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 June 30, 2002.
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 0-15465
BANYAN STRATEGIC REALTY TRUST
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Massachusetts 36-3375345
- ----------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
2625 Butterfield Road, Suite 101 N
Oak Brook, Illinois 60523
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (630) 218-7250
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [ X ]. NO [ ].
Shares of beneficial interest outstanding
as of July 30, 2002: 15,496,806
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BANYAN STRATEGIC REALTY TRUST
Consolidated Statements of Net Assets in Liquidation
(Liquidation Basis)
June 30, 2002 and December 31, 2001
(Unaudited)
(Dollars in thousands)
June 30, December 31,
2002 2001
---------- -----------
ASSETS
- ------
Investment in Real Estate Held for Sale:
Land. . . . . . . . . . . . . . . . . . $ -- $ 3,137
Building. . . . . . . . . . . . . . . . 18,429 28,066
Building Improvements . . . . . . . . . 1,095 2,984
---------- ----------
19,524 34,187
Less: Accumulated Depreciation. . . . . (3,164) (5,764)
---------- ----------
16,360 28,423
---------- ----------
Cash and Cash Equivalents . . . . . . . . 9,524 7,493
Restricted Cash - Capital Improvements. . 238 212
Restricted Cash - Other . . . . . . . . . 260 2,095
Interest and Accounts Receivable. . . . . 117 212
Employees' Notes. . . . . . . . . . . . . 258 412
Notes Receivable. . . . . . . . . . . . . -- 2,264
Other Assets. . . . . . . . . . . . . . . 193 282
---------- ----------
Total Assets. . . . . . . . . . . . . . . $ 26,950 $ 41,393
========== ==========
LIABILITIES
- -----------
Mortgage Loans Payable. . . . . . . . . . $ 16,785 $ 21,555
Bonds Payable . . . . . . . . . . . . . . -- 3,900
Accrued Severance and Termination Costs . 2,278 2,018
Accounts Payable and Accrued Expenses . . 394 1,218
Accrued Real Estate Taxes . . . . . . . . 199 23
Accrued Interest Payable. . . . . . . . . 107 148
Unearned Revenue. . . . . . . . . . . . . 56 85
Security Deposits . . . . . . . . . . . . 51 87
Distributions Payable . . . . . . . . . . 3,099 --
---------- ----------
Total Liabilities . . . . . . . . . . . . 22,969 29,034
---------- ----------
Net Assets in Liquidation . . . . . . . . $ 3,981 $ 12,359
========== ==========
The accompanying notes are an integral part
of the consolidated financial statements.
BANYAN STRATEGIC REALTY TRUST
Consolidated Statement of Changes in Net Assets in Liquidation
(Liquidation Basis)
For the Six Months Ended June 30, 2002
(Unaudited)
(Dollars in thousands)
Net Assets in Liquidation at December 31, 2001. . . . . $ 12,359
Net Gains on Disposition of Investment in
Real Estate Held for Sale . . . . . . . . . . . . . . 178
Interest Income on Employees' Notes . . . . . . . . . . 16
Interest Income on Cash and Cash Equivalents. . . . . . 201
Operating Loss. . . . . . . . . . . . . . . . . . . . . (1,029)
Recovery of Losses on Loans, Notes and
Interest Receivable . . . . . . . . . . . . . . . . . 80
Minority Interest in Consolidated Partnership . . . . . (76)
Distributions Paid and Payable to Shareholders. . . . . (7,748)
--------
Net Assets in Liquidation at June 30, 2002. . . . . . . $ 3,981
========
The accompanying notes are an integral part
of the consolidated financial statements.
BANYAN STRATEGIC REALTY TRUST
Consolidated Statement of Changes in Net Assets in Liquidation
(Liquidation Basis)
For the Three Months Ended June 30, 2002
(Unaudited)
(Dollars in thousands)
Net Assets in Liquidation at March 31, 2002 . . . . . . $ 12,137
Net Gains on Disposition of Investment in
Real Estate Held for Sale . . . . . . . . . . . . . . 178
Interest Income on Employees' Notes . . . . . . . . . . 16
Interest Income on Cash and Cash Equivalents. . . . . . 83
Operating Loss. . . . . . . . . . . . . . . . . . . . . (719)
Recovery of Losses on Loans, Notes and
Interest Receivable . . . . . . . . . . . . . . . . . 34
Distributions Paid and Payable to Shareholders. . . . . (7,748)
--------
Net Assets in Liquidation at June 30, 2002. . . . . . . $ 3,981
========
The accompanying notes are an integral part
of the consolidated financial statements.
