<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
[X]
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
-------------------
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: 1-10520
HEARTLAND PARTNERS, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3606475
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
547 WEST JACKSON BOULEVARD, CHICAGO, ILLINOIS 60661
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
312/294-0440
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 _____
-----
Page 1 of 24
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 1999
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets...................................................... 3
Condensed Consolidated Statements of Operations............................................ 4
Consolidated Statements of Cash Flows...................................................... 5
Notes to Consolidated Financial Statements................................................. 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operation.................................................................................. 11
Item 3 Quantitative and Qualitative Disclosure About Market Risk..................................... 19
PART II. OTHER INFORMATION
Item 1 Legal Proceedings and Contingencies........................................................... 19
Item 6 Exhibits and Reports on Form 8-K.............................................................. 22
Signatures................................................................................. 23
</TABLE>
Page 2 of 24
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEARTLAND PARTNERS, L. P.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
ASSETS:
Cash........................................................ $ 109 $ 1,115
Restricted cash............................................. 2,723 2,564
Marketable securities (at market)........................... 150 149
Accounts receivable (net)................................... 526 353
Due from affiliate.......................................... 821 442
Prepaid and other assets.................................... 502 278
Investment in joint venture................................. 278 278
--------- ------------
Total.................................................... 5,109 5,179
--------- ------------
Property:
Buildings and other......................................... 2,499 2,231
Less Accumulated depreciation............................ 965 931
--------- ------------
Net buildings and other..................................... 1,534 1,300
Land held for sale.......................................... 923 930
Housing Inventories......................................... 16,455 13,978
Land held for development................................... 6,212 6,212
Capitalized predevelopment costs............................ 6,080 5,632
--------- ------------
Net properties........................................... 31,204 28,052
--------- ------------
TOTAL ASSETS........................................... $ 36,313 $ 33,231
========= ============
LIABILITIES:
Notes payable............................................... $ 17,594 $ 13,492
Accounts payable and accrued expenses....................... 2,325 2,636
Management fee due affiliate................................ 390 283
Accrued real estate taxes................................... 1,009 1,075
Allowance for claims and liabilities........................ 2,618 2,762
Unearned rents and deferred income.......................... 1,830 1,862
Other liabilities........................................... 1,985 1,712
--------- ------------
TOTAL LIABILITIES........................................ 27,751 23,822
--------- ------------
PARTNERS' CAPITAL:
General Partner............................................. -- --
Class A Limited Partners - 2,142 units authorized, issued
and outstanding............................................ -- --
Class B Limited Partner..................................... 8,562 9,409
--------- ------------
TOTAL PARTNERS' CAPITAL.................................. 8,562 9,409
--------- ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL..................... $ 36,313 $ 33,231
========= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3 of 24
<PAGE>
HEARTLAND PARTNERS, L. P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED
MARCH 31, 1999 AND MARCH 31, 1998
(dollars in thousands except per unit data)
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
1999 1998
------ -------
<S> <C> <C>
REVENUES:
--------
Property sales............................ $2,042 $ 1,265
Less: Cost of property sales............. 1,945 1,433
------ -------
Gross profit (loss) on property sales. 97 (168)
Portfolio income.......................... 18 10
Rental income............................. 248 217
Other revenue............................. 257 34
------ -------
TOTAL NET REVENUES................... 620 93
------ -------
OPERATING EXPENSES:
------------------
Selling expenses.......................... 620 894
Real Estate Taxes......................... 60 147
General and administrative expenses....... 647 769
Depreciation and amortization............. 34 28
Management fee............................ 106 106
------ -------
TOTAL EXPENSES....................... 1,467 1,944
------ -------
NET LOSS............................. $ (847) $(1,851)
====== =======
NET (LOSS) ALLOCATED
TO GENERAL PARTNER................... $ -- $ (19)
====== =======
NET (LOSS) ALLOCATED TO
CLASS B LIMITED PARTNER............ $ (847) $ (9)
====== =======
NET (LOSS) ALLOCATED TO
CLASS A LIMITED PARTNERS........... $ -- $(1,823)
====== =======
NET (LOSS) PER CLASS A
LIMITED PARTNERSHIP UNIT........... $ -- $ (.85)
====== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4 of 24
<PAGE>
HEARTLAND PARTNERS, L. P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
Cash Flow from Operating Activities:
- -----------------------------------
Net (loss).................................................................... $ (847) $(1,851)
Adjustments reconciling net (loss) to net cash used in operating activities:
Depreciation.................................................................. 34 28
Net change in allowance for claims and liabilities............................ (144) (51)
Net change in assets and liabilities:
(Increase) in accounts and accrued interest receivable..................... (168) (57)
Decrease (increase) in housing inventories, net............................ (2,477) 165
Decrease in land held for sale............................................. 7 --
Decrease in land held for development...................................... -- 81
(Increase) in capitalized development costs................................ (448) (260)
(Decrease) in accounts payable and accrued liabilities..................... (311) (219)
Increase in management fee due affiliate................................... 107 106
Net change in other assets and liabilities................................. (435) 256
------- -------
Net cash used in Operating Activities...................................... (4,682) (1,802)
------- -------
Cash Flow (used in)from Investing Activities:
- --------------------------------------------
Additions to buildings and other.............................................. (268) (21)
Net sales and maturities of marketable securities............................. 1 1
------- -------
Net cash used in investing activities......................................... (267) (20)
------- -------
Cash Flow from Financing Activities:
- -----------------------------------
Advances on notes payable, net................................................ 4,102 2,144
Increase in restricted cash................................................... (159) (170)
Distribution paid to unitholders.............................................. -- (1,631)
------- -------
Net cash provided by financing activities..................................... 3,943 343
------- -------
Decrease in cash.............................................................. (1,006) (1,479)
Cash at beginning of the period............................................... 1,115 1,890
------- -------
Cash at end of the period..................................................... $ 109 $ 411
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5 of 24
<PAGE>
HEARTLAND PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
March 31, 1999
These unaudited Consolidated Financial Statements of Heartland Partners, L.P., a
Delaware Limited Partnership, and its subsidiaries (collectively, "Heartland" or
the "Company"), have been prepared pursuant to the Securities and Exchange
Commission ("SEC") rules and regulations and should be read in conjunction with
the financial statements and notes thereto included in the Company's 1998 Annual
Report on Form 10-K (the "1998 Form 10-K"). The following Notes to Consolidated
Financial Statements highlight significant changes to the Notes included in the
1998 Form 10-K and present interim disclosures as required by the SEC. The
accompanying Consolidated Financial Statements reflect in the opinion of
management all adjustments necessary for a fair presentation of the interim
financial statements. All such adjustments are of a normal and recurring
nature. Certain reclassifications have been made to the prior periods'
financial statements in order to conform with current period presentation.
1. Summary of Significant Accounting Policies
Consolidation
- -------------
The consolidated financial statements include the accounts of Heartland; CMC,
its 99.99% owned operating partnership; HDC, 100% owned by Heartland; CMCI, 1%
general partnership interest owned by HDC and 99% owned by CMC; CMC II, CMC III,
CMCIV, CMCV, CMCVI, CMCVII, CMCVIII, LCL and LCC, each 100% owned by CMC. All
intercompany transactions have been eliminated in consolidation.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
- -------------------
Revenues from housing and land sales are recognized in the period which title
passes and cash is received.
Segment Reporting
- -----------------
During the fourth quarter of 1998, Heartland adopted Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information ("Statement No. 131"). Statement No. 131 superseded FASB
Statement of Financial Accounting Standards No. 14, Financial Reporting for
Segments of a Business Enterprise ("Statement No. 14"). Statement No. 131
establishes standards for the way that public business enterprises report
information regarding reportable operating
Page 6 of 24
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 1999
segments. The adoption of Statement No. 131 did not affect Heartland's results
of operations or financial position.
The Company has two primary reportable business segments, which consist of land
sales and property development (See Note 6 to the Consolidated Financial
Statements).
Property
- --------
Properties are carried at their historical cost. Expenditures which
significantly improve the values or extend useful lives of the properties are
capitalized. Predevelopment costs including interest, financing fees, and real
estate taxes that are directly identified with a specific development project
are capitalized. Repairs and maintenance are charged to expense as incurred.
Housing inventories, (including completed model homes), consisting of land, land
development, direct and indirect construction costs and related interest, are
recorded at cost which is not in excess of fair value.
Housing inventories consisted of the following at March 31, 1999 (amounts in
thousands):
<TABLE>
<S> <C>
Land under development....................... $ 6,037
Direct construction costs.................... 5,339
Capitalized project costs.................... 5,079
-------
$16,455
=======
</TABLE>
2. Contingencies
At March 31, 1999, Heartland's allowance for claims and liabilities was
approximately $ 2.6 million of which $0.4 million was for the resolution of non-
environmental claims and $2.2 million was for environmental matters.
Significant legal proceedings and contingencies are discussed in the 1998 Form
10-K.
3. Restricted Cash
The total restricted cash at March 31, 1999 and 1998 was $2,723,000 and
$894,000, respectively. Restricted cash increased $159,000 from December 31,
1998 to March 31, 1999. This increase was additional earnest money deposited on
sold units.
4. Notes Payable
Heartland has a line of credit agreement in the amount of $8.5 million with
LaSalle National Bank ("LNB"), pursuant to which CMC granted LNB a first lien on
certain parcels of land in Chicago, Illinois which had a carrying value of
$5,560,000 and $6,625,000 as of March 31, 1999, and 1998 respectively. Also,
pursuant to the line of credit agreement, CMC has pledged cash in the amount of
$850,000 as an interest reserve. The maturity date of the line of credit is
April 30, 1999. Advances against the line of
Page 7 of 24
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 1999
credit bear interest at the prime rate of LNB plus 1.0% (8.75% at March 31,
1999). At March 31, 1999, and 1998, $7,721,000 and $4,451,000 respectively, had
been advanced to the Company by LNB against the line of credit. The Company is
currently in negotiations with LNB to extend the maturity of the loan, modify
certain existing financial covenants, and increase the amount of the credit
facility. While the Company has no reason to believe that the extension,
modification of terms and increased capacity of the credit facility will not be
granted, there can be no assurance that the contemplated transaction will be
approved by LNB. No adjustments related to this uncertainty have been made in
the accompanying financial statements.
