----------
Net cash used by investing activities................................ (1,502,625) (6,597,954)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings under long-term debt............................... 629,343 5,498,185
Repayment of notes payable.................................................. (1,615,255) (100,002)
Proceeds from borrowings from owners........................................ 2,550,000 1,868,000
Capital contributed by owners............................................... 283,333 1,233,002
----------- -----------
Net cash provided by financing activities............................ 1,847,421 8,499,185
----------- -----------
Net increase (decrease) in cash and cash equivalents................. (685,924) 745,891
Cash and cash equivalents at beginning of year................................ 746,891 1,000
----------- -----------
Cash and cash equivalents at end of year...................................... $ 60,967 $ 746,891
============ ============
Reconciliation of net loss to net cash used by operating activities:
Net loss.................................................................... $(1,386,201) $(1,501,881)
Depreciation................................................................ 40,840 22,706
Amortization................................................................ 406,755 196,374
Loss on disposal of property and equipment.................................. 3,270 --
Cancellation of interest.................................................... 192,964 --
Changes in operating assets and liabilities:
Increase in real estate inventory......................................... (1,246,039) (589,029)
Increase in accounts receivable and other assets.......................... (138,828) (520,887)
Increase in annuity investments (interest receivable)..................... -- (190,299)
Increase (decrease) in accounts payable................................... (74,651) 495,975
Increase (decrease) in accrued interest payable........................... (17,145) 270,946
Increase in other liabilities............................................. 1,188,315 660,755
----------- -----------
Net cash used by operating activities................................ $(1,030,720) $(1,155,340)
============ ============
</TABLE>
Supplemental schedule of noncash financing and investing activities:
During 1995, the partners converted notes payable of $4,418,000 and imputed
interest thereon of $223,271 to Partnership capital. (See note 6).
During 1994, the Company acquired certain assets of Royal Palm Convalescent
Center consisting of property and equipment of $1,116,416, goodwill of
$3,006,917, a covenant not to compete amounting to $2,066,667 and other assets
of $10,000 in exchange for cash of $500,000 and a note payable to the seller for
$5,700,000.
See accompanying notes to combined financial statements.
F-57
<PAGE> 133
THE OAK HARBOR AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Basis of Presentation
The Oak Harbor Affiliated Companies (the Company) was formed in 1993 to
develop a senior citizen country club community with an on-site assisted living
center and health clinic. In 1994, the Company acquired Royal Palm Convalescent
Center, an existing 72 bed skilled nursing facility, in Vero Beach, Florida, to
provide convalescent and extended nursing care services to the residents of Oak
Harbor (see note 2).
The combined financial statements include affiliated companies under common
control consisting of six limited partnerships and seven corporations owned by
the same entities and in the same proportionate interest. The owning entities
are Grand Harbor Associates, Inc., Andlinger Properties Capital L.P., and Grand
Harbor Development Company and their respective ownership interests are 45%,
45%, and 10%. Net profits or losses from operations are allocated to owners in a
like manner based on ownership interests. All significant intercompany accounts
and transactions have been eliminated in combination.
These combined financial statements do not include the companies
collectively identified as Grand Harbor Associates and Affiliates (Grand
Harbor). Grand Harbor has the same ownership as the entities combined in these
financial statements as of December 31, 1995. Grand Harbor was not combined in
these financial statements as Grand Harbor operates in a separate and distinct
line of business.
(b) Real Estate Inventory
Real estate inventory is recorded at the lower of cost or estimated net
realizable value. Cost includes costs of common improvements, construction in
progress, and acquisition costs related to legal, engineering, and other.
Interest, real estate taxes and other carrying costs are capitalized only for
discrete parcels or units undergoing active development. Development activities
commenced during 1995. The costs of common improvements are allocated to
discrete parcels or units based on relative sales values or specific
identification.
(c) Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with maturities of three months or less to be
cash equivalents, exclusive of its restricted cash.
(d) Restricted Cash
Restricted cash includes customer deposits received on the sale of real
estate and club memberships.
(e) Restricted Investments
Restricted investments include an irrevocable trust consisting of three
annuities, the sole intent of which is to provide security for payment on a note
payable. The annuity contracts will fully satisfy the note through annual
principal and interest payments.
(f) Property and Equipment
Property and equipment are recorded at cost. Interest charges incurred on
the cost of assets developed or constructed for use in operations are
capitalized during the construction period. Depreciation is provided using
accelerated methods over the estimated useful lives varying from 5 to 39 years
depending on the type of depreciable asset.
F-58
<PAGE> 134
THE OAK HARBOR AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(g) Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally 15 years. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The amount
of goodwill impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds.
(h) Covenant Not to Compete
A non-compete agreement between Royal Palm Convalescent Center, Inc., Henry
L. Block and Quality Life Services, Ltd., a combining entity, was included with
the purchase of the Royal Palm Convalescent Center and is being amortized over
15 years.
(i) Other Assets
Other assets include organization costs which are amortized over 60 months
and deferred loan costs which are amortized over the life of the related debt.
During 1994, the Company charged to operations other intangible assets
consisting of legal and consulting costs relating to certain licensing
applications totaling $578,362 which it paid during the year.
(j) Customer Deposits
Customer deposits received on the sale of real estate and club memberships
are reflected as restricted cash and other liabilities and amounted to
$1,567,000 and $439,000 at December 31, 1995 and 1994, respectively.
(k) Income Taxes
The Company is not directly subject to income taxes as the resulting income
or loss generated and their tax effects are passed through to the owners.
Affiliates of the Company that are partnerships will be treated similarly.
Affiliates of the Company that are "S" corporations will be treated as
partnerships. Accordingly, the accompanying combined financial statements do not
contain provision for, or assets or liabilities related to income taxes.
(l) Ownership Reporting
Due to the differences in entity organization (partnerships and
corporations), net assets of the combined entities are shown as owners' equity
with the respective interest of each owner. Results of operations are allocated
to each owner's account balance based on the percentage of ownership interest.
(m) Disclosures About Fair Value of Financial Instruments
The carrying amount reported in the balance sheet for cash and cash
equivalents, restricted cash, patient accounts receivable, notes payable to
affiliate and accounts payable approximates fair value because of the immediate
or short-term maturity of these instruments.
As of December 31, 1995 and 1994, the fair value of indebtedness, except
the note payable to Henry L. Block (see note 5), approximates the carrying value
reported in the balance sheet and was determined using market interest rates for
debt with similar maturities.
F-59
<PAGE> 135
THE OAK HARBOR AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Restricted investments consist of an irrevocable trust fund containing
three annuities, established to provide the annual payments required on the note
payable to Henry L. Block. The annual distributions from the annuities fully
satisfy the interest and principle payments of the note payable. These annuities
cannot be surrendered, and therefore, have no cash value. Because the restricted
investments and the note payable are inextricably linked, the fair value of each
is considered to be the carrying amounts reported in the balance sheet.
(n) Advertising
Costs of advertising, promotion and marketing are charged to operations in
the year incurred.
(o) Reclassifications
Certain 1994 combined balance sheet amounts have been reclassified to
conform to the 1995 presentation.
(p) 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) ACQUISITION OF THE ROYAL PALM CONVALESCENT CENTER
On June 30, 1994, the Company acquired certain assets of Royal Palm
Convalescent Center, Inc., including the facility, land, furniture and equipment
and inventory totaling $1,126,416. Goodwill and a covenant not to compete were
included in the purchase price allocation at $3,006,917 and $2,066,667,
respectively. The Partnership paid $500,000 cash, and financed $5,700,000
through a note payable to the seller. (See note 6). The acquisition was
accounted for under the purchase method of accounting. Results of operations
since the date of acquisition have been included in the accompanying combined
financial statements.
(3) REAL ESTATE INVENTORY
Real estate inventory consists of construction in progress, which includes
architectural and other planning costs and initial grounds preparations for the
land and infrastructures to be developed. The underlying land of the Oak Harbor
development is owned by an uncombined affiliate, Grand Harbor Associates.
The aggregate amount of general and administrative costs charged to
inventory during 1995 and 1994 was $86,000 and $-0-, respectively. The amounts
of general and administrative costs remaining in inventory at December 31, 1995
and 1994 are estimated at $86,000 and $-0-, respectively. Such estimates assume
that costs have been removed from inventories on a basis proportional to the
amounts of each cost element expected to be charged to cost of sales.
F-60
<PAGE> 136
THE OAK HARBOR AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment as of December 31, 1995 and 1994
follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Convalescent center:
Land........................................................ $ 259,930 $ 259,930
Building.................................................... 804,300 804,300
Furniture and equipment..................................... 59,884 59,884
Furniture and equipment....................................... 7,239 7,239
Autos and trucks.............................................. -- 15,499
Construction in progress -- project improvements.............. 829,744 219,930
---------- ----------
Total property and equipment............................. 1,961,097 1,366,782
Less accumulated depreciation and amortization................ 58,078 22,706
---------- ----------
Net property and equipment............................... $1,903,019 $1,344,076
========= =========
</TABLE>
Total depreciation expense for the above property and equipment amounted to
approximately $41,000 and $23,000 for 1995 and 1994, respectively.
(5) NOTES PAYABLE
Notes payable as of December 31, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Note payable to bank, due in monthly principal installments
of $16,667 through June 1998 and a final payment of
$2,966,651 in July 1998, with interest payable monthly at
prime plus .5% (9% at December 31, 1995); secured by a
first mortgage on certain property and guarantees by the
Company's owners.......................................... $ 3,449,994 $ 3,649,998
Note payable to Henry L. Block, with interest at 6.34%, due
in annual installments of $600,000, including interest
through July 1, 2009...................................... 5,461,430 5,700,000
----------- -----------
Subtotal.......................................... 8,911,424 9,349,998
Unsecured note payable to affiliate, due on demand, with
interest payable monthly at the applicable federal rate
(5.51% at December 31, 1995).............................. 800,000 1,567,479
Unsecured note payable to affiliate, due on demand, with
interest payable quarterly at 8%.......................... 200,000 200,000
Unsecured note payable to affiliate, due on demand, with
interest payable monthly at the applicable federal rate
(5.51% at December 31, 1995).............................. 69,577 31,257
Note payable to affiliate, due on demand.................... 183,502 1,681
----------- -----------
Total notes payable to affiliates................. 1,253,079 1,800,417
----------- -----------
Total notes payable............................... $10,164,503 $11,150,415
========== ==========
</TABLE>
The note payable to Henry L. Block financed $5,700,000 of the $6,200,000
purchase price of the Royal Palm Convalescent Center (see note 2). An
irrevocable trust consisting of three annuities, was established on July 6,
1994, the sole intent of which is to provide security for payment on the note
payable to Henry L. Block. The annuity contracts totaled $5,265,820 at December
31, 1995 plus accrued interest receivable of $182,700,
F-61
<PAGE> 137
THE OAK HARBOR AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
and will fully satisfy the note through annual principal and interest payments
of $600,000 beginning July 1, 1995. Interest on the note payable accrues at
6.34% per annum.
As of December 31, 1995, there were two unused commitments for long-term
financing from two banks with the following terms: (1) $4.6 million with
interest at prime plus 1.5% and due in May 1998, commitment expires January 5,
1996; (2) $32 million note payable with interest at prime plus 1%, due in May
1999, commitment expires January 5, 1996.
Each of the above commitments are renewable, and the loans must close by
January 31, 1996. As of December 31, 1995, commitment fees paid for the above
financing commitments totaled $102,500.
Aggregate maturities of notes payable as of December 31, 1995 are as
follows
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C> <C>
1996.......................................................... $1,706,828
1997.......................................................... 469,837
1998.......................................................... 3,336,926
1999.......................................................... 305,132
2000.......................................................... 324,478
Thereafter.................................................... 4,021,302
----------
Total....................................................... $10,164,503
==========
</TABLE>
(6) NOTES PAYABLE TO OWNERS
Notes payable to owners as of December 31, 1995 and 1994 consists of the
following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Notes payable to Grand Harbor Associates, Inc.:
Various notes payable contributed to capital in 1995........ $ -- $ 840,600
Notes payable to Andlinger Properties Capital L.P.:
Various notes payable contributed in capital in 1995........ -- 840,600
Notes payable to Grand Harbor Development Co.:
Various notes payable contributed in capital in 1995........ -- 186,800
---------- ----------
Total notes payable to owners....................... $ -- $1,868,000
========= =========
</TABLE>
Under an agreement for the recapitalization of the Partnership dated
November 30, 1995, Grand Harbor Associates, Inc. and Andlinger Properties
Capital L.P., each owning a 45% partnership interest and Grand Harbor
Development Company, owning a 10% partnership interest, agreed to convert notes
payable with principal balances totaling $4,418,000 to Partnership capital. As
part of the recapitalization, the notes payable were amended to reduce the
stated interest to zero percent effective from the date of the last interest
payment. Accordingly, interest has been imputed on these below market rate loans
in the amount of $223,271, which has also been treated as a contribution to
owners' equity.
(7) ADVERTISING
Advertising costs amounted to approximately $109,000 and $1,000 for the
years ended December 31, 1995 and 1994, respectively, and were included in
general and administrative expenses in the accompanying statement of operations.
F-62
<PAGE> 138
THE OAK HARBOR AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(8) RELATED PARTY TRANSACTIONS
One of the Company's owners serves as the general contractor in conjunction
with the construction contracts. Construction contract payments made during 1995
to the general contractor amounted to approximately $580,000. Included in
accounts payable as of December 31, 1995 are construction contract payables
under these contracts approximating $155,000. Remaining commitments on these
contracts as of December 31, 1995 approximated $8,976,000.
The Company has $60,000 and $61,426, respectively, of notes receivable from
an affiliate and $1,253,079 and $1,800,417, respectively, of notes payable to
affiliates as of December 31, 1995 and 1994 (see note 6).
(9) WARRANTIES
The Company provides certain warranties with respect to the quality of the
construction of the homes built at Oak Harbor. In addition, Florida law provides
for certain warranties that cannot be disclaimed by a homebuilder. The cost of
settling, or the failure to settle, future claims could have a material adverse
effect on the Company's results of operations and financial condition.
(10) SUBSEQUENT EVENTS
On January 2, 1996, Grand Harbor Associates, Inc. acquired the 45% partner
interest of Andlinger Properties Capital L.P. and, thus, became owner of a 90%
interest in the Partnership.
F-63
<PAGE> 139
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(WITH INDEPENDENT AUDITORS' REPORTS THEREON)
F-64
<PAGE> 140
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of Banyan Mortgage Investment Fund:
We have audited the accompanying consolidated balance sheet of Banyan
Mortgage Investment Fund as of December 31, 1995, and the related consolidated
statements of income and expenses, stockholders' equity and cash flows for the
year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
As of the date of completion of our audit of the accompanying consolidated
financial statements and the initial issuance of our report thereon, dated April
12, 1996, such report contains an explanatory paragraph regarding the Fund's
ability to continue as a going concern. Since that date, as discussed in Note
1B, the Fund's loans payable have been acquired by RGI Holdings. Inc. under
revised terms with which the Fund is in compliance. Therefore, the conditions
that raised substantial doubt about whether the Fund will continue as a going
concern no longer exist.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Banyan Mortgage
Investment Fund at December 31, 1995, and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
April 12, 1996,
except for Note 1B,
as to which the date is May 21, 1996
F-65
<PAGE> 141
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of Banyan Mortgage Investment Fund:
We have audited the accompanying consolidated balance sheet of Banyan
Mortgage Investment Fund and subsidiaries as of December 31, 1994, and the
related consolidated statements of income and expenses, stockholders' equity and
cash flows for each of the two years in the period ended December 31, 1994.
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 Mortgage
Investment Fund and subsidiaries as of December 31, 1994, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1994 in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 29, 1995
F-66
<PAGE> 142
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents........................................ $ 316,012 $ 8,040,629
Repair, Improvement and Real Estate Tax Escrows.................. 775,754 602,211
Accounts Receivable (Net of Allowance for Doubtful Accounts of
$65,000 and $34,000 for 1995 and 1994, respectively)........... 76,110 18,509
Interest Receivable on Cash and Cash Equivalents................. -- 84,272
------------ ------------
1,167,876 8,745,621
------------ ------------
Investment in Real Estate:
Land........................................................... 55,379,003 79,400,569
Buildings and Improvements..................................... -- 1,986,851
------------ ------------
55,379,003 81,387,420
Less: Accumulated Depreciation................................. -- (1,645,927)
------------ ------------
55,379,003 79,741,493
Developments in Progress....................................... 30,872,769 30,752,252
Real Estate Held For Sale...................................... 17,176,845 --
------------ ------------
Net Investment in Real Estate.................................... 103,428,617 110,493,745
------------ ------------
Net Investment in Real Estate Venture............................ 1,097,363 1,325,401
Deferred Financing Costs (Net of Accumulated Amortization of
$399,831 and $68,034 for 1995 and 1994, respectively).......... 909,365 1,241,162
Other Assets..................................................... 2,530,293 2,861,997
------------ ------------
Total Assets..................................................... $109,133,514 $124,667,926
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts Payable and Accrued Expenses............................ $ 1,686,511 $ 1,255,286
Interest Payable................................................. 1,268,553 810,526
Real Estate Taxes Payable........................................ 384,500 --
Mortgage Loans Payable........................................... 33,625,737 31,932,645
------------ ------------
Total Liabilities................................................ 36,965,301 33,998,457
------------ ------------
Stockholders' Equity
Shares of Common Stock, $0.01 Par Value, 100,000,000 Shares
Authorized, 39,842,404 and 39,762,495 Shares Issued,
respectively................................................... 348,205,447 348,162,496
Accumulated Deficit.............................................. (276,025,918) (257,481,711)
Treasury Stock, at Cost, 20,100 Shares........................... (11,316) (11,316)
------------ ------------
Total Stockholders' Equity....................................... 72,168,213 90,669,469
------------ ------------
Total Liabilities and Stockholders' Equity....................... $109,133,514 $124,667,926
============ ============
Book Value Per Share of Common Stock (39,822,304 and 39,742,395
Shares Outstanding for 1995 and 1994 respectively)............. $ 1.81 $ 2.28
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-67
<PAGE> 143
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
INCOME
Interest on Cash and Cash Equivalents............... $ 169,890 $ 145,647 $ 38,912
Operating Property Revenue.......................... 1,230,028 3,455,283 4,936,852
------------ ------------ -----------
1,399,918 3,600,930 4,975,764
------------ ------------ -----------
TOTAL INCOME
EXPENSES
Expenses From Property Operating Activities:
Provision for Losses on Investment in Real
Estate......................................... 12,900,000 9,000,000 4,650,000
Operating Property Expenses....................... 452,603 971,022 1,344,472
Development Property Expenses..................... 1,259,616 551,335 279,572
Repairs and Maintenance........................... 316,143 320,539 479,507
Real Estate Taxes................................. 298,640 455,600 568,739
Depreciation...................................... 374,075 609,969 782,722
Bad Debt Expense.................................. 6,000 30,915 449,554
------------ ------------ -----------
Total Expenses From Property Operating Activities... 15,607,077 11,939,380 8,554,566
------------ ------------ -----------
Other Expenses (Recoveries):
Stockholder Expenses.............................. 277,296 335,235 315,758
Directors' Fees, Expenses and Insurance........... 437,983 534,344 541,296
Other Professional Fees........................... 435,847 620,356 535,553
General and Administrative........................ 1,349,584 1,599,242 1,335,543
Recovery of Losses on Mortgage Loans, Notes,
Interest Receivable and Class Action Settlement
Costs and Expenses................................ (906,629) (1,095,800) (7,916,073)
Interest Expense, Amortization of Deferred Loan, and
Other Costs....................................... 2,533,841 1,837,049 923,181
------------ ------------ -----------
Total Other Expenses (Recoveries)................... 4,127,922 3,830,426 (4,264,742)
------------ ------------ -----------
Total Expenses...................................... 19,734,999 15,769,806 4,289,824
------------ ------------ -----------
Operating Income (Loss)............................. (18,335,081) (12,168,876) 685,940
Net (Loss) Income From Operations of Real Estate
Venture........................................... (213,516) 442,091 (560,347)
Arbitration Award................................... -- (3,250,000) --
Gain on Disposition of Real Estate.................. 4,390 2,880,614 1,014,265
------------ ------------ -----------
Income (Loss) Before Extraordinary Item............. (18,544,207) (12,096,171) 1,139,858
Gain from Forgiveness of Debt....................... -- 2,813,892 --
------------ ------------ -----------
Net Income (Loss)................................... $(18,544,207) $ (9,282,279) $ 1,139,858
============ ============ ===========
Net Income (Loss) Per Share of Common Stock (Based
on Weighted Average Number of Shares Outstanding
of 39,770,637, 39,724,995 and 39,689,294 during
1995, 1994, and 1993, respectively) Before
Extraordinary Item................................ $ (0.47) $ (0.30) $ 0.03
============ ============ ===========
Extraordinary Item.................................. -- .07 --
============ ============ ===========
Net Income (Loss)................................... $ (0.47) $ (0.23) $ 0.03
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-68
<PAGE> 144
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------- ACCUMULATED TREASURY
SHARES AMOUNT DEFICIT STOCK TOTAL
---------- ------------ ------------- -------- ------------
<S> <C> <C> <C> <C> <C>
Stockholders' Equity,
December 31, 1992.......... 39,709,394 $348,102,829 $(249,339,290) $(11,316) $ 98,752,223
Net Income For the Year Ended
December 31, 1993.......... -- -- 1,139,858 -- 1,139,858
----------- ------------- -------------- --------- -------------
Stockholders' Equity,
December 31, 1993.......... 39,709,394 348,102,829 (248,199,432) (11,316) 99,892,081
Award Shares Issued.......... 50,437 58,002 -- -- 58,002
Executive Stock Options
Exercised.................. 2,664 1,665 -- -- 1,665
Net Loss For the Year Ended
December 31, 1994.......... -- -- (9,282,279) -- (9,282,279)
----------- ------------- -------------- --------- -------------
Stockholders' Equity,
December 31, 1994.......... 39,762,495 348,162,496 (257,481,711) (11,316) 90,669,469
Award Shares Issued.......... 79,909 42,951 -- -- 42,951
Net Loss for the Year Ended
December 31, 1995.......... -- -- (18,544,207) -- (18,544,207)
----------- ------------- -------------- --------- -------------
Stockholders' Equity,
December 31, 1995.......... 39,842,404 $348,205,447 $(276,025,918) $(11,316) $ 72,168,213
=========== ============= ============== ========= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-69
<PAGE> 145
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS).................................. $(18,544,207) $ (9,282,279) $ 1,139,858
Adjustments to Reconcile Net Income (Loss) to Net
Cash (Used In) Provided by Operating Activities:
Provision for Losses on Investment in Real
Estate........................................ 12,900,000 9,000,000 4,650,000
Gain from Forgiveness of Debt.................... -- (2,813,892) --
Depreciation..................................... 374,075 609,969 782,722
Amortization of Deferred Loan and Other Costs.... 331,797 609,760 177,556
Provision for Bad Debts.......................... 6,000 30,915 449,554
Gain on Disposition of Real Estate............... (4,390) (2,880,614) (1,014,265)
Net (Income) Loss From Operations of Real Estate
Venture....................................... 213,516 (442,091) 560,347
Deferred Interest Payable on Mortgage Loans...... 1,996,307 -- --
Net Change In:
Interest Receivable on Cash and Cash
Equivalents................................. 84,272 (84,272) 59,063
Real Estate Escrow............................ (34,321) 209,661 68,574
Accounts Receivable........................... (88,601) 186,536 160,287
Other Assets.................................. 323,555 (154,570) (244,000)
Accounts Payable and Accrued Expenses......... 474,176 (558,376) 408,680
Real Estate Taxes Payable..................... 384,500 (546,865) 492,927
Interest Payable.............................. 1,195,457 200,807 534,850
------------ ------------ ------------
Net Cash (Used In) Provided By Operating
Activities....................................... (387,864) (5,915,311) 8,226,153
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate.................. 1,028,539 18,658,663 5,460,205
Increase in Developments in Progress............... (7,144,850) (8,127,177) (10,021,877)
(Increase) Decrease in Repair and Improvement
Escrows.......................................... (139,222) (49,556) 533,571
Distributions From (Investment in) Real Estate
Venture.......................................... 14,522 (408,516) (608,882)
Purchases of Land and Property Improvements........ (55,097) -- (279,075)
------------ ------------ ------------
Net Cash (Used In) Provided By Investing
Activities....................................... (6,296,108) 10,073,414 (4,916,058)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Mortgage Loans Payable............... -- 20,500,000 --
Issuance of Shares of Common Stock................. -- 1,665 --
Payment of Deferred Financing Costs................ -- (1,309,195) --
Payment of Mortgage Loans Payable.................. (1,040,645) (19,060,497) (2,165,227)
------------ ------------ ------------
Net Cash (Used in) Provided By Financing
Activities....................................... (1,040,645) 131,973 (2,165,227)
------------ ------------ ------------
Net (Decrease) Increase in Cash and Cash
Equivalents...................................... (7,724,617) 4,290,076 1,144,868
Cash and Cash Equivalents at Beginning of Year..... 8,040,629... 3,750,553 2,605,685
------------ ------------ ------------
Cash and Cash Equivalents at End of Year........... $ 316,012 $ 8,040,629 $ 3,750,553
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-70
<PAGE> 146
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
Banyan Mortgage Investment Fund (the "Fund") was organized as a corporation
under the laws of the State of Delaware, pursuant to a Restated Certificate of
Incorporation filed March 22, 1988. The accompanying consolidated financial
statements include the accounts of the Fund, its wholly-owned subsidiaries and
the Chapman's Landing, Southbridge, Wayside and Bishop's Ranch partnerships in
which the Fund holds a controlling 50% general partnership interest. Losses from
these partnerships are allocated to the minority interest partners to the extent
of their respective investments in the partnerships. Since such partners have
made no investment in the partnerships and are not obligated to fund losses in
excess of their investment, their minority interest currently has no value,
therefore the Fund has recorded all of the above partnerships' losses as of
December 31, 1995. 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.
B. DEBT DEFAULT AND BASIS OF PRESENTATION
In 1994 the Fund executed a credit agreement with Morgens, Waterfall
Vintiadis & Co., Inc. ("Morgens") that is collateralized by substantially all of
the assets of the Fund. As of December 31, 1995, the principal balance
outstanding was $23,233,737 (see Note 3). The Fund has not made the January 1,
or April 1, 1996 required interest payments of approximately $1,025,000 and
approximately $1,014,000, respectively. Morgens has notified the Fund that this
non-payment of interest constitutes an "Event of Default" under the Credit
Agreement. Morgens has reserved all of its rights and remedies under the Credit
Agreement (including demand of immediate payment of the outstanding principal
amount) but has taken no additional action as of April 12, 1996. In addition,
the Fund is in default with respect to its mortgage loan payable to Societe
General ("SoGen") which has a principal balance of $6,360,000 outstanding as of
December 31, 1995 (see Note 3).
Effective as of April 12, 1996, an Agreement and Plan of Merger (the
"Merger Agreement") was executed among the Fund and RGI Holdings, Inc. ("RGI
Holdings") and its wholly owned subsidiary, RGI U.S. Holdings ("RGI U.S." or
collectively "RGI"). The Merger Agreement provides, among other things, for the
following:
(1) At the initial closing, which occurred on May 21, 1996, RGI
Holdings acquired 7,466,666 shares of the Fund's common stock for
$3,500,000 in cash.
(2) Also at the May 21, 1996 closing, RGI Holdings purchased the
Morgens Loan and SoGen Loan and has agreed that prior to December 31, 1996
it will not accelerate the Morgens Loan or the SoGen Loan or foreclose upon
any collateral for the Morgens Loan or the SoGen Loan based upon any events
of default occurring on or before May 15, 1996 or as a result of the
execution of the Merger Agreement.
(3) Subsequent to the initial closing, upon approval of the Fund's
stockholders and the satisfaction of other conditions precedent, all of the
outstanding shares of RGI U.S. will be converted into 109,674,667 shares of
the Fund. The Merger will result in the Fund owning all of the real estate
assets of RGI U.S. and RGI Holdings will own approximately 80% of the
outstanding stock of the Fund. The merger is expected to be consummated
before the end of 1996.
In consideration of the RGI transactions, 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 may
result from the default under the Morgens Loan or the SoGen Loan. 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 default. If the
F-71
<PAGE> 147
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Merger is not consummated, the classification of the Fund's development real
estate may be changed to "held for disposal" possibly necessitating a valuation
allowance to reflect such assets at current fair market value.
C. INVESTMENT IN REAL ESTATE
During the development in progress phase of a property, interest, real
estate taxes and other development costs are capitalized in Developments in
Progress. The costs of land being developed are included in Land.
As of December 31, 1994, investments in real estate were written down to
their estimated net realizable value based upon management's determination that
an impairment in value had occurred. 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". Statement No. 121
requires the Fund to recognize impairment losses for its development 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 and to
record its properties held for disposal at the lower of carrying amount or fair
value less cost to sell. The Fund adopted Statement No. 121 in the fourth
quarter effective January 1, 1995 with no effect on the accompanying financial
statements.
D. DEFERRED FINANCING COST
Deferred financing costs are being amortized over the terms of the related
loans using the level yield method.
E. REVENUE RECOGNITION
Rental income (included in operating property revenues) is recognized on a
straight-line basis over the terms of the respective tenant leases. Revenues on
retail land sales are recorded upon closing of escrow and transfer of title to
the buyer. Costs associated with retail land sales are allocated on a pro-rata
basis.
F. INCOME TAXES
On January 30, 1995, the Fund notified the Internal Revenue Service of its
intent to revoke its 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 enable the Fund to develop its large tracts of undeveloped
land and to avoid the adverse tax effects of being deemed a dealer of real
property. For the years ended December 31, 1994 and 1993 the Fund elected to be
treated as a REIT under the Internal Revenue Code Sections 856-860. In order to
qualify, the Fund was required to meet distribution, asset and income tests as
well as certain other requirements.
Beginning in 1995, income taxes are accounted for in accordance with
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes."
G. CASH AND CASH EQUIVALENTS
The Fund considers all highly liquid investments which mature within three
months or less from the date of purchase to be cash and cash equivalents. At
December 31, 1995, the Fund's cash and cash equivalents is comprised of demand
and money market deposits only. At December 31, 1994, cash and cash equivalents
included demand and money market deposits of $1,145,629 as well as a Federal
Farm Credit Bank Bond with a face amount of $6,895,000 bearing interest at 5.0%
which matured on January 3, 1995. The cost, which approximates market value, of
this obligation at December 31, 1994 was $6,979,272.
F-72
<PAGE> 148
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number
of shares outstanding during the year of 39,770,637, 39,724,995, and 39,689,294
for the years ended December 31, 1995, 1994, and 1993 respectively. Income
(Loss) per share for the years ended December 31, 1995 and 1994 is computed
using the weighted average number of shares outstanding due to the Fund's
issuance of a total of 79,909 shares and 53,101 shares of its common stock
during 1995 and 1994, respectively. See Notes 7 and 8 for further details.
Options issued under the Fund's 1993 Executive and Directors Stock Option Plan
have been excluded from the computation of Weighted Average Shares Outstanding
because their inclusion is anti-dilutive. In addition, warrants issued pursuant
to the Credit Agreement with Morgens, Waterfall, Vintiadis & Co., Inc., (see
Note 3, "Investment in Real Estate and Related Mortgage Loans Payable" for
further details) are excluded from the computation of Weighted Average Shares
Outstanding as inclusion is also anti-dilutive.
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.
J. RECLASSIFICATIONS
Certain reclassifications have been made to the previously reported 1994
and 1993 consolidated financial statements in order to provide comparability
with the 1995 consolidated financial statements. These reclassifications have
not changed the 1994 or 1993 results.
K. NON-CASH INVESTING AND FINANCING ACTIVITIES
On August 25, 1995 and April 29, 1994, the Fund issued 79,909 and 50,437
shares, respectively of its common stock to Leonard G. Levine, its President.
(See Note 7 "Award Shares" for further information.)
Pursuant to the Credit Agreement executed October 17, 1994 with Morgens,
Waterfall, Vintiadis & Co., Inc., as agent for a group of lenders, the Fund has
elected to defer payment of $2,733,737 of accrued interest, which has been added
to the principal balance of the loan as of December 31, 1995. Of the $2,733,737
balance of deferred interest, $737,430 was expensed and included as interest
payable at December 31, 1994.
2. DISPOSITION OF REAL ESTATE
WAYSIDE VILLAGE DEVELOPMENT
For the year ended December 31, 1995, the Fund sold 17 single family lots
to home developers at the Fund's Wayside Village development. The sale of these
lots generated gross proceeds of $1,029,830. After payment of closing costs of
$1,291 the Fund received net proceeds of $1,028,539 of which approximately
$477,000 was applied toward principal payments on a mortgage loan collateralized
by the Wayside Village development as discussed below. After allocation of
overhead, holding costs and development expenses, the sale of the lots resulted
in an aggregate net gain on disposition of approximately $4,000. For the year
ended December 31, 1994 the Fund sold 22 single family lots and 41 townhome lots
to home developers for $1,990,611. After payment of closing costs of $2,403, the
Fund received net proceeds of $1,988,208 of which approximately $1,333,000 was
applied toward interest and principal payments on the mortgage loan
collateralized by the Wayside Village development. After allocation of overhead,
holding costs and
F-73
<PAGE> 149
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. DISPOSITION OF REAL ESTATE (CONTINUED)
development expenses, the sale of the lots resulted in an aggregate net loss on
disposition of approximately $401,000. Through December 31, 1993, the Fund sold
36 single family lots and 27 townhome lots to home developers on the Fund's
Wayside Development. The sale of these lots generated gross proceeds of
$2,411,551.After payment of closing costs of $15,214 the Fund received net
proceeds of $2,396,337 of which approximately $1,937,000 was applied toward
interest and principal payments on the loan on the Wayside Development as
discussed below. After allocation of overhead, holding costs and development
expenses, the sale of the lots resulted in an aggregate net loss on disposition
of approximately $147,000. See Note 3, "Investment in Real Estate and Related
Mortgage Loan Payable" of notes to consolidated financial statements for further
information regarding the Wayside Village development and the mortgage loan
collateralized by the development.
9025 WILSHIRE BOULEVARD
On September 23, 1994, the Fund sold the 9025 Wilshire Blvd. property
("9025 Wilshire") to an unaffiliated third party for $2,200,000. After payment
of selling commissions of $78,000, real estate tax prorations of $11,082 and
other fees and expenses of $16,551, the Fund received net proceeds from the sale
totaling $2,094,367. Per the terms of the sale agreement, the Fund was also
entitled to a share in the insurance proceeds received from a claim filed by the
Fund for property damage sustained during the January 17, 1994 Los Angeles area
earthquake. After prorations for professional fees paid in connection with
negotiating the insurance claim and the cost of pending repair work at the
property, the Fund received additional settlement proceeds of $205,265 upon sale
of the property. The transaction resulted in a gain on disposition to the Fund
of $323,333.
CASCADES
On May 26, 1994, the Fund sold the Cascades Apartments to an unaffiliated
third party for $14,482,100. After payment of selling commissions of $163,669,
transfer taxes and title charges of $130,449 and net prorations and credits
totalling $264,657 for real estate and personal property taxes, rent, net
operating expenses and security deposits the Fund received net proceeds of
$13,950,066. During 1992, the Fund borrowed a total of $10,500,000 from Heller
Financial, Inc. (the "Heller Loan"), collateralized by first mortgages on the
Cascades Apartments and the Fund's 120 S. Spalding property, under a loan
commitment dated June 13, 1992. Per the terms of the Heller Loan, the Fund was
required to repay $9,926,159, representing the entire outstanding principal
balance upon the sale of the Cascades Apartments, net of real estate tax escrow
proceeds of $327,996. The Fund also paid 26-days accrued interest and fees of
$67,370. The Fund is now fully released from its obligations under the Heller
Loan and has obtained the release of Heller's first mortgages on the Cascades
Apartments and on the 120 S. Spalding building. As a result of the Cascades
Apartments sale, net cash proceeds of $3,956,537 were transferred to the Fund,
and the transaction resulted in a gain on disposition to the Fund of $2,885,305.
ROCKY POINT
On April 22, 1994, the Fund sold the remaining 1.41 acre parcel of the
Rocky Point property to an unaffiliated third party for $180,000. After payment
of selling commissions, title charges, real estate tax prorations and other
closing costs, the Fund received net proceeds of $156,099. The sale of this
property resulted in a gain on disposition to the Fund of $73,290.
ACTON
On April 2, 1993, the Fund sold the Acton (Great Hill Village) property to
an unaffiliated third party for $952,000. After payment of selling commissions,
title charges, and other closing costs, the Fund received net
F-74
<PAGE> 150
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. DISPOSITION OF REAL ESTATE (CONTINUED)
proceeds of $911,127. The sale of this property resulted in a gain on
disposition to the Fund of approximately $719,000.
WHITWORTH
On June 15, 1993, the Fund sold the Whitworth property to an unaffiliated
third party for $2,216,283. After payment of selling commissions, title charges
and other closing costs, the Fund received net proceeds of $2,152,741. The sale
of this property resulted in a gain on disposition to the Fund of approximately
$442,000.
F-75
<PAGE> 151
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT IN REAL ESTATE AND RELATED MORTGAGE LOANS PAYABLE
At December 31, 1995, the Fund's investments in real estate consisted of
the following:
<TABLE>
<CAPTION>
INITIAL COST COST ADJUSTMENTS
TO THE FUND SUBSEQUENT TO ACQUISITION
-------------------------- -------------------------------------
BUILDINGS & CARRYING
DESCRIPTION: ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COSTS(A) LAND
- ------------------------------------------------- ----------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Chapman's Landing.................... (c) $23,000,000 $ -- $ 9,240,109 $ 1,704,357 $139,095
2,230 acres in
Charles County, MD
Southbridge.......................... (c) 34,300,000 -- 2,547,494 2,433,919 128,462
2,048 acres in Prince
William County, VA
Wayside.............................. (c) 17,595,446 -- 6,510,436 8,481,454 --
506 acres in Prince
William County, VA
Bishop's Ranch....................... (c) 7,063,498 -- 4,154,881 2,085,467 --
565 acres in
Monterey County, CA
OFFICE BUILDING:
120 S. Spalding Dr................... (c) 10,773,000 14,877,000 48,850 -- --
Beverly Hills, CA (e)(f)
----------- ----------- ----------- ----------- --------
$92,731,944 $14,877,000 $22,501,770 $14,705,197 $267,557
Less: Development in Progress........ -- -- -- -- --
Real Estate Held for Sale (g)........ -- -- -- -- --
----------- ----------- ----------- ----------- --------
$92,731,944 $14,877,000 $22,501,770 $14,705,197 $267,557
=========== =========== =========== =========== ========
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS AT WHICH CARRIED AT DEC. 31, 1995
-------------------------------------------------------------
VALUATION
ADJUSTMENT &
BUILDINGS & ACCUMULATED TOTAL DATE OF DATE
LAND IMPROVEMENTS DEPRECIATION (B) CONSTRUCTION ACQUIRED
------------ ------------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
DESCRIPTION:
Chapman's Landing............ $ 23,139,095 $ 10,944,466 $ -- $ 34,083,561 (d) 03/91
2,230 acres in
Charles County, MD
Southbridge,................. 34,428,462 4,981,413 (10,829,000) 28,580,875 (d) 05/91
2,048 acres in
Prince William County, VA
Wayside,..................... 17,595,446 14,991,890 (9,000,000) 23,587,336 (d) 05/91
506 acres in
Prince William County, VA
Bishop's Ranch,.............. 7,063,498 6,240,348 (3,300,000) 10,003,846 (d) 09/91
565 acres in
Monterey County, CA
OFFICE BUILDING:
120 S. Spalding Dr........... 10,773,000 14,925,850 (18,525,851) 7,172,999 1984 8/90
Beverly Hills, CA (e)(f)
------------ ------------ ------------ ------------
$ 92,999,501 $ 52,083,967 $(41,654,851) $103,428,617
============ ============ ============ ============
Less: Development in
Progress................... -- (30,872,769) -- (30,872,769)
Real Estate Held for Sale
(g)........................ (10,936,497) (6,240,348) -- (17,176,845)
------------ ------------ ------------ ------------
$ 82,063,004 $ 14,970,850 $(41,654,851) $ 55,379,003
============ ============ ============ ============
</TABLE>
F-76
<PAGE> 152
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT IN REAL ESTATE AND RELATED MORTGAGE LOANS PAYABLE (CONTINUED)
(a) Consists primarily of capitalized construction period interest and related
loan fees, where applicable, and real estate taxes of $11,571,992 and
$3,133,205, respectively. During 1995, $1,860,275 of interest was paid and
$2,859,437 of interest was capitalized. During 1994, $2,898,813 of interest
was paid and $1,872,331 of interest was capitalized.
(b) RECONCILIATION OF REAL ESTATE
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Balance at Beginning of Year....................... $112,139,672 $129,667,715 $128,487,820
Net Dispositions Through Sale...................... (1,024,149) (14,714,346) (4,471,057)
Net Additions...................................... 7,199,945 6,186,303 10,300,952
Valuation Adjustments.............................. (12,900,000) (9,000,000) (4,650,000)
------------- ------------- -------------
Balance at End of the Year......................... $105,415,468 $112,139,672 $129,667,715
============= ============= =============
</TABLE>
RECONCILIATION OF ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
1995 1994 1993
---------- ----------- ----------
<S> <C> <C> <C>
Balance at Beginning of Year............................ $1,645,927 $ 2,105,286 $1,386,980
Depreciation Expense for the Year....................... 374,075 609,969 782,722
Retirements (Other Assets).............................. (33,151) (1,069,328) (64,416)
----------- ------------ -----------
Balance at End of the Year.............................. $1,986,851 $ 1,645,927 $2,105,286
=========== ============ ===========
</TABLE>
(c) The properties of the Fund as described above are subject to mortgage loans
at December 31, 1995 as follows:
<TABLE>
<CAPTION>
MORTGAGE LOANS PAYABLE
------------------------- ANNUAL FINAL
PROPERTY 12/31/95 12/31/94 INTEREST RATE MATURITY DATE PAYMENTS
- ---------------------- ----------- ----------- ----------------------- ------------- ------------------------
<S> <C> <C> <C> <C> <C>
All Properties of
Fund(i)............. $23,233,737 $20,500,000 17.5% (Default 09/30/98 Quarterly, interest only
Rate 19.5%)
Southbridge........... 3,700,000 4,200,000 12% 01/20/99 Monthly, interest only
Prince William County,
VA(ii).............. 202,000 232,000 Prime + 2%; Max 10% 09/30/97 Monthly, interest only
130,000 163,420 Prime + 2%; Max 10% 09/30/96 Monthly, interest only
Wayside............... 6,360,000 6,837,225 Prime + 2% (Default 12/31/97 Monthly, interest only
Rate Prime + 6%)
Prince William County,
VA(iii)
------------ ------------
$33,625,737 $31,932,645
============ ============
</TABLE>
- -------------------------
(i) On October 17, 1994, the Fund executed a Credit Agreement with Morgens,
Waterfall, Vintiadis & Co. Inc. (the "Morgens Loan") in the amount of
$20,500,000. The Fund has agreed to make quarterly interest payments in
arrears at an annual rate of 17.5% and is also obligated to make certain
payments, which were applied to repay Morgens Loan interest, based on 50%
of the net cash flow generated by its wholly owned subsidiaries. For the
year ended December 31, 1995, the Fund made required cash flow payments of
$841,548 which were recorded as payments of deferred interest. From
October 17, 1994 until September 30, 1995, the Fund elected to defer
interest due on the Morgens Loan in accordance with the Credit Agreement,
other than the cash flow payments discussed above, which was then added
F-77
<PAGE> 153
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT IN REAL ESTATE AND RELATED MORTGAGE LOANS PAYABLE (CONTINUED)
to the outstanding principal balance of the loan. As of December 31, 1995,
the principal balance outstanding, including capitalized interest through
September 30, 1995, was $23,233,737. The Morgens Loan is collateralized by
first mortgages on the Fund's 120 S. Spalding, Chapman's Landing and
Bishop Ranch properties and portions of its Southbridge property, as well
as pledges of the common stock and partnership interests of the Fund's
subsidiaries, its accounts receivable, bank accounts and all other
tangible and intangible personal property. The Credit Agreement includes
certain financial and other covenants the most restrictive of which limit
the Fund's leverage to a maximum of 0.6:1, require a minimum net worth of
$70,000,000 and restrict additional indebtedness. Pursuant to the terms of
the Credit Agreement, the Lender also received warrants which entitle it
to purchase up to 4,380,000 shares of the Fund's common stock at any time
until October 1, 1998 at an exercise price of $0.70 per share. As of
December 31, 1995, these warrants had not been exercised.
Pursuant to the Morgens Loan closing, the Fund paid an advisory fee to the
Lender's advisors of $615,000, accrued real estate taxes of $183,510,
legal fees of $140,000 and other fees and expenses totaling approximately
$66,000 related to the transaction. In addition, the Fund utilized Morgens
Loan proceeds at closing to retire the balance of outstanding loans
collateralized by first mortgages on its Chapman's Landing and Bishop
Ranch properties. The holder of the Chapman's Landing note was paid
$1,130,853 representing principal repayment of $1,089,204 and accrued
interest of $41,649 while the holder of the Bishop Ranch note received
$1,959,409 representing principal repayment of $1,900,000 and accrued
interest and fees of $59,409. The Fund also paid a total of $3,250,000
pursuant to a final negotiated settlement of its previously disclosed
Buckeye arbitration award obligation.
As a result of insufficient cash available to the Fund, on January 1, and
April 1, 1996 it did not make the required interest payments due on the
Morgens Loan in the amounts of approximately $1,025,000 and $1,014,000,
respectively. On January 11, 1996 the Fund received notification from the
Lender that the failure to make this required interest payment constituted
an "Event of Default" under the Credit Agreement. The Morgens Loan is also
in default as a result of the separate default on the Societe General
Loan, which is discussed below. See Note 1B for a discussion of the Merger
Agreement as it relates to these loans.
(ii) On December 21, 1994, the Court confirmed an amended plan of
reorganization as ratified by the creditors (the "Plan") submitted by the
Southbridge Venture (the "Venture"). Per the terms of the Plan, all of the
Venture's creditors were to be paid in full. The Plan also provided for
certain modifications of the terms of three loans collateralized by first
mortgages on various portions of the Project. On December 21, 1994, the
Venture paid $506,800 representing accrued interest due to the holder of
the mortgage loan in the principal amount of $3,700,000 ("Loan 1"). The
maturity date of Loan 1 has been extended from September 20, 1994 until
January 20, 1999. Loan 1 requires the Venture to make monthly payments of
interest only at a rate of 12%, three $250,000 annual principal paydowns
on December 20, 1995, 1996 and 1997, respectively, with the balance of the
remaining unpaid principal of $2,950,000 due upon maturity. Subsequently,
on December 26, 1995, the lender agreed to defer payment of the $250,000
principal due on December 20, 1995 until June 20, 1996. As consideration
for the extension, the Fund agreed to pay an extension fee of $8,000 and
certain other legal fees of the lender in the amount of $54,000. The
lender also agreed to provide the Fund with the option to further extend
the date of the December 20, 1995 principal payment until September 20,
1996, in exchange for an increase in the interest rate of Loan 1 from 12%
to 12.5%. In addition, prior to the full repayment of Loan 1, the Venture
may obtain releases of liens on portions of the approximately 538 acres of
the Project which collateralize Loan 1 upon pro rata payment of 120% of
the then outstanding principal balance as specified in the Plan, for the
purpose of constructing the VRE/Amtrak Station and service road in
accordance with the Prince William County Cherry Hill Sector Plan. Also,
on December 21, 1994, the Venture paid $28,855 representing accrued
interest due
F-78
<PAGE> 154
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT IN REAL ESTATE AND RELATED MORTGAGE LOANS PAYABLE (CONTINUED)
to the holder of the mortgage loan in the principal amount of $202,000
("Loan 2"). The maturity date of Loan 2 was extended from October 1, 1995
until September 30, 1997. Loan 2 requires the Venture to make monthly
payments of interest only at a rate of prime plus 2%, not to exceed 10%,
plus a principal paydown of $70,000 on September 30, 1996 with the balance
of the remaining unpaid principal of $132,000 due upon maturity. Finally,
on December 21, 1994 the Venture paid $16,240 representing accrued
interest due to the holder of the mortgage loan in the principal amount of
$130,000 ("Loan 3"). The maturity date of Loan 3 was modified from
December 1, 2003 to September 30, 1996. Loan 3 requires the Venture to
make monthly payments of interest only at a rate of prime plus 2%, not to
exceed 10%, with the principal balance of $130,000 due at maturity. All
other terms of Loans 1, 2 and 3 are unchanged. The prime rate as of
December 31, 1995, as published in the "Wall Street Journal" was 8.5%.
(iii) On October 17, 1994, the Fund paid a total of $4,323,630 from the
Morgens, Waterfall, Vintiadis & Co. Inc., loan proceeds to Chase Manhattan
Bank ("Chase"), in exchange for Chase's full release of its 50% interest
in the $14,069,462 outstanding loan collateralized by a first mortgage on
the Fund's Wayside Village property and portions of the Fund's Southbridge
property (the "Original Wayside Loan"). The payment to Chase consisted of
a partial principal payment of $4,220,839, which represented Chase's
$7,034,731 principal portion of the Original Wayside Loan, less a 40%
discount, and accrued interest of $102,791. Simultaneously, the Fund and
Societe Generale ("SoGen") agreed to modify the terms of SoGen's
$7,034,731 principal portion of the Original Wayside Loan (the "Amended
Wayside Loan"). The terms of the loan modification agreement (the "Amended
Agreement") extended the maturity date of the Amended Wayside Loan to
December 31, 1997 and provided for monthly interest payments in arrears at
an interest rate of prime + 2%. At the option of the Fund, the maturity
date of the Amended Wayside Loan may be further extended for two one-year
periods in the event certain conditions defined in the Amended Agreement
are met. The Fund and SoGen also agreed upon a $2,000,000 revolving credit
line (the "Wayside Revolving Loan") to fund specific development costs
associated with lot sales contracts for the Wayside Village property. The
terms of the Wayside Revolving Loan provide for monthly interest payments
in arrears at an interest rate of prime + 3%. The Amended and Revolving
Wayside loans require principal to be repaid as lots are sold, based on
specified release prices, and are cross-collateralized and
cross-defaulted. Pursuant to the SoGen transactions, the Fund paid $34,731
to reduce the outstanding Amended Wayside Loan principal to $7,000,000.
The Fund also paid accrued interest of $102,791, loan fees of $95,000 and
other fees and expenses totalling approximately $188,500 from the Loan
proceeds, including $126,500 escrowed for future real estate taxes on
Wayside Village.
On November 3, 1995, SoGen declared a default under the Amended Wayside
Loan. As a result of the default, SoGen has demanded immediate repayment
of all sums due under the loan, amounting to approximately $6,600,000. In
addition, SoGen separately cancelled the Wayside Revolving Loan. The Fund
had not drawn any monies to date under the Wayside Revolving Loan. The
default arose when a principal payment due October 1, 1995 was not made.
