<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
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
LEGEND PROPERTIES, INC.
(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.)
13662 OFFICE PLACE, SUITE 201, WOODBRIDGE, VIRGINIA 22192
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (703) 680-2226
---------------
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 [ ]. NO [x].
Shares of common stock outstanding as of November 10, 1997: 6,290,874.
<PAGE> 2
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<S> <C>
Consolidated Balance Sheets at September 30, 1997 and December 31, 1996..................3
Consolidated Statements of Operations for the Nine Months Ended September 30,
1997 and 1996............................................................................4
Consolidated Statements of Operations for the Three Months Ended September 30,
1997 and 1996............................................................................5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30,
1997 and 1996............................................................................6
Notes to Consolidated Financial Statements...............................................8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations..............................................................................14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................24
Item 2. Changes in Securities...................................................................26
Item 3. Defaults Upon Senior Securities.........................................................26
Item 6. Exhibits and Reports of Form 8-K........................................................27
Signatures ......................................................................................29
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEGEND PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
======================================================================================================
1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
------
Real estate inventory $ 103,810,345 103,762,798
Assets held for sale 25,451,424 25,436,375
Cash and cash equivalents 5,777,108 1,529,898
Restricted cash and investments 15,519,682 22,491,305
Accounts and notes receivable 2,393,812 1,893,838
Receivables from related parties 100,000 1,987,481
Property and equipment, net 24,245,800 19,860,865
Intangible assets, net 1,875,257 2,325,406
Other assets, net 4,535,863 4,822,163
---------------------------------
$ 183,709,291 184,110,129
---------------------------------
Liabilities and Stockholders' Equity
------------------------------------
Notes payable to banks and others $ 77,884,458 86,700,617
Payables to related parties 72,321,464 47,609,097
Accounts payable 2,901,699 5,655,401
Other notes and liabilities 11,515,448 12,662,828
Minority interests -- 492,910
Stockholders' equity :
Common stock, $.01 par value. Authorized 10,000,000 shares;
issued 6,311,678 and 6,277,548 shares and outstanding
6,290,874 and 6,276,744 shares at September 30, 1997 and
December 31, 1996, respectively 63,117 62,776
Additional paid-in capital 44,171,993 43,793,708
Accumulated deficit (25,027,572) (12,855,892)
Treasury stock, 20,804 and 804 shares of common stock at
September 30, 1997 and December 31, 1996, respectively (121,316) (11,316)
---------------------------------
Total stockholders' equity 19,086,222 30,989,276
Commitments and contingencies
- ------------------------------------------------------------------------------------------------------
$ 183,709,291 184,110,129
======================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
3
<PAGE> 4
LEGEND PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
===========================================================================================
1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Real estate sales $ 23,675,536 14,863,965
Club operations 4,516,694 4,160,552
Patient service 2,042,804 1,949,261
Rent 1,876,587 1,858,659
Other 454,773 413,071
------------------------------
Total revenues 32,566,394 23,245,508
------------------------------
Costs and expenses:
Real estate 18,207,358 10,776,766
Club operations 4,002,679 3,658,368
Patient service direct costs 1,084,305 1,010,599
Rental operations 300,248 295,376
Other 114,640 72,617
Selling, general and administrative 11,814,220 5,262,744
Depreciation and amortization 1,281,913 895,015
------------------------------
Total costs and expenses 36,805,363 21,971,485
------------------------------
Operating income (loss) (4,238,969) 1,274,023
------------------------------
Other income (expense):
Interest income 1,160,694 448,709
Interest income, related party 73,339 109,407
Interest expense, including loan cost
amortization (5,952,982) (4,077,241)
Interest expense, related party (4,112,385) (568,517)
Other, net 645,907 247,613
------------------------------
Net other expense (8,185,427) (3,840,029)
------------------------------
Loss before minority
interests (12,424,396) (2,566,006)
Minority interests in losses of consolidated
subsidiaries 252,716 285,678
------------------------------
Net loss $(12,171,680) (2,280,328)
------------------------------
Net loss per share $ (1.94) $ (.52)
------------------------------
Weighted average number of common shares
outstanding 6,284,788 4,386,986
===========================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
4
<PAGE> 5
LEGEND PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
==========================================================================================
1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Real estate sales $ 6,371,174 1,685,611
Club operations 1,086,800 986,091
Patient service 689,345 661,136
Rent 625,835 613,984
Other 117,763 8,920
-----------------------------
Total revenues 8,890,917 3,955,742
-----------------------------
Costs and expenses:
Real estate 4,909,540 1,527,289
Club operations 1,212,882 1,130,772
Patient service direct costs 368,264 345,857
Rental operations 102,617 95,035
Other 48,873 27,721
Selling, general and administrative 4,176,735 1,449,224
Depreciation and amortization 516,056 233,695
-----------------------------
Total costs and expenses 11,334,967 4,809,593
-----------------------------
Operating loss (2,444,050) (853,851)
-----------------------------
Other income (expense):
Interest income 362,120 71,892
Interest income, related party 802 36,870
Interest expense, including loan cost
amortization (2,115,122) (1,477,661)
Interest expense, related party (1,611,463) (241,712)
Other, net 308,971 121,419
-----------------------------
Net other expense (3,054,692) (1,489,192)
-----------------------------
Loss before minority
interests (5,498,742) (2,343,043)
Minority interests in losses of consolidated
subsidiaries -- 246,455
-----------------------------
Net loss $ (5,498,742) (2,096,588)
=============================
Net loss per share $ (.87) $ (.48)
=============================
Weighted average number of common shares
outstanding 6,290,874 4,386,986
==========================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
5
<PAGE> 6
LEGEND PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
=====================================================================================
1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(12,171,680) (2,280,328)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 2,341,248 1,365,968
Related party interest expense not paid 4,009,647 581,184
Related party interest income not
collected (72,537) (109,671)
Minority interests in losses (252,716) (285,678)
Change in certain assets and liabilities,
net of effect of acquisitions:
Decrease (increase) in real estate
inventory 1,212,472 (7,041,495)
Increase in accounts and notes
receivable and other assets (1,622,112) (3,345,968)
Increase (decrease) in accounts
payable and other notes and
liabilities (3,901,082) 4,523,179
------------------------------
Net cash used in
operating activities (10,456,760) (6,592,809)
------------------------------
Cash flows from investing activities:
Decrease (increase) in restricted cash and
investments 6,971,623 (8,123,702)
Purchase of property and equipment (4,701,274) (7,872,254)
Loans to related parties (20,000) (1,088,555)
Collection of loans to related parties 298,434 583,403
Investments and acquisitions, net of cash
acquired -- 104,540
------------------------------
Net cash provided by
(used in) investing
activities 2,548,783 (16,396,568)
------------------------------
Subtotal, carried
forward $ (7,907,977) (22,989,377)
------------------------------
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
==========================================================================================
1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Subtotal, brought
forward $ (7,907,977) (22,989,377)
------------------------------
Cash flows from financing activities:
Proceeds from notes payable to bank and
others 16,958,491 39,670,134
Repayment of notes payable to bank and others (25,774,650) (25,905,598)
Proceeds from loans from related parties 20,702,720 12,067,576
Repayment of contract payable -- (1,500,000)
Payment of loan fees -- (1,096,016)
Sale of common shares 400,003 --
Purchase of common shares (131,377) --
------------------------------
Net cash provided by
financing activities 12,155,187 23,236,096
------------------------------
Net increase in cash
and cash equivalents 4,247,210 246,719
Cash and cash equivalents at beginning of period 1,529,898 578,906
------------------------------
Cash and cash equivalents at end of period $ 5,777,108 825,625
------------------------------
Contribution to equity of notes and interest
payable from stockholder, net of receivable $ -- 21,663,015
==========================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
7
<PAGE> 8
LEGEND PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. BASIS OF PRESENTATION
Legend Properties, Inc., formerly known as Banyan Mortgage Investment Fund
(Banyan), is the surviving corporation from the December 31, 1996 merger (the
Merger) with RGI U.S. Holdings (RGI/US) (see note 2).
For financial reporting purposes, the Merger was treated as a recapitalization
of RGI/US, with RGI/US as the acquirer of Banyan; which changed its name to
Legend Properties, Inc. upon the effectiveness of the Merger. Therefore, as of
December 31, 1996, the historical consolidated financial statements of Legend
Properties, Inc. are those of RGI/US. Prior to the Merger, RGI/US was a
wholly-owned subsidiary of RGI Holdings, Inc. (Holdings). As of September 30,
1997, Holdings owns approximately 79% of the outstanding common shares of Legend
Properties, Inc.
The consolidated financial statements include the accounts of Legend Properties,
Inc. and its subsidiaries (Legend or the Company). In the opinion of management,
the accompanying unaudited interim consolidated financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows for
the periods presented. Certain financial statement items from the prior year
have been reclassified to be consistent with the current year financial
statement presentation. All significant intercompany accounts and transactions
have been eliminated in consolidation.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and the related disclosures contained in the
Company's Annual Report on Form 10-K/A for the year ended December 31, 1996,
filed with the Securities and Exchange Commission.
The results of operations for the nine months ended September 30, 1997 are not
necessarily indicative of the results to be expected for the full fiscal year.
2. 1996 ACQUISITION
On April 12, 1996, an Agreement and Plan of Merger was executed among RGI/US,
Holdings, and Banyan. Effective December 31, 1996, RGI/US was merged with and
into Banyan. Banyan's certificate of incorporation was amended to convert each
twenty-five shares of Banyan's issued and outstanding common stock into one
issued and outstanding share (Reverse Split). Additionally, the name of Banyan
was changed to Legend Properties, Inc. After giving effect to the Reverse Split,
all outstanding shares of RGI/US were converted into 4,386,986 shares of
Banyan's common stock. For accounting purposes, the merger was treated as a
recapitalization of RGI/US, with RGI/US as the acquirer of Banyan.
The purchase price of Banyan by RGI/US was calculated as follows:
<TABLE>
<S> <C>
Banyan common shares outstanding at December 31, 1996 47,307,527
Fair market value per share on or about April 12, 1996 $ 0.46875
-----------
Purchase price $22,175,403
===========
</TABLE>
The business combination was accounted for under the purchase method of
accounting, wherein the purchase price was allocated to the assets acquired and
liabilities assumed based upon their relative fair values. Results of operations
of this acquired company have been included in the consolidated financial
statements from the acquisition date.
8
<PAGE> 9
The purchase price related to the acquisition was allocated as follows:
<TABLE>
<S> <C>
Real estate inventory $50,835,299
Assets held for sale 7,991,701
Cash 477,000
Other 2,215,000
-----------
Fair value of assets acquired 61,519,000
Less liabilities 39,344,000
-----------
$22,175,000
===========
</TABLE>
The allocation of the purchase price is preliminary, and is based upon fair
values that were determinable, and estimates of fair values that were not yet
determinable. In particular, the values assigned to real estate inventory were
based upon appraisals and discounted estimated future cash flows, when
appraisals were not available. The calculated fair values of the real estate
inventory were adjusted downward on a pro rata basis to arrive at the
"allocated" fair value of real estate inventory. Finalization of the appraisals
will likely result in adjustments to the allocation of the purchase price to the
net assets acquired.
The unaudited pro forma consolidated statement of operations for the nine months
ended September 30, 1996 that follow give effect to the acquisition as if it had
been consummated on January 1, 1996. The unaudited pro forma consolidated
statement of operations is presented for informational purposes only and does
not purport to represent what Legend's results of operations for the nine months
ended September 30, 1996 would have actually been had the acquisition, in fact,
occurred on January 1, 1996, or Legend's results of operations for any future
period.
<TABLE>
<S> <C>
Total revenues $ 23,478,101
Total costs and expenses 27,232,505
------------
Operating loss (3,754,404)
Other expenses, net (5,997,648)
============
Net loss (9,752,052)
============
</TABLE>
3. 1997 ACQUISITION
In July 1997, Grand Harbor Associates, Inc. (GHAI), a wholly-owned subsidiary of
the Company which owned 90% of the various corporations and partnerships that
own Grand Harbor, Oak Harbor and Royal Palm Convalescent Center in Vero Beach,
Florida (collectively, the Florida Entities), acquired the remaining 10% of the
Florida Entities. The Florida Entities were purchased from Grand Harbor
Development Company (GHDC), a corporation majority owned by Don Proctor, in
exchange for the cancellation of a note receivable of $1,462,770 plus accrued
interest of $218,814, payable to GHAI from GHDC. Don Proctor is the majority
shareholder of Proctor Construction Company, which has an exclusive contract to
provide development and construction services at Grand Harbor and Oak Harbor.
Mr. Proctor was an officer of Grand Harbor Property Holdings, Inc., a subsidiary
of the Company, until his resignation in June 1997.
The transaction was accounted for under the purchase method of accounting,
wherein the purchase price was allocated to the assets acquired and liabilities
assumed based upon their relative fair values.
4. BORROWINGS
Defaults
As of December 31, 1996, mortgage notes payable to Holdings with outstanding
principal balances totaling $30,649,872 (the Loans) were in default due to the
Company's failure to make certain interest payments
9
<PAGE> 10
when due. On June 30, 1997, a $4,000,000 unsecured note payable to Holdings,
plus accrued interest of $415,320, matured. The Company did not repay the
amounts, thereby causing the note to be in default. In August 1997, the maturity
date of the $4,000,000 note payable to Holdings was extended to December 31,
1997. The note payable continues to accrue interest at LIBOR plus 1% (6.81% at
September 30, 1997). On August 1, 1997, the Company received a notice of default
from a third party lender, for a loan with an outstanding principal balance of
approximately $9.4 million. The default was caused by a material adverse change
in the financial condition of the principal guarantor of the loan; an affiliate
of the Company's majority shareholder, RGI Holdings, Inc.; due to a
restructuring. The lender requested that the Company cure the default by
replacing the guarantor by September 1, 1997. In August 1997, the Company's
indirect majority shareholder agreed to be added as a guarantor of the loan,
which cured the event of default.
Short-term borrowings
From January 1 to September 30, 1997, Legend had short-term borrowings from
Holdings of approximately $20.7 million. In conjunction with the announcement of
the settlement of the Delaware litigation (See Note 5, "Contingencies and
Litigation"), Holdings agreed to, among other things, provide Legend with a line
of credit in the aggregate principal amount of $8.5 million, bearing interest at
the prime rate plus 2% (10.5% at September 30, 1997). The principal amount
available under this line of credit agreement was increased to $17.0 million in
May, and then to $21.0 million in August. Draws on the $21.0 million line of
credit mature on April 1, 1999, and are partially secured by a second mortgage
on certain real estate inventory. Through November 10, 1997, Legend had borrowed
substantially all of the available credit line. The proceeds were used to, among
other things, repay $2.6 million to Holdings for advances previously made to
Legend during 1996 and the first quarter of 1997. The remaining proceeds were
used to fund development, construction and operating costs associated with the
properties, as well as costs associated with the merger, relocations and
Delaware litigation.
5. CONTINGENCIES AND LITIGATION
Legend has significant related party indebtedness maturing in 1997 and will not
be able to satisfy these obligations without restructuring or refinancing.
However, due to the uncertainty related to the litigation described in this
note, Legend is unable to satisfactorily negotiate such transactions. Management
believes that if the litigation is satisfactorily resolved in the near term,
this related party debt can be restructured to enable its obligations to be met.
There can be no assurances that the Company will be able to satisfactorily
resolve the lawsuit or be able to restructure the debt on acceptable terms, if
at all.
On October 31, 1996, a class action lawsuit was filed in Delaware Court of
Chancery by two of Banyan's stockholders on behalf of themselves and all of the
non-defendant stockholders of Banyan, against certain of the directors and
officers of Banyan. Plaintiffs alleged, among other things, that Banyan's board
of directors breached its fiduciary duties by failing to seek alternative change
of control transactions, other than the merger with RGI/US, or appropriately
evaluate the alternative of liquidating Banyan. Plaintiffs further alleged that
the merger unfairly diluted the voting and equity interests of Banyan's
stockholders. In addition, the plaintiffs alleged that the proxy statement
utilized by Banyan in connection with the annual meeting held to consider and
vote upon the merger was misleading and failed to disclose certain material
information. Among other remedies, the plaintiffs sought to enjoin the merger
and require the defendants to undertake additional activities to maximize
stockholder value and disclose certain additional information. The parties
subsequently engaged on discovery, including producing and reviewing documents
and taking depositions.
On November 13, 1996, another Banyan stockholder also filed a class action
lawsuit in Delaware Court of Chancery asserting allegations substantially
similar to those in the action filed on October 31. The two lawsuits were
ultimately consolidated by the Court on December 11, 1996 under the case number
C.A. No. 15287.
10
<PAGE> 11
On December 24, 1996, the plaintiffs served and filed a consolidated amended and
supplemental complaint repeating the allegations made in the initial complaint
and adding additional factual allegations that Banyan had failed to properly
consider acquisition proposals submitted by third parties to acquire Banyan. The
amended complaint also claimed that purchases made by Holdings during December
of shares of Banyan's common stock from third parties constituted unlawful vote
buying.
On January 8, 1997, the plaintiffs filed an application pursuant to Section
225(b) of the General Corporation Laws of the State of Delaware seeking judicial
review of the certified vote on the merger. Plaintiffs alleged that: (i) the
merger was approved by fewer than 210,000 votes; (ii) many shareholders had
sought to revoke proxies previously cast in favor of the merger; and (iii)
Banyan had announced varying results of the vote. The plaintiffs sought an
expedited hearing on the Section 225 application. The Delaware Court
subsequently scheduled a hearing on the plaintiffs' application for relief under
Section 225 for March 4, 1997. The parties engaged in discovery incident to that
application, including a review of documents obtained from the independent
inspector of election for the annual meeting, as well as other third parties and
taking depositions of certain of the plaintiffs' class representatives. The
hearing scheduled for March 4, 1997 was subsequently postponed without a further
date at the direction of the Delaware court. In the interim, the parties entered
into discussions with a view towards finding a mutually agreeable basis for
resolving the litigation.
On April 14, 1997, plaintiffs served the Second Consolidated Amended and
Supplemental Complaint. This pleading repeated the allegations of the
Consolidated Amended and Supplemental Complaint, added the claims underlying
plaintiffs' Application pursuant to Section 225 and added Holdings and RGI/US as
the defendants.
On April 15, 1997, the parties to the Delaware litigation entered into a
Stipulation and Settlement Agreement. As part of the settlement, Holdings agreed
to, among other things: (i) defer interest due on the Morgens and SoGen loans
(the Loans) until December 31, 1997; (ii) forebear on any defaults existing on
the Loans as of the effective date of the settlement until December 31, 1997;
(iii) effective January 1, 1997, reduce the interest rate on the Loans to the
lower of the prime rate plus 2% (10.25% at January 1, 1997) or LIBOR plus 2.5%
(8.1% at January 1, 1997); (iv) provide Legend with a line of credit in the
aggregate principal amount of $8.5 million, a portion of which would be utilized
to repay Holdings for advances previously made to Legend; and (v) repurchase up
to $300,000 of Legend's shares of common stock from time to time on the open
market over the next twelve months subject to compliance with the SEC's rules
and regulations relating to open market repurchase programs.
After notice to the class of the settlement, the Court held a hearing on June
19, 1997 to consider approval of the Settlement. By a Memorandum Opinion dated
July 23, 1997, the Court declined to approve the proposed settlement.
Thereafter, the parties engaged in further negotiations seeking to resolve the
claims asserted in Delaware on a mutually satisfactory basis, consistent with
the issues raised by the Court in its Memorandum Opinion.
On September 17, 1997, the parties to the Delaware litigation entered into
a Second Stipulation and Agreement of Settlement (Amended Settlement). As part
of the Amended Settlement, Legend and Holdings agreed to fund a settlement of
$1,200,000. The $1,200,000, less certain fees and expenses that may be allowed
by the Court, is to be distributed, on a proof of claim basis, to Banyan
shareholders, other than the defendants, as of December 31, 1996, the date that
the Merger was effective. In addition, Holdings agreed to, among other things:
(i) defer interest due on the Loans until December 31, 1998; (ii) forebear on
any defaults existing on the Loans as of the effective date of the settlement
until December 31, 1998; (iii) effective January 1, 1997, reduce the interest
rate on the Loans to the lower of the prime rate plus 2% (10.25% at January 1,
1997) or LIBOR plus 2.5% (8.1% at January 1, 1997); (iv) provide Legend with a
line of credit in the aggregate principal amount of $21 million, $2.6 million of
which would be utilized to repay Holdings for advances previously made to
Legend.
11
<PAGE> 12
Notice to the class of the settlement was made by personal notice and summary
notice by publication on or before October 13, 1997. The Court has set a hearing
for November 13, 1997, to consider approval of the revised settlement.
The same plaintiffs whom filed the Delaware action on October 31, 1996, have
filed an individual action in the United States District Court for New York,
Southern District, against RGI/US, Holdings and Legend's then president, Kenneth
L. Uptain, alleging, among other things, that certain purchases made by Holdings
during December of shares of Banyan's common stock from third parties
constituted an illegal tender offer.
Legend's independent auditors in their report dated April 15, 1997, stated that
they were unable to express, and did not express, an opinion on Legend's 1996
consolidated financial statements (the Disclaimer of Opinion). This inability
was due to uncertainties regarding the resolution of certain matters raised in a
class action lawsuit. The Independent Auditors' Report states that "(b)ecause of
the significance of the uncertainties regarding the lawsuit ...., we are unable
to express, and we do not express, an opinion on the 1996 consolidated financial
statements"(See Part II - Other Information "Item 1. Legal Proceedings").
Additionally, the Independent Auditors' Report states that "Legend Properties,
Inc. has substantial indebtedness maturing in 1997 and does not have sufficient
resources to satisfy these obligations without restructuring or refinancing
certain of this indebtedness. These matters raise substantial doubt about the
ability of Legend Properties, Inc. to continue as a going concern".
The National Association of Securities Dealers (NASD) Marketplace Rules specify
that "(a)nnual reports filed with the Association shall contain audited
financial statements". Due to the aforementioned Disclaimer of Opinion, the
Company was not in compliance with this filing requirement. The Company was
granted a temporary exception from this standard through July 31, 1997, subject
to the Company meeting certain conditions.
The Company was unable to meet those conditions, which included the delivery of
an opinion on Legend's 1996 consolidated financial statements, by July 31, 1997.
On July 31, 1997, the Company's common shares were removed from listing on
Nasdaq's Small Cap Market.
6. STOCKHOLDERS' EQUITY
Changes in Authorized Shares
In July of 1997, the Company amended Article Fourth of the Company's Amended and
Restated Certificate of Incorporation to reduce the number of authorized shares
of capital stock to 15,000,000 shares, of which 5,000,000 shares shall be
preferred stock, $0.01 par value, and 10,000,000 shares shall be common stock,
$0.01 par value.
7. NEW ACCOUNTING PRONOUNCEMENTS
Earnings Per Share
In February of 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
No. 128). This statement specifies the computation, presentation, and disclosure
requirements for earnings per share. SFAS No. 128 is designed to improve the
earnings per share information provided in financial statements by simplifying
the existing computational guidelines, revising the disclosure requirements and
increasing the comparability of earnings per share data. SFAS No. 128 is
effective for financial statements for periods ending after
12
<PAGE> 13
December 15, 1997, including interim periods, and earlier adoption is not
permitted. When adopted, the Company will be required to restate its earnings
per share data for all prior periods presented. In the opinion of management,
the adoption of SFAS No. 128 will not have a material effect on the Company's
calculation of earnings per share.
Reporting Comprehensive Income
In September of 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" (SFAS No. 130). This statement establishes standards for reporting and
display of comprehensive income and its components. SFAS No. 130 is effective
for financial statements for periods beginning after December 15, 1997,
including interim periods, and earlier adoption is permitted. When adopted, the
Company will be required to reclassify its comparative income statements to
report and display comprehensive income and its components for all prior periods
presented. The Company does not anticipate adopting this statement earlier than
required.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Certain statements in this quarterly report that are not historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Without limiting the foregoing, words
such as "anticipates," "expects," "intends," "plans" and similar expressions are
intended to identify forward-looking statements. These forward-looking
statements involve risks and uncertainties including, but not limited to, risks
associated with new and future communities, competition, financing availability,
fluctuations in interest rates or labor and material costs, government
regulation, geographic concentration, natural risks and other matters. For a
discussion of the factors affecting the Company's business plan, see the
Company's 1996 Annual Report on Form 10-K/A--management's discussion and
analysis--"factors affecting Legend's business plan." Actual results could
differ materially from those projected in the forward-looking statements. The
Company undertakes no obligation to update these forward-looking statements to
reflect future events or circumstances.
Legend Properties, Inc., formerly known as Banyan Mortgage Investment Fund
(Banyan), is the surviving corporation from the December 31, 1996 merger (the
Merger) with RGI U.S. Holdings (RGI/US).
For financial reporting purposes, the Merger was treated as a recapitalization
of RGI/US, with RGI/US as the acquirer of Banyan. As of December 31, 1996, the
historical consolidated financial statements of RGI/US became those of Legend
Properties, Inc.
RGI/US owned, operated and developed real estate through its wholly-owned
subsidiaries, American Property Investments, Inc. (API) and Grand Harbor
Associates, Inc. (GHA). API owns a 164,724 square foot shopping center located
in Lynnwood, Washington (the Lynnwood Center). RGI/US listed the Lynnwood Center
for sale during 1996. GHA owns Grand Harbor Property Holdings, Inc. (GHPH), Oak
Harbor Property Holdings Inc. and Quality Life Services, Ltd. (collectively
OHPH), entities that own: (i) Grand Harbor, a 772-acre residential golf
community development project located in Vero Beach, Florida; (ii) Oak Harbor, a
116-acre, 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.
Legend's independent auditors in their report dated April 15, 1997, stated that
they were unable to express, and did not express, an opinion on Legend's 1996
consolidated financial statements (the Disclaimer of Opinion). This inability
was due to uncertainties regarding the resolution of certain matters raised in a
class action lawsuit. The Independent Auditors' Report states that "(b)ecause of
the significance of the uncertainties regarding the lawsuit ...., we are unable
to express, and we do not express, an opinion on the 1996 consolidated financial
statements"(See Part II - Other Information "Item 1. Legal Proceedings").
Additionally, the Independent Auditors' Report states that "Legend Properties,
Inc. has substantial indebtedness maturing in 1997 and does not have sufficient
resources to satisfy these obligations without restructuring or refinancing
certain of this indebtedness. These matters raise substantial doubt about the
ability of Legend Properties, Inc. to continue as a going concern".
The National Association of Securities Dealers (NASD) Marketplace Rules specify
that "(a)nnual reports filed with the Association shall contain audited
financial statements". Due to the aforementioned Disclaimer of Opinion, the
Company was not in compliance with this filing requirement. The Company was
granted a temporary exception from this standard through July 31, 1997, subject
to the Company meeting certain conditions.
14
<PAGE> 15
The Company was unable to meet those conditions, which included the delivery of
an opinion on Legend's 1996 consolidated financial statements, by July 31, 1997.
On July 31, 1997, the Company's common shares were removed from listing on
Nasdaq's Small Cap Market.
During 1996, operating results primarily consisted of the operations of Grand
Harbor, Oak Harbor and the Lynnwood Center. Operating results for the nine month
period ended September 30, 1997 also include the operations of the Southbridge,
Chapman's Landing and Laguna Seca Ranch projects owned by Banyan (now Legend).
In July 1997, Grand Harbor Associates, Inc. (GHAI), a wholly-owned subsidiary of
the Company which owned 90% of the various corporations and partnerships that
own Grand Harbor, Oak Harbor and Royal Palm Convalescent Center in Vero Beach,
Florida (collectively the Florida Entities), acquired the remaining 10% of the
Florida Entities. The 10% of the Florida Entities were purchased from Grand
Harbor Development Company (GHDC), a corporation majority owned by Don Proctor,
in exchange for the cancellation of a note receivable of $1,462,770 plus accrued
interest of $218,814, payable to GHAI from GHDC. Don Proctor is the majority
shareholder of Proctor Construction Company, which has an exclusive contract to
provide development and construction services at Grand Harbor and Oak Harbor.
Mr. Proctor was an officer of Grand Harbor Property Holdings, Inc., a subsidiary
of the Company, until his resignation in June 1997.
Currently, Legend intends to focus on continuing the development of
infrastructure, amenities and residential units at Grand Harbor and Oak Harbor
consistent with approved zoning and development plans. Additionally, Legend
intends to develop and sell land parcels at Southbridge and Chapman's Landing.
The Company's ability to fully implement its business plan is dependent on,
among other things, the Company resolving the lawsuit in a satisfactory manner
and securing construction financing related to certain developments on
acceptable terms. There can be no assurances that the Company will be able to
satisfactorily resolve the lawsuit or obtain construction financing on
acceptable terms. In connection with Legend's current plan to focus on these
land and residential developments, Legend is marketing the Lynnwood Center and
Laguna Seca Ranch properties for sale, and anticipates selling them by December
31, 1997. The Company has signed purchase and sales agreements, subject to
standard due diligence procedures, for both of these properties. The Company
anticipates that both properties will be sold by December 31, 1997, for more
than $30 million. There can be no assurances that the Company will be able to
complete the sales of the properties for more than $30 million by December 31,
1997.