BANYAN STRATEGIC REALTY TRUST
Consolidated Statement of Changes in Net Assets in Liquidation
(Liquidation Basis)
For the Six Months Ended June 30, 2001
(Unaudited)
(Dollars in thousands)
Shareholders' Equity at December 31, 2000
(Going concern basis) . . . . . . . . . . . . . . . . $ 67,350
Adjustments to Liquidation Basis:
Liquidation and Termination Costs . . . . . . . . . . (810)
Elimination of Intangible Assets. . . . . . . . . . . (5,470)
Reclassification of Employees' Notes. . . . . . . . . 3,144
--------
Net Assets in Liquidation at December 31, 2000. . . . . 64,214
Net Gains on Disposition of Investment in
Real Estate Held for Sale (Net of Minority
Interest of $6,445) . . . . . . . . . . . . . . . . . 25,771
Interest Income on Employees' Notes . . . . . . . . . . 125
Interest Income on Cash and Cash Equivalents. . . . . . 467
Operating Income. . . . . . . . . . . . . . . . . . . . 3,469
Recovery of Losses on Loans, Notes and
Interest Receivable . . . . . . . . . . . . . . . . . 870
Depreciation. . . . . . . . . . . . . . . . . . . . . . (2,597)
Minority Interest in Consolidated Partnerships. . . . . (52)
Issuance of Shares. . . . . . . . . . . . . . . . . . . 55
Distributions Paid to Shareholders. . . . . . . . . . . (74,219)
--------
Net Assets in Liquidation at June 30, 2001. . . . . . . $ 18,103
========
The accompanying notes are an integral part
of the consolidated financial statements.
BANYAN STRATEGIC REALTY TRUST
Consolidated Statement of Changes in Net Assets in Liquidation
(Liquidation Basis)
For the Three Months Ended June 30, 2001
(Unaudited)
(Dollars in thousands)
Net Assets in Liquidation at March 31, 2001 . . . . . . $ 65,365
Net Gains on Disposition of Investment in Real Estate
Held for Sale (Net of Minority Interest of $6,445). . 25,771
Interest Income on Employees' Notes . . . . . . . . . . 107
Interest Income on Cash and Cash Equivalents. . . . . . 418
Operating Income. . . . . . . . . . . . . . . . . . . . 960
Depreciation. . . . . . . . . . . . . . . . . . . . . . (981)
Minority Interest in Consolidated Partnerships. . . . . 101
Issuance of Shares. . . . . . . . . . . . . . . . . . . 1
Distributions Paid to Shareholders. . . . . . . . . . . (73,639)
--------
Net Assets in Liquidation at June 30, 2001. . . . . . . $ 18,103
========
The accompanying notes are an integral part
of the consolidated financial statements.
BANYAN STRATEGIC REALTY TRUST
Notes to Consolidated Financial Statements
June 30, 2002
(Unaudited)
(Dollars in thousands, except per share data)
1. FINANCIAL STATEMENT PRESENTATION
Readers of this quarterly report should refer to Banyan Strategic
Realty Trust's (the "Trust") audited consolidated financial statements for
the year ended December 31, 2001 which are included in the Trust's 2001
Form 10-K, as certain footnote disclosures which would substantially
duplicate those contained in such audited statements have been omitted from
this report.
2. LIQUIDATION OF THE TRUST
On January 5, 2001, the Trustees adopted a Plan of Termination and
Liquidation under which the Trust will be dissolved, the obligations of the
Trust will be paid, appropriate reserves will be taken and the net proceeds
will be distributed to the shareholders. The Trust adopted the liquidation
basis of accounting effective January 1, 2001.
On May 17, 2001, the Trust sold 24 of its 27 properties for a total
sales price of $185,250. On March 14, 2002, the Trust acquired the
interests of its partner, M&J Wilkow, Ltd., in the Northlake Tower Shopping
Center property for a gross purchase price of $1,300. M&J Wilkow had an
18.1% interest in the property's cash flow and a 28.1% interest in its
capital proceeds.
On April 1, 2002, the Trust sold its University Square Business Center
located in Huntsville, Alabama for a total sales price of $8,450. The
purchaser is USBC, LLC, an Alabama limited liability company, whose
principals include Alan C. Jenkins and Joel L. Teglia. Mr. Jenkins is a
principal in InterSouth Properties, Inc., the Trust's former contract
manager of the property, and Mr. Teglia is the Executive Vice President and
Chief Financial Officer of the Trust. Mr. Teglia recused himself from all
of the Trust's deliberations concerning the sale of University Square. The
net sales proceeds, after repayment of the first mortgage on the property,
adjustment for unfinished tenant improvements, sales commissions,
prorations and closing costs, were $3,312. In addition, USBC, LLC paid the
prepayment penalty of $732 associated with the payoff of the first
mortgage.