In the Fund's view, a limited number of lots were developed at Wayside
Village during the past construction season due, in large part, to a
seven-month delay in obtaining a subordination agreement between a home
builder and SoGen causing the Fund to seek deferral of the mandatory
principal payments due and to become due during the next three calendar
quarters. The Fund has also been unsuccessful in its efforts to obtain a
draw under the Wayside Revolving Loan described above, despite the
submission of what the Fund believes are appropriate draw requests and
documentation. The Fund has expended $3,270,000 in infrastructure
improvements and other costs during the last year as a condition precedent
to such funding. SoGen has refused to fund the draw requests due to a
differing
F-79
<PAGE> 155
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT IN REAL ESTATE AND RELATED MORTGAGE LOANS PAYABLE (CONTINUED)
interpretation of the conditions contained in the revolving loan
agreement. The draws are needed to complete the improvements so that the
lots may be delivered. The Fund has been involved in and is continuing its
discussions with SoGen with respect to the alleged default on the Amended
Wayside Loan and cancellation of the Revolving Loan and has recently made
several proposals which SoGen has declined. There can be no assurance,
however, that the parties will reach any resolution of the dispute.
The default and acceleration of the SoGen loan constitutes a default under
the Morgens Loan as discussed above. See Note 1B for further discussion of
the SoGen and Morgens Loans.
The principal balances of the mortgage loans are scheduled to be repaid as
follows (without respect to any potential payment acceleration of Morgens
or SoGens Loans):
<TABLE>
<S> <C>
1996................................................... $ 4,710,000
1997................................................... 14,965,737
1998................................................... 11,000,000
1999................................................... 2,950,000
Thereafter............................................. --
-----------
Total............................................. $33,625,737
===========
</TABLE>
(d) Properties are currently at various stages of development and entitlement.
The development of projects is currently expected to continue through 2010.
(e) Depreciation expense is computed using the straight line method with a
mid-month convention. Rates used in the determination of depreciation are
based upon the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings, Building Appurtenances and Improvements........... 40.0
</TABLE>
(f) Subsequent to December 31, 1995, the Fund entered into a contract with an
unaffiliated third party for a sale price of $7,450,000. The carrying amount
of this property in the accompanying consolidated financial statements is
the sales price less estimated closing costs of approximately $277,000. The
Fund has received an earnest money deposit in the amount of $400,000 and the
sale is scheduled to occur on April 19, 1996.
(g) Real Estate Held for Sale includes 120 S. Spalding Dr. and Bishop's Ranch
which are reflected net of accumulated depreciation and their respective
valuation adjustments as of December 31, 1995.
4. INVESTMENT IN REAL ESTATE VENTURE
On March 6, 1991, in satisfaction of their mortgage loans receivable, the
Fund and Banyan Short Term Income Trust ("BST"), each received a 50% interest in
the Oakridge joint venture (the "Venture") pursuant to a deed-in-lieu agreement
with the borrower. The Fund and BST each holds a 50% general partnership
interest in the Oakridge joint venture pursuant to the partnership agreement of
the VST/VMIF Oakridge Partnership. The property was originally comprised of 270
acres of vacant land located in Hollywood and Dania, Florida which had been
operated as a golf course. On September 30, 1994, the Venture sold a 60-acre
residential parcel of the Oakridge site to an unaffiliated third party for
$4,100,000. Subsequent to December 31, 1995, on February 5, 1996 and March 1,
1996, the Fund sold a total of 180 acres to an unaffiliated party for
approximately $4,600,000. In addition, on March 1, 1996, the Venture sold an
additional 25-acre parcel of the Oakridge site to an unaffiliated party for
approximately $2,200,000. The February and March, 1996 sales resulted in the
Venture's repayment of 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
F-80
<PAGE> 156
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENT IN REAL ESTATE VENTURE (CONTINUED)
Venture received net proceeds from the sales of $4,180,505 of which $2,090,253
was distributed to the Fund representing its 50% interest in the Venture. The
Fund will recognize its share of the gain from the February and March property
sales of approximately $1,051,000 in the first quarter of 1996. The Venture is
currently engaged in negotiations with potential purchasers of the remaining
5-acre retail parcel at the Oakridge site. The Fund has recognized losses of
$213,516 and $560,347 for the years ended December 31, 1995 and 1993,
respectively. For the year ended December 31, 1994 the Fund recognized income of
$442,091 which included a gain of $869,704 from the property sale.
5. TRANSACTIONS WITH AFFILIATES
Administrative costs, primarily salaries and general and administrative
expenses, are reimbursed by the Fund to Banyan Management Corp. ("BMC"). 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. The Fund's allocated
share of costs for the years ended December 31, 1995, 1994 and 1993 aggregated
$1,092,081, $1,141,675 and $971,321, 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, 1995 and 1994, the Fund had a
net payable due to BMC of $175,725 and $86,296, respectively. The net payable is
included in the accounts payable and accrued expenses in the Fund's consolidated
balance sheet.
6. RECOVERY OF LOSSES ON MORTGAGE LOANS, NOTES, INTEREST RECEIVABLE AND CLASS
ACTION SETTLEMENT COSTS AND EXPENSES
The Fund received cash of $981,950, $360,515 and $7,906,520 during 1995,
1994 and 1993, respectively, related to its interest in its liquidating trusts
established for the benefit of the unsecured creditors (including the Fund) of
VMS Realty Partners and its affiliates ("VMS"), former affiliates of the Fund.
The Fund has recorded $906,629, $298,815 and $7,916,073, respectively, as
recovery of losses on mortgage loans, notes, interest receivable and class
action settlement costs in its consolidated statements of income and expenses.
The remainder of $127,468 was 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 is recorded in
Accounts Payable and Accrued Expenses at December 31, 1995.
On January 25, 1994, the Fund received net proceeds of $796,985 by
terminating an escrow established as part of the Class Action Settlement of the
VMS securities litigation. The escrow was established to provide the directors
and officers of the Fund with monies to fund the cost of any litigation in which
they may 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 and officers.
7. AWARD SHARES
On August 25, 1995 and April 29, 1994, the Fund issued 79,909 shares and
50,437 shares, respectively 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 which are valued 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 1995 incentive compensation
will be paid out 80% in cash, or $32,010 and 20% in Award Shares valued at
$0.431 per share or $8,003 in 1996. Pursuant to Board of Director's approval,
Mr. Levine was paid $120,000 of his 1994 incentive compensation on December 31,
1994. On
F-81
<PAGE> 157
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. AWARD SHARES (CONTINUED)
March 15, 1995, Mr. Levine was paid the balance of his 1994 incentive
compensation in the amount of $51,805. The $171,805 of total cash payments
represents 80% of Mr. Levine's 1994 incentive. The 79,909 Award Shares issued in
respect of the incentive compensation earned during 1994 were valued at a price
equal to $0.537 per share or $42,951. On January 28, 1994, Mr. Levine was paid
$231,166 representing 80% of his 1993 incentive. The 50,437 Award Shares valued
at $1.15 per share or $58,002, represent 20% of Mr. Levine's 1993 incentive. The
Award Shares will be held by the Fund, pending satisfaction of the vesting
requirements included in Mr. Levine's contract which provides that Mr. Levine
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 August 25, 1995 and April 29, 1994 for the
purpose of calculating Net Income Per Share of Common Stock based on the
Weighted Average Number Shares Outstanding for the years ended December 31, 1995
and 1994, respectively.
8. STOCK OPTION PLAN
On June 25, 1993, the Shareholders approved and adopted the 1993 Executive
and Directors Stock Option Plan (the "Plan"). The Plan provides that the Board
of Directors has the authority to issue up to 1,000,000 shares of the Fund's
common stock for stock option awards. Under the Plan, options have been granted
to Directors and management to purchase shares at fair market value at date of
grant.
A summary of option activity is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE
SHARES PER SHARE
------- ----------------
<S> <C> <C>
Options outstanding at January 1, 1993.......................... -- --
Options granted 1993............................................ 170,000 $0.625
Options cancelled 1993.......................................... (8,000) $0.625
-------
Options outstanding at December 31, 1993........................ 162,000 $0.625
Options granted 1994............................................ 170,000 $0.6875 - $1.125
Options cancelled 1994.......................................... (10,000) $1.125
Options exercised 1994.......................................... (2,664) $0.625
-------
Options outstanding at December 31, 1994........................ 319,336 $0.625 - $1.125
Options granted 1995............................................ 171,000 $0.500 - $0.625
Options cancelled 1995.......................................... (1,000) $0.500
-------
Options outstanding at December 31, 1995........................ 489,336 $0.500 - $1.125
=======
</TABLE>
At December 31, 1995, options on 183,670 shares are exercisable at $0.50 to
$1.25 per share and options on 508,000 shares were available for future grant.
9. ARBITRATION AWARD PAYABLE
The Fund and Banyan Mortgage Investors L.P. II ("BMLPII") acting for itself
and on behalf of THSP Associates Limited Partnership II ("THSP") (formerly
Banyan Mortgage Investors L.P. III) had agreed to resolve, by means of
arbitration, the issue of the amount of compensation, if any, owed by the Fund
to BMLPII in consideration for BMLPII's agreement to relinquish, and take no
action with respect to its interests in certain Beverly Hills, California
properties commonly known as the Buckeye properties when the
F-82
<PAGE> 158
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ARBITRATION AWARD PAYABLE (CONTINUED)
Fund took control of certain of these properties in 1990. On July 20, 1994, a
majority of two members of a panel of three arbitrators awarded BMLPII
approximately $3,768,000 in connection with this arbitration. On July 25, 1994,
BMLPII filed suit in the Circuit Court of Cook County, Illinois to confirm the
award. Pursuant to the terms of a negotiated settlement, the award was satisfied
on October 17, 1994 by the payment of $3,250,000.
10. 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, 1995,
are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Investment in real estate.................................... $ 19,320,389
Notes and accounts receivable................................ 103,939
Other........................................................ 56,285
Net operating loss carry forwards............................ 107,785,235
-------------
Total deferred tax assets...................................... 127,265,848
Less valuation allowance for deferred tax assets............... (127,265,848)
-------------
Net deferred tax assets........................................ $ --
=============
</TABLE>
As of December 31, 1995, the Fund had net operating loss carry forwards of
approximately $268,122,000 which expire as follows: $83,040,000 in 2005;
$55,604,000 in 2006; $120,412,000 in 2007; $3,536,000 in 2009; and $5,530,000 in
2010.
11. LITIGATION AND CONTINGENCIES
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 Bishop Ranch
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 Bishop 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 and are presently producing documents.
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 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.
F-83
<PAGE> 159
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. LITIGATION AND CONTINGENCIES (CONTINUED)
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 Bishop Ranch project, declaring null
and void the interest of the various defendant lenders which arises under the
Deed of Trust and (iii) an award of attorneys' fees and costs.
The California Court has 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. The court gave the parties
until April 19, 1996 to report to the court on the progress of such an
agreement. The parties appeared before the Illinois Court on April 3, 1996, upon
the defendants' motion, to request the Court to impose a discovery and trial
schedule. The Illinois Court ordered that if the parties conclude discovery by
September 13, 1996, a trial date would be set in September or shortly
thereafter.
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. The partnership agreement which creates 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.
12. SIGNIFICANT ADJUSTMENTS
After considering appraisals, market studies, financial projections and
sales comparisons, management has taken a $3,600,000, $3,300,000 and $6,000,000
valuation adjustment on its 120 S. Spalding building, Bishop Ranch property, and
Wayside Village development, respectively, during the fourth quarter of 1995.
These adjustments have been reflected in the Consolidated Statements of Income
and Expenses.
F-84
<PAGE> 160
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1996
-------------
<S> <C>
ASSETS
Cash and Cash Equivalents.................................................... $ 6,647,172
Repair, Improvement and Real Estate Tax Escrows.............................. 647,110
------------
7,294,282
------------
Investment in Real Estate:
Land....................................................................... 55,322,493
Developments in Progress................................................... 30,820,485
Real Estate Held for Sale.................................................. 10,003,846
------------
Net Investment in Real Estate................................................ 96,146,824
------------
Net Investment in Real Estate Venture........................................ 251,474
Deferred Financing Costs (Net of Accumulated Amortization of $563,934)....... 1,825,144
Other Assets................................................................. 2,536,596
------------
Total Assets................................................................. $ 108,054,320
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts Payable and Accrued Expenses........................................ $ 1,838,997
Interest Payable............................................................. 1,291,252
Real Estate Taxes Payable.................................................... 195,066
Mortgage Loans Payable....................................................... 34,371,494
------------
Total Liabilities............................................................ 37,696,809
------------
Stockholders' Equity
Shares of Common Stock, $0.01 Par Value, 100,000,000 Shares Authorized,
47,327,627 Shares Issued................................................... 351,713,450
Accumulated Deficit.......................................................... (281,344,623)
Treasury Stock, at Cost, 20,100 Shares....................................... (11,316)
------------
Total Stockholders' Equity................................................... 70,357,511
------------
Total Liabilities and Stockholders' Equity................................... $ 108,054,320
============
Book Value Per Share of Common Stock (47,307,527 Shares Outstanding)......... $ 1.49
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-85
<PAGE> 161
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
INCOME
Interest on Cash and Cash Equivalents.............................. $ 65,412 $ 142,512
Operating Property Income.......................................... 232,094 800,033
----------- -----------
Total Income....................................................... 297,506 942,545
----------- -----------
EXPENSES
Expenses From Property Activities:
Operating Property Expenses...................................... 203,857 221,401
Development Property Expenses.................................... 1,073,209 767,133
Repairs and Maintenance.......................................... 71,875 98,503
Real Estate Taxes................................................ 233,804 159,407
Depreciation..................................................... 10,807 205,952
Bad Debt (Recovery) Expense...................................... 56,000 (11,000)
----------- -----------
Total Expenses From Property Activities............................ 1,649,552 1,441,396
----------- -----------
Other Expenses:
Stockholder Expenses............................................. 110,693 236,679
Directors' Fees, Expenses and Insurance.......................... 161,065 254,470
Other Professional Fees.......................................... 649,967 127,443
General and Administrative....................................... 992,316 629,961
Recovery of Losses on Mortgage Loans, Notes and Interest
Receivable.................................................... (418,972) (495,591)
Interest Expense and Amortization of Deferred Loan Costs......... 3,516,011 1,320,298
----------- -----------
Total Other Expenses............................................... 5,011,080 2,073,260
----------- -----------
Total Expenses..................................................... 6,660,632 3,514,656
----------- -----------
Operating Loss..................................................... (6,363,126) (2,572,111)
Net Income (Loss) From Operations of Real Estate Venture........... 981,330 (90,716)
Gain on Dispositions of Real Estate................................ 63,091 7,558
----------- -----------
Net Loss........................................................... $(5,318,705) $(2,655,269)
=========== ===========
Net Loss Per Share of Common Stock (Based on Weighted Average
Number of Shares Outstanding of 41,507,108 and 39,742,395 during
1996 and 1995, respectively)..................................... $ (0.13) $ (0.07)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-86
<PAGE> 162
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<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...................... -- -- (5,318,705) -- (5,318,705)
----------- ------------- -------------- --------- ------------
Stockholders' Equity,
June 30, 1996............... 47,327,627 $351,713,450 $(281,344,623) $(11,316) $70,357,511
=========== ============= ============== ========= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-87
<PAGE> 163
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS........................................................... $(5,318,705) $(2,655,269)
Adjustments to Reconcile Net Loss to Net Cash
Used In Operating Activities:
Depreciation..................................................... 10,807 205,952
Amortization of Deferred Loan Costs.............................. 164,103 164,974
Provision (Recovery) for Bad Debts............................... 56,000 (11,000)
Gain on Disposition of Real Estate............................... (63,091) (7,558)
Net (Income) Loss From Operations of Real Estate Venture......... (981,330) 90,716
Deferred Interest Payable on Mortgage Loans...................... -- 824,764
Net Change In:
Interest Receivable on Cash and Cash Equivalents................. -- 16,721
Real Estate Tax Escrow........................................... (28,681) (177,100)
Other Assets..................................................... 3,000 263,492
Accounts Payable and Accrued Expenses............................ 152,486 56,710
Real Estate Taxes Payable........................................ (189,434) 196,564
Interest Payable................................................. 1,047,750 140,594
----------- -----------
Net Cash Used In Operating Activities.............................. (5,147,095) (890,440)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds From Sale of Real Estate.................................. 7,501,728 707,414
Increase in Developments in Progress............................... (156,845) (4,101,398)
Decrease (Increase) in Repair and Improvement Escrow............... 157,325 (256,137)
Distributions from Real Estate Venture............................. 1,827,220 62,648
Purchases of Land and Property Improvements........................ -- (179,960)
----------- -----------
Net Cash Provided by (Used In) Investing Activities................ 9,329,428 (3,767,433)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of Mortgage Loans Payable.................................. (279,294) (977,225)
Payment of Deferred Financing Costs................................ (1,079,882) --
Issuance of Common Stock........................................... 3,508,003 --
----------- -----------
Net Cash Provided by (Used In) Financing Activities................ 2,148,827 (977,225)
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents............... 6,331,160 (5,635,098)
Cash and Cash Equivalents at Beginning of Period................... 316,012 8,040,629
----------- -----------
Cash and Cash Equivalents at End of Period......................... $ 6,647,172 $ 2,405,531
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-88
<PAGE> 164
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Readers of these June 31, 1996 unaudited financial statements should refer
to Banyan Mortgage Investment Fund's (the "Fund") audited consolidated financial
statements for the year ended December 31, 1995, which are included elsewhere
herein, as certain footnote disclosures which substantially duplicate those
contained in such audited statements have been omitted from the notes to these
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation have been made to the accompanying consolidated
financial statements as of June 30, 1996 and for the six months ended June 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 June 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 June 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 May 20, 1996, the Fund entered into an Amended and Restated Agreement
and Plan of Merger (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, approval by the Fund's Stockholders. 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 (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") and collateralized by a first mortgage on the Fund's Wayside property and
a portion of the Southbridge property which is subject to approval by the Fund's
Stockholders. 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 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 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 Loans as of June 30, 1996 was $24,258,788. Additionally, if the Merger
is approved, 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 and the real estate assets owned by RGI U.S. will be merged into the Fund
and the sales proceeds of which can be used to repay the Morgens Loan. Finally,
the
F-89
<PAGE> 165
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PLAN OF MERGER, MORTGAGE LOANS PAYABLE, AND BASIS OF PRESENTATION (CONTINUED)
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 were used to pay interest for the period January
1, 1996 through March 31, 1996, which was due April 1, 1996, in the amount of
approximately $1,179,000 and a $500,000 loan restructuring fee was also paid to
RGI Holdings. In the event that the Merger closing does not occur 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 June 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 lenders
were cancelled. Also, RGI allowed the Fund to utilize, without requiring
applications 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 utilize future cash proceeds
exclusively for the repayment of debt from either 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. 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 stock sale, the Fund paid interest for the period
January 1, 1996 through April 30, 1996 in the amount of $319,782 and late fees
and legal fees in the amount of $302,708. No additional payments of principal or
interest will be required until the earlier of fifteen days after the merger
closing, termination of the merger agreement or 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 exchanged mutual releases.
Subject to the approval of the Fund's Stockholders, RGI U.S. will be merged
with and into the Fund with all of the outstanding shares of RGI U.S. being
converted into 109,674,667 shares of the Fund's common stock. As a result, the
percentage of the Fund's common stock that RGI Holdings will own if the merger
is approved will be approximately 75%. The Fund anticipates seeking a vote on
the merger at the annual meeting which will likely be held in the fall of 1996
after the Fund completes all necessary regulatory filings associated with the
proposed merger.
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 due to the completion of the initial closing of the RGI
Transaction. 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. If the merger is
not completed and the defaults under the Morgens Loan or the SoGen Loan are not
otherwise cured or waived, the classification of the Fund's development real
estate could be required to be changed to "held for disposal" thereby possibly
necessitating a valuation allowance to reflect such assets at current fair
market value.
F-90
<PAGE> 166
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 reimbursed by the Fund to Banyan Management Corp. ("BMC"). 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 six
months ended June 30, 1996 and 1995 aggregated $806,952 and $518,383,
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
June 30, 1996, the Fund had a net payable due to BMC of $184,857. 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, and March 1, 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 of the Oakridge property 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 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. The Oakridge
Venture is currently engaged in negotiations to sell the remaining five-acre
retail parcel at the Oakridge property.
6. RECOVERY OF LOSSES ON LOANS, NOTES AND INTEREST RECEIVABLE
For the six months ended June 30, 1996 and 1995 the Fund received cash
distributions of $418,972 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 $418,972 and $495,591, respectively, of these
amounts as recovery of losses on mortgage loans, notes and interest receivable
in its consolidated statement of income and expenses. As of December 31, 1995
and June 30, 1996, a total of $127,468 of these distributions has 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 is recorded in Accounts Payable and Accrued Expenses at
June 30, 1996, which was subsequently paid by the Fund on July 28, 1996.
7. LITIGATION AND CONTINGENCIES
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 original 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;
F-91
<PAGE> 167
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LITIGATION AND CONTINGENCIES (CONTINUED)
(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 discovery requests
and are presently producing documents. Depositions of certain parties and others
have been noticed and are presently being taken.
The Plaintiffs then 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 and certain other
defendants answered certain counts of the Third Amended Complaint and responded
to other counts by moving to strike and dismiss and for judgment.
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 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 expended or incurred in defense of the
Illinois 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 arises under
the Deed of Trust and (iii) an award of attorneys' fees and costs.
The California Court has 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 April 19, 1996, the
parties reported to the California Court that a schedule had been promulgated in
the Illinois Litigation providing that if the parties concluded discovery by
September 13, 1996, a trial date would be set in September or shortly
thereafter. The California Court then ordered that provided discovery is
completed by August 31, 1996, and a trial commences in Illinois during September
of 1996, no further action will be taken.
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. The partnership agreement which creates 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.
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.
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BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. DISPOSITION OF REAL ESTATE (CONTINUED)
During the six months ended June 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 six months ended June 30, 1995, the Fund sold twelve single
family lots to a home developer at the Fund's Wayside Development. The sale of
these lots generated gross sales proceeds of $720,707. After payment of closing
costs of $877, real estate taxes of $1,531 and other costs of $10,885 the Fund
received net cash proceeds of $707,414 related to the sales. The sale of these
lots resulted in an aggregate net gain on disposition of real estate of $7,558.
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
value of which 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 will be paid to Mr. Levine in the third quarter of
1996. The 18,557 Award Shares were valued at a price equal to $0.43125 per share
or $8,003. The Award Shares are subject to restrictions of transfer and are held
in escrow by the Fund, pending satisfaction of the vesting requirements included
in Mr. Levine's contract which provides that Mr. Levine 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.
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ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN
OF
MERGER
DATED AS OF APRIL 12, 1996,
AS AMENDED AND RESTATED AS OF MAY 20, 1996
BY AND AMONG
RGI U.S. HOLDINGS, INC.,
RGI HOLDINGS, INC.
AND
BANYAN MORTGAGE INVESTMENT FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
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ARTICLE I PRIVATE PLACEMENT; PURCHASE........................................... 5
Section 1.01 The Private Placement................................................. 5
Section 1.02 Purchase of the Morgens Loan.......................................... 7
Section 1.03 Purchase of the SoGen Loan............................................ 7
ARTICLE II THE MERGER............................................................ 8
Section 2.01 Merger Closing........................................................ 8
Section 2.02 The Merger............................................................ 8
Section 2.03 Conversion of Shares; Exchange of Certificates........................ 8
Section 2.04 Certificate of Incorporation.......................................... 8
Section 2.05 Bylaws................................................................ 8
Section 2.06 Directors............................................................. 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BANYAN.............................. 8
Section 3.01 Corporate Existence and Power......................................... 9
Section 3.02 Corporate Authorization............................................... 9
Section 3.03 Governmental Authorization............................................ 9
Section 3.04 Non-Contravention..................................................... 10
Section 3.05 Capitalization........................................................ 10
Section 3.06 Subsidiaries.......................................................... 11
Section 3.07 SEC Filings........................................................... 11
Section 3.08 Financial Statements.................................................. 12
Section 3.09 Compliance with Law................................................... 12
Section 3.10 No Defaults........................................................... 12
Section 3.11 Litigation............................................................ 12
Section 3.12 Absence of Certain Changes............................................ 12
Section 3.13 No Undisclosed Material Liabilities................................... 13
Section 3.14 Certain Agreements.................................................... 14
Section 3.15 Employee Benefits..................................................... 14
Section 3.16 Major Contracts....................................................... 15
Section 3.17 Taxes................................................................. 15
Section 3.18 Intellectual Property................................................. 16
Section 3.19 Restrictions on Business Activities................................... 16
Section 3.20 Title to Properties: Absence of Liens and Encumbrances................ 17
Section 3.21 Environmental Matters................................................. 18
Section 3.22 Insurance............................................................. 19
Section 3.23 Labor Matters......................................................... 19
Section 3.24 Employees............................................................. 20
Section 3.25 Finders' Fees......................................................... 20
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF RGI/US AND RGI HOLDINGS............. 20
Section 4.01 Corporate Existence and Power......................................... 20
Section 4.02 Corporate Authorization............................................... 20
Section 4.03 Governmental Consents and Approvals................................... 20
Section 4.04 Non-Contravention..................................................... 21
Section 4.05 Capitalization of RGI/US.............................................. 21
Section 4.06 Subsidiaries.......................................................... 22
Section 4.07 Financial Statements.................................................. 22
Section 4.08 Compliance with Law................................................... 22
Section 4.09 No Defaults........................................................... 23
Section 4.10 Litigation............................................................ 23
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Section 4.11 Absence of Certain Changes............................................ 23
Section 4.12 No Undisclosed Material Liabilities................................... 24
Section 4.13 Certain Agreements.................................................... 24
Section 4.14 Employee Benefits..................................................... 24
Section 4.15 Major Contracts....................................................... 25
Section 4.16 Taxes................................................................. 26
Section 4.17 Intellectual Property................................................. 27
Section 4.18 Restrictions on Business Activities................................... 27
Section 4.19 Title to Properties: Absence of Liens and Encumbrances................ 27
Section 4.20 Environmental Matters................................................. 28
Section 4.21 Insurance............................................................. 29
Section 4.22 Labor Matters......................................................... 29
Section 4.23 Employees............................................................. 30
Section 4.24 Finders' Fees......................................................... 30
Section 4.25 Certain Securities Representations.................................... 30
Section 4.26 Certain Documents..................................................... 30
ARTICLE V COVENANTS OF BANYAN................................................... 30
Section 5.01 Conduct of Banyan..................................................... 30
Section 5.02 Banyan Stockholders' Meeting.......................................... 31
Section 5.03 Access to Properties and Financial, Operational and Technical
Information; Monthly Financial Statements............................. 31
Section 5.04 Other Offers.......................................................... 31
Section 5.05 Compliance with Obligations........................................... 32
Section 5.06 Notice of Certain Events.............................................. 32
Section 5.07 Confidentiality....................................................... 32
Section 5.08 Registration Statement................................................ 33
Section 5.09 Listing Application................................................... 33
ARTICLE VI COVENANTS OF RGI/US................................................... 33
Section 6.01 Conduct of RGI/US..................................................... 33
Section 6.02 Confidentiality....................................................... 33
Section 6.03 Access to Properties and Financial, Operational and Technical
Information; Monthly Financial Information............................ 33
Section 6.04 Compliance with Obligations........................................... 34
Section 6.05 Notice of Certain Events.............................................. 34
Section 6.06 Registration Statement................................................ 34
Section 6.07 Audited Financial Statements.......................................... 34
ARTICLE VII COVENANTS OF ALL PARTIES.............................................. 35
Section 7.01 Advice of Changes..................................................... 35
Section 7.02 Regulatory Approvals.................................................. 35
Section 7.03 Actions Contrary to Stated Intent..................................... 35
Section 7.04 Certain Filings....................................................... 35
Section 7.05 Public Announcements.................................................. 35
ARTICLE VIII CONDITIONS TO THE MERGER.............................................. 35
Section 8.01 Conditions to Obligations of RGI/US and RGI Holdings.................. 35
Section 8.02 Conditions to Obligations of Banyan................................... 36
Section 8.03 Conditions to Obligations of Each Party............................... 36
ARTICLE IX TERMINATION OF AGREEMENT.............................................. 37
Section 9.01 Termination Prior to the Initial Closing.............................. 37
Section 9.02 Termination After the Initial Closing................................. 37
Section 9.03 Effect of Termination................................................. 38
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ARTICLE X MISCELLANEOUS......................................................... 38
Section 10.01 Definitions........................................................... 38
Section 10.02 Further Assurances.................................................... 41
Section 10.03 Fees and Expenses..................................................... 41
Section 10.04 Notices............................................................... 41
Section 10.05 Governing Laws........................................................ 42
Section 10.06 Binding upon Successors and Assigns................................... 42
Section 10.07 Severability.......................................................... 42
Section 10.08 Entire Agreement...................................................... 42
Section 10.09 Other Remedies........................................................ 42
Section 10.10 Amendment and Waivers................................................. 42
Section 10.11 No Waiver............................................................. 42
Section 10.12 Construction of Agreement; Knowledge.................................. 42
Section 10.13 Absence of Third Party Beneficiary Rights............................. 43
Section 10.14 Mutual Drafting....................................................... 43
Section 10.15 Counterparts.......................................................... 43
SCHEDULES
Banyan Disclosure Schedule
RGI/US Disclosure Schedule
</TABLE>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") was entered into as of
the 12th day of April, 1996, and is amended and restated in its entirety as of
the 20th day of May, 1996, by and among RGI U.S. HOLDINGS, INC., a Washington
corporation ("RGI/US"), RGI HOLDINGS, INC., a Washington corporation ("RGI
Holdings") and BANYAN MORTGAGE INVESTMENT FUND, a Delaware corporation ("Banyan"
and, together with RGI/US and RGI Holdings, the "Parties").
RECITALS
A. The Board of Directors of each of RGI/US and Banyan have determined that
a business combination between RGI/US and Banyan is in the best interests of
their respective companies and stockholders and presents an opportunity for
their respective companies to achieve long-term strategies and financial
benefits, and accordingly, have agreed to effect the transactions contemplated
herein including a merger of RGI/US with and into Banyan (the "Merger") upon the
terms and subject to the conditions set forth herein.
B. In connection with the contemplated Merger, RGI/US, RGI Holdings and
Banyan have each determined to engage in the transactions contemplated hereby,
pursuant to which: (i) RGI Holdings shall purchase in a private placement (the
"Private Placement") 7,466,666 shares of Banyan's authorized but unissued common
stock, $0.01 par value per share ("Banyan Common Stock") at a purchase price of
$.46875 per share, as a result of which RGI Holdings will own approximately
16.5% of the total outstanding capital stock of Banyan; (ii) RGI Holdings or an
affiliate will purchase from Morgens, Waterfall, Vintiadis & Co., Inc.
("Morgens") as agent for several institutional lenders, a loan previously made
to Banyan in the principal amount of $20,500,000 (the "Morgens Loan"), the terms
and conditions of which will be modified by agreement of the Parties to cure or
waive certain defaults that have occurred under the Morgens Loan; and (iii) RGI
Holdings or an affiliate will purchase from Societe Generale, Southwest Agency
("SoGen"), a loan previously made to Banyan in the principal amount of
$7,000,000 (the "SoGen Loan"), the terms and conditions of which will be
modified by agreement of the Parties to cure or waive certain defaults that have
occurred under the SoGen Loan.
C. Subject to the terms and conditions of this Agreement, RGI/US shall be
merged with and into Banyan in accordance with the General Corporation Law of
the State of Delaware ("Delaware Law") and the Washington Business Corporation
Act ("Washington Law"), the separate existence of RGI/US shall cease, and Banyan
shall be the surviving corporation (the "Surviving Corporation"). In connection
therewith, each of the 1,000 issued and outstanding shares of RGI/US common
stock, no par value per share ("RGI/US Common Stock"), shall be converted into
109,674,667 newly-issued shares of Banyan Common Stock, in the manner and upon
the terms and subject to the conditions set forth herein.
D. RGI/US and Banyan intend for the Merger to qualify as a reorganization
in accordance with the provisions of Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").
E. RGI/US, RGI Holdings and Banyan desire to make certain representations,
warranties and agreements in connection with the Private Placement and the
Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
ARTICLE I
PRIVATE PLACEMENT; PURCHASE OF MORGENS LOAN
SECTION 1.01 THE PRIVATE PLACEMENT.
(a) Subject to the terms and conditions of this Agreement, RGI
Holdings shall purchase at the Initial Closing (as defined in Section
1.01(c) below) and Banyan shall sell and issue to RGI Holdings at the
Initial Closing, seven million four hundred sixty-six thousand six hundred
sixty-six (7,466,666) shares
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of Banyan Common Stock (the "Initial Shares") for the purchase price of
Three Million Five Hundred Thousand Dollars ($3,500,000) (the "Purchase
Price").
(b) [deleted]
(c) Initial Closing. The closing of the purchase and sale of the
Initial Shares (the "Initial Closing") shall take place on the later of May
15, 1996 or one business day after satisfaction or waiver of the latest to
occur of the conditions set forth in Subsection 1.01(e) and 1.01(f) below,
at the offices of Davis Wright Tremaine, 2600 Century Square, 1501 Fourth
Avenue, Seattle, Washington 98101, unless a different date or place is
agreed to in writing by the Parties hereto. At the Initial Closing, Banyan
shall deliver to RGI Holdings a certificate representing the Initial Shares
against delivery to Banyan by RGI Holdings of a federal funds wire transfer
in the amount of the Purchase Price.
(d) Third Party Consents. The Parties shall use their commercially
reasonable best efforts to obtain such written consents, authorizations,
approvals, waivers and consents as may be required from third parties in
connection with the Private Placement and the purchase of the Morgens Loan.
(e) Conditions to RGI Holdings' Obligations at Initial Closing. The
obligations of RGI Holdings to Banyan under Section 1.01(a) of this
Agreement are subject to the fulfillment on or before the Initial Closing
of each of the following conditions:
(i) [deleted]
(ii) The representations and warranties of Banyan contained in
Article III shall be true and accurate on and as of the Initial Closing
with the same force and effect as if such representations and warranties
had been made on and as of the date of such Initial Closing, and the
president of Banyan shall have delivered to RGI/US and RGI Holdings at
the Initial Closing a certificate dated as of the Initial Closing
certifying the same;
(iii) All corporate and other proceedings in connection with the
transactions contemplated at the Initial Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance
to Davis Wright Tremaine, and they shall have received all such
counterpart original and certified or other copies of such documents as
they may reasonably request;
(iv) All written consents, authorizations, approvals, waivers and
consents of third parties to the Private Placement and the purchase of
the Morgens Loan and the SoGen Loan shall have been obtained and RGI
Holdings or an affiliate of RGI Holdings shall have purchased the
Morgens Loan and the SoGen Loan and the Parties shall have agreed to the
Morgens Loan Modification (as defined in Section 1.02 below) and the
SoGen Loan Modification (as defined in Section 1.03 below);
(v) The directors of Banyan shall be Messrs. Walter E. Auch, Robert
Ungerleider and Kenneth Uptain, there shall be no vacancies on the
Banyan Board of Directors and there shall have been no other changes to
the Banyan Board of Directors except as agreed to by the Parties;
(vi) RGI/US and RGI Holdings shall have received from Shefsky
Froelich & Devine, special counsel for Banyan, an opinion, dated as of
the Initial Closing, in form and substance agreed to by the Parties; and
(vii) RGI Holdings shall have received and agreed to a Registration
Rights Agreement in form and substance agreed to by the Parties.
(f) Conditions of Banyan's Obligations at Initial Closing. The
obligations of Banyan to RGI Holdings under Section 1.01(a) of this
Agreement are subject to the fulfillment on or before the Initial Closing
of each of the following conditions:
(i) [deleted]
(ii) The representations and warranties of each of RGI Holdings and
RGI/US contained in Article IV shall be true and accurate on and as of
the Initial Closing with the same force and effect
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as if such representations and warranties had been made on and as of the
date of such Initial Closing, and the Presidents of RGI/US and RGI
Holdings shall have delivered to Banyan a certificate dated as of the
Initial Closing certifying the same;
(iii) RGI Holdings shall have delivered to Banyan the Purchase
Price specified in Section 1.01(a);
(iv) All corporate and other proceedings in connection with the
transactions contemplated at the Initial Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance
to Shefsky Froelich & Devine, and they shall have received all such
counterpart original or certified or other copies of such documents as
they may reasonably request;
(v) All written consents, authorizations, approvals, waivers and
consents of third parties to the Private Placement and the purchase of
the Morgens Loan shall have been obtained and RGI Holdings or an
affiliate of RGI Holdings shall have purchased the Morgens Loan and the
Parties shall have agreed to the Morgens Loan Modification;
(vi) Banyan shall have received from Davis Wright Tremaine, special
counsel to each of RGI Holdings and RGI/US, an opinion, dated as of the
Initial Closing, in form and substance agreed to by the Parties;
(viii) Banyan shall have received an opinion from Josephthal Lyon &
Ross Incorporated that the Merger as contemplated herein is fair from a
financial point of view to the holders of Banyan Common Stock (the
"Fairness Opinion");
(ix) Banyan shall have received and agreed to a Registration Rights
Agreement in form and substance agreed to by the Parties; and
(x) Those certain promissory notes of RGI/US listed on Schedule
1.01(f)(x) attached hereto shall have been converted into equity of
RGI/US by the lenders thereof.
SECTION 1.02 PURCHASE OF THE MORGENS LOAN.
At the Initial Closing, RGI Holdings or an affiliate of RGI Holdings, shall
purchase the Morgens Loan on such terms and conditions as are acceptable to RGI
Holdings. RGI Holdings agrees with Banyan that concurrently with the purchase of
the Morgens Loan, RGI Holdings or its affiliate will amend the terms of the
Morgens Loan in a manner that is acceptable to RGI Holdings and Banyan (the
"Morgens Loan Modification"); provided that RGI Holdings, or such affiliate that
purchases the Morgens Loan, hereby agrees that prior to December 31, 1996 it
will not accelerate the Morgens Loan or foreclose on any security for the
Morgens Loan based upon any events of default occurring on or before May 15,
1996 or occurring as a result of the execution, delivery and performance of this
Agreement, the Ancillary Documents and the transactions contemplated hereby and
thereby. Moreover, RGI Holdings agrees that prior to the earlier of (i) the
Merger Closing or (ii) the termination of this Agreement for any reason, it will
not accelerate the Morgens Loan or foreclose on any security for the Morgens
Loan as a result of the occurrence of any non-payment (technical) events of
default occurring after May 15, 1996.
SECTION 1.03 PURCHASE OF THE SOGEN LOAN.
At the Initial Closing, RGI Holdings or an affiliate of RGI Holdings, shall
purchase the SoGen Loan on such terms and conditions as are acceptable to RGI
Holdings. RGI Holdings agrees with Banyan that concurrently with the purchase of
the SoGen Loan, RGI Holdings or its affiliate will amend the terms of the SoGen
Loan in a manner that is acceptable to RGI Holdings and Banyan (the "SoGen Loan
Modification"); provided that RGI Holdings, or such affiliate that purchases the
SoGen Loan, hereby agrees that prior to December 31, 1996 it will not accelerate
the SoGen Loan or foreclose on any security for the SoGen Loan based upon any
events of default occurring on or before May 15, 1996 or occurring as a result
of the execution, delivery and performance of this Agreement, the Ancillary
Documents and the transactions contemplated hereby and thereby. Moreover, RGI
Holdings agrees that prior to the earlier of (i) the Merger Closing or (ii) the
termination of this Agreement for any reason, it will not accelerate the SoGen
Loan or foreclose on
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any security for the SoGen Loan as a result of the occurrence of any non-payment
(technical) events of default occurring after May 15, 1996.
ARTICLE II
THE MERGER
SECTION 2.01 MERGER CLOSING. The closing of the Merger (the "Merger
Closing") shall take place on the first business day after satisfaction or
waiver of the latest to occur of the conditions set forth in Article VIII, at
the offices of Davis Wright Tremaine, 2600 Century Square, 1501 Fourth Avenue,
Seattle, Washington 98101, unless a different date or place is agreed to in
writing by the Parties hereto (the "Merger Date").
SECTION 2.02 THE MERGER. If all of the conditions to the Merger set forth
in this Agreement shall have been fulfilled or waived in accordance herewith,
and this Agreement shall not have been terminated as provided herein, then
concurrent with the Merger Closing, RGI/US and Banyan shall file an agreement of
merger in the Office of the Secretary of State of the State of Delaware in
accordance with Delaware Law and a plan of merger in the Office of the Secretary
of State of the State of Washington. The Merger shall become effective at such
time as the agreement or plan of merger is duly filed in both the Office of the
Secretary of State of the State of Delaware and the Office of the Secretary of
State of the State of Washington (the date of such filings being hereinafter
referred to as the "Effective Date" and the time of the latest to occur of such
filing being hereinafter referred to as the "Effective Time"), and of the
separate existence of RGI/US shall cease and Banyan shall be the Surviving
Corporation. It is the intention of the parties that this Agreement shall
constitute the "agreement of merger" under Section 252 of Delaware Law and the
"plan of merger" under RCW 23B.11.050 of Washington Law.
SECTION 2.03 CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES. At the
Effective Time each share of RGI/US Common Stock outstanding immediately prior
to the Effective Time shall, automatically and without any action on the part of
the holder thereof, be converted into one hundred nine thousand six hundred
seventy-four and six hundred sixty-seven thousandths (109,674.667) shares of the
Banyan Common Stock (the "Exchange Ratio"); each share of Banyan Common Stock,
outstanding immediately prior to the Effective Time shall remain outstanding and
shall represent one share of common stock of the Surviving Corporation. Banyan
shall make available for exchange certificates representing the shares of Banyan
Common Stock issuable pursuant to this Section 2.03 in exchange for certificates
representing the outstanding shares of RGI/US Common Stock.
SECTION 2.04 CERTIFICATE OF INCORPORATION. The Amended and Restated
Certificate of Incorporation of Banyan (the "Existing Certificate") shall be
further amended and restated at the Effective Time to adopt the amendments to
the Existing Certificate and to restate the Existing Certificate in a manner
agreed to by the Parties (the "Restated Certificate").
SECTION 2.05 BYLAWS. The Bylaws of Banyan (the "Existing Bylaws") shall be
amended and restated to adopt the amendments to the Existing Bylaws and to
restate the Existing Bylaws in a manner agreed to by the Parties (the "New
Bylaws").
SECTION 2.06 DIRECTORS. From and after the Effective Time, until successors
are duly elected or appointed and qualified in accordance with applicable law,
the directors of the Surviving Corporation shall be the New Board (as defined in
Section 5.02).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BANYAN
Except as set forth in a document referring specifically to the relevant
Section or subsection of this Agreement which is delivered by Banyan to RGI/US
and RGI Holdings prior to the execution of this
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Agreement (the "Banyan Disclosure Schedule"), Banyan represents and warrants to
RGI/US and RGI Holdings as follows:
SECTION 3.01 CORPORATE EXISTENCE AND POWER. Banyan is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and has all corporate powers required to carry on its business as
now conducted. Banyan is duly qualified to do business as a foreign corporation,
and is in good standing, in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect on Banyan. Banyan has delivered to RGI/US true and complete
copies of Banyan's Existing Certificate and Existing Bylaws as currently in
effect. For purposes of this Agreement, the term "Material Adverse Effect"
means, with respect to any person or entity, a material adverse effect on the
condition (financial or otherwise), business, properties, assets, liabilities
(including contingent liabilities), results of operations of such person or
entity and its subsidiaries; and the term "Material Adverse Change" means a
change which would have a Material Adverse Effect; provided, however, that the
happening or the occurrence of the events set forth on Schedule 3.01 of the
Banyan Disclosure Schedule shall not constitute a Material Adverse Effect or
Material Adverse Change for purposes of this Agreement and shall not cause a
breach of any representation or warranty of Banyan made herein or cause a
failure of a condition to RGI/US' obligations hereunder.
SECTION 3.02 CORPORATE AUTHORIZATION. The execution, delivery and
performance by Banyan of this Agreement, the Registration Rights Agreement and
the Morgens Loan Modification and the consummation by Banyan of the transactions
contemplated hereby and thereby are within Banyan's corporate powers and have
been and, to the extent not executed as of the date hereof, will be prior to
execution, duly authorized by all necessary corporate action, subject to
approval by Banyan's stockholders of the Merger. The Registration Rights
Agreement and the Morgens Loan Modification and such documents as are executed
in connection with the Morgens Loan or RGI/US' purchase of the Morgens Loan are
collectively referred to herein as the "Ancillary Agreements." This Agreement
and the Ancillary Agreements constitute, or upon execution will constitute,
valid and binding agreements of Banyan, enforceable against Banyan in accordance
with their respective terms except as enforcement may be limited by applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
SECTION 3.03 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Banyan of this Agreement, the Ancillary Agreements, the
consummation of the transactions contemplated hereby and thereby by Banyan and
the Banyan Subsidiaries (as defined in Section 3.06 below) requires no action by
or in respect of, or filing with, any governmental body, agency, official or
authority other than:
(a) compliance with any applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act");
(b) compliance with any applicable requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder;
(c) compliance with any applicable requirements of the Securities Act
of 1933, as amended (the "Securities Act") and the rules and regulations
promulgated thereunder;
(d) compliance with any applicable requirements of the New York Stock
Exchange ("NYSE");
(e) compliance with any applicable state securities or "blue sky"
laws; and
(f) such other filings or registrations with, or authorizations,
consents, or approvals of, governmental bodies, agencies, officials or
authorities, the failure of which to make or obtain would not have a
Material Adverse Effect on the ability of the Parties to consummate the
transactions contemplated hereby.
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SECTION 3.04 NON-CONTRAVENTION. The execution, delivery and performance by
Banyan of this Agreement, the Ancillary Agreements and the consummation by
Banyan of the transactions contemplated hereby and thereby do not and will not:
(a) contravene or conflict with the Existing Certificate or Existing
Bylaws of Banyan;
(b) assuming compliance with the matters set forth in Section 3.03 and
assuming the requisite approval of Banyan's stockholders of the Merger, to
the best of Banyan's knowledge, (i) contravene, conflict with or constitute
a violation of any provision of any judgment, injunction, order or decree
binding upon Banyan or any Banyan Subsidiary (as defined in Section 3.06
below), or (ii) contravene, conflict with or constitute a violation of any
provision of any law or regulation applicable to Banyan or any Banyan
subsidiary to the extent such contravention, conflict or violation would
have a Material Adverse Effect on Banyan;
(c) except as set forth on Schedule 3.04(c) of the Banyan Disclosure
Schedule, constitute a default under, require the approval of, or give rise
to a right of termination, cancellation or acceleration or loss of any
material benefit under any agreement, contract or other instrument
(including loan documents) binding upon Banyan or any Banyan Subsidiary or
under any license, franchise, permit or other similar authorization held by
Banyan or any such Banyan Subsidiary; or
(d) result in the creation or imposition of any Lien (as defined
below) on any material asset of Banyan or any Banyan Subsidiary.
For purposes of this Agreement, the term "Lien" means, with respect to any
asset, any mortgage, lien, pledge, charge, security interest or encumbrance of
any kind in respect of such asset.
SECTION 3.05 CAPITALIZATION OF BANYAN. The authorized capital stock of
Banyan consists of 100,000,000 shares of Banyan Common Stock. As of March 31,
1996, there were outstanding:
(a) 39,822,304 shares of Banyan Common Stock;
(b) options to purchase an aggregate of 611,836 shares of Banyan
Common Stock;
(c) warrants to purchase an aggregate of 4,380,000 shares of Banyan
Common Stock; and
(d) 18,831 shares issuable by Banyan pursuant to its existing
employment agreement with Leonard G. Levine dated December 31, 1992, as
amended (the "Levine Contract").
All outstanding shares of Banyan Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable. All outstanding shares of
Banyan Common Stock are listed, or approved for listing upon official notice of
issuance, on the NYSE and to the best of Banyan's knowledge, there are no
proceedings or other actions being taken to delist any such shares. Except as
set forth above in this Section 3.05 and except for changes since March 31, 1996
resulting from the exercise of options or warrants to purchase Banyan Common
Stock or shares issuable pursuant to the Levine Contract and except as otherwise
unanimously agreed to by the Board of Directors of Banyan after the date of the
Initial Closing, there are outstanding (i) no shares of capital stock or other
voting securities of Banyan, (ii) no securities of Banyan convertible into or
exchangeable for shares of capital stock or voting securities of Banyan and
(iii) no options or other rights to acquire from Banyan, and no obligation of
Banyan to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or other voting securities of Banyan (the
items in clauses (i), (ii) and (iii) being referred to collectively as the
"Banyan Securities"). There are no outstanding obligations of Banyan or any
Banyan Subsidiary to repurchase, redeem or otherwise acquire any Banyan
Securities. The shares of Banyan Common Stock which are being purchased at the
Initial Closing and which are issuable in connection with the Merger when issued
and paid for in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly authorized, validly issued, fully
paid and nonassessable.
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SECTION 3.06 SUBSIDIARIES.
(a) Schedule 3.06(a) to the Banyan Disclosure Schedule sets forth a
true and accurate list of each "Subsidiary" of Banyan (each a "Banyan
Subsidiary" and together, the "Banyan Subsidiaries"). Each Banyan
Subsidiary is either a corporation or other entity duly incorporated or
otherwise organized, validly existing and in good standing (or local law
equivalent) under the laws of its jurisdiction of organization, and has all
corporate or other organizational powers required to carry on its business
as now conducted. Each Banyan Subsidiary is duly qualified to do business
as a foreign corporation or partnership (as the case may be), is in good
standing or local law equivalent and has all licenses and permits necessary
in each jurisdiction where the character of the property owned or leased
by, or the nature of its activities, make such qualification, licenses or
permits necessary except for those jurisdictions where the failure to be so
qualified or have such licenses or permits would not, individually or in
the aggregate, have a Material Adverse Effect on Banyan or on the relevant
Banyan Subsidiary. For purposes of this Agreement, the term "Subsidiary"
means, with respect to any entity, any corporation or other organization of
which securities or other ownership interests having ordinary voting power
to elect a majority of the board of directors or other persons performing
similar functions are directly or indirectly owned by such entity or of
which such entity is a partner or is, directly or indirectly, the
beneficial owner of 50% or more of any class of equity securities or
equivalent profit participation interest. Banyan has delivered to RGI/US
true and complete copies of the articles or certificate of incorporation,
bylaws, partnership agreement and other similar organizational documents as
currently in effect for each Banyan Subsidiary.
(b) Except as set forth on Schedule 3.06(b) of the Banyan Disclosure
Schedule, all of the outstanding capital stock of, or other ownership
interests in, each Banyan Subsidiary is owned by Banyan, directly or
indirectly, free and clear of any Lien and free of any other limitation or
restriction (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests).
Except as set forth on Schedule 3.06(b) of the Banyan Disclosure Schedule,
there are no outstanding:
(i) securities of any Banyan Subsidiary which are convertible into
or exchangeable for shares of capital stock or other voting securities
of any Banyan Subsidiary; or
(ii) options or other rights to acquire from Banyan or any Banyan
Subsidiary, and no other obligation of Banyan or any Banyan Subsidiary
to issue, any capital stock, voting securities of or other ownership
interests in, or any securities convertible into or exchangeable for any
capital stock, voting securities or other ownership interests of, any
Banyan Subsidiary (the items in clauses (i) and (ii) being referred to
collectively as the "Banyan Subsidiary Securities"). There are no
outstanding obligations of Banyan or any Banyan Subsidiary to
repurchase, redeem or otherwise acquire any outstanding Banyan
Subsidiary Securities.