The cash flow from operations for each of Legend's projects can differ
substantially from reported earnings, depending on the status of the development
cycle. At the Oak Harbor, Southbridge and Chapman's Landing properties, which
are in the initial years of development, significant cash outlays are required
for, among other things, obtaining zoning and other approvals, construction of
amenities (including golf courses and club houses and recreation centers), model
homes, sales and administrative facilities, major roads, utilities, general
landscaping and interest. Since these initial costs are generally capitalized,
this can result in income reported for financial statement purposes during the
initial years significantly exceeding operating cash flow. However, at the Grand
Harbor property, which has completed the initial years of development, operating
cash flow can exceed earnings reported for financial statement purposes, as
costs and expenses include charges for substantial amounts of previously
expended and capitalized costs.
LIQUIDITY AND CAPITAL RESOURCES
Legend's cash and cash equivalents balance at September 30, 1997, and December
31, 1996, was $5,777,108 and $1,529,898, respectively. The increase in the first
nine months of 1997 is attributable to cash provided by financing and investing
activities of $12,155,187 and 2,548,783, respectively, partially offset by cash
utilized in operating activities of $10,456,760.
Cash Flows from Operating Activities: For the nine months ended September 30,
1997, Legend utilized cash in operating activities of $10,456,760.
Cash utilized in operations in the nine months ended September 30, 1997 was
primarily due to the following:
o Net losses of $12,171,680 for the nine months ended September
30, 1997, due primarily to losses recorded at the Grand Harbor,
Oak Harbor, Southbridge and Chapman's Landing developments, as
well as corporate overhead expenses. Sales at the Vero Beach,
Florida developments (Grand Harbor and Oak Harbor) were less
than anticipated, due primarily to a lower level of demand for
new homes at these developments and similar-type developments in
the Vero Beach area in the first nine months of 1997, when
compared to 1996.
15
<PAGE> 16
Due to delays caused during the Merger proceedings and by the
litigation discussed below, Legend was unable to start
development and construction activities at the Southbridge and
Chapman's Landing properties as early as originally anticipated,
and the Company was only able to close on ten lot sales at these
developments during the nine months ended September 30, 1997.
Corporate overhead expenses included costs associated with the
merger and related lawsuit, as well as costs related to the
formation of and transistion to corporate offices in Seattle and
suburban Washington D.C.
o An increase in other assets and accounts and notes receivable of
$1,622,112 and a decrease in accounts payable and other
liabilities of $3,901,082 for the nine months ended September
30, 1997. These increases and decreases were generally due to
the timing of the payment of certain liabilities, including
trade payables, advances from customers, and prepaid expenses,
and the collection of accounts and notes receivable. These
amounts can vary significantly from month to month depending on
the timing of the closing of sales and development and
construction activity at each of Legend's properties. Due to the
nature of Legend's business, significant fluctuations in
operating assets and liabilities are not considered unusual.
o Construction and development costs recorded at Legend's
development properties of $16,994,886 for the nine months ended
September 30, 1997. In Vero Beach, Florida the construction of
residential units continued, including the completion of a 24
unit condominium building at Oak Harbor and the introduction of
several new product types at Grand Harbor. Construction
activities also continued at Southbridge, and ten lots were
delivered to builders through September 30, 1997.
Partially offset by the following:
o Sales of 37 units and 24 units at Grand Harbor and Oak Harbor,
respectively, and the sale of 10 lots to builders at
Southbridge. Costs of real estate sales at Grand Harbor, Oak
Harbor and Southbridge were $18,207,358 for the nine months
ended September 30, 1997.
o Related party interest expense of $4,009,647 was not paid during
the nine months ended September 30, 1997. Legend has borrowed
significant amounts from related parties, primarily RGI
Holdings, Inc. (Holdings) over the last twelve months. As of
December 31, 1996, and during the nine months ended September
30, 1997, certain of Legend's loans from Holdings were in
default and interest payments on these and other payables to
Holdings were not made.
o Depreciation and amortization expense was $2,341,248, related
primarily to Grand Harbor and Oak Harbor. As of June 30, 1996,
management decided to dispose of the Lynnwood Center and
discontinued recording depreciation on the Lynnwood Center
assets.
Cash Flows From Investing Activities: During the nine months ended September 30,
1997 Legend generated cash flow from investing activities of $2,548,783. The
amount of cash flow utilized in investing activities for the nine months ended
September 30, 1997 was primarily due to Legend purchasing $4,701,274 of property
and equipment offset by the release of restricted cash and investments of
$6,971,623 during 1997. The additions to property and equipment occurred
primarily at Oak Harbor, and substantially represented the construction of the
Assisted Care Facility (ACF). The ACF was completed during the third quarter of
1997. At December 31, 1996, Legend had, among other things, restricted cash
deposited with a lender for the construction of the ACF. As construction
occurred on the ACF during the nine months ended September 30, 1997, the lender
released certain of these restricted amounts to Oak Harbor to fund the
construction. Also, net customer deposits previously received for the rental and
sale of real estate were released to Grand Harbor and Oak Harbor. Additionally,
Legend's indirect majority shareholder agreed to guarantee the repayment of a
loan to a third party lender, which resulted in the release of restricted cash
held by the lender of approximately $4.3 million during the third quarter of
1997. Legend also collected $298,434 of loans to related parties.
16
<PAGE> 17
Cash Flows from Financing Activities: During the nine months ended September 30,
1997, financing activities provided cash flow of $12,155,187, primarily due to
proceeds of $37,661,211 on borrowings ($20,702,720 from a related party), offset
by repayments of $25,774,650. Additionally, during the first nine months of
1997, Legend paid $21,377 to purchase fractional shares which resulted from the
December 31, 1996 reverse stock split, sold 34,130 shares of Legend common stock
to Holdings at a per share price of $11.72, or $400,003, and purchased 20,000
shares of Legend common stock from an unrelated third party for $5.50 per share,
or $110,000.
During the nine months ended September 30, 1997, Legend borrowed $20,702,720
from Holdings and used the proceeds to fund operating and development costs and
costs associated with the Merger and the lawsuit. In April of 1997, Holdings
agreed to, among other things, provide Legend with a line of credit in the
aggregate principal amount of $8.5 million. Subsequently, the principal amount
available under this line of credit agreement was increased to $21.0 million.
Through November 10, 1997, Legend had borrowed substantially all of the
available credit line. The proceeds were used to, among other things, repay $2.6
million to Holdings for advances previously made to Legend during 1996 and the
first quarter of 1997. The remaining proceeds were used to fund development,
construction and operating costs associated with the properties, as well as
costs associated with the merger, relocations and Delaware litigation.
The Company borrowed an additional $16,958,491 ($11,457,231 at Grand Harbor and
$5,501,260 at Oak Harbor) from third parties, which was used primarily to
"refinance" existing construction and development revolving loans, and to fund
certain construction and development costs, such as the construction of new
product types at Grand Harbor and the ACF at Oak Harbor. Repayments of
$25,774,650 were primarily at Grand Harbor ($17,294,924) and Oak Harbor
($8,223,175), and were made from funds generated through the preceding
refinancings and through sales of residential units and club memberships.
Historically, Legend has used internally generated funds, third party borrowings
and funds from Holdings and affiliated entities for construction and development
purposes. The business plan of Legend contemplates the continued development of
Southbridge, Grand Harbor and Oak Harbor and the initiation of development
activities at the Chapman's Landing project. There can be no assurances that the
Company will be able to obtain sufficient funding from related parties or third
parties to fully implement the Company's current business plan.
Legend's business plan for Southbridge, Chapman's Landing, Grand Harbor and Oak
Harbor contemplates development expenses during the year ending December 31,
1997, of approximately $17.5 million. Legend has obtained from third parties the
approximately $12 million of construction financing necessary for Grand Harbor
and Oak Harbor, and anticipates obtaining third party construction financing,
assuming the lawsuit is satisfactorily resolved, of approximately $4 million
for Southbridge and Chapman's Landing. Legend anticipates that the additional
$1.5 million needed to fund development expenses will be generated through the
sale of the Lynnwood Center and Laguna Seca Ranch properties or by operations.
The Company's ability to fully implement its business plan for each of its
properties is dependent upon, among other things, the Company resolving the
lawsuit in a satisfactory manner and securing construction financing for the
Southbridge and Chapman's Landing developments on acceptable terms. There can be
no assurances that the Company will be able to satisfactorily resolve the
lawsuit or obtain construction financing on acceptable terms, if at all.
Management of Legend does not believe that its remaining cash and cash
equivalents at September 30, 1997, will be sufficient to implement and complete
its current business plan for each of its properties. To increase its cash
resources, Legend is marketing the Laguna Seca Ranch and the Lynnwood Center
properties for sale in order to provide the Company additional funding for its
planned development activities. The Company has signed purchase and sale
agreements, subject to standard due diligence procedures, for both of these
properties. The Company anticipates that both properties will be sold by
December 31, 1997, for an aggregate of more than $30 million. The Company
believes that if it is able to sell the preceeding properties, restructure
certain of its existing debt obligations and secure construction financing for
the Southbridge and Chapman's Landing
17
<PAGE> 18
developments on acceptable terms, its cash resources will be sufficient
to meet its liquidity needs for 1997 and 1998. There can be no assurances that
the Company will be able to complete the sales of the Laguna Seca Ranch and the
Lynnwood Center properties, be able to restructure certain of its existing debt
obligations or be able to obtain construction financing on acceptable terms, if
at all.
Certain existing debt obligations are in default or mature on December 31, 1997
and in 1998. To fully implement its business plan and meet its estimated cash
needs, the Company must, among other things, restructure or refinance these
obligations and obtain construction financing of approximately $11 million for
the Southbridge and Chapman's Landing properties.
Until uncertainties related to the lawsuit are satisfactorily resolved, the
Company anticipates that it will be unable to obtain construction financing for
its Southbridge and Chapman's Landing properties or restructure or refinance it
existing debt obligations. There can be no assurances that the Company will be
able to satisfactorily resolve the lawsuit or be able to resructure or refinance
its existing debt obligations.
RESULTS OF OPERATIONS
Results of operations for the three and nine months ended September 30, 1997,
include the expenses of Southbridge, Chapman's Landing and Laguna Seca Ranch,
whereas the results of operations for 1996 do not contain these results. As a
result, Legend believes that its consolidated statement of operations for the
three and nine months ended September 30, 1997, are not comparable with its
consolidated statement of operations for the three and nine months ended
September 30, 1996. To allow for comparability of period-to-period variances,
the results of operations for the three and nine months ended September 30,
1997, are compared to unaudited pro forma results of operations for the three
and nine months ended September 30, 1996 ("Pro Forma 1996"). The Pro Forma 1996
information has been prepared as if the acquisition of Banyan had been made on
January 1, 1996.
18
<PAGE> 19
Three months ended September 30, 1997 compared with the three months ended
September 30, 1996
<TABLE>
<CAPTION>
====================================================================================
for the three months ended Proforma
September September
30, 1997 30, 1996
------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Real estate sales $ 6,371,174 1,685,611
Club operations 1,086,800 986,091
Patient service 689,345 661,136
Rent 625,835 614,483
Other 117,763 8,920
-----------------------------
Total revenues 8,890,917 3,956,241
-----------------------------
Costs and expenses:
Real estate 4,909,540 1,527,289
Club operations 1,212,882 1,130,772
Patient service direct costs 368,264 345,857
Rental operations 102,617 92,235
Other 48,873 27,721
Selling, general and administrative 4,176,735 3,144,048
Depreciation and amortization 516,056 239,098
-----------------------------
Total costs and
expenses 11,334,967 6,507,020
-----------------------------
Operating loss (2,444,050) (2,550,779)
-----------------------------
Other income (expense):
Interest income 362,120 130,629
Interest income, related party 802 36,870
Interest expense (2,115,122) (2,052,726)
Interest expense, related party (1,611,463) (1,052,306)
Other, net 308,971 338,632
-----------------------------
Net other expense (3,054,692) (2,598,901)
-----------------------------
Loss before equity
in income of
investee and
minority interests (5,498,742) (5,149,680)
Equity in income of investee -- (33,911)
Minority interests in losses of consolidated
subsidiaries -- 246,454
-----------------------------
Net loss $ (5,498,742) (4,937,137)
-----------------------------
</TABLE>
Total revenues for the three months ended September 30, 1997, and for Pro Forma
1996 were $8,890,917 and $3,956,241, respectively. Real estate sales increased
by $4,685,563 to $6,371,174 in 1997 from $1,685,611 in Pro Forma 1996. In the
three months ended September 30, 1997, real estate sales at Grand Harbor, Oak
Harbor and Southbridge were $5,465,248, $732,771 and $173,155, respectively,
compared to sales of $1,685,611 at Grand Harbor in the comparable period of Pro
Forma 1996. A total of 13 Grand Harbor residential units were sold during the
three months ended September 30, 1997 at an average sale price of approximately
$420,000 as compared to 6 units sold during the comparable period of Pro Forma
1996 at an average sale price of approximately $281,000. The fourth quarter of
1996 was the first quarter
19
<PAGE> 20
of sales of residential units at Oak Harbor. A total of two Oak Harbor units
were sold during the three months ended September 30, 1997, at an average sale
price of approximately $366,000. A total of four lots at Southbridge were sold
during the three months ended September 30, 1997, at an average sale price of
approximately $43,000. No lots were sold during the comparable period of the
prior year at Southbridge. Overall occupancy at the Lynnwood Center at September
30, 1997 and 1996 was approximately 92% and 93%, respectively.
The average sales price of residential units at the Grand Harbor and Oak Harbor
developments may fluctuate significantly from month to month depending upon the
type of product sold and whether or not a previously owned unit was "traded in".
Depending upon the product type, sales prices per unit at Grand Harbor and Oak
Harbor range from $165,000 to more than $600,000.
Due to delays incurred during the merger proceedings and by the lawsuit, Legend
was unable to start development and construction activities at the Southbridge
and Chapman's Landing properties as early as originally anticipated, and the
Company was only able to close on ten lot sales at Southbridge during the three
months ended September 30, 1997. The Company currently has signed contracts or
letters of intent to deliver approximately 750 lots over the next five years
with a total sales value in excess of $30 million. Additionally, the Company has
signed a letter of intent to deliver 150 acres to an entity associated with the
owner of a minor league baseball team. The entity wants to build a minor league
baseball stadium and entertainment complex on the site. As proposed, it would
include, among other things, an 8,000 seat minor league ballpark, a baseball
themed hotel and convention center, a 400,000-square-foot office building and a
minor league hockey stadium. Although the Company anticipates that the letters
of intent will be converted into signed contracts and result in sales, the
letters of intent do not represent firm "sales contracts", and there can be no
assurances that any sales will result from these or any other letters of intent,
or that actions proposed by other third parties, will occur. In addition, the
Company continues to negotiate with other builders for additional residential
lot sales contracts.
Total costs and expenses increased $4,827,947 to $11,334,967 for the three
months ended September 30, 1997, from $6,507,020 for Pro Forma 1996. The
increase was primarily due to increased costs of real estate sales and general
and administrative costs.
Real estate sales gross margin as a percentage of real estate sales amounted to
23% for the three months ended September 30, 1997, compared to 9% for the
comparable period in Pro Forma 1996. During 1997, costs associated with the sale
of residential units at Oak Harbor and lot sales at Southbridge were also
included whereas 1996 only included costs associated with sales at Grand Harbor.
Gross margin percentages realized on the sale of residential units at the Grand
Harbor and Oak Harbor developments may fluctuate significantly from period to
period depending upon the type of product sold and whether or not a previously
owned unit was "traded in". The gross margin on the lot sales at Southbridge
during the period were 20%.
Selling, general and administrative (SG&A) expenses increased $1,032,687 to
$4,176,735 for the three months ended September 30, 1997, from $3,144,048 in the
same quarter of Pro Forma 1996. The increase was primarily due to an increase in
SG&A expenses at the corporate office and at Oak Harbor. The Oak Harbor
increases were due to the fact that the Oak Harbor sales organization was not
fully operational in the second quarter of 1996. The increase in corporate
office costs were due primarily to transition and legal costs of approximately
$350,000 associated with the merger, the related lawsuit, and the relocation of
the Company's headquarters to suburban Washington D.C. The relocation, which was
announced in August, will allow the Company to increase its focus on the
Company's core assets near Washington D.C. and in Florida. Selling, general and
administrative expenses also include costs associated with establishing a Legend
corporate office in Seattle, offset by the savings realized by eliminating the
Company's corporate office in Chicago.
20
<PAGE> 21
Interest expense increased $62,396 to $2,115,122 for the three months ended
September 30, 1997, from $2,052,726 in Pro Forma 1996, and related party
interest expense increased $559,157 to $1,611,463 for the three months ended
September 30, 1997, from $1,052,306 in the same period in Pro Forma 1996. The
increase in related party interest expense is due to borrowings of $20,702,720
from Holdings during the nine months ended September 30, 1997.
Minority interests in losses of consolidated subsidiaries decreased $246,454 to
$0 for the three months ended September 30, 1997 from $246,454 in Pro Forma
1996. The decrease is the result of GHAI, a wholly-owned subsidiary of the
Company, acquiring the remaining 10% interest in the Florida Entities from GHDC
in July 1997.
The combination of the above changes resulted in a net loss of $5,498,742 ($0.87
per share) for the three months ended September 30, 1997, as compared to a net
loss of $4,937,137 ($0.79 per share) for the same period in Pro Forma 1996.
Nine months ended September 30, 1997 compared with the nine months ended
September 30, 1996
<TABLE>
<CAPTION>
====================================================================================
for the nine months ended Proforma
September September
30, 1997 30, 1996
------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Real estate sales $ 23,675,536 14,863,965
Club operations 4,516,694 4,160,552
Patient service 2,042,804 1,949,261
Rent 1,876,587 2,091,252
Other 454,773 413,071
------------------------------
Total revenues 32,566,394 23,478,101
------------------------------
Costs and expenses:
Real estate 18,207,358 10,776,766
Club operations 4,002,679 3,658,368
Patient service direct costs 1,084,305 1,010,599
Rental operations 300,248 666,964
Other 114,640 72,617
Selling, general and administrative 11,814,220 10,135,966
Depreciation and amortization 1,281,913 911,225
------------------------------
Total costs and
expenses 36,805,363 27,232,505
------------------------------
Operating loss (4,238,969) (3,754,404)
------------------------------
Other income (expense):
Interest income 1,160,694 572,858
Interest income, related party 73,339 109,407
Interest expense (5,952,982) (7,052,197)
Interest expense, related party (4,112,385) (1,807,702)
Other, net 645,907 946,889
------------------------------
Net other expense (8,185,427) (7,230,745)
------------------------------
Loss before equity
in income of
investee and
minority interests (12,424,396) (10,985,149)
Equity in income of investee -- 947,419
Minority interests in losses of consolidated 252,716 285,678
subsidiaries
------------------------------
Net loss $(12,171,680) (9,752,052)
------------------------------
</TABLE>
21
<PAGE> 22
Total revenues for the nine months ended September 30, 1997, and for Pro Forma
1996 were $32,566,394 and $23,478,101, respectively. Real estate sales increased
by $8,811,571 to $23,675,536 in 1997 from $14,863,965 in the same period in Pro
Forma 1996. In the nine months ended September 30, 1997, real estate sales at
Grand Harbor, Oak Harbor and Southbridge were $14,343,495, $8,899,711 and
$432,330, respectively, compared to sales of $14,863,965 at Grand Harbor in the
comparable period of Pro Forma 1996. A total of 37 Grand Harbor residential
units were sold during the nine months ended September 30, 1997 at an average
sale price of approximately $388,000 as compared to 42 units sold during the
comparable period of Pro Forma 1996 at an average sale price of approximately
$354,000. The fourth quarter of 1996 was the first quarter of sales of
residential units at Oak Harbor. A total of 24 Oak Harbor units were sold during
the nine months ended September 30, 1997, at an average sale price of
approximately $405,000. A total of 10 lots at Southbridge were sold during the
nine months ended September 30, 1997, at an average sale price of approximately
$43,000. No lots were sold during the comparable period of the prior year at
Southbridge. Overall occupancy at the Lynnwood Center at September 30, 1997 and
1996 was approximately 92% and 93%, respectively.
Total costs and expenses increased $9,572,858 to $36,805,363 for the nine months
ended September 30, 1997, from $27,232,505 for Pro Forma 1996. The increase was
primarily due to increased costs of real estate sales and general and
administrative costs, partially offset by a decrease in the cost of rental
operations.
Real estate sales gross margin as a percentage of real estate sales amounted to
23% for the nine months ended September 30, 1997, compared to 27% for the
comparable period in Pro Forma 1996. During 1997, costs associated with the sale
of residential units at Oak Harbor and lot sales at Southbridge were also
included, whereas 1996 only included costs associated with sales at Grand
Harbor. Gross margin percentages realized on the sale of residential units at
the Grand Harbor and Oak Harbor developments may fluctuate significantly from
period to period depending upon the type of product sold and whether or not a
previously owned unit was "traded in". The gross margin on the lot sales at
Southbridge during the period were 20%.
Selling, general and administrative (SG&A) expenses increased $1,678,254 to
$11,814,220 for the nine months ended September 30, 1997, from $10,135,966 in
the same period of Pro Forma 1996. The increase was primarily due to an increase
in SG&A expenses at the corporate office and at Oak Harbor. The Oak Harbor
increases were due to the fact that Oak Harbor was not fully operational for all
of the first nine months of 1996. The increase in corporate office costs were
due primarily to transition and legal costs of approximately $1.3 million
associated with the merger, the related lawsuit, and the relocation of the
Company's headquarters to suburban Washington D.C. Selling, general and
administrative expenses also include costs associated with establishing and
closing a Legend corporate office in Seattle, offset by the savings realized by
eliminating the Company's corporate office in Chicago.
Rental operation expenses decreased $366,716 to $300,248 for the nine months
ended September 30, 1997, from $666,964 in the same period of Pro Forma 1996.
The Pro Forma 1996 amount includes costs of approximately $374,000 incurred by
Banyan associated with operation of the 120 S. Spalding property, which was
sold in April 1996.
Interest expense decreased $1,099,215 to $5,952,982 for the nine months ended
September 30, 1997, from $7,052,197 in Pro Forma 1996, and related party
interest expense increased $2,304,683 to $4,112,385 for the nine months ended
September 30, 1997, from $1,807,702 in Pro Forma 1996. The decrease in interest
expense is due to a shift in expense to related party in 1997, due primarily to
Holdings purchasing $30.6
22
<PAGE> 23
million of loans payable by Banyan from third parties in May of 1996, and the
Merger of Banyan and RGI/US in December 1996, which resulted in the Loans being
"related party" loans after the purchase date. The increase in related party
interest expense is primarily due to the preceding plus borrowings of
$20,702,720 from Holdings during the nine months ended September 30, 1997.
Equity in income of investee decreased $947,419 to zero for the nine months
ended September 30, 1997. The Pro Forma 1996 amount related to an investment in
a joint venture held by Banyan, which was sold during 1996.
The combination of the above changes resulted in a net loss of $12,171,680
($1.94 per share) for the nine months ended September 30, 1997, as compared to a
net loss of $9,752,052 ($1.55 per share) for the same period in Pro Forma 1996.
23
<PAGE> 24
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Legend has significant related party indebtedness maturing in 1997 and will not
be able to satisfy these obligations without restructuring or refinancing.
However, due to the uncertainty related to the litigation described in this
note, Legend is unable to satisfactorily negotiate such transactions. Management
believes that if the litigation is satisfactorily resolved in the near term,
this related party debt can be restructured to enable its obligations to be met.
There can be no assurances that the Company will be able to satisfactorily
resolve the lawsuit or be able to restructure the debt on acceptable terms, if
at all.
On October 31, 1996, a class action lawsuit was filed in Delaware Court of
Chancery by two of Banyan's stockholders on behalf of themselves and all of the
non-defendant stockholders of Banyan, against certain of the directors and
officers of Banyan. Plaintiffs alleged, among other things, that Banyan's board
of directors breached its fiduciary duties by failing to seek alternative change
of control transactions, other than the merger with RGI/US, or appropriately
evaluate the alternative of liquidating Banyan. Plaintiffs further alleged that
the merger unfairly diluted the voting and equity interests of Banyan's
stockholders. In addition, the plaintiffs alleged that the proxy statement
utilized by Banyan in connection with the annual meeting held to consider and
vote upon the merger was misleading and failed to disclose certain material
information. Among other remedies, the plaintiffs sought to enjoin the merger
and require the defendants to undertake additional activities to maximize
stockholder value and disclose certain additional information. The parties
subsequently engaged on discovery, including producing and reviewing documents
and taking depositions.
On November 13, 1996, another Banyan stockholder also filed a class action
lawsuit in Delaware Court of Chancery asserting allegations substantially
similar to those in the action filed on October 31. The two lawsuits were
ultimately consolidated by the Court on December 11, 1996 under the case number
C.A. No. 15287.
On December 24, 1996, the plaintiffs served and filed a consolidated amended and
supplemental complaint repeating the allegations made in the initial complaint
and adding additional factual allegations that Banyan had failed to properly
consider acquisition proposals submitted by third parties to acquire Banyan. The
amended complaint also claimed that purchases made by Holdings during December
of shares of Banyan's common stock from third parties constituted unlawful vote
buying.
On January 8, 1997, the plaintiffs filed an application pursuant to Section
225(b) of the General Corporation Laws of the State of Delaware seeking judicial
review of the certified vote on the merger. Plaintiffs alleged that: (i) the
merger was approved by fewer than 210,000 votes; (ii) many shareholders had
sought to revoke proxies previously cast in favor of the merger; and (iii)
Banyan had announced varying results of the vote. The plaintiffs sought an
expedited hearing on the Section 225 application. The Delaware Court
subsequently scheduled a hearing on the plaintiffs' application for relief under
Section 225 for March 4, 1997. The parties engaged in discovery incident to that
application, including a review of documents obtained from the independent
inspector of election for the annual meeting, as well as other third parties and
taking depositions of certain of the plaintiffs' class representatives. The
hearing scheduled for March 4, 1997 was subsequently postponed without a further
date at the direction of the Delaware court. In the interim, the parties entered
into discussions with a view towards finding a mutually agreeable basis for
resolving the litigation.
On April 14, 1997, plaintiffs served the Second Consolidated Amended and
Supplemental Complaint. This pleading repeated the allegations of the
Consolidated Amended and Supplemental Complaint, added the claims underlying
plaintiffs' Application pursuant to Section 225 and added Holdings and RGI/US as
the defendants.
24
<PAGE> 25
On April 15, 1997, the parties to the Delaware litigation entered into a
Stipulation and Settlement Agreement. As part of the settlement, Holdings agreed
to, among other things: (i) defer interest due on the Morgens and SoGen loans
(the Loans) until December 31, 1997; (ii) forebear on any defaults existing on
the Loans as of the effective date of the settlement until December 31, 1997;
(iii) effective January 1, 1997, reduce the interest rate on the Loans to the
lower of the prime rate plus 2% (10.25% at January 1, 1997) or LIBOR plus 2.5%
(8.1% at January 1, 1997); (iv) provide Legend with a line of credit in the
aggregate principal amount of $8.5 million, a portion of which would be utilized
to repay Holdings for advances previously made to Legend; and (v) repurchase up
to $300,000 of Legend's shares of common stock from time to time on the open
market over the next twelve months subject to compliance with the SEC's rules
and regulations relating to open market repurchase programs.
After notice to the class of the settlement, the Court held a hearing on June
19, 1997 to consider approval of the Settlement. By a Memorandum Opinion dated
July 23, 1997, the Court declined to approve the proposed settlement.
Thereafter, the parties engaged in further negotiations seeking to resolve the
claims asserted in Delaware on a mutually satisfactory basis, consistent with
the issues raised by the Court in its Memorandum Opinion.
On September 17, 1997, the parties to the Delaware litigation entered into a
Second Stipulation and Agreement of Settlement (Amended Settlement). As part of
the Amended Settlement, Legend and Holdings agreed to fund a settlement of
$1,200,000. The $1,200,000, less certain fees and expenses that may be allowed
by the Court, is to be distributed, on a proof of claim basis, to Banyan
shareholders, other than the defendants, as of December 31, 1996, the date that
the Merger was effective. In addition, Holdings agreed to, among other things:
(i) defer interest due on the Loans until December 31, 1998; (ii) forebear on
any defaults existing on the Loans as of the effective date of the settlement
until December 31, 1998; (iii) effective January 1, 1997, reduce the interest
rate on the Loans to the lower of the prime rate plus 2% (10.25% at January 1,
1997) or LIBOR plus 2.5% (8.1% at January 1, 1997); (iv) provide Legend with a
line of credit in the aggregate principal amount of $21 million, $2.6 million of
which would be utilized to repay Holdings for advances previously made to
Legend.