As of March 31, 1999, CMCV has a revolving line of credit agreement in the
amount of $3 million with NationsBank ("NB") to acquire lots and construct
houses in the Osprey Cove subdivision, St. Marys, Georgia, pursuant to which CMC
granted a first mortgage to NB on specific lots in said subdivision with a
carrying value of $4,254,000 and $3,789,000 at March 31, 1999, and 1998,
respectively. The maturity date of the revolving line of credit agreement is
June 30, 1999. The line of credit bears interest at the prime rate of NB plus 1%
(8.75% at March 31, 1999). At maturity, all outstanding advances and any accrued
interest must be paid. In the event the loan is not renewed, it will be extended
for a period of six months to allow for completion of homes then under
construction, but no new construction will be commenced. NB had advanced
$2,179,000 and $1,343,000 at March 31, 1999, and 1998, respectively against the
revolving line of credit facility.
In December 1998, the Company signed a commitment letter for $3,000,000 with NB
to construct homes in the Longleaf community. NB makes individual loans on each
home at the time construction begins. The third party developer subordinates its
lot to NB's construction loan. As of March 31, 1999, the Company had outstanding
balances on 6 term loans totaling $564,000. The carrying value of the related
inventory at March 31, 1999, totaled $729,000. The term of each loan is one year
and bears interest at the NB prime rate plus 1% (8.75% at March 31, 1999).
On November 30, 1998, Heartland executed an agreement for a $2,500,000 loan with
Bank One relating to the Bloomfield project. The two year loan bears interest
at the prime rate (7.75% at March 31, 1999). $500,000 of the loan was placed in
an interest reserve. In addition, Bank One is providing a $1,750,000
development loan, a letter of credit for $179,000 to the City of Rosemount and a
$4,000,000 revolving credit line for the construction of homes; these credit
facilities were executed on February 1, 1999. The loans bear interest at the
prime rate (7.75% at March 31, 1999). The loans mature on January 31, 2001 and
January 31, 2000, respectively. At March 31, 1999, $262,000 had been advanced
against the development loan and $249,000 against the revolving line of credit.
The three loans are collateralized by land and inventory with a carry value of
$3,468,000.
On January 6, 1999, the Kinzie Station 2.5 year loan agreement in the amount of
$29,812,000 was signed with Corus Bank N.A. The loan bears interest at the
prime rate plus one percent(8.75% at March 31, 1999). This loan is
collateralized by the real estate contained in the project. In conjunction with
the loan, a Construction Contract with the guaranteed maximum price of
$24,710,000 was entered into with a general contractor. At March 31, 1999,
$4,119,000 had been advanced against the loan.
5. Related Party Transactions
Heartland has a management agreement with Heartland Technology, Inc. ("HTI")
pursuant to which the Company is required to pay HTI an annual management fee in
the amount of $425,000. At March 31,
Page 8 of 24
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 1999
1999, the management fee accrued and unpaid was approximately $390,000. This was
an increase of $107,000 from December 31, 1998.
Under a management services agreement, HTI reimburses the Company for reasonable
and necessary costs and expenses for services. At March 31, 1999, HTI owed
Heartland approximately $821,000. This was an increase of $379,000 from December
31, 1998.
Page 9 of 24
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 1999
6. REPORTABLE SEGMENTS
The following tables set forth the reconciliation of net income and total assets
for Heartland's reportable segments for the quarters ended March 31, 1999 and
1998 (See Note 1 to the Consolidated Financial Statements).
<TABLE>
<CAPTION>
Property
(amounts in thousands) Land Sales(1) Development (2) Corporate (3) Consolidated
- --------------------------------- ------------------ ------------------ ---------------- -------------------
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
March 31, March 31, March 31, March 31,
1999 1998 1999 1998 1999 1998 1999 1998
------ ------ ------- -------- ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
- ---------
Property sales $ 37 $ 37 $ 2,005 $ 1,228 $ 0 $ 0 $ 2,042 $ 1,265
Less: cost of property sales ..... 7 0 1,938 1,433 0 0 1,945 1,433
------ ------ ------- -------- ------ ------ ------- --------
Gross profit on property sales . 30 37 67 (205) 0 0 97 (168)
Rental income..................... 248 217 0 0 0 0 248 217
Portfolio income.................. 0 0 0 0 18 10 18 10
Miscellaneous income.............. 0 0 257 34 0 257 34
------ ------ ------- -------- ------ ------ ------- --------
Total Net Revenues.............. 278 254 324 (171) 18 10 620 93
------ ------ ------- -------- ------ ------ ------- --------
Expenses:
- ---------
Selling........................... 255 202 365 692 0 0 620 894
Real estate taxes................. 30 147 30 0 0 0 60 147
General and Administrative........ 0 0 149 285 468 441 617 726
Environmental Expense............. 0 0 30 43 0 0 30 43
Management fee.................... 0 0 0 0 106 106 106 106
Depreciation and amortization..... 0 0 22 21 12 7 34 28
------ ------ ------- -------- ------ ------ ------- --------
Total Expenses.................. 285 349 596 1,041 586 554 1,467 1,944
------ ------ ------- -------- ------ ------ ------- --------
Net Income (Loss)............... $ (7) $ (95) $ (272) $ (1,212) $ (568) $ (544) $ (847) $ (1,851)
====== ====== ======= ======== ====== ====== ======= ========
Properties, net of accumulated $ 930 $1,170 $29,467 $ 21,379 $ 807 $ 654 $31,204 $ 23,203
depreciation.................... ====== ====== ======= ======== ====== ====== ======= ========
Total assets.................... $1,456 $1,478 $31,951 $ 22,445 $2,906 $1,675 $36,313 $ 25,598
====== ====== ======= ======== ====== ====== ======= ========
</TABLE>
1. The Land Sales reportable business segment consists of the approximately
15,644 acres of land located throughout 12 states for sale as of March 31,
1999. The related sales and marketing expenses are also reported in this
segment.
2. The Property Development reportable business segment consists of the
approximately 913 acres representing 15 sites that Heartland is in the
process of developing or homebuilding communities in which Heartland is
currently acquiring finished lots, selling and building homes. The related
selling and operating expenses are also reported for this business segment.
3. The Corporate level expenses consist of portfolio income from investments,
salaries and general and administrative expenses for the employees and
occupied office space in Chicago, Illinois.
Page 10 of 24
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward Looking Statements
We caution you that certain statements in the Management's Discussion and
Analysis of Condition and Results of Operation section, and elsewhere in this
Form 10-Q are "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements are not
guarantees of future performance. They involve risks, uncertainties and other
important factors, including the risks described in the Management's Discussion
and Analysis of Condition and Results of Operations section, and elsewhere in
this Form 10-Q. The Company's actual future results, performance or achievement
of results and the value of your stock, may differ materially from any such
results, performance or achievement or value implied by these statements. We
caution you not to put undue reliance on any forward-looking statement in these
documents. The Company claims the protections of the safe harbor for forward-
looking statements contained in Section 21E of the Securities Exchange Act of
1934.
Liquidity and Capital Resources
Cash flow for operating activities has been derived primarily from proceeds of
property sales and rental income. Cash and marketable securities at amortized
cost were $2,982,000 (including $2,723,000 of restricted cash) at March 31,
1999, and $3,828,000 (including $2,564,000 of restricted cash) at December 31,
1998. The decrease of $846,000 from December 31, 1998 to March 31, 1999, is
mainly attributable to capital expenditures for land development and
construction costs (see Consolidated Statement of Cash Flows).
Cash flow used for operations was $4,682,000 in the first quarter of 1999,
compared to $1,802,000 used in operations in the first quarter of 1998. The
increase in cash used in operations between the years of $2,880,000 is mainly
attributable to capital expenditures of $2,925,000 for housing inventories and
capitalized development costs in the first quarter of 1999.
At the quarter ending March 31, 1999, property designated for development
consisted of 15 sites comprising approximately 913 acres. The book value of this
land is $10.7 million or an average of $11,700 per acre. Heartland reviews
these properties to determine whether to hold, develop, joint venture or sell
them. Heartland's objective for these properties is to maximize unitholder
value over a period of years.
Heartland has a 3.88 acre site in the City of Chicago known as Kinzie Station.
Zoning approval for the construction of 381 dwelling units was received in 1997.
The construction on the first phase of the project started on October 1, 1998.
Phase I consists of 163 units in a Tower Building, 24 units in a Plaza Building
and 6 Townhomes. As of March 31, 1999, the Company has executed sale contracts
on 77 Tower units, 5 Plaza units and 3 Townhomes. The first closings are
expected to occur in the first quarter of the year 2000.
Page 11 of 24
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 1999
In addition to the 3.88 acre site, the Company owns approximately 11 acres of
land and 4 acres of air rights adjacent to Kinzie Station. This acreage is
currently zoned for industrial and manufacturing uses.
On January 6, 1999, the Kinzie Station 2.5 year loan agreement in the amount of
$29,812,000 was signed with Corus Bank N.A. The loan bears interest at the
prime rate plus one percent. This loan is collateralized by the real estate
contained in the project. In conjunction with the loan, a Construction Contract
with the guaranteed maximum price of $24,710,000 was entered into with a general
contractor. As of March 31, 1999, $4,119,000 has been advanced against the
loan.
Included in the aforementioned 913 acres are approximately 15 acres consisting
of 45 lots purchased for $1.6 million, or an average of $35,500 per lot at
Osprey Cove in St. Marys, GA. The 45 lots consist of 3 completed models, 2
unsold homes under construction, 8 sold homes under construction, 3 units sold
not under construction and 29 lots owned. Osprey Cove is a master-planned
residential community with a wide range of natural and recreation amenities
which includes a recreational complex, lakes, a boat dock and a boat launch.
At March 31, 1999, there were 13 homes under contract, 8 of which are under
construction at Osprey Cove. As of March 31, 1999, 22 contracts have closed; 7
in the first quarter of 1999, 13 in 1998 and 2 in 1997.
In addition to selling its own units, CMC also sells homes and lots for the
developer of Osprey Cove, and Osprey Cove homeowners. For the quarter ended
March 31, 1999, CMC sold 1 home for these owners.