(c) Schedule 3.06(c) of the Banyan Disclosure Schedule sets forth a
complete list of all material agreements, contracts and other documentation
which set forth the terms and conditions of Banyan's ownership interest in
each Banyan Subsidiary (the "Banyan Subsidiary Agreements"). Each Banyan
Subsidiary Agreement is valid and binding on each party thereto, and is in
full force and effect, and, except as set forth on Schedule 3.06(c),
neither Banyan nor any of the Banyan Subsidiaries, nor to the knowledge of
Banyan any other party thereto, has breached any provision of, or is in
default under the terms of, any Banyan Subsidiary Agreement.
SECTION 3.07 SEC FILINGS.
(a) Schedule 3.07(a) of the Banyan Disclosure Schedule sets forth a
true and complete list of all Banyan Reports (as defined below) that Banyan
has delivered to RGI/US, or, to the extent not yet filed, will deliver to
RGI/US prior to the Merger Closing.
(b) As of their respective filing date, no such report or statement
filed with the Securities and Exchange Commission (the "SEC") pursuant to
the Exchange Act (collectively the "Banyan Reports") contained any untrue
statement of a material fact or omitted to state any material fact
necessary in order
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to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. Except as set forth on Schedule
3.07(b) of the Banyan Disclosure Schedule, Banyan has timely filed all
reports, statements or forms required by it to be filed pursuant to the
Exchange Act and the rules and regulations thereunder.
SECTION 3.08 FINANCIAL STATEMENTS. Each of the consolidated balance sheets
of Banyan included in or incorporated by reference into the Banyan Reports
(including the related notes and schedules) fairly presents the consolidated
financial position of Banyan and its subsidiaries as of its date and each of the
consolidated statements of income, retained earnings and cashflows of Banyan
included in or incorporated by reference into the Banyan Reports (including any
related notes and schedules) fairly presents results of operations, retained
earnings or cashflows, as the case may be, of Banyan and its subsidiaries for
the period set forth therein (subject, in the case of unaudited statements to
normal year-end audit adjustments which would not be material in amount or
effect), in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as may be
noted therein and except, in the case of the unaudited statements, as permitted
by Form 10-Q of the SEC. For purposes of this Agreement, "Banyan Balance Sheet"
means the consolidated balance sheet of Banyan as of December 31, 1995, and the
notes thereto and "Banyan Balance Sheet Date" means December 31, 1995.
SECTION 3.09 COMPLIANCE WITH LAW. Banyan and each Banyan Subsidiary is in
compliance and has conducted its business so as to comply with all laws, rules
and regulations, judgments, licenses, permits, decrees or orders of any court,
administrative agency, commission, regulatory authority or other governmental
authority or instrumentality, domestic or foreign (a "Governmental Authority")
applicable to their respective businesses or properties except to the extent
that noncompliance would not have a Material Adverse Effect on Banyan or the
Banyan Subsidiaries taken as a whole. Except as set forth on Schedule 3.09 of
the Banyan Disclosure Schedule, there are no judgments or orders, injunctions,
decrees, stipulations or awards (whether rendered by a court or administrative
agency or by arbitration), including any such actions relating to affirmative
action claims or claims of discrimination, against Banyan or any Banyan
Subsidiary or against any of their respective properties or businesses.
SECTION 3.10 NO DEFAULTS. Except as set forth on Schedule 3.10 of the
Banyan Disclosure Schedule, neither Banyan nor any Banyan Subsidiary is, or has
received notice that it would be with the passage of time, (i) in violation of
any provision of its articles or certificate of incorporation or bylaws or other
similar organizational document or (ii) in default or violation of any term,
condition or provision of (A) any judgment, decree, order, injunction or
stipulation applicable to Banyan or any Banyan Subsidiary or (B) any material
agreement, note, mortgage, indenture, contract, lease or instrument, permit,
concession, franchise or license to which Banyan or any Banyan Subsidiary is a
party or by which Banyan or any Banyan Subsidiary or their respective properties
or assets may be bound.
SECTION 3.11 LITIGATION. Except as set forth on Schedule 3.11 of the Banyan
Disclosure Schedule, there is no action, suit, proceeding, claim or
investigation pending or, to the best of Banyan's knowledge, threatened, against
Banyan or any Banyan Subsidiary which could, individually or in the aggregate,
have a Material Adverse Effect on Banyan and the Banyan Subsidiaries, taken as a
whole, or which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay any of the transactions contemplated by this Agreement or by
any of the Ancillary Agreements. Except as set forth on Schedule 3.11, Banyan
has delivered to RGI/US complete copies of all audit response letters prepared
by its counsel for Banyan's independent public accountants and all management
letters prepared in connection with the last three completed audits of Banyan's
financial statements, including the audit conducted in connection with the
Banyan Balance Sheet, and any such correspondence since the Banyan Balance Sheet
Date.
SECTION 3.12 ABSENCE OF CERTAIN CHANGES. Except as expressly allowed or
contemplated by this Agreement or, as set forth on Schedule 3.12 to the Banyan
Disclosure Schedule, since the Banyan Balance Sheet Date, there has not
occurred:
(a) A Material Adverse Change with respect to Banyan or the Banyan
Subsidiaries, taken as a whole;
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(b) Any amendments or changes in the articles or certificate of
incorporation or bylaws or other similar organizational document of Banyan
or any Banyan Subsidiary, except for the Restated Certificate and New
Bylaws as contemplated by this Agreement;
(c) Any damage, destruction or loss, not covered by insurance in
excess of $250,000 with respect to any of the properties or businesses of
Banyan or any Banyan Subsidiary;
(d) Any redemption, repurchase or other acquisition of shares of
capital stock, partnership interests or ownership units of Banyan or any
Banyan Subsidiary by Banyan or any Banyan Subsidiary (other than pursuant
to arrangements with terminated employees or consultants), or any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the capital stock of
Banyan or any Banyan Subsidiary;
(e) Any increase in the hourly rate of compensation payable or to
become payable (by reimbursement or otherwise) by Banyan or any Banyan
Subsidiary to any of their respective directors, officers, partners,
employees or consultants, whether as employees of Banyan or Banyan
Management Corp.;
(f) Except as set forth on Schedule 3.12(f) of the Banyan Disclosure
Schedule, any increase in or modification of any bonus, pension, insurance
or other employee benefit plan, payment or arrangement (including, but not
limited to, the granting of stock options, restricted stock awards or stock
appreciation rights) made to, for or with any of Banyan's directors,
officers or employees, whether as employees of Banyan or Banyan Management
Corp.;
(g) Except as contemplated by this Agreement, any acquisition or sale
of a material amount of property or assets by or of Banyan or any Banyan
Subsidiary;
(h) Any alteration in any term of any outstanding Banyan securities or
any Banyan Subsidiary Securities;
(i) Except as contemplated by this Agreement, any (i) incurrence,
assumption or guarantee by Banyan or any Banyan Subsidiary of any debt for
borrowed money; (ii) issuance or sale of any securities convertible into or
exchangeable for debt securities of Banyan or any Banyan Subsidiary; or
(iii) issuance or sale of options or other rights to acquire from Banyan or
any Banyan Subsidiary, directly or indirectly, debt securities of Banyan or
any Banyan Subsidiary or any securities convertible into or exchangeable
for any such debt securities;
(j) Any creation or assumption by Banyan or any Banyan Subsidiary of
any Lien on any material asset, except as permitted or contemplated by this
Agreement;
(k) Any loan, advance or capital contribution to or investment in any
person other than (i) loans, advances or capital contributions to or
investments in any Banyan Subsidiary, (ii) travel loans or advances made in
the ordinary course of business of Banyan, and (iii) other loans and
advances in an aggregate amount which do not exceed $10,000 outstanding at
any time;
(l) Any entry into, amendment of, relinquishment, termination or
nonrenewal by Banyan or any Banyan Subsidiary of any material contract,
lease, commitment or other right or obligation other than as permitted or
contemplated by this Agreement; or
(m) To the best of Banyan's knowledge, any agreement or arrangement
made by Banyan or any Banyan Subsidiary to take any action which, if taken
prior to the date hereof, would have made any representation or warranty
set forth in this Section 3.12 untrue or incorrect as of the date when
made.
SECTION 3.13 NO UNDISCLOSED MATERIAL LIABILITIES. Except as set forth on
Schedule 3.13 to the Banyan Disclosure Schedule, there are no liabilities of
Banyan or any Banyan Subsidiary of any kind whatsoever that are material to the
business of Banyan and the Banyan Subsidiaries, taken as a whole, other than:
(a) liabilities disclosed or provided for in the Banyan Balance Sheet;
(b) liabilities incurred in the ordinary course of business consistent
with past practice since the Banyan Balance Sheet Date; and
(c) liabilities under this Agreement.
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SECTION 3.14 CERTAIN AGREEMENTS. Except as set forth on Schedule 3.14 of
the Banyan Disclosure Schedule, neither the execution and delivery of this
Agreement nor the Ancillary Agreements nor the consummation of the transactions
contemplated hereby or thereby will (i) result in any payment (including,
without limitation, severance, unemployment compensation, golden parachute,
bonus or otherwise) becoming due to any director or employee of Banyan or any
Banyan Subsidiary from Banyan or any such Banyan Subsidiary, under any Banyan
Employee Plan (as defined in Section 3.15(a) below) or otherwise, (ii)
materially increase any benefits otherwise payable under any Banyan Employee
Plan, or (iii) result in the acceleration of the time of payment or vesting of
any such benefits.
SECTION 3.15 EMPLOYEE BENEFITS.
(a) Schedule 3.15 of the Banyan Disclosure Schedule sets forth each
"employee benefit plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974 ("ERISA"), and each employment
agreement, compensation agreement, bonus, commission or similar
arrangement, and fringe benefit arrangement which is maintained,
administered or contributed to by Banyan or any affiliate thereof (as
defined below) and covers any employee or former employee of Banyan or any
affiliate or under which Banyan or any affiliate has any liability. Such
plans are referred to collectively herein as the "Banyan Employee Plans."
For purposes of this Section 3.15 only, an "affiliate" of any person or
entity means any other person or entity, which, together with such person
or entity, would be treated as a single employer under Section 414 of the
Code or Title IV of ERISA. The only Banyan Employee Plans which
individually or collectively would constitute an "employee pension benefit
plan" as defined in Section 3(2) of ERISA are identified as such in the
list referred to above.
(b) No Banyan Employee Plan constitutes a "multiemployer plan" as
defined in Section 3(37) of ERISA (a "Multiemployer Plan"), no Banyan
Employee Plan is maintained in connection with any trust described in
Section 501(c)(9) of the Code and no Banyan Employee Plan is subject to
Title IV of ERISA or Section 412 of the Code. If Banyan or an affiliate
thereof ever maintained or was obligated to contribute to a Multiemployer
Plan or a plan subject to Title IV of ERISA, any withdrawal or other
liability under Title IV of ERISA with respect to such plan has been fully
satisfied. To Banyan' knowledge, nothing done or omitted to be done and no
transaction or holding of any asset under or in connection with any Banyan
Employee Plan has or will make Banyan or any of its Subsidiaries, or any
officer or director thereof, subject to any liability under Title I of
ERISA or liable for any tax pursuant to Section 4975 of the Code.
(c) To the best knowledge of Banyan, each Banyan Employee Plan which
is intended to be qualified under Section 401(a) of the Code is so
qualified and has been so qualified during the period from its adoption to
date, and each trust forming a part thereof is exempt from tax pursuant to
Section 501(a) of the Code. Banyan has furnished to RGI/US copies of the
most recent Internal Revenue Service determination letters, if any, with
respect to each such Banyan Employee Plan. To the best knowledge of Banyan,
each Banyan Employee Plan has been maintained in substantial compliance
with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including but not limited to ERISA
and the Code, which are applicable to such Banyan Employee Plan. Except as
set forth on Schedule 3.15(c) of the Banyan Disclosure Schedule, there are
no pending or threatened disputed claims against any Banyan Employee Plan
or against Banyan or any affiliate arising under any such plan. No Banyan
Employee Plan is currently under examination by the Internal Revenue
Service or Department of Labor and Banyan has received no notice from
either agency of its intent to examine any Banyan Employee Plan.
(d) There is no contract, agreement, plan or arrangement covering any
employee or former employee of Banyan or any affiliate that would obligate
the Surviving Corporation or any affiliate to pay any additional
compensation, including severance pay or additional withholding taxes, as a
result of the consummation of the transactions contemplated by this
Agreement or that, individually or collectively, could give rise to the
payment by the Surviving Corporation of any amount that would not be
deductible pursuant to the terms of Sections 162(a)(1) or 280G of the Code.
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(e) Neither Banyan nor its affiliates have any projected liability in
respect of post-retirement health, life and medical benefits for retired
employees of Banyan and its affiliates. Other than provisions of applicable
law, no condition exists that would prevent Banyan or any of its
Subsidiaries from amending or terminating any Banyan Employee Plan.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Banyan or any of its affiliates
relating to, or change in employee participation or coverage under, any
Banyan Employee Plan which would materially increase the expense of
maintaining such Banyan Employee Plan above the level of the expense
incurred in respect thereof for the most recent fiscal year.
SECTION 3.16 MAJOR CONTRACTS. Schedule 3.16 of the Banyan Disclosure
Schedule sets forth a list of all "material contracts" as defined in Item 601 of
Regulation S-K under the Securities Act and to which Banyan or any Banyan
Subsidiary is a party or has a beneficial interest in (each a "Banyan Material
Contract"). Each Banyan Material Contract is valid and binding on Banyan or a
Banyan Subsidiary, as applicable, and except as set forth on Schedule 3.16 of
the Banyan Disclosure Schedule, neither Banyan nor any of the Banyan
Subsidiaries, nor to the best of their knowledge any other party thereto, has
breached any provision of, or is in default under the terms of, any Banyan
Material Contract.
SECTION 3.17 TAXES.
(a) Except as set forth on Schedule 3.17(a) of the Banyan Disclosure
Schedule, all Tax returns, statements, reports and forms (including
estimated Tax returns and reports and information returns and reports)
required to be filed with any Taxing Authority with respect to any Taxable
period ending on or before the Effective Time by or on behalf of Banyan or
any of the Banyan Subsidiaries (collectively, the "Banyan Tax Returns"),
the non-filing of which would have a Material Adverse Effect on Banyan or
would result in criminal penalties against Banyan or any officer or
employee thereof, have been or will be filed when due (including any
extensions of such due date).
(b) Banyan and the Banyan Subsidiaries have timely paid, withheld or
made provision on their books for all Taxes shown as due and payable on
Banyan Tax Returns that have been filed.
(c) All Banyan Tax Returns relating to income or franchise Taxes filed
with respect to Taxable years of Banyan and Banyan Subsidiaries ending on
or after December 31, 1990, have been filed or extensions have been duly
made.
(d) Neither Banyan nor any Banyan Subsidiary has been granted any
extension or waiver of the limitation period applicable to any Banyan Tax
Returns.
(e) To the best of Banyan's knowledge, there is no claim, audit,
action, suit, proceeding, or investigation now pending or threatened in
writing against or with respect to Banyan or any Banyan Subsidiary in
respect of any Tax or assessment.
(f) There are no requests for rulings in respect of any Tax pending
between Banyan or any Banyan Subsidiary and any Taxing Authority.
(g) None of the property owned or used by Banyan or any of the Banyan
Subsidiaries is subject to a tax benefit transfer lease executed in
accordance with Section 168(f)(8) of the Code.
(h) None of the property owned by Banyan or any Banyan Subsidiary is
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(i) Neither Banyan nor any Banyan Subsidiary, nor any other person on
behalf of Banyan or any such Banyan Subsidiary, has entered into nor will
it enter into any agreement or consent pursuant to Section 341(f) of the
Code.
(j) Except as set forth on Schedule 3.17(j) of the Banyan Disclosure
Schedule, there are no Liens for Taxes upon the assets of Banyan or any of
the Banyan Subsidiaries, except Liens for Taxes not yet due.
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(k) Neither Banyan nor any Banyan Subsidiary will be required to
include any adjustment in Taxable income for any Tax period (or portion
thereof) ending after the Effective Time pursuant to Section 481(c) of the
Code (or any similar provision of the Tax laws of any jurisdiction) as a
result of a change in method of accounting for any Tax period (or portion
thereof) ending on or before the Effective Time or pursuant to the
provisions of any agreement entered into with any Taxing Authority with
regard to the Tax liability of Banyan or any such Banyan Subsidiary for any
Tax period (or portion thereof) ending on or before the Effective Time.
(l) Neither Banyan nor any Banyan Subsidiary has been a member of an
affiliated group other than one of which Banyan was the common parent, or
filed or been included in a combined, consolidated or unitary Tax return
other than one filed by Banyan (or a return for a group consisting solely
of Banyan Subsidiaries or predecessors), or participated in any other
similar arrangement whereby any income, revenues, receipts, gains, losses,
deductions, credits or other Tax items of Banyan or any such Banyan
Subsidiary was determined or taken into account for Tax purposes with
reference to or in conjunction with any such items of another person other
than Banyan or any such Banyan Subsidiary or predecessor.
(m) Neither Banyan nor any Banyan Subsidiary is currently under any
contractual obligation to pay the income or franchise tax obligations of,
or with respect to transactions relating to, any other person or to
indemnify any other person with respect to any income or franchise tax.
(n) Neither Banyan nor any Banyan Subsidiary has signed any letter or
entered into any agreement or arrangement consenting to the surrender or
sharing of any deductions, credits, or other Tax attributes with any other
person or transferred or assigned to any other person for Tax purposes any
such item.
(o) Notwithstanding any of the foregoing, no representation or
warranty is made by Banyan with respect to the Tax consequences that may
result from the transactions contemplated by this Agreement and the
Ancillary Agreements.
(p) For the purposes of this Agreement, "Tax" (and, with correlative
meaning, "Taxes" and "Taxable") means, for any entity, (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales,
use, ad valorem, value added, transfer, franchise, profits, license,
withholding on amounts paid to or by such entity or any subsidiary thereof,
payroll, employment, excise, severance, stamp, occupation, property,
environmental or windfall profit tax, or other tax, together with any
interest or any penalty, addition to tax or additional amount imposed by
any governmental authority (a "Taxing Authority") responsible for the
imposition of any such tax (domestic or foreign), (ii) liability of such
entity or any subsidiary thereof for the payment of any amounts of the type
described in (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any Taxable period and (iii)
liability of such entity or any subsidiary thereof for the payment of any
amounts of the type described in (i) or (ii) as a result of any express or
implied obligation to indemnify any other person.
SECTION 3.18 INTELLECTUAL PROPERTY.
(a) Schedule 3.18(a) of the Banyan Disclosure Schedule sets forth all
licensing arrangements which Banyan or any Banyan Subsidiary has with third
parties and which are material to the business of Banyan and the Banyan
Subsidiaries taken as a whole (collectively, the "Banyan Intellectual
Property Rights").
(b) Neither Banyan nor any Banyan Subsidiary, during the three years
preceding the date of this Agreement, has been sued or charged in writing
with or been a defendant or plaintiff in any claim, suit, action or
proceeding relating to its business which has not been finally terminated
prior to the date hereof and which involves a claim of infringement of any
patents or licenses, and to Banyan's best knowledge (i) there are no other
claims by any other person of patent or license infringement by Banyan or a
Banyan Subsidiary, and (ii) there are no continuing infringements by any
other person or persons of any Banyan Intellectual Property Rights.
SECTION 3.19 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth on
Schedule 3.19 of the Banyan Disclosure Schedule, there is no material agreement,
judgment, injunction, order or decree binding upon
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Banyan or any Banyan Subsidiary which has or could reasonably be expected to
have the effect of prohibiting or materially impairing any acquisition of
property by Banyan or any Banyan Subsidiary or the conduct of business by Banyan
or any Banyan Subsidiary as currently conducted or as currently proposed to be
conducted by Banyan.
SECTION 3.20 TITLE TO PROPERTIES: ABSENCE OF LIENS AND ENCUMBRANCES.
(a) Schedule 3.20(a) of the Banyan Disclosure Schedule sets forth a
true and complete description of all real property owned or leased (as
lessee) by Banyan or any Banyan Subsidiary (the "Banyan Properties"), the
aggregate annual rental or other fee payable under any such lease, and,
with respect to any such Banyan Properties currently under contract for
sale, the parties to such contract or contracts.
(b) Except as set forth on Schedule 3.20(b) of the Banyan Disclosure
Schedule, Banyan or a Banyan Subsidiary has marketable title to, or, in the
case of leased properties and assets, valid leasehold interests in, all of
the Banyan Properties, and, except as set forth on Schedule 3.20(b) of the
Banyan Disclosure Schedule and to the best of Banyan's knowledge without
conducting a title search of the Banyan Properties, such title or leasehold
interests are free and clear of any Liens. Banyan or a Banyan Subsidiary is
the sole owner of the Banyan Properties free and clear of any right to or
claim of possession by any other party (except tenants under the leases
copies of which have been delivered to RGI/US and the rights of various
public or private entities for easement purposes). Schedule 3.20(b) of the
Banyan Disclosure Schedule sets forth a list of all material management
agreements, development agreements or other agreements of any kind with
respect to any of the Banyan Properties to which Banyan or any Banyan
Subsidiary is a party and such agreements are valid and binding on Banyan
or the Banyan Subsidiary (as the case may be) and, to the best of Banyan's
knowledge, without default by any party thereto. All approved or proposed
site plans, master development plans or similar development plans with
respect to any of the Banyan Properties have been provided to RGI/US.
(c) With respect only to the Banyan Property commonly known as 120 S.
Spalding ("120 S. Spalding"), to the best of Banyan's knowledge, there are
no material, physical or mechanical defects, including, without limitation,
the mechanical, ventilation, plumbing, heating, air conditioning, life
safety, and electrical systems and all such items are in operating
condition and repair and neither Banyan nor any Banyan Subsidiary has
received of any notification of noncompliance with any applicable
governmental requirements.
(d) To the best of Banyan's knowledge, the use and operation of 120 S.
Spalding is in material compliance with applicable building codes, and
neither Banyan nor any Banyan Subsidiary has received of any notification
of noncompliance with the Americans with Disabilities Act ("ADA"), seismic
design, zoning and land use laws, other local, state and federal laws and
regulations, and restrictive easements or covenants affecting the Banyan
Properties.
(e) Schedule 3.20(e) of the Banyan Disclosure Schedule sets forth a
rent roll for the Banyan Properties and such rent roll accurately
summarizes the status of the existing leases and any defaults thereunder.
There are no leasing or other commissions due and unpaid under any of the
leases, and all tenant improvements required under existing leases have
been completed and are fully paid and no credit is due to any tenant.
(f) Except as set forth in Schedule 3.20(f) of the Banyan Disclosure
Schedule, to the best of Banyan's knowledge, there are no condemnation
proceedings or any land-use or development regulations or proceedings
pending or threatened, including but not limited to historical designation
or preservation proceedings, that would have a Material Adverse Effect on
the development, use and operation of any of the Banyan Properties, nor has
Banyan received notice of any special assessment proceedings affecting any
of the Banyan Properties.
(g) All water, sewer, gas, electric, telephone, drainage facilities
and any other utilities required for the normal use of those specific
Banyan Properties set forth on Schedule 3.20(g) of the Banyan Disclosure
Schedule are installed and connected pursuant to valid permits, and are
adequate to service
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such Banyan Properties, and to the best of Banyan's knowledge comply with
all applicable legal requirements.
(h) Schedule 3.20(h) of the Banyan Disclosure Schedule to be delivered
to RGI/US prior to the Initial Closing summarizes the licenses, permits,
certificates, approvals, variances, easements and rights of way received,
and to the best of Banyan's knowledge required, from all governmental
authorities having jurisdiction over each of the Banyan Properties or from
private parties for the normal use (both existing and proposed) and
operation of the Banyan Properties and to insure vehicular and pedestrian
ingress to and egress from each of the Banyan Properties.
(i) None of the Banyan Properties are located in an area identified by
the Secretary of Housing and Urban Development or other governmental agency
as an area having special flood hazards, and except as identified on the
master development plans or site plans delivered to RGI/US pursuant to
Section 3.20(b), no separate areas within any of the Banyan Properties are
required to be set aside for water retention, "green belt," open space or
drainage.
(j) Except with respect to Banyan Properties for which Banyan is
attempting to change existing zoning requirements, Banyan has no knowledge
of any plan by any person or entity to change the existing zoning
applicable to any of the Banyan Properties.
(k) Except as set forth on Schedule 3.20(k) of the Banyan Disclosure
Schedule, all fees and charges due and payable for thirty (30) days or more
for materials and labor (including property management, design,
engineering, surveying, and other professional services) delivered or
performed in connection with the development of the Banyan Properties as of
the date of the Merger Closing will have been paid in full or lien releases
for such fees and charges will have been obtained.
(l) To the best of Banyan's knowledge there is no claim, litigation,
or governmental investigation or proceeding, pending or threatened that may
affect the Banyan Properties and no unrecorded easements or claims of
encroachment or prescriptive easement affecting the Banyan Properties
exist.
SECTION 3.21 ENVIRONMENTAL MATTERS.
(a) Neither Banyan nor any Banyan Subsidiary, nor to the knowledge of
Banyan (without inquiry) any tenant on the Banyan Properties, has received
any written notice, demand, citation, summons, complaint or order or any
notice of any penalty, Lien or assessment, and to the best of Banyan's
knowledge (without inquiry with respect to any tenant on the Banyan
Properties), there is no investigation or review pending by any
governmental entity, with respect to any (i) alleged violation by Banyan,
any Banyan Subsidiary or any tenant on the Banyan Properties of any
Environmental Law (as defined in subsection (f) below), (ii) alleged
failure by Banyan, any Banyan Subsidiary or any tenant on the Banyan
Properties to have any environmental permit, certificate, license,
approval, registration or authorization required in connection with the
conduct of its business or (iii) Regulated Activity (as defined in
subsection (f) below).
(b) Neither Banyan nor any Banyan Subsidiary, with respect to any of
the Banyan Properties, has any knowledge of any Environmental Liabilities
(as defined in subsection (f) below), or of any release of Hazardous
Substances (as defined in subsection (f) below) into the environment in
violation of any Environmental Law or environmental permit. Banyan has
disclosed to RGI/US in writing the presence, to the best of Banyan's
knowledge, of any asbestos in any of its premises other than fully
encapsulated asbestos-containing construction materials.
(c) Banyan has delivered to RGI/US copies of all environmental audits
and other similar reports which have been prepared by or for Banyan or any
Banyan Subsidiary, or by or for any tenant on the Banyan Properties to the
extent delivered to Banyan by such tenant, with respect to the Banyan
Properties.
(d) Except as set forth on Schedule 3.21(d) of the Banyan Disclosure
Schedule, to the best of Banyan's knowledge, (i) no asbestos-containing
materials were installed or exposed in the Banyan Properties through
demolition, renovation or otherwise, (ii) no electrical transformers or
other equipment
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containing PCB's are or were located on the Banyan Properties, (iii) no
storage tanks for gasoline, heating oil or diesel fuel or any other
substances are or were located on or under the Banyan Properties, and (iv)
no materials regulated under any federal, state or local law or regulation,
as amended from time to time, as a toxic, hazardous, contaminated or
similarly harmful or dangerous material or substance (including, without
limitation, asbestos and radon) are or were located on, in or under the
Banyan Properties or have affected the Banyan Properties or waters on or
under the Banyan Properties.
(e) Neither Banyan nor any Banyan Subsidiary, nor to the knowledge of
Banyan (without inquiry) any tenant on the Banyan Properties, has received
any written notice under the California Health and Safety Code or any other
applicable local, state or federal law regarding Hazardous Substances on,
under or affecting the Banyan Properties or requiring the removal of any
Hazardous Substances from the Banyan Properties.
(f) For the purposes of this Agreement, the following terms have the
following meanings:
"Environmental Laws" shall mean any and all federal, state and
local laws (including case law), regulations, ordinances, rules,
judgments, orders, decrees, codes, plans, injunctions, permits,
concessions, grants, franchises, licenses, agreements and governmental
restrictions relating to human health, the environment or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances
or wastes into the environment or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of pollutants, contaminants, Hazardous Substances or wastes
or the cleanup or other remediation thereof.
"Environmental Liabilities" shall mean all liabilities, whether
vested or unvested, contingent or fixed, which (i) arise under or relate
to a violation of Environmental Laws and (ii) relate to actions
occurring or conditions existing on or prior to the Effective Time.
"Hazardous Substances" shall mean any toxic, radioactive, caustic
or otherwise hazardous substance regulated by any Environmental Law,
including petroleum, its derivatives, by-products and other
hydrocarbons, or any substance having any material constituent elements
displaying any of the foregoing characteristics.
"Regulated Activity" shall mean any generation, treatment, storage,
recycling, transportation, disposal or release of any Hazardous
Substances.
SECTION 3.22 INSURANCE. Schedule 3.22 of the Banyan Disclosure Schedule
sets forth a list of all insurance policies and fidelity bonds insuring the
assets, business, equipment, properties, operations, employees, officers and
directors of Banyan and the Banyan Subsidiaries. Copies of all such policies
have been delivered to RGI/US prior to the date hereof. There is no claim by
Banyan or any Banyan Subsidiary pending under any of such policies or bonds as
to which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums payable under all such policies and bonds
have been paid and Banyan and the Banyan Subsidiaries are otherwise in full
compliance with the terms of such policies and bonds (or other policies and
bonds providing substantially similar insurance coverage). To the best of
Banyan's knowledge no termination or material premium increase is pending or
threatened with respect to any of such policies.
SECTION 3.23 LABOR MATTERS. Banyan, each Banyan Subsidiary and, to the best
of Banyan's knowledge after inquiry, Banyan Management Corp., is in compliance
with all currently applicable laws and regulations respecting employment,
discrimination in employment, verification of immigration status, terms and
conditions of employment and wages and hours and occupational safety and health
and employment practices, and is not engaged in any unfair labor practice,
except to the extent that non-compliance would not have a Material Adverse
Effect on Banyan. Neither Banyan nor any Banyan Subsidiary nor, to the best of
Banyan's knowledge after inquiry, Banyan Management Corp., has received any
notice from any Governmental Entity, and there has not been asserted before any
Governmental Entity, any claim, action or proceeding to which Banyan or any
Banyan Subsidiary is a party, and to the best of Banyan's knowledge, there is
neither pending nor threatened any investigation or hearing concerning or
involving Banyan, any Banyan Subsidiary or any
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officer or employee of Banyan or any Banyan Subsidiary arising out of or based
upon any such laws, regulations or practices.
SECTION 3.24 EMPLOYEES. Schedule 3.24 of the Banyan Disclosure Schedule
lists each employee of Banyan and each Banyan Subsidiary, his or her current
position, salary, bonus and general compensation arrangement. Except for the
employment agreements listed on Schedule 3.24 of the Banyan Disclosure Schedule,
complete and accurate copies of which have been delivered to RGI/US, neither
Banyan nor any Banyan Subsidiary is a party to any employment agreements. All
employees of Banyan and the Banyan Subsidiaries who are employed in a technical,
managerial or executive capacity and who are material to the operations of
Banyan and the Banyan Subsidiaries, taken as a whole, have the right under
applicable immigration laws to work in their present locations for at least two
years from the Effective Date.
SECTION 3.25 FINDERS' FEES. Except for Josephthal Lyon & Ross Incorporated,
there is no investment banker, broker, finder or other intermediary which has
been retained by or is authorized to act on behalf of Banyan or any Banyan
Subsidiary who might be entitled to any fee or commission upon consummation of
the transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF RGI/US AND RGI HOLDINGS
Except as set forth in a document referring specifically to the relevant
Section or subsection of this Agreement which is delivered by RGI/US to Banyan
prior to execution of this Agreement (the "RGI/US Disclosure Schedule"), RGI/US
and RGI Holdings, jointly and severally, represent and warrant to Banyan as
follows:
SECTION 4.01 CORPORATE EXISTENCE AND POWER. Each of RGI/US and RGI Holdings
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Washington. Each of RGI/US and RGI Holdings has all
corporate powers and all material Governmental Authorizations required to carry
on its respective business as now conducted. Each of RGI/US and RGI Holdings is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary, except for
those jurisdictions where the failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect on RGI/US or RGI Holdings
(as the case may be). With respect to RGI/US and the RGI/US Subsidiaries taken
as a whole, a Material Adverse Change shall be deemed to have occurred for
purposes of this Agreement if the fair market value of the RGI/US common stock
as reported by Coopers & Lybrand in its report dated as of April 1, 1996, as
amended on May 20, 1996, shall have declined by ten percent (10%) or more prior
to the Merger Date in the report to be delivered by Coopers & Lybrand on the
Merger Date (such a decline to be a "RGI/US Decline in Value" for purposes of
this Agreement). RGI/US has delivered to Banyan true and complete copies of
RGI/US' and RGI Holdings' Articles of Incorporation and Bylaws, each as
currently in effect.
SECTION 4.02 CORPORATE AUTHORIZATION. The execution, delivery and
performance by RGI/US and RGI Holdings of this Agreement and the Ancillary
Agreements (to the extent either RGI/US or RGI Holdings is a party thereto) and
the consummation by RGI/US and RGI Holdings of the transactions contemplated
hereby and thereby are within such corporations' corporate powers and have been
and, to the extent not executed as of the date hereof, will be prior to
execution, duly authorized by all necessary corporate action. This Agreement and
the Ancillary Agreements (to the extent either RGI/US or RGI Holdings is a party
thereto) constitute valid and binding agreements of RGI/US and RGI Holdings (as
the case may be) enforceable against each of them in accordance with its terms
except as enforcement may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
SECTION 4.03 GOVERNMENTAL CONSENTS AND APPROVALS. The execution, delivery
and performance by RGI/US and RGI Holdings of this Agreement and the Ancillary
Agreements (to the extent either RGI/US or RGI Holdings is a party thereto) and
the consummation of the transactions contemplated hereby and
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thereby by RGI/US and RGI Holdings requires no action by or in respect of, or
filing with, any governmental body, agency, official or authority other than:
(a) compliance with any applicable requirements of the HSR Act;
(b) compliance with any applicable requirements of the Exchange Act
and the rules and regulations promulgated thereunder;
(c) compliance with any applicable requirements of the Securities Act
and the rules and regulations promulgated thereunder;
(d) compliance with any applicable requirements of the NYSE;
(e) compliance with any applicable state securities or "blue sky"
laws; and
(f) such other filings or registrations with, or authorizations,
consents, or approvals of, governmental bodies, agencies, officials or
authorities, the failure of which to make or obtain would not have a
Material Adverse Effect on the ability of the Parties to consummate the
transactions contemplated hereby.
SECTION 4.04 NON-CONTRAVENTION. The execution, delivery and performance by
RGI/US and RGI Holdings of this Agreement and the Ancillary Agreements (to the
extent either RGI/US or RGI Holdings is a party thereto) and the consummation of
the transactions by RGI/US and RGI Holdings contemplated hereby and thereby and
do not and will not:
(a) contravene or conflict with the articles of incorporation or
bylaws of RGI/US or RGI Holdings;
(b) assuming compliance with the matters set forth in Section 4.03, to
the best of RGI/US and RGI Holdings' knowledge, (i) contravene, conflict
with or constitute a violation of any provision of any judgment,
injunction, order or decree binding upon RGI/US, RGI Holdings or any RGI/US
Subsidiary (as defined in Section 4.06), or (ii) contravene, conflict with
or constitute a violation of any provision of any law or regulation
applicable to RGI/US or any RGI/US Subsidiary to the extent that such
contravention, conflict or violation would have a Material Adverse Effect
on RGI/US;
(c) except as set forth on Schedule 4.04(c) of the RGI/US Disclosure
Schedule, constitute a default under, require the approval of, or give rise
to a right of termination, cancellation, acceleration or loss of any
material benefit under any agreement, contract or other instrument
(including loan documents) binding upon RGI/US, RGI Holdings or any RGI/US
Subsidiary or under any license, franchise, permit or other similar
authorization held by RGI/US, RGI Holdings or any such RGI/US Subsidiary;
or
(d) result in the creation or imposition of any Lien on any material
asset of RGI/US, RGI Holdings or any RGI/US Subsidiary.
SECTION 4.05 CAPITALIZATION OF RGI/US.
(a) The authorized capital stock of RGI/US consists of 100,000 shares
of RGI/US Common Stock, 1,000 of which shares are outstanding and owned by
RGI Holdings. All outstanding shares of RGI/US Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable. Except
for the 1,000 shares of RGI/US Common Stock owned by RGI Holdings, there
are outstanding (i) no shares of capital stock or other voting securities
of RGI/US, (ii) no securities of RGI/US convertible into or exchangeable
for shares of capital stock or voting securities of RGI/US and (iii) no
options or other rights to acquire from RGI/US, and no obligation of RGI/US
to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or other voting securities of RGI/US
(the items in clauses (i), (ii) and (iii) being referred to collectively as
the "RGI/US Securities"). There are no outstanding obligations of RGI/US or
any RGI Subsidiary to repurchase, redeem or otherwise acquire any RGI/US
Securities.
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SECTION 4.06 SUBSIDIARIES.
(a) Schedule 4.06(a) of the RGI/US Disclosure Schedule sets forth a
true and accurate list of each "Subsidiary" of RGI/US (each an "RGI/US
Subsidiary" and together, the "RGI/US Subsidiaries"). Each RGI/US
Subsidiary is either a corporation or other entity duly incorporated or
otherwise organized, validly existing and in good standing (or local law
equivalent) under the laws of its jurisdiction of organization, and has all
corporate or other organizational powers required to carry on its business
as now conducted. Each RGI/US Subsidiary is duly qualified to do business
as a foreign corporation or partnership (as the case may be), is in good
standing or local law equivalent and has all licenses and permits necessary
in each jurisdiction where the character of the property owned or leased
by, or the nature of its activities, make such qualification, licenses or
permits necessary except for those jurisdictions where the failure to be so
qualified or have such licenses or permits would not, individually or in
the aggregate, have a Material Adverse Effect on RGI/US or on the relevant
RGI/US Subsidiary. RGI/US has delivered to Banyan true and complete copies
of the articles or certificate of incorporation, bylaws, partnership
agreement and other similar organizational documents as currently in effect
for each such RGI/US Subsidiary.
(b) Except as set forth on Schedule 4.06(b) of the RGI/US Disclosure
Schedule, all of the outstanding capital stock of, or other ownership
interests in, each RGI/US Subsidiary is owned by RGI/US, directly or
indirectly, free and clear of any Lien and free of any other limitation or
restriction (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests).
Except as set forth on Schedule 4.06(b) of the RGI/US Disclosure Schedule,
there are no outstanding:
(i) securities of RGI/US or any RGI/US Subsidiary convertible into
or exchangeable for shares of capital stock or other voting securities
of any RGI/US Subsidiary; or
(ii) options or other rights to acquire from RGI/US or any RGI/US
Subsidiary, and no other obligation of RGI/US or any RGI/US Subsidiary
to issue, any capital stock, voting securities of or other ownership
interests in, or any securities convertible into or exchangeable for any
capital stock, voting securities or other ownership interests of, any
RGI/US Subsidiary (the items in clauses (i) and (ii) being referred to
collectively as the "RGI/US Subsidiary Securities"). There are no
outstanding obligations of RGI/US or any RGI/US Subsidiary to
repurchase, redeem or otherwise acquire any outstanding RGI/US
Subsidiary Securities.
(c) Except as set forth on Schedule 4.06(c) of the RGI/US Disclosure
Schedule, there are no material agreements, contracts and other
documentation setting forth any terms or conditions with respect to RGI/US'
ownership interest in the RGI/US Subsidiaries.
SECTION 4.07 FINANCIAL STATEMENTS. RGI/US has delivered to Banyan the
unaudited consolidated balance sheet of RGI/US as of December 31, 1995 and the
related unaudited statements of operations, stockholders equity and cash flows
for the year ended December 31, 1995, together with audited balance sheets as of
December 31, 1992, 1993, 1994 and 1995 and related audited statements of
operations, stockholders equity and cash flows for the years ended December 31,
1992, 1993, 1994 and 1995 for Grand Harbor Associates, Inc. The consolidated
financial statements of RGI/US present fairly, in conformity with GAAP applied
on a consistent basis (except that the unaudited consolidated financial
statements do not contain notes), the consolidated financial position of RGI/US
and the RGI/US Subsidiaries as of the dates thereof and their consolidated
results of operations and cash flows for the periods then ended. For purposes of
this Agreement, "RGI/US Balance Sheet" means the unaudited consolidated balance
sheet of RGI/US as of December 31, 1995, and "RGI/US Balance Sheet Date" means
December 31, 1995.
SECTION 4.08 COMPLIANCE WITH LAW. RGI/US and each RGI/US Subsidiary is in
compliance and has conducted its business so as to comply with all laws, rules
and regulations, judgments, licenses, permits decrees or orders of any
Governmental Authority applicable to their respective businesses or properties
except to the extent that noncompliance would not have a Material Adverse Effect
on RGI/US or the RGI/US Subsidiaries taken as a whole. Quality Life Services,
Ltd., an RGI/US Subsidiary, has all necessary licenses
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and permits to operate the Royal Palm Convalescent Center. Except as set forth
on Schedule 4.08 to the RGI/US Disclosure Schedule, there are no judgments or
orders, injunctions, decrees, stipulations or awards (whether rendered by a
court or administrative agency or by arbitration), including any such actions
relating to affirmative action claims or claims of discrimination, against
RGI/US or any RGI/US Subsidiary or against any of their respective properties or
businesses.
SECTION 4.09 NO DEFAULTS. Neither RGI/US nor any RGI/US Subsidiary is, or
has received notice that it would be with the passage of time, (i) in violation
of any provision of its articles or certificate of incorporation or bylaws or
other similar organizational document or (ii) in default or violation of any
term, condition or provision of (A) any judgment, decree, order, injunction or
stipulation applicable to RGI/US or any RGI/US Subsidiary or (B) any material
agreement, note, mortgage, indenture, contract, lease or instrument, permit,
concession, franchise or license to which RGI/US or any RGI/US Subsidiary is a
party or by which RGI/US or any RGI/US Subsidiary or their respective properties
or assets may be bound.
SECTION 4.10 LITIGATION. Except as set forth on Schedule 4.10 of the RGI/US
Disclosure Schedule, there is no action, suit, proceeding, claim or
investigation pending or, to the best of RGI/US' and RGI Holdings' knowledge,
threatened, against RGI/US or any RGI/US Subsidiary which could, individually or
in the aggregate, have a Material Adverse Effect on RGI/US and the RGI/US
Subsidiaries, taken on as a whole, or which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay any of the transactions contemplated
hereby or by any of the Ancillary Agreements. Except as set forth on Schedule
4.10, RGI/US has delivered to Banyan complete copies of all audit response
letters prepared by RGI/US' counsel for RGI/US' independent public accountants
and all management letters prepared in connection with the last three completed
audits (if such audits took place) of the financial statements of RGI/US' and
any of the RGI/US Subsidiaries, including the audit conducted in connection with
the RGI/US Balance Sheet, and any such correspondence since the RGI/US Balance
Sheet Date.
SECTION 4.11 ABSENCE OF CERTAIN CHANGES. Except as expressly allowed or
contemplated by this Agreement or as set forth on Schedule 4.11 of the RGI/US
Disclosure Schedule, since the RGI/US Balance Sheet Date, there has not
occurred:
(a) Material Adverse Change with respect to RGI/US or the RGI/US
Subsidiaries, taken as a whole;
(b) Any amendments or changes in the articles or certificate of
incorporation or bylaws or other similar organizational document of RGI/US
or any RGI/US Subsidiary;
(c) Any damage, destruction or loss, not covered by insurance in
excess of $250,000 with respect to any of the properties or businesses of
RGI/US or any RGI/US Subsidiary;
(d) Any redemption, repurchase or other acquisition of shares of
capital stock, partnership units or ownership units of RGI/US or any RGI/US
Subsidiary by RGI/US or any RGI/US Subsidiary (other than pursuant to
arrangements with terminated employees or consultants), or any declaration,
setting aside or payment of any dividend or other distribution (whether in
cash, stock or property) with respect to the capital stock of RGI/US or any
RGI/US Subsidiary;
(e) Any increase in or modification of the compensation or benefits
payable or to become payable by RGI/US or any RGI/US Subsidiary to any of
their respective directors, officers, partners, employees or consultants;
(f) Any increase in or modification of any bonus, pension, insurance
or other employee benefit plan, payment or arrangement (including, but not
limited to, the granting of stock options, restricted stock awards or stock
appreciation rights) made to, for or with any of its directors or
employees;
(g) Except as contemplated by this Agreement, any acquisition or sale
of a material amount of property or assets by or of RGI/US or any RGI/US
Subsidiary;
(h) Any alteration in any term of any outstanding securities of RGI/US
or any RGI/US Subsidiaries;
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(i) Except as contemplated by this Agreement, any (i) incurrence,
assumption or guarantee by RGI/US or any RGI/US Subsidiary of any debt for
borrowed money; (ii) issuance or sale of any securities convertible into or
exchangeable for debt securities of RGI/US or any RGI/US Subsidiary; or
(iii) issuance or sale of options or other rights to acquire from RGI/US or
any RGI/US Subsidiary, directly or indirectly, debt securities of RGI/US or
any of RGI/US Subsidiary or any securities convertible into or exchangeable
for any such debt securities;
(j) Any creation or assumption by RGI/US or any RGI/US Subsidiary of
any Lien on any material asset;
(k) Any loan, advance or capital contribution to or investment in any
person other than (i) loans, advances or capital contributions to or
investments in RGI/US Subsidiaries, (ii) travel loans or advances made in
the ordinary course of business of RGI/US, and (iii) other loans and
advances in an aggregate amount which do not exceed $10,000 outstanding at
any time;
(l) Any entry into, amendment of, relinquishment, termination or
nonrenewal by RGI/US or any RGI/US Subsidiary of any material contract,
lease, commitment or other right or obligation other than in the ordinary
course of business; or
(m) To the best of RGI/US and RGI Holdings' knowledge, any agreement
or arrangement made by RGI/US or any RGI/US Subsidiary to take any action
which, if taken prior to the date hereof, would have made any
representation or warranty set forth in this Section 4.11 untrue or
incorrect as of the date when made; or
(n) Any labor dispute, other than routine individual grievances, or
any actions or proceedings by a labor union or representative thereof to
organize any employee of RGI/US or any RGI/US Subsidiary.
SECTION 4.12 NO UNDISCLOSED MATERIAL LIABILITIES. Except as set forth on
Schedule 4.12 of the RGI/US Disclosure Schedule, there are no liabilities of
RGI/US or any RGI/US Subsidiary of any kind whatsoever that are material to the
business of RGI/US and the RGI/US Subsidiaries, taken as a whole, other than:
(a) liabilities disclosed or provided for in the RGI/US Balance Sheet;
(b) liabilities incurred in the ordinary course of business consistent
with past practice since the RGI/US Balance Sheet Date; and
(c) liabilities under this Agreement.
SECTION 4.13 CERTAIN AGREEMENTS. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (i)
result in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any director
or employee of RGI/US or any RGI/US Subsidiary from RGI/US or any such RGI/US
Subsidiary, under any RGI/US Employee Plan (as defined in Section 4.14(a) below)
or otherwise, (ii) materially increase any benefits otherwise payable under any
RGI/US Employee Plan, or (iii) result in the acceleration of the time of payment
or vesting of any such benefits.
SECTION 4.14 EMPLOYEE BENEFITS.
(a) Schedule 4.14(a) of the RGI/US Disclosure Schedule sets forth each
"employee benefit plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974 ("ERISA"), and each employment
agreement, compensation agreement, bonus, commission or similar
arrangement, and fringe benefit arrangement which is maintained,
administered or contributed to by RGI/US or any affiliate thereof (as
defined below) and covers any employee or former employee of RGI/US or any
affiliate or under which RGI/US or any affiliate has any liability. Such
plans are referred to collectively herein as the "RGI/US Employee Plans."
For purposes of this Section 4.14 only, an "affiliate" of RGI/US means (i)
RGI Holdings and RGI Real Estate, Inc. and any domestic corporation owned
80% or more by either of them, and (ii) Resource Group International, Inc.
The only RGI/US Employee
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Plans which individually or collectively would constitute an "employee
pension benefit plan" as defined in Section 3(2) of ERISA are identified as
such in the list referred to above.
(b) No RGI/US Employee Plan constitutes a "multiemployer plan" as
defined in Section 3(37) of ERISA (a "Multiemployer Plan"), no RGI/US
Employee Plan is maintained in connection with any trust described in
Section 501(c)(9) of the Code and no RGI/US Employee Plan is subject to
Title IV of ERISA or Section 412 of the Code. If RGI/US or an affiliate
thereof ever maintained or was obligated to contribute to a Multiemployer
Plan or a plan subject to Title IV of ERISA, any withdrawal or other
liability under Title IV of ERISA with respect to such plan has been fully
satisfied. To RGI/US's knowledge, nothing done or omitted to be done and no
transaction or holding of any asset under or in connection with any RGI/US
Employee Plan has or will make RGI/US or any of its Subsidiaries, or any
officer or director thereof, subject to any liability under Title I of
ERISA or liable for any tax pursuant to Section 4975 of the Code.
(c) To the best knowledge of RGI/US, each RGI/US Employee Plan which
is intended to be qualified under Section 401(a) of the Code is so
qualified and has been so qualified during the period from its adoption to
date, and each trust forming a part thereof is exempt from tax pursuant to
Section 501(a) of the Code. RGI/US has furnished to Banyan copies of the
most recent Internal Revenue Service determination letters, if any, with
respect to each such RGI/US Employee Plan. To the best of knowledge of
RGI/US, each RGI/US Employee Plan has been maintained in substantial
compliance with its terms and with the requirements prescribed by any and
all statutes, orders, rules and regulations, including but not limited to
ERISA and the Code, which are applicable to such RGI/US Employee Plan.
Except as set forth on Schedule 4.14(c) of the RGI/US Disclosure Schedule,
there are no pending or threatened disputed claims against any RGI/US
Employee Plan or against RGI/US or any affiliate of RGI/US arising under
any such Plan. No RGI/US Employee Plan is currently under examination by
the Internal Revenue Service or Department of Labor and RGI/US has received
no notice from either agency of its intent to examine by RGI/US Employee
Plan.
(d) There is no contract, agreement, plan or arrangement covering any
employee or former employee of RGI/US or any affiliate that would obligate
the Surviving Corporation to pay any additional compensation, including
severance pay or additional withholding taxes, as a result of the
consummation of the transactions contemplated by this Agreement or that,
individually or collectively, could give rise to the payment by the
Surviving Corporation of any amount that would not be deductible pursuant
to the terms of Sections 162(a)(1) or 280G of the Code.
(e) Neither RGI/US nor its affiliates have any projected liability in
respect of post-retirement health, life and medical benefits for retired
employees of RGI/US and its affiliates. Other than provisions of applicable
law, no condition exists that would prevent RGI/US or any of the RGI/US
Subsidiaries from amending or terminating any RGI/US Employee Plan.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by RGI/US or any of its affiliates
relating to, or change in employee participation or coverage under, any
RGI/US Employee Plan which would materially increase the expense of
maintaining such RGI/US Employee Plan above the level of the expense
incurred in respect thereof for the most recent fiscal year.