Notice to the class of the settlement was made by personal notice and summary
notice by publication on or before October 13, 1997. The Court has set a hearing
for November 13, 1997, to consider approval of the revised settlement.
The same plaintiffs whom filed the Delaware action on October 31, 1996, have
filed an individual action in the United States District Court for New York,
Southern District, against RGI/US, Holdings and Legend's then president, Kenneth
L. Uptain, alleging, among other things, that certain purchases made by Holdings
during December of shares of Banyan's common stock from third parties
constituted an illegal tender offer.
Other than as noted in this Item, the Company is not aware of any other material
pending legal proceedings as of November 10, 1997.
25
<PAGE> 26
ITEM 2. CHANGES IN SECURITIES
Changes in Authorized Shares
In July of 1997, the Company amended Article Fourth of the Company's Amended and
Restated Certificate of Incorporation to reduce the number of authorized shares
of capital stock to 15,000,000 shares, of which 5,000,000 shares shall be
preferred stock, $0.01 par value, and 10,000,000 shares shall be common stock,
$0.01 par value.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of December 31, 1996, mortgage notes payable to Holdings with outstanding
principal balances totaling $30,649,872 (the Loans) were in default due to the
Company's failure to make certain interest payments when due. On June 30, 1997,
a $4,000,000 unsecured note payable to Holdings, plus accrued interest of
$415,320, matured. The Company did not repay the amounts, thereby causing the
note to be in default. In August 1997, the maturity date of the $4,000,000 note
payable to Holdings was extended to December 31, 1997. The note payable
continues to accrue interest at LIBOR plus 1% (6.81% at September 30, 1997). On
August 1, 1997, the Company received a notice of default from a third party
lender, for a loan with an outstanding principal balance of approximately $9.4
million. The default was caused by a material adverse change in the financial
condition of the principal guarantor of the loan; an affiliate of the Company's
majority shareholder, RGI Holdings, Inc.; due to a restructuring. The lender
requested that the Company cure the default by replacing the guarantor by
September 1, 1997. In August 1997, the Company's indirect majority shareholder
agreed to be added as a guarantor of the loan, which cured the event of default.
26
<PAGE> 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
EXHIBIT
NO.
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.(5)
3.1 Amended and Restated Certificate of Incorporation of the Registrant.(8)
3.2 Bylaws of Registrant, as amended and restated as of July 1, 1996.(2)
10.1 Edward F. Podboy's Employment Contract dated May 1, 1997.(9)
10.2 Form of Director Stock Option Agreements dated July 1, 1993, July 24,
1994 and July 7, 1995.(3)
10.3 Form of Executive Stock Option Agreements dated July 1, 1993, January
12, 1994 and February 8, 1995.(3)
10.4 Omitted
10.5 Loan Modification Agreement, dated as of May 20, 1996, by and between
Registrant and RGI Holdings, Inc. (SoGen Loan)(4)
10.6 Form of Second Loan Modification Agreement, by and between Legend
Properties, Inc. and RGI Holdings, Inc. (SoGen Loan)(6)
10.7 Loan Modification Agreement, dated as of May 21, 1996, by and between
Registrant and RGI Holdings, Inc. (Morgens Loan)(4)
10.8 Form of Second Loan Modification Agreement, by and between Legend
Properties, Inc. and RGI Holdings, Inc. (Morgens Loan)(6)
10.9 Registration Rights Agreement, dated as of May 21, 1996, by and between
Registrant and RGI Holdings, Inc.(5)
10.10 Master Construction Contract dated as of September 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.(1)
10.11 Profit Sharing Agreement dated as of September 28, 1991 by and among
Proctor Construction Company, Andlinger Properties Capital L.P. and
Grand Harbor Associates, Inc.(1)
10.12 Stipulation and Agreement of Settlement dated April 15, 1997, by and
among John A. Hinson, John W. Temple, Gary M. Goldberg, Walter E. Auch,
Sr., Robert M. Ungerleider, RGI Holdings, Inc. and Legend Properties,
Inc. (f/k/a Banyan Mortgage Investment Fund)(6)
10.13 Third Amendment to Administrative Services Agreement, dated March 31,
1997 by and between Banyan Management Corp. and Legend Properties, Inc.
(f/k/a Banyan Mortgage Investment Fund) (5)
10.14 Second Stipulation and Agreement of Settlement dated September 17, 1997
by and among John Hinson, John W. Temple, Gary M. Goldberg, Walter E.
Auch, Sr., Robert M. Ungerleider, RGI Holdings, Inc. and Legend
Properties, Inc. (f/k/a Banyan Mortgage Investment Fund)(9)
10.15 Loan Agreement dated March 31, 1997, by and between Registrant and RGI
Holdings, Inc. (Line of Credit Agreement)(9)
10.16 First Amendment to the Loan Agreement dated May 30, 1997, by and between
Registrant and RGI Holdings, Inc. (Line of Credit Agreement)(9)
10.17 Second Amendment to the Loan Agreement dated August 13, 1997, by and
between Registrant and RGI Holdings, Inc. (Line of Credit Agreement)(9)
10.18 Third Amendment to the Loan Agreement dated September 30, 1997, by and
between Registrant and RGI Holdings, Inc. (Line of Credit Agreement)(9)
27
<PAGE> 28
27.1 Financial Data Schedule (9)
- ----------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-4 (Registration Number 333-12415) dated September 20, 1996.
(2) Incorporated by reference to the Registrant's Report on Form 10-Q for
the quarter ended September 30, 1996.
(3) Incorporated by reference to the Registrant's Report on Form 10-K for
the year ended December 31, 1995.
(4) Omitted
(5) Incorporated by reference to the Registrant's Report on Form 8-K dated
May 20, 1996.
(6) Incorporated by reference to the Registrant's Report on Form 10-K/A for
the year ended December 31, 1996.
(7) Incorporated by reference to Registrant's Report on Form 8-K dated April
15, 1997.
(8) Incorporated by reference to the Registrant's Report on Form 10-Q for
the quarter ended June 30, 1996.
(9) Filed with this document.
(b) THE FOLLOWING REPORTS ON FORM 8-K WERE FILED DURING THE QUARTER ENDED
SEPTEMBER 30, 1997:
(1) A current report on Form 8-K was filed on September 10, 1997,
disclosing the following:
ITEM 5. OTHER EVENTS
On August 27, 1997, Legend Properties, Inc. ("Legend") announced a
relocation of its headquarters from Seattle to its existing suburban
Washington, D.C. office. The relocation will allow the company to
increase its focus on the company's core assets in Maryland and
Virginia, near Washington, D.C., and on Florida's east coast near Vero
Beach. This consolidation of offices will also provide the company a
reduction in operating costs.
As part of the relocation, Kenneth L. Uptain resigned as president,
chief executive officer and member of the board of directors, to pursue
other opportunities in the Seattle area. Edward F. Podboy was named
president and chief executive officer succeeding Kenneth L. Uptain,
effective immediately. Prior to his appointment, Mr. Podboy was
president of Legend Development Company, the company's Washington D.C.
development subsidiary. Jan Petter Storetvedt, an existing director, was
elected to serve as chairman of the board. Additionally, the Company's
board of directors appointed Jon Alvar Oyasaeter as a director to fill
the vacancy created by Mr. Uptain's resignation.
Mr. Podboy has more than 25 years of diversified real estate experience.
During that time, he has been involved in the construction and financing
of more than 25,000 residential housing units and more than three
million square feet of commercial space. Mr. Podboy has held the
positions of chief financial officer for United Development Co., a
subsidiary of Aetna, was management consultant for the public accounting
firm of Coopers & Lybrand and CFO of a mortgage banking operation.
28
<PAGE> 29
Jon Alvar Oyasaeter has been employed by Aker RGI or an affiliate since
1986. Through holding companies, Aker RGI is the majority owner of
Legend Properties, Inc., and is a $3 billion multi-national investment
company publicly traded in Norway. In addition to being Legend's
majority shareholder, Aker RGI has significant investments in oil and
gas technology, cement and building materials, and the seafoods
industry. Mr. Oyasaeter is a graduate of the Norwegian School of
Economics and Business Administration.
The company's chief financial officer, Raymond J. Whitty, and corporate
controller, Chris J. Pollak, have elected to remain in the Pacific
Northwest. Both have agreed to provide services to the company until the
management transition is completed through December 31, 1997.
Finance and business development responsibilities will be assumed by
Robert B. Cavoto. Mr. Cavoto is a Certified Public Accountant and is
currently vice president of Legend Development Company. Prior to joining
Legend Development Company, Mr. Cavoto was an Asset Manager with Banyan
Management Corp., and was responsible for entitlement, development,
financing and disposition activities for a portfolio of mixed-use and
residential land developments. From 1988 to 1991, Mr. Cavoto was Vice
President of Finance for a real estate company. Prior to that. he was a
manager in KPMG Peat Marwick LLP's Real Estate Practice.
SIGNATURES
Pursuant to the requirements 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.
Date: November 12, 1997
LEGEND PROPERTIES, INC.
By: /s/ EDWARD F. PODBOY
------------------------------------------
Edward F. Podboy President,
Chief Executive Officer
By: /s/ ROBERT B. CAVOTO
------------------------------------------
Robert B. Cavoto
Chief Financial Officer
29
<PAGE> 30
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. Description
--- -----------
<S> <C>
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.(5)
3.1 Amended and Restated Certificate of Incorporation of the Registrant.(8)
3.2 Bylaws of Registrant, as amended and restated as of July 1, 1996.(2)
10.1 Edward F. Podboy's Employment Contract dated April 1, 1997.(9)
10.2 Form of Director Stock Option Agreements dated July 1, 1993, July 24,
1994 and July 7, 1995.(3)
10.3 Form of Executive Stock Option Agreements dated July 1, 1993, January
12, 1994 and February 8, 1995.(3)
10.4 Omitted
10.5 Loan Modification Agreement, dated as of May 20, 1996, by and between
Registrant and RGI Holdings, Inc. (SoGen Loan)(4)
10.6 Form of Second Loan Modification Agreement, by and between Legend
Properties, Inc. and RGI Holdings, Inc. (SoGen Loan)(6)
10.7 Loan Modification Agreement, dated as of May 21, 1996, by and between
Registrant and RGI Holdings, Inc. (Morgens Loan)(4)
10.8 Form of Second Loan Modification Agreement, by and between Legend
Properties, Inc. and RGI Holdings, Inc. (Morgens Loan)(6)
10.9 Registration Rights Agreement, dated as of May 21, 1996, by and between
Registrant and RGI Holdings, Inc.(5)
10.10 Master Construction Contract dated as of September 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.(1)
10.11 Profit Sharing Agreement dated as of September 28, 1991 by and among
Proctor Construction Company, Andlinger Properties Capital L.P. and
Grand Harbor Associates, Inc.(1)
10.12 Stipulation and Agreement of Settlement dated April 15, 1997, by and
among John A. Hinson, John W. Temple, Gary M. Goldberg, Walter E. Auch,
Sr., Robert M. Ungerleider, RGI Holdings, Inc. and Legend Properties,
Inc. (f/k/a Banyan Mortgage Investment Fund)(6)
10.13 Third Amendment to Administrative Services Agreement, dated March 31,
1997 by and between Banyan Management Corp. and Legend Properties, Inc.
(f/k/a Banyan Mortgage Investment Fund) (5)
10.14 Second Stipulation and Agreement of Settlement dated September 17, 1997
by and among John Hinson, John W. Temple, Gary M. Goldberg, Walter E.
Auch, Sr., Robert M. Ungerleider, RGI Holdings, Inc. and Legend
Properties, Inc. (f/k/a Banyan Mortgage Investment Fund)(9)
10.15 Loan Agreement dated March 31, 1997, by and between Registrant and RGI
Holdings, Inc. (Line of Credit Agreement)(9)
10.16 First Amendment to the Loan Agreement dated May 30, 1997, by and between
Registrant and RGI Holdings, Inc. (Line of Credit Agreement)(9)
10.17 Second Amendment to the Loan Agreement dated August 13, 1997, by and
between Registrant and RGI Holdings, Inc. (Line of Credit Agreement)(9)
10.18 Third Amendment to the Loan Agreement dated September 30, 1997, by and
between Registrant and RGI Holdings, Inc. (Line of Credit Agreement)(9)
</TABLE>
<PAGE> 31
<TABLE>
<S> <C>
27.1 Financial Data Schedule (9)
</TABLE>
- ----------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-4 (Registration Number 333-12415) dated September 20, 1996.
(2) Incorporated by reference to the Registrant's Report on Form 10-Q for
the quarter ended September 30, 1996.
(3) Incorporated by reference to the Registrant's Report on Form 10-K for
the year ended December 31, 1995.
(4) Omitted
(5) Incorporated by reference to the Registrant's Report on Form 8-K dated
May 20, 1996.
(6) Incorporated by reference to the Registrant's Report on Form 10-K/A for
the year ended December 31, 1996.
(7) Incorporated by reference to Registrant's Report on Form 8-K dated April
15, 1997.
(8) Incorporated by reference to the Registrant's Report on Form 10-Q for
the quarter ended June 30, 1996.
(9) Filed with this document.
<PAGE> 1
Exhibit 10.1
EMPLOYEE AGREEMENT
THIS AGREEMENT is entered into this 1st day of April, 1997, by and between
LPI DEVELOPMENT, INC., an Illinois corporation (the "Company"), and EDWARD F.
PODBOY, an individual residing in the State of Wisconsin (hereinafter "Podboy"
or "Employee").
W I T N E S S E T H :
WHEREAS, the Company is a wholly owned subsidiary of Legend Properties,
Inc., a Delaware corporation; and
WHEREAS, the Company desires to retain the services of Podboy as President
of the Company and Podboy is willing to serve in such capacity.
NOW, THEREFORE, in consideration of their mutual promises hereinafter set
forth, the parties agree:
1. The Company hereby employs Podboy as President of the Company with
full authority to discharge his DUTIES (as defined in Exhibit A) in that
capacity, which DUTIES shall include the formulation of policies and the
administration of the affairs of the Company in all respects subject to the
general direction and control of the Chairman of the Board and Chief Executive
Officer, and the Company further agrees to furnish Podboy during the term of
this Agreement appropriate office space, secretarial services, and other
accommodations suitable to the character of his position and adequate for the
discharge of his DUTIES.
2. Podboy agrees that he will diligently discharge and perform on a
full-time basis the DUTIES required of him as President of the Company during
the term of this Agreement.
3. The term of this Agreement shall commence on the 1st day of April,
1997, and shall continue for a period of two (2) years from the date thereof.
4. The Company agrees to pay Podboy as compensation for all services
rendered hereunder the salary fixed by the board of directors of the Company,
provided that such salary shall not be less than $159,000 for the first year of
the term of this Agreement and $164,000 for the second year of this Agreement.
Said salary shall be paid in equal monthly installments on the first day of
each month or in such other fashion as constitutes the normal practice of the
Company. In addition to the foregoing salary, Podboy shall be entitled to such
employee benefits as are
<PAGE> 2
normally available to officers of the Company.
5. In addition to the foregoing compensation, the Company agrees to
reimburse Podboy for such expenses as he may reasonably and necessarily incur
in the discharge of his DUTIES hereunder including expenses associated with
travel from Podboy's current home to the Company's office in Washington, D.C.
until his relocation to the Washington, D.C. area. In addition to his regular
expenses once Podboy has relocated to Washington, D.C. as provided in Paragraph
8 below, the Company agrees to reimburse Podboy $500.00 per month for
automobile expenses, regardless of usage, to be paid on the first day of the
month for the duration of the contract. Podboy will assume responsibility for
all tax reporting requirements.
6. The Company agrees to provide Podboy with the standard benefits
package for employees of Legend Properties, Inc., including the established
401(k) plan, a copy of which is attached hereto as (Exhibit B) and incorporated
herein by reference.
7. The Company agrees that Podboy is entitled to fully participate in its
Incentive Bonus Plan, Profit Sharing and Stock Option Plans retroactive to
January 1, 1997. The terms of the plans will be mutually agreed upon by the
parties no later than May 31, 1997. If the parties fail to agree on the terms
of any one of these plans by said date, then Podboy, in his discretion, may
elect to terminate this Agreement for cause in accordance with the provisions
of subparagraph (b) of Paragraph 11 of this Agreement; provided that, for
purposes of this paragraph only, Podboy's compensation will be limited to six
(6) months.
8. The Company will reimburse Podboy for his relocation expenses in the
maximum amount of $15,000. Podboy agrees to relocate to the Washington, D.C.
area no later than August 15, 1997. If Podboy is unable to relocate by August
15, 1997, this contract may be terminated at the discretion of either party
provided that Podboy's right to receive six (6) months of severance under
Paragraph 11 will remain in full force in effect.
9. Podboy shall be entitled to a vacation period totalling up to four (4)
weeks in each year of the term of this Agreement during which time his
compensation shall be paid in full. Such vacations shall be taken by Podboy in
his discretion so long as they do not seriously interfere with the orderly
administration and conduct of the affairs of the Company. At Podboy's option,
one week of vacation may be carried over into the following year.
2
<PAGE> 3
10. The Company will reimburse Podboy for the attorneys' fees and expenses
incurred by him in the drafting and negotiation of this Employment Agreement up
to the amount of $2,500, regardless of whether or not this Agreement is
executed.
11. This Agreement, and any extension or renewal thereof, may be
terminated:
(a) by the Company
i. With or without cause upon sixty (60) days written notice to
Podboy.
ii. If without cause, the compensation payable to Podboy
pursuant to Paragraph 4 hereof shall not abate upon such
termination and shall continue to be paid to Podboy for the
balance of the term of this Agreement plus six (6)
additional months.
iii. If with cause, no further payments shall be made to Podboy
beyond the termination date. For the purposes of this
subparagraph (a), termination for cause shall be restricted
to fraud, embezzlement or misappropriation of funds by
Podboy or for his willful neglect of or refusal to perform
his DUTIES as President of the Company, which actions are
not remedied or corrected by him within fifteen (15) days
after receipt of written notice from the Company as to the
occurrence thereof.
(b) By Employee
i. With or without cause upon sixty (60) days written notice to
the Company.
ii. If without cause, no further payments shall be made to
Podboy.
iii. If with cause, the compensation payable to Podboy pursuant
to Paragraph 4 hereof shall not abate and shall continue to
be paid to Podboy for the balance of the term of this
Agreement plus six (6) additional months. For the purposes
of this subparagraph (b), termination for cause shall
constitute breach
3
<PAGE> 4
by the Company of any of its covenants set forth in this
Agreement which are not corrected by the Company within
fifteen (15) days after receipt of written notice of such
breach from Podboy.
(c) By Employee
i. In the event that Podboy continues his employment with the
Company beyond the expiration date of this contract and
Podboy's employment is subsequently terminated, the Company
agrees to pay Podboy the six months of severance pay
referenced in paragraphs 11 (a - ii) and 11 (b - iii) in a
lump sum upon his termination.
12. If Podboy is unable to perform his DUTIES hereunder by reason of
illness or incapacity for a period of more than six (6) months, this Agreement
may be terminated at the option of either party upon written notice to the
other. Upon such termination Podboy will be entitled to six (6) months continued
compensation payable pursuant to paragraph 4 hereof.
13. This Agreement shall be binding upon and inure to the benefit of any
successor of the Company and any such successor shall be deemed substituted for
the Company under the terms of this Agreement. As used in this Agreement, the
term "successor" shall include any person, firm, corporation or other business
entity which at any time, whether by merger, purchase or otherwise, either
directly or indirectly, acquires all or substantially all of the assets or
business of the Company.
14. Any notice required or permitted to be given under any provision of
this Agreement shall be sufficient if in writing and sent by registered or
certified mail, in the case of Podboy, to his residence at 404 East Lakeview,
Whitefish Bay, WI 53217, or to such other address as Podboy shall later
designate, and in the case of the Company, to its principal office to the
attention of the President.
15. The waiver by either party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any prior or
subsequent breach by either party.
16. This instrument contains the entire Agreement of the parties with the
respect to the subject matter of Podboy's employment by the Company, and may be
amended only by an instrument in writing signed by both parties.
4
<PAGE> 5
17. This Agreement shall be subject to and governed by the laws of the
State of Virginia. The parties agree that in the event a dispute arises under
or in connection with this Agreement, each irrevocably submits to the
jurisdiction of any state or federal court sitting in Prince William County,
Virginia with respect to any action or proceeding brought as a result thereof,
and irrevocably waives to the fullest extent permitted by law any objection
which either may now or hereafter have to the laying of venue in any such
action or proceeding in any such forum.
18. In the event that any provision of this Agreement shall be held to be
invalid in any circumstance, such invalidity shall not affect any other
provision or circumstance.
19. Podboy shall be entitled to indemnification with respect to any
actions, claims or proceedings in which he is named, either individually or in
his corporate capacity, to the extent provided by the Bylaws of the Company of
which a copy is attached hereto as Exhibit C.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed the day and year first above written.
LPI DEVELOPMENT, INC.,
an Illinois corporation
By /s/ Kenneth L. Uptain
-------------------------
Its President
----------------------
Attest:
--------------------
Secretary
/s/ EDWARD F. PODBOY
---------------------------
Edward F. Podboy
5
<PAGE> 6
EXHIBIT A
Responsibilities for the position of:
PRESIDENT
OF
LPI DEVELOPMENT, INC.
Reports to the Chairman, Chief Executive Officer and Board of Directors of LPI
Development, Inc.
- - Primary responsibility for development and implementation of the strategic
development and business plan for Southbridge, Chapmans Landing and Laguna
Seca.
- - Set marketing strategies to achieve the development and business plan at
all properties.
- - Set direction for the sales to builders working with the specific Project
Managers.
- - Coordinate and arrange for financing consistent with the needs set forth in
the development and business plan.
- - Supervise the day to day activity of the Project Managers, Chief Financial
Officer and Administrative Staff.
- - Train and recruit new employees.
- - Oversee the management of the company employees consistent with the
policies of the company.
- - Review and approve all purchase orders and cash disbursements.
- - Review and approve all land sales and purchases consistent with the
policies of the corporation.
- - Review and approve all property encumbrances consistent with company
policy.
- - Oversee company benefit policies as they apply to LPI Development, Inc.
- - Maintain community relations, relations with the elected officials and
represent the company at public hearings.
- - Supervise local public relations activities as they effect the properties.
- - Maintain reporting to the company as required.
6
<PAGE> 1
EXHIBIT 10.14
IN THE CHANCERY COURT OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- -------------------------------------x
IN RE BANYAN MORTGAGE INVESTMENT FUND: CONSOLIDATED
SHAREHOLDERS LITIGATION : C.A. NO. 15287
- -------------------------------------x
ORDER AND FINAL JUDGMENT
A hearing having been held before this Court on _____________________
1997, pursuant to this Court's Order of _____________________, 1997 (the
"Scheduling Order"), upon a Second Stipulation and Agreement of Settlement,
dated _____________________, 1997 (the "Second Stipulation") of the
above-captioned action (the "Action"); it appearing that due notice of said
hearing has been given in accordance with the aforesaid Scheduling Order; the
respective parties having appeared by their attorneys of record; the Court
having heard and considered the submissions in support of the proposed Revised
Settlement (as defined in the Second Stipulation); the attorneys for the
respective parties having been heard; an opportunity to be heard having been
given to all other persons or entities requesting to be heard in accordance
with the Scheduling Order; the Court having determined that notice to the Class
(defined below) conditionally certified in this Action pursuant to the
aforesaid Scheduling Order was adequate and sufficient and the best notice
practicable under the circumstances; and the entire matter of the proposed
Revised Settlement having been heard and considered by the Court;
IT IS HEREBY ORDERED, ADJUDGED AND DECREED this _____ day of
_____________________, 1997, that:
<PAGE> 2
1. Each of the provisions of Rule 23(a) of the Rules of
this Court has been satisfied and the Action has been properly maintained
according to the provisions of Rule 23(b)(1) and (2) of the Rules of this
Court. Specifically, based on the record in this Action, this Court expressly
and conclusively finds that (a) the Class, defined as all record and beneficial
holders of Banyan Mortgage Investment Fund ("Banyan") common stock from October
9, 1996 through December 31, 1996, and their successors in interest,
transferees and assigns, immediate and remote, excluding defendants in this
Action, members of the immediate family of each individual defendant and any
entity in which any defendant has a controlling interest (the "Class"), was so
numerous that joinder of all members was impracticable; (b) there were
questions of law or fact common to the Class; (c) the claims or defenses of the
representative parties were typical of the claims or defenses of the Class; (d)
the Class representatives have fairly and adequately protected and represented
the interests of the Class; and (e) the questions of law and fact common to the
members of the Class predominate over any questions affecting only individual
members, and a class action is superior to other available methods for the fair
and efficient adjudication of the controversy.
2. The form and manner of notice given to the members of
the Class is hereby determined to have been the best practicable notice under
the circumstances and to have been given in full compliance with Chancery Court
Rule 23 and the requirements of due process.
3. The Revised Settlement as reflected in the Second
Stipulation is approved as fair, reasonable, adequate, and in the best
interests of the Class, and the Class Members and defendants are directed to
consummate the Second Stipulation in accordance with its terms and provisions.
-2-
<PAGE> 3
4. This Action is hereby finally certified as a Class
Action on behalf of a class consisting of all record and beneficial holders of
Banyan Mortgage Investment Fund common stock from October 9, 1996 through
December 31, 1996, and their successors in interest, transferees and assigns,
immediate and remote, excluding defendants, members of the immediate family of
each individual defendant and any entity in which any defendant has a
controlling interest.
5. This Action is hereby dismissed with prejudice
against the Class Representatives and the Class on the merits, and all claims,
demands, rights, liabilities, suits, actions or causes of action, damages,
losses, obligations or judgments of any kind or nature whatsoever, whether
asserted or unasserted, known or unknown, contingent or absolute, disclosed or
undisclosed, matured or unmatured, which have been, could have been or in the
future can or might be asserted in the Action, or in any court, tribunal or
proceeding, including, but not limited to, any claim that the Merger (as
defined in the Second Stipulation) under Delaware law, Section 225 of the
Delaware Corporation Law, or any other applicable law, rule or statute was
invalid, void or legally deficient in any way whatsoever and any claims arising
under federal or state law relating to alleged fraud, breach of any duty,
negligence, violations of federal securities laws or otherwise, but excluding
claims actually asserted in the New York Action (as defined in the Second
Stipulation) concerning the December 9 Purchases (as that term is defined in
the Second Stipulation) by or on behalf of the Class Representatives and/or any
member of the Class against Defendants (as defined below) which (i) have
arisen, could have arisen or hereafter arise or relate in manner whatsoever,
directly or indirectly, to the allegations, facts, events, transactions, acts,
occurrences, statements, representations, misrepresentations, omissions or any
other matter, thing or cause whatsoever, or any series thereof, embraced,
involved, set forth, or otherwise referred to, related to, directly or
indirectly
-3-
<PAGE> 4
in the Second Complaint (as defined in the Second Stipulation); or (ii) are,
were, or could have been asserted in any Court either directly, individually,
derivatively, representatively or in any other capacity, concerning the
allegations, facts, events, transactions, acts, occurrences, statements,
representations, misrepresentations, omissions or any other matter, thing or
cause whatsoever, or any series thereof, embraced, involved, set forth or
otherwise referred to or related to, directly or indirectly in the Second
Complaint, against any of the defendants in this Action (collectively
"Defendants"), their parent entities, affiliates, associates or subsidiaries
and each of their present or former officers, directors, stockholders, agents,
employees, attorneys, representatives, advisors, investment advisors,
investment bankers, commercial bankers, trustees, general and limited partners,
heirs, executors, personal representatives, estates, administrators, successors
and assigns (collectively "Defendants' Affiliates"), or anyone else, are hereby
compromised, settled, released and dismissed with prejudice (collectively the
"Settled Claims"). Nothing herein is intended to bar, discharge or release the
claims actually asserted in Hinson v. RGI Holdings, Inc., 96 Civ. 9257, pending
in the United States District Court for the Southern District of New York.
6. The Class Representatives and all members of the
Class, either directly or indirectly, individually, derivatively,
representatively or in any other capacity, are permanently barred and enjoined
from instituting, commencing, asserting, or continuing any of the Settled
Claims in this or any other jurisdiction.
7. (a) Class Representatives and all members of the
Class on behalf of themselves and their heirs, executors and administrators,
successors and assigns, shall be deemed to have remised, released and forever
discharged the Defendants, their respective present and former
-4-
<PAGE> 5
agents, predecessors, servants, employees, officers, directors, heirs,
executors, representatives, successors and assigns from each, every and all
Settled Claims.
(b) Defendants, and their present and former
agents, predecessors, servants, employees, officers and directors, shall be
deemed to have remised, released and forever discharged each of the Class
Representatives and their attorneys from any and all claims, rights and causes
of action arising out of or relating to any acts, conduct, facts or
transactions arising out of or relating to the Merger, Plaintiffs' efforts to
oppose the Merger and/or the pendency and conduct of the Action.