On May 1, 2002, the Trust sold its 6901 Riverport Drive in Louisville,
Kentucky for a total sales price of $5,652 to Riverport LLC and Riverport
Group, LLC. The principals of these entities included Daniel Smith. Mr.
Smith, or entities owned or controlled by him, was previously the Trust's
joint venture partner on the Woodcrest property in Tallahassee, Florida and
also managed the Commerce Center property in Sarasota, Florida and the
Fountain Square property in Tampa, Florida. The net sales proceeds, after
repayment of the bond indebtedness, sales commission, prorations and
closing costs were $2,116.
On May 1, 2002, the Trust signed a contract to sell its Northlake
Tower Shopping Center for a gross purchase price of $20,500. In accordance
with the terms of the contract, upon the expiration of the due diligence
period on June 19, 2002, the purchaser increased its earnest money from
$200 to $400. The earnest money is now nonrefundable, except in the event
of the Trust's default, or the failure of a condition precedent. On
June 20, 2002, the Trust entered into a series of amendments to the sale
contract with the purchaser that, among other provisions, extend the
closing date from July 17, 2002 to September 17, 2002 and extend the time
period within which the purchaser must obtain approval of its application
to assume the Trust's first mortgage loan, to August 25, 2002. If the
purchaser is unable to obtain approval to assume the existing loan by
August 25, 2002, and it does not elect to avail itself of alternative
financing, the contract can be terminated by the purchaser without penalty.
If the sale is consummated, the Trust expects to realize net sales proceeds
of approximately $3,400 during the third quarter of 2002.
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" which is effective for fiscal
years beginning after December 15, 2001. Application of the provisions of
this Statement are not expected to affect the earnings or financial
position of the Trust.
3. DISTRIBUTIONS
On June 18, 2002, the Trust declared a liquidating distribution of
$0.20 per share payable on July 15, 2002, to shareholders of record as of
July 1, 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Certain statements in this quarterly report that are not historical in
fact constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are
based on our current expectations, estimates and projections. These
statements are not a guaranty of future performance. Without limiting the
foregoing, words such as "believes," "intends," "anticipates," "expects,"
and similar expressions are intended to identify forward-looking statements
which are subject to a number of risks and uncertainties, including, among
other things:
. general real estate investment risks;
. resolution of existing litigation;
. condition of the United States economy in general and its
impact on real estate operations and values in particular;
. failure to sell our remaining property on terms beneficial to
the Trust, if at all;
. potential inadequacy of our cash reserves;
. adverse consequences of failure to qualify as a REIT;
. possible environmental liabilities; and
. failure or inability to comply with or effectuate the Plan
of Termination and Liquidation.
Actual results could differ materially from those projected in these
forward-looking statements. See "Managements's Discussion and Analysis of
Financial Condition and Results of Operations -Risk Factors" in the annual
report on Form 10-K for the year ended December 31, 2001 for a more
complete discussion.
We are a self-administered infinite life real estate investment trust
("REIT"), organized as a Massachusetts business trust. On January 5, 2001,
we adopted a Plan of Termination and Liquidation (the "Plan")under which
our Trust will be dissolved, the obligations of the Trust will be paid,
appropriate reserves will be taken and the net proceeds will be distributed
to our shareholders.
On May 17, 2001, we sold 24 of our 27 properties to affiliates of
Denholtz Management Corporation ("Denholtz") for a total sales price of
$185.3 million, pursuant to a Purchase and Sale Agreement dated January 8,
2001 as amended on March 30, 2001, April 9, 2001 and May 11, 2001. On
March 14, 2002, we acquired the interests of our partner, M&J Wilkow, Ltd.,
in the Northlake Tower Shopping Center property for a gross purchase price
of $1.3 million.
On April 1, 2002, we sold our University Square Business Center for a
total sales price of $8.5 million. The purchaser was USBC, LLC, an Alabama
limited liability company, whose principals include Alan C. Jenkins and
Joel L. Teglia. Mr. Jenkins is a principal in InterSouth Properties, Inc.,
the former contract manager of the University Square property, and Mr.
Teglia is our Executive Vice President and Chief Financial Officer. Mr.
Teglia recused himself from all of our deliberations regarding the sale of
University Square. The net sales proceeds, after repayment of the first
mortgage on the property, adjustment for unfinished tenant improvements,
sales commission, prorations and closing costs, were approximately $3.3
million. In addition, USBC, LLC paid the prepayment penalty of
approximately $0.7 million associated with the payoff of the first
mortgage.