As of March 31, 1999, CMCV has a revolving line of credit agreement in the
amount of $3,000,000 with NB for Osprey Cove that matures on June 30, 1999. The
line of credit with NB bears interest at the prime rate of NB plus 1% (8.75% at
March 31, 1999). At maturity, all outstanding advances and any accrued interest
must be paid. In the event the loan is not renewed, it will be extended for a
period of six months to allow for completion of homes then under construction,
but no new construction will be commenced. At March 31, 1999, $2,179,000 has
been advanced by NB against the revolving line of credit.
The Company is the exclusive homebuilder and sales agent for the Longleaf
Country Club in Southern Pines, North Carolina. CMC will sell and build 244
homes on lots currently owned by Longleaf Associates Limited Partnership, an
affiliate of General Investment & Development.
As of March 31, 1999, there were 9 homes under contract at Longleaf. There are
6 homes under construction at March 31, 1999, of which two are models, three are
under contract and one is unsold. The Company closed two contracts in the first
quarter of 1999.
When the Company assumed day to day operations of Longleaf in April 1998, there
were a number of units under construction which were owned by the developer, as
well as resale units, on the market. As of March 31, 1999, the Company has sold
a total of 14 units and 2 lots for these owners.
Page 12 of 24
<PAGE>
HEARTLAND PARTNERS,L.P.
March 31, 1999
In December 1998 the Company signed a commitment letter for $3,000,000 with NB
to construct homes in the Longleaf community. NB makes individual loans on each
home as it is started. The developer subordinates its lot to NB's construction
loan. The term of each loan is one year and bears interest at the NB prime rate
plus 1% (8.75% at March 31, 1999). At March 31, 1999, $564,000 had been advanced
by NB to the Company.
Heartland is seeking additional opportunities for homebuilding, particularly in
vacation/retirement communities.
Heartland has received approval on the 226 acre site it owns in Rosemount,
Minnesota. The development known as Bloomfield was approved for 226 attached
units and 241 detached single family homes, on 192 acres with the remaining 34
acres reserved for future residential development. This project will be
developed in phases.
In Rosemount, unlike most areas in the country, the City is responsible for
constructing the infrastructure improvements. It receives reimbursement for its
costs by real estate tax assessments. The City of Rosemount is approximately
eighty percent (80%) complete with the Phase I infrastructure and anticipates
completion by June 1, 1999. Phase I consists of 120 townhomes, 27 single family
homes and 10 twinhomes. At March 31, 1999, two model and four spec townhomes
are currently under construction. Also, a single family model home is under
construction. The Grand Opening of the models are planned for the spring of
1999. Phase II of Bloomfield has site plan approval from the City of Rosemount
for the construction of 20 twinhomes and 97 single family homes.
On November 30, 1998, Heartland executed an agreement for a $2,500,000 land loan
with Bank One relating to the Bloomfield project. The loan bears interest at
the prime rate(7.75% at March 31, 1999), $500,000 of the loan was placed in an
interest reserve (certificate of deposit). Also, Bank One is providing a
$1,750,000 land development loan, a letter of credit for $179,000 to the City of
Rosemount and a $4,000,000 revolving credit line for the construction of homes
pursuant to final documents which were signed on February 1, 1999. At March 31,
1999, $262,000 had been advanced against the land development loan and $249,000
against the revolving line of credit. The Company believes that no additional
financing will be needed for Phase I of the Rosemount community.
Heartland, along with Colliers, Bennett and Kahnweiler, a Chicago based real
estate company, and Wooton Construction, have formed a joint venture to develop
approximately 265,000 square feet of industrial space in the Goose Island
Industrial Park in Chicago, Illinois. As of March 31, 1999, the buildings had
been built and leases had been signed for approximately 260,000 of the 265,000
square feet.
On December 1, 1998 the Fife property was annexed to the City of Fife. A Local
Improvement District (LID) has been approved in order to support the improvement
and extension of sewers and sewer capacity for the site. Fife has zoned the
property for residential usage. Heartland is in the process of preparing the
preliminary site plan for the site. The Company expects to submit the site plan
in the second quarter of 1999 and expects to receive approval by the end of
1999.
Page 13 of 24
<PAGE>
HEARTLAND PARTNERS,L.P.
March 31, 1999
The Company owns Kilbourn Station , a three story, 60,000 square foot office
building and railroad depot in Milwaukee, Wisconsin. Amtrak provides interstate
passenger rail service using the station. The Company has worked with the State
of Wisconsin, the Wisconsin Congressional Delegation and the Milwaukee County
Transit Company (which provides local bus service) on plans to improve Kilbourn
Station. The plans enhance the linkage of the building to Milwaukee's new
"Midwest Express" convention center and to planned local bus routes as well as
updating the design of its interior space. The State has authorized the
expenditure of approximately $2 million in state funds and the federal
government has authorized approximately $2 million of federal funds for the
improvement of the facility. The Company expects to begin work on this project
in 1999.
The real estate development business is highly competitive. Heartland is subject
to competition from a great number of real estate developers, including
developers with national operations, many of which have greater sales and
financial resources than Heartland.
Property Sales and Leasing Activities
Heartland's current inventory of land held for sale consists of 15,644 acres
located throughout 12 states. The book value of this inventory is approximately
$923,000. The majority of the land is former railroad rights-of-way, long,
narrow strips of land that vary between 50-200 feet wide. Some of Heartland's
sites located in small rural communities or outlying mid-cities are leased to
third parties for agricultural, industrial, retail and residential use. These
properties may be improved with the lessee's structures and include grain
elevators, storage sheds, parking lots and small retail service facilities.
The sale, management and leasing of the Company's non-development real estate
inventory is conducted by Heartland's Sales and Property Management Department.
The volume of Company's sales has slowed over the last five years due to the
less desirable characteristics of the remaining properties. The Company
anticipates that the sale of its remaining parcels may take beyond the year
2001.
The Company has a current active lease portfolio of 188 leases. Less than 1% of
its total acreage is leased. The number of leases declines each year as sales
of properties are made to existing lessees. The majority of the leases provide
nominal rental income to Heartland. The leases generally require the lessee to
construct, maintain and remove any improvements, pay property taxes, maintain
insurance and maintain the condition of the property. The majority of the
leases are cancelable by either party upon thirty to sixty days notice.
Heartland's ability to terminate or modify certain of its leases is restricted
by applicable law and regulations.
The Company performs annual reviews on major properties to determine that the
capitalized cost of development properties does not exceed the current fair
value without regard to the property's expected net realizable value from
development. If the capitalized cost of any property exceeds the current fair
value, then a loss is recognized and the capitalized cost is reduced in
accordance with FAS 121. No loss is included in the statement of operations for
the quarters ended March 31, 1999, and 1998.
It is the Company's practice to evaluate environmental liabilities associated
with the Company's properties. Heartland monitors the potential exposure to
environmental costs on a regular basis and has
page 14 of 24
<PAGE>
HEARTLAND PARTNERS,L.P.
March 31,1999
recorded a liability in the amount of $2.2 million at March 31, 1999 for
possible environmental liabilities, including remediation, legal and consulting
fees. A reserve is established with regard to potential environmental
liabilities when it is probable that a liability has been incurred and the
amount of the liability can be reasonably estimated. The amount of any liability
is determined independently from any claim for recovery. If the amount of the
liability cannot be reasonably estimated, but management is able to determine
that the amount of the liability is likely to fall within a range, and no amount
within that range can be determined to be the better estimate, then a reserve in
the minimum amount of the range is accrued.
In addition, Heartland has established an allowance for resolution of non-
environmental claims of $.4 million.
Heartland does not at this time anticipate that these claims or assessments will
have a material effect on the Company's liquidity, financial position and
results of operations beyond the reserve which the Company has established for
such claims and assessments. In making this evaluation, the Company has assumed
that the Company will continue to be able to assert the bankruptcy bar arising
from the reorganization of its predecessor and that resolution of current
pending and threatened claims and assessments will be consistent with the
Company's experience with similar previously asserted claims and assessments.
While the timing of the payment in respect of environmental claims has not
significantly adversely affected the Company's cash flow or liquidity in the
past, management is not able to reasonably anticipate whether future payments
may or may not have a significant adverse effect in the future.
Heartland's management believes it will have sufficient funds available for
operating expenses, but anticipates the necessity of utilizing outside financing
to fund development projects. The Company has a line of credit with LNB in the
amount of $8.5 million. Cash in the amount of $850,000 is pledged as an interest
reserve. The line of credit matures April 30, 1999. Advances against the line
of credit bear interest at the prime rate of LNB plus 1.0% (8.75% at March 31,
1999). At March 31, 1999, $7,721,000 had been advanced to the Company by LNB
against the line of credit. The Company is currently in negotiations with LNB
to extend the maturity of the loan, modify certain existing financial covenants,
and increase the amount of the credit facility. While the Company has no reason
to believe that the extension, modification of terms and increased capacity of
the credit facility will not be granted, there can be no assurance that the
contemplated transaction will be approved by LNB.
Results of Operations
For the quarter ended March 31, 1999, operations resulted in a net loss of
$847,000 or $0 per Class A Unit. Operations for the quarter ended March 31,
1998, resulted in a net loss of $1,851,000 or $0.85 per Class A Unit.
The decrease in the net loss for the first quarter of 1999 compared to 1998 of
$1,004,000 is due to selling expenses decreasing $274,000, general and
administrative expenses decreasing to $122,000, a decrease
Page 15 of 24
<PAGE>
HEARTLAND PARTNERS,L.P.
March 31,1999
in real estate taxes of $87,000 and an increase in net revenues of $527,000 due
to improved gross profit on property sales and the receipt of a reimbursement of
$190,000 for prior year environmental expenses.
Heartland has approximately 188 active leases on its real estate properties,
which generated $248,000 and $217,000 of revenue for the first quarter of 1999
and 1998, respectively. The first quarter 1999 rental income is not
significantly greater than the first quarter of 1998.
Total expenses were $1,467,000 and $1,944,000 for the periods ending March 31,
1999 and 1998, respectively. The decrease of $477,000 is primarily due to
decreased selling expense of $274,000, decreased general and administrative
expenses of $122,000 and a decrease in real estate taxes of $87,000.