(c) Each Defendant, on behalf of him or itself,
his or its heirs, executors, administrators, successors and assigns, shall be
deemed to have remised, released and forever discharged each of the other
Defendants, their respective and present and former agents, predecessors,
servants, employees, officers, directors, heirs, executors, representatives,
successors and assigns from each, every and all Settled Claims.
8. The Second Stipulation, this Order and Final
Judgment, and all proceedings taken in connection with the proposed Revised
Settlement of this Action shall not be deemed to be a presumption, concession
or admission (a) by any of the Defendants of the validity of any claim that has
been or could have been asserted in the Action or of any fault, misconduct or
wrongdoing by them, or (b) by Plaintiffs of any infirmity in the claims
alleged.
9. The attorneys for the Class Representatives and the
Class are awarded attorneys' fees in the amount of $____________, including
reimbursement of expenses, which sum the Court finds to be fair and reasonable,
to be paid in accordance with the terms of the Second Stipulation.
-5-
<PAGE> 6
10. Without affecting the finality of this Order and
Final Judgment in any way, this Court reserves jurisdiction over the Class
Representatives, the Class and the Defendants for all matters relating to the
administration, enforcement, interpretation, or consummation of the Revised
Settlement, the Second Stipulation and this Order and Final Judgment.
11. Without further Order of the Court, the Class
Representatives, Class and Defendants may agree to reasonable extensions of
time to carry out any provisions of the Second Stipulation.
12. There is no just reason for delay in the entry of
this Order and Final Judgment and immediate entry by the Register of Chancery
is directed pursuant to Rule 54(b) of the Rules of this Court.
___________________________
CHANCELLOR
-6-
<PAGE> 7
IN THE CHANCERY COURT OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- -------------------------------------x
IN RE BANYAN MORTGAGE INVESTMENT FUND: CONSOLIDATED
SHAREHOLDERS LITIGATION : C.A. NO. 15287
- -------------------------------------x
NOTICE OF PENDENCY OF CLASS ACTION, PROPOSED REVISED SETTLEMENT
OF CLASS ACTION AND SETTLEMENT HEARING
TO: ALL RECORD AND BENEFICIAL HOLDERS OF BANYAN MORTGAGE INVESTMENT FUND
("BANYAN") COMMON STOCK FROM OCTOBER 9, 1996 THROUGH DECEMBER 31,
1996, AND THEIR SUCCESSORS IN INTEREST, TRANSFEREES AND ASSIGNS,
IMMEDIATE AND REMOTE, EXCLUDING DEFENDANTS IN THIS ACTION, MEMBERS OF
THE IMMEDIATE FAMILY OF EACH INDIVIDUAL DEFENDANT AND ANY ENTITY IN
WHICH ANY DEFENDANT HAS A CONTROLLING INTEREST (THE "CLASS").
PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY. YOUR RIGHTS
WILL BE AFFECTED BY THIS LAWSUIT. IF YOU ARE NOT THE BENEFICIAL
HOLDER OF BANYAN STOCK BUT HOLD BANYAN STOCK FOR A BENEFICIAL HOLDER,
PLEASE PROMPTLY TRANSMIT THIS DOCUMENT TO THE BENEFICIAL HOLDER.
This Notice (the "Notice") is given pursuant to Rule 23 of the Rules
of the Delaware Court of Chancery (the "Court") and pursuant to an order of the
Court signed in the above-captioned class action (the "Action") on September
__, 1997 (the "Scheduling Order"). The purpose of this Notice is to notify you
of (a) the Action, (b) the Court's conditional certification of the Class for
purposes of a proposed Revised Settlement, (c) a hearing (described more fully
below, p. _) to be held by the Court on ________________, 1997, to determine
whether the Court should approve the proposed Revised Settlement as fair,
reasonable, and adequate, and in the best interests of the Class and enter a
final judgment, and to consider the application by Plaintiffs' Counsel
<PAGE> 8
("Class Counsel") for attorneys' fees and reimbursement of expenses, and (d)
your right to participate in the hearing.
THE COURT HAS NOT FINALLY DETERMINED THE MERITS OF THE CLAIMS MADE BY
THE PLAINTIFFS AGAINST, OR THE DEFENSES OF, THE DEFENDANTS. THIS NOTICE DOES
NOT IMPLY THAT THERE HAS BEEN OR WOULD BE ANY FINDING OF VIOLATION OF THE LAW
OR THAT RELIEF IN ANY FORM OR RECOVERY IN ANY AMOUNT COULD BE HAD IF THE
LITIGATION WERE NOT SETTLED.
A. SETTLEMENT HEARING
1. You are hereby notified that the Court will hold a hearing at
the Daniel L. Herrmann Courthouse, 1020 N. King Street, Wilmington, Delaware,
19801 on _________, 1997, at _______ .m. (the "Settlement Hearing"), to
determine whether: (i) the Second Stipulation and Agreement of Settlement,
dated September __, 1997 (the "Second Stipulation"), and the terms and
conditions of the Revised Settlement proposed in the Second Stipulation (the
"Revised Settlement"), are fair, reasonable, and adequate; (ii) the Court
should enter a final judgment dismissing the Action as to all defendants
(collectively, "Defendants") and with prejudice as against Plaintiffs and all
members of the Class; and (iii) if the Court approves the Second Stipulation
and the Revised Settlement and enters such final judgment, it should award
attorneys' fees and expenses to Class Counsel.
2. The Court has reserved the right to adjourn the Settlement
Hearing, including consideration of the application for attorneys' fees and
expenses, by oral
-2-
<PAGE> 9
announcement at the Hearing or any adjournment thereof, and without further
notice of any kind.
B. BACKGROUND
1. On or about October 9, 1996, Banyan sent its shareholders a
notice of a meeting of shareholders to be held on November 26, 1996 and a proxy
statement and prospectus ("Proxy Statement") concerning a proposed merger (the
"Merger") between Banyan and RGI U.S. Holdings, Inc. ("RGI/US"). Among other
things, the Proxy Statement solicited the votes of Banyan's shareholders
approving the Merger.
2. On October 31, 1996. Plaintiffs John A. Hinson ("Hinson") and
John W. Temple ("Temple"), who together owned more than 1.5 million Banyan
shares, filed a lawsuit in the Court against Banyan, certain of its directors
and officers. Hinson and Temple brought the Action on behalf of themselves and
all other shareholders of Banyan, except for Defendants, members of the
Defendants' families and entities controlled by any Defendant.
3. Hinson and Temple alleged that Banyan's Board of Directors had
breached its fiduciary duties by failing to seek alternative change of control
transactions other than the Merger with RGI/US, or appropriately evaluate the
alternative of liquidating Banyan. They also alleged that the Merger unfairly
diluted the voting and equity interests of Banyan's stockholders since it would
result in RGI Holdings, Inc. ("RGI"), the parent of RGI/US, owning
approximately 75% of the outstanding common stock of Banyan, while the other
shareholders would have their interests diluted to approximately 25% of
Banyan's outstanding common stock. In addition, Hinson and
-3-
<PAGE> 10
Temple alleged that the Proxy Statement was misleading and failed to disclose
certain material information. Among other relief, they sought to enjoin the
Merger, and require the defendants to undertake additional activities to
maximize shareholder value and disclose certain additional information to
Banyan's shareholders in connection with their consideration of the Merger.
4. Contemporaneously with the filing of their Complaint, Hinson
and Temple moved for expedited discovery to support a motion to enjoin the
Merger preliminarily. The Court granted the motion for expedited discovery and
scheduled a preliminary injunction hearing for November 21, 1996.
5. On November 13, 1996, Gary M. Goldberg, another Banyan
stockholder, filed a lawsuit in the Court asserting allegations substantially
similar to those asserted by Hinson and Temple. The two lawsuits were
consolidated into the Action by the Court by Order dated December 11, 1996.
6. In preparation for the preliminary injunction hearing, the
parties engaged in discovery, including the production and review of thousands
of pages of documents and depositions of Leonard G. Levine, Banyan's President;
Robert M. Ungerleider, one of its directors, and Michael Kollender of Josepthal
Lyon Ross Incorporated, which had provided to Banyan a fairness opinion in
connection with the Merger. The depositions of Messrs. Hinson and Temple were
also taken. Hinson, Temple and Goldberg ("Plaintiffs") filed their motion for
preliminary injunction and opening brief in support of that motion on November
15, 1996.
-4-
<PAGE> 11
7. Contemporaneously with the ongoing discovery, Hinson sent
communications to third parties seeking to elicit their interest in making
competing offers for an alternative change in control or other transaction with
Banyan.
8. On or about November 15, 1996, Apollo Real Estate Advisors II,
L.P. ("Apollo"), one of the third parties that Hinson had contacted, sent
Banyan's directors a conditional proposal to acquire Banyan's outstanding
common stock for $0.46875 per share in cash and to assume or purchase certain
of Banyan's outstanding debt. Apollo's proposal was conditioned on, among
other things, the results of its due diligence. Plaintiffs' Counsel sent
Banyan's directors a letter urging them to postpone the November 26, 1996
shareholders' meeting for thirty (30) days, make due diligence materials
available to Apollo, negotiate with Apollo to improve the terms of its offer,
inform Banyan shareholders of the Apollo proposal and the information
Plaintiffs alleged was omitted from the Proxy Statement, and afford Banyan
shareholders the opportunity to withdraw any proxies submitted concerning the
Merger.
9. On or about November 18, 1996, Hinson sent a letter to Banyan
shareholders who held their shares through brokerage houses and banks, stating
his opposition to the Merger, informing them of the Apollo proposal and urging
them to vote against the Merger.
10. On or about November 19, 1996, Banyan's directors decided to
postpone the vote of Banyan's shareholders on the Merger and to supplement the
Proxy Statement. In light of these developments, the parties requested and the
Court agreed to cancel the preliminary injunction hearing scheduled for
November 21, 1996.
-5-
<PAGE> 12
11. After Apollo and Banyan signed a confidentiality agreement,
Banyan provided Apollo access to the information and documents Apollo requested
to conduct its due diligence in connection with its acquisition proposal.
Thereafter, Apollo commenced its due diligence efforts.
12. On or about December 3, 1996, Banyan received a proposal from
D. Andrew Beal ("Beal") expressing interest in acquiring Banyan for $0.51 per
share, subject to due diligence and other conditions. Banyan agreed to permit
Beal to conduct due diligence subject to his entering into a confidentiality
agreement similar to that signed by Apollo. Beal declined to enter into such a
confidentiality agreement and consequently did not conduct due diligence in
connection with his proposal.
13. On December 6,1996, Banyan's Board set 5:00 p.m. on December
9, 1996 as the deadline for receipt of a firm offer from anyone interested in a
transaction with Banyan, including Apollo and Beal. Neither Apollo, nor anyone
else, submitted a firm offer by the deadline.
14. On or about December 9, 1996, RGI purchased a total of
6,766,600 shares of Banyan common stock in privately negotiated transactions
from nine stockholders at prices ranging from $0.50 per share to $0.60 per
share, all in excess of the market price, at that time, for Banyan stock (the
"December 9 Purchases"). Each of the December 9 Purchases included a term
pursuant to which each of the sellers revoked any previously voted proxies and
granted RGI irrevocable proxies to vote the purchased shares in favor of the
Merger. RGI also granted certain sellers price
-6-
<PAGE> 13
protection in the event that other shares of Banyan common stock were acquired
by RGI at more favorable prices.
15. On December 12, 1996, Hinson and Temple filed an individual
action in the United States District Court for the Southern District of New
York against RGI, RGI/US and Kenneth L. Uptain, President of RGI/US (the "New
York Action"). Hinson and Temple alleged that the December 9 Purchases
constituted a tender offer under the Federal Securities Laws. The Complaint
sought equitable and financial relief. On February 19, 1997, RGI and Uptain
answered the Complaint and denied that the purchases violated the Federal
Securities Laws.
16. On or about December 10, 1996, Hinson sent a letter to all
Banyan shareholders of record as of October 9, 1996, urging them to vote
against the Merger.
17. Between December 13 and 17, 1996, Banyan sent a Supplement to
the Proxy Statement ("Supplement") to all Banyan shareholders of record as of
October 9, 1996, advising them that the shareholders' meeting to consider the
Merger was continued to December 27, 1996. The Supplement: described the
proposals received from Apollo, Beal and another party, Banyan's responses
thereto, and the absence of any firm offer; the status of the Action;
additional valuation information underlying the Board's recommendation in
support of the Merger, and advised that Banyan had entered into a contract for
the sale of one of its properties at a price in excess of book value. Included
with the Supplement was another letter from Hinson clarifying certain
statements contained in his letter of December 10, 1996.
-7-
<PAGE> 14
18. On December 23, 1996, Apollo sent Banyan a revised conditional
proposal which contemplated (1) RGI's acquiring most of Banyan's assets, except
for certain tax-loss carry-forwards and Banyan's liabilities, (2) Apollo's
making an investment in Banyan, and (3) Banyan's acquiring and developing new
businesses, under the joint management of Apollo and RGI, so as to utilize the
tax-loss carry-forwards to shelter future income.
19. On December 24, 1996, Plaintiffs served and filed a
Consolidated Amended and Supplemental Complaint. Among other things, this
Complaint repeated the allegations of the original Complaint, and added factual
allegations concerning the Apollo and Beal proposals and the Supplement, and a
claim that the December 9 Purchases constituted unlawful vote buying.
20. The Banyan shareholders' meeting reconvened on December 27,
1996. The polls remained open until 3:00 p.m. on December 30, 1996. First
Chicago Trust Company ("First Chicago"), Banyan's transfer agent, served as
inspector of elections. The final proxy vote tabulation, as certified by First
Chicago, showed that 47,307,527 shares were eligible to vote, 23,862,753 shares
were voted in favor of the Merger, 10,414,143 shares were voted against the
Merger, and 844,969 shares abstained. Consequently, the Merger received the
votes of 208,990 shares more than the minimum necessary for approval. On
December 31, 1996, a certificate of merger was filed with the Delaware
Secretary of State, thereby effectuating the Merger.
-8-
<PAGE> 15
21. The vote tabulation as certified by First Chicago also
reported that Banyan's shareholders approved an amendment to Banyan's
Certificate of Incorporation to effect a 1:25 "reverse stock split."
22. On January 8, 1997, Plaintiffs filed an application pursuant
to 8 Del. C. Section 225(b) seeking judicial review of the certified vote on
the Merger. Plaintiffs' Section 225 application contended that: (i) the Merger
was approved by fewer than 210,000 shares, (ii) many shareholders had sought to
revoke proxies initially voting in favor of the Merger so as to vote against
the Merger, and (iii) Banyan had announced varying results of the vote.
Plaintiffs sought an expedited hearing on the Section 225 application.
23. The Court scheduled a hearing on Plaintiffs' Section 225
application for March 4, 1997. The parties engaged in discovery incident to
that application, including a review of documents obtained from First Chicago
and other third parties, and depositions of Hinson and representatives of
PaineWebber Incorporated, Beacon Hill Partners (Hinson's proxy solicitor in
connection with the Merger) and Corporate Investor Communications (Banyan's
proxy solicitor in connection with the Merger) concerning, among other things,
a potential double counting of certain votes.
24. The March 4 hearing was postponed at the direction of the
Court. In the interim, the parties entered into discussions with a view
towards finding a mutually agreeable basis for resolving the Action. Shortly
thereafter, the parties reached an agreement in principle to settle the Action.
25. On April 14, 1997, Plaintiffs served a Second Consolidated
Amended and Supplemental Complaint ("Second Complaint"). This pleading
repeated the allegations
-9-
<PAGE> 16
of the Consolidated Amended and Supplemental Complaint, added the claims
underlying Plaintiffs' application pursuant to 8 Del. C. Section 225, and added
RGI and RGI/US as defendants.
26. By Stipulation and Agreement of Settlement dated April 15,
1997, the parties proposed for Court approval a settlement of the Action.
After notice to the Class (defined on Page 1), and a hearing held on June 19,
1997, the Court, by Memorandum Opinion dated July 23, 1997, declined to approve
the proposed Settlement.
27. Thereafter, the parties engaged in further negotiations
seeking to resolve the claims asserted in the Action on a mutually satisfactory
basis consistent with the issues raised by the Court in its Memorandum Opinion.
The parties now propose a revised settlement on the terms and conditions set
forth in the Second Stipulation. Solely for purposes of this settlement,
Defendants have consented to a conditional certification of the Action as a
plaintiff class action pursuant to Rules 23(a) and 23(b)(1) & (2) of the Rules
of the Court of Chancery of the State of Delaware.
C. THE SETTLEMENT
1. DEFINITIONS
In addition to the terms defined in the recitals above or otherwise in
this Notice, for purposes of this Notice:
(a) "Second Complaint" means the Second Consolidated
Amended and Supplemental Complaint served on or about April 14, 1997.
-10-
<PAGE> 17
(b) "Plaintiffs" shall mean John A. Hinson, John W.
Temple and Gary M. Goldberg.
(c) "Legend" means Legend Properties Inc., the Delaware
corporation which survived the merger of Banyan and RGI/US, formerly known as
Banyan Mortgage Investment Fund, any and all of its successors, assigns, direct
and indirect subsidiaries or parent entities or corporations, affiliates,
officers, directors, representatives, insurers, reinsurers, fiduciaries,
employees, agents, attorneys, accountants, trustees thereof and all persons
acting or claiming through under or in concert with Legend.
(d) "Defendants" means Walter E. Auch, Sr., Robert M.
Ungerleider, Banyan, RGI, Legend, RGI/US and their respective present and
former agents, attorneys, accountants, employees, officers, directors,
trustees, heirs, executors, administrators, representatives, insurers,
reinsurers, fiduciaries, successors and assigns.
(e) "Class" and/or "Class Members" shall mean, for
purposes of this Notice only, all record and beneficial holders of Banyan
common stock from October 9, 1996 through December 31, 1996 and their
successors in interest, transferees and assigns, immediate and remote.
Excluded from the Class are Defendants, members of the immediate family of each
individual defendant and any entity in which any Defendant has a controlling
interest.
(f) "Settled Claims" shall mean and include any and all
claims, demands, rights, liabilities, suits, actions or causes of action,
damages, losses,
-11-
<PAGE> 18
obligations or judgments of any kind or nature whatsoever, whether asserted or
unasserted, known or unknown, contingent or absolute, disclosed or undisclosed,
matured or unmatured, which have been, could have been or in the future can or
might be asserted in the Action, or in any court, tribunal or proceeding,
including, but not limited to, any claim that the Merger under Delaware law,
Section 225 of the Delaware Corporation Law or any other applicable law, rule
or statute was invalid, void or legally deficient in any way whatsoever, any
and all claims arising under federal or state law relating to alleged fraud,
breach of any duty, negligence, violations of federal securities laws or
otherwise, but excluding the claims actually asserted in the New York Action
concerning the December 9 Purchases) by Plaintiffs against Defendants, which
have arisen, could have arisen or hereafter arise out of or relate in any
manner whatsoever, directly or indirectly, to the allegations, facts, events,
transactions, acts, occurrences, statements, representations,
misrepresentations, omissions, or any other matter, thing or cause whatsoever,
or any series thereof, embraced, involved, set forth, or otherwise referred to
or related to, directly or indirectly, in the Second Complaint.
(g) The "Morgens Loan" means loans previously made to
Legend by a group of lenders for which Morgens, Waterfall, Vintiadis & Co.,
Inc. served as agent, which RGI purchased in or about May, 1996 and which, as
of December 31, 1996, had. an outstanding principal balance of $24,258,788.24.
(h) The "SoGen Loan" means the loan previously made to
Legend by Societe General, Southwest Agency, which RGI purchased in or about
May, 1996, and
-12-
<PAGE> 19
which, as of December 31, 1996, had an outstanding principal balance of
$6,391,083.88.
(i) The "$800,000 Advance" means the unsecured loans
totaling $800,000 RGI made to Legend on December 31, 1996 and during January
1997 at an interest rate of the Prime Rate plus 5%.
(j) The "$1.8 Million Advance" means the unsecured loans
totaling $1.8 million RGI made to Legend during February 1997 at an interest
rate of the Prime Rate plus 3%.
(k) The "Advances" means the $800,000 Advance and the
$1.8 Million Advance, collectively.
(l) The "Repayment Requirement" means any undertakings
incident to Legend's anticipated sale of its Lynnwood Shopping Center property
that require Legend to pay the net proceeds resulting from that sale, estimated
to be approximately $5 million, to RGI as a payment against principal and
interest on the Morgens Loan.
(m) The "Prime Rate" means on any day the prime rate as
published in The Wall Street Journal by Dow Jones & Company, Inc., changing as
such prime rate changes.
(n) "Banyan" shall mean Banyan Mortgage Investment Fund,
Inc., the Delaware corporation which was merged with RGI/US to form Legend, and
any and all of its successors, assigns, direct and indirect subsidiaries or
parent entities or corporations, affiliates, officers, directors,
representatives, insurers, reinsurers,
-13-
<PAGE> 20
fiduciaries, employees, agents, attorneys, accountants, trustees thereof and
all persons acting or claiming through, under or in concert with Banyan.
(o) "RGI" shall mean RGI Holdings, Inc., a Washington
State corporation, which is the parent of RGI/US, and any and all of its
successors, assigns, direct and indirect subsidiaries or parent entities or
corporations, affiliates, officers, directors, representatives, insurers,
reinsurers, fiduciaries, employees, agents, attorneys, accountants, trustees
thereof and all persons acting or claiming through, under or in concert with
RGI.
(p) "New York Action" shall mean the action captioned
John A. Hinson and John W. Temple v. RGI Holdings, Inc., RGI/US Holdings, Inc.
and Kenneth L. Uptain, filed in the United States District Court for the
Southern District of New York.
(q) "Defendants' Counsel" shall mean the law firms of
Shefsky & Froelich Ltd., and Prickett, Jones, Elliott, Kristol & Schnee.
(r) "Notice" means this Notice of Pendency of Class
Action, Proposed Revised Settlement of Class Action and Settlement Hearing.
(s) "Plaintiffs' Counsel" or "Class Counsel" means the
law firms of Rosenthal, Monhait, Gross & Goddess, P.A., Goodkind Labaton
Rudoff & Sucharow LLP, and Burt & Pucillo.
(t) "Revised Settlement" means the settlement
contemplated by the Second Stipulation.
-14-
<PAGE> 21
(u) "Effective Date" means the date upon which the Order
entered by the Court approving the Revised Settlement becomes final and not
subject to appeal, as described in greater detail in section 5 of the Second
Stipulation.
(v) "Parties" means Plaintiffs and Defendants.
(w) "Person" means an individual, a corporation, a
partnership (either limited or general), an associate, a trust, a joint
venture, or any other entity or organization.
2. SETTLEMENT CONSIDERATION
In full and final disposition, settlement, discharge, release and
satisfaction of any and all Settled Claims, Plaintiffs and Defendants have
agreed as follows:
(a) Within ten (10) calendar days of the Effective Date,
Legend and/or RGI shall cause $1.2 million to be delivered to a bank account
under the control of Plaintiffs' Counsel ("Escrow Agent"). That sum shall
constitute the Settlement Fund, which will be maintained at interest and held
for distribution as provided for in the Second Stipulation and as summarized
below.
(b) On the Effective Date, Legend and RGI will modify the
Morgens Loan (i) to reduce the interest rate effective as of January 1, 1997,
from the Prime Rate plus 2%, to the lower of the Prime Rate plus 2% or the
30-day London Interbank Borrowing Rate ("LIBOR") plus 2.5%, (ii) provide that
no principal or interest is due or payable until December 31, 1998, although
interest shall continue to accrue, unless a refinancing or other source of
payment is available sooner, (iii) to forbear from enforcing any defaults
existing as of the Effective Date until December 31, 1998, and
-15-
<PAGE> 22
(iv) to delete the Repayment Requirement that Legend pay to RGI 100% of the
net sales proceeds from the Lynnwood Shopping Center, and instead permit Legend
to retain the net proceeds of such sale for its use. Nothing in the
Stipulation prohibits Legend from voluntarily making payments of principal to
the Morgens Loan. The agreement effectuating this modification has been
reviewed by Plaintiffs' Counsel.
(c) On the Effective Date, Legend and RGI will modify the
SoGen Loan (i) to reduce the interest rate effective as of January 1, 1997,
from the Prime Rate plus 6%, to the lower of the Prime Rate plus 2% or the
30-day LIBOR rate plus 2.5%, (ii) to provide that no principal or interest is
due or payable until December 31, 1998, although interest shall continue to
accrue, unless a refinancing or other source of payment is available sooner,
(iii) to forbear from enforcing any defaults existing as of the Effective Date
until December 31, 1998. Nothing in the Stipulation shall prohibit Legend from
voluntarily making payments of principal on the SoGen Loan. The agreement
effectuating this modification has been reviewed by Plaintiffs' Counsel.
(d) RGI and Legend have agreed they will make no
modifications to the SoGen or Morgens Loans through their maturity, except as
contemplated by subsection (g) below. Legend, however, may modify the SoGen
and Morgens Loans: (i) if a modification is necessary to enable Legend to
refinance its existing indebtedness as of the Effective Date; (ii) if a
modification is necessary to enable Legend to incur additional indebtedness
from unaffiliated parties; or (iii) the modification is on terms and conditions
no less favorable to Legend than the terms set forth in the modification
agreements for the SoGen and Morgens Loans as of the date hereof; provided,
-16-
<PAGE> 23
however, that any modification contemplated by (i)-(iii) above will not
increase the interest rate on these loans and must be approved by Legend's
Board, including a majority of the independent directors.
(e) On or before the Effective Date, Legend and RGI will
reduce the interest rate on the Advances effective as of January 1, 1997, to
the Prime Rate plus 2%, and the principal and accrued interest on the Advances
shall be repaid on or before the Effective Date with the proceeds of the
working capital loan described in subparagraph 2(f) below. The agreement
effectuating this loan modification has been reviewed by Plaintiffs' Counsel.
(f) On or before the Effective Date, RGI will provide a
line of credit to permit Legend to borrow up to an aggregate of $21 million,
$2.6 million of which shall be used to repay the Advances. The interest rate
on all draws under the line of credit will be equal to the Prime Rate plus 2%
and will mature on December 31, 1998. The interim financing draws on the line
of credit will be secured by one or more mortgages on certain of Legend's
properties.
(g) RGI agrees to use its best efforts to assist Legend
in attempting to refinance the Morgens and/or the SoGen Loans as soon as
practicable. If the refinancing of the Morgens and/or SoGen Loans is provided
by RGI it will be at the interest rates set forth in subsections 2(b) and 2(c)
above through the period ending September 30, 1999. If the refinancing of the
Morgens and/or SoGen Loans is provided by someone other than RGI, it shall be
on terms generally available in the market except that Legend shall pay
interest at no more than Prime Rate plus 3.5%
-17-
<PAGE> 24
or the 30-day LIBOR rate plus 3.0%, through the period ending September 30,
1999. RGI, however, is not required to refinance either the Morgens or SoGen
Loans upon their maturity.
(h) Defendants agree that Plaintiffs, Plaintiffs' Counsel
and the pendency of prosecution of this Action substantially and materially
contributed to the emergence of the Apollo and Beal proposals for the
acquisition of Banyan described in paragraphs 8, 12 and 18 above, and to
Banyan's making available to its shareholders the additional information
contained in the Supplement.
3. ADMINISTRATION OF SETTLEMENT FUND
(a) Payment of such fees and expenses as the Court allows
Plaintiffs' Counsel pursuant to the application described in Section G below
shall be made from the Settlement Fund at such time as the Court directs.
(b) Plaintiffs' Counsel has retained a Settlement
Administrator for the purpose of administering the Settlement Fund and for
providing services with respect to such administration including, without
limitation, preparation of appropriate computer records of names and addresses
of Class Members, review of Proofs of Claim submitted by Class Members,
calculation of distributions, preparation and distribution of checks, and
preparation and filing of any necessary tax returns. Any such services are to
be performed under the supervision of Plaintiffs' Counsel and subject to the
jurisdiction of the Court. All fees and expenses of the Settlement
Administrator incurred in connection with the administration of the Revised
Settlement, other than the expenses of providing this Notice and Publication
Notice (which Legend
-18-
<PAGE> 25
has agreed to pay) shall be paid out of the Settlement Fund subject to the
approval of the Court.
(c) The Settlement Fund, less such deductions for
attorneys' fees, expenses, taxes and administration expenses as the Court
allows, shall be distributed to the Class Members who (i) held Banyan stock on
December 31, 1996 at the time the Merger became effective, and (ii) submit
valid Proofs of Claim in the form attached hereto.
(d) The Settlement Administrator shall review Proofs of
Claim received and recommend acceptance or rejection to Plaintiffs' Counsel. A
Proof of Claim shall be deemed accepted unless the Person submitting it is
informed to the contrary pursuant to the procedures in subparagraph 3(e) below.