On May 1, 2002, we sold our 6901 Riverport Drive in Louisville,
Kentucky for a total sales price of approximately $5.7 million to Riverport
LLC and Riverport Group, LLC. The principals of these entities included
Daniel Smith. Mr. Smith, or entities owned or controlled by him, was a
joint venture partner with us on our Woodcrest property and also managed
our Commerce Center and Fountain Square properties. The net sales
proceeds, after repayment of the bond indebtedness, sales commission,
prorations and closing costs were approximately $2.1 million.
On May 1, 2002, we signed a contract to sell our Northlake Tower
Shopping Center for a gross purchase price of $20.5 million. In accordance
with the terms of the contract, upon the expiration of the due diligence
period on June 19, 2002, the purchaser increased its earnest money from
$0.2 million to $0.4 million. The earnest money is now nonrefundable,
except in the event of our default, or the failure of a condition
precedent. On June 20, 2002, we entered into a series of amendments to the
sale contract with the purchaser that, among other provisions, extend the
closing date from July 17, 2002 to September 17, 2002 and extend the time
period within which the purchaser must obtain approval of its application
to assume our first mortgage loan, to August 25, 2002. If the purchaser is
unable to obtain approval to assume the existing loan by August 25, 2002,
and it does not elect to avail itself of alternative financing, the
contract can be terminated by the purchaser without penalty. If the sale
is consummated, we expect to realize net sales proceeds of approximately
$3.4 million during the third quarter of 2002.
RESULTS OF OPERATIONS
On January 5, 2001, we adopted a Plan of Termination and Liquidation
under which the Trust will be dissolved. As a result of the adoption of
the Plan, we began reporting on the liquidation basis of accounting
effective for the quarter ending March 31, 2001. Therefore, operations for
the six and three months ending June 30, 2002 and 2001 are reported on the
Consolidated Statement of Changes in Net Assets in Liquidation. The
Statement of Changes in Net Assets in Liquidation differs from the
Statement of Operations in that we no longer amortize deferred financing
fees and leasing commissions and we no longer record straight line rental
income. We do, however, deduct leasing commissions in the computation of
Operating Income.
For the six months ended June 30, 2002, our Net Assets in Liquidation
decreased by approximately $8.4 million from approximately $12.4 million to
approximately $4.0 million. This decrease is primarily the result of
distributions paid and payable to shareholders of approximately $7.7
million, operating loss of approximately $1.0 million and minority interest
of approximately $0.1 million decreased by approximately $0.2 million of
interest income on cash and cash equivalents and approximately $0.2 million
of net gains on disposition of investment in real estate held for sale.
The operating loss consists of property operating income after interest
expense of approximately $0.8 million reduced by approximately $0.4 million
of litigation expenses, approximately $1.0 million of general and
administrative costs, and approximately $0.2 million of severance and $0.2
million for the accrual of additional termination costs.
For the three months ended June 30, 2002, our Net Assets in
Liquidation decreased by approximately $8.1 million from approximately
$12.1 million to approximately $4.0 million. This decrease is primarily
the result of distributions to shareholders in the amount of approximately
$7.7 million, and operating loss of approximately $0.7 million reduced by
net gains on disposition of investment in real estate of approximately $0.2
million and interest income of approximately $0.1 million. The operating
loss consists of property operating income after interest expense of
approximately $0.3 million reduced by approximately $0.2 million of
litigation expenses, approximately $0.5 million of general and
administrative costs, and approximately $0.1 million of severance and $0.2
million for the accrual of additional termination costs.
Prior to reporting the operating activity for the six months ended
June 30, 2001, we adjusted our Shareholders' Equity as of December 31, 2000
as reported on a going concern basis to the liquidation basis of
accounting. As a result, we recorded an adjustment of approximately $5.5
million related to the write off of certain intangible assets, specifically
leasing commissions, deferred financing fees and straight-line rents
receivable, that were included in our total assets at December 31, 2000.
In addition, we recorded a charge of approximately $0.8 million for costs
related to the liquidation and termination of the Trust and reclassed
approximately $3.1 million of employees' notes from shareholders' equity to
assets.
For the six months ended June 30, 2001, our Net Assets in Liquidation
decreased by approximately $46.1 million from approximately $64.2 million
at December 31, 2000 to approximately $18.1 million at June 30, 2001. This
decrease was primarily due to total distributions paid to shareholders of
approximately $74.2 million including our initial liquidating distribution
to shareholders of $4.75 per share or approximately $73.6 million.
Offsetting this decrease were gains on disposition of investment in real
estate (net of minority interest of approximately $6.4 million) of $25.8
million, operating income in the amount of approximately $3.5 million,
recovery of losses on loans, notes and interest receivable of approximately
$0.9 million and interest income on cash and cash equivalents of
approximately $0.5 million, reduced by depreciation expense of
approximately $2.6 million. The recovery of losses on loans, notes and
interest receivable of approximately $0.9 million represents cash received
in respect of our interest in a liquidating trust established for the
benefit of the unsecured creditors of VMS Realty Partners and its
affiliates. Our interest in this liquidating trust had previously been
accorded no value in our financial statements.