SECTION 4.15 MAJOR CONTRACTS. Schedule 4.15 of the RGI/US Disclosure
Schedule sets forth a list of all "material contracts" as defined in Item 601 of
Regulation S-K under the Securities Act and to which RGI/US or any RGI/US
Subsidiary is a party or has a beneficial interest in (each a "RGI/US Material
Contract"). Each RGI/US Material Contract is valid and binding on RGI/US or the
RGI/US Subsidiary, as applicable, and neither RGI/US nor any RGI/US Subsidiary,
nor to the best of their knowledge any other party thereto, has breached any
provision of, or is in default under the terms of, any RGI/US Material Contract.
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SECTION 4.16 TAXES.
(a) Except as set forth on Schedule 4.16(a) of the RGI/US Disclosure
Schedule, all Tax returns, statements, reports and forms (including
estimated Tax returns and reports and information returns and reports)
required to be filed with any Taxing Authority with respect to any Taxable
period ending on or before the Effective Time by or on behalf of RGI/US or
any of the RGI/US Subsidiaries (collectively, the "RGI/US Tax Returns"),
the non-filing of which would have a Material Adverse Effect on RGI/US or
would result in criminal penalties against RGI/US or any officer or
employee thereof, have been or will be filed when due (including any
extensions of such due date).
(b) RGI/US and the RGI/US Subsidiaries have timely paid, withheld or
made provision on their books for all Taxes shown as due and payable on
RGI/US Tax Returns that have been filed.
(c) All RGI/US Tax Returns relating to income or Franchise Taxes filed
with respect to Taxable Years of RGI/US and RGI/US Subsidiaries ending on
or after December 31, 1990 have been filed or extensions have been duly
made.
(d) Neither RGI/US nor any RGI/US Subsidiary has been granted any
extension or waiver of the limitation period applicable to any RGI/US Tax
Returns.
(e) To the best of RGI/US and each of the RGI/US Subsidiaries'
knowledge, there is no claim, audit, action, suit, proceeding, or
investigation now pending or threatened in writing against or with respect
to RGI/US or any RGI/US Subsidiary in respect of any Tax or assessment.
(f) There are no requests for rulings in respect of any Tax pending
between RGI/US or any RGI/US Subsidiary and any Taxing Authority.
(g) None of the property owned or used by RGI/US or any of the RGI/US
Subsidiaries is subject to a tax benefit transfer lease executed in
accordance with Section 168(f)(8) of the Code.
(h) Except as set forth on Schedule 4.16(h) of the RGI/US Disclosure
Schedule, none of the property owned by RGI/US or any RGI/US Subsidiary is
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(i) Neither RGI/US nor any RGI/US Subsidiary, nor any other person on
behalf of RGI/US or any such RGI/US Subsidiary, has entered into nor will
it enter into any agreement or consent pursuant to Section 341(f) of the
Code.
(j) Except as set forth on Schedule 4.16(j) of the RGI/US Disclosure
Schedule, there are no liens for Taxes upon the assets of RGI/US or any
RGI/US Subsidiary except liens for current Taxes not yet due.
(k) Except as set forth on Schedule 4.16(k) of the RGI/US Disclosure
Schedule, neither RGI/US nor any RGI/US Subsidiary will be required to
include any adjustment in Taxable income for any Tax period (or portion
thereof) ending after the Effective Time pursuant to Section 481(c) of the
Code (or any similar provision of the Tax laws of any jurisdiction) as a
result of a change in method of accounting for any Tax period (or portion
thereof) ending on or before the Effective Time or pursuant to the
provisions of any agreement entered into with any Taxing Authority with
regard to the Tax liability of RGI/US or any such RGI/US Subsidiary for any
Tax period (or portion thereof) ending on or before the Effective Time.
(l) Neither RGI/US nor any RGI/US Subsidiaries is currently under any
contractual obligation to pay the income or franchise tax obligations of,
or with respect to transactions relating to, any other person or to
indemnify any other person with respect to any income or franchise tax.
(m) Except as set forth on Schedule 4.16(m) of the RGI/US Disclosure
Schedule, neither RGI/US nor any RGI/US Subsidiary has signed any letter or
entered into any agreement or arrangement consenting to the surrender or
sharing of any deductions, credits, or other Tax attributes with any other
person or transferred or assigned to any other person for Tax purposes any
such item.
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(n) Notwithstanding any of the foregoing, no representation or
warranty is made by RGI/US with respect to the Tax consequences that may
result from the transactions contemplated by this Agreement and the
Ancillary Agreements.
SECTION 4.17 INTELLECTUAL PROPERTY.
(a) Schedule 4.17 of the RGI/US Disclosure Schedule sets forth a
schedule of all licensing arrangements which RGI/US or any RGI/US
Subsidiary has with third parties and which are material to the business of
RGI/US and the RGI/US Subsidiaries taken as a whole (collectively, the
"RGI/US Intellectual Property Rights").
(b) Neither RGI/US nor any RGI/US Subsidiary, during the three years
preceding the date of this Agreement, has been sued or charged in writing
with or been a defendant or plaintiff in any claim, suit, action or
proceeding relating to its business which has not been finally terminated
prior to the date hereof and which involves a claim of infringement of any
patents or licenses, and to the best of the knowledge of RGI/US (i) there
are no other claims by any other person of patent or license infringement
by RGI/US or a RGI/US Subsidiary, and (ii) there are no continuing
infringements by any other person or persons of any RGI/US Intellectual
Property Rights with respect to patents.
SECTION 4.18 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth on
Schedule 4.18 of the RGI/US Disclosure Schedule, there is no material agreement,
judgment, injunction, order or decree binding upon RGI/US or any RGI/US
Subsidiary which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any acquisition of property by RGI/US or any
RGI/US Subsidiary or the conduct of business by RGI/US or any RGI/US Subsidiary
as currently conducted or as currently proposed to be conducted by the Surviving
Corporation.
SECTION 4.19 TITLE TO PROPERTIES: ABSENCE OF LIENS AND ENCUMBRANCES.
(a) Schedule 4.19(a) of the RGI/US Disclosure Schedule sets forth a
true and complete list of all real property owned or leased (as lessee) by
RGI/US or any RGI/US Subsidiary (the "RGI/US Properties"), the aggregate
annual rental or other fee payable under any such lease, and, with respect
to any such RGI/US Properties currently under contract for sale, the
parties to such contract or contracts and the principal terms thereof.
(b) Except as set forth on Schedule 4.19(b) of the RGI/US Disclosure
Schedule, RGI/US or an RGI/US Subsidiary has marketable title to, or, in
the case of leased properties and assets, valid leasehold interests in, all
of the RGI/US Properties, and, except as set forth on Schedule 4.19(b) of
the RGI/US Disclosure Schedule and to the best of RGI/US' knowledge without
conducting a title search of the RGI/US Properties, such title or leasehold
interests are free and clear of any Liens. Except as set forth on Schedule
4.19(b) of the RGI/US Disclosure Schedule, RGI/US and its Subsidiaries are
the sole owners of the RGI/US Properties free and clear of any right to or
claim of possession by any other party (except tenants under the leases
copies of which have been delivered to Banyan and the rights of various
public or private entities for easement purposes). Schedule 4.19(b) of the
RGI/US Disclosure Schedule sets forth a list of all material management
agreements, development agreements or other agreements of any kind with
respect to any of the RGI/US Properties to which RGI/US or any RGI/US
Subsidiary is a party and such agreements are valid and binding on RGI/US
or the RGI/US Subsidiary (as the case may be) and, to the best of RGI/US's
knowledge, without default by any party thereto. All approved or proposed
site plans, master development plans or similar development plans with
respect to any of the RGI/US Properties have been provided to Banyan.
(c) With respect to any buildings or other structures on the RGI/US
Properties, to the best of RGI/US's knowledge, except as set forth on
Schedule 4.19(c) of the RGI/US Disclosure Schedule, there are no material,
physical or mechanical defects, including, without limitation, the
mechanical, ventilation, plumbing, heating, air conditioning, life safety,
and electrical systems and all such items are in operating condition and
repair and neither RGI/US nor any RGI/US Subsidiary has received any
notification of noncompliance with any applicable governmental
requirements.
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(d) To the best of RGI/US' knowledge, the use and operation of each of
the RGI/US Properties is in material compliance with applicable building
codes, and neither RGI/US nor any RGI/US Subsidiary has received any
notification of noncompliance with the Americans with Disabilities Act
("ADA"), seismic design, zoning and land use laws, other local, state and
federal laws and regulations, and restrictive easements or covenants
affecting the RGI/US Properties.
(e) Schedule 4.19(e) of the RGI/US Disclosure Schedule sets forth a
rent roll for the RGI/US Properties and such rent roll accurately
summarizes the status of the existing leases and any defaults thereunder.
There are no leasing or other commissions due and unpaid under any of the
leases, and all tenant improvements required under existing leases have
been completed and are fully paid and no credit is due to any tenant.
(f) Except as set forth in Schedule 4.19(f) of the RGI/US Disclosure
Schedule, to the best of RGI/US' knowledge, there are no condemnation
proceedings or any land-use or development regulations or proceedings
pending or threatened, including but not limited to historical designation
or preservation proceedings, that would have a Material Adverse Effect on
the development, use and operation of any of the RGI/US Properties, nor has
RGI/US received notice of any special assessment proceedings affecting any
of the RGI/US Properties.
(g) All water, sewer, gas, electric, telephone, drainage facilities
and any other utilities required for the normal use of those specific
RGI/US Properties set forth on Schedule 4.19(g) of the RGI/US Disclosure
Schedule are installed and connected pursuant to valid permits, and are
adequate to service such RGI/US Properties, and to the best of RGI/US'
knowledge comply with all applicable legal requirements.
(h) Except as set forth in Schedule 4.19(h) of the RGI/US Disclosure
Schedule, RGI/US has obtained all licenses, permits, certificates,
approvals, variances, easements and rights of way required from all
governmental authorities having jurisdiction over each of the RGI/US
Properties or from private parties for the normal use (both existing and
proposed) and operation of the RGI/US Properties and to insure vehicular
and pedestrian ingress to and egress from each of the RGI/US Properties.
(i) Except as set forth on Schedule 4.19(i) of the RGI/US Disclosure
Schedule, none of the RGI/US Properties are located in an area identified
by the Secretary of Housing and Urban Development or other governmental
agency as an area having special flood hazards, and except as indicated on
the master development plans or site plans delivered to Banyan pursuant to
Section 4.19(b), no separate areas within any of the RGI/US Properties are
required to be set aside for water retention, "green belt," open space or
drainage.
(j) Except with respect to RGI/US Properties for which RGI/US is
attempting to change existing zoning requests, RGI/US has no knowledge of
any plan by any person or entity to change the existing zoning applicable
to any of the RGI/US Properties.
(k) Except as set forth on Schedule 4.19(k) of the RGI/US Disclosure
Schedule, all fees and charges due and payable for thirty (30) days or more
for materials and labor (including property management, design,
engineering, surveying, and other professional services) delivered or
performed in connection with the development of the RGI/US Properties as of
the date of the Merger Closing will have been paid in full or lien releases
for such fees and charges will have been obtained.
(l) Except as set forth on Schedule 4.19(b) of the RGI/US Disclosure
Schedule, to the best of RGI/US's knowledge there is no claim, litigation,
or governmental investigation or proceeding, pending or threatened, that
may affect the RGI/US Properties and no unrecorded easements or claims of
encroachment or prescriptive easement affecting the RGI/US Properties
exist.
SECTION 4.20 ENVIRONMENTAL MATTERS.
(a) Neither RGI Holdings, RGI/US nor any RGI/US Subsidiary, nor to the
knowledge of RGI Holdings or RGI/US (without inquiry) any tenant on the
RGI/US Properties, has received any written notice, demand, citation,
summons, complaint or order or any notice of any penalty, Lien or
assessment,
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and to the best of RGI Holdings' and RGI/US' knowledge (without inquiry
with respect to any tenant on the RGI/US Properties), there is no
investigation or review pending by any governmental entity, with respect to
any (i) alleged violation by RGI/US, any RGI/US Subsidiary or any tenant on
the RGI/US Properties of any Environmental Law, (ii) alleged failure by
RGI/US, any RGI/US Subsidiary or any tenant on the RGI/US Properties to
have any environmental permit, certificate, license, approval, registration
or authorization required in connection with the conduct of its business or
(iii) Regulated Activity.
(b) Neither RGI Holdings, RGI/US nor any RGI/US Subsidiary, with
respect to any of the RGI/US Properties, has any knowledge of any
Environmental Liabilities, or of any release of Hazardous Substances into
the environment in violation of any Environmental Law or environmental
permit. RGI/US has disclosed to Banyan in writing the presence, to the best
of RGI/US' knowledge, of any asbestos in any of its premises other than
fully encapsulated asbestos-containing construction materials.
(c) RGI/US has delivered to Banyan copies of all environmental audits
and other similar reports which have been prepared by or for RGI/US or any
RGI/US Subsidiary, or by or for any tenant on the RGI/US Properties to the
extent delivered to RGI/US by such tenant, with respect to the RGI/US
Properties.
(d) Except as set forth on Schedule 4.20(d) of RGI/US Disclosure
Schedule, to the best of RGI Holdings' and RGI/US' knowledge, (i) no
asbestos-containing materials were installed or exposed in the RGI/US
Properties through demolition, renovation or otherwise, at any time, (ii)
no electrical transformers or other equipment containing PCB's are or were
located on the RGI/US Properties, (iii) no storage tanks for gasoline,
heating oil or diesel fuel or any other substances are or were located on
or under the RGI/US Properties, and (iv) no materials regulated under any
federal, state or local law or regulation, as amended from time to time, as
a toxic, hazardous, contaminated or similarly harmful or dangerous material
or substance (including, without limitation, asbestos and radon) are or
were located on, in or under the RGI/US Properties or have affected the
RGI/US Properties or waters on or under the RGI/US Properties.
(e) Neither RGI Holdings, RGI/US nor any RGI/US Subsidiary, nor to the
knowledge of RGI Holdings or RGI/US (without inquiry) any tenant on the
RGI/US Properties, has received any written notice under any applicable
local, state or federal law regarding Hazardous Substances on, under or
affecting the RGI/US Properties or requiring the removal of any Hazardous
Substances from the RGI/US Properties.
SECTION 4.21 INSURANCE. Schedule 4.21 of the RGI/US Disclosure Schedule
sets forth a list of all insurance policies and fidelity bonds insuring the
assets, business, equipment, properties, operations, employees, officers and
directors of RGI/US and the RGI/US Subsidiaries. Copies of all such policies
have been delivered to Banyan prior to the date hereof. There is no claim by
RGI/US or any RGI/US Subsidiary pending under any of such policies or bonds as
to which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums payable under all such policies and bonds
have been paid and RGI/US and the RGI/US Subsidiaries are otherwise in full
compliance with the terms of such policies and bonds (or other policies and
bonds providing substantially similar insurance coverage). To the best of
RGI/US' knowledge, no termination or material premium increase is pending or
threatened with respect to any of such policies.
SECTION 4.22 LABOR MATTERS. RGI/US and each RGI/US Subsidiary is in
compliance with all currently applicable laws and regulations respecting
employment, discrimination in employment, verification of immigration status,
terms and conditions of employment and wages and hours and occupational safety
and health and employment practices, and are not engaged in any unfair labor
practice, except to the extent that non-compliance would not have a Material
Adverse Effect on RGI/US. Neither RGI/US nor any RGI/US Subsidiary has received
any notice from any Governmental Entity, and there has not been asserted before
any Governmental Entity, any claim, action or proceeding to which RGI/US or any
RGI/US Subsidiary is a party and, to the best of RGI/US' knowledge, there is
neither pending nor threatened any investigation or hearing
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concerning RGI/US or any RGI/US Subsidiary arising out of or based upon any such
laws, regulations or practices.
SECTION 4.23 EMPLOYEES. Schedule 4.23 of the RGI/US Disclosure Schedule
lists each employee or consultant (if under a current contract) of RGI/US and
each RGI/US Subsidiary, his or her current position, salary, bonus and general
compensation arrangement. Except for the employment agreements listed on
Schedule 4.23 to the RGI/US Disclosure Schedule, complete and accurate copies of
which have been delivered to Banyan, neither RGI/US nor any RGI/US Subsidiary is
a party to any employment agreements. All employees of RGI/US and the RGI/US
Subsidiaries who are employed in a technical, managerial or executive capacity
and who are material to the operations of RGI/US and the RGI/US Subsidiaries,
taken as a whole, have the right under applicable immigration laws to work in
their present locations for at least two years from the Effective Date.
SECTION 4.24 FINDERS' FEES. Except for Goodman Financial Services, Inc.,
there is no investment banker, broker, finder or other intermediary which has
been retained by or is authorized to act on behalf of RGI/US or RGI Holdings or
any affiliate thereof who might be entitled to any fee or commission upon
consummation of the transactions contemplated by this Agreement.
SECTION 4.25 CERTAIN SECURITIES REPRESENTATIONS. RGI Holdings understands
and hereby acknowledges that the Initial Shares have not been registered under
the Securities Act of 1933, as amended, and may not be resold except pursuant to
a registration statement which has been declared effective under the Securities
Act or pursuant to an exemption from the registration requirements of the
Securities Act as confirmed in an opinion of counsel, acceptable in form and
substance to Banyan, and in accordance with the applicable securities laws of
any state of the United States or any other applicable jurisdiction. RGI
Holdings acknowledges that the Initial Shares will be acquired for its own
account and are not being acquired with a view to, or for offer or sale in
connection with any distribution in violation of the Securities Act. RGI
Holdings has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of purchasing the Initial
Shares and is able to bear the economic risk of the investment. RGI Holdings and
RGI/US acknowledge that they have had access to such financial and other
information, and have been afforded the opportunity to ask such questions of
representatives of Banyan and the Banyan Subsidiaries and receive answers
thereto, as they each deem necessary in connection with RGI Holdings' decision
to purchase the Initial Shares. RGI Holdings was not induced to invest by any
form of general solicitation or general advertising including, but not limited
to, the following: (i) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over the
television or radio; or (ii) any seminar or meeting whose attendees had been
invited by any general solicitation or general advertising.
SECTION 4.26 CERTAIN DOCUMENTS. The information provided to Coopers &
Lybrand by RGI/US for purposes of its preparation of the C&L Report was to the
best knowledge of RGI/US and RGI Holdings true, accurate and complete as of the
dates given to Coopers & Lybrand.
ARTICLE V
COVENANTS OF BANYAN
SECTION 5.01 CONDUCT OF BANYAN. From the date of this Agreement until the
Merger Closing, and except as set forth on Schedule 5.01 of the Banyan
Disclosure Schedule, or with the express written consent of RGI/US, Banyan and
each Banyan Subsidiary shall conduct their businesses in all material respects
in the ordinary course and neither Banyan nor any Banyan Subsidiary will:
(a) adopt or propose any change in the Existing Certificate or
Existing Bylaws, except as contemplated by the Restated Certificate or New
Bylaws;
(b) enter into or amend any contract, agreement, plan or arrangement
covering any director, officer or employee of Banyan or any Banyan
Subsidiary that provides for the making of any payments, the acceleration
of vesting of any benefit or right or any other entitlement contingent upon
(i) the Merger or
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(ii) the termination of employment after the occurrence of any such
contingency if such payment, acceleration or entitlement would not have
been provided but for such contingency;
(c) except for issuances pursuant to outstanding Banyan Options and
Warrants, and the issuance of the Initial Shares, issue any securities;
(d) terminate or amend any of its existing insurance policies or
modify or reduce the coverage thereunder;
(e) sell, transfer, license, sublicense or otherwise dispose of any of
its material assets, or pay any dividend or make any other distribution to
holders of its capital stock;
(f) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others; or
(g) agree or commit to do any of the foregoing.
SECTION 5.02 BANYAN STOCKHOLDERS' MEETING. Banyan shall call a meeting of
its stockholders (the "Stockholders' Meeting") to be held as promptly as
practicable following the date of this Agreement (the date on which such meeting
is scheduled in the proxy statement (the "Proxy Statement") to be prepared by
Banyan in connection with such meeting when first mailed to Banyan' stockholders
being hereinafter referred to as the "Stockholders' Meeting Date") for the
purpose of obtaining the stockholder approval required in connection with the
transactions contemplated hereby including (i) the approval of the Merger, (ii)
the approval and adoption of the Restated Certificate, (iii) the approval and
adoption of the New Bylaws, and (iv) the election of those individuals listed on
Schedule 5.02 hereto (or otherwise agreed to by the Parties) to the Board of
Directors of the Surviving Corporation (the "New Board"). The Board of Directors
of Banyan shall recommend in the Proxy Statement the approval of the Merger, the
New Certificate, and New Bylaws and the election of the New Board by the
stockholders of Banyan; provided, however, that nothing contained in this
Section 5.02 shall prohibit the Board of Directors of Banyan from failing to
recommend approval of this Agreement and the transactions contemplated hereby or
using its commercially reasonable best efforts to obtain approval if the board
of directors of Banyan determines in good faith, after consultation with and
based upon the advice of Shefsky Froelich & Devine Ltd. or such other counsel
selected by the Board of Directors of Banyan, that such action is necessary for
the board of directors to comply with its fiduciary duties to its stockholders
under Delaware Law. Without the prior unanimous consent of the Banyan Board of
Directors, Banyan shall not change the Stockholders' Meeting Date or adjourn the
Stockholders' Meeting unless such adjournment is due to the lack of a quorum, in
which case the chairman of the Stockholders' Meeting shall announce at such
meeting the time and place of the adjourned meeting.
SECTION 5.03 ACCESS TO PROPERTIES AND FINANCIAL, OPERATIONAL AND TECHNICAL
INFORMATION; MONTHLY FINANCIAL STATEMENTS.
(a) From the date hereof until the Merger Closing, Banyan will give
RGI/US and RGI Holdings, their counsel, financial advisors, auditors and
other authorized representatives reasonable access during normal business
hours to the Banyan Properties, and the offices, books and records of
Banyan and any of the Banyan Subsidiaries, will furnish to RGI/US and RGI
Holdings, their counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and all other technical
information as such persons may reasonably request and will instruct
Banyan's employees, counsel and financial advisors to cooperate with RGI/US
and RGI Holdings in their investigation of the business of Banyan and the
Banyan Subsidiaries and in the planning for the combination of the
businesses of Banyan and RGI/US following the consummation of the Merger.
(b) From May 1, 1996 until the Merger Closing, within 15 days
following the end of each month (the first such report being due June 15,
1996), Banyan will deliver to RGI/US a consolidated balance sheet,
consolidated statement of operations and consolidated statement of cash
flows for such month.
SECTION 5.04 OTHER OFFERS. From the date hereof unless and until this
Agreement shall have been terminated in accordance with its terms, Banyan and
the Banyan Subsidiaries and the officers, directors, employees or other agents
of Banyan and such Banyan Subsidiaries will not, directly or indirectly, (i)
take any
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action to solicit, initiate or encourage the making of any Acquisition Proposal
(as defined below) or (ii) engage in negotiations with any person or entity that
has made an Acquisition Proposal, or (iii) except as required by applicable law,
disclose any nonpublic information relating to Banyan or any of the Banyan
Subsidiaries or, afford access to the properties, books or records of Banyan or
any of the Banyan Subsidiaries. Banyan will promptly notify RGI/US after receipt
by it of any Acquisition Proposal or any request for nonpublic information
relating to Banyan or any Banyan Subsidiary or for access to the properties,
books or records of Banyan or any Banyan Subsidiary by any person or entity. The
term "Acquisition Proposal" as used in this Agreement means any offer or
proposal for, or any indication of interest in, a merger or other business
combination involving Banyan or any Banyan Subsidiary or the acquisition of a
ten percent (10%) or greater equity interest in, or a ten percent (10%) or
greater portion of the assets of, Banyan or any Banyan Subsidiary, other than
the transactions contemplated by this Agreement; provided, however, that nothing
contained in this Section 5.04 shall prohibit the Board of Directors of Banyan
from: (i) furnishing information to or entering into discussions or negotiations
with, any person or entity that makes an unsolicited bona fide Acquisition
Proposal, if, and only to the extent that (a) the board of directors of Banyan,
after consultation with and based upon the advice of Shefsky Froelich & Devine
Ltd. or such other counsel selected by the Banyan Board of Directors, determines
in good faith that such action is required for the board of directors to comply
with its fiduciary duties to stockholders under applicable law and (b) prior to
furnishing the information to, or entering into discussions or negotiations
with, the person or entity, Banyan provides written notice to RGI/US to the
effect that it is furnishing to, or entering into discussions or negotiation
with, the person or entity; and (ii) to the extent applicable, complying with
Rule 14e-2 and Rule 14a-9 promulgated under the Exchange Act with regard to an
Acquisition Proposal.
SECTION 5.05 COMPLIANCE WITH OBLIGATIONS. Except to the extent that
non-compliance would not have a Material Adverse Effect on Banyan and the Banyan
Subsidiaries taken as a whole, prior to the Effective Date, Banyan and each of
the Banyan Subsidiaries shall comply with (i) all applicable federal, state,
local and foreign laws, rules and regulations, (ii) all material agreements and
obligations, including its respective certificate of incorporation and bylaws
and other similar organizational documents, by which it, its properties or its
assets may be bound, and (iii) all final and unappealable decrees, orders,
writs, injunctions, judgments, statutes, rules and regulations applicable to it
and its respective properties or assets.
SECTION 5.06 NOTICE OF CERTAIN EVENTS. Banyan shall promptly notify RGI/US
of:
(a) any notice or other communication from any person or entity
alleging that the consent of such person or entity is or may be required in
connection with the transactions contemplated by this Agreement or any of
the Ancillary Agreements;
(b) any employment by Banyan Management Corp. of any new non-hourly
employee to work for, and whose compensation shall be reimbursed by, Banyan
or any Banyan Subsidiary for an annual salary (including benefits) in
excess of $50,000;
(c) any termination of employment by, or threat to terminate
employment received from, any salaried or non-hourly, skilled employee who
works for, or is compensated by, Banyan or any Banyan Subsidiary;
(d) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement and the Ancillary Agreements;
(e) any notice or other communication from the SEC or NYSE;
(f) any notice or other communication from any lender; and
(g) any actions, suits, claims, investigations or proceedings
commenced or, to the best of Banyan's knowledge threatened against, Banyan
or any Banyan Subsidiary which, if pending on the date of this Agreement,
would have been required to have been disclosed pursuant to Section 3.11 or
which relate to the consummation of the transactions contemplated by this
Agreement.
SECTION 5.07 CONFIDENTIALITY. Banyan agrees that the confidentiality
agreement dated February 5, 1996, between RGI/US and Banyan (the
"Confidentiality Agreement") shall remain valid and binding in
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accordance with its terms at all times prior to the Merger Closing or after any
termination of this Agreement, and provided further, that Banyan agrees to
maintain in confidence in accordance with the Confidentiality Agreement any
information which it receives regarding other entities to which either RGI/US or
RGI Holdings is affiliated.
SECTION 5.08 REGISTRATION STATEMENT. Banyan shall promptly prepare, and
Banyan shall file with the SEC as soon as practicable, a combined Registration
Statement and Proxy Statement on Form S-4 under the Securities Act, with respect
to the shares of Banyan Common Stock issuable in the Merger (the "Form S-4").
Banyan will cause the Form S-4 to comply as to form in all material respects
with the applicable provisions of the Securities Act, the Exchange Act and the
rules and regulations thereunder. Banyan shall use its reasonable best efforts
to have the Form S-4 declared effective by the SEC as promptly as practicable.
Banyan shall use its reasonable best efforts to obtain, prior to the effective
date of the Form S-4, all necessary state securities law or "Blue Sky" permits
or approvals required to carry out the transactions contemplated by this
Agreement. Banyan agrees that the Form S-4 and each amendment or supplement
thereto at the time it is mailed to the Banyan stockholders and at the time of
the Stockholders' Meeting, will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing shall not apply
to the extent that any such untrue statement of a material fact or omission to
state a material fact was made by Banyan in reliance upon and in conformity with
information concerning RGI/US, RGI Holdings or any RGI/US Subsidiary furnished
to Banyan by RGI/US, RGI Holdings, any RGI/US Subsidiary or any of their agents
specifically for use in the Form S-4.
SECTION 5.09 LISTING APPLICATION. Banyan shall promptly prepare and submit
to the NYSE a listing application covering the shares of Banyan Common Stock
issuable in the Merger and the Private Placement, and shall use its commercially
reasonable best efforts to obtain, prior to the Effective Time, approval for the
listing of such Banyan Common Stock, subject to official notice of issuance.
ARTICLE VI
COVENANTS OF RGI/US
SECTION 6.01 CONDUCT OF RGI/US. From the date of this Agreement until the
Merger Closing, and except as set forth on Schedule 6.01 of the RGI/US
Disclosure Schedule, or with the express written consent of Banyan, RGI/US and
each RGI/US Subsidiary shall conduct their business in all material respects in
the ordinary course, and neither RGI/US nor any RGI/US Subsidiary will (i) make
any changes to or modify any indebtedness, or any guaranty of any indebtedness,
of RGI/US or any RGI/US Subsidiary the effect of which benefits any affiliate
(other than RGI/US or an RGI/US Subsidiary) of RGI Holdings and detrimentally
affects RGI/US or any RGI/US Subsidiary, or (ii) pay any dividend or make any
other distribution to the holders of its capital stock.
SECTION 6.02 CONFIDENTIALITY. RGI/US agrees that the Confidentiality
Agreement shall remain valid and binding in accordance with its terms at all
times prior to the Merger Closing or after any termination of this Agreement,
and provided further, that RGI/US and RGI Holdings agree to maintain in
confidence in accordance with the Confidentiality Agreement any information
which it or they receive regarding other entities to which Banyan Management
Corp. provides administrative services.
SECTION 6.03 ACCESS TO PROPERTIES AND FINANCIAL, OPERATIONAL AND TECHNICAL
INFORMATION; MONTHLY FINANCIAL INFORMATION.
(a) From the date hereof until the Merger Closing, RGI/US will give
Banyan, its counsel, financial advisors, auditors and other authorized
representatives reasonable access during normal business hours to the
RGI/US Properties, and the offices, books and records of RGI/US and any of
the RGI/US Subsidiaries, will furnish to Banyan, its counsel, financial
advisors, auditors and other authorized representatives such financial and
operating data and all other technical information as such persons may
reasonably request and will instruct RGI/US' employees, counsel and
financial advisors to cooperate with Banyan in its investigation of the
business of RGI/US and the RGI/US Subsidiaries and in the planning
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for the combination of the businesses of Banyan and RGI/US following the
consummation of the Merger provided that no investigation pursuant to this
Section shall affect any representation or warranty given by RGI/US and RGI
Holdings to Banyan hereunder.
(b) From May 1, 1996 until the Merger Closing, within 15 days
following the end of each month (the first such report being due June 15,
1996), RGI/US will deliver to Banyan a consolidated balance sheet,
consolidated statement of operations and consolidated statement of cash
flows for such month.
SECTION 6.04 COMPLIANCE WITH OBLIGATIONS. Except to the extent that
non-compliance would not have a Material Adverse Effect on RGI/US and the RGI/US
Subsidiaries taken as a whole, prior to the Effective Date, RGI/US and each of
the RGI/US Subsidiaries shall comply with (i) all applicable federal, state,
local and foreign laws, rules and regulations, (ii) all material agreements and
obligations, including its respective certificate of incorporation and bylaws
and other similar organizational documents, by which it, its properties or its
assets may be bound, and (iii) all final and unappealable decrees, orders,
writs, injunctions, judgments, statutes, rules and regulations applicable to it
and its respective properties or assets.
SECTION 6.05 NOTICE OF CERTAIN EVENTS. RGI/US shall promptly notify Banyan
of:
(a) any notice or other communication from any person or entity
alleging that the consent of such person or entity is or may be required in
connection with the transactions contemplated by this Agreement or any of
the Ancillary Agreements;
(b) any employment of any new non-hourly employee by RGI/US or any
RGI/US Subsidiary for an annual salary (including benefits) in excess of
$50,000;
(c) any termination of employment by, or threat to terminate
employment received from, any salaried or non-hourly, skilled employee of
RGI/US or any RGI/US Subsidiary;
(d) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement and the Ancillary Agreements;
(e) any notice or other communication from the SEC or NYSE;
(f) any notice or other communication from any lender; and
(g) any actions, suits, claims, investigations or proceedings
commenced or, to the best of RGI/US' knowledge threatened against, relating
to or involving or otherwise affecting RGI/US or any RGI/US Subsidiary
which, if pending on the date of this Agreement, would have been required
to have been disclosed pursuant to Section 4.10 or which relate to the
consummation of the transactions contemplated by this Agreement.
SECTION 6.06 REGISTRATION STATEMENT. RGI/US and RGI Holdings shall
cooperate with Banyan in the preparation of the Form S-4 and the information
supplied by RGI/US, RGI Holdings and any RGI/US Subsidiary for inclusion in the
Form S-4 and each amendment or supplement thereto, at the time the Form S-4 is
mailed to Banyan stockholders and at the time of the Stockholders' Meeting, will
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. RGI/US
shall deliver to Banyan no later than May 15, 1996 the information required to
be disclosed by RGI/US in the Form S-4 pursuant to Item 404 of Regulation S-K.
SECTION 6.07 AUDITED FINANCIAL STATEMENTS. RGI/US shall deliver to Banyan
no later than May 15, 1996 an audited consolidated balance sheet at December 31,
1995 and related consolidated audited statements of operations, stockholders
equity and cash flows as of December 31, 1995 for RGI/US.
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ARTICLE VII
COVENANTS OF ALL PARTIES
RGI/US, RGI Holdings and Banyan agree that:
SECTION 7.01 ADVICE OF CHANGES. Each Party will promptly advise the other
in writing (i) of any event occurring subsequent to the date of this Agreement
that would render any representation or warranty of such Party contained in this
Agreement, if made on or as of the date of such event or the Effective Date,
untrue, inaccurate or misleading in any material respect and (ii) of any
Material Adverse Change in the business condition of the party and its
subsidiaries, taken as a whole.
SECTION 7.02 REGULATORY APPROVALS. Prior to the Merger Closing, each party
shall execute and file, or join in the execution and filing of, any application
or other document that may be necessary in order to obtain the authorization,
approval or consent of any governmental body, federal, state, local or foreign,
which may be reasonably required, or that the other company may reasonably
request, in connection with the consummation of the transactions contemplated by
this Agreement. Each party shall use its commercially reasonable best efforts to
obtain all such authorizations, approvals and consents.
SECTION 7.03 ACTIONS CONTRARY TO STATED INTENT. No party hereto will,
either before or after the Merger Closing, take any action that would prevent
the Merger from qualifying as a reorganization under Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code.
SECTION 7.04 CERTAIN FILINGS. The parties hereto shall cooperate with one
another:
(a) in connection with the preparation of the Form S-4;
(b) in connection with the preparation of any filing required by the
HSR Act; and
(c) in determining whether any action by or in respect of, or filing
with, any governmental body, agency or official, or authority is required,
or any actions, consents, approvals or waivers are required to be obtained
from parties to any material contracts, in connection with the consummation
of the transactions contemplated by this Agreement.
SECTION 7.05 PUBLIC ANNOUNCEMENTS. The parties hereto will use all
reasonable efforts to consult with each other before issuing any press release
or making any public statement with respect to this Agreement and the
transactions contemplated hereby and, except as may be required by applicable
law or the NYSE, will use all reasonable efforts not to issue any such press
release or make any such public statement prior to such consultation.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01 CONDITIONS TO OBLIGATIONS OF RGI/US AND RGI HOLDINGS. The
obligations of RGI/US and RGI Holdings hereunder are subject to the fulfillment
or satisfaction, on and as of the Effective Date, of each of the following
conditions (any one or more of which may be waived by RGI/US and RGI Holdings,
but only in a writing signed by RGI/US and RGI Holdings):
(a) The representations and warranties of Banyan contained in Article
III shall be true and accurate in all material respects (and without regard
to any knowledge limitation contained therein) on and as of the Effective
Date with the same force and effect as if they had been made on the
Effective Date, except for changes therein specifically permitted or
contemplated by this Agreement or resulting from any transaction expressly
consented to in writing by RGI/US. Banyan shall have provided RGI/US with a
certificate executed by the President and the Chief Financial Officer of
Banyan, dated as of the Effective Date, certifying compliance with this
subsection (a).
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(b) Banyan shall have performed and complied with all of its covenants
contained in Articles V and VII in all material respects on or before the
Effective Date, and RGI/US shall have received a certificate to such effect
signed by Banyan's President and Chief Financial Officer.
(c) RGI/US shall have received an opinion dated the Effective Date of
Shefsky Froelich & Devine, counsel to Banyan, in form and substance to be
agreed to by the Parties.
(d) All written consents, assignments, waivers or authorizations
("Consents"), other than Governmental Authorizations and other than those
permits and authorizations referred to in Sections 8.03(f) and (g), that
are required as a result of the Merger shall have been obtained.
(e) The boards of directors of RGI/US and RGI Holdings shall have
received from Banyan's independent public accountants letters dated the
date the proxy statement contained in the Form S-4 is mailed to the Banyan
stockholders and the date of the Merger Closing which shall be in a form
customary for accountants "comfort letters" in transactions such as the
Merger and acceptable to RGI/US and RGI Holdings.
SECTION 8.02 CONDITIONS TO OBLIGATIONS OF BANYAN. The obligations hereunder
are subject to the fulfillment or satisfaction, on and as of the Effective Date,
of each of the following conditions (any one or more of which may be waived by
Banyan, but only in a writing signed by Banyan):
(a) The representations and warranties of RGI/US and RGI Holdings set
forth in Article IV shall be true and accurate in all material respects
(and without regard to any knowledge limitation contained therein) on and
as of the Effective Date with the same force and effect as if they had been
made on and as of the Effective Date, except for changes therein
specifically permitted or contemplated by this Agreement or resulting from
any transaction expressly consented to in writing by Banyan; provided that
an RGI Decline in Value shall not cause a failure of a condition to
Banyan's obligations hereunder if, at RGI/US' option, the Merger shall
occur at the Exchange Ratio set forth in Exhibit 9.02 hereto. RGI/US shall
have provided Banyan with a certificate executed by the President and the
Chief Financial Officer of RGI/US and RGI Holdings, dated as of the
Effective Date, certifying compliance with this subsection (a).
(b) RGI/US and RGI Holdings shall have performed and complied with all
of its covenants contained in Articles VI and VII in all material respects
on or before the Effective Date, and Banyan shall have received a
certificate to such effect signed by RGI/US and RGI Holdings' President and
Chief Financial Officer.
(c) Banyan shall have received an opinion dated the Effective Date of
Davis Wright Tremaine, counsel to RGI/US and RGI Holdings, in form and
substance to be agreed to by the Parties.
(d) All Consents other than Governmental Authorizations and other than
those permits and authorizations referred to in Sections 8.03(f) and (g),
that are required as a result of the Merger shall have been obtained.
(e) The board of directors of Banyan shall have received from RGI/US'
independent public accountants letters dated the date the proxy statement
contained in the Form S-4 is mailed to the Banyan stockholders and the date
of the Merger Closing which shall be in a form customary for accountants
"comfort letters" in transactions such as the Merger and acceptable to
Banyan.
(f) Banyan shall have received an opinion from Josephthal Lyon & Ross
that the Merger and the transactions contemplated by this Agreement are
fair from a financial point of view to the holders of Banyan Common Stock
(the "Fairness Opinion").
SECTION 8.03 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of RGI/US, RGI Holdings, and Banyan hereunder are subject to the
fulfillment, on and as of the Effective Date, of each of the
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following conditions (any one or more of which may be waived by such parties,
but only in a writing signed by such parties):
(a) Banyan's stockholders shall have duly approved this Merger and the
New Board all in accordance with applicable laws.
(b) The Form S-4 shall have become effective under the Securities Act
and shall not be the subject of any stop order.
(c) Each of Banyan and RGI/US shall have received a written opinion
from their respective counsel to the effect that the Merger will constitute
a reorganization within the meaning of Section 368(a)(1)(A) of the Code,
which opinions shall be substantially identical in form and substance and
which shall not have been withdrawn or modified in any material respect. In
preparing the Banyan and the RGI/US tax opinions, counsel may rely on
reasonable representations related thereto.
(d) The shares to be issued in the Merger shall have been approved for
listing on the NYSE subject to official notice of issuance thereof.
(e) No statute, rule, regulation, executive order, decree, injunction
or restraining order shall have been enacted, promulgated or enforced (and
not repealed, superseded or otherwise made inapplicable) by any court or
governmental authority which prohibits the consummation of the Merger and
the transactions contemplated by this Agreement and each Party shall use
its commercially reasonable best efforts to have any such order, decree or
injunction lifted.
(f) There shall have been obtained any and all Governmental
Authorizations, permits, approvals and consents of securities or "blue sky"
commissions of any jurisdiction and of any other governmental body or
agency, that may reasonably be deemed necessary so that the consummation of
the Merger will be in compliance with applicable laws.
(g) The waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or a been
terminated.
ARTICLE IX
TERMINATION OF AGREEMENT
SECTION 9.01 TERMINATION PRIOR TO THE INITIAL CLOSING. This Agreement may
be terminated at any time prior to the Initial Closing:
(a) by mutual consent of the Boards of Directors of RGI/US, RGI
Holdings and Banyan; or
(b) by RGI/US or RGI Holdings if the conditions set forth in Section
1.01(e) are not satisfied, or by Banyan if the conditions set forth in
Section 1.01(f) are not satisfied.
SECTION 9.02 TERMINATION AFTER THE INITIAL CLOSING. This Agreement may be
terminated at any time after the Initial Closing and prior to the Effective Time
whether before or after the approval and adoption of the Merger by the
stockholders of Banyan:
(a) by mutual consent of the Boards of Directors of RGI/US, RGI
Holdings and Banyan;
(b) by Banyan, if the Fairness Opinion has not been received by Banyan
or has been withdrawn prior to the Stockholders' Meeting;
(c) by either RGI/US, RGI Holdings or Banyan if the stockholders of
Banyan do not approve the Merger and the transaction contemplated hereby
upon the holding of a duly convened stockholders meeting;
(d) by Banyan, if Banyan shall have received an Acquisition Proposal
that Banyan's Board of Directors determines to recommend to the
stockholders of Banyan for approval and acceptance;
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(e) by RGI/US or RGI Holdings, if it is not in breach of this
Agreement and if the Board of Directors of Banyan shall have (i) withdrawn
its recommendation of the Merger (except if such withdrawal is caused by
any disclosures made or required to be made by RGI/US in the Form S-4
pursuant to Item 404 of Regulation S-K that in the opinion of the
disinterested members of the Board of Directors of Banyan materially and
adversely affects the Merger such that Banyan could have terminated this
Agreement pursuant to Section 9.02(h) hereto), or (ii) recommended or
approved acceptance by Banyan's stockholders of any Acquisition Proposal;
(f) by RGI/US or RGI Holdings, if (i) there has been a breach by
Banyan of any of its representations and warranties hereunder such that
Section 8.01(a) will not be satisfied, or (ii) there has been the breach on
the part of Banyan of any of its covenants or agreements contained in this
Agreement such that Section 8.01(b) will not be satisfied, and, in both
case (i) and case (ii), such breach has not been promptly cured after
notice (in reasonable detail) to Banyan;
(g) by Banyan, if (i) there has been a breach by RGI/US or RGI
Holdings of any of their respective representations and warranties
hereunder such that Section 8.02(a) will not be satisfied, or (ii) there
has been a breach on the part of RGI/US or RGI Holdings of any of their
respective covenants or agreements contained in this Agreement such that
Section 8.02(b) will not be satisfied, and, in both case (i) and case (ii),
such breach has not been promptly cured after notice (in reasonable detail)
to RGI/US or RGI Holdings; provided, that at Banyan's option a breach of
Section 6.06 of this Agreement may not be cured by RGI/US; and provided
further that if Banyan seeks to terminate this Agreement because of an
RGI/US Decline in Value (as defined in Section 4.01), then at RGI/US'
option, in lieu of such termination the Exchange Ratio set forth in Section
2.03 shall be recomputed in accordance with the formula set forth in
Exhibit 9.02 hereto;
(h) By Banyan if there shall be any disclosures made or required to be
made by RGI/US in the Form S-4 pursuant to Item 404 of Regulation S-K that
in the opinion of the disinterested members of the Board of Directors of
Banyan materially and adversely affects the Merger; or
(i) by any Party if the Effective Date has not occurred by December
31, 1996.
SECTION 9.03 EFFECT OF TERMINATION; SURVIVAL OF REPRESENTATION AND
WARRANTIES. In the event of termination of this Agreement as provided above, all
further obligation of the Parties under this Agreement shall terminate without
further liability of any Party to the other except that the agreements contained
or referred to in Article I (provided that termination occurs after the Initial
Closing) and Sections 4.25, 5.07, 6.02, 6.06 and 10.03 (provided that
termination occurs after the Initial Closing) shall survive the termination
hereof. Except for Sections 4.25, 5.07, 6.02 and 6.06, all representations,
warranties and covenants made herein, and in any instrument delivered pursuant
to Articles III and IV of this Agreement, shall be deemed to be conditions to
the Merger Closing and shall not survive the Effective Time.
ARTICLE X
MISCELLANEOUS
SECTION 10.01 DEFINITIONS. The following terms are defined in the section
of this Agreement referenced below:
<TABLE>
<CAPTION>
DEFINED TERM REFERENCE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Acquisition Proposal........................................................ Section 5.04
Agreement................................................................... Preamble
Ancillary Agreements........................................................ Section 3.02
Banyan...................................................................... Preamble
Banyan Balance Sheet........................................................ Section 3.08
Banyan Balance Sheet Date................................................... Section 3.087
</TABLE>
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<TABLE>
<CAPTION>
DEFINED TERM REFERENCE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Banyan Common Stock......................................................... Recital B
Banyan Disclosure Schedule.................................................. Article III
Banyan Employee Plans....................................................... Section 3.16(a)
Banyan Intellectual Property Rights......................................... Section 3.18(b)
Banyan Material Contract.................................................... Section 3.16
Banyan Options.............................................................. Section 1.07(a)
Banyan Properties........................................................... Section 3.20
Banyan Reports.............................................................. Section 3.07(b)
Banyan Securities........................................................... Section 3.05
Banyan Stockholders' Meeting Date........................................... Section 5.02
Banyan Subsidiary........................................................... Section 3.06(a)
Banyan Subsidiary Agreements................................................ Section 3.06(c)
Banyan Subsidiaries......................................................... Section 3.06(a)
Banyan Subsidiary Securities................................................ Section 3.06(b)
Banyan Tax Returns.......................................................... Section 3.18(a)
Business Plan............................................................... Section 1.01(d)
Certificate of Incorporation................................................ Section 3.01
C&L Report.................................................................. Section 4.01
Code........................................................................ Recital D
Completion Notice........................................................... Section 1.01(b)
Commitment.................................................................. Section 1.02(a)
Consents.................................................................... Section 8.01(f)
Delaware Law................................................................ Recital C
Effective Date.............................................................. Section 2.02
Effective Time.............................................................. Section 2.02
Environmental Laws.......................................................... Section 3.21(f)
Environmental Liabilities................................................... Section 3.21(f)
ERISA....................................................................... Section 3.15(a)
Exchange Act................................................................ Section 3.03(a)
Exchange Ratio.............................................................. Section 2.03
Fairness Opinion............................................................ Section 1.01(g)
Form S-4.................................................................... Section 5.08
GAAP........................................................................ Section 1.03(a)
Governmental Authority...................................................... Section 3.09
Governmental Authorizations................................................. Section 3.23
Hazardous Substances........................................................ Section 3.21(f)
HSR Act..................................................................... Section 3.03(a)
Initial Closing............................................................. Section 1.01(c)
Initial Shares.............................................................. Section 1.01(a)
Knowledge................................................................... Section 10.13
Levine Contract............................................................. Section 3.05
</TABLE>
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<TABLE>
<CAPTION>
DEFINED TERM REFERENCE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Lien........................................................................ Section 3.04
Material Adverse Change..................................................... Section 3.01
Material Adverse Effect..................................................... Section 3.01
Merger...................................................................... Recital A
Merger Closing.............................................................. Section 2.01
Merger Date................................................................. Section 2.01
Morgens..................................................................... Recital B
Morgens Loan................................................................ Recital B
Morgens Loan Modifications.................................................. Section 1.02
Multiemployer Plan.......................................................... Section 3.15(b)
New Bylaws.................................................................. Section 2.05
New Board................................................................... Section 5.02
NYSE........................................................................ Section 3.03(d)
Parties..................................................................... Preamble
Private Placement........................................................... Recital B
Purchase Price.............................................................. Section 1.01(a)
Proxy Statement............................................................. Section 5.02
Registration Statement...................................................... Section 3.31
Regulated Activity.......................................................... Section 3.21(f)
Restored Certificate........................................................ Section 2.04
RGI Holdings................................................................ Preamble
RGI/US...................................................................... Preamble
RGI/US Balance Sheet........................................................ Section 4.07
RGI/US Balance Sheet Date................................................... Section 4.07
RGI/US Common Stock......................................................... Recital C
RGI/US Decline in Value..................................................... Section 4.01
RGI/US Disclosure Schedule.................................................. Article IV
RGI/US Employee Plans....................................................... Section 4.14(a)
RGI/US Intellectual Property Rights......................................... Section 4.18
RGI/US Material Contract.................................................... Section 4.15
RGI/US Subsidiary........................................................... Section 4.06(a)
RGI/US Subsidiary Securities................................................ Section 4.06(b)
RGI/US Subsidiaries......................................................... Section 4.06(a)
SEC......................................................................... Section 3.03(c)
Securities Act.............................................................. Section 1.08
SoGen....................................................................... Recital B
SoGen Loan.................................................................. Recital B
SoGen Loan Modification..................................................... Section 1.03
Stockholders' Meeting....................................................... Section 5.02
Stockholders' Meeting Date.................................................. Section 5.02
Subsidiary.................................................................. Section 3.06(a)
</TABLE>
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<TABLE>
<CAPTION>
DEFINED TERM REFERENCE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Surviving Corporation....................................................... Recital C
Tax......................................................................... Section 3.17(p)
Taxing Authority............................................................ Section 3.17(p)
Termination Date............................................................ Section 1.02(a)
Washington Law.............................................................. Recital C
</TABLE>
SECTION 10.02 FURTHER ASSURANCES. Each Party agrees to cooperate fully with
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
SECTION 10.03 FEES AND EXPENSES.
(a) Except as set forth below, each party shall bear its own fees and
expenses, including counsel fees and fees of brokers and investment bankers
contracted by such party, in connection with the transactions contemplated
hereby.
(b) If the Merger is not consummated because (i) RGI/US or RGI
Holdings terminates this Agreement pursuant to Section 9.02(e) or (f), or
(ii) Banyan has terminated this Agreement in accordance with Section
9.02(d), or (iii) Banyan terminates this Agreement pursuant to Section
9.02(b) and there shall not have occurred an RGI/US Decline in Value in
RGI/US, then, in each case, Banyan shall pay to RGI/US a termination fee of
$1,000,000 and shall repurchase the Initial Shares from RGI Holdings at a
repurchase price of $1.00 per share. The termination fee and repurchase of
the Initial Shares shall be liquidated damages to RGI/US for loss of its
bargain hereunder and the above termination fee and repurchase agreement
shall be RGI/US's sole and exclusive remedy in such event.