(e) During administration of the Revised Settlement, if
any question arises as to whether or not a Person is entitled to share in the
distribution of the Settlement Fund, Plaintiffs' Counsel and/or the Settlement
Administrator may request from such Person any documents or other information
establishing that the person owned Banyan stock on December 31, 1996 at the
time the Merger became effective and/or the number of Banyan shares held by
that Person. Plaintiffs' Counsel shall determine whether and the extent to
which the Person is entitled to share in the distribution of the Settlement
Fund and, if there is any difference between the Person's assertions and
Plaintiffs' Counsel's determinations, Plaintiffs' Counsel shall notify the
Person in writing by certified mail, return receipt requested, of their
determination, the reasons therefor, and the Person's entitlement to a hearing.
Any Person who wants
-19-
<PAGE> 26
to contest the determination by Plaintiffs' Counsel shall, within thirty (30)
days after the date of Plaintiffs' Counsel's letter, file with the Register in
Chancery a written request for a hearing ("the Request"). A copy of the
Request shall be mailed to Plaintiffs' Counsel on or before the date it is
filed with the Register. If the Register does not receive a Request within the
above thirty (30) days time limitation (which the Court may waive upon good
cause shown), the Person shall be deemed to have consented to the determination
of Plaintiffs' Counsel. The Register in Chancery shall give notice of all
hearings upon any claim to participate in the Settlement Fund to Plaintiffs'
Counsel and to the affected Person.
(f) To be valid, a Proof of Claim must be postmarked no
later than ninety (90) days after the date of this Notice.
(g) Plaintiffs' Counsel may, in their discretion, employ
a search firm to ascertain current addresses for Banyan shareholders on
December 31, 1996, mailings to whom are returned for lack of a current address.
All fees and expenses of the search firm shall be paid from the Settlement
Fund, subject to the approval of the Court.
(h) After Plaintiffs' Counsel determine, subject to the
approval of the Court, that all reasonable efforts have been made to ascertain
current addresses for all Persons who may be entitled to participate in the
distribution of the Settlement Fund, and a final determination has been made as
to all Proofs of Claim submitted, the balance of the Settlement Fund shall be
distributed as follows:
-20-
<PAGE> 27
(1) any applicable taxes on the interest earned
by the Settlement Fund shall be paid;
(2) payment shall be made to the search firm (if
any) and the Settlement Administrator of all fees and expenses as approved by
the Court;
(3) Plaintiffs' Counsel shall be reimbursed
expenses incurred incident to administration of the Revised Settlement, as
approved by the Court; and
(4) remaining funds shall be distributed to
Persons who submit a valid Proof of Claim pro rata based on the number of
shares for which their Proofs of Claim had been approved.
(i) No portion of the Settlement Fund shall be returned
to either RGI or Legend.
(j) All Persons who receive the Notice or a subsequent
communication concerning this Action shall be responsible for informing the
Settlement Administrator of any change in address so that subsequent
communications may be received. Class Members shall be solely responsible for
all consequences of their failure to inform the Settlement Administrator of any
change in address including, without limitation, failure to receive any notices
pursuant to paragraph 3(e) or failure to receive a share of the Settlement
Fund.
D. REASONS FOR THE SETTLEMENT
1. Before and continuing after the agreement in principle to
settle the Action, Plaintiffs' Counsel conducted a thorough investigation into
the allegations raised in the Second Complaint. Having made such examination,
and in light of the facts developed
-21-
<PAGE> 28
in discovery, the events, and agreements described herein, and considering the
applicable law, and having engaged in extensive arm's-length negotiations with
Defendants' Counsel with respect to possible compromise and settlement of
claims asserted in the action, Plaintiffs' Counsel concluded that the terms and
conditions of the Revised Settlement are fair, reasonable, adequate, and in the
best interests of the Plaintiffs and the Class.
2. The Plaintiffs, on behalf of themselves and the Class,
consider it desirable and in the best interests of members of the Class to
resolve the Action and the claims alleged therein on the terms and conditions
set forth in the Second Stipulation, after considering (i) the benefits the
members of the Class will receive from the Revised Settlement in light of
Legend's current financial condition and stock price; (ii) the desirability of
permitting the Revised Settlement to be consummated as provided by the terms of
the Second Stipulation; (iii) the uncertainty of the outcome if the Plaintiffs'
claims were litigated to a conclusion; (iv) RGI's status as a major creditor of
Legend; and (v) the conclusion of Class Counsel that the Revised Settlement
provided is fair, reasonable, adequate, and in the best interests of the
Plaintiffs and members of the Class.
3. Defendants deny all liability with respect to any and all
facts or claims alleged in the Action but consider it desirable that the Action
be settled and compromised in accordance with the terms of the Second
Stipulation because the Revised Settlement (i) would avoid the expense,
inconvenience, and distraction of continued litigation; (ii) would finally put
the Plaintiffs' claims to rest; and (iii) in
-22-
<PAGE> 29
defendants' view, would benefit Legend and all members of the Class.
Defendants expressly deny that they have engaged in any wrongful or illegal
activity or that they have violated any laws, regulations, or fiduciary duties,
and deny that any person or entity has suffered any damage or harm as a result
of defendants' conduct.
4. The Second Stipulation shall not be construed or deemed to be
evidence or an admission or concession on the part of any of the defendants of
any fault or liability, or damages whatsoever, and defendants do not concede
any infirmity in the defenses which they have asserted or intend to assert in
the Action.
E. CLASS ACTION DETERMINATION
The Court in its Scheduling Order certified the Action as a class
action for settlement purposes only, pursuant to Rules 23(a) and 23 (b)(1) and
(b)(2) of the Chancery Court Rules, consisting of all record and beneficial
holders of Banyan from October 9, 1996 through December 31, 1996 and their
successors in interest, transferees and assigns, immediate and remote,
excluding defendants in this action, members of the immediate family of each
individual defendant and any entity in which any defendant has a controlling
interest (the "Class"). There is no right of Class members to request
exclusion from the Class.
At the Settlement Hearing, the Court will determine whether or not the
Class should be permanently certified and be bound by the Order and Final
Judgment described below. ALL MEMBERS OF THE CLASS WILL BE BOUND BY THE ORDER
AND FINAL JUDGMENT IF THE CLASS IS PERMANENTLY CERTIFIED AND THE COURT APPROVES
THE REVISED SETTLEMENT.
-23-
<PAGE> 30
F. RELEASE AND DISMISSAL OF CLAIMS - ORDER AND FINAL JUDGMENT
1. If the Court approves the Revised Settlement, and the approval
becomes effective, Plaintiffs and members of the Class on behalf of themselves,
their heirs, executors, administrators, successors and assigns, and any persons
they represent, will be deemed to have released and forever discharged, and
shall forever be enjoined from prosecuting, the Defendants with respect to each
and every Settled Claim (as defined above).
2. If the Court approves the Revised Settlement and the approval
becomes effective, then all claims which have or could have been asserted in
the Action will be dismissed on the merits and with prejudice as to all Class
Members and all Class Members shall be forever barred from prosecuting a class
action or any other action arising out of the facts and circumstances which
have been or could have been alleged in this litigation against any Defendant,
including, but not limited to, the validity or invalidity of the Merger or the
validity or invalidity of the shareholder vote on the Merger but excluding the
claims asserted in the New York Action.
G. PLAINTIFFS' ATTORNEYS' FEES AND EXPENSES
At the Settlement Hearing or at such other time as the Court may
direct, Class Counsel intend to apply for an award of attorneys' fees and
reimbursement of reasonable costs and expenses in the aggregate not to exceed
$495,000, which includes reimbursement of approximately $___________ in
expenses incurred by Plaintiffs and by their counsel in connection with the
Action and Plaintiffs' opposition
-24-
<PAGE> 31
to the Merger. Defendants will not object to such application for fees and
expenses. The parties intend that the reasonable legal fees and expenses of
objector Palm Finance Corporation (the objector to the original settlement)
shall be reimbursed from the sum the Court allows. Payment may be made from
the Settlement Fund on or any time after the Effective Date. Defendants shall
not otherwise be liable to Plaintiffs or their attorneys or other agents for
any fees, expenses or disbursements in connection with this Action.
H. RIGHT TO APPEAR AT SETTLEMENT HEARING
Any Class member who objects to the Second Stipulation, the Revised
Settlement, the class action determination, the Order and Final Judgment to be
entered herein, and/or the application for attorneys' fees and expenses, or who
otherwise wishes to be heard, may appear in person or by his attorney at the
Settlement Hearing and present any evidence or argument that may be proper and
relevant, PROVIDED, HOWEVER, THAT NO PERSON OTHER THAN THE NAMED PLAINTIFFS AND
DEFENDANTS AND THEIR COUNSEL IN THE ACTION SHALL BE HEARD, AND NO PAPERS,
BRIEFS, PLEADINGS, OR OTHER DOCUMENTS SUBMITTED BY ANY SUCH PERSON SHALL BE
RECEIVED OR CONSIDERED BY THE COURT (UNLESS THE COURT IN ITS DISCRETION SHALL
THEREAFTER OTHERWISE DIRECT, UPON APPLICATION OF SUCH PERSON AND FOR GOOD CAUSE
SHOWN), UNLESS NO LATER THAN TEN DAYS PRIOR TO THE SETTLEMENT HEARING, SUCH
PERSON HAS SERVED AND FILED A DOCUMENT CONTAINING THE FOLLOWING INFORMATION IN
THE MANNER PROVIDED BELOW - (i) A notice of the intention to appear, (ii) a
-25-
<PAGE> 32
statement of such person's objections to any matter before the Court, and (iii)
the grounds therefor or the reasons for such person desiring to appear and to
be heard. The writing shall include all documents and writings which such
person desires the Court to consider, and shall be filed by such person with
the Register in Chancery, Court of Chancery, Daniel L. Herrmann Courthouse,
1020 N. King Street, Wilmington, DE 19801, and served by mail, express service
or hand delivery on:
Norman M. Monhait, Esquire
Rosenthal, Monhait, Gross & Goddess, P.A.
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, DE 19899
(302) 656-4433
ATTORNEYS FOR PLAINTIFFS
Wayne J. Carey, Esquire
Prickett, Jones, Elliott, Kristol & Schnee
1310 King Street
P.O. Box 1328
Wilmington, DE 19899
(302) 888-6519
-AND-
Allan T. Slagel, Esquire
Shefsky & Froelich Ltd.
444 North Michigan Ave.
Suite 2500
Chicago, IL 60611
ATTORNEYS FOR DEFENDANTS
I. NOTICE TO PERSONS OR ENTITIES HOLDING RECORD OWNERSHIP ON
BEHALF OF OTHERS
-26-
<PAGE> 33
Brokerage firms, banks, and other persons or entities who held Banyan
shares from October 9, 1996 through December 31, 1996 as record owners but not
as beneficial owners are directed promptly to send this Notice to all their
beneficial owners. If additional copies of the Notice are needed for
forwarding to beneficial owners of Banyan stock, requests for such additional
copies should be made to:
BANYAN LITIGATION ADMINISTRATOR
P.O. BOX 935
PLYMOUTH MEETING, PA 19462
Alternatively, you may send the names and addresses of your beneficial
owners to the above address and Notices will be mailed to them.
J. INTERIM-INJUNCTION
Pending final determination of whether the Second Stipulation should
be approved, the Plaintiffs and all members of the Class, and any of their
respective representatives, trustees, successors, heirs and assigns, shall not
commence or prosecute any action either directly or in any other capacity which
asserts Settled Claims against any of the Defendants.
K. EXAMINATION OF PAPERS AND INQUIRIES
This Notice is not a comprehensive description of the Action, the
terms of the Revised Settlement, the Settlement Hearing and related matters.
For a more detailed statement of the matters involved in this litigation,
reference is
-27-
<PAGE> 34
made to the pleadings, the Second Stipulation, the Orders entered by the Court,
and other papers filed in this litigation which unless sealed, may be inspected
at the office of the Register in Chancery of the Court of Chancery of the State
of Delaware, Daniel L. Herrmann Courthouse, 1020 N. King Street, Wilmington,
Delaware 19801, during regular business hours of each business day.
ENTERED BY ORDER OF THE COURT:
Date: September __, 1997 _________________________________
Register in Chancery
-28-
<PAGE> 35
IN THE CHANCERY COURT OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- ---------------------------------------x
IN RE BANYAN MORTGAGE INVESTMENT FUND : CONSOLIDATED
SHAREHOLDERS LITIGATION : C.A. NO. 15287
- ---------------------------------------x
ORDER PURSUANT TO CHANCERY COURT RULE 23
The parties to the above-captioned action (the "Action") having
applied pursuant to Chancery Court Rule 23(e) for an order (the "Order") to
approve the proposed Revised Settlement of the Action in accordance with the
Second Stipulation and Agreement of Settlement entered into by the parties,
dated September ____, 1997 (the "Second Stipulation"), and for the dismissal of
the Action with prejudice upon the terms and conditions set forth in the Second
Stipulation (the "Revised Settlement"), and all parties having consented to the
entry of this Order, and all capitalized terms used herein having the meanings
defined in the Second Stipulation,
NOW THEREFORE, IT IS HEREBY ORDERED THAT:
1. For purposes of the Revised Settlement only, this
Action is conditionally certified as class action pursuant to Chancery Court
Rules 23(a) and 23(b)(1) and (b)(2) on behalf of a class consisting of all
record and beneficial holders of Banyan Mortgage Investment Fund ("Banyan")
common stock from October 9, 1996 through December 31, 1996 and their
successors in interest, transferees and assigns, immediate and remote, and
excluding Defendants, members of the immediate family of each individual
defendant and any entity in which any Defendant has a
<PAGE> 36
controlling interest (the "Class"). For purposes of the Revised Settlement
only, Plaintiffs John A. Hinson, John W. Temple and Gary M. Goldberg are
conditionally appointed as Class Representatives and their counsel, Burt &
Pucillo; Goodkind, Labaton Rudoff & Sucharow LLP; and Rosenthal, Monhait, Gross
& Goddess, P.A., as Class Counsel.
2. A hearing (the "Settlement Hearing") shall be held on
_______________, 1997 at _______ ___.m. in the Court of Chancery, Daniel L.
Herrmann Courthouse, 1020 N. King Street, Wilmington, Delaware 19801 (a) to
finally determine whether the Action satisfies the applicable prerequisites for
class action treatment under Chancery Court Rules 23(a) and 23(b)(1) and (2);
(b) to determine whether the Court should approve the Revised Settlement as
fair, reasonable and adequate, and in the best interests of the Class and
should be approved by the Court; (c) to determine whether an Order and Final
Judgment as provided in paragraph 5(c) the Second Stipulation should be entered
in the Action pursuant to the Revised Settlement, inter alia, dismissing the
Second Complaint with prejudice and on the merits against the Class
Representatives and all other members of the Class; (d) to consider the
application of Class Counsel for an award of fees and expenses; (e) to
determine whether the releases by the Class and Class Representatives to the
Defendants, as set forth in the Second Stipulation, should be provided to the
Defendants; and (f) to hear and rule on such other matters as the Court may
deem appropriate. Class Counsel's application for attorneys' fees and expenses
may be
-2-
<PAGE> 37
heard by the Court at the Settlement Hearing or at such other time as the Court
in its discretion deems appropriate.
3. The Court reserves the right to adjourn the
Settlement Hearing, including consideration of the application for attorneys'
fees and expenses without further notice other than by announcement at the
Settlement Hearing or any adjournment thereof. The Court further reserves the
right to enter the Order and Final Judgment approving the Second Stipulation
and dismissing the Second Complaint on the merits and with prejudice regardless
of whether it has approved or awarded attorneys' fees and expenses to Class
Counsel pursuant to their application.
4. The Court reserves the right to approve the Revised
Settlement at or after the Settlement Hearing with such modifications as may be
consented to by the parties to the Second Stipulation and without further
notice to the members of the Class.
5. No later than thirty (30) days before the Settlement
Hearing, Class Counsel and/or Defendants' Counsel shall cause to be mailed, by
first-class mail, postage prepaid, a Notice of Pendency of Class Action,
Proposed Revised Settlement of Class Action, and Settlement Hearing,
substantially in the form attached to the Second Stipulation as Exhibit B (the
"Notice"), to all members of the Class of record. All costs of the Notice
shall be paid by Legend.
6. No later than thirty (30) days before the Settlement
Hearing, Defendants shall cause a notice in substantially the form of Exhibit D
to the Second
-3-
<PAGE> 38
Stipulation to be published in the national edition of Investors Business
Daily. All costs of this Publication Notice shall be paid by Legend.
7. Brokerage firms and other persons or entities who
held Banyan shares on or after October 9, 1996 as record owners but not as
beneficial owners shall be requested in the Notice promptly to send the Notice
to all of their beneficial owners of Banyan shares on or after October 9, 1996.
Class Counsel or their representatives shall make available additional copies
of the Notice to any record holder requesting such for the purpose of
distribution to such beneficial owners.
8. The contents of the Notice and Publication Notice
("Notices") are approved, and the Court finds that the form and method of
notice specified herein is the best notice practicable under the circumstances
and shall constitute due and sufficient notice of the Settlement Hearing and
all other matters referred to in the Notices to all persons entitled to receive
such Notice, and fully satisfies the requirements of due process and of
Chancery Court Rule 23. Class Counsel and/or Defendants' Counsel shall, on or
before the date of the Settlement Hearing, file a proof of mailing of the
Notice as directed herein. Defendants' Counsel shall, on or before the date of
the Settlement Hearing, file proof of publication of the notice for which
paragraph 6 provides.
9. At the Settlement Hearing, any member of the Class
who desires to do so may appear personally or by counsel, provided that a
notice of appearance is served and filed as hereinafter provided, and show
cause, if any: why the Revised Settlement should not be approved as fair,
reasonable, adequate, and in the best
-4-
<PAGE> 39
interests of the Class; why judgment should not be entered dismissing with
prejudice and on the merits all Settled Claims of the Class Representatives and
all members of the Class and any of their respective representatives, trustees,
successors, heirs and assigns, immediate and remote, against any or all
Defendants, members of their immediate families and any entity in which any
Defendant has a controlling interest; why the Court should not permanently bar
and enjoin any institution or prosecution by the Class Representatives, Class
Counsel, or any Class member, either directly or in any other capacity, from
asserting all claims, rights or causes of action, whether known or unknown,
that have been or could have been asserted in the Action; or why the Court
should not grant an allowance of reasonable fees and expenses to Class Counsel
for their services herein and actual expenses incurred, provided, however, that
unless the Court in its discretion otherwise directs, no member of the Class or
any other person (excluding a party) shall be heard or shall be entitled to
contest the approval of the terms and conditions of the Revised Settlement or
(if approved) the judgment to be entered thereon, or the allowance of fees and
expenses to Class Counsel and no papers, briefs, pleadings or other documents
submitted by any member of the Class or any other person (excluding a party)
shall be received and considered, except by order of the Court for good cause
shown, unless, not later than ten (10) days prior to the Settlement Hearing,
the following documents are served and filed in the manner provided below: (a)
a notice of intention to appear; (b) a detailed statement of such person's
specific objections to any matter before the Court; and (c) the grounds for
such objections and any reasons why such person desires to appear
-5-
<PAGE> 40
and be heard, as well as all documents and writings which such person desires
this Court to consider. Such documents shall be served by first- class mail,
express service or hand delivery upon the following counsel prior to filing
such documents with the Court, and then filed with the Register in Chancery,
Court of Chancery, Daniel L. Herrmann Courthouse, 1020 N. King Street,
Wilmington, DE 19801:
Norman M. Monhait, Esquire
Rosenthal, Monhait, Gross & Goddess, P.A.
Suite 1401, Mellon Bank Center
919 N. Market Street
P.O. Box 1070
Wilmington, DE 19899
(302) 656-4433
Attorneys for Plaintiffs
Wayne J. Carey, Esquire
Prickett, Jones, Elliott, Kristol & Schnee
1310 King Street
P.O. Box 1328
Wilmington, DE 19899
(302) 888-6519
Allan T. Slagel, Esquire
Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, IL 60611
(312) 527-4000
Attorneys for Defendants
10. Unless the Court otherwise directs, no former
stockholder of Banyan and no member of the Class or other person shall be
entitled to object to the Revised Settlement, or to the Final Judgment to be
entered herein, or otherwise to be heard, except by serving and filing written
objections as described above. Any person who fails to object in the manner
prescribed above shall be deemed to have waived
-6-
<PAGE> 41
such objection and shall be forever barred from raising such objection in this
or any other action or proceeding and shall be bound by all the terms and
provisions of the Second Stipulation and by all proceedings, orders and
judgments in the Action.
11. Pending the final determination of whether the Second
Stipulation and Revised Settlement should be approved, the Class
Representatives, all members of the Class, and any of their respective
representatives, trustees, officers, directors, agents, attorneys, heirs,
affiliates, subsidiaries, successors and assigns are barred and enjoined from
commencing or prosecuting any action asserting any claims, either directly,
representatively, derivatively or in any other capacity, against any Defendant
herein which are or relate to the Settled Claims as defined in the Second
Stipulation.
12. If the Second Stipulation, including any amendment
made in accordance with Paragraph 11(d) thereof, is not approved by the Court
or is terminated or shall not become effective for any reason whatsoever, then
(a) the Second Stipulation shall become null and void and of no force and
effect, (b) this Action will proceed on the basis of the Second Complaint;
however, Defendants shall have the right to withdraw their Answer to the Second
Complaint and file such motions as they individually or collectively deem
appropriate and necessary, and (c) all negotiations and proceedings relating to
the Second Stipulation shall be without prejudice to the rights of all parties
hereto, who shall be restored to their respective positions existing
immediately prior to the execution of the Second Stipulation.
13. In connection with effectuating the Revised
Settlement, and prior to the Effective Date, Legend is permitted to undertake
and engage in activities outside
-7-
<PAGE> 42
the ordinary course of business consistent with the terms and conditions of the
Second Stipulation. Any actions or activities undertaken by Legend consistent
with the terms and conditions of the Second Stipulation shall not be deemed to
violate or breach the terms of the Status Quo Order entered by this Court on
February 10, 1997 or the Amended Status Quo Order entered by this Court on June
11, 1997.
Dated: September ___, 1997 ____________________________________
CHANCELLOR
-8-
<PAGE> 43
IN THE CHANCERY COURT OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- ---------------------------------------x
IN RE BANYAN MORTGAGE INVESTMENT FUND : CONSOLIDATED
SHAREHOLDERS LITIGATION : C.A. NO. 15287
- ---------------------------------------x
SECOND STIPULATION AND AGREEMENT OF SETTLEMENT
Plaintiffs on their own behalf and on behalf of the Class (as
defined below), and Defendants, each acting through their attorneys, hereby
enter into this Second Stipulation and Agreement of Settlement (the "Second
Stipulation") as of the _____ day of September, 1997 providing for a
settlement of the above-captioned action (the "Action") on the terms and
conditions set forth herein.
WHEREAS:
A. On or about October 9, 1996, Banyan Mortgage Investment Fund
("Banyan") sent its shareholders a notice of a meeting of shareholders to be
held on November 26, 1996 and a proxy statement and prospectus ("Proxy
Statement") concerning a proposed merger (the "Merger") between Banyan and RGI
U.S. Holdings, Inc. ("RGI/US"). Among other things, the Proxy Statement
solicited the votes of Banyan's shareholders approving the Merger.
B. On October 31, 1996, Plaintiffs John A. Hinson ("Hinson") and
John W. Temple ("Temple"), who together owned more than 1.5 million Banyan
shares, commenced Civil Action No. 15287 in this Court against Banyan, certain
of its directors and officers ("Hinson Action"). Hinson and Temple brought the
Hinson
<PAGE> 44
Action on behalf of themselves and all other shareholders of Banyan, except for
Defendants, members of the Defendants' families and entities controlled by any
Defendant.
C. Plaintiffs alleged that Banyan's Board of Directors had
breached its fiduciary duties by failing to seek alternative change of control
transactions other than the Merger with RGI/US or appropriately evaluate the
alternative of liquidating Banyan. Plaintiffs also alleged that the Merger
unfairly diluted the voting and equity interests of Banyan's shareholders since
it would result in RGI Holdings, Inc. ("RGI"), the parent of RGI/US, owning
approximately 75% of the outstanding common stock of Banyan, while the other
shareholders would have their interests diluted to approximately 25% of
Banyan's outstanding common stock. In addition, Plaintiffs alleged that the
Proxy Statement was misleading and failed to disclose certain material
information. Among other relief, Plaintiffs sought to enjoin the Merger,
require the defendants to undertake additional activities to maximize
shareholder value and disclose certain additional information to Banyan's
shareholders in connection with their consideration of the Merger.
D. Contemporaneously with the filing of their Complaint, Hinson
and Temple moved for expedited discovery to support a motion to enjoin the
Merger preliminarily. The Court granted the motion for expedited discovery and
scheduled a preliminary injunction hearing for November 21, 1996.
E. On November 13, 1996, Gary M. Goldberg, another Banyan
shareholder, filed Civil Action No. 15340 ("Goldberg Action") asserting
allegations substantially
-2-
<PAGE> 45
similar to those in the Hinson Action. The Hinson and Goldberg Actions were
consolidated by Court Order dated December 11, 1996.
F. The parties engaged in discovery, including the production and
review of thousands of pages of documents and depositions of Leonard G. Levine,
Banyan's President; Robert M. Ungerleider, one of its directors, and Michael
Kollender of Josepthal Lyon Ross Incorporated, which had provided Banyan a
fairness opinion in connection with the Merger. Plaintiffs filed their motion
for preliminary injunction and opening brief in support of that motion on
November 15, 1996.
G. Contemporaneously with the ongoing discovery, Hinson sent
communications to third parties seeking to elicit their interest in making
competing offers for an alternative change in control or other transaction with
Banyan.
H. On or about November 15, 1996, Apollo Real Estate Advisors II,
L.P. ("Apollo"), one of the third parties that Hinson had contacted, sent
Banyan's directors a conditional proposal to acquire Banyan's outstanding
common stock for $0.46875 per share in cash and to assume or purchase certain
of Banyan's outstanding debt. Apollo's proposal was conditioned on, among other
things, the results of its due diligence. Plaintiffs' Counsel sent Banyan's
directors a letter urging them to postpone the November 26, 1996 shareholders'
meeting for thirty (30) days, make due diligence materials available to Apollo,
negotiate with Apollo to improve the terms of its offer, inform Banyan
shareholders of the Apollo proposal and the information Plaintiffs alleged was
omitted from the Proxy Statement, and afford Banyan shareholders the
opportunity to withdraw any proxies submitted concerning the Merger.
-3-
<PAGE> 46
I. On or about November 18, 1996, Hinson sent a letter to Banyan
shareholders who held their shares through brokerage houses and banks, stating
his opposition to the Merger, informing them of the Apollo proposal and urging
them to vote against the Merger.
J. On or about November 19, 1996, Banyan's directors decided to
postpone the vote of Banyan's shareholders on the Merger and to supplement the
Proxy Statement. In light of these developments, the parties requested and the
Court agreed to cancel the preliminary injunction hearing scheduled for
November 21, 1996.
K. After Apollo and Banyan signed a confidentiality agreement,
Banyan provided Apollo access to the information and documents Apollo requested
to conduct its due diligence in connection with its acquisition proposal.
Thereafter, Apollo commenced its due diligence efforts.
L. On or about December 3, 1996, Banyan received a proposal from
D. Andrew Beal ("Beal") expressing interest in acquiring Banyan for $0.51 per
share, subject to due diligence and other conditions. Banyan agreed to permit
Beal to conduct due diligence subject to his entering into a confidentiality
agreement similar to that signed by Apollo. Beal declined to enter into such a
confidentiality agreement and consequently did not conduct due diligence in
connection with his proposal.
M. On December 6, 1996, Banyan's Board set 5:00 p.m. on December
9, 1996 as the deadline for receipt of a firm offer from anyone interested in a
transaction with Banyan, including Apollo and Beal. Neither Apollo, nor anyone
else, submitted a firm offer by the deadline.
-4-
<PAGE> 47
N. On or about December 9, 1996, RGI purchased a total of
6,766,600 shares of Banyan common stock in privately negotiated transactions
from nine shareholders at prices ranging from $0.50 per share to $0.60 per
share, all in excess of the market price, at that time, for Banyan stock (the
"December 9 Purchases"). Each of the December 9 Purchases included a term
pursuant to which each of the sellers revoked any previously voted proxies and
granted RGI irrevocable proxies to vote the purchased shares in favor of the
Merger. RGI also granted certain sellers price protection in the event that
other shares of Banyan common stock were acquired by RGI at more favorable
prices.
O. On December 12, 1996, Hinson and Temple filed an individual
action in the United States District Court for the Southern District of New
York against RGI, RGI/US and Kenneth L. Uptain, President of RGI/US (the "New
York Action"). Plaintiffs alleged that the December 9 Purchases constituted a
tender offer under the Federal Securities Laws. The complaint sought equitable
and financial relief. On February 19, 1997, RGI and Uptain answered the
complaint and denied that the purchases violated the Federal Securities Laws.