For the three months ended June 30, 2001, our Net Assets in
Liquidation decreased by approximately $47.3 million from approximately
$65.4 million at March 31, 2001 to approximately $18.1 million at June 30,
2001. This decrease was primarily due to our initial liquidating
distribution to shareholders of $4.75 per share or approximately $73.6
million. Offsetting this decrease were the gain on disposition of
investment in real estate (net of minority interest of $6.4 million) of
approximately $25.8 million, $0.4 million of interest income on cash and
cash equivalents, and operating income in the amount of approximately $1
million reduced by depreciation expense of approximately $1 million.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002, our total assets were approximately $27.0 million, a
decrease of approximately $14.4 million from total assets at December 31,
2001 of approximately $41.4 million. Our liabilities totaled approximately
$23.0 million at June 30, 2002, a decrease of approximately $6.0 million
from approximately $29.0 million at December 31, 2001. At June 30, 2002,
our net assets in liquidation were approximately $4.0 million, a decrease
of approximately $8.4 million from approximately $12.4 million at
December 31, 2001.
Cash and cash equivalents consist of cash and short-term investments.
Our cash and cash equivalents balance increased by approximately $2.0
million to approximately $9.5 million at June 30, 2002 from approximately
$7.5 million at December 31, 2001. The increase in total cash and cash
equivalents was due primarily to cash received for the two properties that
we sold and collection of unsecured notes receivable in the amount of
approximately $2.3 million reduced by the change in net assets in
liquidation including distributions paid to shareholders, approximately
$0.3 million that we paid in full settlement of all claims of Denholtz, and
$1.3 million of cash used to purchase the interests of our venture partner
in the Northlake Tower Shopping Center property.
Having made our four liquidating distributions, we have established
unrestricted cash reserves of $6.4 million. We currently believe that
these reserves and the anticipated net proceeds from the sale of Northlake
will be sufficient to cover the net costs of operating the Trust through
its anticipated final liquidation, including liquidation costs and
contingent liabilities related to pending litigation. In determining the
adequacy of these reserves, we have considered the impact that the sale of
University Square Business Center and 6901 Riverport Drive will have on our
future net operations. Together, the operations for these two properties
generated approximately $0.5 million of cash flow on an annual basis.
On June 18, 2002, our Board of Trustees declared our fourth
liquidating distribution in the amount of $0.20 per share. After making
this distribution, we will have distributed $5.45 per share pursuant to the
Plan. If we complete the sale of the Northlake Tower Shopping Center as
discussed above, we anticipate receiving net proceeds of approximately $3.4
million or $0.215 per share. The total amount and the timing of our
remaining liquidating distributions will be dependent on our success in
realizing the projected net proceeds related to the sale of Northlake, as
well as the costs to terminate and liquidate the Trust and the ultimate
resolution of the pending litigation against Mr. Leonard G. Levine (See--
Other-Litigation below). We intend to continue our policy of making
liquidating distributions when circumstances warrant.
On February 15, 2002, we were notified by Nasdaq that our shares would
be subject to delisting if the closing price of our shares did not exceed
the $1.00 minimum bid price for ten consecutive trading days during the 90-
day period ending on May 15, 2002. In May, Nasdaq notified us of the
imminent delisting. We appealed on the basis that the diminished stock
price was not unintended, but rather was in keeping with our Plan of
Termination and Liquidation, adopted in January of 2001. On July 11, 2002,
we were notified by representatives of the Nasdaq Listing Qualifications
Panel that our June 20, 2002 appeal of a determination to delist our shares
of beneficial interest had been denied. Nasdaq offered to transfer our
listing to its Small Cap Market, but we have declined, because of the
$45,000 cost involved in a transfer of the listing. Accordingly, we
consented to a delisting of our shares as of the opening of the market on
July 12, 2002. Our shares are now quoted on the Over the Counter Bulletin
Board ("OTCBB"), but there can be no assurance that a market for these
shares will develop.
PROPERTIES:
As of June 30, 2002, we owned a leasehold interest, pursuant to ground
lease, and also owned the improvements in Northlake Tower Shopping Center
in Atlanta, Georgia. Northlake Tower Shopping Center contains 321,600
leaseable square feet and is 97% occupied at June 30, 2002. As described
above, we have executed a contract to sell this property for a sale price
of $20.5 million.