Economic and Other Conditions Generally
The real estate industry is highly cyclical and is affected by changes in
national, global and local economic conditions and events, such as employment
levels, availability of financing, interest rates, consumer confidence and the
demand for housing and other types of construction. Real estate developers are
subject to various risks, many of which are outside the control of the
developer, including real estate market conditions, changing demographic
conditions, adverse weather conditions and natural disasters, such as
hurricanes, tornados, delays in construction schedules, cost overruns, changes
in government regulations or requirements, increases in real estate taxes and
other local government fees and availability and cost of land, materials and
labor. The occurrence of any of the foregoing could have a material adverse
effect on the financial conditions of Heartland.
Access to Financing
The real estate business is capital intensive and requires expenditures for land
and infrastructure development, housing construction and working capital.
Accordingly, Heartland anticipates incurring additional indebtedness to fund
their real estate development activities. As of March 31, 1999, Heartland's
total consolidated indebtedness was $17,594,000. There can be no assurance that
the amounts available from internally generated funds, cash on hand, Heartland's
existing credit facilities and sale of non-strategic assets will be sufficient
to fund Heartland's anticipated operations. Heartland may be required to seek
additional capital in the form of equity or debt financing from a variety of
potential sources, including additional bank financing and sales of debt or
equity securities. No assurance can be given that such financing will be
available or, if available, will be on terms favorable to Heartland. If
Heartland is not successful in obtaining sufficient capital to fund the
implementation of its business strategy and other expenditures, development
projects may be delayed or abandoned. Any such delay or abandonment could result
in a reduction in sales and would adversely affect Heartland's future results of
operations.
Page 16 of 24
<PAGE>
HEARTLAND PARTNERS,L.P.
March 31,1999
Period-to-Period Fluctuations.
Heartland's real estate projects are long-term in nature. Sales activity varies
from period to period, and the ultimate success of any development cannot always
be determined from results in any particular period or periods. Thus, the timing
and amount of revenues arising from capital expenditures are subject to
considerable uncertainty. The inability of Heartland to manage effectively their
cash flows from operations would have an adverse effect on their ability to
service debt, and to meet working capital requirements.
Interest Rate Sensitivity
The Company's total consolidated indebtedness at March 31, 1999, is $17,594,000.
The Company pays interest on its outstanding borrowings under revolving credit
facilities and fixed loan amounts at the prime rate plus 0.00% to 1.00%. An
adverse change of 1.00% in the prime rate would increase the quarterly interest
incurred by approximately $44,000.
The Company does not have any other financial instruments for which there is a
significant exposure to interest rate changes.
Year 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than 2000. This
could result in a system failure or miscalculations causing disruptions of
operation, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Based on recent assessments, we have determined that we will be required to
modify or replace significant portions of our software and certain hardware so
that those systems will property recognize dates beyond December 31, 1999. We
believe that with modifications or replacements of existing software and certain
hardware, the Year 2000 issue can be mitigated. However, if such modifications
and replacements are not made, or are not completed timely, the Year 2000 issue
could materially affect our operations.
Our plan to resolve the Year 2000 issue involves the following four phases:
assessment, remediation, testing and implementation. To date, we have fully
completed our assessment of all systems that could be significantly affected by
the Year 2000. The completed assessment indicated that most of the Company's
significant information technology systems could be affected, particularly the
general ledger, billing and inventory systems. Based on a review of our product
line, we have determined that most of the products we have sold and will
continue to sell do not require remediation to be Year 2000 compliant.
Accordingly, we do not believe that the Year 2000 presents a material exposure
as it relates to our products. In addition, we have gathered information about
the Year 2000 compliance status of our significant suppliers and subcontractors
and continue to monitor their compliance.
Page 17 of 24
<PAGE>
HEARTLAND PARTNERS,L.P.
March 31,1999
For its information technology exposures, to date the Company is substantially
complete on the remediation phase and we expect to complete software
reprogramming and replacement no later than June 30, 1999. Once software is
reprogrammed or replaced for a system, we will begin testing and implementation.
These phases run concurrently for different systems. We have begun the testing
and implementation of our remediated systems. The testing phase for all
significant systems is completed, with all remediated systems fully tested and
expected to be implemented by June 30, 1999, with 100% completion targeted for
September 30, 1999.
The remediation of operating equipment is significantly more difficult than the
remediation of the information technology systems because some of the
manufacturers of the equipment have not yet provided the necessary remediation
programming. Therefore, we are only 50% complete in the remediation phase of
our operating equipment. Testing of this equipment is more difficult than the
testing of the information technology systems; as a result, the Company has
recently started with the testing of its remediated operating equipment. Once
testing is satisfactorily completed, the operating equipment will be ready for
immediate use. The Company expects to complete its remediation efforts by June
30, 1999. Testing and implementation of affected equipment is expected to be
completed by September 30, 1999.
We have begun to query our significant suppliers and subcontractors that do not
share information systems with the Company (external agents). To date, we are
not aware of any external agent with a Year 2000 issue that would materially
impact our results of operations, liquidity, or capital resources. However, we
have no means of ensuring that external agents will be Year 2000 ready. The
inability of external agents to complete their Year 2000 resolution process in a
timely fashion could materially affect our business or financial results. The
effect of non-compliance by external agents is not determinable.
We will utilize both internal and external resources to reprogram, or replace,
test and implement the software and operating equipment for Year 2000
modifications. The total cost of the Year 2000 project is estimated at $200,000
and is being funded through operating cash flows. To date, the Company has
incurred approximately $185,000 ($25,000 expensed and $160,000 capitalized for
new systems and equipment), related to all phases of the Year 2000 project. Of
the total remaining project costs, none of the remaining $15,000 relates to
repair of hardware and software and will be expensed as incurred.
We believe that we have an effective program in place to resolve the Year 2000
issue in a timely manner. As noted above, we have not yet completed all
necessary phases of the Year 2000 program. If we do not complete any additional
phases, the Company would be unable to take customer orders, manufacture
products, finance construction or collect payments. In addition, disruptions in
the economy generally resulting from Year 2000 issued could also materially
affect the Company. The Company could be subject to litigation for computer
system product failure, for example, equipment shutdown or failure to properly
date business records. The amount of potential liability and lost reserve cannot
be reasonably estimated at this time.
We have began to formulate our contingency plans if we do not complete all
phases of the Year 2000 program. We plan to evaluate the status of completion
in June 1999 and determine whether additional planning or implementation is
necessary. If we are unable to successfully implement any of the four
Page 18 of 24
<PAGE>
HEARTLAND PARTNERS,L.P.
March 31,1999
phases of our Year 2000 plan and we do not develop a contingency plan to address
such problems, or if Year 2000 issues negatively affect our suppliers, our
customers or the economy generally, our business or financial results may be
materially affected.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
See Management's Discussion and Analysis of Financial Condition and Results of
Operations: Economic and Other Conditions Generally, Access to Financing and
Interest Rate Sensitivity.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings and Contingencies
At March 31, 1999, Heartland's allowance for claims and liabilities was
approximately $2.6 million. During the quarter ended March 31, 1999, a reduction
of approximately $150,000 in the provision was recorded in respect to
environmental matters. Material legal matters are discussed below.
Soo Line Matters
- ----------------
The Soo Line Railroad Company (the "Soo") has asserted that the Company is
liable for certain occupational injury claims filed after the consummation of an
Asset Purchase Agreement and related agreements ("APA") by former employees now
employed by the Soo. The Company has denied liability for each of these claims
based on a prior settlement with the Soo. The Soo has also asserted that the
Company is liable for the remediation of releases of petroleum or other
regulated materials at six different sites acquired from the Company located in
Iowa, Minnesota and Wisconsin. The Company has denied liability based on the
APA.
The occupational and environmental claims are all currently being handled by the
Soo, and the Company understands the Soo has paid settlements on many of these
claims. As a result of Soo's exclusive handling of these matters, the Company
has made no determination as to the merits of the claims and is unable to
determine the materiality of these claims.
Tacoma, Washington
- ------------------
In June 1997, the Port of Tacoma ("Port") filed a complaint in the United States
District Court for the Western District of Washington alleging that the Company
was liable under Washington state law for the cost of the Port's remediation of
a railyard sold in 1980 by the bankruptcy trustee for the Company's predecessor
to the Port's predecessor in interest.
On October 1, 1998, the Company entered into a Settlement Agreement with the
Port in which the Port released all claims and the Company agreed to either pay
$1.1 million or to convey real property to be
Page 19 of 24
<PAGE>
HEARTLAND PARTNERS,L.P.
March 31,1999
agreed upon between the parties at a later date. At March 31, 1999, Heartland's
allowance for claims and liabilities for this site was $1,100,000.
The Company will not make a claim on its insurance carriers in this matter
because the settlement amount does not exceed the self insured retention under
the applicable insurance policies.
Wheeler Pit, Janesville, Wisconsin
- ----------------------------------
In November 1995 the Company settled a claim with respect to the Wheeler Pit
site near Janesville, Wisconsin. The Company's only outstanding obligation under
the settlement is to pay 32% of the monitoring costs for twenty-five years
beginning in 1997.
Miscellaneous Environmental Matters
- -----------------------------------
Under environmental laws, liability for hazardous substance contamination is
imposed on the current owners and operators of the contaminated site, as well as
the owner or the operator of the site at the time the hazardous substance were
disposed or otherwise released. In most cases, this liability is imposed
without regard to fault. Currently, the Company has known environmental
liabilities associated with certain of its properties arising out of the
activities of its predecessor or certain of its predecessor's lessees and may
have further material environmental liabilities as yet unknown. The majority of
the Company's known environmental liabilities stem from the use of petroleum
products, such as motor oil and diesel fuel, in the operation of a railroad or
in operations conducted by its predecessor's lessees. The following is a summary
of material known environmental matters, in addition to those described above.
The Montana Department of Environmental Quality ("DEQ") has asserted that the
Company is liable for some or all of the investigation and remediation of
certain properties in Montana sold by its predecessor's reorganization trustee
prior to the consummation of its predecessor's reorganization. The Company has
denied liability at certain of these sites based on the reorganization bar of
the Company's predecessors. The Company's potential liability for the
investigation and remediation of these sites was discussed in detail at a
meeting with DEQ in April 1997. While DEQ has not formally changed its position,
DEQ has not elected to file suit. Management is not able to express an opinion
at this time whether the cost of the defense of this liability or the
environmental exposure in the event of the Company's liability will or will not
be material.