P. On or about December 10, 1996, Hinson sent a letter to all
Banyan shareholders of record as of October 9, 1996, urging them to vote
against the Merger.
Q. Between December 13 and 17, 1996, Banyan sent a Supplement to
the Proxy Statement ("Supplement"), to all Banyan shareholders of record as of
October 9, 1996, advising them that the shareholders' meeting to consider the
Merger was continued to December 27, 1996. The Supplement: described the
proposals
-5-
<PAGE> 48
received from Apollo, Beal and another party, Banyan's responses thereto, and
the absence of any firm offer; the status of the Action; additional valuation
information underlying the Board's recommendation in support of the Merger, and
advised that Banyan had entered into a contract for the sale of one of its
properties at a price in excess of book value. Included with the Supplement
was another letter from Hinson clarifying certain statements contained in his
letter of December 10, 1996.
R. On December 23, 1996, Apollo sent Banyan a revised conditional
proposal which contemplated (1) RGI's acquiring most of Banyan's assets, except
for certain tax-loss carry-forwards and Banyan's liabilities, (2) Apollo's
making an investment in Banyan, and (3) Banyan's acquiring and developing new
businesses, under the joint management of Apollo and RGI, so as to utilize the
tax-loss carry- forwards to shelter future income.
S. On December 24, 1996, Plaintiffs served and filed a
Consolidated Amended and Supplemental Complaint. Among other things, this
Complaint repeated the allegations of the Hinson and Goldberg Actions, and
added factual allegations concerning the Apollo and Beal proposals and the
Supplement, and a claim that the December 9 Purchases constituted unlawful vote
buying.
T. The Banyan shareholders' meeting reconvened on December 27,
1996. The polls remained open until 3:00 p.m. on December 30, 1996. First
Chicago Trust Company ("First Chicago"), Banyan's transfer agent, served as
inspector of elections. The final proxy vote tabulation, as certified by First
Chicago, showed that 47,307,527 shares were eligible to vote, 23,862,753 shares
were voted in favor of the Merger,
-6-
<PAGE> 49
10,414,143 shares were voted against the Merger, and 844,969 shares abstained.
Consequently, the Merger received the votes of 208,990 shares more than the
minimum necessary for approval. On December 31, 1996, a certificate of merger
was filed with the Delaware Secretary of State, thereby effectuating the
Merger.
U. The vote tabulation as certified by First Chicago also
reported that Banyan's shareholders approved an amendment to Banyan's
Certificate of Incorporation to effect a 1:25 "reverse stock split."
V. On January 8, 1997, Plaintiffs filed an application pursuant
to 8 Del. C. Section 225(b) seeking judicial review of the certified vote on
the Merger. Plaintiffs' Section 225 application contended that: (i) the
Merger was approved by fewer than 210,000 shares, (ii) many shareholders had
sought to revoke proxies initially voting in favor of the Merger so as to vote
against the Merger, and (iii) Banyan had announced varying results of the vote.
Plaintiffs sought an expedited hearing on the Section 225 application.
W. The Court scheduled a hearing on Plaintiffs' Section 225
application for March 4, 1997. The parties engaged in discovery incident to
that application, including a review of documents obtained from First Chicago
and other third parties, and depositions of Hinson and representatives of
PaineWebber Incorporated, Beacon Hill Partners (Hinson's proxy solicitor in
connection with the Merger) and Corporate Investor Communications (Banyan's
proxy solicitor in connection with the Merger).
X. The March 4 hearing was postponed at the direction of the
Court. In the interim, the parties entered into discussions with a view
towards finding a mutually
-7-
<PAGE> 50
agreeable basis for resolving the Action. Shortly thereafter, the parties
reached an agreement in principle to settle the Action.
Y. On April 14, 1997, Plaintiffs served a Second Consolidated
Amended and Supplemental Complaint ("Second Complaint"). This pleading
repeated the allegations of the Consolidated Amended and Supplemental
Complaint, added the claims underlying Plaintiffs' application pursuant to 8
Del. C. Section 225, and added RGI and RGI/US as defendants.
Z. By Stipulation and Agreement of Settlement dated April 15,
1997, the parties proposed for Court approval a settlement of the Action.
After notice and a hearing held on June 19, 1997, the Court, by a Memorandum
Opinion dated July 23, 1997, declined to approve the proposed settlement.
AA. Thereafter, the parties engaged in further negotiations
seeking to resolve the claims asserted in the Action on a mutually satisfactory
basis, consistent with the issues raised by the Court in its Memorandum
Opinion. The parties now propose a revised settlement on the terms and
conditions set forth in this Second Stipulation.
BB. Plaintiffs' Counsel have conducted a thorough investigation of
the facts and legal principles relating to the Plaintiffs' claims and the
underlying events and transactions alleged in the Second Complaint.
Plaintiffs' Counsel have engaged in extensive, arm's-length negotiations with
Defendants' Counsel with respect to the possible compromise and settlement of
Plaintiffs' asserted or potential claims against Defendants. Plaintiffs and
Plaintiffs' Counsel, in light of these investigations and negotiations, have
concluded that settlement of the Action and resolution of the claims
-8-
<PAGE> 51
of the Class on the terms set forth in this Second Stipulation (the "Revised
Settlement"), is fair, reasonable and adequate and is in the best interests of
Plaintiffs and the Class.
CC. Defendants deny all allegations of wrongdoing and liability
asserted in the Second Complaint or otherwise in the Action and have asserted
that the claims alleged therein are without merit, that the Defendants have
meritorious defenses to those claims, that the conduct of the Defendants has,
at all times, been legal and proper and that a judgment should be entered
dismissing the claims against the Defendants with prejudice.
DD. Solely for purposes of this Revised Settlement, Defendants
have consented to a conditional certification of the Action as a plaintiff
class action pursuant to Rules 23(a) and 23(b)(1) & (2) of the Rules of the
Court of Chancery of the State of Delaware.
EE. Without in any way acknowledging any fault or liability in the
Action and in the New York Action, Defendants also desire to settle, compromise
and terminate the Plaintiffs' and the Class's claims against them in order to
avoid the further substantial expense, inconvenience and distraction of this
burdensome and potentially protracted litigation, to resolve promptly any
uncertainty as to the effectiveness of the Merger, and to put to rest forever
all claims which have or could have been asserted against them herein, or which
arise from or are in any way related to the acts, transactions or occurrences
alleged in the Second Complaint (with the exception of the claims actually
asserted in the New York Action).
-9-
<PAGE> 52
NOW, THEREFORE; IT IS HEREBY STIPULATED AND AGREED, between and among
the undersigned parties, through their respective counsel, and subject to all
of the terms and conditions set forth herein and the approval of the Court,
that the Action, as well as any and all of the claims and causes of action of
any nature or description relating to the acts, transactions or occurrences
alleged in the Action, which have or could have been asserted therein against
some or all of the Defendants (except the claims actually asserted in the New
York Action) be, and the same hereby are, compromised and settled on the terms
and conditions hereinafter set forth.
1. DEFINITIONS
In addition to the terms defined in the recitals above or
otherwise in this Second Stipulation, for purposes of this Second Stipulation:
(a) "Second Complaint" shall mean the Second
Consolidated Amended and Supplemental Complaint served on or about April 14,
1997.
(b) "Plaintiffs" shall mean John A. Hinson, John
W. Temple, Gary M. Goldberg, and the Class (as defined below).
(c) "Legend" shall mean Legend Properties Inc.,
the Delaware corporation which survived the merger of Banyan and RGI/US,
formerly known as Banyan Mortgage Investment Fund, any and all of its
successors, assigns, direct and indirect subsidiaries or parent entities or
corporations, affiliates, officers, directors, representatives, insurers,
reinsurers, fiduciaries, employees, agents, attorneys,
-10-
<PAGE> 53
accountants, trustees thereof and all persons acting or claiming through, under
or in concert with Legend.
(d) "Defendants" shall mean Walter E. Auch, Sr.,
Robert M. Ungerleider, Banyan, RGI, Legend, RGI/US and their respective present
and former agents, attorneys, accountants, employees, officers, directors,
trustees, heirs, executors, administrators, representatives, insurers,
reinsurers, fiduciaries, successors and assigns.
(e) "Class" and/or "Class Members" shall mean,
for purposes of this Second Stipulation only, all record and beneficial holders
of Banyan common stock from October 9, 1996 through December 31, 1996 and their
successors in interest, transferees and assigns, immediate and remote.
Excluded from the Class are Defendants, members of the immediate family of each
individual defendant and any entity in which any Defendant has a controlling
interest.
(f) "Settled Claims" shall mean and include any
and all claims, demands, rights, liabilities, suits, actions or causes of
action, damages, losses, obligations or judgments of any kind or nature
whatsoever, whether asserted or unasserted, known or unknown, contingent or
absolute, disclosed or undisclosed, matured or unmatured, which have been,
could have been or in the future can or might be asserted in the Action, or in
any court, tribunal or proceeding, including, but not limited to, any claim
that the Merger under Delaware law, Section 225 of the Delaware Corporation Law
or any other applicable law, rule or statute was invalid, void or legally
deficient in any way whatsoever, any and all claims arising under federal or
state law
-11-
<PAGE> 54
relating to alleged fraud, breach of any duty, negligence, violations of
federal securities laws or otherwise, but excluding the claims actually
asserted in the New York Action concerning the December 9 Purchases) by
Plaintiffs against Defendants, which have arisen, could have arisen or
hereafter arise out of or relate in any manner whatsoever, directly or
indirectly, to the allegations, facts, events, transactions, acts, occurrences,
statements, representations, misrepresentations, omissions, or any other
matter, thing or cause whatsoever, or any series thereof, embraced, involved,
set forth, or otherwise referred to or related to, directly or indirectly, in
the Second Complaint.
(g) The "Morgens Loan" shall mean loans
previously made to Legend by a group of lenders for which Morgens, Waterfall,
Vintiadis & Co., Inc. served as agent, which RGI had purchased in or about May,
1996 and which, as of December 31, 1996, had an outstanding principal balance
of $24,258,788.24.
(h) The "SoGen Loan" shall mean the loan
previously made to Legend by Societe General, Southwest Agency, which RGI had
purchased in or about May, 1996, and which, as of December 31, 1996, had an
outstanding principal balance of $6,391,083.88.
(i) The "$800,000 Advance" shall mean the
unsecured loans totaling $800,000 RGI made to Legend on December 31, 1996 and
during January 1997 at an interest rate of the Prime Rate plus 5%.
(j) The "$1.8 Million Advance" shall mean the
unsecured loans totaling $1.8 million RGI made to Legend during February 1997
at an interest rate of the Prime Rate plus 3%.
-12-
<PAGE> 55
(k) The "Advances" shall mean the $800,000 Advance
and the $1.8 Million Advance, collectively.
(l) The "Repayment Requirement" shall mean any
undertakings incident to Legend's anticipated sale of its Lynwood Shopping
Center property that require Legend to pay the net proceeds resulting from that
sale, estimated to be approximately $5 million, to RGI as a payment against
principal and interest on the Morgens Loan.
(m) The "Prime Rate" shall mean on any day the
prime rate as published in The Wall Street Journal by Dow Jones & Company,
Inc., changing as such prime rate changes.
(n) "Banyan" shall mean Banyan Mortgage
Investment Fund, Inc., the Delaware corporation which was merged with RGI/US to
form Legend, and any and all of its successors, assigns, direct or indirect
subsidiaries or parent entities or corporations, affiliates, officers,
directors, representatives, insurers, reinsurers, fiduciaries, employees,
agents, attorneys, accountants, trustees thereof and all persons acting or
claiming through, under or in concert with Banyan.
(o) "RGI" shall mean RGI Holdings, Inc., a
Washington State corporation, which is the parent of RGI/US, and any and all of
its successors, assigns, direct and indirect subsidiaries or parent entities or
corporations, affiliates, officers, directors, representatives, insurers,
reinsurers, fiduciaries, employees, agents, attorneys, accountants, trustees
thereof and all persons acting or claiming through, under or in concert with
RGI.
-13-
<PAGE> 56
(p) "New York Action" shall mean the action
captioned John A. Hinson and John W. Temple v. RGI Holdings, Inc., RGI/US
Holdings, Inc. and Kenneth L. Uptain, filed in the United States District Court
for the Southern District of New York.
(q) "Defendants' Counsel" shall mean the law
firms of Shefsky & Froelich Ltd., and Prickett, Jones, Elliott, Kristol &
Schnee.
(r) "Notice" means the Notice of Pendency of
Class Action, Proposed Revised Settlement of Class Action and Settlement
Hearing, which is to be sent to members of the Class, in the form attached
hereto as Exhibit B.
(s) "Order and Final Judgment" means the proposed
order in the form attached hereto as Exhibit C.
(t) "Order Pursuant to Chancery Court Rule 23"
means the order proposed in the form attached hereto as Exhibit A.
(u) "Plaintiffs' Counsel" means the law firms of
Rosenthal, Monhait, Gross & Goddess, P.A., Goodkind Labaton Rudoff & Sucharow
LLP, and Burt & Pucillo.
(v) "Publication Notice" means the summary notice
of proposed settlement and hearing for publication in the form attached hereto
as Exhibit D.
(w) "Revised Settlement" means the settlement
contemplated by this Second Stipulation.
(x) "Proof of Claim" means the proposed Proof of
Claim Form in the form attached hereto as Exhibit E.
-14-
<PAGE> 57
(y) "Parties" means Plaintiffs and Defendants.
(z) "Person" means an individual, a corporation,
a partnership (either limited or general), an associate, a trust, a joint
venture, or any other entity or organization.
2. SETTLEMENT CONSIDERATION
In full and final disposition, settlement, discharge, release
and satisfaction of any and all Settled Claims, Plaintiffs and Defendants agree
as follows:
(a) Within ten (10) calendar days of the
Effective Date, Legend and/or RGI shall cause $1,200,000 to be delivered to a
bank account under the control of Plaintiffs' Counsel ("Escrow Agent"). This
sum shall constitute the Settlement Fund, which shall be maintained at interest
and held for distribution as provided herein.
(b) On the Effective Date, Legend and RGI will
modify the Morgens Loan (i) to reduce the interest rate effective as of January
1, 1997, from the Prime Rate plus 2%, to the lower of the Prime Rate plus 2% or
the 30-day London Interbank Borrowing Rate ("LIBOR") plus 2.5%, (ii) provide
that no principal or interest is due or payable until December 31, 1998,
although interest shall continue to accrue, unless a refinancing or other
source of payment is available sooner, (iii) to forbear from enforcing any
defaults existing as of the Effective Date until December 31, 1998, and (iv) to
delete the Repayment Requirement that Legend pay to RGI 100% of the net sales
proceeds from the Lynnwood Shopping Center, and instead permit Legend to
-15-
<PAGE> 58
retain the net proceeds of such sale for its use. Nothing in this subparagraph
shall prohibit Legend from voluntarily making payments of principal on the
Morgens Loan. The agreement effectuating this modification has been reviewed
by Plaintiffs' Counsel.
(c) On the Effective Date, Legend and RGI will
modify the SoGen Loan (i) to reduce the interest rate effective as of January
1, 1997, from the Prime Rate plus 6%, to the lower of the Prime Rate plus 2% or
the 30-day LIBOR rate plus 2.5%, (ii) to provide that no principal or interest
is due or payable until December 31, 1998, although interest shall continue to
accrue, unless a refinancing or other source of payment is available sooner,
(iii) to forbear from enforcing any defaults existing as of the Effective Date
until December 31, 1998. Nothing in this subparagraph shall prohibit Legend
from voluntarily making payments of principal on the SoGen Loan. The agreement
effectuating this modification has been reviewed by Plaintiff's Counsel.
(d) RGI and Legend agree they will make no
modifications to the SoGen or Morgens Loans through their maturity, except as
contemplated by subsection 2(g) below and provided, further, that Legend may
modify the SoGen and Morgens Loans: (i) if a modification is necessary to
enable Legend to refinance its existing indebtedness as of the Effective Date;
(ii) if a modification is necessary to enable Legend to incur additional
indebtedness from unaffiliated parties; or (iii) the modification is on terms
and conditions no less favorable to Legend than the terms set forth in the
modification agreements for the SoGen and Morgens Loans as of the date hereof;
provided, however, that any modification contemplated by (i)-(iii) above will
not
-16-
<PAGE> 59
increase the interest rate on these loans and must be approved by Legend's
Board, including a majority of the independent directors.
(e) On or before the Effective Date, Legend and
RGI shall reduce the interest rate on the Advances effective as of January 1,
1997, to the Prime Rate plus 2%, and the principal and accrued interest on the
Advances shall be repaid on or before the Effective Date with the proceeds of
the working capital loan described in subparagraph 2(f) below. The agreement
effectuating this loan modification has been reviewed by Plaintiffs' Counsel.
(f) On or before the Effective Date, RGI will
provide a line of credit to permit Legend to borrow up to an aggregate of $21
million, $2.6 million of which shall be used to repay the Advances. The
interest rate on all draws under the line of credit will be equal to the Prime
Rate plus 2% and will mature on December 31, 1998. The interim financing draws
on the line of credit will be secured by one or more mortgages on certain of
Legend's properties.
(g) RGI agrees to use its best efforts to assist
Legend in attempting to refinance the Morgens Loan and/or the SoGen Loans as
soon as practicable. If the refinancing of the Morgens and/or SoGen Loans is
provided by RGI it will be at the interest rates set forth in subparagraphs
2(b) and 2(c) above through the period ending
-17-
<PAGE> 60
September 30, 1999. If the refinancing of the Morgens and/or SoGen Loans is
provided by someone other than RGI, it shall be on terms generally available in
the market except that Legend shall pay interest at no more than Prime Rate
plus 3.5% or the 30-day LIBOR rate plus 3.0%, through the period ending
September 30, 1999. Nothing herein, however, shall require RGI to refinance
either the Morgens or SoGen Loans upon their maturity.
(h) Defendants agree that Plaintiffs, Plaintiffs'
Counsel and the pendency of prosecution of this Action substantially and
materially contributed to the emergence of the Apollo and Beal proposals for
the acquisition of Banyan described in recitals H, L and R above, and to
Banyan's making available to its shareholders the additional information
contained in the Supplement.
3. ADMINISTRATION OF SETTLEMENT FUND
(a) Payment of such fees and expenses as the
Court allows Plaintiffs' Counsel pursuant to the application described in
paragraph 9 below shall be made from the Settlement Fund at such time as the
Court directs.
(b) Plaintiffs' Counsel shall retain a Settlement
Administrator for the purpose of administering the Settlement Fund and for
providing services with respect to such administration including, without
limitation, preparation of appropriate computer records of names and addresses
of Class Members, review of Proofs of Claim submitted by Class Members,
calculation of distributions, preparation and distribution of checks, and
preparation and filing of any necessary tax returns. Any such services are to
be performed under the supervision of Plaintiffs' Counsel and subject to the
jurisdiction of the Court. All fees and expenses of the Settlement
Administrator incurred in connection with the administration of the Revised
Settlement,
-18-
<PAGE> 61
other than the expenses described in paragraph 4(a), shall be paid out of the
Settlement Fund subject to the approval of the Court.
(c) The Settlement Fund, less such deductions for
attorneys' fees, expenses, taxes and administration expenses as the Court
allows, shall be distributed to the Class Members who (i) held Banyan stock on
December 31, 1996 at the time the Merger became effective and (ii) submit valid
Proofs of Claim in the form attached as Exhibit E hereto.
(d) The Settlement Administrator shall review
Proofs of Claim received and recommend acceptance or rejection to Plaintiffs'
Counsel. A Proof of Claim shall be deemed accepted unless the Person
submitting it is informed to the contrary pursuant to the procedures in
subparagraph 3(e) below.
(e) During administration of the Revised
Settlement, if any question arises as to whether or not a Person is entitled to
share in the distribution of the Settlement Fund, Plaintiffs' Counsel and/or
the Settlement Administrator may request from such Person any documents or
other information establishing that the Person owned Banyan stock on December
31, 1996 at the time the Merger became effective and/or the number of Banyan
shares held by that Person. Plaintiffs' Counsel shall determine whether and
the extent to which the Person is entitled to share in the distribution of the
Settlement Fund and, if there is any difference between the Person's assertions
and Plaintiffs' Counsel's determinations, Plaintiffs' Counsel shall notify the
Person in writing by certified mail, return receipt requested, of their
determination, the reasons therefor, and the Person's entitlement to a hearing.
Any Person who wants
-19-
<PAGE> 62
to contest the determination by Plaintiffs' Counsel shall, within thirty (30)
days after the date of Plaintiffs' Counsel's letter, file with the Register in
Chancery a written request for a hearing ("the Request"). A copy of the
Request shall be mailed to Plaintiffs' Counsel on or before the date it is
filed with the Register. If the Register does not receive a Request within the
above thirty (30) day time limitation (which the Court may waive upon good
cause shown), the Person shall be deemed to have consented to the determination
of Plaintiffs' Counsel. The Register in Chancery shall give notice of all
hearings upon any claim to participate in the Settlement Fund to Plaintiffs'
Counsel and to the affected Persons.
(f) To be valid, a Proof of Claim must be
postmarked no later than ninety (90) days after the date the Notice is mailed
to the Class.
(g) Plaintiffs' Counsel may, in their discretion,
employ a search firm to ascertain current addresses for Banyan shareholders on
December 31, 1996, mailings to whom are returned for lack of a current address.
All fees and expenses of the search firm shall be paid from the Settlement
Fund, subject to the approval of the Court.
(h) After Plaintiffs' Counsel determine, subject
to the approval of the Court, that all reasonable efforts have been made to
ascertain current addresses for all Persons who may be entitled to participate
in the distribution of the Settlement Fund, and a final determination has been
made as to all Proofs of Claim submitted, the balance of the Settlement Fund
shall be distributed as follows:
(i) any applicable taxes shall be paid;
-20-
<PAGE> 63
(ii) payment shall be made to the search
firm and the Settlement Administrator of all fees and expenses as approved by
the Court;
(iii) Plaintiffs' Counsel shall be
reimbursed expenses incurred incident to administration of the Revised
Settlement, as approved by the Court; and
(iv) remaining funds shall be distributed
to Persons who submit a valid Proof of Claim pro rata based on the number of
shares for which their Proofs of Claim had been approved.
(i) The Settlement Administrator shall deduct
from any sum to be paid to any Person participating in the distribution of the
Settlement Fund any amount the Internal Revenue Code requires to be withheld
and paid to the Internal Revenue Service.
(j) No portion of the Settlement Fund shall be
returned to Legend or RGI.
(k) All Persons who receive the Notice,
Publication Notice or a subsequent communication concerning this Action shall
be responsible for informing the Settlement Administrator of any change in
address so that subsequent communications may be received. Class Members shall
be solely responsible for all consequences of their failure to inform the
Settlement Administrator of any change in address including, without
limitation, failure to receive any notices pursuant to paragraph 3(e) or
failure to receive a share of the Settlement Fund.
-21-
<PAGE> 64
(l) All funds held by the Escrow Agent shall be
deemed to be in custodia legis of the Court and shall remain subject to the
jurisdiction of the Court until such time as the funds shall be distributed or
returned to the Defendants pursuant to this Second Stipulation and/or further
order of the Court. The Escrow Agent shall invest and reinvest any sums in
excess of $100,000 in United States Government obligations, with a maturity of
180 days or less, or in mutual funds, the investments of which are United
States Government obligations, and shall collect and reinvest all interest
accrued thereon. Any funds held in escrow in an amount of less than $100,000
may be held in an interest bearing bank account insured by the FDIC.
(m) The Parties agree that the Settlement Fund is
intended to be a Qualified Settlement Fund within the meaning of Treasury
Regulations Section 1.468B-1 and that the Escrow Agent, as administrator of the
Settlement Fund within the meaning of Treasury Regulations Section
1.468B-2(k)(3), shall be responsible for filing tax returns for the Settlement
Fund and paying from the Settlement Fund all (i) taxes, including any interest
or penalty, arising with respect to the income earned by the Settlement Fund
("Taxes") and (ii) expenses and costs incurred in connection with the
determination of the Settlement Fund's tax obligations, including any expenses
of tax attorneys and accountants and mailing and distribution costs and
expenses relating to filing or failure to file the returns ("Tax Expenses").
All Taxes and Tax Expenses shall be paid out of the Settlement Fund and in all
events Defendants shall have no liability or responsibility for payment of
Taxes or Tax Expenses. Further, Taxes and Tax Expenses shall be treated as,
and considered to be, a cost of administration of the
-22-
<PAGE> 65
Revised Settlement and shall be timely paid by the Escrow Agent out of the
Settlement Fund without prior Order from the Court. The Parties agree to
cooperate with Plaintiffs' Counsel, each other, and their tax attorneys and
accountants to the extent reasonably necessary to carry out the provisions of
this Second Stipulation. Defendants' Counsel agree to provide promptly to the
Escrow Agent the statement described in Treasury Regulation Section
1.468B-3(e). In the event that for any reason the income of the Settlement
Fund is determined to be reportable by any of the Defendants, then the Escrow
Agent shall reimburse such Defendant(s) for the incremental tax liability they
incur by reason of such income, and in the event of any such reimbursement, the
Defendant receiving such reimbursement shall repay the Settlement Fund for any
tax savings or refund it ultimately receives when, as, and if, the income
reported to such Defendant is deemed to be contributed back to the Settlement
Fund.
(n) The procedure for and the allowance or
disallowance by the Court of any applications by any of Plaintiffs' Counsel for
attorneys' fees, costs and expenses to be paid out of the Settlement Fund are
not a condition of the Revised Settlement. Any order or proceeding relating to
the application of Plaintiffs' Counsel for attorneys' fees or expenses and any
appeals from such order or any provision of the Order and Final Judgment
relating only to attorneys' fees or expenses, shall not operate to terminate or
cancel the Second Stipulation, or affect or delay the finality of the Order and
Final Judgment approving the Second Stipulation.
-23-
<PAGE> 66
(o) Any member of the Class who does not file a
valid Proof of Claim with the Settlement Administrator will not be entitled to
receive any of the proceeds from the Revised Settlement, but will otherwise be
bound by all terms of the Second Stipulation and the Revised Settlement,
including the terms of the judgment to be entered in the Action and the
releases provided for herein, and will be barred from bringing any action
against any Defendant concerning the Settled Claims.
(p) Payment pursuant to this Second Stipulation
shall be final and conclusive against all Class Members. All Class Members
whose claims are not approved by the Settlement Administrator or the Court
shall be barred from participating in distributions from the Settlement Fund,
but otherwise shall be bound by all of the terms of this Second Stipulation and
the Revised Settlement, including the terms of the Order and Final Judgment
entered in this Action, and the releases provided herein, and will be barred
from bringing any action against the Defendants concerning the Settled Claims.
(q) Except as provided in paragraph 4(a) hereof,
Defendants and Defendants' Counsel shall have no responsibility for the
administration of the Settlement Fund, and shall have no liability to the Class
or Class Members in connection with such administration. Defendants and
Defendants' Counsel shall cooperate in the administration of the Revised
Settlement to the extent reasonably necessary to effectuate its terms,
including providing all information from their transfer records concerning the
identity of Class Members and their transactions.
-24-
<PAGE> 67
4. IMPLEMENTATION AND SCHEDULING
(a) As soon as practicable after execution of
this Second Stipulation, the Parties shall jointly apply to the Court for the
approval of the Revised Settlement and for entry of an Order substantially in
the same form annexed as Exhibit A hereto, providing, inter alia, for the
mailing of a Notice in substantially the form of Exhibit B hereto to Class
Members, and Notice by Publication in the national edition of the Investors'
Business Daily in substantially the form of Exhibit D hereto. Legend shall pay
the costs of printing and mailing the Notice to the Class Members and the cost
of Publication Notice.
(b) The Parties agree to cooperate in the prompt
submission of this Second Stipulation to the Court, to take all steps that may
be required by the Court and otherwise to use their best efforts to consummate
this Revised Settlement and to obtain the entry of a Final Judgment.
(c) If the Court approves the Revised Settlement
following the hearing contemplated by Exhibit A hereto, the Parties shall
jointly request the Court to enter an Order and Final Judgment substantially in
the form of Exhibit C hereto.
5. EFFECTIVE DATE
The Revised Settlement shall not become effective until the
date upon which each and all of the following conditions have been satisfied
(the "Effective Date"), unless one or more of the conditions is waived in a
writing signed by the Parties waiving such condition(s).