We had previously been advised by our tenant, AMC Theatres, that it
has made a determination to cease operations at the shopping center and was
seeking to terminate its lease in August of 2001. Despite the notice, the
AMC Theatres did not cease operations at that time and we have received no
further communication from the tenant with respect to cessation of
operations or the timing of any termination of its lease. The AMC Theatres
space comprises approximately 8.4% of the total leaseable space. The loss
of the revenue from the AMC lease may have a material adverse impact on the
net proceeds we could recover from the sale of this property if a suitable
replacement tenant is not located and the current transaction fails to
close. The remainder of the shopping center space is leased to
approximately 50 tenants, primarily with long term leases.
OTHER - LITIGATION
On August 14, 2000, we exercised our rights under the Trust's
employment agreement with Mr. Leonard G. Levine by suspending him and
placing him on leave from his position as president. Simultaneously, we
initiated an arbitration proceeding as required under the employment
agreement. On October 5, 2000, Mr. Levine filed an action in the Circuit
Court of Cook County, Illinois asking the court to terminate the
arbitration proceedings by reason of improper forum. On October 18, 2000,
we filed a lawsuit against Mr. Levine in the Circuit Court of Cook County,
Illinois. Our complaint alleged violations of Mr. Levine's duty of loyalty
owed to the Trust.
On December 6, 2000, we and Mr. Levine, through our respective
attorneys, agreed to dismiss the arbitration action and Mr. Levine's
lawsuit challenging the arbitration and further agreed to resolve all
issues under Mr. Levine's employment contract within the lawsuit we have
filed against Mr. Levine in the Circuit Court of Cook County (the
"Employment Litigation").
On January 19, 2001, Mr. Levine filed an answer, affirmative defenses
and counterclaim in the Employment Litigation. The pleading generally
denies that Mr. Levine breached his fiduciary duties, raises various
defenses and seeks a judgment in favor of Mr. Levine and against us on the
counterclaim for money damages and also seeks a reinstatement to active
employment status. Discovery in this case has commenced and is continuing.
On May 2, 2001, Mr. Levine presented a motion for partial judgment on
the pleadings, which was denied at a hearing on July 19, 2001. We filed a
Third Amended Complaint on September 6, 2001, seeking, among other things,
$300,000 in compensatory damages and $3 million in punitive damages against
Mr. Levine in connection with various alleged breaches of fiduciary duty.
The factual bases underlying the Third Amended Complaint include
allegations that (i) Mr. Levine caused the Trust to pay on his account or
reimburse him for expenses that were not reasonable, ordinary and necessary
business expenses; (ii) during negotiations between the Trust and The Oak
Realty Group, Inc. (an entity solely owned by Mr. Levine) Mr. Levine
attempted to pressure the Trust into accepting Oak's offer to acquire the
Trust by revealing to one of the trustees that Oak had entered into certain
confidentiality and exclusivity agreements which had the effect of
excluding potential purchasers and/or capital providers from purchasing or
providing financing to a potential purchaser of the Trust, except through
Oak; (iii) Mr. Levine's failure to disclose to our Board of Trustees a
prior pattern and practice of obtaining unauthorized expense reimbursements
allows the Board to rescind Mr. Levine's 1999 Employment Contract and
legally estops Mr. Levine from obtaining any benefits under that contract
and (iv) Mr. Levine's prosecution of a shareholder derivative action from
January to April of 2001, which action was resolved by summary judgment in
favor of the Trust, amounts to a separate breach of fiduciary duty by
Mr. Levine. Mr. Levine has answered all counts.
On May 7, 2001, we amended our answer to Mr. Levine's counterclaim in
the Employment Litigation to add several affirmative defenses based upon
Mr. Levine's breaches of his fiduciary duty of loyalty. The maximum
potential liability in connection with Mr. Levine's contract (inclusive of
incentives but exclusive of base salary) is estimated to be approximately
$1.7 million. During the pendency of the litigation, we continue to pay a
base salary to Mr. Levine in accordance with our contractual obligations.
We are seeking recovery of these payments, among other recoveries, in the
litigation.
On December 17, 2001, we filed a motion for partial summary judgment
in the Employment Litigation. This motion sought a ruling by the court
that the Trust had "just cause" to terminate Mr. Levine's employment
contract at the time we placed Mr. Levine on suspension on August 14, 2000.
The motion was heard and denied on April 4, 2002. On the same date, the
court extended the deadline for the completion of written fact discovery
from March 31, 2002 to May 31, 2002.
On March 18, 2002, Mr. Levine filed a motion for judgment on the
pleadings which sought a judgment in favor of Mr. Levine on Counts I, IV
and VI of our Third Amended Complaint. On May 1, 2002, Judge Siebel
granted the motion (without prejudice) in regard to Count I and denied the
motion in regard to Counts IV and VI.