(c) If this Agreement is terminated pursuant to Section 9.02(c), then
Banyan shall reimburse RGI/US and RGI Holdings for its expenses (including,
without limitation, attorney fees, accountant fees and appraisal fees).
(d) If the Merger is not consummated because Banyan terminates this
Agreement pursuant to Section 9.02(g) (and it is not continued by RGI/US)
or Section 9.02(h), then RGI/US shall reimburse Banyan for its expenses
(including, without limitation, attorney fees, accountant fees, and
appraisal fees).
SECTION 10.04 NOTICES. Whenever any Party hereto desires or is required to
give any notice, demand, or request with respect to this Agreement, each such
communication shall be in writing and shall be effective only if it is delivered
by personal service or mailed, United States registered or certified mail,
postage prepaid, or sent by prepaid overnight courier or confirmed telecopier,
addressed as follows:
If to RGI/US:
RGI Holdings, Inc.
U.S. Bank Centre
1420 Fifth Avenue, 42nd Floor
Seattle, WA 98101-2333
Attention: Kenneth Uptain
With a copy in each case to:
Davis Wright Tremaine
2600 Century Square
1501 Fourth Avenue
Seattle, WA 98101-1688
Attention: Richard M. Rawson, Esq.
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If to Banyan:
Banyan Mortgage Investment Fund
150 S. Wacker Drive, Suite 2900
Chicago, IL 60606
Attention: Leonard G. Levine, President
With a copy in each case to:
Shefsky Froelich & Devine, Ltd.
444 N. Michigan Avenue, Suite 2500
Chicago, IL 60611
Attention: Michael J. Choate, Esq.
Such communications shall be effective when they are received by the
addressee thereof. Any Party may change its address for such communications by
giving notice thereof to the other parties in conformity with this Section.
SECTION 10.05 GOVERNING LAWS. The laws of the State of Delaware
(irrespective of its choice of law principles) shall govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties.
SECTION 10.06 BINDING UPON SUCCESSORS AND ASSIGNS. This Agreement is
personal to each of the parties and may not be assigned without the written
consent of the other parties.
SECTION 10.07 SEVERABILITY. If any provision of this Agreement, or the
application thereof, shall for any reason or to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall continue in full force and effect and in
no way be affected, impaired or invalidated, except to the extent that the
intent of the Parties in entering into the Agreement shall be substantially and
materially impaired.
SECTION 10.08 ENTIRE AGREEMENT. This Agreement, the Confidentiality
Agreement and the Ancillary Agreements constitute the entire understanding and
agreement of the parties with respect to the subject matter hereof and thereof
and supersede all prior and contemporaneous agreements or understandings,
inducements or conditions, express or implied, written or oral, between the
parties with respect hereto.
SECTION 10.09 OTHER REMEDIES. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party shall be deemed cumulative
with and not exclusive of any other remedy conferred hereby or by law on such
party, and the exercise of any one remedy shall not preclude the exercise of any
other.
SECTION 10.10 AMENDMENT AND WAIVERS. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof or default in the performance hereof
shall not be deemed to constitute a waiver of any other default or any
succeeding breach or default. This Agreement may not be amended or supplemented
by any party hereto except pursuant to a written amendment executed by all
parties, and provided further that following approval by the stockholders of
Banyan of the Merger there shall be no amendment or change to the provisions
hereof with respect to the Exchange Ratio (except as expressly provided in this
Agreement) without further approval by the stockholders of Banyan, and no other
amendment shall be made which by law requires further approval by such
stockholders without such further approval.
SECTION 10.11 NO WAIVER. The failure of any party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
SECTION 10.12 CONSTRUCTION OF AGREEMENT; KNOWLEDGE. A reference to an
Article, Section, Schedule or Exhibit shall mean an Article of, a Section in, or
Schedule or Exhibit to, this Agreement unless otherwise explicitly set forth.
The titles and headings herein are for reference purposes only and shall not in
any manner limit the construction of this Agreement which shall be considered as
a whole. The words "include,"
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"includes," and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." For purposes of this Agreement, and
except as provided in the following sentence, the term "knowledge," when used in
reference to a corporation means the actual knowledge of the executive officers
of such corporation after such officers shall have made any such inquiry that is
customary and appropriate under the circumstances to which reference is made,
and when used in reference to an individual means the actual knowledge of such
individual after the individual shall have made any such inquiry that is
customary and appropriate under the circumstances to which reference is made.
SECTION 10.13 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provision of
this Agreement is intended, nor will be interpreted, to provide to create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, employee, partner or any party hereto or any
other person or entity and all provisions hereof will be personal solely between
the parties to this Agreement.
SECTION 10.14 MUTUAL DRAFTING. This Agreement is the joint product of the
parties hereto, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of such parties, and shall not be
construed for or against any party hereto.
SECTION 10.15 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the paries reflected hereon as signatories.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
RGI U.S. HOLDINGS, INC.
By /s/ KENNETH L. UPTAIN
------------------------------------
Kenneth L. Uptain
Its President
RGI HOLDINGS, INC.
By /s/ KENNETH L. UPTAIN
------------------------------------
Kenneth L. Uptain
Its President
BANYAN MORTGAGE INVESTMENT FUND
By /s/ ROBERT G. HIGGINS
------------------------------------
Robert G. Higgins
Its Vice President
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<PAGE> 212
AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT (this "Amendment") is dated as of this 17th day of
September, 1996 and amends the AGREEMENT AND PLAN OF MERGER (the "Agreement")
dated as of the 12th day of April, 1996, and as amended and restated in its
entirety as of the 20th day of May, 1996, by and among RGI U.S. HOLDINGS, INC.,
a Washington corporation ("RGI/US"), RGI HOLDINGS, INC., a Washington
corporation ("RGI Holdings") and BANYAN MORTGAGE INVESTMENT FUND, a Delaware
corporation ("Banyan" and, together with RGI/US and RGI Holdings, the
"Parties"). All capitalized terms used herein and not defined shall have the
meanings assigned to them in the Agreement.
RECITALS
A. The Board of Directors of each of RGI/US and Banyan have determined that
a business combination between RGI/US and Banyan is in the best interests of
their respective companies and stockholders and presents an opportunity for
their respective companies to achieve long-term strategies and financial
benefits, and accordingly, have agreed to effect the transactions contemplated
herein including a merger of RGI/US with and into Banyan (the "Merger") upon the
terms and subject to the conditions set forth in the Agreement and in this
Amendment.
B. The Parties believe that the NYSE will likely treat the Merger as a
"reverse acquisition" of Banyan by RGI/US and, therefore, the Surviving
Corporation will be required to file an original listing application with the
NYSE in order to list the Surviving Corporation's shares of common stock on the
NYSE.
C. The Parties do not believe the Surviving Corporation will satisfy
certain of the quantitative criteria established by the NYSE for qualifying
original listing applications.
D. The Parties are desirous of insuring the existence of a trading market
for the Surviving Corporation's shares of common stock following the merger.
E. The Parties have filed an application and been approved, to have the
Surviving Corporation's shares of common stock included for quotation on The
NASDAQ SmallCap Market.
F. As a condition to approving the Surviving Corporation's shares of common
stock for inclusion on The NASDAQ SmallCap Market, the Surviving Corporation
must have a minimum bid price of $3.00 per share and, therefore, the Parties are
desirous of proposing a plan for stockholder approval to effect a one for
twenty-five reverse split of Banyan's common stock (the "Reverse Split").
G. In connection with the contemplated Merger, RGI/US, RGI Holdings and
Banyan have each determined to proceed with the Merger as set forth in the
Agreement subject to the amendments and modifications to the Agreement set forth
herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
Parties agree as follows:
SECTION 1. Section 2.03 of the Agreement is amended and restated to read as
follows:
Section 2.03 Conversion of Shares; Exchange of Certificates. At the
Effective Time each share of RGI/US Common Stock outstanding immediately prior
to the Effective Time shall, automatically and without any action on the part of
the holder thereof, be converted into four thousand three hundred eighty-six and
nine hundred eighty-six thousandths (4,386.986) shares of Banyan Common Stock
(the "Exchange Ratio"); each share of Banyan Common Stock, outstanding
immediately prior to the Effective Time shall remain outstanding and shall
represent one share of common stock of the Surviving Corporation. Banyan shall
make available for exchange certificates representing the shares of Banyan
Common Stock issuable pursuant to this Section 2.03 in exchange for certificates
representing the outstanding shares of RGI/US Common Stock.
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<PAGE> 213
SECTION 2. Section 3.03(d) of the Agreement is amended and restated to read
as follows:
(d) compliance with any applicable requirements of the New York Stock
Exchange ("NYSE") and The NASDAQ SmallCap Market ("NASDAQ SmallCap");
SECTION 3. Section 3.05 of the Agreement is amended and restated to read as
follows:
Section 3.05 Capitalization of Banyan. The authorized capital stock of
Banyan consists of, and immediately prior to the Reverse Split will consist of,
100,000,000 shares of Banyan Common Stock. As of March 31, 1996, there were
outstanding:
(a) 39,822,304 shares of Banyan Common Stock;
(b) options to purchase an aggregate of 611,836 shares of Banyan
Common Stock;
(c) warrants to purchase an aggregate of 4,380,000 shares of Banyan
Common Stock; and
(d) 18,831 shares issuable by Banyan pursuant to its existing
employment agreement with Leonard G. Levine dated December 31, 1992, as
amended (the "Levine Contract").
All outstanding shares of Banyan Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable. All outstanding shares
of Banyan Common Stock are listed, or approved for listing upon official
notice of issuance, on the NYSE, or are approved for quotation on the
NASDAQ SmallCap. Except as set forth above in this Section 3.05 and except
for changes since March 31, 1996 resulting from the exercise of options or
warrants to purchase Banyan Common Stock or shares issuable pursuant to the
Levine Contract and except as otherwise unanimously agreed to by the Board
of Directors of Banyan after the date of the Initial Closing, there are
outstanding (i) no shares of capital stock or other voting securities of
Banyan, (ii) no securities of Banyan convertible into or exchangeable for
shares of capital stock or voting securities of Banyan and (iii) no options
or other rights to acquire from Banyan, and no obligation of Banyan to
issue, any capital stock, voting securities or securities convertible into
or exchangeable for capital stock or other voting securities of Banyan (the
items in clauses (i), (ii) and (iii) being referred to collectively as the
"Banyan Securities"). There are no outstanding obligations of Banyan or any
Banyan Subsidiary to repurchase, redeem or otherwise acquire any Banyan
Securities. The shares of Banyan Common Stock which are being purchased at
the Initial Closing and which are issuable in connection with the Merger
when issued and paid for in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly authorized, validly
issued, fully paid and nonassessable.
SECTION 4. Sections 3.12(b) and (h) of the Agreement are amended and
restated to read as follows:
(b) any amendments or changes in the articles or certificate of
incorporation or bylaws or other similar organizational document of Banyan
or any Banyan Subsidiary, except for the amendment to effect the Reverse
Split, the Restated Certificate and New Bylaws, all as contemplated by this
Agreement;
(h) Any alteration in any term of any outstanding Banyan securities or
any Banyan Subsidiary Securities, other than the Reverse Split;
SECTION 5. Section 5.01(a) of the Agreement is amended and restated to read
as follows:
(a) adopt or propose any change in the Existing Certificate or
Existing Bylaws, except as contemplated by the Reverse Split, the Restated
Certificate or New Bylaws;
SECTION 6. Section 5.02 of the Agreement is amended and restated to read as
follows:
Section 5.02 Banyan Stockholders' Meeting. Banyan shall call a meeting of
its stockholders (the "Stockholders' Meeting") to be held as promptly as
practicable following the date of this Agreement (the date on which such meeting
is scheduled in the proxy statement (the "Proxy Statement") to be prepared by
Banyan in connection with such meeting when first mailed to Banyan' stockholders
being hereinafter referred to as the "Stockholders' Meeting Date") for the
purpose of obtaining the stockholder approval required in connection with the
transactions contemplated hereby including (i) the approval of the Merger, (ii)
the approval and adoption of the Restated Certificate, (iii) the election of
those individuals listed on
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<PAGE> 214
Schedule 5.02 hereto (or otherwise agreed to by the Parties) to the Board of
Directors of the Surviving Corporation (the "New Board"), and (iv) the approval
of the Reverse Split. The Board of Directors of Banyan shall recommend in the
Proxy Statement the approval of the Merger, the New Certificate, and New Bylaws,
the election of the New Board, and the Reverse Split by the stockholders of
Banyan; provided, however, that nothing contained in this Section 5.02 shall
prohibit the Board of Directors of Banyan from failing to recommend approval of
this Agreement and the transactions contemplated hereby or using its
commercially reasonable best efforts to obtain approval if the board of
directors of Banyan determines in good faith, after consultation with and based
upon the advice of Shefsky Froelich & Devine Ltd. or such other counsel selected
by the Board of Directors of Banyan, that such action is necessary for the board
of directors to comply with its fiduciary duties to its stockholders under
Delaware Law. Without the prior unanimous consent of the Banyan Board of
Directors, Banyan shall not change the Stockholders' Meeting Date or adjourn the
Stockholders' Meeting unless such adjournment is due to the lack of a quorum, in
which case the chairman of the Stockholders' Meeting shall announce at such
meeting the time and place of the adjourned meeting.
SECTION 7. Section 5.09 of the Agreement is amended and restated to read as
follows:
Section 5.09 Listing Application. Banyan shall promptly prepare and submit
to the NYSE a listing application covering the shares of Banyan Common Stock
issuable in the Private Placement, and, prior to the Effective Time, shall
obtain approval for quotation of the Surviving Corporation's shares of common
stock on the NASDAQ SmallCap.
SECTION 8. Section 7.05 of the Agreement is amended and restated to read as
follows:
Section 7.05 Public Announcements. The parties hereto will use all
reasonable efforts to consult with each other before issuing any press release
or making any public statement with respect to this Agreement and the
transactions contemplated hereby and, except as may be required by applicable
law, the NYSE or the NASDAQ Stock Market, will use all reasonable efforts not to
issue any such press release or make any such public statement prior to such
consultation.
SECTION 9. Sections 8.03 (a) and (d) of the Agreement are amended and
restated to read as follows:
(a) Banyan's stockholders shall have duly approved the Reverse Split,
this Merger and the New Board all in accordance with applicable laws.
(d) The shares of the Surviving Corporation's common stock shall have
been approved for quotation on the NASDAQ SmallCap.
SECTION 10. This Amendment may be executed in any number of counterparts,
each of which shall be an original as against any party whose signature appears
thereon and all of which together shall constitute one and the same instrument.
This Amendment shall become binding when one or more counterparts hereof,
individually or taken together, shall bear the signatures of all of the parties
reflected hereon as signatories.
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<PAGE> 215
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
RGI U.S. HOLDINGS, INC.
By:
--------------------------------------
Kenneth L. Uptain
Its President
RGI HOLDINGS, INC.
By:
--------------------------------------
Kenneth L. Uptain
Its President
BANYAN MORTGAGE INVESTMENT FUND
By:
--------------------------------------
Its Vice President
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<PAGE> 216
ANNEX B
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
BANYAN MORTGAGE INVESTMENT FUND
ARTICLE I
The name of the corporation is Legend Properties, Inc.
ARTICLE II
The address of the corporation's registered office in the State of Delaware
is 1209 Orange Street, City of Wilmington, County of Newcastle, Delaware. The
name of its registered agent at such address is Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by the
corporation is to acquire, directly or indirectly, interests in real estate and
in general to engage in any lawful activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
ARTICLE IV
A. CLASS OF STOCK. The total number of shares of capital stock which the
corporation shall have authority to issue is 105,000,000 shares, of which
5,000,000 shares shall be preferred stock, $.01 par value, and 100,000,000
shares shall be common stock, $.01 par value. Upon the filing of this Amended
and Restated Certificate of Incorporation (the "Restated Certificate"), every
twenty-five shares of outstanding common stock shall be automatically
reclassified, changed and converted into one share of common stock. No
fractional shares of common stock shall be issued upon such conversion, but in
lieu thereof, the corporation shall pay a cash adjustment in respect of any such
fractional interest in an amount equal to the fractional interest multiplied by
the average trading price of a share of common stock for the five days preceding
the corporation's 1995 Annual Meeting. Unless otherwise requested by the holders
thereof, the share certificates representing the shares outstanding prior to the
filing of the Restated Certificate shall represent such shares as reclassified,
changed and converted following the filing of the Restated Certificate.
The class of capital stock of the corporation designated common stock shall
have: (i) full voting rights, with one vote represented by each share of stock;
(ii) rights to payment of dividends without preference if, as, and when declared
by the Board of Directors of the corporation; and (iii) rights to liquidation
distributions of the corporation's assets without preference after payment of
preferential liquidation distributions, if any.
B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The Preferred
Stock authorized by this Restated Certificate may be issued from time to time in
one or more series. The Board of Directors is hereby authorized, to fix or alter
the dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), the redemption price or
prices, and the liquidation preferences of any wholly unissued series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or any of them, and to increase or decrease the number of
shares of any series subsequent to the issue of shares of that series, but not
below the number of shares of such series then outstanding. In case the number
of shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
ARTICLE V
(A) The number of directors constituting the entire Board shall be fixed
from time to time as provided in the Bylaws or amendments thereof duly
authorized by the Board of Directors or by the stockholders.
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<PAGE> 217
(B) Election of Directors need not be by written ballot unless the Bylaws
of the corporation shall so provide.
ARTICLE VI
The Board of Directors of the corporation is expressly authorized to make,
alter or repeal bylaws of the corporation, but the stockholders may make
additional bylaws and may alter or repeal any bylaw whether adopted by them or
otherwise.
ARTICLE VII
A Director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the Director derived any improper
personal benefit. If the General Corporation Law of the State of Delaware is
hereafter amended to authorize, with the approval of a corporation's
stockholders, further reductions in the liability of the corporation's directors
for breach of fiduciary duty, then a Director of the corporation shall not be
liable for any such breach to the fullest extent permitted by the General
Corporation Law of the State of Delaware as so amended. Any repeal or
modification of the foregoing provisions of this Article VIII by the
stockholders of the corporation shall not adversely affect any right or
protection of a Director of the corporation existing at the time of such repeal
or modification.
ARTICLE VIII
To the fullest extent permitted by applicable law, this corporation is
authorized to provide indemnification of (and advancement of expenses to) such
agents (and any other persons to which Delaware law permits this corporation to
provide indemnification) through Bylaw provisions, agreements with such agents
or other persons, vote of stockholder or disinterested directors or otherwise,
in excess of the indemnification and advancement otherwise permitted by Section
145 of the General Corporation Law of the State of Delaware, subject only to
limits created by applicable Delaware law (statutory or non-statutory), with
respect to actions for breach of duty to this corporation, its stockholders, and
others. Any repeal or modification of any of the foregoing provisions of this
Article IX shall not adversely affect any right or protection of a director,
officer, agent or other person existing at the time of, or increase the
liability of any director of this corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification.
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<PAGE> 218
ANNEX C
May 20, 1996
Board of Directors
BANYAN MORTGAGE INVESTMENT FUND
150 S. Wacker Drive, Suite 200
Chicago, IL 60606
Gentlemen:
Banyan Mortgage Investment Fund ("Banyan" or the "Company") and RGI U.S.
Holdings, Inc. ("RGI/US") have entered into an agreement effective as of April
12, 1996, as amended and restated as of May 20, 1996 (the "Merger Agreement"),
pursuant to which RGI/US will be merged with and into the Company (the
"Merger"). Pursuant to the Merger Agreement, each of the 1,000 issued and
outstanding shares of RGI/US common stock shall be converted into 109,674.667
newly-issued shares of Banyan Common Stock.
You have asked us whether or not, in our opinion, the proposed
consideration to be paid by the Company pursuant to the Merger is fair to the
Company and its stockholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) reviewed the terms and conditions of the Merger Agreement;
(2) reviewed Banyan's Form 10-K for the fiscal years ended December
31, 1993 and 1994, and the April 1, 1996 draft Form 10-K for the fiscal
year ended December 31, 1995, Banyan's audited financial information for
the fiscal years ended December 31, 1993 and 1994 and draft audited
financial information for the fiscal year ended December 31, 1995 and
selected financial information as of February 28, 1996;
(3) reviewed certain historical financial statements and certain
other financial information, provided to us by Banyan management;
(4) reviewed a valuation report and accompanying financial analyses
of the stock of RGI/US as of April 1, 1996 prepared by Coopers & Lybrand
L.L.P. ("C&L") and supplemented in C&L's letter to RGI/US dated may 20,
1996;
(5) reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of
Banyan, furnished to us and prepared by Banyan management;
(6) conducted discussions with certain members of senior management
of Banyan concerning the financial condition, business, operation,
strategic objectives and prospects of RGI/US and Banyan, respectively;
(7) reviewed the historical prices and trading volumes of Banyan
Common Stock;
(8) analyzed certain financial, stock market and other publicly
available data relating to the business of other public companies which we
deemed to be reasonably comparable to Banyan and RGI/US;
(9) reviewed, to the extent publicly available, the financial terms
of certain other recent business combinations which we deemed to be
reasonably comparable to the Merger;
(10) considered the pro forma effect of the Merger on certain of
Banyan's cash flow statement items; and
(11) conducted such other analyses, inquiries and investigations as we
deemed necessary or appropriate for the purposes of the opinion expressed
herein.
C-1
<PAGE> 219
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company and
assumed that financial forecasts provided to us by Banyan have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management of Banyan as to the expected future financial
performance of Banyan. In addition, we have relied exclusively upon the accuracy
and completeness of the valuation report prepared by C&L as to the value of
RGI/US' stock. The valuation report prepared by C&L related only to the
valuation of the stock of RGI/US. C&L did not perform any analyses with respect
to any of the assets of Banyan and is unable to comment upon the fairness of the
Merger. The valuation analysis performed by C&L, in connection with the
valuation report, does not constitute an audit, examination, review or
compilation of historical or prospective financial information conducted in
accordance with Generally Accepted Auditing Standards or with standards
established by the American Institute of Certified Public Accountants.
Accordingly C&L was unable to, and did not, express any opinion or any other
form of assurance with respect to the financial information contained in the
valuation report.
We have assumed, based in part on discussions with management of Banyan and
on recent updates of selected financial information, that there has been no
material change in Banyan's or RGI/US's assets, financial condition, results of
operations, business or prospects since the date of the last financial
statements (December 31, 1995) made available to us, except in the case of
Banyan, as set forth in the draft Form 10-K for the fiscal year ended December
31, 1995 and the Merger Agreement. We have not independently verified such
information or assumptions, including financial forecasts, or undertaken an
independent appraisal of the assets of RGI/US or the Company. Our opinion is
based upon market, economic, financial and other conditions as they exist and
can be evaluated as of the date hereof. This opinion does not constitute a
recommendation to any stockholder of the Company as to how any such stockholder
should vote on the Merger, nor does this opinion address the relative merits of
the Merger or any other transactions or business strategies discussed by the
Board of Directors of the Company as alternatives to the Merger or the decision
of the Board of Directors of the Company to proceed with the Merger. No opinion
is expressed herein as to the price at which the securities to be issued in the
Merger to the stockholders of RGI/US may trade at any time.
We have been engaged to deliver an opinion in connection with the Merger
and will receive a fee upon delivery of the opinion.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of this date, the consideration to be paid by the Company pursuant to the
Merger is fair to the Company and its stockholders from a financial point of
view.
Very truly yours,
/s/ JOSEPHTHAL LYON & ROSS INCORPORATED
JOSEPHTHAL LYON & ROSS INCORPORATED
C-2
<PAGE> 220
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THE
PROSPECTUS AND SUPPLEMENTAL LITERATURE AUTHORIZED BY THE COMPANY AND REFERRED TO
IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS
MUST NOT BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE RESPECTIVE DATES AT WHICH INFORMATION IS GIVEN
HEREIN, OR THE DATE HEREOF. HOWEVER, IF ANY MATERIAL CHANGE IN THE AFFAIRS OF
THE COMPANY SHALL OCCUR DURING THE TIME WHEN A COPY OF THIS PROSPECTUS IS
REQUIRED TO BE DELIVERED, THE COMPANY WILL AMEND OR SUPPLEMENT THIS PROSPECTUS
TO REFLECT SUCH CHANGE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 1
Risk Factors.......................... 13
Matters to be Considered by
Stockholders........................ 20
Banyan................................ 40
RGI/US................................ 51
Management of the Company............. 61
Description of Securities............. 61
Material Agreements................... 63
Other Matters......................... 64
Legal Matters......................... 64
Experts............................... 64
Stockholder Proposals................. 64
Glossary.............................. 65
Index to Financial Statements......... F-1
Annexes............................... A-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
4,386,986 SHARES
BANYAN
MORTGAGE
INVESTMENT
FUND
COMMON STOCK
-------------------------------
PROXY STATEMENT
AND
PROSPECTUS
-------------------------------
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 221
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Eight of the Company's Amended and Restated Certificate of
Incorporation provides for indemnification of the Company's officers and
directors to the fullest extent permitted by Section 145 of the Delaware General
Corporation Law (the "DGCL"). Section 145 of the DGCL provides for
indemnification of the Company's directors and officers from and against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement reasonably incurred by them in connection with any civil, criminal,
administrative or investigative claim or proceeding (including civil actions
brought as derivative actions by or in the right of the Company but only to the
extent of expenses reasonably incurred in defending or settling such action) in
which they may become involved by reason of being a director or officer of the
Company if the director or officer acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the Company
and, in addition, in criminal actions, if he had no reasonable cause to believe
his conduct to be unlawful. If, in an action brought by or in the right of the
Company, the director or officer is adjudged liable for negligence or misconduct
in the performance of his duty, he will only be entitled to this indemnity as
the court finds proper. Persons who are successful in defense of any claim
against them are entitled to indemnification proper. Persons who are successful
in defense of any claim against them are entitled to indemnification as of right
against expenses actually and reasonably incurred in connection therewith. In
all other cases, indemnification shall be made (unless otherwise ordered by a
court) only if the board of directors of the Company, acting by a majority vote
of a quorum of disinterested directors, independent legal counsel has been met.
Section 145 also provides this indemnity for directors and officers of the
Company who, at the request of the Company, act as directors, officers,
employees or agents of other corporations, partnerships or other enterprises.
Section 102(b)(7) of the DGCL provides that personal monetary liabilities
of a director for breaches of his fiduciary duties as a director may not be
eliminated with regard to any breach of the duty of loyalty, failing to act in
good faith, intentional misconduct or knowing violation of law, payment of an
unlawful dividend, approval of an illegal stock repurchase, or obtaining an
improper personal benefit. Such a provision has no effect on the availability of
equitable remedies, such as an injunction or recision for breach of fiduciary
duty.
The Company maintains directors and officers liability insurance which is
intended to insure against liabilities that directors and officers of the
Company may incur in such capacities.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted for directors, officers and controlling persons of the Company
pursuant to the foregoing, or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-1
<PAGE> 222
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <C> <S>
2.1 -- Agreement and Plan of Merger, dated as of April 12, 1996, as amended and
restated as of May 20, 1996, by and among RGI/US, RGI Holdings, Inc. and the
Registrant, together with Amendment to Agreement and Plan of Merger dated as of
September 17, 1996. (see Annex A to Proxy Statement/Prospectus)
3.1 -- Second Amended and Restated Certificate of Incorporation of the Registrant.*
3.2 -- Bylaws of Registrant, as amended and restated as of July 1, 1996.
5.1 -- Opinion of Shefsky Froelich & Devine Ltd. regarding legality.
8.1 -- Opinion of Shefsky Froelich & Devine Ltd. regarding tax consequences of the
Merger.
10.1 -- Loan Modification Agreement, dated as of May 20, 1996, by and between
Registrant and RGI Holdings, Inc. (SoGen Loan)**
10.2 -- Loan Modification Agreement, dated as of May 21, 1996, by and between
Registrant and RGI Holdings, Inc. (Morgens Loan)**
10.3 -- Registration Rights Agreement, dated as of May 21, 1996, by and between
Registrant and RGI Holdings, Inc.**
10.4 -- Master Construction Contract dated as of June 28, 1991 by and among GHA Harbor
Associates, GHA Grand Harbor, Ltd., GHA St. David's, Ltd., GHA Wood Duck, Ltd.,
GHA Harbor, Ltd., GHA Newport, Ltd., GHA River Club, Ltd., GHA Coventry, Ltd.
and Proctor Construction Company
10.5 -- Profit Sharing Agreement dated as of June 28, 1991 by and among Proctor
Construction Company, Andlinger Properties Capital L.P. and Grand Harbor
Associates, Inc.
10.6 -- Second Amended and Restated Employment Agreement between Leonard G. Levine and
the Registrant dated as of December 31, 1992.***
10.7 -- Form of Director Stock Option Agreements dated July 1, 1993, July 24, 1994 and
July 7, 1995.***
10.8 -- Form of Executive Stock Option Agreements dated July 1, 1993, January 12, 1994
and February 8, 1995.***
13.1 -- Annual Report to stockholders of the Registrant for the year ended December 31,
1995.
16.1 -- Letter from Coopers & Lybrand L.L.P. regarding change in Registrant's
certifying accountant.****
21.1 -- Subsidiaries of the Registrant.***
23.1 -- Consent of Shefsky Froelich & Devine Ltd. (see Exhibit 5.1)
23.2 -- Consent of Ernst & Young LLP
23.3 -- Consent of KPMG Peat Marwick LLP
23.4 -- Consent of Coopers & Lybrand L.L.P.
24.1 -- Power of Attorney. (see Signature page)
99.1 -- Consent of Josephthal Lyon & Ross, Incorporated
99.2 -- Form of Proxy for Annual Meeting of Registrant.
</TABLE>
- -------------------------
* Incorporated by reference to the Registrant's Registration Statement on
Form S-11 (file number 33-17597).
** Incorporated by reference to the Registrant's current Report on Form 8-K,
dated May 20, 1996.
*** Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995.
**** Incorporated by reference to the Registrant's current Report on Form 8-K,
dated December 18, 1995.
II-2
<PAGE> 223
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 224
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on September 19, 1996.
Banyan Mortgage Investment Fund
By: /S/ LEONARD G. LEVINE
-----------------------------------
Name: Leonard G. Levine
Title: President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Leonard
G. Levine his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to the Registration
Statement on Form S-4 (including post-effective amendments), and to file the
same, with all exhibits thereto, and all documents in connection therewith, with
the Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act, this
registration statement was signed by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
NAME POSITION DATE
- ---------------------------------------- -------------------------------- -------------------
<S> <C> <C>
/S/ WALTER E. AUCH, SR. Director September 19, 1996
- ----------------------------------------
Walter E. Auch, Sr.
/S/ ROBERT M. UNGERLEIDER Director September 19, 1996
- ----------------------------------------
Robert M. Ungerleider
/S/ KENNETH L. UPTAIN Director September 19, 1996
- ----------------------------------------
Kenneth L. Uptain
/S/ LEONARD G. LEVINE President September 19, 1996
- ----------------------------------------
Leonard G. Levine
/S/ JOEL L. TEGLIA Vice President and September 19, 1996
- ---------------------------------------- Chief Financial Officer
Joel L. Teglia
</TABLE>
II-4
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
BANYAN MORTGAGE INVESTMENT FUND
Dated as of July 1, 1996
ARTICLE 1
OFFICES
Section 1.1 Registered Office. The registered office shall be in the
City of Wilmington, County of New Castle, State of Delaware.
Section 1.2 Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE 2
STOCKHOLDERS
Section 2.1 Annual Meetings. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as may be designated by resolution of the
Board of Directors from time to time or in the manner provided in these Bylaws.
Any other proper business may be transacted at the annual meeting.
Section 2.2 Special Meetings. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Board of Directors, by a
committee of the Board of Directors which has been duly designated by the Board
of Directors and whose powers and authority include the power to call such
meetings, or by the Chairman of the Board or the Chief Executive Officer upon
the written request of stockholders holding at least 33% of the outstanding
shares of Common Stock of the Corporation. The stockholders' request shall
state the purpose of the meeting. Only business related to the purposes set
forth in the notice of the meeting may be transacted at a special meeting.
Section 2.3 Time and Place of Meetings. Subject to the provisions of
Section 3.1, each meeting of stockholders shall be held at a time and place
convenient to stockholders, as determined by the Board of Directors. Such
meetings may be at the principal office of the Corporation or at such place
within or without the State of Delaware, and at such hour, as shall be fixed by
the Board of Directors or in the notice of the meeting or, in the case of an
adjourned meeting, as announced at the meeting at which the adjournment is
taken.
Section 2.4 Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise provided by law, the written notice of any meeting
<PAGE> 2
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given when deposited in the mail,
postage prepaid, directed to the stockholder at his address as it appears on
the records of the Corporation.
Section 2.5 Waiver of Notice. Anything herein to the contrary
notwithstanding, notice of any meeting of stockholders need not be given to any
stockholder who shall have waived in writing notice of the meeting, either
before or after such meeting, or who shall attend the meeting in person or by
proxy, unless he attends for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. All such written waivers shall be filed with the
Fund's records or made a part of the minutes of the meeting.
Section 2.6 Adjournments. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business
which might have been transacted at the original meeting. If the adjournment
is for more than thirty (30) days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
Section 2.7 Quorum. At each meeting the stockholders, except where
otherwise provided by law or the Certificate of Incorporation or these Bylaws,
the holders of a majority of the outstanding shares of stock entitled to vote
at the meeting, present in person or by proxy, shall constitute a quorum. In
all matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Where a separate vote by class or classes is required, a majority of the
outstanding shares of such class or classes, present in person or represented
by proxy, shall constitute a quorum entitled to take action with respect to
that vote on that matter and the affirmative vote of the majority of shares of
such class or classes present in person or represented by proxy at the meeting
shall be the act of such class. In the absence of a quorum, the stockholders
so present may, by majority vote, adjourn the meeting from time to time in the
manner provided in Section 2.4 of these Bylaws until a quorum shall attend.
Section 2.8 Voting; Proxies. Each stockholder entitled to vote at any
meeting of stockholders shall be entitled to one vote for each share of stock
held by him which has voting power upon the matter in question. Each
stockholder entitled to vote at a meeting of stockholders may authorize another
person to act for him by proxy, but no such proxy shall be voted or acted upon
after three (3) years from its date, unless the proxy provides for a longer
period. A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A stockholder may revoke
any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or another duly
executed proxy bearing a later
2
<PAGE> 3
date with the Secretary of the Corporation. The votes for directors may be by
ballot or by written consent. At all meetings of stockholders for the election
of directors a plurality of the votes cast shall be sufficient to elect. All
other elections and questions shall, unless otherwise provided by law or by the
Certificate of Incorporation or these Bylaws, be decided by the vote of the
holders of a majority of the outstanding shares of stock entitled to vote
thereon present in person or by proxy at the meeting.
Section 2.9 Fixing Date for Determination of Stockholders of Record.
(a) In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not
precede the date such record date is fixed and shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. If no record date is fixed, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given. The record date for any other
purpose other than stockholder action by written consent shall be at the close
of business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall not be more than sixty (60) days prior to
such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
Section 2.10 List of Stockholders Entitled to Vote. The Secretary shall
prepare and make, at least ten (10) days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof and may be inspected by any stockholder who is present. The stock
ledger shall be the only evidence as
3
<PAGE> 4
to who are the stockholders entitled to examine the stock ledger, the list of
stockholders or the books of the Corporation, or to vote in person or by proxy
at any meeting of the stockholders.
Section 2.11 Inspectors of Election.
(a) The Corporation shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at the meeting and make a written report
thereof. The Corporation may designate one or more persons as alternate
inspectors or replace an inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares outstanding
and the voting power of each, (ii) determine the shares represented at a
meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspectors may appoint
or retain other persons or entities to assist the inspectors in the performance
of the duties of the inspectors.
(c) The date and time of the operating and the closing of the polls for
each matter upon which the stockholders will vote at meeting shall be announced
at the meeting.
(d) In determining the validity and counting of proxies and ballots, the
inspectors shall be limited to an examination of the proxies, any envelopes
submitted with those proxies, ballots and the regular books and records of the
Corporation, except that the inspectors may consider other reliable information
for the limited purpose of reconciling proxies and ballots submitted by or on
behalf of banks, brokers, their nominees or similar persons which represent
more votes than the holder of a proxy is authorized by the record owner to cast
or more votes than the stockholder holds of record. If the inspectors consider
other reliable information for the limited purpose permitted herein, the
inspectors at the time they make their certification pursuant to subsection
(b)(v) of this section shall specify the precise information considered by them
including the person or persons from whom they obtained information, when the
information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
Section 2.12 Action by Consent of Stockholders.
(a) Any action required or permitted to be taken at any annual or special
meeting of stockholders of the Corporation, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
Corporation by delivery to its
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registered office, its principal place of business, or an officer or agent of
the Corporation having custody of the book in which proceedings of meetings of
members are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(b) Every written consent shall bear the date of signature on each
stockholder or member who signs the consent and no written consent shall be
effective to take the corporation action referred to therein unless, within
sixty days of the earliest dated consent delivered in the manner required by
this Section 2.9 to the Corporation, written consents signed by a sufficient
number of holders or members to take action are delivered to the Corporation by
delivery to its registered office, its principal place of business, or an
officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders or members are recorded. Delivery made
to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders or
members, as the case may be, who have not consented in writing.
ARTICLE 3
BOARD OF DIRECTORS
Section 3.1 Number; Qualifications. The Board of Directors shall
consist of five (5) members at least three (3) of whom shall at all times be
Independent Directors. This number may be amended as provided in Section 8.6
herein. Directors need not be stockholders. For purposes of this Section 3.1,
"Independent Directors" shall mean directors who (i) are not affiliated
directly or indirectly (whether by ownership of, ownership interest in,
employment by, or service as an officer or director by such person or an
immediate family member) with RGI Holdings, Inc., or any person or entity
controlling, controlled by, or under common control with, RGI Holdings, Inc.,
and (ii) perform no other services for the Corporation except as directors.
Section 3.2 Election; Resignation; Removal; Vacancies. Except as
provided below, the Directors shall be elected at each annual meeting and each
director elected shall hold office until his successor is elected and qualified.
Notwithstanding the foregoing, the positions occupied at the time these Bylaws
were adopted, whose terms expire in 1997 and 1998, shall not be subject to
election until the annual meetings occurring in 1997 and 1998, respectively, but
shall be subject to election at each annual meeting thereafter. Any Director
may resign at any time upon written notice to the Corporation. Any vacancy
occurring in the Board of Directors may be filled by the affirmative vote of a
majority of the Board, although such majority is less than a quorum, or by a
plurality of the votes cast at a meeting of stockholders, and each Director so
elected shall hold office until the expiration of the term of office of the
Director whom he has replaced.
Section 3.3 Management of the Business and Affairs of the Corporation.
The business and affairs of the Corporation shall be managed by or under the
direction of the Board of Directors,
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except as may be otherwise provided in the Certificate of Incorporation. If any
such provision is made in the Certificate of Incorporation, the powers and
duties conferred or imposed upon the Board of Directors shall be exercised or
performed to such extent and by such person or persons as shall be provided in
the Certificate of Incorporation.
Section 3.4 Regular Meetings. Regular meetings of the Board of Directors
may be held at such places within or without the State of Delaware and at such
times as the Board of Directors may from time to time determine, and if so
determined, notices thereof need not be given.
Section 3.5 Special Meetings. Special meetings of the Board of Directors
may be held at any time or place within or without the State of Delaware
whenever called by the Chief Executive Officer, President, the Secretary, or by
any member of the Board of Directors. Reasonable notice thereof shall be given
by the person or persons calling the meeting, not later than the second day
before the date of the special meeting.
Section 3.6 Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee designated by the Board, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to these
Bylaws shall constitute presence in person at such meeting.
Section 3.7 Quorum; Vote Required for Action. At all meetings of the
Board of Directors a majority of the whole Board shall constitute a quorum for
the transaction of business. Except in cases in which the Certificate of
Incorporation or these Bylaws otherwise provide, the vote of a majority of the
Directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 3.8 Information Action by Directors. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board of
such committee, as the case may be, consent thereto in writing, and the writings
are filed with the minutes of proceedings of the Board or committee.
Section 3.9 Compensation of the Directors. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, the Board of Directors
shall have the authority to fix the compensation of Directors.
Section 3.10 Removal of Directors. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, a director may be removed only
for good cause shown by a majority of shares entitled to vote at an election of
Directors.
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ARTICLE 4
COMMITTEES
Section 4.1 Executive Committee. By resolution adopted by an affirmative
vote of the majority of the entire Board of Directors, the Board of Directors
may appoint an Executive Committee consisting of three or more Directors, and,
if deemed desirable, one or more Directors as alternate members who may replace
any absentee or disqualified member at any meeting of the Executive Committee.
If so appointed, the Executive Committee shall, when the Board is not in
session, have and may exercise all powers and authority of the Board in the
management of the business and affairs of the Corporation not reserved to the
whole Board by the General Corporation Law of the State of Delaware. The
Executive Committee shall keep a record of its acts and proceedings and shall
report the same from time to time to the Board of Directors. The Directors
shall have the power to prescribe the manner in which proceedings of the
Executive Committee, if appointed, and other committees, shall be conducted.
Section 4.2 Other Committee. By resolution adopted by an affirmative
vote of the majority of the entire Board of Directors, the Board may from time
to time appoint such other committees of the Board, including without
limitation, audit and nominating committees, consisting of three or more
Directors, and, if deemed desirable, one or more Directors who shall act as
alternate members and who may replace any absentee or disqualified member at
any meeting of the committee, and may delegate to each such committee any of
the powers and authority of the Board in the management of the business and
affairs of the Company not reserved by law, the Restated Certificate of
Incorporation, or these Bylaws, to the whole Board. Each such committee shall
keep a record of its acts and proceedings and shall report the same from time
to time to the Board of Directors.
Section 4.3 Election of Committee Members; Vacancies. So far as
practicable, members of the committees of the Board and their alternates (if
any) shall be appointed at each annual meeting of the Board of Directors and,
unless sooner discharged by an affirmative vote of a majority of the Board
members present at any meeting of the entire Board at which a quorum is
present, committee members shall hold office until the next annual meeting of
the Board and until their respective successors are appointed. Vacancies in
committees of the Board created by death, resignation or removal may be filled
by an affirmative vote of a majority of the committee members present at any
meeting at which a quorum is present.
Section 4.4 Meetings. Each committee of the Board may provide for
regular meetings of such committee. Special meetings of each committee may be
called by any two members of the committee (or, if there is only one member, by
that member in concert with the Chief Executive Office) or by the Chief
Executive Officer of the Corporation. The provisions of Section 3 regarding the
business, time and place, notice and waivers of notice of meetings, attendance
at meetings and action without a meeting shall apply to each committee of the
Board, except that the references in such provisions to the Directors and the
Board of Directors shall be deemed respectively to the references to the members
of the committee and to the committee. Each
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committee shall keep regular minutes of its proceedings and report the same to
the Board of Directors when required.
Section 4.5 Quorum and Manner of Acting. The majority of the members of
any committee of the Board shall constitute a quorum for the transaction of
business at meetings of the committee, and the act of a majority of the members
present at any meeting at which a quorum is present shall be the act of the
committee. A majority of the members present at any meeting, regardless of
whether or not they constitute a quorum, may adjourn the meeting to another
time or place. Any business which might have been transacted at the original
meeting may be transacted at any adjourned meeting at which a quorum is
present.
ARTICLE 5
OFFICERS
Section 5.1 Executive Officers; Election; Qualifications; Term of Office;
Resignation; Removal; Vacancies. The Board of Directors shall choose a Chief
Executive Officer, President and Secretary, and it may, if it so determines,
choose a Chairman of the Board and a Vice Chairman of the Board from among its
members. The Board of Directors may also choose one or more Vice Presidents,
one or more Assistant Secretaries, a Treasurer and one or more Assistant
Treasurers. Each such officer shall hold office until the first meeting of the
Board of Directors after the annual meeting of stockholders next succeeding this
election, and until his successor is elected and qualified or until his earlier
resignation or removal. The Board of Directors may appoint such other officers
and agents as it shall deem necessary who shall hold their office for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board of Directors. Any officer may resign at any time
upon written notice to the Corporation. The Board of Directors may remove any
officer with or without cause at any time, but such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation. Any number of offices may be held by the same person. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise may be filled for the unexpired portion of the term by the Board of
Directors at any regular or special meeting.
Section 5.2 Chairman of the Board. The Chairman of the Board of
Directors shall have the power to preside at all meetings of the Board of
Directors, and to call meetings of the stockholders and of the Board of
Directors to be held within the limitations prescribed by law or by these
Bylaws, at such times and at such places as the Chairman of the Board shall
deem proper. The Chairman of the Board shall have such other powers and shall
be subject to such other duties at the Board of Directors may from time to time
prescribe.
Section 5.3 Chief Executive Officer. The powers and duties of the Chief
Executive Officer are:
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(a) to act as the chief executive officer of the Corporation and, subject
to the control of the Board of Directors, to have general supervision,
direction and control of the business and affairs of the Corporation;
(b) to preside at all meetings of the Stockholders and, in the absence of
the Chairman of the Board, at all meetings of the Board of Directors;
(c) to call meetings of the Stockholders and also of the Board of
Directors to be held, subject to the limitations prescribed by law or by these
By-Laws, at such times and at such places as the Chief Executive Officer shall
deem proper; and
(d) subject to the direction of the Board of Directors, to have general
charge of the property of the Corporation, to supervise and control all
officers, agents and employees of the Corporation, and to exercise such other
general powers of management as are usually vested in the office of Chief
Executive Officer of a corporation organized under the laws of the State of
Delaware.
Section 5.4 President. In case of the absence, disability or death of
the Chief Executive Officer, the President shall exercise all the powers and
perform all the duties of the Chief Executive Officer. The President shall
have such other powers and perform such other duties as may be granted or
prescribed by the Board of Directors or the Chief Executive Officer.
Section 5.5 Vice President. In case of the absence, disability or death
of the President, the Vice President, or one of the Vice Presidents, shall
exercise all the powers and perform all the duties of the President. If there
is more than one Vice President, the order in which the Vice Presidents shall
succeed to the powers and duties of the President shall be in order of their
rank as fixed by the Board of Directors, or, if not ranked, the Vice President
designated by the Board of Directors. The Vice President or Vice Presidents
shall have such other powers and perform such other duties as may be granted or
prescribed by the Board of Directors or the Chief Executive Officer.
Section 5.6 Secretary. The powers and duties of the Secretary are:
(a) to keep a book of minutes at the principal office of the Corporation,
or such other place as the Board of Directors may order, all meetings of its
Directors and stockholders with the time and place of holding, whether regular
or special, and, if special, how authorized, the notice thereof given, the
names of those present at Director's meetings, the number of Shares present or
represented at stockholders' meetings and the proceedings thereof.
(b) to maintain custody of and keep the books of account and other records
of the Corporation except as are in the custody of the Treasurer;
(c) to keep the seal of the Corporation and to affix the same to all
instruments which may require it;
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(d) to keep or cause to be kept at the principal office of the Corporation
a stock ledger, or duplicate stock ledger if the original is kept at the office
of the transfer agent or agents, showing the names of the stockholders and
their addresses, the number and classes of shares held by each, the number and
date of certificates issued for shares, and the number and date of cancellation
of every certificate surrendered for cancellation;
(e) to keep a supply of certificates for shares of the Corporation, to
fill in all certificates issued and to make a proper record of each such
issuance; provided, that so long as the Corporation shall have one or more duly
appointed and acting transfer agents of the Shares, or any class or series of
Shares, of the Corporation, such duties with respect to such Shares shall be
performed by such transfer agent or transfer agents;
(f) to transfer upon the share books of the Corporation any and all Shares
of the Corporation; provided, that so long as the Corporation shall have one or
more duly appointed and acting transfer agents of the Shares, or any class or
series of shares, of the Fund, such duties with respect to such Shares shall be
performed by such transfer agent or transfer agents, and the method of transfer
of each certificate shall be subject to the reasonable regulations of the
transfer agent to which the certificate is presented for transfer, and also, if
the Fund then has one or more duly appointed and acting registrars, to the
reasonable regulations of the registrar to which the new certificate is
presented for registration; and provided, further, that no certificate for
Shares shall be issued or delivered or, if issued or delivered, shall have any
validity whatsoever until and unless it has been signed or authenticated in
manner provided in Section 7.1 hereof;
(g) to make service and publication of all notices that may be necessary
or proper. In case of the absence, disability, refusal or neglect of the
Secretary to make service or publication of any notices, then such notices may
be served and/or published by the Chief Executive Officer, the President or a
Vice President, or by any person thereunder authorized by either of them or by
the Board of Directors or by the holders of a majority of the outstanding
shares of the Corporation entitled to vote thereon; and
(h) generally to do and perform all such duties as pertain to the office
of Secretary and as may be required by the Board of Directors.
Section 5.7 Treasurer. The powers and duties of the Treasurer are:
(a) to supervise and control the keeping and maintaining of adequate and
correct accounts of the Corporation's investments and business transactions,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, retained earnings and Shares. The Treasurer shall maintain
all books of account and other records of the Corporation, except as are in the
custody of the Secretary;
(b) to have the custody of all money, securities, evidence of indebtedness
and other valuable documents of the Corporation, and, at the Treasurer's
discretion, to cause any or all
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thereof to be deposited for the account of the Corporation with such depository
as may be designated from time to time by the Board of Directors;
(c) to receive or cause to be received, and to give or cause to be given,
receipts and acquittances for moneys paid in for the account of the
Corporation;
(d) to disburse, or cause to be disbursed, all money of the Fund as may be
directed by the Board of Directors, taking proper vouchers for such
disbursements;
(e) to render to the President and to the Board of Directors, whenever
they may require, accounts of all transactions and of the financial condition
of the Fund; and
(f) generally to do and perform all such duties as pertain to the office
of Treasurer and as may be required by the Board of Directors.
Section 5.8 Term of Office and Vacancy. So far as practicable, the
elected officers shall be elected at each annual meeting of the Board, and
shall hold office until the next annual meeting of the Board and until their
respective successors are elected and qualified. If a vacancy shall occur in
any elected office, the Board of Directors may elect a successor for the
remainder of the term. Any officer may resign by written notice to the
Corporation.
Section 5.9 Removal of Elected Officers. Elected officers may be removed
at any time, either for or without cause, by the affirmative vote of a majority
of a quorum of the entire Board of Directors.
Section 5.10 Compensation of Elected Officers. The compensation of all
elected officers of the Corporation shall be fixed from time to time by the
Board of Directors.
ARTICLE 6
STOCK
Section 6.1 Certificate. Every holder of stock shall be entitled to have
a certificate signed by or in the name of the Corporation by the Chairman or
Vice Chairman of the Board of Directors, if any, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the Corporation, certifying the number of shares
owned by him in the Corporation. Any of or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent, or registrar at the
date of issue. All certificates shall be consecutively numbered. The name of
the person owning the share represented thereby, with the number of such shares
and the date of issue, shall be entered on the Corporation's books.