-25-
<PAGE> 68
(a) the entry of an Order substantially in the
form of Exhibit A hereto;
(b) the approval by the Court of the Revised
Settlement following Notice to Class Members and Publication Notice and a
hearing as prescribed by the Court;
(c) the entry by the Court of an Order and Final
Judgment, in all material respects in the form set forth in Exhibit C hereto,
and the expiration of any time for appeal or review of such Order and Final
Judgment, or, if any appeal is filed and not dismissed, after such Order and
Final Judgment is upheld on appeal in all material respects and is no longer
subject to review upon appeal or review by the highest court to which such
appeal may be taken, or, in the event the Court enters an Order and Final
Judgment in a form other than that provided above ("Alternative Judgment") and
none of the Parties elect to terminate this Revised Settlement, the date that
such Alternative Judgment becomes final and is no longer subject to appeal or
review. It shall not be considered a material difference if the Order and
Final Judgment does not award Plaintiffs' Counsel attorneys' fees and expenses
in any particular amount or if the Court reserves jurisdiction to award
attorneys' fees in a separate Order. The Effective Date shall not be delayed
by reason of any appeal relating solely to the award of Plaintiffs' Counsel's
attorneys' fees or expenses.
-26-
<PAGE> 69
6. RIGHTS TO TERMINATE
The Parties shall have the right to terminate the Revised Settlement
in this Second Stipulation only by providing written notice of their election
to do so ("Termination Notice") to all other Parties hereto within thirty (30)
days of (a) the Court's declining to enter the Order Pursuant to Chancery Court
Rule 23 in any material respect; (b) the Court's refusal to approve the Second
Stipulation or any material part of it; (c) the Court's declining to enter the
Order and Final Judgment in any material respect; (d) the date upon which the
Order and Final Judgment is modified or reversed in any material respect by any
court to which an appeal may be taken (other than with respect to any award of
attorneys' fees or expenses); or (e) the date upon which an Alternative
Judgment is modified or reversed in any material respect by an appellate court
(other than with respect to any award of attorneys' fees or expenses).
7. EFFECT OF DISAPPROVAL, CANCELLATION OR TERMINATION
In the event that the Court does not approve the Revised
Settlement or, for any other reason, an Effective Date does not occur then (i)
this Second Stipulation shall become null and void and of no force and effect,
except that Legend shall not be entitled to reimbursement of costs of printing,
mailing and publishing notice, (ii) this Action will proceed on the basis of
the Second Complaint; however, Defendants shall have the right to withdraw
their Answer to the Second Complaint and file such motions as they individually
or collectively deem appropriate and necessary, and all
-27-
<PAGE> 70
negotiations and proceedings relating to this Second Stipulation shall be
without prejudice to the rights of the Parties, who shall be restored to their
respective positions existing immediately prior to the execution of this Second
Stipulation.
8. RELEASES
(a) Upon the Effective Date, each of the
Plaintiffs, on behalf of themselves, their heirs, executors and administrators,
successors and assigns and any Person(s) they represent, for good and
sufficient consideration, shall be deemed to have remised, released and forever
discharged the Defendants, their respective present and former agents,
predecessors, servants, employees, officers, directors, heirs, administrators,
executors, representatives, successors and assigns, including their attorneys,
accountants, consultants, appraisers, and actuaries from each, every and all
Settled Claims.
(b) Upon the Effective Date, Defendants and their
present and former agents, predecessors, servants, employees, officers and
directors shall be deemed to have remised, released and forever discharged each
of the Plaintiffs and their attorneys from any and all claims, rights and
causes of action arising out of or relating to any acts, conduct, facts or
transactions arising out of or relating to the Merger, Plaintiffs' efforts to
oppose the Merger, and/or the pendency and conduct of the Action.
(c) Upon the Effective Date, Defendants, on
behalf of themselves and their respective heirs, executors and administrators,
successors and
-28-
<PAGE> 71
assigns and any Person(s) they represent, for good and sufficient
consideration, shall be deemed to have remised, released and forever discharged
each of the other Defendants, their respective present and former agents,
predecessors, servants, employees, officers, directors, heirs, executors,
representatives, successors and assigns, including their attorneys,
accountants, consultants, appraisers and actuaries from each, every and all
Settled Claims.
(d) With respect to any and all Settled Claims,
the Parties stipulate and agree that, upon the Effective Date, the Plaintiffs
shall be deemed to have, and by operation of the judgment shall have, expressly
waived and relinquished, to the fullest extent permitted by law, the
provisions, rights, and/or any similar provisions of law, and benefits of
Section 1542 of the California Civil Code, which provides:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his
favor at the time of executing the release, which if
known by him must have materially affected his
settlement with the debtor.
(e) With respect to any and all Settled Claims,
each of the Plaintiffs, upon the Effective Date, shall be deemed to have, and
by operation of the Order and Final Judgment shall have, waived any and all
provisions, rights and benefits conferred by any law of any state or territory
of the United States, or principle of common law, that is similar, comparable
or equivalent to section 1542 of the California Civil Code. One or more of the
Plaintiffs may hereafter discover facts in
-29-
<PAGE> 72
addition to or different from those which he, she or it now knows or believes
to be true with respect to the subject matter of the Settled Claims, but each
Plaintiff, upon the Effective Date, shall be deemed to have, and by operation
of the Order and Final Judgment shall have, fully, finally and forever settled
and released any and all Settled Claims, known or unknown, suspected or
unsuspected, contingent or non-contingent, whether or not concealed or hidden,
that now exist or heretofore have existed upon any theory of law or equity now
existing or coming into existence in the future, including, but not limited to,
conduct that is negligent, intentional, with or without malice, or a breach of
any duty, law or rule, without regard to the subsequent discovery or existence
of such different or additional facts.
9. ATTORNEYS' FEES AND EXPENSES
If the Court approves the Revised Settlement, Plaintiffs'
Counsel will apply to the Court for an allowance of fees and expenses incurred
in the prosecution of the Action in an amount not to exceed $495,000, to be
paid from the Settlement Fund. Defendants will not object to the application.
Payment of Plaintiffs' Counsel's attorneys' fees and expenses approved by the
Court shall be made to Burt & Pucillo, who shall be responsible for their
disbursement. The Parties intend that the reasonable legal fees and expenses
of Palm Finance Corporation (the objector to the original settlement) shall be
reimbursed from the sum the Court allows for Plaintiffs' Counsel's fees and
expenses. Payment of Plaintiffs' Counsel's fees and expenses may be made from
the Settlement Fund on or any time after the Effective Date. Defendants shall
-30-
<PAGE> 73
not otherwise be liable to Plaintiffs or Plaintiffs' Counsel or other agents or
attorneys for any fees, expenses or disbursements in connection with this
Action or the Settled Claims.
10. NO ADMISSION
This Revised Stipulation, whether or not consummated, and any
proceedings taken pursuant to it:
(a) shall not be offered or received against the
Defendants as evidence of or construed as or deemed to be evidence of any
presumption, concession, or admission by any of the Defendants of the truth of
any fact alleged by Plaintiffs or the validity of any claim that had been or
could have been asserted in the Action or in any litigation, including the New
York Action, or the deficiency of any defense that has been or could have been
asserted in the Action or in any litigation, including the New York Action, or
of any liability, negligence, fault, or wrongdoing of Defendants;
(b) shall not be offered or received against the
Defendants as evidence of a presumption, concession or admission of any fault,
misrepresentation or omission with respect to any statement or written document
approved or made by any Defendant, or against the Plaintiffs as evidence of any
infirmity in the claims of Plaintiffs;
(c) shall not be offered or received against the
Defendants as evidence of a presumption, concession or admission of any
liability, negligence, fault or wrongdoing, or in any way referred to for any
other reason as against any of the
-31-
<PAGE> 74
Parties to this Second Stipulation, in any other civil, criminal or
administrative action or proceeding other than such proceedings as may be
necessary to effectuate the provisions of this Second Stipulation; provided,
however, that if this Second Stipulation is approved by the Court, Defendants
may refer to it to effectuate the liability protection and releases granted
them hereunder; and
(d) shall not be construed against the Defendants
or the Plaintiffs as an admission or concession that the consideration to be
given hereunder represents the amount which could be or would have been
recovered after trial.
11. MISCELLANEOUS
(a) This Second Stipulation shall be binding and
shall inure to the benefit of the Parties hereto and their respective
successors, assigns, executors, administrators, heirs, and legal
representatives; provided, however, that no assignment by any Party hereto
shall operate to relieve such party hereto of its obligations hereunder and
shall not be permitted without the prior written consent of all the other
Parties.
(b) This Second Stipulation may be executed in
two or more counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.
(c) This Second Stipulation, and the exhibits
hereto, constitute the sole and entire agreement among the Parties with respect
to the subject matter hereof and no representations, warranties, inducements,
promises, or agreements oral
-32-
<PAGE> 75
or otherwise not embodied or incorporated herein have been made concerning or
in connection with this Second Stipulation, or the exhibits hereto. Any and
all prior discussions, negotiations, agreements, commitments and understandings
relating thereto, are superseded hereby and merged herein.
(d) The terms or provisions of this Second
Stipulation may not be changed, waived, modified or varied in any manner
whatsoever unless in writing duly signed by all Parties. The provisions of this
Second Stipulation (including any time periods specified herein) may be
modified by written agreement of all of the Parties with the consent of the
Court without further notice to the Class unless the Court requires such
notice.
(e) Any failure by any party to insist upon the
strict performance by any other party of any of the provisions of this Second
Stipulation shall not be deemed a waiver of any of the provisions hereof, and
such party, notwithstanding such failure, shall have the right thereafter to
insist upon the strict performance of any and all of the provisions of this
Second Stipulation to be performed by such other party.
(f) The captions contained in this Second
Stipulation are inserted only as a matter of convenience and in no way define,
limit, extend or describe the scope of this agreement or the intent of any
provision hereof.
(g) This Second Stipulation including, but not
limited to, the releases contained herein, shall be governed by, and construed
in accordance with the laws of the State of Delaware, without regard to its
conflict of laws principles.
-33-
<PAGE> 76
(h) This Second Stipulation shall not be
construed more strictly against one party than another merely by virtue of the
fact that it may have been prepared by counsel for one of the Parties, it being
recognized that, because of the arm's-length negotiations described above, all
Parties hereto have contributed substantially and materially to the preparation
of this Second Stipulation.
(i) All personal pronouns used in this Second
Stipulation, whether used in the masculine, feminine or neuter gender, shall
include all other genders, and the singular shall include the plural and vice
versa.
(j) Each of the attorneys executing this Second
Stipulation on behalf of one or more of the Parties hereto warrants and
represents that he or she has been duly authorized and empowered to execute
this Second Stipulation on behalf of the indicated party.
(k) The administration and consummation of the
Revised Settlement as embodied in this Second Stipulation and all final
decisions on disputed questions of law and fact shall be under the authority of
the Court.
(l) All agreements or Court orders concerning the
confidentiality of information and/or documents exchanged to date, or the
discussions leading up to this Revised Settlement, shall survive the execution
of this Second Stipulation subject to Court of Chancery Rule 5(g).
(m) The Parties represent that there is no
settlement of the New York Action. The Parties agree that this Revised
Settlement is not intended to
-34-
<PAGE> 77
compromise, discharge, bar or release the claims actually asserted in the New
York Action.
(n) All the exhibits attached hereto are hereby
incorporated by reference as though fully set forth herein.
(o) The Parties to this Second Stipulation intend
the Revised Settlement to be a final and complete resolution of all disputes
asserted or which could have been asserted by Plaintiffs, against Defendants,
or by Defendant against Plaintiffs, with respect to the Settled Claims. The
Parties agree that the amount paid and the other terms of the Revised
Settlement were negotiated at arm's-length, in good faith by the Parties, and
reflect a Revised Settlement that was reached voluntarily after consultation
with experienced legal counsel.
-35-
<PAGE> 78
Dated: September 17, 1997 ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
OF COUNSEL: By:
------------------------------
Suite 1401, Mellon Bank Center
Michael J. Pucillo P.O. Box 1070
BURT & PUCILLO Wilmington, Delaware 19899-1070
222 Lakeview Avenue (302) 656-4433
Suite 300 East Attorneys for Plaintiffs
West Palm Beach, FL 33401
(561) 835-9400
Lynda Grant
Kenneth McCallion
GOODKIND LABATON RUDOFF
& SUCHAROW LLP
100 Park Avenue
New York, NY 10017-5563
OF COUNSEL: PRICKETT, JONES, ELLIOTT,
KRISTOL & SCHNEE
Allan T. Slagel
SHEFSKY & FROELICH LTD.
444 North Michigan Avenue
Chicago, IL 60611 By:
-----------------------------
(312) 527-4000 1310 King Street
Attorneys for the Defendants P.O. Box 1328
Legend, Auch and Ungerleider Wilmington, DE 19899
(302) 888-6500
Marc P. Cherno Attorneys for Defendants Legend,
FRIED, FRANK, HARRIS, SHRIVER Auch, Ungerleider and RGI
& JACOBSON
One New York Plaza
New York, NY 10004
(212) 859-8020
Attorneys for Defendant RGI
-36-
<PAGE> 79
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- ---------------------------------------x
IN RE BANYAN MORTGAGE INVESTMENT FUND :
SHAREHOLDERS LITIGATION :
- ---------------------------------------x
SUMMARY OF NOTICE OF PENDENCY OF CLASS ACTION,
PROPOSED REVISED SETTLEMENT AND SETTLEMENT HEARING
TO: ALL RECORD AND BENEFICIAL HOLDERS OF BANYAN MORTGAGE INVESTMENT FUND
("BANYAN") COMMON STOCK FROM OCTOBER 9, 1996 THROUGH DECEMBER 31,
1996, AND THEIR SUCCESSORS IN INTEREST, TRANSFEREES AND ASSIGNS,
IMMEDIATE AND REMOTE, EXCLUDING DEFENDANTS IN THIS ACTION, MEMBERS OF
THE IMMEDIATE FAMILY OF EACH INDIVIDUAL DEFENDANT AND ANY ENTITY IN
WHICH ANY DEFENDANT HAS A CONTROLLING INTEREST (THE "CLASS")
YOU ARE HEREBY NOTIFIED, pursuant to Rule 23 of the Delaware Court of
Chancery and an Order of the Court dated September __, 1997, that the
above-captioned action has been conditionally certified as a class action, and
that a revised settlement has been proposed in this class action. A hearing
will be held at the Daniel L. Herrmann Courthouse, 1020 North King Street,
Wilmington, Delaware 19801 at __:__ _.m., on _________________________, 1997 to
determine whether the proposed Revised Settlement should be approved by the
Court as fair, reasonable and adequate, and to consider the application of
Class Counsel for attorneys' fees and reimbursement of expenses.
IF YOU ARE A MEMBER OF THE CLASS DESCRIBED ABOVE, YOUR RIGHTS WILL BE
AFFECTED. If you have not yet received the full printed Notice of Pendency
<PAGE> 80
of Class Action and Proposed Revised Settlement of Class Action and Settlement
Hearing, you may obtain copies of these documents by identifying yourself as a
member of the Class and by writing to Banyan Litigation Notice Administrator,
P.O. Box 935, Plymouth Meeting, PA 19462.
PLEASE DO NOT CONTACT THE COURT OR THE CLERK'S OFFICE FOR INFORMATION.
By Order of the Court
-2-
<PAGE> 81
IN THE CHANCERY COURT OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- ---------------------------------------x
IN RE BANYAN MORTGAGE INVESTMENT FUND : CONSOLIDATED
SHAREHOLDERS LITIGATION : C.A. NO. 15287
- ---------------------------------------x
PROOF OF CLAIM
IF YOU OWNED SHARES OF BANYAN MORTGAGE INVESTMENT FUND ON DECEMBER 31,
1996, THEN YOU MAY BE ENTITLED TO SETTLEMENT PROCEEDS. To receive a share of
the Settlement Fund, you must complete and sign this Proof of Claim form and
return it to: Settlement Administrator, Banyan Litigation, P.O. Box 931, Suite
400, Plymouth Meeting, PA 19462.
YOU MUST COMPLETE AND SIGN THIS PROOF OF CLAIM AND MAIL IT BY
PRE-PAID, FIRST-CLASS MAIL, POSTMARKED NO LATER THAN ___________________, 1997.
FAILURE TO SUBMIT YOUR CLAIM BY ___________________, 1997, WILL SUBJECT YOUR
CLAIM TO REJECTION AND PRECLUDE YOU FROM RECEIVING ANY MONEY IN CONNECTION WITH
THE SETTLEMENT OF THIS LITIGATION.
DO NOT MAIL OR DELIVER YOUR CLAIM TO THE COURT OR ANY PARTIES OR THEIR
COUNSEL, AS SUCH CLAIM WILL BE DEEMED NOT TO HAVE BEEN SUBMITTED. SUBMIT YOUR
CLAIM ONLY TO THE SETTLEMENT ADMINISTRATOR.
I. CLAIM FORM
I (We) owned Banyan Mortgage Investment Fund ("Banyan") stock on
December 31, 1996, or I am a representative (e.g. successor in interest, heir,
assign, personal representative, guardian) of a person who owned Banyan stock
on December 31, 1996. I (We) hereby submit the information set forth below in
support of this claim.
<PAGE> 82
II. IDENTIFICATION OF FORMER OWNER OF BANYAN STOCK ("CLAIMANT")
_______________________________________________________________________
Claimant's Name(s) (PLEASE PRINT)
_______________________________________________________________________
Address
_______________________________________________________________________
City State Zip Code
_______________________________________________________________________
Area Code Telephone Number
_______________________________________________________________________
Taxpayer Identification Number or Social Security Number (May be
Claimant's or Representative's)
Representative Identification
_______________________________________________________________________
Name of Person Completing Form If Other Than Claimant
_______________________________________________________________________
Title
_______________________________________________________________________
Relationship To Claimant
_______________________________________________________________________
Address
_______________________________________________________________________
City State Zip Code
_______________________________________________________________________
Area Code Telephone Number
III. DOCUMENTATION
IF THE STOCK WAS IN THE NAME OF A NOMINEE, SUCH AS A BROKERAGE
ACCOUNT, YOU MUST SEND WITH THIS FORM COPIES OF DOCUMENTS SUCH AS
-2-
<PAGE> 83
AN ACCOUNT STATEMENT WHICH SHOW THAT THE CLAIMANT OWNED BANYAN STOCK ON
DECEMBER 31, 1996.
IV. REPRESENTATIONS
A. I (We) represent that the Claimant(s) owned _________________
shares of Banyan stock on December 31, 1996 immediately prior to the merger
between Banyan and RGI/U.S. Holdings, Inc. (the "Merger");
B. I (We) represent that the Claimant(s) was (were) the sole and
lawful owner(s) of all right, title and interest in and to the above Banyan
stock;
C. I (We) represent that this claim is neither in whole nor in
part a duplicate claim;
V. SIGNATURE BY CLAIMANT
As the above-identified Claimant(s) or Representative(s) of the
Claimant(s), I (we) submit this claim and certify that the facts set forth in
the claim are true to the best of my (our) knowledge, information and belief.
VI. SUBSTITUTE FORM W-9 REQUEST FOR TAXPAYER IDENTIFICATION NUMBER
Enter your taxpayer identification number below. For most
individuals, this is your Social Security Number. The U.S. Internal Revenue
Service requires your taxpayer identification number. If you fail to furnish
your correct taxpayer identification number, or your Social Security Number,
31% of any money to which you may be entitled will be withheld.
Social Security Number: [ ] [ ] [ ] - [ ] [ ] - [ ] [ ] [ ] [ ]
(for individuals)
or
Employer Identification
Number: [ ] [ ] - [ ] [ ] [ ] [ ] [ ] [ ] [ ]
(for estates, trusts, corporations, etc.)
-3-
<PAGE> 84
NOTE: A copy of the I.R.S. Guidelines or certification of
Taxpayer Identification Number on Substitute Form W-9 and a description of
payees subject to or exempt from the backup withholding requirements are
included with this Proof of Claim form.
Name of Claimant or Representative
Signature
_____________________________________
Name of Claimant or Representative
____________________________________
Signature
(If stock was held in joint name, both
persons must sign this form.)
MAIL TO:
Settlement Administrator
Banyan Litigation
P.O. Box 931
Plymouth Meeting, PA 19462
If you have any questions concerning this form, you may call the
Settlement Administrator at 1-800-222-2760.
No acknowledgment will be made as to the receipt of claim forms. If
you wish to be assured that your proof of claim is actually received by the
Settlement Administrator, then you should send it by Certified Mail,
Return-Receipt Requested. You should be aware that it will take a significant
amount of time to process fully all of the proofs of claim and to administer
the settlement. This work will be completed as promptly as time permits, given
the need to investigate and tabulate each proof of claim.
-4-
<PAGE> 1
EXHIBIT 10.15
LOAN AGREEMENT
THIS AGREEMENT is made as of March 31, 1997, between LEGEND
PROPERTIES, INC., as Borrower, and RGI HOLDINGS, INC., as Lender.
SECTION 1. THE CREDIT.
1.1 AGREEMENT TO LEND. Lender agrees on the terms and
conditions of this Agreement to make loans ("LOANS") to Borrower during the
period beginning on the date of this Agreement and ending December 31, 1997
(the "COMMITMENT PERIOD") in the aggregate principal sum of $8,500,000 (the
"COMMITMENT").
1.2 MANNER OF BORROWING. Borrower shall give Lender at least
two Business Days' written notice of each borrowing. Each notice shall specify
the date of borrowing (which shall be a Business Day) and the amount of the
Loan. Every notice of borrowing shall be irrevocable and shall constitute a
representation and warranty by Borrower that as of the date of the notice the
statements in Section 3 are true and correct and no Default has occurred and
is continuing. Subject to the conditions set forth in Section 2, Lender will
disburse the Loan by crediting the proceeds to the checking account maintained
by Borrower at U.S. Bank of Washington.
1.3 REPAYMENT OF PRINCIPAL. Borrower shall repay to Lender
the principal of the Loans on or before December 31, 1997.
1.4 INTEREST. Borrower agrees to pay interest on the unpaid
principal of the Loans at a per annum rate equal to the Prime Rate plus two
percent (2%). Accrued interest on the Loans shall be payable at the same time
principal is paid pursuant to Section 1.3 above, except that interest shall be
payable on demand after a Default.
1.5 PROMISSORY NOTE. The Loans shall be evidenced by and
repayable with interest in accordance with a promissory note of Borrower
payable to the order of Lender in substantially the form of Exhibit A, dated
the date of this Agreement, and in the principal amount of the Commitment (the
"NOTE").
1.6 PREPAYMENT. Borrower shall have the right to prepay the
Loans in whole or in part at any time.
1.7 MANNER OF PAYMENTS.
(a) All payments and prepayments of principal and
interest on the Loans and all other amounts payable by Borrower under the Loan
Documents shall be made by paying the same in Dollars and in immediately
available funds to Lender at 1420
<PAGE> 2
Fifth Avenue, Suite 4200, Seattle, Washington 98101-2333 not later than 10:00
a.m., Seattle time, on the date on which such payment or prepayment shall
become due.
(b) Borrower hereby authorizes Lender, if and to the
extent any payment is not promptly made pursuant to the Loan Documents, to
charge from time to time against any or all of the accounts of Borrower with
Lender or any affiliate of Lender any amount due under the Loan Documents.
(c) All computations of interest and fees shall be
made on the basis of a year of 365 days for the actual number of days
(including the first day but excluding the last day) occurring in the period
for which such interest or fees are payable.
(d) Whenever any payment shall be stated to be due,
or whenever the last day of any interest period would otherwise occur, on a day
other than a Business Day, such payment shall be made and the last day of such
interest period shall occur on the next succeeding Business Day and such
extension of time shall in such case be included in the computation of payment
of interest or commitment fees, as the case may be.
(e) Any payment made by Borrower shall be applied,
first, against fees, expenses and indemnities due under the Loan Documents;
second, against interest due on amounts in default, if any; third, against
interest due on amounts not in default; and fourth against principal.
SECTION 2. CONDITIONS OF LENDING.
2.1 THE INITIAL LOAN. The obligation of Lender to make the
initial Loan is subject to fulfillment of the following conditions.
(a) LOAN DOCUMENTS. Lender shall have received the
Loan Documents, each duly executed and delivered.
(b) CORPORATE AUTHORITY. Lender shall have received
in form and substance satisfactory to it (i) a certified copy of a resolution
adopted by the board of directors of the Borrower authorizing the execution,
delivery and performance of the Loan Documents and the borrowing hereunder,
(ii) evidence of the authority and specimen signatures of the persons who have
signed this Agreement and who will sign the other Loan Documents on behalf of
Borrower, and (iii) such other evidence of corporate authority as Lender shall
reasonably require.
(c) REAL PROPERTY SECURITY. Lender shall have
received evidence satisfactory to it in form and substance
<PAGE> 3
concerning the perfection and priority of its Lien on the Mortgaged Property,
including evidence of the due recording of the Deeds of Trust in Virginia,
Maryland and California.
2.2 EACH LOAN. The obligation of Lender to make any Loan is
subject to fulfillment of the following conditions.
(a) NOTICE OF BORROWING. Lender shall have received
due notice of borrowing pursuant to Section 1.2.
(b) SETTLEMENT OF CLASS ACTION LITIGATION. The class
action litigation filed against Borrower in Delaware relating to the merger of
RGI Holdings, Inc. and Borrower shall have been settled and dismissed with
prejudice on terms and conditions satisfactory to Lender, provided, however,
that Lender may at its sole discretion make Loans to Borrower prior to such
settlement and dismissal if Lender is satisfied that sufficient progress is
being made toward such a settlement and dismissal. In connection with such
settlement and dismissal, Lender shall receive a legal opinion satisfactory to
it in form and substance confirming that the merger was validly entered into
and cannot be contested by the shareholders of Borrower or any other party.
(c) DEFAULTS, ETC. At the date of the Loan no
Default shall have occurred and be continuing or will occur as a result of the
making of the Loan and the representations of Borrower in Section 3 shall be
true on and as of such date with the same force and effect as if made on and as
of such date.
(d) OTHER INFORMATION. Lender shall have received
such other statements, opinions, certificates, documents and information as it
may reasonably request with respect to the matters contemplated by the Loan
Documents, including the proposed use of each Loan, which use shall be subject
to approval by Lender (such approval not to be unreasonably withheld).
SECTION 3. REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to Lender as follows:
3.1 CORPORATE EXISTENCE AND POWER. Borrower is a corporation
duly incorporated, validly existing and in good standing under the laws of
Delaware, is qualified to do business in each other jurisdiction where the
conduct of its business or the ownership of its properties requires such
qualification, and has full corporate power, authority and legal right to carry
on its business as presently conducted, to own and operate its properties and
assets, and to execute, deliver and perform the Loan Documents.
3.2 CORPORATE AUTHORIZATION. The execution, delivery and
performance by Borrower of the Loan Documents and any
3
<PAGE> 4
borrowing hereunder have been duly authorized by all necessary corporate action
of Borrower, do not require any shareholder approval or the approval or consent
of any trustee or the holders of any Indebtedness of Borrower, do not
contravene any law, regulation, rule or order binding on it or its articles of
incorporation or bylaws and do not contravene the provisions of or constitute a
default under any indenture, mortgage, contract or other agreement or
instrument to which Borrower is a party or by which Borrower or any of its
properties may be bound or affected.
3.3 [INTENTIONALLY LEFT BLANK]
3.4 [INTENTIONALLY LEFT BLANK]
3.5 [INTENTIONALLY LEFT BLANK]
3.6 FINANCIAL CONDITION. The balance sheet of Borrower as at
December 31, 1996, and the related statements of income and cash flows of
Borrower for the fiscal year then ended, copies of which have been furnished to
Lender, fairly present the financial condition of Borrower as at such date and
the results of operations of Borrower for the period then ended, all in
accordance with generally accepted accounting principles consistently applied.
Borrower did not have on such date any material contingent liabilities, unusual
forward or long-term commitments or unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected or provided for in
that balance sheet and in the notes to those financial statements and since
that date there has been no material adverse change in the financial condition
or operations of Borrower.
3.7 TITLE AND LIENS. Borrower has good and marketable title
to each of the properties and assets reflected in its balance sheet referred to
in Section 3.6 except such as have been since sold or otherwise disposed of in
the ordinary course of business. No assets or revenues of Borrower are subject
to any Lien except as required or permitted by this Agreement or disclosed in
the balance sheet referred to in Section 3.6 or otherwise previously disclosed
to Lender in writing. All properties of Borrower and Borrower's use thereof
comply with applicable zoning and use restrictions and with applicable laws and
regulations relating to the environment.
3.8 TAXES. Borrower has filed all tax returns and reports
required of it, has paid all Taxes which are due and payable, and has provided
adequate reserves for payment of any Tax whose payment is being contested. The
charges, accruals and reserves on the books of Borrower in respect of Taxes for
all fiscal periods to date are accurate and there are no questions or
4
<PAGE> 5
disputes between Borrower and any Governmental Authority with respect to any
Taxes except as disclosed in the balance sheet referred to in Section 3.6 or
otherwise previously disclosed to Lender in writing.
3.9 OTHER AGREEMENTS. Borrower is not in material breach of
or default under any agreement to which it is a party or which is binding on it
or any of its assets.
3.10 ERISA. Since the effective date of ERISA, no Plan or
trust thereunder has been terminated, has engaged in any "prohibited
transactions" (as defined in ERISA), or has incurred any "accumulated funding
deficiency" (as defined in ERISA) whether or not waived, and there has been no
"reportable event" (as defined in ERISA) with respect to any Plan.