At twelve separate sites, the Company has been notified that releases arising
out of the operations of a lessee, former lessee or other third party have been
reported to government agencies. At each of these sites, the third party is
voluntarily cooperating with the appropriate agency by investigating the extent
of any such contamination and performing the appropriate remediation, if any.
The Company has petroleum groundwater remediation projects or long term
monitoring programs at Austin, Minnesota, Farmington, Minnesota, and Miles City,
Montana.
In December 1989, the Minnesota Pollution Control Agency ("MPCA") added a site
which includes the Company's Pig's Eye Yard site in St. Paul, Minnesota to its
Permanent List of Priorities based on
Page 20 of 24
<PAGE>
HEARTLAND PARTNERS,L.P.
March 31,1999
historical records and an initial investigation of soil and groundwater
conditions adjacent to Pig's Eye Yard. Portions of this site had been leased to
the City of St. Paul for a landfill and to the Metropolitan Waste Control
Commission for disposal of incinerator ash. The site, which includes portions of
the adjacent municipal waste water treatment plant, was placed on the Superfund
Accelerated Clean Up Model list in 1993. No potentially responsible parties
("PRPs") have been formally named at this site. The Company has reached an
agreement to sell its interest in this property to the city of St. Paul for
$630,000. This sale closed April 30, 1999.
The Company has an interest in property at Moses Lake, Washington previously
owned and used by the United States government as an Air Force base. Sampling by
the Army Corps of Engineers has indicated the presence of various regulated
materials, primarily in the groundwater, which were most likely released as a
result of military or other third party operations. A portion of the Company's
property is located over a well field which was placed on the national priority
list in October 1992. The Company has not been named as a PRP.
The Company is voluntarily investigating the environmental condition of a
property in Minneapolis, Minnesota in connection with a contract to sell the
property. The investigation has indicated certain metal impacts in the soil and
groundwater.
In addition to the environmental matters set forth above, there may be other
properties, i), with environmental liabilities not yet known to the Company, or
ii), with potential environmental liabilities for which the Company has no
reasonable basis to estimate or, iii), which the Company believes the Company is
not reasonably likely to ultimately bear the liability, but the investigation or
remediation of which may require future expenditures. Management is not able to
express an opinion at this time whether the environmental expenditures for these
properties will or will not be material.
The Company has given notice to its insurers of certain of the Company's
environmental liabilities. Due to the high deductibles on these policies, the
Company has not yet demanded that any insurer indemnify or defend the Company.
Consequently, management has not formed an opinion regarding the legal
sufficiency of the Company's claims for insurance coverage.
The Company is also subject to other suits and claims which have arisen in the
ordinary course of business. In the opinion of management, reasonably possible
losses from these matters should not be material to the Company's results of
operations or financial condition.
Page 21 of 24
<PAGE>
HEARTLAND PARTNERS,L.P.
March 31,1999
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- ------------------------------------------------------------------
<S> <C>
10.16 Construction Loan Agreement dated January 6, 1999 between CMC
Heartland Partners III, LLC and Corus Bank, N.A. (filed herewith)
10.17 The First Amendment of Mortgage and Other Loan Documents dated
February 1, 1999 between CMC Heartland Partners I, Limited
Partnership and Bank One, Illinois, NA (filed herewith)
27 Financial Data Schedule (filed herewith)
</TABLE>
(b) Reports on Form 8-K; No report on Form 8-K was filed during the quarter
ended March 31, 1999.
Page 22 of 24
<PAGE>
HEARTLAND PARTNERS,L.P.
March 31,1999
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.
HEARTLAND PARTNERS,L.P.
(Registrant)
Date: May 17, 1999 BY: /s/ Edwin Jacobson
---------------------------------
Edwin Jacobson
President and Chief Executive Officer
Heartland Technology, Inc.
the General Partner
Date: May 17, 1999 BY: /s/ Richard P. Brandstatter
---------------------------------
Richard P. Brandstatter
Vice-President-Finance, Secretary
and Treasurer of
Heartland Technology, Inc.
the General Partner
Page 23 of 24
<PAGE>
HEARTLAND PARTNERS,L.P.
March 31,1999
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -------------------------------------------------------------------------
<S> <C>
10.16 Construction Loan Agreement dated January 6, 1999 between CMC
Heartland Partners III, LLC and Corus Bank, N.A. (filed herewith)
10.17 The First Amendment of Mortgage and Other Loan Documents dated
February 1, 1999 between CMC Heartland Partners I, Limited Partnership
and Bank One, Illinois, NA (filed herewith)
27 Financial Data Schedule (filed herewith)
</TABLE>
Page 24 of 24
<PAGE>
Exhibit 10.16
CONSTRUCTION LOAN AGREEMENT
THIS CONSTRUCTION LOAN AGREEMENT is made as of January 6, 1999 (the
"AGREEMENT") between CMC HEARTLAND PARTNERS III, LLC, a Delaware limited
liability company, having offices at 547 W. Jackson Boulevard, Suite 1510,
Chicago, Illinois 60661 (herein "BORROWER"), and CORUS BANK, N.A., having
--
offices at 3959 N. Lincoln Avenue, Chicago, Illinois 60613 and its successors
and assigns (herein, "LENDER").
RECITALS
--------
A. Borrower is the fee simple owner of a 3.9 acre parcel of land located
in Chicago, Illinois, which is more particularly described on Exhibit A attached
---------
to and made a part of this Agreement (the "LAND"), which Land is currently
improved with certain improvements (collectively, the "EXISTING IMPROVEMENTS"),
and is a parcel of land bounded on the West by Halsted Street, on the East by
Jefferson Street, on the South by Wayman Street, and on the North by railroad
tracks.
B. Borrower has applied to Lender for a loan in the aggregate principal
amount of up to TWENTY-NINE MILLION EIGHT HUNDRED TWELVE THOUSAND DOLLARS
($29,812,000.00) (of which only Twenty Four Million Two Hundred Ten Thousand
Dollars may be outstanding at anytime during the Loan Term) (the LOAN"), the
proceeds of which will be used to reimburse Borrower for certain costs incurred
in connection with the development of the Project (as hereinafter defined), to
pay interest, insurance and real estate taxes and certain other fees, costs and
liabilities incurred by Borrower during construction of the Project, and to pay
certain hard costs incurred in constructing the Improvements (as hereinafter
defined) and converting the Project into a residential condominium, all as more
fully set forth in this Loan Agreement.
C. Lender is willing to make the Loan to Borrower, upon and subject to
the terms and conditions contained herein and in the other Loan Documents.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1.
INCORPORATION OF RECITALS AND EXHIBITS
SECTION 1.1 INCORPORATION OF RECITALS. The foregoing Recitals are
-------------------------
incorporated herein and expressly made a part hereof.
<PAGE>
SECTION 1.2 INCORPORATION OF EXHIBITS. All Exhibits hereto are
-------------------------
incorporated herein and expressly made a part hereof.
ARTICLE 2.
PARTICULAR TERMS; DEFINITIONS
SECTION 2.1 DEFINITIONS. For all purposes of this Agreement, the
following terms, except as otherwise expressly provided or unless the context
requires otherwise, shall have the respective meanings hereinafter specified:
ACCOUNTS AND INTANGIBLES: All accounts, accounts receivable, deposits,
deposit accounts, payments, all right to payment, all the records and books of
account now or hereafter maintained by Borrower in connection with the operation
of the Project or otherwise; all contract rights, rights to the payment of money
including tax refund claims, insurance proceeds and tort claims, chattel paper,
documents, instruments, general intangibles, securities, together with all
income therefrom, increases thereunder and proceeds thereof; and all judgments,
awards of damages and settlements hereafter made resulting from condemnation
proceedings or the taking of any of the Real Estate or any portion thereof under
the power of eminent domain, any proceeds of any policies of insurance
maintained with respect to any of the Project and proceeds of any sale, option
or contract to sell the Project or any portion thereof.
ADDITIONAL EQUITY: As defined in Section 3.1(b).
--------------
ADVANCE: As defined in Section 3.1.
-----------
ADA: The Americans with Disabilities Act of 1990, 42 U.S.C. 12101, as from
time to time amended, together with any and all comparable Illinois Laws.
AFFILIATE DEBT: As defined in Section 5.1(mm).
--------------
AFFILIATES: With respect to an individual, any relative of such
individual; and with respect to any Person, any other Person: (i) directly or
indirectly controlling, controlled by or under direct or indirect common control
with, such Person or (ii) that directly or indirectly owns any of the voting
securities or capital stock of such person. A Person shall be deemed to control
another Person, if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such other
Person, whether through the ownership of voting securities by contract or
otherwise.
AGREEMENTS: All contracts, agreements, warranties, representations,
service agreements, maintenance contracts and agreements relating to the use,
occupancy, operation, management, repair and service of the Project or any part
thereof, whether presently existing or entered into after the date hereof,
including without limitation, all sales and brokerage agreements and any
agreement with respect to the sale or sales of any residential condominium unit.
ALTA: American Land Title Association.
2
<PAGE>
APPROVED PLANS: All Plans for the Project as the same have been
approved by Lender in accordance with the provisions of this Agreement.
APPROVED CLOSING COSTS: With respect to the Approved Sale of a Condominium
Unit, all reasonable and customary closing costs and adjustments not to exceed
the lesser of: (a) seven percent (7%) of the applicable Gross Sale Proceeds, or
(b) the amount actually incurred and paid by Borrower (without contribution by
the purchaser), documented to Lender's satisfaction, and approved by Lender,
including, without limitation, title insurance premiums, title company charges,
Permitted Commissions (but not other broker's commissions or finder's fees),
reasonable and customary attorneys' fees, customary recordation charges and
transfer taxes (but expressly excluding amounts Borrower is required to pay,
deduct or place into escrow on account of unfinished work in the condominium
unit or at the Project or on account of common charges or real estate taxes).
APPROVED HOLDBACK: An holdback of a deminimus portion of the gross
contract sale price for a Condominium Unit which is required by the purchaser of
the Condominium Unit or by such purchaser's lender which holdback is (a)
approved by Lender, in its sole but reasonable discretion, in advance of the
closing of the applicable Condominium Unit, (b) is due and payable upon
completion of the item or item of work to be completed with respect to the
applicable Condominium Unit, (c) escrowed with the Title Company pursuant to
customary escrow instruction which require release thereof directly to Lender
for application to the Obligations upon satisfaction of the conditions to such
release.