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Section 6.2 Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificates. The Corporation may issue a new certificate of stock in the place
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
ARTICLE 7
INDEMNIFICATION
Section 7.1 Power to Indemnify in Actions, Suits or Proceedings Other Than
Those By or In the Right of the Corporation. The Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officers, employee or agent of
another Corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines, and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to be believe that his conduct was unlawful.
Section 7.2 Power to Indemnify in Actions, Suits or Proceedings By or In
the Right of the Corporation. The Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred, by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interest of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
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Section 7.3 Success on the Merits in Defense of Any Action, Suit or
Proceeding. To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 7.1 or 7.2 of this Article 7
or in defense of any claim, issue or matter therein, he shall be indemnified
against expense (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
Section 7.4 Authorization of Indemnification. Any indemnification under
Section 7.1 or 7.2 of this Article 7 (unless ordered by a court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in Section 7.1 or 7.2 of this Article 7. Such determination shall be
made (a) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceedings, or (b) if
such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (c) by the stockholders.
Section 7.5 Expenses Payable in Advance. Expenses incurred by a
director, officer, employee or agent of the Corporation in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding as authorized by the
Board of Directors in the specific case upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article 7.
Section 7.6 Nonexclusivity of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any bylaw, agreement, vote of stockholder or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
Section 7.7 Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation, as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have
the power to indemnify him against such liability under the provisions of this
Article 7.
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Section 7.8 Certain Definitions. For purposes of Article 7, references
to "other enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with respect to any
employee benefit plan; and reference to "serving at the request of the
corporation" shall include any service as a director, officer, employee or agent
of the Corporation which imposes duties on, or involves service by, such
director, officer, employee, or agent with respect to an employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
Article 7.
Section 7.9 Survival of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by, or granted pursuant
to, this section shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
Section 7.10 Limitation on Indemnification. Notwithstanding anything
contained in this Article 7 to the contrary, except for proceedings ordered by
a court, the Corporation shall not be obligated to indemnify any director,
officer or employee in connection with a proceeding (or part thereof) initiated
by such person unless such proceeding (or part thereof) was authorized or
consented to by the Board of Directors of the Corporation.
Section 7.11 Indemnification of Employees and Agents. The Corporation
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred in this
Article 7 to directors and officers of the Corporation if not so conferred
herein.
ARTICLE 8
MISCELLANEOUS
Section 8.1 Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 8.2 Seal. The corporate seal shall have the name of the
Corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
Section 8.3 Waiver of Notice of Meetings of Stockholders, Directors and
Committees. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be
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transacted at, nor the purpose of any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice.
Section 8.4 Interested Directors: Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or
between the Corporation and any other corporation, partnership, association, or
other organization in which one or more of its directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present at
or participates in the meeting of the Board or committee thereof which
authorizes the contract or transactions, or solely because his or their votes
are counted for such purpose, if: (1) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board or
committee in good faith authorizes the contract or transaction by the
affirmative votes of majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (2) the material facts as to
his relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (3) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board of
Directors, a committee thereof, or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting
of the Board of Directors or of a committee which authorizes the contract or
transaction.
Section 8.5 Form of Records. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of any information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section 8.6 Amendment of Bylaws. These Bylaws may be altered or
repealed, and new Bylaws made, by the Board of Directors, but the stockholders
may make additional Bylaws and may alter and repeal any Bylaws whether adopted
by them or otherwise; provided that any amendment to these Bylaws which seeks to
impose restrictions on the transferability or alienation of the Company's shares
of common stock shall require the unanimous approval of the Board of Directors.
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EXHIBIT 5.1
[SF & D LETTERHEAD]
5750-70-A
September 20, 1996
Banyan Mortgage Investment Fund
150 South Wacker Drive
Suite 2900
Chicago, Illinois 60606
Re: Banyan Mortgage Investment Fund
Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as special counsel to Banyan Mortgage Investment Fund, a
Delaware corporation (the "Company"), in connection with: (a) the proposed
merger (the "Merger") of RGI U.S. Holdings, Inc. ("RGI/US") with and into the
Company, pursuant to the terms of the Agreement and Plan of Merger dated as of
April 12, 1996 as amended and restated as of May 20, 1996 and as further
amended as of September 17, 1996 (the "Merger Agreement") by and among the
Company, RGI/US and RGI Holdings, Inc. ("RGI Holdings"); and (b) the
preparation and filing of a combined Registration Statement on Form S-4 dated
September 20, 1996 and Proxy Statement (together with all annexes and exhibits
thereto, collectively, the "Registration Statement"), with the Securities and
Exchange Commission and relating to the registration of 4,386,986 shares of the
Company's common stock, par value $0.01 (the "Shares"). All of the Shares will
be issued by the Company to RGI Holdings, the sole stockholder of RGI/US, in
connection with the Merger. This opinion is being rendered pursuant to the
requirements of Item 21(a) of Form S-4 under the Securities Act of 1933, as
amended. Unless otherwise defined herein, capitalized terms shall have the
meanings given them in the Registration Statement.
For purposes of this opinion, we have reviewed the Registration
Statement and have examined the originals or copies certified or otherwise
identified to our satisfaction of: (i) the Company's Certificate of
Incorporation, as amended to date; (ii) the Bylaws of the Company, as amended
to date; (iii) records of the corporate proceedings of the Company as we deemed
necessary or appropriate as a basis for the opinions set forth herein; and (iv)
those matters of law as we have deemed necessary or appropriate as a basis for
the opinions set forth herein. We have not made any independent review or
investigation of the organization, existence, good standing, assets, business
or affairs of the Company, or of any other matters, and no inference as to the
best of our knowledge of facts based on an independent investigation should be
drawn from this representation. In rendering our opinion, we have assumed,
without inquiry, the legal capacity of all natural persons, the genuineness of
all signatures, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of these
documents submitted to us as copies.
Our opinions, as hereinafter expressed, are subject to the following
exceptions, limitations and qualifications: (i) the effect of bankruptcy,
insolvency, fraudulent conveyance, reorganization, arrangement, moratorium or
other similar laws now or hereafter in effect relating to or affecting the
rights and remedies of creditors; and (ii) the effect of general principles of
equity whether enforcement is considered in a proceeding in equity or at law
and the discretion of the court before which any proceeding therefore may be
brought.
We are admitted to the practice of law only in the State of Illinois
and, accordingly, we do not purport to be experts on the laws of any other
jurisdiction nor do we express an opinion as to the laws of jurisdictions other
than the laws of the State of Illinois and the General Corporation Law of the
State of Delaware, all as currently in effect.
On the basis of, and in reliance upon, the foregoing, and subject to
the qualifications contained herein, we are of the opinion that the Shares,
when issued to RGI Holdings in accordance with the terms and conditions of, and
for the consideration set forth in, the Merger Agreement, will be duly
authorized validly issued, fully-paid and nonassessable.
We hereby consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters."
This opinion is rendered only to you and is solely for your benefit in
connection with the transactions covered hereby. This opinion may not be
relied upon by you for any other purpose or furnished, or quoted to, or relied
upon by any other person, firm or corporation for any purpose without our prior
express written consent.
Respectfully submitted,
SHEFSKY FROELICH & DEVINE LTD.
SF&D/mjc/hwn
255867
<PAGE> 1
EXHIBIT 8.1
[SF & D LETTERHEAD]
5750-70-A
September 20, 1996
Banyan Mortgage Investment Fund
150 South Wacker Drive
Suite 2900
Chicago, Illinois 60606
Re: Banyan Mortgage Investment Fund
Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as special counsel to Banyan Mortgage Investment Fund, a
Delaware corporation (the "Company"), in connection with: (a) the proposed
merger (the "Merger") of RGI U.S. Holdings, Inc. ("RGI/US") with and into the
Company, pursuant to the terms of the Agreement and Plan of Merger dated as of
April 12, 1996 as amended and restated as of May 20, 1996 and as further
amended as of September 17, 1996 (the "Merger Agreement;" together with the
ancillary documents executed in connection with the Merger, the "Agreements")
by and among the Company, RGI/US and RGI Holdings, Inc. ("RGI Holdings"); and
(b) the preparation and filing of a combined Registration Statement on Form S-4
dated September __, 1996 and Proxy Statement (together with all annexes and
exhibits thereto, collectively, the "Registration Statement"), with the
Securities and Exchange Commission and relating to the registration of
4,386,986 shares of the Company's common stock, par value $0.01 (the "Shares").
All of the Shares will be issued by the Company to RGI Holdings, the sole
stockholder of RGI/US, in connection with the Merger. This opinion is being
rendered pursuant to the requirements of Item 21(a) of Form S-4 under the
Securities Act of 1933, as amended. Unless otherwise defined herein,
capitalized terms shall have the meanings given them in the Registration
Statement.
In connection with this opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our
satisfaction, of: (i) the Agreements; (ii) the representation letters from the
Company, RGI/US and RGI Holdings, as well as other agreements executed by such
entities; (iii) the Registration Statement; and (iv) such other documents as we
have deemed necessary or appropriate in order to enable us to render the
opinion below. In our examination, we have assumed, without inquiry, the
genuineness of all signatures, the legal capacity of all natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such copies. This
opinion is subject to our receipt prior to the Effective Date of certain
written representations and covenants of the Company, RGI/US and RGI Holdings.
Based upon and subject to the foregoing, the discussion contained in
the Registration Statement under the caption "Matters to be Considered by
Stockholders - Proposal Number One -Description of the Merger Agreement -
Certain Tax Consequences of the Merger" (the "Tax Discussion") except as
otherwise indicated, expresses our opinion as to the material Federal income
tax consequences applicable to the Company and to the holders of the Company's
common stock, par value $0.01 per share, on the Record Date. You should be
aware, however, that the Tax Discussion represents our conclusions as to the
application of existing law on the date of this opinion to the Merger as
contemplated by the Merger Agreement. There can be no assurance that contrary
positions may not be taken by the Internal Revenue Service.
This opinion is furnished to you solely for use in connection with the
Registration Statement. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the references to Shefsky Froelich
& Devine Ltd. in the Tax Discussion.
Very truly yours,
SHEFSKY FROELICH & DEVINE LTD.
216585
<PAGE> 1
EXHIBIT 10.4
MASTER CONSTRUCTION CONTRACT
THIS AGREEMENT, dated as of the 28th day of June, 1991, by and among
GHA HARBOR ASSOCIATES, a Florida general partnership, GHA GRAND HARBOR, LTD.,
GHA ST. DAVID'S, LTD., GHA WOOD DUCK, LTD., GHA HARBOR, LTD., GHA NEWPORT,
LTD., GHA RIVER CLUB, LTD., GHA COVENTRY, LTD., each a Florida limited
partnership (each a "Partnership" and collectively, the "Partnerships") and
PROCTOR CONSTRUCTION COMPANY, a Florida corporation ("Proctor").
Recitals
A. Each of the Partnerships owns certain real property (the real
property owned by any one of the Partnerships being referred to as a "Property"
and the real property owned by all of the Partnerships being referred to
collectively as the "Properties") in Indian River County, Florida known
collectively as Grand Harbor which the Partnerships are developing as a
residential community development.
B. Proctor is authorized to conduct business in the State of
Florida and licensed by the State of Florida to perform services as a general
contractor.
C. The Partnerships desire to retain the services of Proctor as
the general contractor for all improvements to be constructed on the Properties
during the term of this Agreement, and Proctor desires to provide such general
contractor services.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth herein, the Parties hereto agree as follows:
1. Construction Contracts. In the event that any Partnership
desires to construct any improvements on a Property owned by such Partnership,
Proctor shall have the exclusive right to enter into a construction contract (a
"Construction Contract") with such Partnership to construct said improvements.
Each Construction Contract shall provide that Proctor shall be paid the cost of
the work plus a fee (the "Fee") equal to (i) an amount reflecting Proctor's
overhead, which shall not exceed seven percent (7%) plus (ii) five percent (5%)
of the contract price for Proctor's profit ("Profit"). Each Construction
Contract shall contain a guaranteed maximum price. Each Construction Contract
shall utilize and incorporate the provisions of the American Institute of
Architects' form agreement entitled "Standard Form of Agreement Between Owner
and Contractor Where the Basis of Payment is the Cost of the Work Plus a Fee"
(AIA Document A-111, 1987 edition), or such later edition of this standard form
contract as the AIA may publish (the "Standard Form"). The Standard Form
incorporates by reference AIA Document A201, General Conditions of the
Contractor for Construction (the "General Conditions"). The General
Conditions, as same may be modified by the American Institute of Architects
from time to time, shall be incorporated in and be a part of each Construction
Contract between any Partnership and Proctor.
2
<PAGE> 3
2. Subcontractors. In prosecuting the work to be performed under
any of the contracts as described in Section 1 above, Proctor agrees to utilize
subcontractors acceptable to the Partnerships as provided in the Standard Form.
Without limiting the generality of the foregoing, the Partnerships may require
that all subcontractors employed by Proctor be individuals or entities with no
affiliation or financial relationship with Proctor.
3. Term. This Agreement shall commence on the date hereof and
shall continue until the earliest to occur of the following:
a. December 31, 1999;
b. Donald C. Porter shall (i) no longer own,
beneficially or of record, a majority of the equity of Proctor or (ii) no
longer control or be active in the day-to-day management of Proctor;
c. A material breach by Proctor of its obligations under
this Agreement or under any Construction Contract with any of the Partnerships;
d. Sale or other transfer of all or substantially all of
the Properties or the termination of all of the
Partnerships; or
e. The bankruptcy, insolvency or dissolution of Proctor
or the death or disability of Donald C. Porter.
The other provisions hereof notwithstanding, any termination of this
Agreement shall not cause the termination of any existing Construction
Contract.
3
<PAGE> 4
4. Miscellaneous.
a. Notices. All notices to be given by each party to
the other pursuant to this Agreement shall be delivered in person or deposited
in the United States Mails, postage prepaid, by certified or registered mail,
return receipt requested or by overnight courier or by facsimile and addressed
as follows:
To: PROCTOR CONSTRUCTION COMPANY
1401 South A1A
Vero Beach, Florida 37963
With a copy to: Collins Browns Caldwell
Chartered
744 Beachland Blvd.
Vero Beach, Florida 32963
Attention: William W. Caldwell
To: THE PARTNERSHIPS
2121 Grand Harbor Blvd.
Vero Beach, Florida 32967
Attention:
With a copy to:
b. Validity. In the event that any provision of
this Agreement shall be held invalid, the same shall not affect in any respect
whatsoever the validity of any other provisions of this Agreement.
c. Litigation Expenses. In any controversy, claim or
dispute arising out of, or relating to, this Agreement or the method and
manner of performance thereof or the breach thereof, the prevailing party
shall be entitled to and awarded, in addition to any other relief, a reasonable
sum as litigation expenses. If neither party wholly prevails, the party that
substantially
4
<PAGE> 5
prevails shall be awarded a reasonable sum as litigation expenses. In
determining what is a reasonable sum for litigation expenses, the actual amount
of attorneys' fees the party is obligated to pay its attorney or attorneys
shall be presumed to be reasonable, which presumption is rebuttable. For the
purposes of this provision, the term proceeding shall include arbitration,
administrative, bankruptcy, and judicial proceedings, including appeals
therefrom.
d. Governing Law. All provisions of this Agreement shall
be construed, given effect, and enforced according to the laws of the State of
Florida.
e. Entire Agreement. This Agreement contains the entire
understanding between the parties hereto. No variations, modifications, or
changes herein shall be binding upon any party hereto unless set forth in a
document duly executed by or on behalf of such parties.
f. Remedies. In the event of a breach of this Agreement,
neither party shall have the right of specific performance, but shall have
only the right to recover damages.
5. Arbitration.
a. Any controversy, claim, or dispute arising out of or
relating to this Agreement or the breach thereof shall be resolved by
arbitration in Indian River County, Florida pursuant to the Florida Arbitration
Code, or its successor statute, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof and shall
constitute a final adjudication of all matters submitted to arbitration.
5
<PAGE> 6
b. The parties shall select a single arbitrator within
ten (10) days of the date a written demand for arbitration is received by
either party from the other. In the event the parties fail to select an
arbitrator within said 10-day period, any party hereto may make immediate
application to the Indian River County Circuit Court for the appointment of an
arbitrator, which appointment shall be binding on the parties hereto.
c. It is the intent of the parties by this arbitration
provision to provide for a speedy and efficient means of resolving disputes.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
PROCTOR CONSTRUCTION COMPANY
By: /s/ Donald C. Proctor
----------------------------
Its: President
GHA GRAND HARBOR, LTD.
By: /s/ Donald C. Proctor
----------------------------
Its: President
GHA ST. DAVID'S, LTD.
By: /s/ Donald C. Proctor
----------------------------
Its: President
GHA WOOD DUCK, LTD.
By: /s/ Donald C. Proctor
----------------------------
Its: President
6
<PAGE> 7
GHA HARBOR, LTD.
By: /s/ Donald C. Proctor
-----------------------------
Its: President
GHA NEWPORT, LTD.
By: /s/ Donald C. Proctor
-----------------------------
Its: President
GHA RIVER CLUB, LTD.
By: /s/ Donald C. Proctor
-----------------------------
Its: President
GHA COVENTRY, LTD.
By: /s/ Donald C. Proctor
-----------------------------
Its: President
GRAND HARBOR ASSOCIATES, a Florida
general partnership
By Grand Harbor Associates, Inc.,
a Florida corporation
By /s/ Kenneth L. Uptain
--------------------------
Its
------------------------
By Andlinger Properties Capital
L.P., a Delaware limited
partnership
By Andlinger Properties
Capital Corp., its
general partner
By /s/
--------------------------
Its Attorney-in-fact
------------------------
7
<PAGE> 8
ADDENDUM TO MASTER CONSTRUCTION CONTRACT
THIS ADDENDUM is entered into this 20th day of February, 1996, by and
between GRAND HARBOR ASSOCIATES, INC., a Florida corporation ("Associates") and
PROCTOR CONSTRUCTION COMPANY, a Florida corporation ("Proctor").
BACKGROUND
Associates and Proctor are parties to that certain Master Construction
Contract (the "Contract") regarding the Grand Harbor project dated as of the
28th day of June, 1991. Associates has become the ninety percent (90%) owner
of the Grand Harbor and Oak Harbor project and ninety percent (90%)
successor-in-interest to Grand Harbor Associates, a Florida General
Partnership. The parties wish to have this Addendum modify the Contract as set
forth herein.
AGREEMENT
1. The terms "Partnership" and "Partnerships" as defined in the
Contract shall mean the following: (i) all entities currently defined as a
Partnership under the Contract; (ii) all entities shown on the Corporate
Organizational Chart which construct or develop any portion of Grand Harbor/Oak
Harbor attached hereto as Exhibit "A" and made a part hereof; and (iii) all
entities (whether now existing or existing in the future) which construct or
develop any portion of Grand Harbor/Oak Harbor as shown on the Project Site Map
attached hereto as Exhibit "B" and made a part hereof and which Associates has
an ownership interest in (either directly or indirectly). These terms are all
inclusive and include all general partnerships, limited partnerships,
corporations and other business entities within the parameters of (i), (ii) and
(iii) above.
2. Notwithstanding anything to the contrary in Section 1 of the
Contract, the aggregate sum of all of Proctor's overhead charged to a
Partnership or the Partnerships in connection with the construction and
development of Grand Harbor/Oak Harbor shall not exceed the amounts set forth
below on an annual basis. For example, if Proctor's cost of the work is
$20,000,000.00 annually in connection with construction at Grand Harbor/Oak
Harbor and, as such, Proctor could charge up to $1,400,000.00 in overhead based
on the formula in the Contract ($20,000,000.00 x 7% = $1,400,000.00), the
maximum aggregate overhead that Proctor can charge the Partnerships for a given
year is the applicable aggregate sum set forth below. Further, as an example,
in the event that Proctor's cost of the work is only $10,000,000.00 annually in
connection with construction at Grand Harbor/Oak Harbor, the maximum overhead
that Proctor could charge is only up to $700,000.00 based on the formula in the
Contract ($10,000,000.00 x 7% = $700,000.00) and based on
8
<PAGE> 9
the intent of this Addendum, notwithstanding the fact that a higher amount may
be set forth below:
<TABLE>
<S> <C>
1994 $1,062,000.00
1995 $1,093,860.00
1996 $1,126,676.00
1997 $1,160,476.00
1998 $1,195,290.00
1999 $1,231,149.00
</TABLE>
3. All other provisions, terms and conditions of the Contract
remain unchanged and remain in full force and effect and are incorporated
herein by reference.
GRAND HARBOR ASSOCIATES, INC. PROCTOR CONSTRUCTION COMPANY,
A FLORIDA CORPORATION A FLORIDA CORPORATION
BY: /S/ KENNETH L. UPTAIN BY: /S/ DONALD C. PROCTOR
-------------------------- -------------------------
PRESIDENT PRESIDENT
STATE OF FLORIDA )
) ss.
COUNTY OF INDIAN RIVER )
The foregoing instrument was acknowledged before me this 20th day of
February, 1996, by KENNETH L. UPTAIN, PRESIDENT OF GRAND HARBOR ASSOCIATES,
INC., A FLORIDA CORPORATION, who is personally known to me.
My Commission Expires: /s/ Colleen M. Antonides
October 19, 1998 --------------------------------
Print Name: Colleen M. Antonides
--------------------
Notary Public, State of Florida
STATE OF FLORIDA )
) ss.
COUNTY OF INDIAN RIVER )
The foregoing instrument was acknowledged before me this 20th day of
February, 1996, by DONALD C. PROCTOR, PRESIDENT OF PROCTOR CONSTRUCTION
COMPANY, A FLORIDA CORPORATION, who is personally known to me.
My Commission Expires: /s/ Colleen M. Antonides
October 19, 1998 --------------------------------
Print Name: Colleen M. Antonides
--------------------
Notary Public, State of Florida
9
<PAGE> 10
EXHIBIT A
[ORGANIZATIONAL CHART OF GRAND HARBOR ASSOCIATES,
INC. AND GRAND HABOR DEVELOPMENT CO., LISTING
ALL OF THE CORPORATIONS AND LIMITED PARTNERSHIPS FOR
ALL OF THE GRAND HARBOR AND OAK HARBOR DEVELOPMENT PROJECTS]
10
<PAGE> 11
EXHIBIT B
[GRAPH OF THE PROJECT SITE MAP OF THE GRAND HARBOR PROJECT LOCATED IN
VERO BEACH, FLORIDA WITH INFORMATION ON THE DIFFERENT PARCELS,
ACREAGE, CURRENT ZONED UNITS, AND ALLOWABLE COMMERCIAL SQUARE FEET.]
11
<PAGE> 1
EXHIBIT 10.5
PROFIT SHARING AGREEMENT
THIS AGREEMENT, dated as of the 28th day of June, 1991, by and among
PROCTOR CONSTRUCTION COMPANY, a Florida corporation ("Proctor"), ANDLINGER
PROPERTIES CAPITAL L.P., a Delaware limited partnership ("APC"), and GRAND
HARBOR ASSOCIATES, INC., a Florida corporation ("GHA").
1. Profit Sharing.
a. For Ten Dollars and other good and valuable consideration,
receipt and sufficiency of which are hereby acknowledged, Proctor agrees to pay
to each of APC and GHA twenty-five percent (25%) of the sum of (i) all Profits
and (ii) Cost Savings received by Proctor pursuant to each and every
Construction Contract entered into between Proctor and any of the limited
partnerships (the "Partnerships") that have entered into a Master Construction
Contract, dated the date hereof, with Proctor (the "Master Contract")
concerning such Construction Contracts. For the purposes of this Agreement,
the terms "Profit" and "Construction Contracts" shall have the meanings set
forth in the Master Contract and the term "Cost Savings" shall have the meaning
set forth in any particular Construction Contract.
b. Said sums shall be paid by Proctor to APC and GHA within
ten (10) days after their receipt by Proctor. Any sums not so received shall
bear interest from the date that is ten (10) days after said sums were received
by Proctor until paid to AHC and/or GHA, as the case may be, at a rate equal to
5% per annum in
<PAGE> 2
excess of the prime rate of interest announced by First Union National Bank of
Florida as the same shall change from time to time.
2. No Partnership. No partnership is intended nor shall be deemed
to exist as a result of this Agreement. In no event shall this Agreement be
construed to require or imply that any of the parties hereto is an agent for
the other parties, and neither APC nor GHA shall under any circumstances be
liable for any losses incurred by Proctor in connection with the Master
Contract or any Construction Contract between Proctor and any Partnership or
otherwise.
3. Miscellaneous.
a. Litigation Expenses. Time is of the essence of this
Agreement. In any controversy, claim or dispute arising out of, or relating
to, this Agreement or the method and manner of performance thereof or the breach
thereof, the prevailing party shall be entitled and awarded, in addition to any
other relief, to a reasonable sum as litigation expenses. If no party wholly
prevails, the party that substantially prevails shall be awarded a reasonable
sum as litigation expenses. In determining what is a reasonable sum for
litigation expenses, the actual amount of attorneys' fees the party is obligated
to pay its attorney or attorneys shall be presumed to be reasonable, which
presumption is rebuttable. For the purposes of this provision, the term
proceeding shall include arbitration, administrative, bankruptcy, and judicial
proceedings, including appeals therefrom.
2
<PAGE> 3
b. Governing Law. This Agreement and the obligations of the
parties hereunder shall be interpreted, construed, and enforced in accordance
with the laws of the State of Florida. Each party hereto consents to service of
process upon it by the mailing to it via certified or registered mail, return
receipt requested, of the proper pleadings.
c. Entire Agreement. This Agreement contains the entire
understanding between the parties hereto. No variations, modifications, or
changes herein shall be binding upon either party hereto unless set forth in a
document duly executed by or on behalf of both parties.
4. Arbitration.
a. Any controversy, claim, or dispute arising out of or
relating to this Agreement or the breach thereof shall be resolved by
arbitration in Indian River County, Florida pursuant to Florida Arbitration
Code, or its successor statute, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof and shall
constitute a final adjudication of all matters submitted to arbitration.
b. The parties shall select a single arbitrator within ten
(10) days of the date a written demand for arbitration is received by either
party from the other. In the event the parties fail to select an
arbitrator within said 10-day period, any party may make immediate application
to the Indian River County Circuit Court for the appointment of an arbitrator.
The parties agree to be bound by the Court's appointment of an arbitrator.
3
<PAGE> 4
c. It is the intent of the parties by this arbitration
provision to provide for a speedy and efficient means of resolving disputes.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
PROCTOR CONSTRUCTION COMPANY
By: /s/ Donald C. Porter
------------------------------
Its:
-----------------------------
ANDLINGER PROPERTIES CAPITAL L.P.
By Andlinger Properties Capital
Corp., its General Partner
By: /s/
Its: Attorney-in-fact
GRAND HARBOR ASSOCIATES, INC.
By: /s/ Kenneth L. Uptain
-----------------------------
Its:
-----------------------------
In consideration of Andlinger Properties Capital L.P. and Grand Harbor
Associates, Inc. entering into this Agreement and other related agreements, and
other valuable consideration, receipt and sufficiency of which are hereby
acknowledged, Donald C. Porter hereby guarantees the payment and performance of
the obligations of Proctor to APC and GHA under this Agreement.
/s/ Donald C. Porter
---------------------------------
Donald C. Porter
4
<PAGE> 1
EXHIBIT 13.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
Shares of Common Stock New York Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X . NO .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
Shares of common stock outstanding as of April 8, 1996: 39,822,304. The
aggregate market value of the Registrant's shares of common stock held by
non-affiliates on such date was $18,554,903.
DOCUMENTS INCORPORATED BY REFERENCE
See Exhibit index located on page 36
<PAGE> 2
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS....................................................... 1
ITEM 2. PROPERTIES..................................................... 4
ITEM 3. LEGAL PROCEEDINGS.............................................. 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 7
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SHARES AND RELATED SHAREHOLDER
MATTERS........................................................ 8
ITEM 6. SELECTED FINANCIAL DATA........................................ 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................... 13
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....... 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE....................................... 27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............. 28
ITEM 11. EXECUTIVE COMPENSATION......................................... 30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..................................................... 34
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 34
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K............................................................ 36
SIGNATURES............................................................... 37
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS OPERATIONS
The Registrant, Banyan Mortgage Investment Fund (the "Fund"), is a
Delaware corporation. The Fund was originally established to invest primarily
in (i) short-term loans, junior mortgage loans, wraparound mortgage loans and
first mortgage loans on income-producing properties and (ii) construction
loans, pre-development loans and land loans. In response to defaults on loans
made by the Fund to its borrowers, in February 1990, the Fund suspended making
new loans, except for advances of additional funds under circumstances which it
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.
The Fund owns interests in an office building and five undeveloped or
partially developed parcels of land aggregating approximately 5,600 acres.
In particular, the Fund effectively owns 100% of the Southbridge, Wayside,
Charles County and Bishop Ranch projects since the remaining limited
partnership interests in the projects are subordinated to a specific return on
investment to the Fund. Based on current financial projections, proceeds to be
generated from the projects will likely be insufficient to meet the total
prioritized return due to the Fund. Therefore, since such limited partners
have made no investment in the respective partnerships, have no control over
the operations of the partnerships and are not obligated to fund losses in
excess of their investment, their minority interests have been accorded no
value in the Fund's financial statements. The Fund believes that the value of
these assets can be enhanced through a combination of: (i) prudent management,
(ii) enhancement of entitlements and zoning applicable to the undeveloped land,
(iii) completing infrastructure improvements and developing lots for sale to
builders. A substantial portion of the Funds assets, measured by the carrying
value, is comprised of interests in large tracts of undeveloped land in
metropolitan Washington D.C. and Northern California all of which are in
various stages of the entitlement process. The Fund believes that the market
for the sale of large tracts of undeveloped land is currently limited.
Consequently, the Fund has attempted to enhance the value of these parcels by
modifying their zoning and entitlements. With respect to the Fund's operating
property, 120 S. Spalding, in early 1995 a tenant occupying approximately two-
thirds of the building's leasable space vacated the property. Subsequent to
December 31, 1995 the Fund entered into a contract with an unaffiliated third
party to sell 120 S. Spalding for $7,450,000. The sale of 120 S. Spalding is
scheduled to close on April 19, 1996.
The success of the Fund's business strategy is significantly influenced by
the level of its capital and the ability to raise additional capital when
needed. In October 1994 the Fund completed a refinancing of its long term debt
in the amount of $20,500,000 with a group of lenders for which Morgen,
Waterfall, Vintiadis & Co., Inc. served as agent (the "Morgens Loan"). In
addition, the Fund restructured its mortgage loan obligation on its Wayside
Village project with Societe Generale ("SoGen") in the principal amount of
$7,000,000 ("Modified Loan"). The renegotiated loan obligation with SoGen also
provided for a Revolving Loan Facility ("Revolving Loan"), in the amount of
$2,000,000, which was to fund additional infrastructure improvements at Wayside
Village. At the closing of the Morgens Loan, approximately $12,400,000 of the
loan proceeds were either utilized or designated for the repayment of the
Fund's then current outstanding debt obligations. The remaining $8,100,000 of
Morgens Loan proceeds was utilized to pay loan closing costs, general operating
expenses and zoning and development costs on the Fund's land parcels. In
August and September of 1995 the Fund submitted several draw requests to SoGen
under the Revolving Loan. SoGen declined to disburse cash proceeds to the Fund
under the Revolving Loan agreement. It was the opinion of SoGen that the
development costs as submitted pursuant
1
<PAGE> 4
ITEM 1. DESCRIPTION OF BUSINESS (CONTINUED)
to the Fund's draw requests did not qualify as fundable costs defined under the
Revolving Loan. It is the Fund's position that all development costs as
submitted qualified as "fundable costs" and the Fund was in complete compliance
with the Revolving Loan agreement. As a result of SoGen's refusal to honor the
Revolving Loan agreement, the Fund did not make its principal and interest
payment due October 1, 1995 on its Modified Loan. On November 3, 1995, SoGen
notified the Fund of its decision to cancel the Revolving Loan and to
accelerate and demand repayment of the balance of its outstanding Modified
Loan. In light of the SoGen actions, which the Fund believes delayed the
development and sale of finished lots at Wayside Village and the continued
general cash demands of the Fund's other land parcels, the cash proceeds from
the loan refinancings proved to be insufficient to meet the Fund's capital
needs for the continued implementation of its business plan. These delays also
required the Fund to incur additional holding costs which were not originally
anticipated when the refinancings were negotiated. As a result, the Fund was
unable to complete various infrastructure improvements at its Wayside Village
and Chapman's Landing projects which the Fund believes impeded its ability to
realize approximately $7,000,000 in lot sales revenues as originally
projected for the year ended December 31, 1995.
During 1995, the Fund has continued its efforts to enhance its liquidity
position through the attempted sale of the 120 S. Spalding property and smaller
ancillary land parcels extraneous to the overall development plan of the Fund's
undeveloped land parcels. However, cash proceeds generated from the sale of
120 S. Spalding or other smaller land parcels will be insufficient to provide
the Fund with the cash proceeds necessary for the continued implementation of
its business plan. Therefore, effective as of April 12, 1996, the Fund entered
into an Agreement and Plan of Merger (the "Merger Agreement") with RGI
Holdings, Inc. ("RGI Holdings") and its wholly owned affiliate RGI U.S.
Holdings, Inc., ("RGI U.S." or collectively "RGI"). The Fund entered into the
Merger Agreement with RGI in order to provide the Fund with cash liquidity and
capital resources necessary to proceed with the implementation of its business
plan. Under the Merger Agreement, RGI Holdings will invest $3,500,000 to
acquire 7,466,666 shares or approximately 16% of the Fund's outstanding common
stock, and will purchase the Morgens Loan and SoGen Loan from the holders
thereof. RGI Holdings has agreed that prior to December 31, 1996 it will not
accelerate the Morgens Loan or SoGen Loan or foreclose on any collateral for
the Morgens Loan or SoGen Loan 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 or the termination of the Merger Agreement; or (iii)
as a result of the execution of the Merger Agreement. Subject to the approval
of the Fund's stockholders, RGI U.S. will be merged with and into the Fund with
all of the outstanding shares of RGI U.S. being converted into 151,445,333
shares of the Fund's common stock. RGI U.S. owns a shopping center in
Lynnwood, Washington and two development properties in Vero Beach, Florida. If
the merger is approved, RGI Holdings will own approximately 80% of the Fund's
outstanding shares of common stock. The Fund anticipates seeking a vote on
this merger at its annual meeting which is not expected to occur until late
summer or early fall 1996 after the Fund makes the necessary regulatory filings
associated with the proposed merger.
2
<PAGE> 5
ITEM 1. DESCRIPTION OF BUSINESS (CONTINUED)
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. See Item 2, "Properties" for a description of the Fund's
real property investments. The business of the Fund is not seasonal and the
Fund does no foreign or export business. The Fund has no real property
investments located outside of the United States. The Fund does not segregate
revenue or assets by geographic region, and such a presentation is not
applicable and would not be significant to an understanding of the Fund's
business taken as a whole.
The Fund has four employees each of whom 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, 1995, the Fund did not incur any
material capital expenditures for environmental control facilities nor does it
anticipate making any expenditures for environmental control facilities for the
year ended December 31, 1996.
The Fund elected to be treated as a real estate investment trust ("REIT")
under Internal Revenue Code Sections 856-860 during the fiscal years ended
December 31, 1993 and 1994. On January 30, 1995, the Fund notified the
Internal Revenue Service of its intent to revoke the tax election to be treated
as a REIT under section 856(c)(1) of the Internal Revenue Code of 1986, as
amended, in order to enable it to develop its tracts of undeveloped land and to
avoid the adverse tax effect of being deemed a dealer of real property.
Pursuant to the revocation of tax election 856(c)1, the Fund will be taxed as a
"C" corporation for the year ended December 31, 1995.
3
<PAGE> 6
ITEM 2. PROPERTIES
As of December 31, 1995, the Fund owned interests in seven properties.
Below is a brief description of property interests owned by the Fund:
<TABLE>
<CAPTION>
Name, Type and Location Date
of Property Size Acquired Description
<S> <C> <C> <C>
120 S. Spalding Building 65,500 8/6/90 Fee ownership of land and improvements
Medical Office Building sq. ft.
Beverly Hills, CA g.l.a.
Chapman's Landing 2,230 acres 3/5/91 a 51% interest in a general
Land Parcel partnership which provides for
Charles County, MD prioritized return of investment
Southbridge 2,048 acres 5/16/91 a 51% interest in a general
Land Parcel partnership which provides for a
Prince William prioritized return of investment
County, VA
Wayside 506 acres 5/16/91 a 51% interest in a general
Land Parcel partnership which provides for a
Prince William prioritized return of investment
County, VA
Bishop Ranch 565 acres 9/4/91 a 50% interest in a limited
Land Parcel partnership which provides for a
Monterey County, CA prioritized return of investment
Oakridge Golf Club 210 acres 3/6/91 a 50% interest in a general partnership
Land Parcel
Dania, FL
Rancho Malibu 274 acres 7/1/92 a 1.4% limited partnership interest in
Land Parcel a limited partnership
Los Angeles County, CA
</TABLE>
The Fund also owns a small "carried interest" in 950 L'Enfant Plaza an
eight story office building located in Washington, D.C. with two parking levels
located in a four-building complex with 232,000 square feet of rentable space.
The property is currently under a renovation and retenanting program which is
anticipated to be completed in 1996. The Fund is entitled to 2.5% of monthly
cash flow from operations of the property and 4% of the gross sales proceeds
of the property upon sale. The Fund is not entitled to participate in the
decisions of management in respect to the property.
The following summarizes 1995 and 1994 occupancy levels by quarter for 120
S. Spalding:
<TABLE>
<CAPTION>
1995 1994
at 12/31 at 9/30 at 6/30 at 3/31 at 12/31 at 9/30 at 6/30 at 3/31
<S> <C> <C> <C> <C> <C> <C> <C>
27% 27% 27% 27% 92% 92% 100% 100%
</TABLE>
4
<PAGE> 7
ITEM 3. LEGAL PROCEEDINGS
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"). The plaintiffs
in the Illinois Litigation are as follows: (a) Monterey County Partners, a
partnership which itself is a partner of 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
Bishop Ranch project; (b) Investors Liquidating Trust, a Delaware Trust which
has been alleged to own 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 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.
The complaint seeks: (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; (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. has been 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 were associated with Monterey County Partners. All parties have
served and answered initial discovery requests and are presently producing
documents.
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 the Ownership Partnership requires an unsuccessful litigant
5
<PAGE> 8
ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
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.
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 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 Bishop 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, Waterfall, Vintiadis & Co., Inc.
("MWV") loan, which loan is partially guaranteed by the Ownership Partnership,
which partial guaranty is collateralized by a deed of trust recorded against
the Bishop 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 MWV guaranty, (ii) to quiet
title to the Bishop Ranch project, declaring null and void the interest of the
various defendant lenders which arises 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. The court gave the
parties until April 19, 1996 to report to the court on the progress of such an
agreement. The parties appeared before the Illinois Court on April 3, 1996,
upon the defendants' motion, to request the Court to impose a discovery and
trial schedule. The Illinois Court ordered that if the parties conclude
discovery by September 13, 1996, a trial date would be set in September or
shortly thereafter.
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. The partnership agreement which creates 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.
In a related but separate action entitled BMIF Monterey County Limited
Partnership v. Lombardo et. al., Superior Court of California, Monterey County,
the Ownership Partnership seeks a writ of possession against Anthony Lombardo,
a local attorney, who, the Ownership Partnership contends, formerly represented
it and who is therefore in possession of documents belonging to the Ownership
Partnership. The trial court denied the plaintiff's application for a writ of
possession and Lombardo has
6
<PAGE> 9
ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
counterclaimed alleging abuse of process. The Ownership Partnership has filed
motions to dismiss the counterclaim. A hearing on the motions to dismiss has
been scheduled for May 10, 1996.
The Registrant is not aware of any other material pending legal
proceedings as of April 8, 1996.
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 quarter ended December 31, 1995.
7
<PAGE> 10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SHARES AND RELATED SHAREHOLDER MATTERS
Although the Fund's shares of common stock are listed on both the New York
Stock Exchange and the Chicago Stock Exchange, they trade principally on the
New York Stock Exchange under the symbol "VMG". The range of high and low
share prices as reported by the New York Stock Exchange for each of the
quarters in the years ended December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Share Price
Quarter 1995 1994
<S> <C> <C> <C>
3/31 High $0.687 $1.250
Low $0.375 $0.938
6/30 High $0.750 $0.938
Low $0.625 $0.625
9/30 High $0.687 $0.938
Low $0.437 $0.688
12/31 High $0.500 $0.875
Low $0.375 $0.500
</TABLE>
As a result of the defaults by borrowers on the Fund's mortgage loans and
the resultant effect on the Fund's cash flow as well as capital needed to hold
and maximize the long-term value of the Fund's assets acquired through
foreclosure or deeds in lieu of foreclosure, no distributions were declared by
the Fund during the years ended December 31, 1995 and 1994. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for further details.
The Fund's ability to make future distributions to its stockholders is
dependent upon, among other things: (i) the Fund's ability to complete the
Agreement and Plan of Merger with RGI; (ii) the Fund's ability to consummate
the sale of 120 S. Spalding; (iii) the Fund's ability to control
operating/development expenses; (iv) the Fund's ability to consummate the sales
of finished lots at its development projects; (v) complete the sale of other
undeveloped ancillary land parcels and (vi) the general improvement of
conditions in the real estate markets where the Fund's properties are located.
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for further details.
At April 8, 1996, there were 10,374 record holders of the Fund's shares of
common stock.
8
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Year Ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Cash and Cash
Equivalents $ 316,012 $ 8,040,629 $ 3,750,553 $ 2,605,685 $ 4,167,997
Investment in Real ============ ============= ============= ============= ============
Estate (1) $103,428,617 $110,493,745 $127,562,429 $127,100,840 $177,203,644
============ ============= ============= ============= ============
Properties Owned at
December 31 5 5 8 10 15
============ ============= ============= ============= ============
Total Assets $109,133,514 $124,667,926 $136,227,364 $135,816,276 $201,583,955
============ ============= ============= ============= ============
Mortgage Loans
Payable $ 33,625,737 $ 31,932,645 $ 33,307,035 $ 35,472,262 $ 79,392,447
============ ============= ============= ============= ============
Total Income $ 1,399,918 $ 3,600,930 $ 4,975,764 $ 5,184,375 $ 12,303,971
============ ============= ============= ============= ============
(Recovery of)
Provision for Losses
on Mortgage Loans,
Notes, and Interest
Receivable and Class
Action Settlement
Costs and Expenses $ (906,629) $ (1,095,800) $ (7,916,073) $ 178,000 $ 723,513
Provision for Losses ============ ============= ============= ============= ============
on Investment
Properties $ 12,900,000 $ 9,000,000 $ 4,650,000 $ 1,900,000 $ 11,567,252
============ ============= ============= ============= ============
Income (Loss) Before
Extraordinary Item $(18,544,207) $(12,096,171) $ 1,139,858 $ (5,603,869) $(21,030,711)
============ ============= ============= ============= ============
Net Income (Loss) $(18,544,207) $ (9,282,279) $ 1,139,858 $ (5,603,869) $(21,030,711)
============ ============= ============= ============= ============
</TABLE>
9
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
For the Year Ended December 31
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Income (Loss) Per
Share of Common
Stock Before
Extraordinary
Item $ (0.47) $ (0.30) $ 0.03 $ (0.14) $ (0.53)
============ ============= ============= ============= ============
Net Income (Loss) Per
Share of Common
Stock (2) $ (0.47) $ (0.23) $ 0.03 $ (0.14) $ (0.53)
============ ============= ============= ============= ============
</TABLE>
(1) Represents the carrying amount of the Fund's Investment in Real Estate
less accumulated depreciation and valuation adjustments for losses on
investment properties.
(2) For the year ended December 31, 1995, a weighted average number of shares
(39,770,637) was used for calculating Net Income (Loss) Per Share due to
the issuance of 79,909 shares of common stock during the third quarter of
1995. For the year ended December 31, 1994, a weighted average number of
shares (39,724,995) was used for calculating Net Income (Loss) Per Share
due to the issuance of a total of 53,101 shares of common stock during the
second quarter of 1994. The shares outstanding for 1993 are 39,689,294.
For the year ended December 31, 1992 a weighted average number of shares
(39,690,132) was used for calculating Net Income (Loss) Per Share of
Common Stock due to the acquisition of 20,100 Shares of Common Stock by
the Fund on January 16, 1992 which are being treated as treasury stock for
financial statement presentation. The shares outstanding for 1991 are
39,709,394.
10
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
QUARTERLY RESULTS OF OPERATIONS
The following is a summary of the quarterly results of operations for the
years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
Three Months Ended
1995 March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Total Income $ 617,371 $ 325,174 $ 231,503 $ 225,870
Recovery of Losses on Mortgage
Loans, Notes, Interest
Receivable and Class Action Settlement
Costs and Expenses 495,591 --- --- 411,038
Provision for Losses on Investment
in Real Estate (1) --- --- --- (12,900,000)
Operating Expenses (2,015,086) (1,995,161) (1,834,234) (1,897,147)
Loss From Operations
of Real Estate Venture (43,629) (47,087) (67,645) (55,155)
Gain (Loss) on Disposition of
Real Estate 1,017 6,541 (3,168) ---
----------- ----------- ------------ ------------
Net Loss (2) $ (944,736) $(1,710,533) $(1,673,544) $(14,215,394)
=========== =========== ============ ============
Net Loss Per Share of Common
Stock (2) $ (0.02) $ (0.04) $ (0.04) $ (0.36)
=========== =========== ============ ============
</TABLE>
11
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended
1994 March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Total Income $ 1,213,720 $ 972,571 $ 688,699 $ 725,940
Recovery of Losses on Mortgage
Loans, Notes, and Interest
Receivable and Class Action Settlement Costs 796,985 --- --- 298,815
Provision for Losses on Investment
in Real Estate (1) --- --- --- (9,000,000)
Operating Expenses (2,151,917) (2,361,020) (1,541,806) (1,810,863)
Income (Loss) From Operations
of Real Estate Venture (50,202) (163,596) 717,948 (62,059)
Arbitration Award --- (3,768,743) 518,743 ---
Gain (Loss) on Disposition of
Real Estate (35,423) 2,864,083 226,264 (174,310)
----------- ----------- ------------ ------------
Income (Loss) Before Extraordinary
Item (226,837) (2,456,705) 609,848 (10,022,477)
Forgiveness of Debt --- --- --- 2,813,892
----------- ----------- ------------ ------------
Net Income (Loss) (3) $ (226,837) $(2,456,705) $ 609,848 $ (7,208,585)
=========== =========== ============ ============
Income (Loss) Per Share of Common Stock $ (0.01) $ (0.06) $ 0.02 $ (0.25)
Before Extraordinary Item =========== =========== ============ ============
Net Income (Loss) Per Share of Common Stock(3) $ (0.01) $ (0.06) $ 0.02 $ (0.18)
=========== =========== ============ ============
</TABLE>
(1) During the quarters ended December 31, 1995 and 1994, the Fund recorded
an additional provision for losses on investment properties of $12,900,000
and $9,000,000, respectively.
(2) For the first and second quarters of 1995, Net Income (Loss) per share is
computed using 39,742,395 shares then outstanding. On August 25, 1995,
the Fund issued 79,909 shares of common stock to Leonard G. Levine, its
President, according to his employment agreement. Accordingly, Net Income
(Loss) per share is computed using 39,774,532 shares representing the
weighted average number of shares outstanding during the third quarter.
For the fourth quarter of 1995, 39,822,304 shares were used to compute Net
Income (Loss) per share.
(3) For the first quarter of 1994, Net Income (Loss) per share is computed
using the 39,689,294 shares then outstanding. On April 29, 1994, the Fund
issued 50,437 shares of its common stock to Leonard G. Levine, its
President, according to the terms of his employment agreement and 2,664
shares of its common stock on May 31, 1994 in connection with the exercise
of certain vested options granted to certain officers of the Fund and
employees of Banyan Management Corp. pursuant to the Executive and
Directors Stock Option Grant Plan approved by the Fund's shareholders in
June of 1993. Accordingly, Net Income (Loss) per share is computed using
39,725,119 shares representing the weighted average number of shares
outstanding during the second quarter. There were 39,742,395 shares
outstanding during the third and fourth quarters of 1994.
12
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Banyan Mortgage Investment Fund (the "Fund") was originally established to
invest primarily in (i) short-term loans, junior mortgage loans, wraparound
mortgage loans and first mortgage loans on income-producing properties and (ii)
construction loans, pre-development loans and land loans. In response to
defaults on loans made by the Fund to its borrowers, in February 1990, the Fund
suspended making new loans, except for advances of additional funds under
circumstances which it 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.
The Fund owns interests in an office building and five undeveloped or
partially developed parcels of land aggregating approximately 5,600 acres. In
particular, the Fund effectively owns 100% of the Southbridge, Wayside, Charles
County and Bishop Ranch projects since the remaining limited partnership
interests in the projects are subordinated to a specific return on investment
to the Fund. Based on current financial projections, proceeds to be generated
from the projects will likely be insufficient to meet the total prioritized
return due to the Fund. Therefore, since such limited partners have made no
investment in the respective partnerships, have no control over the operations
of the partnerships and are not obligated to fund losses in excess of their
investment, their minority interests have been accorded no value in the Fund's
financial statements. The Fund believes that the value of these assets can be
enhanced through some combination of: (i) prudent management, (ii) enhancement
of entitlements and zoning applicable to the undeveloped land; and (iii)
completing infrastructure improvements and developing lots for sale to
builders. A substantial portion of the Fund's assets, measured by the carrying
value, is comprised of interests in large tracts of undeveloped land in
metropolitan Washington D.C. and Northern California all of which are in
various stages of the entitlement process. The Fund believes that long-term
shareholder value will be maximized by completing the entitlements and various
infrastructure improvements at the Wayside Village, Southbridge, Chapman's
Landing and Bishop Ranch properties which could make each of these properties
more marketable. As of December 31, 1995, the Fund's cash position and
financing capabilities were insufficient to proceed with the entitlement and
development of its assets. The Fund is currently working to enhance its cash
and liquidity position through the sale of the 120 S. Spalding property and
smaller ancillary land parcels extraneous to the overall development plan of
its undeveloped land parcels. The Fund has also entered into an Agreement and
Plan of Merger (the "Merger Agreement") dated as of April 12, 1996 with RGI
Holdings, Inc. ("RGI Holdings") and its wholly owned affiliate, RGI U.S.
Holdings, Inc., ("RGI U.S." or collectively "RGI"). The Fund entered into the
Merger Agreement with RGI in order to provide the Fund with cash liquidity and
capital resources necessary to proceed with the implementation of its business
plan.
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, 1995 and December 31,
1994 was $316,012 and $8,040,629, respectively. This decrease in cash and cash
equivalents is due primarily to the payment of approximately $8,500,000 of
expenses and capitalized items related to the Chapman's Landing, Southbridge,
Wayside Village and Bishop Ranch properties, the payoff of approximately
$1,041,000 of the Wayside Village and Southbridge mortgage loan principal, the
payment of approximately $842,000 of interest on the Morgens Loan, the purchase
of approximately $55,000 of land and the payment of the Fund's operating
expenses.