3.11 LIEN PRIORITY. On the date of each Loan, Lender will
have as security for such Loan a perfected Lien in the Mortgaged Property and
in the personal property and fixtures described in the Deeds of Trust, subject
only to prior liens and encumbrances approved by Lender ("Permitted
Exceptions").
SECTION 4. AFFIRMATIVE COVENANTS. So long as Lender shall have any
Commitment hereunder and until payment in full of the Loans and performance of
all other obligations of Borrower under the Loan Documents, Borrower agrees to
do all of the following unless Lender shall otherwise consent in writing.
4.1 USE OF PROCEEDS. Use the proceeds of the Loans
exclusively for working capital or other general corporate purposes, including
refinancing previous short-term advances made by Lender to Borrower in the
aggregate principal amount of $2,600,000.
4.2 PAYMENTS. Pay the principal of and interest on the Loans
in accordance with the terms of this Agreement and will pay when due all other
amounts payable by Borrower under the Loan Documents.
4.3 PRESERVATION OF CORPORATE EXISTENCE, ETC. Preserve and
maintain its corporate existence, rights, franchises and privileges in the
jurisdiction of its incorporation and qualify and remain qualified as a foreign
corporation in each jurisdiction where such qualification is necessary or
advisable in view of the business and operations of Borrower or the ownership
of its properties.
4.4 [INTENTIONALLY LEFT BLANK]
4.5 [INTENTIONALLY LEFT BLANK]
5
<PAGE> 6
4.6 [INTENTIONALLY LEFT BLANK]
4.7 [INTENTIONALLY LEFT BLANK]
4.8 [INTENTIONALLY LEFT BLANK]
4.9 [INTENTIONALLY LEFT BLANK]
4.10 [INTENTIONALLY LEFT BLANK]
4.11 NOTIFICATION. Promptly after learning thereof, notify
Lender of (a) any action, proceeding, investigation or claim against or
affecting Borrower instituted before any court, arbitrator or Governmental
Authority or, to Borrower's knowledge threatened to be instituted, which if
determined adversely to Borrower would be likely to have a material adverse
effect on the financial condition or operations of Borrower, or to impair
Lender's Lien on Collateral or Borrower's rights therein, or to result in a
judgment or order against Borrower (in excess of insurance coverage) for more
than $100,000 or, when combined with all other pending or threatened claims,
more than $1,000,000; (b) any substantial dispute between Borrower and any
Governmental Authority; (c) any labor controversy which has resulted in or, to
Borrower's knowledge, threatens to result in a strike which would materially
affect the business operations of Borrower; (d) any "reportable event" (as
defined in ERISA) with respect to any Plan; and (e) the occurrence of any
Default.
4.12 ADDITIONAL PAYMENTS; ADDITIONAL ACTS. From time to
time, (a) pay or reimburse Lender on request for all expenses, including legal
fees, actually incurred by Lender in connection with the preparation of the
Loan Documents and the making of the Loans or the enforcement by judicial
proceedings or otherwise of any of the rights of Lender under the Loan
Documents; (b) obtain and promptly furnish to Lender evidence of all such
Government Approvals as may be required to enable Borrower to comply with its
obligations under the Loan Documents; and (c) execute and deliver all such
instruments (such as Uniform Commercial Code continuation statements) and
perform all such other acts as Lender may reasonably request to carry out the
transactions contemplated by the Loan Documents and to maintain the continuous
perfection and priority of Lender's Lien on all Collateral.
SECTION 5. NEGATIVE COVENANTS. So long as Lender shall have any
Commitment hereunder and until payment in full of the Loans and performance of
all other obligations of Borrower under the Loan Documents, Borrower agrees
that it will not do any of the following unless Lender shall otherwise consent
in writing.
5.1 DIVIDENDS, PURCHASE OF STOCK, ETC. Declare or pay any
dividend (except dividends payable in its capital stock) on
6
<PAGE> 7
any shares of any class of its capital stock or apply any assets to the
purchase, redemption or other retirement of, or set aside any sum for the
payment of any dividends on or for the purchase, redemption or other retirement
of, or make any other distribution by reduction of capital or otherwise in
respect of, any shares of any class of capital stock of Borrower.
5.2 LIQUIDATION, MERGER, SALE OF ASSETS. Liquidate, dissolve
or enter into any merger, consolidation, joint venture, partnership or other
combination nor sell, lease, or dispose of all or any substantial portion of
its business or assets or of any Collateral (excepting sales of properties in
the ordinary course of business).
5.3 INDEBTEDNESS. Create, incur or become liable for any
Indebtedness except (a) the Loans, (b) existing Indebtedness reflected on the
balance sheet referred to in Section 3.6 or otherwise previously disclosed to
Lender in writing (except any renewal or extension of such Indebtedness or any
portion thereof to a date on or before the final maturity of any Loans), (c)
current accounts payable or accrued, incurred by Borrower in the ordinary
course of business, and (d) Indebtedness for the deferred purchase price, or
for obligations under leases, of real or personal property used by Borrower in
its business, but not exceeding the aggregate sum of $500,000 at any time.
5.4 GUARANTIES, ETC. Assume, guaranty, endorse or otherwise
become directly or contingently liable for, nor obligated to purchase, pay or
provide funds for payment of, any obligation or Indebtedness of any other
person, except by endorsement of negotiable instruments for deposit or
collection or by similar transactions in the ordinary course of business.
5.5 LIENS. Create, assume or suffer to exist any Lien except
(a) Liens in favor of Lender, (b) existing Liens reflected in the balance sheet
referred to in Section 3.6 or otherwise previously disclosed to Lender in
writing, (c) involuntary Liens, and (d) Liens to secure Indebtedness permitted
by Section 5.3(d) for the deferred price of property, but only if they are
limited to such property and its proceeds and do not exceed 80% of the fair
market value thereof.
SECTION 6. EVENTS OF DEFAULT.
6.1 EVENTS OF DEFAULT DEFINED. The occurrence of any of the
following events shall constitute an "EVENT OF DEFAULT."
(a) PAYMENT DEFAULT. Borrower shall fail to pay for
a period of ten (10) days after the date when due any amount of principal of or
interest on the Loans or any other amount payable by it under the Loan
Documents; or
7
<PAGE> 8
(b) BREACH OF WARRANTY. Any representation or
warranty made or deemed made by Borrower under or in connection with the Loan
Documents shall prove to have been incorrect in any material respect when made;
or
(c) BREACH OF CERTAIN COVENANTS. Borrower shall
fail to have complied with any provision of Section 4.11 or Section 5; or
(d) BREACH OF OTHER COVENANT. Borrower shall fail
to perform or observe any other covenant, obligation or term of any Loan
Document and such failure shall remain unremedied for 30 days after written
notice thereof shall have been given to Borrower by Lender; or
(e) CROSS-DEFAULT. Borrower shall fail (i) to pay
when due (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise) any Indebtedness in an amount in excess of $500,000
(except any Loans) or any interest or premium thereon and such failure shall
continue after the applicable grace period, if any, specified in the agreement
or instrument relating to such Indebtedness, or (ii) to perform any term or
covenant on its part to be performed under any agreement or instrument relating
to any such Indebtedness and required to be performed and such failure shall
continue after the applicable grace period, if any, specified in such agreement
or instrument, if the effect of such failure to perform is to accelerate or to
permit the acceleration of the maturity of such Indebtedness, or (iii) any such
Indebtedness shall be declared to be due and payable or required to be prepaid
(other than by regularly scheduled required prepayment) prior to the stated
maturity thereof; or
(f) VOLUNTARY BANKRUPTCY, ETC. Borrower shall: (i)
file a petition seeking relief for itself under Title 11 of the United States
Code, as now constituted or hereafter amended, or file an answer consenting to,
admitting the material allegations of or otherwise not controverting, or fail
timely to controvert a petition filed against it seeking relief under Title 11
of the United State Code, as now constituted or hereafter amended; or (ii) file
such petition or answer with respect to relief under the provisions of any
other now existing or future applicable bankruptcy, insolvency, or other
similar law of the United States of America or any State thereof or of any
other country to jurisdiction providing for the reorganization, winding-up or
liquidation of corporations or an arrangement, composition, extension or
adjustment with creditors; or
(g) INVOLUNTARY BANKRUPTCY, ETC. An order for
relief shall be entered against Borrower under Title 11 of the United States
Code, as now constituted or hereafter amended, which order is not stayed; or
upon the entry of an order,
8
<PAGE> 9
judgment or decree by operation of law or by a court having jurisdiction in the
premises which is not stayed adjudging it a bankrupt or insolvent under, or
ordering relief against it under, or approving as properly filed a petition
seeking relief against it under the provisions of any other now existing or
future applicable bankruptcy, insolvency or other similar law of the United
States of America or any State thereof or of any other country or jurisdiction
providing for the reorganization, winding-up or liquidation of corporations or
any arrangement, composition, extension or adjustment with creditors; or
appointing a receiver, liquidator, assignee, sequestrator, trustee or custodian
of it or of any substantial part of its property, or ordering the
reorganization, winding-up or liquidation of its affairs; or upon the
expiration of 120 days after the filing of any involuntary petition against it
seeking any of the relief specified in Section 6.1(f) or this Section 6.1(g)
without the petition being dismissed prior to that time; or
(h) INSOLVENCY, ETC. Borrower shall (i) make a
general assignment for the benefit of its creditors or (ii) consent to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, or custodian of all or a substantial part of its property, or (iii)
admit its insolvency or inability to pay its debts generally as they become
due, or (iv) fail generally to pay its debts as they become due, or (v) take
any action (or suffer any action to be taken by its director or shareholders)
looking to the dissolution or liquidation of Borrower; or
(i) JUDGMENT. A final judgment or order for the
payment of money in excess of $100,000, or which impairs Lender's Lien on
Collateral or Borrower's rights therein, shall be rendered against Borrower and
such judgment or order shall continue unsatisfied and in effect for a period of
10 consecutive days; or
(j) INVOLUNTARY LIENS. Any involuntary Lien in the
sum of $100,000 or more shall attach to any asset or property of Borrower which
is not discharged within 60 days after such attachment or within 30 days after
notice from Lender, whichever first occurs; or
(k) FAILURE TO SETTLE CLASS ACTION LITIGATION. The
class action litigation described in Section 2.2(b) hereof shall not have been
fully settled and dismissed with prejudice (without any further right of
appeal) on terms and conditions satisfactory to Lender on or before June 30,
1997.
(l) EXTRAORDINARY SITUATION. An extraordinary
situation shall occur which gives Lender reasonable grounds to believe that
Borrower may not, or will be unable to, perform or
9
<PAGE> 10
observe in the normal course its obligations under the Loan Documents; or
(m) ERISA. A Plan or any trust thereunder shall be
terminated (or proceedings shall be instituted to terminate it) or shall engage
in a "prohibited transaction" (as defined in ERISA) or incur any "accumulated
funding deficiency" (as defined in ERISA) in excess of $100,000, whether or not
waived; or any Indebtedness of Borrower in excess of that amount to or with
respect to a Plan shall not be paid when due.
6.2 CONSEQUENCES OF DEFAULT. If any Event of Default shall
occur and be continuing, then in any such case and at any time thereafter so
long as any such Event of Default shall be continuing, Lender may at its option
immediately terminate the Commitment and, if any Loans shall have been made,
Lender may at its option declare the principal of and the interest on the Loans
and all other sums payable by Borrower under the Loan Documents to be
immediately due and payable, whereupon the same shall become immediately due
and payable without protest, presentment, notice or demand, all of which
Borrower expressly waives.
SECTION 7. MISCELLANEOUS.
7.1 NO WAIVER; REMEDIES CUMULATIVE. No failure by Lender to
exercise, and no delay in exercising, any right, power or remedy under any Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or remedy under any Loan Document preclude any
other or further exercise thereof or the exercise of any other right, power, or
remedy. The exercise of any right, power, or remedy shall in no event
constitute a cure or waiver of any Event of Default nor prejudice the right of
Lender in the exercise of any right hereunder or thereunder, unless in the
exercise of such right, all obligations of Borrower under the Loan Documents
are paid in full. The rights and remedies provided herein and therein are
cumulative and not exclusive of any right or remedy provided by law.
7.2 GOVERNING LAW. The Loan Documents shall be governed by
and construed in accordance with the laws of the State of Washington (excluding
its conflict of laws rules).
7.3 CONSENT TO JURISDICTION. Borrower hereby irrevocably
submits to the jurisdiction of any state or federal court sitting in Seattle,
King County, Washington, in any action or proceeding brought to enforce or
otherwise arising out of or relating to any Loan Document and irrevocably
waives to the fullest extent permitted by law any objection which it may now or
hereafter have to the laying of venue in any such action or proceeding in any
such forum, and hereby further irrevocably
10
<PAGE> 11
waives any claim that any such forum is an inconvenient forum. Borrower agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdiction by suit on the judgment or in any other
manner provided by law. Nothing herein shall impair the right of Lender to
bring any action or proceeding against Borrower or its property in the courts
of any other jurisdiction, and Borrower irrevocably submits to the nonexclusive
jurisdiction of the appropriate courts of the jurisdiction in which Borrower is
incorporated, sitting in any place where property or an office of Borrower is
located.
7.4 NOTICES. All notices and other communications provided
for in the Loan Documents shall be in writing or (unless otherwise specified)
by telex, telegram or telephonic facsimile transmission and shall be mailed
(with air mail postage prepaid) or sent by air courier (with air freight
prepaid) or delivered to each party at the address set forth under its name on
the signature page hereof, or at such other address as shall be designated by
such party in a written notice to each other party. Except as otherwise
specified, all such notices and communications if duly given or made shall be
effective upon receipt.
7.5 ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective Successors and
assigns, except that Borrower may not assign or otherwise transfer all or any
part of its rights or obligations hereunder without the prior written consent
of Lender, and any such assignment or transfer purported to be made without
such consent shall be ineffective. Lender may at any time assign or otherwise
transfer all or any part of its interest under the Loan Documents (including
assignments for security and sales of participations), and to the extent of
such assignment, the assignee shall have the same rights and benefits against
Borrower and otherwise under the Loan Documents (including the right of setoff)
as if such assignee were Lender.
7.6 SEVERABILITY. Any provision of any Loan Document which
is prohibited or unenforceable in any jurisdiction shall as to such
jurisdiction be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction. To the extent permitted by applicable law, the parties waive any
provision of law which renders any provision hereof prohibited or unenforceable
in any respect.
7.7 CONDITIONS NOT FULFILLED. If the Commitment or any
portion thereof is not borrowed owing to nonfulfillment of any condition
precedent specified in Section 2, neither Borrower nor
11
<PAGE> 12
Lender shall be responsible to the other for any damage or loss by reason
thereof, except that Borrower shall in any event be liable to pay the fees,
Taxes, and expenses for which it is obligated hereunder.
7.8 ENTIRE AGREEMENT; AMENDMENT. The Loan Documents comprise
the entire agreement of the parties and may not be amended or modified except
by written agreement of Borrower and Lender. No provision of any Loan Document
may be waived except in writing and then only in the specific instance and for
the specific purpose for which given.
7.9 HEADINGS. The headings of the various provisions of the
Loan Documents are for convenience of reference only, do not constitute a part
hereof, and shall not affect the meaning or construction of any provision
thereof.
7.10 CONSTRUCTION. In the event of any conflict between the
terms, conditions and provisions of this Agreement and those of any other Loan
Document, the terms, conditions and provisions of this Agreement shall control.
SECTION 8. DEFINITIONS.
8.1 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the following meanings, which apply to both the singular
and plural forms of the terms defined:
"BORROWER" means Legend Properties, Inc., a Delaware
corporation, and any Successor.
"BUSINESS DAY" means a day on which banks are open for
business in Seattle, Washington.
"COLLATERAL" means real or personal property subject at any
time to a Lien granted by Borrower to secure the Loans.
"COMMITMENT" and "COMMITMENT PERIOD" have the meanings defined
in Section 1.1.
"DEEDS OF TRUST" means the Deeds of Trust on the Mortgaged
Property substantially in the form of Exhibit B, and any renewals or extensions
thereof or replacements therefor.
"DEFAULT" means an Event of Default or other event which, with
notice or lapse of time or both, would constitute an Event of Default.
"DOLLAR" and the sign "$" each means lawful money of the
United States.
12
<PAGE> 13
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"EVENT OF DEFAULT" has the meaning defined in Section 6.1.
"GUARANTY" means the Guaranty substantially in the form of
Exhibit C, and any renewals or extensions thereof or replacements therefor.
"INDEBTEDNESS" means for any person (i) all items of
indebtedness or liability (except capital, surplus, deferred credits and
reserves, as such) which would be included in determining total liabilities as
shown on the liability side of a balance sheet as of the date as of which
indebtedness is determined, (ii) indebtedness secured by any Lien, whether or
not such indebtedness shall have been assumed, (iii) any other indebtedness or
liability for borrowed money or for the deferred purchase price of property or
services for which such person is directly or contingently liable as obligor,
guarantor, or otherwise, or in respect of which such person otherwise assures a
creditor against loss, and (iv) any other obligations of such person under
leases which shall have been or should be recorded as capital leases.
"LENDER" means RGI Holdings, Inc., a Washington corporation,
and any Successor.
"LIEN" means, for any person, any security interest, pledge,
mortgage, charge, assignment, hypothecation, encumbrance, attachment,
garnishment, execution or other voluntary or involuntary lien upon or affecting
the revenues of such person or any real or personal property in which such
person has or hereafter acquires any interest, except (i) liens for Taxes which
are not delinquent or which remain payable without penalty or the validity or
amount of which is being contested in good faith by appropriate proceedings
upon stay of execution of the enforcement thereof; (ii) liens imposed by law
(such as mechanics' liens) incurred in good faith in the ordinary course of
business which are not delinquent or which remain payable without penalty or
the validity or amount of which is being contested in good faith by appropriate
proceedings upon stay of execution of the enforcement thereof; and (iii)
deposits or pledges under workmen's compensation, unemployment insurance,
social security or other similar laws or made to secure the performance of
bids, tenders, contracts (except for repayment of borrowed money), or leases,
or to secure statutory obligations or surety or appeal bonds or to secure
indemnity, performance or other similar bonds given in the ordinary course of
business.
"LOAN" means a loan made by Lender to Borrower pursuant to
Section 1.
13
<PAGE> 14
"LOAN DOCUMENT" means each of this Agreement, the Note, the
Guaranty and the Deeds of Trust, as each thereof shall be from time to time
modified, amended, or supplemented.
"MORTGAGED PROPERTY" means the real property described in
Exhibit A to the Deeds of Trust.
"NOTE" means a promissory note of Borrower substantially in
the form of Exhibit A, and any renewal or extension thereof or replacement
therefor.
"PLAN" means an "employee benefit pension plan" (as defined in
ERISA) which is (i) maintained by Borrower or by any other member of a
controlled group ("Controlled Group") which together with Borrower are treated
as a single employer under the Internal Revenue Code of 1986, as amended (the
"Code"), or (ii) covered by Title IV of ERISA or subject to minimum funding
standards under the Code and maintained pursuant to a collective bargaining
agreement or other multi-employer arrangement under which Borrower or any other
member of a Controlled Group is making or accruing the obligation to make
contributions or has made contributions during the preceding five plan years.
"PRIME RATE" means on any day the prime rate as published in
the Wall Street Journal by Dow Jones & Company, Inc., changing as such prime
rate changes, provided, however, that after an Event of Default it shall mean
said prime rate plus four percent (4%).
"SUCCESSOR" means, for any corporation or banking association,
any successor by merger or consolidation, or by acquisition of substantially
all of the assets of the predecessor.
"TAX" means for any person any tax, assessment, duty, levy,
impost or other charge imposed by any Governmental Authority on such person or
on any property, revenue, income, or franchise of such person and any interest
or penalty with respect to any of the foregoing.
8.2 CONSOLIDATED SUBSIDIARIES. All references in Section
Section 3.6 and 4.10 to financial statements of Borrower, and all references
to Borrower in Section Section 5 and 6, refer to Borrower and its consolidated
subsidiaries on a consolidated basis.
8.3 OTHER ACCOUNTING TERMS. Except as otherwise provided
herein, accounting terms not specifically defined shall be construed, and all
accounting procedures shall be performed, in accordance with generally accepted
United States accounting principles consistently applied.
14
<PAGE> 15
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND
CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE
NOT ENFORCEABLE UNDER WASHINGTON LAW.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers or agents thereunto duly authorized as
of the date first above written.
BORROWER: LENDER:
LEGEND PROPERTIES, INC. RGI HOLDINGS, INC.
/s/ RAYMOND J. WHITTY /s/ KENNETH L. UPTAIN
- ---------------------------- ------------------------------
By: Raymond J. Whitty By: Kenneth L. Uptain
Its: Treasurer Its: President
Address: Address:
1420 Fifth Avenue 1420 Fifth Avenue
42nd Floor 42nd Floor
Seattle, Washington 98101-2333 Seattle, Washington 98101-2333
Attn: Raymond J. Whitty Attn: Kenneth L. Uptain
Fax: 206-464-0800 Fax: 206-448-0404
15
<PAGE> 1
EXHIBIT 10.16
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT ("First Amendment") is entered
into as of May 30, 1997, between LEGEND PROPERTIES, INC. ("Legend"), as
Borrower, and RGI Holdings, Inc.
("Holdings"), as Lender.
RECITALS
A. Legend and Holdings entered into that certain Loan Agreement dated as
of March 31, 1997 (the "Loan Agreement"), pursuant to which Holdings agreed to
make loans to Legend during the period beginning March 31, 1997 and ending
December 31, 1997, in the aggregate principal sum of $8,500,000.00 (the
"Commitment").
B. Legend and Holdings desire to increase the Commitment to
$17,000,000.00.
NOW, THEREFORE, Legend and Holdings hereby agree as follows:
1. Section 1.1 of the Loan Agreement is hereby amended by replacing
"$8,500,000" with "$17,000,000." As a condition precedent to the increase in the
Commitment, Borrower shall execute and deliver to Lender the following
documents:
a. This First Amendment;
b. A replacement promissory note in the form attached hereto, which
shall replace Exhibit A to the Loan Agreement;
c. Amendments to the Guaranty and Deeds of Trust in form and
substance satisfactory to Lender;
d. Evidence of the Borrower's corporate authority to enter into this
First Amendment; and
e. Evidence reasonably satisfactory to Lender concerning the
perfection and priority of its Lien on the Mortgaged Property, as
security for the increased amount of the Loan Commitment.
2. Except as amended by this First Amendment, all other terms of the
Loan Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this First Amendment to be
executed by their respective officers or agents thereunto duly authorized as of
the date first above written.
BORROWER: LENDER:
LEGEND PROPERTIES, INC. RGI HOLDINGS, INC.
By /s/ RAYMOND J. WHITTY By /s/ KENNETH L. UPTAIN
-------------------------- -----------------------------
Raymond J. Whitty Kenneth L. Uptain
Its Treasurer Its President
1
<PAGE> 1
EXHIBIT 10.17
SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT ("Second Amendment") is entered
into as of August 13, 1997, between LEGEND PROPERTIES, INC. ("Legend"), as
Borrower, and RGI Holdings, Inc. ("Holdings"), as Lender.
RECITALS
A. Legend and Holdings entered into that certain Loan Agreement dated as
of March 31, 1997 (the "Loan Agreement"), pursuant to which Holdings agreed to
make loans to Legend during the period beginning March 31, 1997 and ending
December 31, 1997, in the aggregate principal sum of $8,500,000.00 (the
"Commitment").
B. Legend and Holdings agreed to increase the Commitment to
$17,000,000.00 pursuant to the First Amendment to Loan Agreement dated as of May
30, 1997 (the "First Amendment").
C. Legend and Holdings now desire to further modify the Loan Agreement
to increase the Commitment to $21,000,000.00.
NOW, THEREFORE, Legend and Holdings hereby agree as follows:
1. Section 1.1 of the Loan Agreement is hereby amended by replacing
"$17,000,000" with "$21,000,000." As a condition precedent to the increase the
Loans, Borrower shall execute and deliver to Lender the following documents:
a. This Second Amendment;
b. A replacement promissory note in the form attached hereto, which
shall replace Exhibit A to the Loan Agreement; and
c. Evidence of the Borrower's corporate authority to enter into this
Second Amendment.
2. The increased amount of loans described in this Second Amendment
shall not be secured by the Mortgaged Property, as defined in the Loan
Agreement, located in Virginia, Maryland and California.
3. Except as amended by this Second Amendment, all other terms of the
Loan Agreement shall remain in full force and effect.
<PAGE> 2
IN WITNESS WHEREOF, the parties have caused this Second Amendment to be
executed by their respective officers or agents thereunto duly authorized as of
the date first above written.
BORROWER: LENDER:
LEGEND PROPERTIES, INC. RGI HOLDINGS, INC.
By /s/ RAYMOND J. WHITTY By /s/ KENNETH L. UPTAIN
-------------------------- -----------------------------
Raymond J. Whitty Kenneth L. Uptain
Its Treasurer Its President
2
<PAGE> 1
EXHIBIT 10.18
THIRD AMENDMENT TO LOAN AGREEMENT
THIS THIRD AMENDMENT TO LOAN AGREEMENT ("Third Amendment") is entered
into as of September 30, 1997, between LEGEND PROPERTIES, INC. ("Legend"), as
Borrower, and RGI Holdings, Inc. ("Holdings"), as Lender.
RECITALS
A. Legend and Holdings entered into that certain Loan Agreement dated as
of March 31, 1997 (the "Loan Agreement"), pursuant to which Holdings agreed to
make loans to Legend during the period beginning March 31, 1997 and ending
December 31, 1997, in the aggregate principal sum of $8,500,000.00 (the
"Commitment").
B. Legend and Holdings agreed to increase the Commitment to
$17,000,000.00 pursuant to the First Amendment to Loan Agreement dated as of May
30, 1997.
C. Legend and Holdings agreed to increase the Commitment to
$21,000,000.00 pursuant to the Second Amendment to Loan Agreement dated August
13, 1997.
D. Legend and Holdings now desire to further modify the Loan Agreement
to change the maturity date from December 31, 1997 to April 1, 1999.
NOW, THEREFORE, Legend and Holdings hereby agree as follows:
1. Sections 1.1 and 1.3 of the Loan Agreement are hereby amended by
replacing "December 31, 1997" with "April 1, 1999."
2. Borrower and Lender acknowledge and agree that the Loans made
hereunder shall at all times be subordinated in all respects to the Borrower's
obligations to pay Lender the amounts due under the SoGen Note and the Morgens
Note, as these terms are defined in the Loan Agreement between Lender and Fokus
Bank ASA dated May 14, 1996, as amended on June 18, 1996, December 23, 1996,
June 30, 1997, and September 30, 1997.
3. As a condition precedent to change the maturity date under the Loan
Agreement, Borrower shall execute and deliver to Lender the following documents:
a. This Third Amendment;
b. A replacement promissory note in the form attached hereto which
shall replace Exhibit A to the Loan Agreement; and
c. Evidence of the Borrower's corporate authority to enter into this
Third Amendment.
4. Except as amended by this Third Amendment, all other terms of the
Loan Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Third Amendment to be
executed by their respective officers or agents thereunto duly authorized as of
the date first above written.
<PAGE> 2
BORROWER: LENDER:
LEGEND PROPERTIES, INC. RGI HOLDINGS, INC.
By /s/ ED PODBOY By /s/ RODNEY EATON
----------------------------- ----------------------------
Ed Podboy Rodney Eaton
Its President Its Vice President
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LEGEND
PROPERTIES INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30,
1997 AND DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
SEPTEMBER 30, 1997 QUARTERLY REPORT FILED ON FORM 10Q AND 1996 ANNUAL REPORT
FILED ON FORM 10-K/A
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 21,296,790<F1>
<SECURITIES> 0
<RECEIVABLES> 2,393,812
<ALLOWANCES> 0
<INVENTORY> 129,261,769<F2>
<CURRENT-ASSETS> 0
<PP&E> 28,719,492
<DEPRECIATION> 4,473,692
<TOTAL-ASSETS> 183,709,291
<CURRENT-LIABILITIES> 0
<BONDS> 77,884,458
0
0
<COMMON> 63,117
<OTHER-SE> 19,023,105
<TOTAL-LIABILITY-AND-EQUITY> 183,709,291
<SALES> 23,675,536
<TOTAL-REVENUES> 32,566,394
<CGS> 18,207,358
<TOTAL-COSTS> 23,594,590
<OTHER-EXPENSES> 1,396,553
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,065,367<F3>
<INCOME-PRETAX> (12,424,396)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,171,680)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,171,680)
<EPS-PRIMARY> (1.94)
<EPS-DILUTED> (1.94)
<FN>
<F1>Cash includes restricted amounts of $15,519,682
<F2>Inventory includes assets held for sale of $25,451,424
<F3>Interest expense includes related party expense of $4,112,385
</FN>
</TABLE>