APPROVED SALE: A bona fide, arms-length sale, transfer or conveyance of a
Condominium Unit pursuant to a Valid Sales Contract, to any third party not
related to or affiliated with Borrower, the members of Borrower, or Guarantor or
any Affiliate of either Borrower, the members of Borrower, or Guarantor.
ARCHITECT: Papageorge Haymes or any other architect approved by Lender
in its reasonable discretion.
ARCHITECTURE AND ENGINEERING DOCUMENTS: As defined in the Assignment of
Architectural and Engineering Documents.
ASSIGNMENT OF LEASES AND RENTS: The Assignment of Leases and Rents, dated
as of the date hereof, made by Borrower to Lender for the benefit of Lender and
its participants, successors and assigns.
ASSIGNMENT OF ARCHITECTURAL AND ENGINEERING DOCUMENTS: The Collateral
Assignment of Architectural and Engineering Documents, dated as of the date
hereof, made by Borrower to Lender for the benefit of Lender and its
participants, successor and assigns.
ASSIGNMENT OF CONSTRUCTION AND OPERATION DOCUMENTS: The Collateral
Assignment of Construction and Operation Documents, dated as of the date hereof,
made by Borrower to Lender for the benefit of Lender and its participants,
successor and assigns.
3
<PAGE>
BANKRUPTCY CODE: The United States Bankruptcy Code, 11 U.S.C. (S)(S) 101
et. seq., as amended from time to time, and all regulations promulgated
thereunder and rules of practice and procedure applicable thereto.
BORROWER: CMC HEARTLAND PARTNERS III, LLC., a Delaware limited liability
company.
BUILDER'S RISK INSURANCE: As defined in Section 8.1.
-----------
BY-LAWS: The condominium by-laws in accordance with 765 ILCS 605/18, and
otherwise in form reasonably approved by Lender.
BUSINESS DAY: Any day (other than a Saturday or Sunday or a day when
commercial banks are required by law to close in Chicago, Illinois) on which The
Wall Street Journal is published.
CASUALTY INSURANCE: As defined in Section 8.1.
-----------
CLOSING DATE: January 6, 1999.
CLOSING EXPENSES: As defined in Section 4.1
-----------
COLLATERAL: The Project, including the Land and the Improvements, the
Accounts and Intangibles, the Plans, the Permits, the Agreements, the
Construction Documents, the Approved Plans, and all other property of every kind
and description owned by Borrower or in which Borrower has an interest (to the
extent of such interest), used or useful in the construction, ownership,
occupancy, operation and maintenance of the Project, together with any and all
proceeds of the foregoing, including, without limitation, any and all cash and
non-cash consideration received from the sale, exchange, lease, collection or
other disposition of any of the foregoing, any value received as a consequence
of the possession of any of the foregoing, any payment received from any insurer
or other person or entity as a result of the destruction, loss, theft, damage or
other involuntary conversion of whatever nature of any of the foregoing, and all
equipment, machinery, furniture, inventory, other goods, fixtures, general
intangibles, instruments, chattel paper, documents, accounts and all other
property of any kind or nature which are acquired with any proceeds of any of
the foregoing.
COMMITMENT: That certain letter of commitment dated December 3, 1998
from Lender to Borrower, and accepted by Borrower on December 7, 1998.
COMPLETION or COMPLETION OF THE PROJECT: The development, construction
and equipping of the Project shall be 100% complete in accordance with the
Approved Plans, all Laws, and all Governmental Approvals, and each condition to
the final disbursement of Loan proceeds as set forth in Section 7.14 of this
------------
Agreement shall have been satisfied.
COMPLETION DATE: December 31, 2000.
4
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CONDOMINIUM DOCUMENTS: The Declaration, the Plat, the By-Laws, the
Offering Materials and all others documents and instruments related to the
creation, conversion and maintenance of the Project as condominium property
under the applicable Laws of the State of Illinois.
CONDOMINIUM UNIT: A residential condominium unit including its dedicated
parking space within the Project, as depicted in the Approved Plans and the
Declaration.
CONSTRUCTION BUDGET: A detailed full cost budget for the acquisition,
construction and development of the Project, setting forth a breakdown and
itemization of all costs and expenses of every kind and nature to be incurred in
order to acquire the Project and complete construction of the Improvements, all
according to the Approved Plans (segregating on a line item-by-item basis all
direct construction costs and indirect construction costs and otherwise
necessary to make the Project ready for its full use, occupancy and operation,
together with a trade payment breakdown containing details of amounts
anticipated to be payable for each category of work to be performed and
materials to be supplied in connection with the construction and development of
the Project, containing such reserves and contingencies as may be required by
Lender (including without limitation, a "contingency" line item of not less than
$250,000 of the hard costs of constructing the Improvements and an Interest
Reserve amount of not less than $1,743,025), and otherwise in such form and
containing such other details and information as Lender shall require, as same
may be amended from time to time pursuant to the provisions of this Agreement
with Lender's prior written consent as provided herein.
CONSTRUCTION CONTRACT: Any contract between Borrower and any Contractor
for the development, construction and equipping of the Project or any part
thereof.
CONSTRUCTION DOCUMENTS: As defined in the Assignment of Construction and
Operation Documents.
CONSTRUCTION SCHEDULE: A projected schedule for the progress of
development, construction and equipping of the Project setting forth the monthly
projected Advances of the Loan throughout the construction period and a
construction progress schedule reflecting, among other things, the anticipated
dates of completion of and the timing of disbursements of incremental amounts of
various subcategories of the Construction Budget, all in such form and
containing such details as Lender shall require in their sole and absolute
discretion.
CONTRACTOR: Any contractor party to a Construction Contract.
DECLARATION: The declaration of condominium, covenants, restrictions,
easements, charges and liens and by-laws, in form and substance reasonably
satisfactory to Lender, subjecting the Project to a condominium form of
ownership, all in conformance with applicable Laws, including without
limitation, 765 ILCS 605/1, et seq.
DEFAULT: Any event which, if it were to continue uncured, would, with
notice or lapse of time or both, constitute an Event of Default (as such term is
defined in Article 14 of this Agreement) and shall also mean any event or
----------
circumstance which immediately upon occurrence of the same constitutes an Event
of Default.
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DEFAULT RATE: A rate per annum equal to the Interest Rate plus five
----
percent (5%). In no event shall the Default Rate exceed the maximum interest
rate permitted under applicable Law.
DISTRIBUTION: The declaration or payment of any dividend or distribution
on or in respect of any shares of any class of capital stock of any Person or
any distribution of cash or cash flow in respect of any partnership, membership
or other ownership interest in any Person, other than dividends payable solely
in shares of common stock of such Person; or the purchase, redemption, or other
retirement of any shares of any class of capital stock or ownership interest of
any Person or ownership interests in such Person, directly or indirectly through
a subsidiary (of any tier) or otherwise; the making of any loans to any
shareholder, member, constituent partner or Affiliate; the return of capital by
any Person to its shareholders, members or partners as such; or any other
distribution on or in respect of any shares of any class of capital stock or
ownership interest of any Person or any partnership, membership or other
ownership interest in any Person.
ENVIRONMENTAL INDEMNITY AGREEMENT: The Environmental Remediation and
Indemnity Agreement, dated as of the date hereof, made by Borrower and
Guarantor, jointly and severally, for the benefit of Lender, and its
participants, successor and assigns.
ENVIRONMENTAL LAWS: Any federal, state or local law, statute, ordinance,
code, rule, regulation, license, authorization, decision, order, injunction,
decree, or rule of common law, and any judicial interpretation of any of the
foregoing, which pertains to health, safety any Hazardous Material, or the
environment (including but not limited to ground or air or water or noise
pollution or contamination, and underground or above ground tanks) and shall
include without limitation, the Solid Waste Disposal Act, 42 U.S.C. (S) 6091 et
--
seq.; the Comprehensive Environmental Response, Compensation Liability Act of
- ----
1980, 42 U.S.C. (S) 9601 et seq., as amended ("CERCLA"), and as amended by the
-- ---
Superfund Amendments and Reauthorization Act of 1986 ("SARA"); the Hazardous
Materials Transportation Act, 49 U.S.C. (S) 1801 et seq.; the Federal Water
-- ---
Pollution Control Act, 33 U.S.C. (S) 1251 et seq.; the Clean Air Act, 42 U.S.C.
-- ---
(S) 7401 et seq.; the Toxic Substances Control Act, 15 U.S.C. (S) 260I et seq.;
-- --- -- ---
and any other state or federal environmental statues, and all rules,
regulations, orders and decrees now or hereafter promulgated under any of the
foregoing, as any of the foregoing now exist or may be changed or amended or
come into effect in the future.
ENVIRONMENTAL PROCEEDINGS: As defined in Section 5.1(g).
--------------
ENVIRONMENTAL REPORTS: Phase I Environmental Site Assessment, dated March
21, 1996, prepared by ATEC Associates, and that certain letter, dated December
2, 1998, from Patrick Engineering, Inc. to Mr. Charles J. Harrison at CMC
Heartland Partners regarding PEI Project No. 450.10.
ERISA: Employee Retirement Income Security Act of 1974, as amended, and
the regulations promulgated thereunder from time to time.
EVENT OF DEFAULT: As defined in Section 15.1.
------------
GAAP: Generally accepted accounting principles, consistently applied.
6
<PAGE>
GENERAL CONTRACT: That certain fixed price or guaranteed maximum price
contract for the construction of the Project in accordance with the Approved
Plans (as set forth in Section 7.1(a)) in an amount not more than $24,710,000.00
--------------
and including a contingency reserve of not less than $250,000.00, and otherwise
in form and content satisfactory to Lender in its reasonable discretion.
GENERAL CONTRACTOR: The contractor party to the General Contract approved
by Lender or such other general contractor as Lender shall approve in its sole
discretion.
GOVERNMENTAL APPROVALS: As defined in Section 5.1(n).
--------------
GOVERNMENTAL AUTHORITY: Any federal, state, county or municipal
government, or political subdivision thereof, any governmental or quasi-
governmental agency, authority, board, bureau, commission, department,
instrumentality, or public body, or any court or administrative tribunal, and
each and every insurer covering any of the risks against which the Project is to
be insured pursuant to Section 8.1(a) hereof.