On May 9, 2002, after obtaining leave, we filed a Fourth Amended
Complaint. This compliant amended Count I of the Third Amended Complaint
to allege a breach of contract and added Count VII, which alleges an
additional fiduciary breach by Mr. Levine related to an offer by a third
party in the spring of 2000 to purchase a substantial portion of the
Trust's assets. On June 14, 2002, Mr. Levine answered portions of and
filed a motion to strike and dismiss portions of the Fourth Amended
Complaint. Mr. Levine moved to dismiss Counts III and V, and to strike
portions of Counts I, II, IV, VI, and VII. Our response to the motion was
filed on July 23, 2002. Mr. Levine's reply was filed on August 7, 2002.
The motion has been set for hearing on August 20, 2002 at 11:30 a.m.
On May 17, 2002, the court held a hearing concerning the discovery
schedule and on May 29, 2002 entered an order revising the discovery
schedule. The May 29, 2002 order calls for: (1) the conclusion of written
fact discovery by September 30, 2002 and (2) the conclusion of all non-
expert depositions by October 31, 2002. On June 28, 2002, the court
entered a further discovery scheduling order. The June 28, 2002 order
calls for the conclusion of all expert discovery by January 20, 2003. No
trial date has been set.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not engage in any hedging transactions nor in the ownership of
any derivative financial instruments. As of June 30, 2002, we do not have
any variable rate debt.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (see Exhibit Index included elsewhere herein).
(b) Reports on Form 8-K:
. dated April 1, 2002, filed April 2, 2002
including Item 7;
. dated and filed May 8, 2002 including Item 7;
. dated May 15, 2002, filed May 17, 2002 including
Item 7;
. dated May 17, 2002, filed May 20, 2002 including
Item 7;
. dated June 4, 2002, filed June 5, 2002 including
Item 7; and
. dated June 18, 2002, filed June 21, 2002 including
Item 7.
SIGNATURES
PURSUANT to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on our behalf
and in the capacities and on the dates indicated.
BANYAN STRATEGIC REALTY TRUST
By: /s/ L.G. Schafran Date: August 9, 2002
------------------------------
L.G. Schafran,
Interim President
By: /s/ Joel L. Teglia Date: August 9, 2002
------------------------------
Joel L. Teglia,
Executive Vice President and
Chief Financial Officer
EXHIBIT
INDEX
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2.1 Plan of Termination and Liquidation (1)
3.1 Third Amended and Restated Declaration of Trust dated as of
August 8, 1986, as amended on March 8, 1991, May 1, 1993,
August 12, 1998 and December 13, 1999, including Certificate of
designations, preferences and rights of Series A convertible
preferred shares. (2)
3.2 First Amendment of Third Amended and Restated Declaration of
Trust effective December 13, 1999. (3)
3.3 By-Laws dated March 13, 1996. (4)
3.4 BSRT UPREIT Limited Partnership Limited Partnership Agreement (5)
4.1 Convertible Term Loan Agreement dated as of October 10, 1997
among Banyan Strategic Realty Trust, as Borrower, and the
Entities listed therein, as Lenders. (6)
4.2 First Amendment to Convertible Term Loan Agreement dated as of
March 30, 1998 made by and among Banyan Strategic Realty Trust
and the Entities listed therein, as Lenders. (7)
4.3 Second Amendment to Convertible Term Loan Agreement dated as of
June 26, 1998 made by and among Banyan Strategic Realty Trust and
the Entities listed therein, as Lenders. (8)
4.4 Revolving Credit Agreement dated April 30, 1998 among Banyan
Strategic Realty Trust, as Borrower and the Capital Company of
America, as Lender. (9)
4.5 Loan Agreement dated May 22, 1998 among BSRT Fountain Square
L.L.C., BSRT Phoenix Business Park L.L.C., BSRT Newtown Trust,
BSRT Southlake L.L.C., BSRT Technology Center L.L.C., BSRT
Airways Plaza L.L.C., BSRT Peachtree Pointe L.L.C., BSRT Avalon
Center L.L.C., BSRT Sand Lake Tech Center L.L.C., BSRT Park
Center L.L.C., BSRT Metric Plaza L.L.C., and BSRT University
Corporate Center L.L.C., as Borrower, and the Capital Company of
America, as Lender. (8)
4.6 First Amendment to Loan Agreement dated September 11, 1998 among
BSRT Fountain Square L.L.C., BSRT Phoenix Business Park L.L.C.,
BSRT Newton Trust, BSRT Southlake L.L.C., BSRT Technology Center
L.L.C., BSRT Airways Plaza L.L.C., BSRT Peachtree Pointe L.L.C.,
BSRT Avalon Center L.L.C., BSRT Sand Lake Tech Center L.L.C.,
BSRT Park Center L.L.C., BSRT Metric Plaza L.L.C., and BSRT
University Corporate Center L.L.C., as Borrower, and the Capital
Company of America LLC, as Lender. (10)
4.7 Loan Agreement dated June 22, 1998 between Banyan/Morgan
Wisconsin L.L.C., and Banyan/Morgan Elmhurst L.L.C., as Borrower
and the Capital Company of America, as Lender. (8)
4.8 First Amendment to Loan Agreement dated September 11, 1998
between Banyan/Morgan Wisconsin L.L.C., and Banyan/Morgan
Elmhurst L.L.C., as Borrower and the Capital Company of America
LLC, as Lender. (10)