13
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Partially offsetting the decreases in cash was the receipt of $1,028,539 of net
proceeds from the Wayside Village lot sales, the receipt of $981,950 of
distributions from the Fund's interests in the liquidating trusts established
for the benefit of the unsecured creditors of VMS, approximately $254,000 of
interest earned on cash and cash equivalents and income from property operating
activities.
Management has taken a number of steps to enhance the Fund's working
capital position. Over the past several years, the Fund's liquidity has been
provided by cash generated from the operations of the Fund's existing operating
properties which currently consist solely of 120 S. Spalding (scheduled
to be sold on April 19, 1996 for $7,450,000), interest on short term
investments, cash proceeds from property sales, interim financing, and cash
distributions received from the liquidating trusts. Historically, these
sources have not produced the working capital necessary to meet the
requirements for both development and entitlement costs related to the Fund's
development properties and the Fund's operating costs.
On October 17, 1994, the Fund executed a Credit Agreement with a group
of lenders for which Morgens, Waterfall, Vintiadis & Co. Inc. served as agent
in the amount of $20,500,000. The Fund was obligated to make quarterly
interest payments in arrears at an annual rate of 17.5% as well as certain
payments, which were applied to repay Morgens Loan interest, based on 50% of
the net cash flow generated by its wholly owned subsidiaries. For the year
ended December 31, 1995, the Fund made cash flow payments of $841,548 which
were treated as payments of deferred interest. From October 17, 1994 until
September 30, 1995, the Fund elected to defer interest due on the Morgens Loan,
other than the cash flow payments, which were added to the outstanding
principal balance of the loan. As of December 31, 1995, the principal balance
outstanding, including capitalized interest through September 30, 1995, was
$23,233,737. The Morgens Loan is collateralized by first mortgages on the 120
S. Spalding, Chapman's Landing and Bishop Ranch properties and portions of the
Southbridge property, as well as pledges of the common stock and partnership
interests of the Fund's subsidiaries, the Fund's accounts receivable, bank
accounts and all other tangible and intangible personal property.
The Fund utilized the net proceeds of the Morgens Loan to repay
outstanding loans collateralized by first mortgages on the Chapman's Landing
and Bishop Ranch properties in the amount of $1,130,853 and $1,959,409,
respectively, and $3,250,000 to fund its obligation arising from Buckeye
arbitration. The Fund also paid a total of $4,323,630 from the
14
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Morgens Loan proceeds to Chase Manhattan Bank ("Chase"), in exchange
for Chase's full release of its 50% interest in the $14,069,462 outstanding
loan collateralized by a first mortgage on the Wayside Village property and
portions of the Southbridge property (the "Original Wayside Loan"). The
payment to Chase consisted of a partial principal payment of $4,220,839, which
represented Chase's $7,034,731 principal portion of the Original Wayside Loan,
less a 40% discount, and accrued interest of $102,791. Simultaneously, the
Fund and Societe Generale ("SoGen") agreed to modify the terms of SoGen's
$7,034,731 principal portion of the Original Wayside Loan (the "Amended Wayside
Loan"). The terms of the loan modification agreement (the "Amended Agreement")
extended the maturity date of the Amended Wayside Loan to December 31, 1997 and
provided for monthly interest payments, in arrears, at an interest rate of
prime plus 200 basis points. The Fund and SoGen also agreed upon a $2,000,000
revolving credit line (the "Revolving Loan") to fund specific development costs
associated with lot sales contracts for the Wayside Village property. The
terms of the Revolving Loan provide for monthly interest payments in arrears at
an interest rate of prime plus 300 basis points. The Amended and Revolving
Wayside Loans require principal to be repaid as lots are sold, based on
specified release prices, and are cross-collateralized and cross-defaulted.
Pursuant to the SoGen transactions, the Fund paid $34,731 to reduce the
outstanding Amended Wayside Loan principal to $7,000,000. The Fund also paid
accrued interest of $102,791, loan fees of $95,000 and other fees and expenses
totalling approximately $188,500 from the Loan proceeds, including $126,500
escrowed for future real estate taxes on Wayside Village.
In August and September of 1995 the Fund submitted several draw
requests to SoGen under the Revolving Loan. SoGen declined to disburse cash
proceeds to the Fund under the Revolving Loan agreement. It was the opinion of
SoGen that the development costs as submitted pursuant to the Fund's draw
requests did not qualify as fundable costs defined under the Revolving Loan.
It is the Fund's position that all development costs as submitted qualified as
"fundable costs" and were in complete compliance with the Revolving
Loan agreement. As a result of SoGen's refusal to honor the Revolving Loan
agreement, the Fund did not make its principal and interest payment due October
1, 1995 on its Amended Wayside Loan. On November 3, 1995, SoGen declared a
default under the Amended Wayside Loan. As a result of the default, SoGen has
demanded immediate repayment of all sums due under the loan, amounting to
approximately $6,600,000 which includes the outstanding principal balance of
$6,360,000. In addition, SoGen separately cancelled the Revolving Loan. The
Fund had not drawn any monies to date under the Revolving Loan. On March 23,
1996 SoGen gave the Fund notice of a foreclosure sale which was scheduled for
April 10, 1996. On April 5, 1996 SoGen agreed to postpone the sale to a date
not earlier than May 20, 1996 in exchange for which the Fund paid SoGen
$25,000.
It is the Fund's contention that a limited number of lots were developed
at Wayside Village during the past construction season due, in large part, to a
seven-month delay in obtaining SoGen's consent to a subordination agreement
among the Fund, a home builder and SoGen, causing the Fund to seek deferral of
the mandatory principal payments due and to
15
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
become due during the remaining nine months of 1996. The Fund has also
been unsuccessful in its efforts to obtain a draw under the Revolving Loan as
discussed above, despite the Fund's interpretations of the Revolving Loan
agreement and submission of what the Fund believes are appropriate draw
requests and documentation to SoGen. The Fund has expended $3,270,000 in
infrastructure improvements and other costs during the last year as a condition
precedent to such funding requests. As a result of these delays and SoGen's
refusal to honor the Revolving Loan agreement, the Fund was unable to complete
various infrastructure improvements at its Wayside Village project which
impeded the Fund's ability to realize approximately $7,000,000 in lot sales
revenues as originally projected for the year ended December 31, 1995.
The default and acceleration of the SoGen Loan constitutes a default
under the Morgens Loan. In addition, the Fund has not made the January 1, 1996
and April 1, 1996 interest payments of approximately $1,025,000 and
approximately $1,014,000, respectively, due under the Morgens Loan. Morgens has
indicated that it does not presently intend to accelerate repayment of its loan
as a result of the default under the SoGen Loan or by reason of the failure by
the Fund to make either the January 1, 1996 or April 1, 1996 interest payment
due under the Morgens Loan agreement. Morgens has notified the Fund that this
nonpayment of interest constitutes an Event of Default under the Credit
Agreement. Morgens has entered into an agreement to sell the Morgens Loan to
RGI Holdings, Inc. provided that the warrants issued to the lenders of the
Morgens Loan by the Fund will be cancelled by the Fund as part of this sale.
In addition, the Fund anticipates entering into an agreement with RGI Holdings
modifying the terms of the Morgens Loan to provide the Fund with additional
flexibility in implementing its business plan.
During 1995, the Fund has continued its efforts to enhance its
liquidity position through the sale of the 120 S. Spalding property and smaller
ancillary land parcels extraneous to the overall development plan of its
undeveloped land parcels. Subsequent to December 31, 1995 the Fund entered
into a contract with an unaffiliated third party to sell 120 S. Spalding for
$7,450,000. The sale of 120 S. Spalding is scheduled to occur on April 19,
1996. The cash proceeds received from the sale of 120 S. Spalding will be
redeployed to continue with the entitlement and development of the Fund's land
parcels as discussed above and to pay interest and restructure its long term
debt. However, cash proceeds generated from the sale of 120 S. Spalding and
the smaller land parcels will be insufficient to provide the Fund with the cash
proceeds necessary for the continued implementation of its business plan.
Therefore, effective as of April 12, 1996, the Fund entered into an Agreement
and Plan of Merger (the "Merger Agreement") with RGI Holdings, Inc. ("RGI
Holdings") and its wholly owned affiliate RGI U.S. Holdings Inc., ("RGI U.S."
or collectively "RGI"). The Fund entered into the Merger Agreement with RGI in
order to provide the Fund with cash liquidity and capital resources necessary
to proceed with the implementation of its business plan. Under the Merger
Agreement, RGI Holdings will invest $3,500,000 to acquire 7,466,666 shares or
approximately 16% of the Fund's outstanding common stock, and will purchase the
Morgens Loan and SoGen Loan from the holders thereof. RGI Holdings has agreed
that prior to December 31, 1996 it will not accelerate the Morgens Loan or
SoGen Loan or foreclose on any collateral for the Morgens Loan or SoGen Loan
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 or the
termination of the Merger Agreement; or (iii) as a result of the execution of
the Merger Agreement. Subject to the approval of the
16
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Fund's stockholders, RGI U.S. will be merged with and into the Fund
with all of the outstanding shares of RGI U.S. being converted to 151,445,333
shares of the Fund's common stock. RGI U.S. owns a shopping center in
Lynnwood, Washington and two development properties in Vero Beach, Florida. If
the merger is approved, RGI Holdings will own approximately 80% of the Fund's
outstanding shares of common stock. The Fund anticipates seeking a vote on
this merger at its annual meeting which is not expected to occur until late
summer or early fall 1996 after the Fund makes the necessary regulatory filings
associated with the proposed merger.
Management of the Fund believes that its remaining cash reserves, proceeds
from the sale of 120 S. Spalding, its interest in the Oakridge Venture,
ancillary land parcels at its development properties and the cash proceeds and
capital resources to be derived from the Agreement and Plan of Merger with RGI,
will enable the Fund to execute the business plans of its real estate assets
and should provide sufficient funds to meet its reasonably expected liquidity
needs for the foreseeable future.
During 1995, the Fund received cash distributions of $981,950 in
respect of its interests in liquidating trusts established for the benefit of
the unsecured creditors, including the Fund, of VMS Realty Partners and its
affiliates ("VMS"). For the year ended December 31, 1995, the Fund has treated
$906,629 of these distributions as a recovery of losses on loans, notes,
interest receivable and class action settlement costs and expenses. The
$906,629 net recovery recorded in 1995 represents the total $981,950
distributions received net of an estimated $75,321 due 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 1994 and
1993, the Fund recorded $298,815 and $7,916,073, respectively, on its
Consolidated Statements of Income and Expenses as a recovery of losses on
mortgage loans, notes and interest receivable in respect of distributions
received from the liquidating trusts. The $298,815 net recovery realized in
1994 includes the recognition of a $350,962 distribution received net of the
estimated $52,147 due to the Class Action Settlement Fund. As of December 31,
1995 the Fund owed $127,468 to the Class Action Settlement Fund.
17
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
GENERAL
Total income for the years ended December 31, 1995, 1994 and 1993 was
$1,399,918, $3,600,930 and $4,975,764, respectively. Total income for the year
ended December 31, 1995 decreased by $2,201,012 when compared to the same
period in 1994 due primarily to the decrease in operating property income.
Operating property income decreased to $1,230,028 for the year ended December
31, 1995 from $3,455,283 for the year ended December 31, 1994. This decrease
is primarily attributable to the 65% decrease in occupancy and the resulting
decline in rental income at the 120 S. Spalding property which occurred in
March 1995. Partially offsetting this decline was a slight increase in
interest income earned on cash and cash equivalents. Total income for the year
ended December 31, 1994 decreased by $1,374,834 when compared to the year ended
December 31, 1993. This decrease was due to a $1,481,569 decrease in operating
property income. Operating property income decreased as a result of the Fund's
May 26, 1994 sale of the Cascades Apartments and the corresponding decrease of
approximately $1,200,000 in rental income for 1994 when compared to 1993. In
addition, prior to its sale on September 23, 1994, the 9025 Wilshire Blvd.
building was unoccupied for most of 1994 due to structural damage caused by the
January 17, 1994 Los Angeles area earthquake which further contributed to a
decrease in operating property income. During 1993, the 9025 Wilshire
Boulevard property generated gross operating property income of approximately
$227,000. Partially offsetting this decline in property operating revenue was
an $80,987 increase in rental income at 120 S. Spalding for the year ended
December 31, 1994 when compared to the year ended December 31, 1993. Interest
income earned on income from cash and cash equivalents increased approximately
$107,000 for the year ended December 31, 1994 when compared to 1993 due to the
receipt of cash proceeds from property sales and the Morgens Loan financing
which increased the amount of cash available for short term investment.
Management reviews the properties held by the Fund on a quarterly basis
utilizing current market information, including appraisals, market studies,
financial projections and sales comparisons. When it has been determined, in
management's opinion, that a permanent impairment in the value of a given
property has occurred due to changes in market conditions and/or business
strategy, the carrying value of the property is adjusted accordingly.
Expenses from property operations for the years ended December 31,
1995, 1994 and 1993 were $15,607,077, $11,939,380 and $8,554,566, respectively.
The increase in expenses from property operations for the year ended December
31, 1995 when compared to the year ended December 31, 1994 is primarily
attributable to an increase of $3,900,000 in the provision for losses on
investment properties and an increase of approximately $708,000 in development
property expenditures. For the year ended December 31, 1995, the Fund recorded
a $6,000,000 provision for losses on investment properties in respect to its
Wayside project, a $3,600,000 provision for losses on investment properties in
respect to its 120 S. Spalding building and a $3,300,000 provision for losses
on investment properties in respect to its Bishop Ranch Project. The provision
for losses on investment properties related to the Wayside project, for the
year ended December 31, 1995 results of the Fund's inability to complete lot
and infrastructure improvements at the project as originally scheduled pursuant
to its business plan due to a continued shortfall in cash resources as
discussed below. In addition, for the year ended December 31, 1995, the Fund
recorded a provision for losses on investment properties against the carrying
value of its 120 S. Spalding property. The carrying value of the 120 S.
Spalding property has been written down to reflect the fair market value as
evidenced by a contract for sale of the property which was executed in February
of 1996 and is expected to be consummated on April 19, 1996.
18
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
It is the Fund's intent to utilize the proceeds from the sale of 120 S.
Spalding to continue with the development of its development assets as
discussed below. A $3,300,000 provision for losses on investment properties
was recorded for Bishop Ranch during the fourth quarter of 1995. This provision
was necessary due to the additional holding costs incurred on the property
caused primarily by the protracted entitlement process. The increase in
development property expenditures relates to costs associated with the
increased sales, advertising and marketing efforts for the Wayside Village and
Chapman's Landing projects. Partially offsetting these increases was the
decrease in operating property expenses, repairs and maintenance, real estate
taxes and depreciation expenses of approximately $916,000 for the year ended
December 31, 1995 when compared to 1994. These decreases were due to the sale
of the Cascades Apartments, the 9025 Wilshire Blvd. building and the Rocky
Point property in the second and third quarters of 1994. Bad debt expense also
decreased for 1995 by approximately $25,000 when compared to 1994 due primarily
to the favorable settlement of certain outstanding receivables at the 120 S.
Spalding building.
The increase of approximately $3,385,000, in expenses from property
operations for the year ended December 31, 1994 when compared to the year
ended December 31, 1993 was primarily attributable to a $4,350,000 increase in
the provision for losses on investment properties. In particular, for the
quarter ended December 31, 1994, the Fund recognized a $9,000,000 provision for
losses on investment properties compared to a $4,650,000 provision for losses
on investment property recognized for the quarter ended December 31, 1993. The
$9,000,000 provision for losses on investment properties consisted of a
$6,000,000 provision taken on the 120 S. Spalding property and a $3,000,000
provision taken on the Wayside development.
With respect to the Fund's operating property, 120 S. Spalding, the
$6,000,000 provision for losses on investment properties was recognized by the
Fund, upon notification from the building's largest tenant, which occupied
two-thirds of the building, that it was relocating. In light of the
engineering plans and cost projections assembled pursuant to the redevelopment
business plan for 120 S. Spalding, the revised projection of market leasing
rates and the interest cost on the Morgens Loan discussed above, the Fund
determined that an immediate sale of the property could generate a return to
shareholders that is comparable to the proceeds available after incurring
redevelopment expenses given the development and leasing risk associated with
refurbishing the property.
The $3,000,000 provision for losses on investment properties regarding the
Wayside development was required as a result of the Fund's inability to
complete lot and infrastructure improvements at Wayside as originally scheduled
due to a shortfall in cash resources. As a result, the Fund was unable to
complete and sell the same volume of lots and home sites as originally
projected in its business plan, thereby extending the time frame, in excess of
two years, for the sell-off of the Wayside development. As a result of the
delay, holding costs were increased which include interest on the Amended
Wayside Loan at prime plus 200 basis points and interest on a portion of the
Morgens Loan at 17.5%. At April 1, 1996, the prime rate as published in the
Wall Street Journal was 8.25%. The holding costs associated with the project
during 1994 were capitalized and
19
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
added to the carrying value of the Wayside Development. The additional costs
associated with holding the property, based on the revised time frame required
for the disposition and sell-off of the Wayside Development, would have
exceeded the projected cash recovery for the development if the provision had
not been recognized.
The $4,650,000 provision for losses on investment properties as recorded
in 1993 was primarily the result of the continued decline in real estate values
in the Southern California office market.
Also contributing to the increase in expenses from property operations for
the year ended December 31, 1994 when compared to 1993, was the $271,000
increase in development property expenses. These expenses reflect costs
related to the Southbridge development. Effective January 1, 1994, after an
interruption of progress toward active development of the Southbridge site had
occurred and after the VMIF/Anden Southbridge Venture filed a voluntary
petition under Chapter 11 of the U.S. Bankruptcy Code, the Fund made a decision
not to capitalize these costs. The Bankruptcy Court confirmed the Venture's
plan of reorganization on December 21, 1994. (See Property Operations for
further details.) These increases in Provision for Losses on Investment
Properties and the increases in development property expenses were partially
offset by decreases in operating property expenses, repair and maintenance
expenses and depreciation expense attributable to the sale of the Cascades
Apartments and the 9025 Wilshire building during the second and third quarter
of 1994 and the exclusion of its expenses for the remainder of the year ended
December 31, 1994. Bad debt expense also decreased for the year ended December
31, 1994 when compared to the same period in 1993 due to the settlement of
certain outstanding receivables at the 120 S. Spalding and 9025 Wilshire Blvd.
buildings which took place during 1993.
Total other expenses (recoveries) for the year ended December 31, 1995,
1994, and 1993 were $4,127,922, $3,830,426 and ($4,264,742), respectively. The
$297,496 increase in other expenses (recoveries) for the year ended December
31, 1995 when compared to 1994, was primarily due to an increase in interest
expense and amortization of deferred loan, and other costs as well as a
decrease in the recovery of losses on mortgage loans, notes, interest
receivable and class action settlement costs and expenses. The $696,792
increase in interest expense and amortization of deferred loan and other costs
is a result of the Morgens Loan completed in October of 1994. In addition, the
decrease in the recovery of losses on mortgage loans, notes, interest
receivable and class action settlement costs and expenses is attributable to
the non-recurring receipt of $796,985 representing net proceeds from a recovery
of payments previously made into an escrow established as part of the class
action settlement of the VMS securities litigation on January 25, 1994. During
1994, the Fund also recorded a $298,815 recovery related to its interest in the
liquidating trusts. The 1994 recovery of $1,095,800 exceeded the 1995 recovery
of $906,629 of losses on mortgage loans, notes and interest receivable by
approximately $189,000. The 1995 recovery related to its distributions
received from the Fund's interests in the liquidating trusts as discussed above
in Liquidity and Capital Resources. Partially offsetting the increase in
expenses and decrease in recoveries for 1995 when compared to 1994, was a
decrease in stockholder expenses, directors' fees, expenses and
20
<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
insurance, other professional fees, and general and administrative expenses.
Stockholder expenses decreased by $57,939 due to Banyan Management Corp. ("BMC")
personnel performing more of the responsibilities related to investor relations
as apposed to outside third parties. Directors fees, expenses and insurance
decreased by $96,361 due to the improved rates received for directors and
officers insurance. Other professional fees decreased by $184,509 as a result
of the decreased expenditures for legal costs attributable to the Buckeye
arbitration which was settled in October 1994. General and administrative
expenses decreased by $249,658 primarily due to a decrease in the number of
hours spent by BMC personnel on Fund-related matters. In comparison, during
1994, a significant amount of time and resources were devoted to exploring
various sources of financing for the Fund, resolving the Beverly Hills
arbitration and negotiating of the sale of the Cascades and Rocky Point
properties.
Total other expenses (recoveries) for the year ended December 31, 1994
reflect an increase of approximately $8,095,000 when compared to 1993. The
increase is primarily due to a decrease in recovery of losses on mortgage
loans, notes, interest receivable and class action settlement costs and
expenses. Also contributing to this increase is an increase in interest
expense and amortization of deferred loan costs, stockholder expenses, other
professional fees, general and administrative expenses. In 1993 the Fund
recorded a $7,916,073 recovery of losses on mortgage loans, notes, interest
receivable and class action settlement costs and expenses with respect to its
interests and receipt of distributions from two liquidating trusts (see
Liquidity and Capital Resources above and Note 6 to the Notes to Consolidated
Financial Statements for further details). In 1994 the Fund recorded a
recovery of $298,815 with respect to distributions received from the
liquidating trusts and a recovery of $796,985 related to the recovery of net
escrow proceeds attributable to the litigation captioned "In re VMS Securities
Litigation". Interest expense and amortization of deferred loan costs
increased by approximately $914,000 for the year ended December 31, 1994 when
compared to 1993. This increase is primarily attributable to approximately
$538,000 of Southbridge related interest expenses recorded during 1994 which
had been capitalized in 1993. Also, during the second quarter of 1994 the Fund
wrote-off approximately $484,000 of deferred loan fees in connection with the
repayment of the Fund's Heller Loan obligation. In 1993, the Fund incurred
$887,786 in interest expense, amortization of deferred loan, and other costs
relating to the Fund's Heller Loan and $35,395 related to amortization of
organizational costs. Stockholder expenses for 1994 increased when compared to
1993 due to the increased annual report and transfer service costs. Other
professional fees increased for 1994 when compared to 1993 as a result of
increased expenditures for legal and other consulting costs attributable to the
Beverly Hills arbitration as discussed below. General and administrative
expenses for 1994 increased when compared to the prior year due primarily to an
increase in BMC expenses which were allocated to the Fund based on the hours
spent by BMC personnel on Fund-related matters. Partially offsetting these
increases, director's fees, expenses and insurance decreased slightly for 1994
when compared to 1993 due to lower directors' and officers' expenses as a
result of a decrease in board meeting costs.
21
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The line item "Net Loss from Operations of Real Estate Ventures" relates
to the Oakridge Venture and was $213,516 and $560,347 for the years ended
December 31, 1995 and 1993, respectively compared to net income of $442,091 for
the year ended December 31, 1994. The 1994 net income includes the Fund's
portion of a gain of $869,704 on the sale of a 60-acre portion of the Oakridge
site and a $427,613 loss on operations. The $213,516, $427,613 and $560,347
loss on operations for the years ended 1995, 1994 and 1993 related primarily to
the costs of zoning the property and marketing it for sale. The continuous
decline in operating expenses reflects the completion of the zoning process and
negotiation of several sales contracts.
The line item entitled "Arbitration Award" appearing in 1994 and not
repeated in 1995 relates to a one-time arbitration award paid by the Fund in
1994. The Fund and Banyan Mortgage Investors L.P. II ("BMLPII"), acting for
itself and on behalf of THSP Associates L.P. II ("THSP") (formerly Banyan
Mortgage Investors L.P. III), had agreed to resolve, by means of arbitration,
the issue of the amount of compensation, if any, owed by the Fund to BMLPII in
consideration for BMLPII's agreement to relinquish, and take no action with
respect to its interests in certain Beverly Hills, California properties
commonly known as the Buckeye properties which the Fund took control of in
1990. On July 20, 1994, a panel of arbitrators awarded BMLPII approximately
$3,768,000. Subsequently, a negotiated settlement was reached, and on October
17, 1994, the award was satisfied by the Fund's payment of $3,250,000.
For the years ended December 31, 1995, 1994 and 1993, the Fund recognized
gains on the disposition of real estate in the amount of $4,390, $2,880,614 and
$1,014,265, respectively. See Property Operations below for additional details
regarding the sale of the Fund's properties.
For the year ended December 31, 1994, the Fund recognized a $2,813,892
extraordinary gain from the forgiveness of debt related to the refinancing of
the existing debt on the Wayside development. See Property Operations below
for further details.
The above changes for the year ended December 31, 1995 and 1994 resulted
in a net loss of $18,544,207 ($0.47 per share) and $9,282,279 ($0.23 per
share), respectively compared to net income of $1,139,858 ($0.03 per share) in
1993.
PROPERTY OPERATIONS
At December 31, 1995, the Fund owned an office building located at 120 S.
Spalding Dr. in Beverly Hills, California which was 27% leased (92% leased as
of December 31, 1994). For the year ended December 31, 1995, the 120 S.
Spalding property provided the Fund with cash flow from rental income in excess
of operating expenses of approximately $304,000 as compared to approximately
$1,700,000 for 1994. The $1,396,000 decrease is a result of the decrease in
rental income attributable to the expiration of the lease of the building's
largest tenant, City National Bank ("City National") which occupied two-thirds
of the building. A provision for losses on investment properties in the amount
of $3,600,000 and $6,000,000 was recognized by the Fund for the quarters ended
December 31, 1995 and 1994, respectively with respect to the 120 S. Spalding
building. With the notification from City National that it was relocating, the
Fund proceeded
22
<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
with the previously announced plan to redevelop and re-lease the space vacated
by City National as medical office space along with marketing the property for
sale. In light of the engineering plans and cost projections assembled pursuant
to the redevelopment business plan, the revised projection of market leasing
rates and interest costs on the financing of a redevelopment of property, the
Fund determined that an immediate sale of the property could generate a return
to shareholders that is comparable to the proceeds available after incurring
redevelopment expenses given the development and leasing risk associated with
refurbishing the property. The provision for loss recognized in the fourth
quarters of 1995 and 1994, therefore, reflect the Fund's change in strategy to
include immediate disposition of the asset. Subsequent to December 31, 1995 the
Fund entered into a contract with an unaffiliated third party to sell 120 S.
Spalding for $7,450,000. This sale is scheduled to close on April 19, 1996.
In addition to the 120 S. Spalding property, the Fund also owns interests
in five parcels of land (see Item 2, "Properties" for further details on
ownership structure). During the year ended December 31, 1995, the Fund
disbursed a net total of approximately $7,285,000, excluding mortgage loan
principal repayments, for capitalized development costs and carrying costs
which include approximately $1,859,000 on the Chapman's Landing property,
approximately $4,195,000 on Wayside Village and approximately $1,231,000 on
Bishop Ranch. The expenditures were primarily for capitalized interest, real
estate taxes, land planning, engineering, site improvements and entitlement
work. (See discussion below for further details).
The Fund's other large land parcel, the Southbridge project, consists of
2,048 acres, of which, 278 acres was previously zoned for residential
development. On January 5, 1993, the Prince William County Board of
Supervisors approved the Cherry Hill Sector Plan for the remaining 1,770 acres
of land in the project which is now entitled for 4,100 residential units and
4,200,000 square feet of commercial space. The Fund believes that this sector
plan designation enhances the property's value and marketability. During 1993,
the Fund entered into a series of negotiations to restructure the scheduled
repayment of principal of a note in the principal amount of $4,200,000, which
is collateralized by a first mortgage on a 538 acre parcel of the Southbridge
property. The Fund was unable to reach an acceptable restructuring with the
noteholder and therefore, on December 20, 1993, VMIF/Anden Southbridge Venture
(the "Venture"), a subsidiary of the Fund which holds the Fund's ownership
interest in the Southbridge property, filed a Voluntary Petition under Chapter
11 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern
District of Virginia, Alexandria Division (the "Court") as the Debtor in
Possession.
On December 21, 1994, the Court confirmed an amended plan of
reorganization as ratified by the creditors (the "Plan") submitted by the
Venture. Per the terms of the Plan, all of the Venture's creditors were to be
paid in full. The Plan also provided for certain modifications of the terms of
three loans collateralized by first mortgages on various portions of the
Southbridge project. On December 26, 1995, the Fund successfully re-negotiated
the terms of the $3,700,000 Southbridge first mortgage loan. The note holder
agreed to defer payment of the $250,000 principal due on December 20, 1995
until June 20, 1996. As consideration
23
<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
for the extension, the Fund agreed to pay an extension fee of $8,000 and certain
other legal fees and other costs of the lender in the amount of $54,000. The
lender also agreed to provide the Fund with the option to further extend the
date of the December 20, 1995 principal payment until September 20, 1996, in
exchange for an increase in the interest rate of the loan from 12% to 12.5%.
All other terms of the loan remain the same.
The Fund will seek to implement its business plan for the Southbridge
project which currently calls for continued land planning and marketing efforts
designed to achieve sales of certain portions of the project beginning in the
third quarter of 1996. The Fund contemplates selling small ancillary parcels
of the site and would utilize any net sales proceeds to repay portions of
outstanding debt obligations of the Fund.
The Wayside Village property was acquired by the Fund in May of 1991. The
Fund is continuing its efforts to fund site-infrastructure work so that
additional finished lots can be sold to third party developers and builders.
The project is currently zoned for 2,224 residential units and 280,000 square
feet of commercial space. During the year ended December 31, 1995, the Fund
sold 17 single family lots to a builder which generated gross sales proceeds of
$1,029,830. After payment of closing costs of $1,291, real estate tax
prorations of $1,162 and other costs of $14,777, the Fund received net cash
proceeds of $1,029,149. The sale of the lots resulted in an aggregate net gain
on disposition of real estate of $4,390. Pursuant to the refinancing of the
Fund's SoGen Loan and Morgens Loan, the sale of 120 S. Spalding and the
completion of the merger of the Fund if approved by the stockholders as
discussed above in Liquidity and Capital, it is the intent of the Fund to
continued infrastructure and site improvements at the Wayside Village property.
As of December 31, 1995 there were 1,124 unfinished residential units and
280,000 square feet of commercial space available for sale under the current
development Plan. The Fund's capitalized expenditures at Wayside Village have
primarily been utilized for completion of engineering, lot development,
capitalized interest, and real estate taxes. Once further improvements are
made at Wayside Village, it is the Fund's belief that negotiation of additional
sales contracts with local homebuilders and developers can be finalized. As a
result of the Fund's inability to complete the necessary lot and infrastructure
improvements at Wayside Village as scheduled due to a shortfall in cash
resources during 1995 and 1994, the Fund chose to reduce the carrying value of
the property in the amounts of $6,000,000 and $3,000,000 during the fourth
quarters ended December 31, 1995 and 1994 respectively. Due to the delay in
the financing in 1994 and the insufficient cash resources available in 1995 the
Fund was unable to complete and sell the volume of lots and home sites as
originally projected in its business plan, thereby extending the time frame, in
excess of two years, for the sell-off the Wayside development. As a result of
this delay, holding costs were increased which include interest on the Amended
Wayside Loan at prime plus 200 basis points, and interest on a portion of the
Morgens Loan at 17.5%. The prime rate as of April 1, 1996, as published in the
"Wall Street Journal" was 8.25%. The holding costs associated with the project
during 1994 and 1995 were capitalized and added to the carrying value of the
Wayside Development.
24
<PAGE> 27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
In August 1992, the Chapman's Landing zoning and development plan was
approved by Charles County and the project is now included in the overall
comprehensive development plan for Charles County, Maryland. On October 11,
1994 Charles County approved zoning modifications for Chapman's Landing
increasing the project's total density count to 4,600 residential units from
3,500 units and 2,000,000 square feet of commercial space from 1,000,000 square
feet. During 1995, the Fund continued its efforts to secure the necessary
permits to allow development of the project to commence and complete
engineering work on sections of Phase I of the project. The Phase I portion of
the project consists of 330 acres and is planned for development of 404
single-family homes and 172 townhomes. The Fund intends to begin work on
infrastructure and site improvements on Phase I at Chapman's Landing in the
third quarter of 1996 upon final refinancing of the SoGen Loan and Morgens
Loan, sale of 120 S. Spalding and completion of the merger of the Fund if
approved by the stockholders. As of December 31, 1995, the Fund has one
executed sales contract and has two contracts pending with home developers for
the sale of an aggregate of approximately 260 residential finished lots in
Phase I of the Chapman's Landing development. These contracts provide for the
sale of 175 townhome lots at approximately $28,000 per lot and the sale of 85
single family homes for approximately $50,000 per lot. The contracts are
subject to the home developers' due diligence, feasibility studies and other
performance contingencies. Also, the Fund is currently in negotiations with
several other national and regional builders and developers to sell finished
lots and/or development sites in Phase I of Chapman's Landing. The Fund
anticipates that additional sales contracts will be finalized sometime in the
first half of 1996 with sales of finished lots to builders beginning in early
1997. The Fund's expenditures at the Chapman's Landing development have
primarily been for completion of zoning, engineering, capitalized interest, and
real estate taxes.
During the year ended December 31, 1995, the Fund continued to pursue
modified entitlements on the Bishop Ranch property, located in Monterey County,
California. On September 12, 1995 the Monterey County Board of Supervisors
approved the Environmental Impact Report, Zoning and Conditional Use Permits
for the Bishop Ranch property which provides for the development of 253 single
family and townhome lots and an eighteen-hole golf course. Since 1991, when
the Fund assumed its ownership interest in Bishop Ranch, the Fund has pursued
zoning and entitlement rights for the project. The costs incurred in this
process have been capitalized through December 31, 1995. Due to the protracted
entitlement process and a prolonged holding period, as of December 31, 1995,
these costs exceeded the Fund's most recent fair market value estimates for
the property. As a result, for the quarter ended December 31, 1995, the Fund
reduced the carrying value for this property by $3,300,000. Beginning January
1, 1996 no further holding and entitlement costs will be capitalized by the
Fund associated with Bishop Ranch. It is management's belief that in the
future, the residential market should experience gradual growth as the demand
for mid-price-range housing product increases and the overall economy improves
although there can be no assurance of such growth. It is the Fund's intent to
begin marketing efforts on the Bishop Ranch property pursuant to an outright
sale or possible joint venture development of the project.
25
<PAGE> 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Fund also owns a 50% interest in the Oakridge joint venture (the
"Venture"). The property was comprised of 270 acres of vacant land located in
Hollywood and Dania, Florida which had been operated as a golf course. On
September 30, 1994, the Venture sold a 60-acre residential parcel of the
Oakridge site to an unaffiliated third party for $4,100,000. Subsequent to
December 31, 1995, on February 5, 1996 and March 1, 1996, the Venture sold a
total of 180 acres to an unaffiliated third party for approximately $4,000,000.
In addition, on March 1, 1996, the Venture sold an additional 25-acre parcel
of the Oakridge site to an unaffiliated third party for approximately
$2,200,000. The variance in the price per acre between the three contracts is
due to a difference in unit density approved for the individual parcels as well
as a difference in the number of developable acres in each parcel. The
February and March, 1996 sales enabled the Venture 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
Venture received net proceeds from the sales of $4,180,505 of which $2,090,253
was distributed to the Fund. The Venture is currently engaged in negotiations
to sell the remaining 5-acre retail parcel at the Oakridge site.
The Fund also owns a small "carried interest" in 950 L'Enfant Plaza, an
eight story office building with two parking levels situated in a four-building
complex with 232,000 square feet of rentable space located in Washington, D.C.
The property is currently under a renovation and retenanting program which is
anticipated to be completed in 1996. The Fund is entitled to 2.5% of monthly
cash flow from operation of the property, which provided approximately $28,000
and $164,000 in cash flow to the Fund for the years ended December 31, 1995 and
1994, respectively. The $136,000 decrease is due to the current interruption
in cash flow due to the termination of the lease with the building's tenant
while retenanting of the building is under way. The Fund is also entitled to
receive 4% of the gross sales proceeds of the property upon sale. The Fund is
not entitled to participate in the decisions of management in respect to the
property.
26
<PAGE> 29
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements on Page F-1 of this Report
for financial statements and financial statement schedules, where applicable.
See Item 6, Selected Financial Data, for the supplemental financial
information specified by Item 302 of Regulation S-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On December 18, 1995, the Fund was informed by Coopers & Lybrand L.L.P.
("C&L") that it was resigning as the Fund's independent accountant effective
immediately. At no time during the past two years did C&L's report on the
Fund's financial statements contain an adverse opinion or a disclaimer of
opinion, nor was it qualified or modified as to uncertainty, audit scope, or
accounting principles. C&L's decision was based solely on its own
considerations and was not made based on any action taken or not taken by the
Fund's Board of Directors. At no time during C&L's engagement as the Fund's
principal accountant were there any disagreements between the Fund and C&L on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
Effective December 21, 1995, the Fund has engaged the independent
accounting firm of Ernst and Young LLP ("E&Y") to serve as the Fund's principal
independent accountant, to audit the Fund's financial statements. At no time
during the Fund's two most recent fiscal years, or any subsequent interim
period, did the Fund (or someone on its behalf) consult E&Y regarding: (i) the
application of accounting principles to a specified transaction, either
completed or proposed or the type of audit opinion that might be rendered on
the Fund's financial statements; or (ii) any matter that was either the subject
of a disagreement between the Fund and its principal accountant or a reportable
event.
27
<PAGE> 30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and the executive officers of the Fund are:
Walter E. Auch, Sr Director
Robert M. Ungerleider Director
Leonard G. Levine President
Neil D. Hansen First Vice President
Robert G. Higgins Vice President, Secretary and General
Counsel
Joel L. Teglia Vice President and Chief Financial
Officer
WALTER E. AUCH, SR., age 74, 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
PaineWebber. 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 1988. Mr.
Auch is a trustee of Banyan Strategic Realty Trust and a director of Banyan
Strategic Land Fund II and Banyan Management Corp.
ROBERT M. UNGERLEIDER, age 54, is presently practicing law with and is of
counsel to the firm of Lane Felcher Kurlander & Fox 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 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 1988. Mr. Ungerleider is a director of Banyan Management Corp.
and Banyan Strategic Land Fund II.
LEONARD G. LEVINE, age 49, has been president of the Fund as well as
Banyan Management Corp., Banyan Short Term Income Trust, Banyan Strategic Land
Fund II and Banyan Strategic Realty Trust since 1990. He received a B.S./B.A.
Degree in Accounting from Roosevelt University and a Masters Degree in Taxation
from DePaul University in 1972. His areas of specialization 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.
28
<PAGE> 31
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
NEIL D. HANSEN, age 49, has been first vice president of the Fund as well
as Banyan Management Corp., Banyan Strategic Realty Trust, Banyan Short Term
Income Trust and Banyan Strategic Land Fund II since 1991. He received a B.S.
Degree in Finance from the University of Illinois and a Master of Management
Degree from Northwestern University. He is a certified public accountant.
ROBERT G. HIGGINS, age 44, has been vice president and general counsel of
the Fund as well as Banyan Management Corp., Banyan Strategic Realty Trust,
Banyan Short Term Income Trust and Banyan Strategic Land Fund II since 1992,
and secretary of these entities since 1995. From 1990 to 1992, Mr. Higgins was
a contract partner at the law firm of Chapman and Cutler. Mr. Higgins' legal
experience has concentrated in the areas of real estate development, finance,
acquisition, land use, sales, lending, syndications, general corporate and
business practice. Mr. Higgins is admitted to the bar in the States of
Illinois, Minnesota and Texas. He received a B.A. Degree in Government from
the University of Notre Dame and a J.D. from Loyola University of Chicago.
JOEL L. TEGLIA, age 34, has been vice president and chief financial
officer of the Fund as well as Banyan Management Corp., Banyan Strategic Realty
Trust, Banyan Short Term Income Trust and Banyan Strategic Land Fund II since
1994. Prior to assuming the responsibilities of his current position, Mr.
Teglia held the position of Controller for Banyan Management Corp. from 1991 to
1994. He received a B.B.A. Degree in Accounting from the University of Notre
Dame. Mr. Teglia is a certified public accountant.
29
<PAGE> 32
ITEM 11. 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, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
Long-Term Compensation
Awards
Securities
Annual Compensation Underlying
Other Annual Restricted Stock Options/ Payouts All Other
Year Salary Bonus(2) Compensation Award(2) SARs (#) LTIP Payouts Compensation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leonard G. Levine, 1995 $105,606 $171,805 n/a $42,951 n/a n/a n/a
President (1) 1994 $102,800 $231,166 n/a $58,002 n/a n/a n/a
1993 $100,000 $ --- n/a n/a n/a n/a n/a
</TABLE>
(1) No other executive officer earned more than $100,000 in salary and
bonus.
(2) Pursuant to Mr. Levine's employment agreement the incentive
amounts which were earned in the current year are paid or awarded to
him by the Fund in the following year.
Mr. Levine serves as Chief Executive Officer of the Fund pursuant to an
employment agreement entered into on January 1, 1990. As amended, the
agreement expires December 31, 1998. Under the amended agreement, Mr. Levine
is paid a salary equal to $105,606 per year, adjusted on January 1 of each year
based on increases in the "consumer price index".
Mr. Levine is also eligible to receive compensation under an incentive
program included in his contract. Effective January 1, 1993, Mr. Levine
earns incentive compensation based and calculated on the following four
components: (i) 1.00% of the amount of the Fund's collateralized claims which
are converted into cash; (ii) 3.00% of the amount of the Fund's unsecured
claims which are converted into cash; and (iii) 0.1% of all cash distributions
of capital and (iv) .14% of all distributions of income to shareholders of the
Fund.
Effective January 1, 1993 all incentive amounts are paid 80% in cash and
20% in shares ("Award Shares") of the Fund on or before March 15 of the year
following the period for which the incentive is earned except that pursuant to
Board of Director's approval, Mr. Levine was paid $120,000 of his 1994
incentive compensation December 31, 1994. On March 15, 1995, Mr. Levine was
paid the balance of the cash portion of his 1994 incentive compensation in the
amount of $51,805. On January 28, 1994, Mr. Levine was paid the cash portion
of his 1993 incentive compensation in the amount of $231,166. The $171,805 and
$231,166 cash payments received by Mr. Levine for 1994 and 1993, respectively,
represent 80% of his incentive compensation pursuant to his employment
agreement. The 79,909 Award Shares
30
<PAGE> 33
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
valued at $0.537 per share or $42,951 for 1994 and the 50,437 Award
Shares valued at $1.15 per share or $58,002, for 1993 represent 20% of Mr.
Levine's 1994 and 1993 incentive, respectively, 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 is entitled to all dividends paid on shares held by the Fund
for his benefit. The $214,756 in incentive compensation earned by Mr. Levine
during 1994 is comprised of: (i) $203,941 in respect of collateralized claims
converted into cash; and (ii) $10,815 in respect of unsecured claims converted
into cash. The $289,168 in incentive compensation earned by Mr. Levine during
1993 is comprised of: (i) $51,972 in respect of collateralized claims
converted into cash; and (ii) $237,196 in respect of unsecured claims
converted into cash.
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 disability, he is
entitled to all incentive compensation earned through the date of his
disability or death plus any disability or life insurance proceeds in the
amount of two times his annual salary, which is consistent with standard
insurance benefits of all Banyan Management Corp. personnel, but he is not
entitled to any other severance payments. If his employment is terminated
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 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 in accordance with an
expression of interest received by the Fund prior to Mr. Levine's termination),
plus an amount equal to the full cost of Mr. Levine's COBRA benefits for one
year.
C. EXECUTIVE AND DIRECTORS STOCK OPTION PLAN
On June 25, 1993, the shareholders approved and adopted the 1993 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 Director holding office on the tenth business day after
adjournment of the 1992 annual meeting received options to acquire 25,000
shares. Commencing with the annual meeting of stockholders as held during 1994
and each thereafter, each Director holding office on the tenth business day
after adjournment of the annual meeting automatically receives an option to
acquire 25,000 shares. The Director's options vest 50% upon the first
anniversary of the date of the grant and
31
<PAGE> 34
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
50% upon the second anniversary of the date of the grant and expire ten
years from the date of the grant. The share price for the options granted in
1995, 1994 and 1993 is $0.625, $0.6875 and $0.625 per share, respectively.
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 the Plan 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 and Banyan Management
Corp.'s retirement practices, then any unexercised options to acquire shares
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 Grant 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.
Pursuant to the Plan, the Board granted, 121,000 options on February 8,
1995, 120,000 options on January 12, 1994 and 120,000 options on April 21, 1993
to the Funds officers and certain Banyan Management Corp. personnel under the
program, at a price of $0.50 per share, $1.125 per share and $0.625 per share,
(the average weekly closing price of common stock for the month of January
1995, December 1993 and March 1993), respectively.
32
<PAGE> 35
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
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: (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. Option for all shares as granted under the Director Option Grant
Program shall be exercisable and vested 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, 1995, are as follows:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
Potential Realized Value
Number of % of Total Options at Assumed Annual Rates
Securities Granted to of Stock Price Appre-
Underlying Options Employees in Fiscal Exercise ciation for Option Term
Name Granted (1) Year or Base Price Expiration Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Leonard G. Levine 80,000 66% $0.50 Feb. 9, 2005 $25,156 $63,750
</TABLE>
(1) The remainder of the 1995 stock options were granted to employees of the
Fund and Banyan Management Corp.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised Options In-the-Money
at December 31 Options at December 31
Shares Acquired on Exercisable/ Exercisable/
Name Exercise Value Realized Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Leonard G. Levine --- $ --- 80,000/160,000 $ ---/$---
</TABLE>
33
<PAGE> 36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following entity is known by the Fund (based on filings on Schedule
13d) to be the beneficial owner of more than five percent (5%) of the
outstanding shares of common stock of the Fund as of March 18, 1996.
<TABLE>
<CAPTION>
Title of Class Name and Address of Amount of Percent
Beneficial Owner Beneficial Ownership of Interest
<S> <C> <C> <C>
Shares of Common Gabrielle, Hueglin 2,952,000 7.41%
Stock, $0.01 par & Cashman
value 9197 Third Ave.
New York, NY 10022
</TABLE>
The following table sets forth the ownership interest and shares owned
directly or indirectly by the directors and principal officers of the Fund as
of March 18, 1996:
<TABLE>
<CAPTION>
AMOUNT OF
NAME OF BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF INTEREST
<S> <C> <C> <C>
Shares of Common
Stock, $0.01 par
value Walter E. Auch, Sr. 16,000 Shares Less than 1%
Shares of Common
Stock, $0.01 par
value Robert M. Ungerleider 39,000 Shares Less than 1%
Shares of Common
Stock, $0.01 par
value Leonard G. Levine 148,346 Shares Less than 1%
Shares of Common
Stock, $0.01 par
value Neil D. Hansen 12,664 Shares Less than 1%
Shares of Common
Stock, $0.01 par
value Robert G. Higgins 22,500 Shares Less than 1%
Shares of Common All Directors and
Stock, $0.01 par Officers of the
value Fund, as a group (6 238,510 Shares Less than 1%
persons)
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Administrative costs, primarily salaries and general and administrative
expenses, are reimbursed by the Fund to Banyan Management Corp. ("BMC"). BMC
is owned by the Fund, Banyan Short Term Income Trust, Banyan Strategic Realty
Trust, and Banyan Strategic Land Fund II (the "Banyan Funds"). Mr. Levine is
the president of BMC for which he receives no compensation. Messrs. Teglia,
Hansen and Higgins are employees of the Fund but are compensated by BMC and
their compensation is included in the administrative costs for which BMC is
reimbursed by the Fund. The
34
<PAGE> 37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
directors/trustees of all Banyan Funds serve as directors of BMC but
receive no additional compensation. These costs are allocated to the Fund and
the other Banyan Funds to which BMC provides administrative services based upon
the actual number of hours spent by BMC personnel on matters related to that
particular entity. The Fund's allocated share of costs for the years ended
December 31, 1995, 1994 and 1993 aggregated $1,092,081, $1,141,675 and
$971,321, 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, 1995, the Fund had a net payable due to BMC of
$175,725.
Reference is made to the Note 5, "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.
35
<PAGE> 38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
(1)(2) The financial statements indicated in Part II, Item 8, Financial
Statements and Supplementary Data.
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 Morgan Waterfall, Vintiadis & Co. Inc.,
Exhibit 10(a) through 10(n).
(b) The following report on Form 8-K was filed during the quarter ended
December 31, 1995:
A current report on Form 8-K was filed on December 21, 1995 wherein
Item 4. Change in Registrant's Certifying Accountants and Item 7.
Financial Statements, Proforma Financial Information and Exhibits
disclosed that the Registrant was informed by Coopers & Lybrand
L.L.P. that it was resigning as the Registrant's independent
accountant and the Registrant had engaged Ernst & Young LLP as
its new independent accountant.
36
<PAGE> 39
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
(c) See Item 14 (a) (3) above.
(d) None
37
<PAGE> 40
SIGNATURES
PURSUANT to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned thereunto duly authorized.
BANYAN MORTGAGE INVESTMENT FUND
By: /s/ Leonard G. Levine Date: April 12, 1996
Leonard G. Levine, President
PURSUANT to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ Leonard G. Levine Date: April 12, 1996
Leonard G. Levine, President
By: /s/ Joel L. Teglia Date: April 12, 1996
Joel L. Teglia, Vice President
and Chief Financial Officer
By: /s/ Walter E. Auch, Sr. Date: April 12, 1996
Walter E. Auch, Sr., Director
By: /s/ Robert M. Ungerleider Date: April 12, 1996
Robert M. Ungerleider, Director
38
<PAGE> 41
BANYAN MORTGAGE INVESTMENT FUND
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pages
<S> <C>
Reports of Independent Auditors F-2
Consolidated Balance Sheets at December 31, 1995 and 1994 F-4
Consolidated Statements of Income and Expenses For
the Years Ended December 31, 1995, 1994 and 1993 F-6
Consolidated Statements of Stockholders' Equity For
the Years Ended December 31, 1995, 1994 and 1993 F-8
Consolidated Statements of Cash Flows For the Years
Ended December 31, 1995, 1994 and 1993 F-9
Notes to Consolidated Financial Statements F-11 to F-26
</TABLE>
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.
F - 1
<PAGE> 42
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of Banyan Mortgage Investment Fund:
We have audited the accompanying consolidated balance sheet of Banyan
Mortgage Investment Fund as of December 31, 1995, and the related consolidated
statements of income and expenses, stockholders' equity and cash flows for the
year then ended. 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 audit.
We conducted our audit 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 audit provides 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
Mortgage Investment Fund at December 31, 1995, and consolidated results of its
operations and cash flows for the year then ended, in conformity with generally
accepted accounting principles.
The accompanying 1995 consolidated financial statements have been prepared
assuming that Banyan Mortgage Investment Fund will continue as a going concern.
As more fully described in Note 1B, the Fund has not complied with certain
covenants of the loan agreement with its principle lender. This condition
raises substantial doubt about the Fund's ability to continue as a going
concern. Management's plans in regard to this matter are also described in
Note 1B. The 1995 consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
ERNST & YOUNG LLP
Chicago, Illinois
April 12, 1996
F - 2
<PAGE> 43
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of Banyan Mortgage Investment Fund:
We have audited the accompanying consolidated balance sheet of Banyan
Mortgage Investment Fund and subsidiaries as of December 31, 1994, and the
related consolidated statements of income and expenses, stockholders' equity
and cash flows for each of the two years in the period ended December 31, 1994.