--------------
GROSS SALE PROCEEDS: The gross proceeds of any Approved Sale or other
transfer of any Condominium Unit (excluding sale proceeds in payment for extras
and upgrades to such Condominium Unit that can be demonstrated, on a basis
satisfactory to Lender, to have not been funded with proceeds of the Loan), it
being understood that (a) no sale of a Condominium Unit may be made, except on
an all-cash basis unless Lender in its sole discretion otherwise agrees, in
writing, and (b) no Condominium Unit may be sold for less than its applicable
Minimum Sales Price (exclusive of concessions, upgrades and extras).
GUARANTY: That certain Guaranty, of even date herewith, executed and
delivered by Guarantor to Lender in connection with the Loan.
GUARANTOR: Heartland Partners, L.P., a Delaware limited partnership,
and its successors and assigns.
HAZARDOUS MATERIAL: Any (a) crude oil, petroleum or any fraction thereof,
flammable substances, explosives, radioactive materials, hazardous wastes or
substances, toxic wastes or substances or any other wastes, materials or
pollutants which cause the Project or any part thereof to be in violation of any
Environmental Laws; (b) friable or potentially friable asbestos or asbestos-
containing material (as those terms are defined in any Environmental Laws now in
effect or hereafter enacted or amended), urea formaldehyde foam insulation,
transformers or other equipment which contain dielectric fluid containing levels
of polychlorinated biphenyls, or radon gas; (c) chemical, material or substance
defined as or included in the definition of "hazardous substances", "hazardous
wastes", "hazardous materials", "extremely hazardous waste", "restricted
hazardous waste", or "toxic substances" or words of similar import under any
applicable local, state or federal law now in effect or hereafter enacted or
amended or under regulations now or hereafter promulgated pursuant thereto,
including, but not limited to, the CERLCA, particularly as amended by the SARA;
the Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1251, et
seq.; 40 C.F.R. (S)(S) 261.20-261.24, inclusive; and the Resource Conservation
and Recovery Act, as amended (42 U.S.C. (S) 6901, et. seq.); (d) other chemical,
-- ---
material or substance, exposure to which is now or hereafter prohibited, limited
or
7
<PAGE>
regulated by any Governmental Authority or is likely to pose a material hazard
to the health and safety of the occupants of the Project or the owners and/or
occupants of property adjacent to or surrounding the Project, or any other
Person coming upon the Project or adjacent property; and (e) other chemical,
materials or substance which is likely to pose a material hazard to the
environment or the removal of which is required or the use, production, storage,
handling, transfer, refinement, manufacturing, maintenance, ownership, presence,
treatment, processing, transport, generation, removal, remediation, manufacture,
discharge, release or disposal of which is restricted, prohibited, regulated or
penalized by any Environmental Laws (including, without limitation, the
Occupational Safety and Health Act and 29 C.F.R. Part 1910 subpart z).
IMPROVEMENTS: A twenty-five story condominium project and all
improvements, fixtures, personalty and appurtenances to be constructed on the
Land in accordance with the Approved Plans, and consisting of 163 residential
condominium units of approximately 175,000 square feet in the aggregate, an
indoor parking garage with not less than 163 parking spaces, and related infra
structure and related facilities, all as more fully set forth in the Approved
Plans.
INITIAL EQUITY CONTRIBUTION: As defined in Section 3.1(b).
--------------
INSURANCE REQUIREMENTS: With respect to the Project, all requirements of
each and every insurer covering any of the risks against which the Project is to
be insured pursuant to Section 8.1(a) hereof
--------------
INTEREST RESERVE: As defined in Section 3.15.
------------
INTERNAL REVENUE CODE: The United States Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder from time to time.
LAND: The land legally described in Exhibit A hereto, commonly
---------
known as Kinzie Station, Phase I, together with all easements, air rights,
servitudes, rights of way, gores of land, streets, ways, alleys, passages, sewer
rights, waters, water courses, water rights and powers, and all estates, rights,
titles, interests, privileges, liberties, tenements, hereditaments and
appurtenances whatsoever, in any way now or hereafter belonging, relating or
appertaining to the Land, and the reversions, remainder, rents, issues and
profits thereof, and all the estate, right, title, interest, property,
possession, claim and demand whatsoever, at law as well as in equity, of
Borrower of, in and to the same.
LAWS: Collectively, all federal, state and local laws, statutes, codes,
ordinances, orders, rules and regulations which have been duly authorized and
are currently in effect and/or hereinafter enacted, including judicial opinions
or precedential authority in the applicable jurisdiction, and including, without
limitation, all Environmental Laws, all rules and regulations relating to life
safety and the ADA, and including all further modifications, amendments,
supplements or revisions thereof.
LENDER: CORUS Bank, N.A., its successors and assigns.
--
LEASES: As defined in Section 5.1(hh).
---------------
8
<PAGE>
LENDER'S CONSTRUCTION CONSULTANT: An entity or individual to be selected
by Lender in its sole discretion.
LENDER'S CONSTRUCTION CONSULTANT FEES: All fees and disbursements of
Lender's Construction Consultant.
LENDER'S ESTIMATE OF CONSTRUCTION COSTS: As defined in Section 7.13.
------------
LIEN: Any mortgage, pledge, lien, security interest, judgment lien,
mechanic's lien, installment purchase agreement or other charge or encumbrance
of any kind.
LOAN: As defined in Recital B.
LOAN DOCUMENTS: This Agreement, the Note, the Mortgage, the Guaranty, the
Environmental Indemnity Agreement, the Assignments of Leases and Rents, the
Assignment of Accounts, the Assignment of Agreements, Plans and Permits, the UCC
Financing Statements and any other document evidencing, pertaining to or
securing the Loan.
LOAN EXPENSES: As defined in Section 4.1.
-----------
LOAN TERM: As defined in Section 3.9.
-----------
MATURITY DATE: The date on which all of the Obligations are to be
performed and paid in full, whether as a result of the expiration of the Loan
Term or the acceleration of the Loan.
MEMBER: CMC Heartland Partners, a Delaware general partnership.
MINIMUM SALE PRICE: As defined in Section 9.4.
-----------
MORTGAGE: That certain Mortgage, Security Agreement, Assignment of Leases
and Rents and Financing Statement of even date by Borrower in favor or Lender.
NET SALE PROCEEDS: The amount, if any, by which the Gross Sale Proceeds
from an Approved Sale of a Condominium Unit in the Project exceeds the sum of
the Approved Closing Costs for the sale of such Condominium Unit and any
Approved Holdback.
NOTE: The Promissory Note, of even date made by Borrower to Lender in the
original principal amount of the Loan.
OBLIGATIONS: All obligations of Borrower to Lender under or in connection
with this Agreement, the Note, the Loan Documents or any related instrument or
document, howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent, or now or hereafter existing, or due or to become due.
OFFERING MATERIALS: The condominium offering plan and disclosure materials
required by applicable Laws to be made available to prospective purchasers of a
Condominium Unit
9
<PAGE>
ORGANIZATIONAL DOCUMENTS: As defined in Section 5.1(gg).
---------------
OUTSIDE SOURCES: A source or sources of funds other than: (i) the proceeds
----- ----
of the Loan, (ii) Rent or other revenues or funds generated by or in respect of
the Project, including, without limitation, insurance proceeds and condemnation
awards, (iii) proceeds of indebtedness secured by any of the Collateral or any
interest therein, or the Project or any interest in Borrower or the Collateral,
including without limitation, the Project, and (iv) unsecured indebtedness not
permitted by Section 11.20 hereof.
-------------
PERMITS: All building permits, certificates of occupancy and other
assignable governmental permits, licenses and authorizations, including, without
limitation, all state, county and local occupancy certificates, and other
licenses, in any way applicable to the Project or any part thereof or to the
development, construction, ownership, use, occupancy, operation, maintenance,
marketing and sale of the Project and the Condominium Units.
PERMITTED COMMISSION: In the case of an Approved Sale, a sales or
brokerage commission paid in connection with the consummation of an Approved
Sale which commission shall not be in excess of the lesser of the then
prevailing market rate or six percent (6%), but only if such commission or fee
is actually paid to a third party broker not related to or affiliated with
Borrower or any Affiliate (other than certain employees of Borrower in their
capacity as brokerage or sales agents for Borrower in accordance with the
schedule shown as Exhibit C attached hereto).
---------
PERMITTED EXCEPTIONS: Those matters listed in Exhibit B hereto to which
---------
the interest of Borrower in the Project may be subject as of the Closing Date
and thereafter and any such other title exceptions or objections, if any, as
Lender may approve in advance in writing.
PERSON: Any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, limited liability
company, institution, entity, party or government (whether territorial,
national, federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
PLANS: The preliminary and the final plans and specifications, including
all shop drawings, for the development, construction and equipping of the
Project prepared by the Architect.
PLAT: A plat of a portion of the Land on which the Improvements are to
be located and including any portion of the Land included within the common
elements as set forth in the Declaration, consistent with the Plans and made in
accordance with the provisions of 765 ILCS 605/5, and otherwise in a form
reasonably approved by Lender.
PRIME RATE: The rate of interest announced, from time to time, by Lender
as its "prime rate" (the "PRIME RATE"). The "prime rate" announced by Lender
from time to time may not be the lowest rate of interest charged by Lender.
10
<PAGE>
PROJECT: The Land, the Improvements, and all other on-site and off-site
improvements related thereto, including, without limitation, all utility
services and fixtures and equipment required for access to and operation of the
same, and all walkways and connections between any of the foregoing, all of
which shall be more particularly described in and completed in accordance with
the Approved Plans.
PROTECTIVE ADVANCES: Any disbursements and Advances pursuant to any of the
Loan Documents (which disbursements and advances shall be deemed to be "Loans"
made hereunder) which Lender deems necessary or desirable to preserve or protect
the Collateral or any portion thereof or to enhance the likelihood or maximize
the amount of repayment of the Advances and other Obligations.
RECOUPMENT ADVANCE: The Advance of Loan proceeds, not to exceed the amount
of $2,000,000.00, made to reimburse Borrower for a portion of the costs incurred
by Borrower in acquiring the Project (which costs have been reviewed and
approved by Lender).
RELEASE PRICE: As defined in Section 9.4.