10.1 Employment Agreement of L.G. Schafran dated October 26, 2000.
(14)
10.2 First Amendment to Employment Agreement of L.G. Schafran dated
February 13, 2002. (15)
EXHIBIT
INDEX
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10.3 Employment Agreement of Leonard G. Levine as of December 14,
1999. (2)
10.4 Employment Agreement of Leonard G. Levine as of October 1, 1997.
(11)
10.5 Employment Agreement of Joel L. Teglia dated November 1, 2000.
(14)
10.6 Employment Agreement of Joel L. Teglia dated December 31, 1998.
(5)
10.7 Employment Agreement of Robert G. Higgins dated September 1,
2000. (14)
10.8 Separation Agreement of Neil Hansen dated October 1, 2000. (14)
10.9 Separation Agreement of Jay Schmidt dated October 1, 2000. (14)
10.10 1997 Omnibus Stock and Incentive Plan dated July 9, 1997. (12)
10.11 Share Purchase Agreement by and among Banyan Strategic Realty
Trust and the Purchasers listed on the signature page attached
thereto dated as of October 10, 1997. (6)
10.12 Registration Rights Agreement dated as of October 10, 1997
between Banyan Strategic Realty Trust and the Purchasers listed
on the Signature Pages attached thereto. (6)
10.13 Registration Rights Agreement dated as of October 1, 1997 between
Banyan Strategic Realty Trust and Leonard G. Levine. (5)
10.14 Consulting Agreement dated as of February 18, 2000 between CFC
Advisory Services Limited Partnership and Banyan Strategic Realty
Trust. (13)
10.15 Modification to Consulting Agreement dated as of May 31, 2000
between CFC Advisory Services Limited Partnership and Banyan
Strategic Realty Trust. (13)
10.16 Purchase and Sale Agreement dated January 8, 2001. (1)
10.17 First Amendment to Purchase and Sale Agreement dated March 28,
2001 (16)
10.18 Second Amendment to Purchase and Sale Agreement dated April 9,
2001 (17)
10.19 Third Amendment to Purchase and Sale Agreement dated May 11, 2001
(18)
21. Subsidiaries of Banyan Strategic Realty Trust (19)
99.16 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
99.17 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
- --------------------
(*) Filed herewith.
(1) Incorporated by reference from the Trust's Form 8-K dated
January 8, 2001.
(2) Incorporated by reference from the Trust's Form 10-K for
the year ended December 31, 1999.
(3) Incorporated by reference from the Trust's Form 10-Q
dated March 31, 2000.
(4) Incorporated by reference from the Trust's Registration
Statement on Form S-11 (file number 33-4169).
(5) Incorporated by reference from the Trust's Form 10-K for
the year ended December 31, 1998.
(6) Incorporated by reference from the Trust's Form 8-K dated
October 14, 1997.
(7) Incorporated by reference from the Trust's Form 10-K/A
for the year ended December 31, 1997.
(8) Incorporated by reference from the Trust's Form 8-K dated
May 22, 1998.
(9) Incorporated by reference from the Trust's Form 10-Q
dated March 31, 1998.
(10) Incorporated by reference from the Trust's Form 8-K/A-1
dated August 14, 1998.
(11) Incorporated by reference from the Trust's Form 10-K
dated December 31, 1997.
(12) Incorporated by reference from the Trust's Form 10-Q for
the quarter ended June 30, 1997.
(13) Incorporated by reference from the Trust's Form 10-Q for
the quarter ended June 30, 2000.
(14) Incorporated by reference from the Trust's Form 10-Q for
the quarter ended September 30, 2000.
(15) Incorporated by reference from the Trust's Form 8-K dated
February 13, 2002.
(16) Incorporated by reference from the Trust's Form 8-K dated
March 28, 2001.
(17) Incorporated by reference from the Trust's Form 8-K dated
April 9, 2001.
(18) Incorporated by reference from the Trust's Form 10-Q for
the quarter ended March 31, 2001.
(19) Incorporated by reference from the Trust's Form 10-K for
the year ended December 31, 2001.