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
Mortgage Investment Fund and subsidiaries as of December 31, 1994, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 29, 1995
F - 3
<PAGE> 44
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
ASSETS
Cash and Cash
Equivalents $316,012 $8,040,629
Repair, Improvement and
Real Estate Tax
Escrows 775,754 602,211
Accounts Receivable (Net
of Allowance for
Doubtful Accounts of
$65,000 and $34,000
for 1995 and 1994,
respectively) 76,110 18,509
Interest Receivable on
Cash and Cash --- 84,272
Equivalents ------------- ------------
1,167,876 8,745,621
------------- -------------
Investment in Real
Estate:
Land 55,379,003 79,400,569
Buildings and --- 1,986,851
Improvements ------------- -------------
55,379,003 81,387,420
Less: Accumulated --- (1,645,927)
Depreciation ------------- -------------
55,379,003 79,741,493
Developments in
Progress 30,872,769 30,752,252
Real Estate Held 17,176,845 ---
For Sale ------------- -----------
Net Investment in Real 103,428,617 110,493,745
Estate ------------- -------------
Net Investment in Real
Estate Venture 1,097,363 1,325,401
Deferred Financing
Costs (Net of Accumu-
lated Amortization of
$399,831 and $68,034
for 1995 and 1994,
respectively) 909,365 1,241,162
Other Assets 2,530,293 2,861,997
------------- -------------
Total Assets $109,133,514 $124,667,926
============= =============
</TABLE>
F - 4
<PAGE> 45
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(CONTINUED)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities
Accounts Payable and
Accrued Expenses $ 1,686,511 $ 1,255,286
Interest Payable 1,268,553 810,526
Real Estate Taxes
Payable 384,500 ---
Mortgage Loans Payable 33,625,737 31,932,645
------------ ------------
Total Liabilities 36,965,301 33,998,457
------------ ------------
Stockholders' Equity
Shares of Common Stock,
$0.01 Par Value,
100,000,000 Shares
Authorized, 39,842,404
and 39,762,495 Shares
Issued, respectively 348,205,447 348,162,496
Accumulated Deficit (276,025,918) (257,481,711)
Treasury Stock, at Cost, (11,316) (11,316)
20,100 Shares ------------ ------------
Total Stockholders' 72,168,213 90,669,469
Equity ------------ ------------
Total Liabilities and $109,133,514 $124,667,926
Stockholders' Equity ============ ============
Book Value Per Share of
Common Stock
(39,822,304 and
39,742,395 Shares
Outstanding for 1995 $ 1.81 $ 2.28
and 1994 respectively) ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F - 5
<PAGE> 46
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
INCOME
Interest on Cash and
Cash Equivalents $ 169,890 $ 145,647 $ 38,912
Operating Property 1,230,028 3,455,283 4,936,852
Revenue ------------ ------------ ------------
1,399,918 3,600,930 4,975,764
TOTAL INCOME ------------ ------------ ------------
EXPENSES
Expenses From Property
Operating Activities:
Provision for Losses
on Investment in Real
Estate 12,900,000 9,000,000 4,650,000
Operating Property
Expenses 452,603 971,022 1,344,472
Development Property
Expenses 1,259,616 551,335 279,572
Repairs and
Maintenance 316,143 320,539 479,507
Real Estate Taxes 298,640 455,600 568,739
Depreciation 374,075 609,969 782,722
Bad Debt Expense 6,000 30,915 449,554
------------ ------------ ------------
Total Expenses From
Property Operating 15,607,077 11,939,380 8,554,566
Activities ------------ ------------ ------------
Other Expenses
(Recoveries):
Stockholder Expenses 277,296 335,235 315,758
Directors' Fees,
Expenses and
Insurance 437,983 534,344 541,296
Other Professional
Fees 435,847 620,356 535,553
General and
Administrative 1,349,584 1,599,242 1,335,543
</TABLE>
F - 6
<PAGE> 47
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Recovery of Losses on
Mortgage Loans,
Notes, Interest
Receivable and Class
Action Settlement
Costs and Expenses (906,629) (1,095,800) (7,916,073)
Interest Expense,
Amortization of
Deferred Loan, and
Other Costs 2,533,841 1,837,049 923,181
------------ ------------ ------------
Total Other Expenses 4,127,922 3,830,426 (4,264,742)
(Recoveries) ------------ ------------ ------------
19,734,999 15,769,806 4,289,824
TOTAL EXPENSES ------------ ------------ ------------
Operating Income (Loss) (18,335,081) (12,168,876) 685,940
Net (Loss) Income From
Operations of Real
Estate Venture (213,516) 442,091 (560,347)
Arbitration Award --- (3,250,000) ---
Gain on Disposition of
Real Estate 4,390 2,880,614 1,014,265
------------ ------------ ------------
Income (Loss) Before
Extraordinary Item (18,544,207) (12,096,171) 1,139,858
Gain from Forgiveness --- 2,813,892 ---
of Debt ------------ ------------ ------------
Net Income (Loss) $(18,544,207) $ (9,282,279) $ 1,139,858
============ ============ ============
Net Income (Loss) Per
Share of Common Stock
(Based on Weighted
Average Number of
Shares Outstanding of
39,770,637, 39,724,995
and 39,689,294 during
1995, 1994, and 1993,
respectively) Before
Extraordinary Item $ (0.47) $ (0.30) $ 0.03
Extraordinary Item --- .07 ---
------------ ------------ ------------
Net Income (Loss) $ (0.47) $ (0.23) $ 0.03
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F - 7
<PAGE> 48
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Common Stock Accumulated Treasury
Shares Amount Deficit Stock Total
<S> <C> <C> <C> <C> <C>
Stockholders'
Equity, December 31, 1992
39,709,394 $348,102,829 $(249,339,290) $(11,316) $98,752,223
Net Income For
the Year Ended --- --- 1,139,858 --- 1,139,858
December 31, 1993 ----------- ------------ ------------- ---------- ------------
Stockholders'
Equity, December 31, 1993
39,709,394 348,102,829 (248,199,432) (11,316) 99,892,081
Award Shares Issued 50,437 58,002 --- --- 58,002
Executive Stock
Options Exercised 2,664 1,665 --- --- 1,665
Net Loss For the
Year Ended --- --- (9,282,279) --- (9,282,279)
December 31, 1994 ----------- ------------ ------------- ---------- ------------
Stockholders'
Equity, December 31, 1994
39,762,495 348,162,496 (257,481,711) (11,316) 90,669,469
Award Shares Issued 79,909 42,951 --- --- 42,951
Net Loss for the Year Ended --- --- (18,544,207) --- (18,544,207)
December 31, 1995 ----------- ----------- ----------- ---------- -----------
Stockholders'
Equity, December 31, 1995 39,842,404 $348,205,447 $(276,025,918) $(11,316) $72,168,213
=========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F - 8
<PAGE> 49
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
NET INCOME (LOSS) $(18,544,207) $(9,282,279) $1,139,858
Adjustments to Reconcile
Net Income (Loss)to
Net Cash (Used In)
Provided by Operating
Activities:
Provision for Losses on
Investment in Real
Estate 12,900,000 9,000,000 4,650,000
Gain from Forgiveness of
Debt --- (2,813,892) ---
Depreciation 374,075 609,969 782,722
Amortization of Deferred
Loan and Other Costs 331,797 609,760 177,556
Provision for Bad Debts 6,000 30,915 449,554
Gain on Disposition of
Real Estate (4,390) (2,880,614) (1,014,265)
Net (Income) Loss From
Operations of Real
Estate Venture 213,516 (442,091) 560,347
Deferred Interest
Payable on Mortgage
Loans 1,996,307 --- ---
Net Change In:
Interest Receivable on
Cash and Cash
Equivalents 84,272 (84,272) 59,063
Real Estate Escrow (34,321) 209,661 68,574
Accounts Receivable (88,601) 186,536 160,287
Other Assets 323,555 (154,570) (244,000)
Accounts Payable and
Accrued Expenses 474,176 (558,376) 408,680
Real Estate Taxes
Payable 384,500 (546,865) 492,927
Interest Payable 1,195,457 200,807 534,850
------------ ------------ ------------
Net Cash (Used In)
Provided By (387,864) (5,915,311) 8,226,153
Operating Activities ------------ ------------ ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from Sale of
Real Estate 1,028,539 18,658,663 5,460,205
</TABLE>
F - 9
<PAGE> 50
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Increase in Developments
in Progress (7,144,850) (8,127,177) (10,021,877)
(Increase) Decrease in
Repair and Improvement
Escrows (139,222) (49,556) 533,571
Distributions From
(Investment in) Real
Estate Venture 14,522 (408,516) (608,882)
Purchases of Land and
Property Improvements (55,097) --- (279,075)
------------ ------------ ------------
Net Cash (Used In)
Provided By Investing
Activities (6,296,108) 10,073,414 (4,916,058)
------------ ------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from Mortgage
Loans Payable --- 20,500,000 ---
Issuance of Shares of
Common Stock --- 1,665 ---
Payment of Deferred
Financing Costs --- (1,309,195) ---
Payment of Mortgage
Loans Payable (1,040,645) (19,060,497) (2,165,227)
------------ ------------ ------------
Net Cash (Used in)
Provided By Financing
Activities (1,040,645) 131,973 (2,165,227)
------------ ------------ ------------
Net (Decrease) Increase
in Cash and Cash
Equivalents (7,724,617) 4,290,076 1,144,868
Cash and Cash Equiva-
lents at Beginning of
Year 8,040,629 3,750,553 2,605,685
------------ ------------ ------------
Cash and Cash Equiva-
lents at End of Year $ 316,012 $ 8,040,629 $ 3,750,553
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-10
<PAGE> 51
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
Banyan Mortgage Investment Fund (the "Fund") was organized as a
corporation under the laws of the State of Delaware, pursuant to a Restated
Certificate of Incorporation filed March 22, 1988. The accompanying
consolidated financial statements include the accounts of the Fund, its
wholly-owned subsidiaries and the Chapman's Landing, Southbridge, Wayside and
Bishop's Ranch partnerships in which the Fund holds a controlling 50% general
partnership interest. Losses from these partnerships are allocated to the
minority interest partners to the extent of their respective investments in the
partnerships. Since such partners have made no investment in the partnerships
and are not obligated to fund losses in excess of their investment, their
minority interest currently has no value, therefore the Fund has recorded all
of the above partnerships' losses as of December 31, 1995. 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.
B. DEBT DEFAULT AND BASIS OF PRESENTATION
In 1994 the Fund executed a credit agreement with Morgens, Waterfall
Vintiadis & Co., Inc. ("Morgens") that is collateralized by substantially all
of the assets of the Fund. As of December 31, 1995, the principal balance
outstanding was $23,233,737 (see Note 3). The Fund has not made the January 1,
or April 1, 1996 required interest payments of approximately $1,025,000 and
approximately $1,014,000, respectively. Morgens has notified the Fund that
this non-payment of interest constitutes an "Event of Default" under the Credit
Agreement. Morgens has reserved all of its rights and remedies under the
Credit Agreement (including demand of immediate payment of the outstanding
principal amount) but has taken no additional action as of April 12, 1996. In
addition, the Fund is in default with respect to its mortgage loan payable to
Societe General ("SoGen") which has a principal balance of $6,360,000
outstanding as of December 31, 1995 (see Note 3).
Effective as of April 12, 1996, an Agreement and Plan of Merger (the
"Merger Agreement") was executed among the Fund and RGI Holdings, Inc. ("RGI
Holdings") and its wholly owned subsidiary, RGI U.S. Holdings ("RGI U.S." or
collectively "RGI").
The Agreement provides, among other things, for the following:
(1) At the initial closing, scheduled to occur May 15, 1996, RGI
Holdings will acquire 7,466,666 shares of the Fund's common
stock for $3,500,000 in cash.
(2) Also at the initial closing, RGI Holdings will purchase the
Morgens Loan and SoGen Loan and has agreed that prior to December
31, 1996 it will not accelerate the Morgens Loan or the SoGen Loan
or foreclose upon any collateral for the Morgens Loan or the SoGen
Loan based upon any events of default
F-11
<PAGE> 52
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
occurring on or before May 15, 1996 or as a result of the execution
of the Merger Agreement.
(3) Subsequent to the initial closing, upon approval of the Fund's
stockholders and the satisfaction of other conditions precedent, all
of the outstanding shares of RGI U.S. will be converted into
151,445,333 shares of the Fund. The Merger will result in the Fund
owning all of the real estate assets of RGI U.S. The merger is
expected to be consummated before the end of 1996.
In consideration of the RGI transactions, 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 may
result from the default under the Morgens Loan or the SoGen Loan.
Specifically, the carrying amount of the Fund's development real estate
continues to be evaluated for impairment based on the undiscounted cash flows
estimated to be generated by those assets over the development period without
regard to the default. If the RGI transactions are not consummated or the
Morgens Loan or the SoGen Loan defaults are not otherwise cured or waived, the
classification of the Fund's development real estate may be changed to "held
for disposal" possibly necessitating a valuation allowance to reflect such
assets at current fair market value.
C. INVESTMENT IN REAL ESTATE
During the development in progress phase of a property, interest, real
estate taxes and other development costs are capitalized in Developments in
Progress. The costs of land being developed are included in Land.
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". Statement No. 121 requires the Fund to recognize
impairment losses for its development 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 and to record its
properties held for disposal at the lower of carrying amount or fair value less
cost to sell. The Fund adopted Statement No. 121 in the fourth quarter
effective January 1, 1995 with no effect on the accompanying financial
statements.
D. DEFERRED FINANCING COST
Deferred financing costs are being amortized over the terms of the related
loans using the level yield method.
E. REVENUE RECOGNITION
Rental income (included in operating property revenues) is recognized on a
straight-line basis over the terms of the respective tenant leases.
F-12
<PAGE> 53
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenues on retail land sales are recorded upon closing of escrow and transfer
of title to the buyer. Costs associated with retail land sales are allocated on
a pro-rata basis.
F. INCOME TAXES
On January 30, 1995, the Fund notified the Internal Revenue Service of its
intent to revoke its 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 enable the Fund to develop its large tracts of undeveloped
land and to avoid the adverse tax effects of being deemed a dealer of real
property. For the years ended December 31, 1994 and 1993 the Fund elected to
be treated as a REIT under the Internal Revenue Code Sections 856-860. In
order to qualify, the Fund was required to meet distribution, asset and income
tests as well as certain other requirements.
Beginning in 1995, income taxes are accounted for in accordance with
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes."
G. CASH AND CASH EQUIVALENTS
The Fund considers all highly liquid investments which mature within three
months or less from the date of purchase to be cash and cash equivalents. At
December 31, 1995, the Fund's cash and cash equivalents is comprised of demand
and money market deposits only. At December 31, 1994, cash and cash
equivalents included demand and money market deposits of $1,145,629 as well as
a Federal Farm Credit Bank Bond with a face amount of $6,895,000 bearing
interest at 5.0% which matured on January 3, 1995. The cost, which approximates
market value, of this obligation at December 31, 1994 was $6,979,272.
H. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number
of shares outstanding during the year of 39,770,637, 39,724,995, and 39,689,294
for the years ended December 31, 1995, 1994, and 1993 respectively. Income
(Loss) per share for the years ended December 31, 1995 and 1994 is computed
using the weighted average number of shares outstanding due to the Fund's
issuance of a total of 79,909 shares and 53,101 shares of its common stock
during 1995 and 1994, respectively. See Notes 7 and 8 for further details.
Options issued under the Fund's 1993 Executive and Directors Stock Option Plan
have been excluded from the computation of Weighted Average Shares Outstanding
because their inclusion is anti-dilative. In addition, warrants issued
pursuant to the Credit Agreement with Morgens, Waterfall, Vintiadis & Co.,
Inc., (see Note 3, "Investment in Real Estate and Related Mortgage Loans
Payable" for further details) are excluded from the computation of Weighted
Average Shares Outstanding as inclusion is also anti-dilative.
F-13
<PAGE> 54
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
J. RECLASSIFICATIONS
Certain reclassifications have been made to the previously reported 1994
and 1993 consolidated financial statements in order to provide comparability
with the 1995 consolidated financial statements. These reclassifications have
not changed the 1994 or 1993 results.
K. NON-CASH INVESTING AND FINANCING ACTIVITIES
On August 25, 1995 and April 29, 1994, the Fund issued 79,909 and 50,437
shares, respectively of its common stock to Leonard G. Levine, its President.
(See Note 7 "Award Shares" for further information.)
Pursuant to the Credit Agreement executed October 17, 1994 with Morgens,
Waterfall, Vintiadis & Co., Inc., as agent for a group of lenders, the Fund has
elected to defer payment of $2,733,737 of accrued interest, which has been
added to the principal balance of the loan as of December 31, 1995. Of the
$2,733,737 balance of deferred interest, $737,430 was expensed and included as
interest payable at December 31, 1994.
F-14
<PAGE> 55
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. DISPOSITION OF REAL ESTATE
WAYSIDE VILLAGE DEVELOPMENT
For the year ended December 31, 1995, the Fund sold 17 single family lots
to home developers at the Fund's Wayside Village development. The sale of
these lots generated gross proceeds of $1,029,830. After payment of closing
costs of $1,291 the Fund received net proceeds of $1,028,539 of which
approximately $477,000 was applied toward principal payments on a mortgage loan
collateralized by the Wayside Village development as discussed below. After
allocation of overhead, holding costs and development expenses, the sale of the
lots resulted in an aggregate net gain on disposition of approximately $4,000.
For the year ended December 31, 1994 the Fund sold 22 single family lots and 41
townhome lots to home developers for $1,990,611. After payment of closing
costs of $2,403, the Fund received net proceeds of $1,988,208 of which
approximately $1,333,000 was applied toward interest and principal payments on
the mortgage loan collateralized by the Wayside Village development. After
allocation of overhead, holding costs and development expenses, the sale of the
lots resulted in an aggregate net loss on disposition of approximately
$401,000. Through December 31, 1993, the Fund sold 36 single family lots and
27 townhome lots to home developers on the Fund's Wayside Development. The
sale of these lots generated gross proceeds of $2,411,551. After payment of
closing costs of $15,214 the Fund received net proceeds of $2,396,337 of which
approximately $1,937,000 was applied toward interest and principal payments on
the loan on the Wayside Development as discussed below. After allocation of
overhead, holding costs and development expenses, the sale of the lots resulted
in an aggregate net loss on disposition of approximately $147,000. See Note 3,
"Investment in Real Estate and Related Mortgage Loan Payable" of notes to
consolidated financial statements for further information regarding the Wayside
Village development and the mortgage loan collateralized by the development.
9025 WILSHIRE BOULEVARD
On September 23, 1994, the Fund sold the 9025 Wilshire Blvd. property
("9025 Wilshire") to an unaffiliated third party for $2,200,000. After payment
of selling commissions of $78,000, real estate tax prorations of $11,082 and
other fees and expenses of $16,551, the Fund received net proceeds from the
sale totaling $2,094,367. Per the terms of the sale agreement, the Fund was
also entitled to a share in the insurance proceeds received from a claim filed
by the Fund for property damage sustained during the January 17, 1994 Los
Angeles area earthquake. After prorations for professional fees paid in
connection with negotiating the insurance claim and the cost of pending repair
work at the property, the Fund received additional settlement proceeds of
$205,265 upon sale of the property. The transaction resulted in a gain on
disposition to the Fund of $323,333.
F-15
<PAGE> 56
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. DISPOSITION OF REAL ESTATE (CONTINUED)
CASCADES
On May 26, 1994, the Fund sold the Cascades Apartments to an unaffiliated
third party for $14,482,100. After payment of selling commissions of $163,669,
transfer taxes and title charges of $130,449 and net prorations and credits
totalling $264,657 for real estate and personal property taxes, rent, net
operating expenses and security deposits the Fund received net proceeds of
$13,950,066. During 1992, the Fund borrowed a total of $10,500,000 from Heller
Financial, Inc. (the "Heller Loan"), collateralized by first mortgages on the
Cascades Apartments and the Fund's 120 S. Spalding property, under a loan
commitment dated June 13, 1992. Per the terms of the Heller Loan, the Fund was
required to repay $9,926,159, representing the entire outstanding principal
balance upon the sale of the Cascades Apartments, net of real estate tax escrow
proceeds of $327,996. The Fund also paid 26-days accrued interest and fees of
$67,370. The Fund is now fully released from its obligations under the Heller
Loan and has obtained the release of Heller's first mortgages on the Cascades
Apartments and on the 120 S. Spalding building. As a result of the Cascades
Apartments sale, net cash proceeds of $3,956,537 were transferred to the Fund,
and the transaction resulted in a gain on disposition to the Fund of $2,885,305.
ROCKY POINT
On April 22, 1994, the Fund sold the remaining 1.41 acre parcel of the
Rocky Point property to an unaffiliated third party for $180,000. After
payment of selling commissions, title charges, real estate tax prorations and
other closing costs, the Fund received net proceeds of $156,099. The sale of
this property resulted in a gain on disposition to the Fund of $73,290.
ACTON
On April 2, 1993, the Fund sold the Acton (Great Hill Village) property to
an unaffiliated third party for $952,000. After payment of selling
commissions, title charges, and other closing costs, the Fund received net
proceeds of $911,127. The sale of this property resulted in a gain on
disposition to the Fund of approximately $719,000.
WHITWORTH
On June 15, 1993, the Fund sold the Whitworth property to an unaffiliated
third party for $2,216,283. After payment of selling commissions, title
charges and other closing costs, the Fund received net proceeds of $2,152,741.
The sale of this property resulted in a gain on disposition to the Fund of
approximately $442,000.
F-16
<PAGE> 57
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVESTMENT IN REAL ESTATE AND RELATED MORTGAGE LOANS PAYABLE
At December 31, 1995, the Fund's investments in real estate consisted of
the following:
<TABLE>
<CAPTION>
Initial Cost Cost Adjustments
to the Fund Subsequent to Acquisition
Buildings
Description Encum- & Improve- Improve- Carrying
brances Land ments ments Costs(a) Land
<S> <C> <C> <C> <C> <C> <C>
LAND:
Chapman's Landing (c) $23,000,000 $ --- $ 9,240,109 $ 1,704,357 $139,095
2,230 acres in
Charles County, MD
Southbridge, (c) 34,300,000 --- 2,547,494 2,433,919 128,462
2,048 acres in
Prince William County, VA
Wayside, (c) 17,595,446 --- 6,510,436 8,481,454 ---
506 acres in
Prince William County, VA
Bishop's Ranch, (c) 7,063,498 --- 4,154,881 2,085,467 ---
565 acres in
Monterey County, CA
OFFICE BUILDING:
120 S. Spalding Dr. (c) 10,773,000 14,877,000 48,850 --- ---
Beverly Hills, CA (e)(f) ----------- ----------- ----------- ----------- --------
$92,731,944 $14,877,000 $22,501,770 $14,705,197 $267,557
Less: Development in
Progress --- --- --- --- ---
Real Estate Held --- --- --- --- ---
for Sale (g) ----------- ----------- ----------- ----------- --------
(c) $92,731,944 $14,877,000 $22,501,770 $14,705,197 $267,557
=========== =========== =========== =========== ========
<CAPTION>
Amounts at which Carried
at December 31, 1995
Buildings Valuation Date of Date
& Improve- Adjustment Total Const- Acqui-
Land ments & Accumulated (b) ruction red
Depreciation
<S> <C> <C> <C> <C> <C> <C>
LAND:
Chapman's Landing $23,139,095 $10,944,466 $ --- $34,083,561 (d) 03/91
2,230 acres in
Charles County, MD
Southbridge, 34,428,462 4,981,413 (10,829,000) 28,580,875 (d) 05/91
2,048 acres in
Prince William County, VA
Wayside, 17,595,446 14,991,890 (9,000,000) 23,587,336 (d) 05/91
506 acres in
Prince William County, VA
Bishop's Ranch, 7,063,498 6,240,348 (3,300,000) 10,003,846 (d) 09/91
565 acres in
Monterey County, CA
10,773,000 14,925,850 (18,525,851) 7,172,999 1984 8/90
OFFICE BUILDING: ----------- ----------- ----------- ----------
120 S. Spalding Dr. $92,999,501 $52,083,967 ($41,654,851) $103,428,617
Beverly Hills, CA (e)(f)
Less: Development in
Progress --- (30,872,769) --- (30,872,769)
Real Estate Held
for Sale (g) (10,936,497) (6,240,348) --- (17,176,845)
----------- ----------- ------------- ------------
$82,063,004 $14,970,850 ($41,654,851) $ 55,379,003
=========== =========== ============ ===========
</TABLE>
F-17
<PAGE> 58
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVESTMENT IN REAL ESTATE AND RELATED MORTGAGE LOANS PAYABLE (CONTINUED)
(a) Consists primarily of capitalized construction period interest and
related loan fees, where applicable, and real estate taxes of $11,571,992
and $3,133,205, respectively. During 1995, $1,860,275 of interest was
paid and $2,859,437 of interest was capitalized. During 1994, $2,898,813
of interest was paid and $1,872,331 of interest was capitalized.
(b)
<TABLE>
<CAPTION>
Reconciliation of Real Estate
1995 1994 1993
<S> <C> <C> <C>
Balance at Beginning of Year $112,139,672 $129,667,715 $128,487,820
Net Dispositions Through Sale (1,024,149) (14,714,346) (4,471,057)
Net Additions 7,199,945 6,186,303 10,300,952
Valuation Adjustments (12,900,000) (9,000,000) (4,650,000)
------------ ------------ ------------
Balance at End of the Year $105,415,468 $112,139,672 $129,667,715
============ ============ ============
<CAPTION>
Reconciliation of Accumulated Depreciation
1995 1994 1993
<S> <C> <C> <C>
Balance at Beginning of Year $1,645,927 $2,105,286 $1,386,980
Depreciation Expense for the Year 374,075 609,969 782,722
Retirements (Other Assets) (33,151) (1,069,328) (64,416)
---------- ---------- ----------
Balance at End of the Year $1,986,851 $1,645,927 $2,105,286
========== ========== ==========
</TABLE>
(c) The properties of the Fund as described above are subject to mortgage
loans at December 31, 1995 as follows:
<TABLE>
Mortgage Loans Payable Annual Final
Property 12/31/95 12/31/94 Interest Rate Maturity Date Payments
<S> <C> <C> <C> <C> <C>
All Properties of Fund (i) $23,233,737 $20,500,000 17.5% (Default 09/30/98 Quarterly, interest only
Rate 19.5%)
Southbridge 3,700,000 4,200,000 12% 01/20/99 Monthly, interest only
Prince William County, VA (ii) 202,000 232,000 Prime + 2%; Max 10% 09/30/97 Monthly, interest only
130,000 163,420 Prime + 2%; Max 10% 09/30/96 Monthly, interest only
Wayside 6,360,000 6,837,225 Prime + 2% (Default 12/31/97 Monthly, interest only
Prince William County, VA (iii) ----------- ----------- Rate Prime + 6%)
$33,625,737 $31,932,645
=========== ===========
</TABLE>
F-18
<PAGE> 59
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVESTMENT IN REAL ESTATE AND RELATED MORTGAGE LOANS PAYABLE (CONTINUED)
(i) On October 17, 1994, the Fund executed a Credit Agreement with
Morgens, Waterfall, Vintiadis & Co. Inc. (the "Morgens Loan") in the
amount of $20,500,000. The Fund has agreed to make quarterly interest
payments in arrears at an annual rate of 17.5% and is also obligated to
make certain payments, which were applied to repay Morgens Loan
interest, based on 50% of the net cash flow generated by its wholly
owned subsidiaries. For the year ended December 31, 1995, the Fund made
required cash flow payments of $841,548 which were recorded as payments
of deferred interest. From October 17, 1994 until September 30, 1995,
the Fund elected to defer interest due on the Morgens Loan in accordance
with the Credit Agreement, other than the cash flow payments discussed
above, which was then added to the outstanding principal balance of the
loan. As of December 31, 1995, the principal balance outstanding,
including capitalized interest through September 30, 1995, was
$23,233,737. The Morgens Loan is collateralized by first mortgages on
the Fund's 120 S. Spalding, Chapman's Landing and Bishop Ranch
properties and portions of its Southbridge property, as well as pledges
of the common stock and partnership interests of the Fund's
subsidiaries, its accounts receivable, bank accounts and all other
tangible and intangible personal property. The Credit Agreement
includes certain financial and other covenants the most restrictive of
which limit the Fund's leverage to a maximum of 0.6:1, require a minimum
net worth of $70,000,000 and restrict additional indebtedness. Pursuant
to the terms of the Credit Agreement, the Lender also received warrants
which entitle it to purchase up to 4,380,000 shares of the Fund's common
stock at any time until October 1, 1998 at an exercise price of $0.70
per share. As of December 31, 1995, these warrants had not been
exercised.
Pursuant to the Morgens Loan closing, the Fund paid an advisory fee to
the Lender's advisors of $615,000, accrued real estate taxes of $183,510,
legal fees of $140,000 and other fees and expenses totaling approximately
$66,000 related to the transaction. In addition, the Fund utilized
Morgens Loan proceeds at closing to retire the balance of outstanding
loans collateralized by first mortgages on its Chapman's Landing and
Bishop Ranch properties. The holder of the Chapman's Landing note was
paid $1,130,853 representing principal repayment of $1,089,204 and
accrued interest of $41,649 while the holder of the Bishop Ranch note
received $1,959,409 representing principal repayment of $1,900,000 and
accrued interest and fees of $59,409. The Fund also paid a total of
$3,250,000 pursuant to a final negotiated settlement of its previously
disclosed Buckeye arbitration award obligation.
As a result of insufficient cash available to the Fund, on January 1,
and April 1, 1996 it did not make the required interest payments due on
the Morgens Loan in the amounts of approximately $1,025,000 and
$1,014,000, respectively. On January 11, 1996 the Fund received
notification from the Lender that the failure to make this required
interest payment constituted an "Event of Default" under the Credit
Agreement. The Lender has reserved all of its rights and remedies under
the Credit Agreement with respect to this Event of Default but has taken
no additional action at this time. The Morgens Loan is also in default as
a result of the separate default on the Societe General Loan, which is
discussed below.
(ii) On December 21, 1994, the Court confirmed an amended plan of
reorganization as ratified by the creditors (the "Plan") submitted by
the Southbridge Venture (the "Venture"). Per the terms of the Plan, all
of the Venture's creditors were to be paid in full. The Plan also
provided for certain modifications of the terms of three loans
collateralized by first mortgages on various portions of the Project.
On December 21, 1994, the Venture paid $506,800 representing accrued
interest due to the holder of the mortgage loan in the principal amount
of $3,700,000 ("Loan 1"). The maturity date of Loan 1 has been extended
from September 20, 1994 until January 20, 1999. Loan 1 requires the
Venture to make monthly payments of interest only at a rate of 12%,
three $250,000 annual principal paydowns on December 20, 1995, 1996 and
1997, respectively, with the balance of the remaining unpaid principal
of $2,950,000 due upon maturity. Subsequently, on December 26, 1995,
the lender agreed to defer payment of the $250,000 principal due on
December 20, 1995 until June 20, 1996. As consideration for the
extension, the Fund agreed to pay an extension fee of $8,000 and certain
other legal fees of the lender in the amount of $54,000. The lender
also agreed to provide the Fund with the option to further extend the
date of the December 20, 1995 principal payment until September 20,
1996, in exchange for an increase in the interest rate of Loan 1 from
12% to 12.5%. In addition, prior to the full repayment of Loan 1, the
Venture may obtain releases of liens on portions of the approximately
538 acres of the Project which collateralize Loan 1 upon pro rata
payment of 120% of the then outstanding principal balance as specified
in the Plan, for the purpose of constructing the VRE/Amtrak Station and
service road in accordance with the Prince William County Cherry Hill
Sector Plan. Also, on December 21, 1994, the Venture paid $28,855
representing accrued interest due to the holder of the mortgage loan in
the principal amount of $202,000 ("Loan 2"). The maturity date of Loan
2 was extended from October 1, 1995 until September 30, 1997. Loan 2
requires the Venture to make monthly payments of interest only at a rate
of prime plus 2%, not to exceed 10%, plus a principal paydown of $70,000
on September 30, 1996 with the balance of the remaining unpaid principal
of $132,000 due upon maturity. Finally, on December 21, 1994 the
Venture paid $16,240 representing accrued interest due to the holder of
the mortgage loan in the principal
F-19
<PAGE> 60
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVESTMENT IN REAL ESTATE AND RELATED MORTGAGE LOANS PAYABLE (CONTINUED)
amount of $130,000 ("Loan 3"). The maturity date of Loan 3 was modified
from December 1, 2003 to September 30, 1996. Loan 3 requires the Venture
to make monthly payments of interest only at a rate of prime plus 2%, not
to exceed 10%, with the principal balance of $130,000 due at maturity.
All other terms of Loans 1, 2 and 3 are unchanged. The prime rate as of
December 31, 1995, as published in the "Wall Street Journal" was 8.5%.
(iii) On October 17, 1994, the Fund paid a total of $4,323,630 from the
Morgens, Waterfall, Vintiadis & Co. Inc., loan proceeds to Chase
Manhattan Bank ("Chase"), in exchange for Chase's full release of its
50% interest in the $14,069,462 outstanding loan collateralized by a
first mortgage on the Fund's Wayside Village property and portions of
the Fund's Southbridge property (the "Original Wayside Loan"). The
payment to Chase consisted of a partial principal payment of $4,220,839,
which represented Chase's $7,034,731 principal portion of the Original
Wayside Loan, less a 40% discount, and accrued interest of $102,791.
Simultaneously, the Fund and Societe Generale ("SoGen") agreed to modify
the terms of SoGen's $7,034,731 principal portion of the Original
Wayside Loan (the "Amended Wayside Loan"). The terms of the loan
modification agreement (the "Amended Agreement") extended the maturity
date of the Amended Wayside Loan to December 31, 1997 and provided for
monthly interest payments in arrears at an interest rate of prime + 2%.
At the option of the Fund, the maturity date of the Amended Wayside Loan
may be further extended for two one-year periods in the event certain
conditions defined in the Amended Agreement are met. The Fund and SoGen
also agreed upon a $2,000,000 revolving credit line (the "Wayside
Revolving Loan") to fund specific development costs associated with lot
sales contracts for the Wayside Village property. The terms of the
Wayside Revolving Loan provide for monthly interest payments in arrears
at an interest rate of prime + 3%. The Amended and Revolving Wayside
loans require principal to be repaid as lots are sold, based on
specified release prices, and are cross-collateralized and
cross-defaulted. Pursuant to the SoGen transactions, the Fund paid
$34,731 to reduce the outstanding Amended Wayside Loan principal to
$7,000,000. The Fund also paid accrued interest of $102,791, loan fees
of $95,000 and other fees and expenses totalling approximately $188,500
from the Loan proceeds, including $126,500 escrowed for future real
estate taxes on Wayside Village.
On November 3, 1995, SoGen declared a default under the Amended Wayside
Loan. As a result of the default, SoGen has demanded immediate repayment
of all sums due under the loan, amounting to approximately $6,600,000.
In addition, SoGen separately cancelled the Wayside Revolving Loan. The
Fund had not drawn any monies to date under the Wayside Revolving Loan.
The default arose when a principal payment due October 1, 1995 was not
made.
In the Fund's view, a limited number of lots were developed at Wayside
Village during the past construction season due, in large part, to a
seven-month delay in obtaining a subordination agreement between a home
builder and SoGen causing the Fund to seek deferral of the mandatory
principal payments due and to become due during the next three calendar
quarters. The Fund has also been unsuccessful in its efforts to obtain a
draw under the Wayside Revolving Loan described above, despite the
submission of what the Fund believes are appropriate draw requests and
documentation. The Fund has expended $3,270,000 in infrastructure
improvements and other costs during the last year as a condition
precedent to such funding. SoGen has refused to fund the draw requests
due to a differing interpretation of the conditions contained in the
revolving loan agreement. The draws are needed to complete the
improvements so that the lots may be delivered. The Fund has been
involved in and is continuing its discussions with SoGen with respect to
the alleged default on the Amended Wayside Loan and cancellation of the
Revolving Loan and has recently made several proposals which SoGen has
declined. There can be no assurance, however, that the parties will
reach any resolution of the dispute.
The default and acceleration of the SoGen loan constitutes a default
under the Morgens Loan as discussed above. Morgens has indicated that it
does not presently intend to accelerate repayment of its loan as a result
of the SoGen default or failure by the Fund to make the January 1, and
April 1, 1996 interest payments under the Morgens Credit Agreement.
F-20
<PAGE> 61
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVESTMENT IN REAL ESTATE MORTGAGE LOANS PAYABLE (CONTINUED)
The principal balances of the mortgage loans are scheduled to be repaid as
follows (without respect to any potential payment acceleration of Morgens or
SoGens Loans):
<TABLE>
<S> <C>
1996 $4,710,000
1997 14,965,737
1998 11,000,000
1999 2,950,000
Thereafter ---
-----------
Total $33,625,737
===========
</TABLE>
(d) Properties are currently at various stages of development and
entitlement. The development of projects is currently expected to
continue through 2010.
(e) Depreciation expense is computed using the straight line method with a
mid-month convention. Rates used in the determination of depreciation are
based upon the following estimated useful lives:
Years
Buildings, Building Appurtenances and Improvements 40.0
(f) Subsequent to December 31, 1995, the Fund entered into a contract with an
unaffiliated third party for a sale price of $7,450,000. The carrying
amount of this property in the accompanying consolidated financial
statements is the sales price less estimated closing costs of
approximately $277,000. The Fund has received an earnest money deposit in
the amount of $400,000 and the sale is scheduled to occur on April 19,
1996.
(g) Real Estate Held for Sale includes 120 S. Spalding Dr. and Bishop's Ranch
which are reflected net of accumulated depreciation and their respective
valuation adjustments as of December 31, 1995.
F-21
<PAGE> 62
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENT IN REAL ESTATE VENTURE
On March 6, 1991, in satisfaction of their mortgage loans receivable, the
Fund and Banyan Short Term Income Trust ("BST"), each received a 50% interest
in the Oakridge joint venture (the "Venture") pursuant to a deed-in-lieu
agreement with the borrower. The Fund and BST each holds a 50% general
partnership interest in the Oakridge joint venture pursuant to the partnership
agreement of the VST/VMIF Oakridge Partnership. The property was originally
comprised of 270 acres of vacant land located in Hollywood and Dania, Florida
which had been operated as a golf course. On September 30, 1994, the Venture
sold a 60-acre residential parcel of the Oakridge site to an unaffiliated third
party for $4,100,000. Subsequent to December 31, 1995, on February 5, 1996 and
March 1, 1996, the Fund sold a total of 180 acres to an unaffiliated party for
approximately $4,600,000. In addition, on March 1, 1996, the Venture sold an
additional 25-acre parcel of the Oakridge site to an unaffiliated party for
approximately $2,200,000. The February and March, 1996 sales resulted in the
Venture's repayment of 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 Venture received net proceeds from the
sales of $4,180,505 of which $2,090,253 was distributed to the Fund
representing its 50% interest in the Venture. The Fund will recognize its
share of the gain from the February and March property sales of approximately
$1,051,000 in the first quarter of 1996. The Venture is currently engaged in
negotiations with potential purchasers of the remaining 5-acre retail parcel at
the Oakridge site. The Fund has recognized losses of $213,516 and $560,347 for
the years ended December 31, 1995 and 1993, respectively. For the year ended
December 31, 1994 the Fund recognized income of $442,091 which included a gain
of $869,704 from the property sale.
5. TRANSACTIONS WITH AFFILIATES
Administrative costs, primarily salaries and general and administrative
expenses, are reimbursed by the Fund to Banyan Management Corp. ("BMC"). 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. The Fund's allocated
share of costs for the years ended December 31, 1995, 1994 and 1993 aggregated
$1,092,081, $1,141,675 and $971,321, 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, 1995
and 1994, the Fund had a net payable due to BMC of $175,725 and $86,296,
respectively. The net payable is included in the accounts payable and accrued
expenses in the Fund's consolidated balance sheet.
6. RECOVERY OF LOSSES ON MORTGAGE LOANS, NOTES, INTEREST RECEIVABLE AND
CLASS ACTION SETTLEMENT COSTS AND EXPENSES
The Fund received cash of $981,950, $360,515 and $7,906,520 during 1995,
1994 and 1993, respectively, related to its interest in its liquidating trusts
established for the benefit of the unsecured creditors
F-22
<PAGE> 63
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. RECOVERY OF LOSSES ON MORTGAGE LOANS, NOTES, INTEREST RECEIVABLE AND
CLASS ACTION SETTLEMENT COSTS AND EXPENSES (CONTINUED)
(including the Fund) of VMS Realty Partners and its affiliates ("VMS"), former
affiliates of the Fund. The Fund has recorded $906,629, $298,815 and $7,916,073,
respectively, of these amounts as recovery of losses on mortgage loans, notes,
interest receivable and class action settlement costs in its consolidated
statements of income and expenses. The remainder of $127,468 was 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 is recorded in Accounts Payable and Accrued Expenses at December 31,
1995.
On January 25, 1994, the Fund received net proceeds of $796,985 by
terminating an escrow established as part of the Class Action Settlement of the
VMS securities litigation. The escrow was established to provide the directors
and officers of the Fund with monies to fund the cost of any litigation in
which they may 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 and officers.
7. AWARD SHARES
On August 25, 1995 and April 29, 1994, the Fund issued 79,909 shares and
50,437 shares, respectively 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 which are
valued 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 1995
incentive compensation will be paid out 80% in cash, or $32,010 and 20% in
Award Shares valued at $0.431 per share or $8,003 in 1996. Pursuant to Board
of Director's approval, Mr. Levine was paid $120,000 of his 1994 incentive
compensation on December 31, 1994. On March 15, 1995, Mr. Levine was paid the
balance of his 1994 incentive compensation in the amount of $51,805. The
$171,805 of total cash payments represents 80% of Mr. Levine's 1994 incentive.
The 79,909 Award Shares issued in respect of the incentive compensation earned
during 1994 were valued at a price equal to $0.537 per share or $42,951. On
January 28, 1994, Mr. Levine was paid $231,166 representing 80% of his 1993
incentive. The 50,437 Award Shares valued at $1.15 per share or $58,002,
represent 20% of Mr. Levine's 1993 incentive. The Award Shares will be held by
the Fund, pending satisfaction of the vesting requirements included in Mr.
Levine's contract which provides that Mr. Levine 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
F-23
<PAGE> 64
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. AWARD SHARES (CONTINUED)
of the Fund effective August 25, 1995 and April 29, 1994 for the purpose of
calculating Net Income Per Share of Common Stock based on the Weighted Average
Number Shares Outstanding for the years ended December 31, 1995 and 1994,
respectively.
8. STOCK OPTION PLAN
On June 25, 1993, the Shareholders approved and adopted the 1993 Executive
and Directors Stock Option Plan (the "Plan"). The Plan provides that the Board
of Directors has the authority to issue up to 1,000,000 shares of the Fund's
common stock for stock option awards. Under the Plan, options have been
granted to Directors and management to purchase shares at fair market value at
date of grant.
A summary of option activity is as follows:
<TABLE>
<CAPTION>
Exercise Price
Shares Per Share
<S> <C> <C>
Options outstanding at January 1, 1993 --- ---
Options granted 1993 170,000 $0.625
Options cancelled 1993 (8,000) $0.625
-------
Options outstanding at December 31, 1993 162,000 $0.625
Options granted 1994 170,000 $0.6875 - $1.125
Options cancelled 1994 (10,000) $1.125
Options exercised 1994 (2,664) $0.625
-------
Options outstanding at December 31, 1994 319,336 $0.625 - $1.125
Options granted 1995 171,000 $0.500 - $0.625
Options cancelled 1995 (1,000) $0.500
-------
Options outstanding at December 31, 1995 489,336 $0.500 - $1.125
=======
</TABLE>
At December 31, 1995, options on 183,670 shares are exercisable at $0.50 to
$1.25 per share and options on 508,000 shares were available for future grant.
9. ARBITRATION AWARD PAYABLE
The Fund and Banyan Mortgage Investors L.P. II ("BMLPII") acting for
itself and on behalf of THSP Associates Limited Partnership II ("THSP")
(formerly Banyan Mortgage Investors L.P. III) had agreed to resolve, by means
of arbitration, the issue of the amount of compensation, if any, owed by the
Fund to BMLPII in consideration for BMLPII's agreement to relinquish, and take
no action with respect to its interests in certain Beverly Hills, California
properties commonly known as the Buckeye properties when the Fund took control
of certain of these properties in 1990. On July 20, 1994, a majority of two
members of a panel of three arbitrators awarded BMLPII approximately $3,768,000
in connection with this
F-24
<PAGE> 65
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. ARBITRATION AWARD PAYABLE (CONTINUED)
arbitration. On July 25, 1994, BMLPII filed suit in the Circuit Court of Cook
County, Illinois to confirm the award. Pursuant to the terms of a negotiated
settlement, the award was satisfied on October 17, 1994 by the payment of
$3,250,000.
10. 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, 1995,
are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Investment in real estate $ 19,320,389
Notes and accounts receivable 103,939
Other 56,285
Net operating loss carry
forwards 107,785,235
------------
Total deferred tax assets 127,265,848
Less valuation allowance for
deferred tax assets (127,265,848)
------------
Net deferred tax assets $ ---
============
</TABLE>
As of December 31, 1995, the Fund had net operating loss carry forwards
of approximately $268,122,000 which expire as follows: $83,040,000 in 2005;
$55,604,000 in 2006; $120,412,000 in 2007; $3,536,000 in 2009; and $5,530,000
in 2010.
11. LITIGATION AND CONTINGENCIES
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 Bishop Ranch
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 Bishop 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 and are presently producing documents.
F-25
<PAGE> 66
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. LITIGATION AND CONTINGENCIES (CONTINUED)
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 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.
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 Bishop Ranch project, declaring null
and void the interest of the various defendant lenders which arises under the
Deed of Trust and (iii) an award of attorneys' fees and costs.
The California Court has 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. The court gave the parties
until April 19, 1996 to report to the court on the progress of such an
agreement. The parties appeared before the Illinois Court on April 3, 1996,
upon the defendants' motion, to request the Court to impose a discovery and
trial schedule. The Illinois Court ordered that if the parties conclude
discovery by September 13, 1996, a trial date would be set in September or
shortly thereafter.
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. The partnership agreement which creates 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.
12. SIGNIFICANT ADJUSTMENTS
After considering appraisals, market studies, financial projections and
sales comparisons, management has taken a $3,600,000, $3,300,000 and $6,000,000
valuation adjustment on its 120 S. Spalding building, Bishop Ranch property,
and Wayside Village development, respectively, during the fourth quarter of
1995. These adjustments have been reflected in the Consolidated Statements of
Income and Expenses.
F-26
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 12, 1996, except for Note 1B as to which the
date is May 21, 1996, included in the Proxy Statement of Banyan Mortgage
Investment Fund that is made part of the Registration Statement (Form S-4) and
Prospectus of Banyan Mortgage Investment Fund for the registration of 4,386,986
(109,674,667 on a pre-split basis) shares of its common stock.
Ernst & Young LLP
Chicago, Illinois
September 17, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
RGI U.S. HOLDINGS, INC.
We consent to the use of our reports on the consolidated financial
statements of RGI U.S. Holdings, Inc. and certain subsidiaries, the combined
financial statements of Grand Harbor Associates and Affiliates, and the combined
financial statements of the Oak Harbor Affiliated Companies included herein and
to the reference to our firm under the heading "Experts" in the prospectus.
Our report covering the RGI U.S. Holdings Inc. consolidated financial
statements contains an explanatory paragraph that states that the consolidated
financial statements were prepared to present the financial position, results of
operations and cash flows of the entities to be merged pursuant to the Agreement
and Plan of Merger with Banyan Mortgage Investment Fund and are not intended to
be a complete presentation of RGI U.S. Holdings Inc.
/s/ KMPG PEAT MARWICK LLP
Seattle, Washington
September 16, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Banyan Mortgage Investment Fund
We consent to the inclusion in this registration statement on Form S-4, to
which this consent is filed as an exhibit, of our report dated March 29, 1995 on
our audit of the financial statements of Banyan Mortgage Investment Fund and
subsidiaries. We also consent to the reference to our Firm under the caption
"Experts."
Coopers & Lybrand L.L.P.
Chicago, Illinois
September 17, 1996
<PAGE> 1
EXHIBIT 99.1
CONSENT OF FINANCIAL ADVISOR
We consent to the inclusion in this Registration Statement on Form S-4 of
Banyan Mortgage Investment Fund, to which this consent is filed as an exhibit,
of our opinion dated May 20, 1996 with respect to the consideration to be paid
pursuant to the Merger described in this Registration Statement.
Josephthal Lyon & Ross Incorporated
New York, New York
September 16, 1996
<PAGE> 1
EXHIBIT 99.2
PROXY
BANYAN MORTGAGE INVESTMENT FUND
150 SOUTH WACKER DRIVE
SUITE 2900
CHICAGO, ILLINOIS 60606
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Leonard G. Levine and Robert G. Higgins, and
each of them, as Proxies, each with the power to appoint his substitute, and
hereby authorizes them to present and to vote, as designated below, all the
shares of Common Stock, par value $0.01 per share ("Banyan Common Stock"),
of Banyan Mortgage Investment Fund ("Banyan"), held of record by the
undersigned on October 9, 1996 at the annual meeting of shareholders to be
held on November 26, 1996, or any adjournment thereof.
(continued, and to be dated and signed, on other side)
<PAGE> 2
/X/ Please mark your votes as in this example 4198
<TABLE>
<S><C>
(INSTRUCTION: To withhold authority to vote for any individual write
that nominee's name below.)
__________________________________ FOR AGAINST ABSTAIN
1. A proposal to approve an Agreement and Plan of Merger dated as of April 12, / / / / / /
1996 and amended and restated as of May 20, 1996 and September 17, 1996 (the
"Merger Agreement") by and among RGI U.S. Holdings, Inc. ("RGI/US"), RGI
Holdings, Inc. and Banyan and the "Merger" (as defined in the Merger
Agreement), pursuant to which (i) RGI/US will be merged with and into Banyan
with Banyan being the surviving entity; and (ii) all of the issued and
outstanding shares of RGI/US common stock, no par value per share will be
converted into 4,386,986 newly-issued shares of Banyan Common Stock.
2. A proposal to amend Banyans's certificate of incorporation to reclassify, / / / / / /
combine and convert each twenty-five issued and outstanding shares of
Banyan's Common Stock into one issued and outstanding share.
3. A proposal to approve the amendment to and restatement of the existing / / / / / /
Amended and Restated Certificate of Incorporation of Banyan in the form
attached to the accompanying Proxy Statement/Prospectus as Annex B thereto:
FOR
all nominees WITHHOLD
listed (except AUTHORITY
as marked to the to vote all
contrary below) nominees listed
4. Election of Directors: / / / / Nominees:
Walter E. Auch, Sr.
Olav Revhaug
Fred E. Welker, III
5. In their discretion the proxies are authorized to vote upon such other
business as may properly come before the meeting.
</TABLE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL OF THE PROPOSALS DESCRIBED ABOVE AND FOR ALL OF THE NOMINEES FOR
ELECTION TO THE BOARD OF DIRECTORS.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Signature(s)________________________________________________Date:______________
Please sign exactly as your name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