-----------
REQUEST FOR ADVANCE: A statement of Borrower substantially in the form
attached hereto as Exhibit D setting forth the advance from the Soft Cost Loan
----------
sought by Borrower under this Agreement which shall constitute an affirmation by
Borrower that the representations and warranties of this Agreement remain true
and correct as of the date thereof and will be so on the date of disbursement of
the requested advance, which request shall be signed by Borrower.
REAL ESTATE: That portion of the Collateral constituting real property.
RENTS: All avails, rents, issues, cash collateral and profits arising from
or accruing at anytime hereafter by virtue of any lease, whether written or
verbal, or any letting of, or of any agreement for the use or occupancy of the
Project or any portion thereof.
TAXES: All sales, use, ad valorem, license, withholding, payroll,
employment, excise, occupation, or property taxes, arising from or relating to
the ownership, use, operation, construction or maintenance of the Project,
including without limitation, all real estate taxes, general and special
assessments, water and sewer rents, rates, charges, impositions and liens,
together with any interest and any penalties, additions to tax or additional
amounts in lieu of such taxes imposed by any Governmental Authority.
TITLE INSURER: First American Title Insurance Company, or such other title
insurance company as may be approved by Lender.
UCC FINANCING STATEMENTS: The UCC-1 Financing Statements executed by
Borrower, as debtor, in favor of Lender, as secured party, to be filed in: (a)
Cook County, Illinois and with the Secretary of State of Illinois, (b) the
county and state in which Borrower maintains its chief executive office, and (c)
in such other jurisdictions as Lender may determine, as the case may be, in
connection with the personal property described in the Mortgage and other Loan
Documents.
11
<PAGE>
VALID SALE CONTRACT: A written agreement for the bona fide, arms-length,
sale, transfer or conveyance of any commercial or residential Condominium Unit
comprising a portion of the Project, which meets all of the following
conditions:
(a) Made pursuant to a form of purchase agreement approved in writing by
Lender (and if there are any material changes to such form in connection
with a specific sales contract which impose additional or increase, in any
material respect, the liabilities imposed on the seller thereunder, then
such changes shall be approved by Lender;
(b) Provides for not less than a ten percent (10%) earnest money deposit
by the contract purchaser, payable at the signing of the agreement or, if
and only if the contract purchaser delivers a loan commitment for 95%
financing of the contract sales price, then such contract may provide for a
five percent (5%) earnest money deposit by the contract purchaser;
(c) The contract sales price for the applicable Condominium Unit and/or
parking space, as the case may be (exclusive of concessions, extras and/or
upgrades) shall not be less than the Minimum Sales Price for such
Condominium Unit and/or parking space, as the case may be, as set forth on
Exhibit E attached to this Agreement; and
---------
(d) The Net Sales Proceeds realized and payable to Borrower upon the
closing of the sale of the applicable Condominium Unit shall not be less
than ninety-three percent (93%) of the Minimum Sales Price (exclusive of
concessions of up to $5,000.00, extras and upgrades, if any) applicable to
such Condominium Unit.
SECTION 2.2. SINGULAR AND PLURAL. Words used herein in the singular, where
the context so permits, shall be deemed to include the plural and vice versa.
ARTICLE 3.
LOAN FACILITY
SECTION 3.1. AGREEMENT TO BORROW AND LEND. (A) Subject to the terms,
----------------------------
provisions and conditions set forth in this Agreement, Lender hereby agrees to
make, and Borrower hereby agrees to accept, a series of advances (each an
"ADVANCE" and collectively, the "ADVANCES"), in an aggregate principal amount of
up to $29,812,000.00 to or for the benefit of Borrower, and allocated as
follows: (a) up to $2,000,000.00 to reimburse Borrower for a portion of the
costs of acquiring the Land, (b) up to $2,852,000.00 for interest reserve, real
estate taxes, insurance and other soft costs, and (c) up to $24,960,000.00 to
fund construction of the Project, all in accordance with the Construction Budget
approved by Lender.
(B) Borrower shall contribute to the Project as its required equity
therein: (i) the Land (free and clear of all liens) (the "LAND EQUITY"), (ii) an
amount in cash equal to $5,028,547.00 (the "INITIAL EQUITY CONTRIBUTION"), which
shall be fully advanced on or before Closing and supported by documentation
satisfactory to Lender in its sole discretion and which is based upon the
preliminary construction budget for the Project, and (iii) additional equity
(the "ADDITIONAL
12
<PAGE>
EQUITY CONTRIBUTION") in an amount equal to the amount, if any, by which the
Approved Construction Budget exceeds $42,840,547.00. The Additional Equity
Contribution shall be paid not later than the date on which Borrower requests
the first Advance of the proceeds of the Loan for purposes other than to fund
the Reimbursable Expenses. (The Initial Equity Contribution and the Additional
Equity Contribution may be referred to collectively in this Agreement as the
"EQUITY CONTRIBUTION.") In no event shall the Equity Contribution be less than
$4,800,000.00. None of the Equity Contribution shall consist of any credits
given to Borrower by the seller of the Land in connection with the closing of
the sale of the Land by such seller to Buyer.
(C) Borrower and Lender acknowledge and agree that although the maximum
original principal amount of the Loan is $29,812,000.00, the maximum principal
amount outstanding at any time during the Loan Term shall not exceed
$24,210,000.00 (the "MAXIMUM OUTSTANDING BALANCE"). Borrower and Lender further
acknowledge and agree that once any principal of the Loan is repaid to Lender,
either as a result of a mandatory repayment of principal in connection with a
sale of a Condominium Unit as required by Section 9.5 hereof, or at the election
-----------
of Borrower, such principal shall not be reborrowed or available for
reborrowing, it being understood that the Loan is not a revolving loan.
SECTION 3.2. NOTE. The Loan will be evidenced by a Promissory Note (the
"NOTE") dated as of the date hereof, made by Borrower payable to the order of
Lender in the original principal amount of $29,812,000.00.
SECTION 3.3. INTEREST RATE; INTEREST RATE ADJUSTMENT. Borrower shall pay
(i) interest on the Loan at the rate set forth in the Note (the "INTEREST
RATE"). At Closing, the Interest Rate shall be established based upon the Prime
Rate in effect on the Closing Date. Thereafter, the Interest Rate shall be
adjusted each and every time that the Prime Rate changes.
SECTION 3.4. DEFAULT RATE. After the occurrence and during the continuance
of an Event of Default hereunder, the Loan shall bear interest at the Default
Rate.
SECTION 3.5. COMPUTATIONS OF INTEREST. All computations of interest shall
be made by Lender on the basis of a year of 360 days, in each case for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest is payable. Each determination
in good faith by Lender of the Interest Rate shall be conclusive and binding for
all purposes, absent manifest error.
SECTION 3.6. PAYMENT OF INTEREST AND PRINCIPAL. Interest and principal of
the Loan shall be paid as provided in the Note.
SECTION 3.7. VOLUNTARY PREPAYMENT. The Loan may be prepaid to the extent,
and upon the terms, provided in the Note.
SECTION 3.8. PROCEDURE FOR PAYMENT. (a) All payments required to be made
pursuant to the Note, this Agreement or any other Loan Document shall be made
during regular business hours to Lender at 3959 N. Lincoln Avenue, Chicago,
Illinois 60613, or at such other place as Lender may from time to time designate
in writing, either by wire transfer of United States Dollars, ABA Number:
071002503, Account Name: Kinzie Station, Attention: Loan
13
<PAGE>
Servicing Department, or by cashier's check, or in currency of the United States
of America which at the time of payment is legal tender for the payment of
public or private debts.
(b) If any payment of principal or interest shall be due on a day that is
not a Business Day, such payment shall be made on the next succeeding Business
Day, and in the case of a principal payment, such extension of time shall be
included in computing interest in connection with such payment. Any payment of
principal and interest received after two o'clock p.m. C.S.T. (or C.D.S.T. as
the case may be) shall be deemed to have been received by Lender on the next
succeeding Business Day and shall bear interest accordingly. Any payment
tendered other than in currency of the United States as aforesaid shall be
accepted by Lender subject to collection, and interest shall accrue until the
Business Day on which good funds are available for immediate use by Lender on or
before two o'clock p.m. C.S.T. (or C.D.S.T. as the case may be).
SECTION 3.9. LOAN TERM. Unless Borrower shall exercise its option to
extend the term of the Loan in accordance with the provisions of Section 3(b) of
the Note, the term of the Loan (the "LOAN TERM") shall be for a period of thirty
(30) months commencing on the date of the First Disbursement Date and expiring
on the last day of the thirtieth (30th) month following the month in which the
First Disbursement Date occurs. Upon the expiration of the Loan Term (as the
same may be extended in accordance with the terms and provisions of Section 3(b)
of the Note), and unless the Loan has been sooner prepaid in full by Borrower or
accelerated by Lender, Borrower shall pay the entire outstanding principal
balance of the Loan, all accrued and unpaid interest, and all other sums then
due and owing to Lender under the Note, this Agreement and the other Loan
Documents.
SECTION 3.10. INTENTIONALLY DELETED.
SECTION 3.11. ACCELERATION OF MATURITY. Upon the occurrence of an Event of
Default hereunder or under the Loan Agreement, the unpaid principal amount of
the Loan with interest and all other sums secured by the Mortgage shall become
immediately due and payable at the option of Lender. In the event of such
acceleration, Borrower shall discharge its obligations to Lender by paying all
sums due under the Note, the Mortgage, and the other Loan Documents, together
with interest at the Default Rate accruing from the date that such acceleration
is declared. Lender's failure to exercise its option to accelerate the Loan as
aforesaid upon the occurrence of an Event of Default shall not constitute a
waiver of Lender's right to exercise such option at any later time with respect
to such Event of Default or with respect to any other subsequently occurring
Event of Default.
SECTION 3.12. COSTS OF COLLECTION. If, following the Closing, Lender: (a)
employs counsel which Lender reasonably believes is necessary for advice or
other representation (i) to represent Lender in any litigation, contests
dispute, suit, or proceeding or to commence, defend, or intervene or to take any
other action in or with respect to any litigation, contest, dispute or
proceeding (whether instituted by Lender, Borrower or any other person) in any
way or respect relating to the Note, any other Loan Document, any collateral
securing the Note or the Obligations, or (ii) to enforce any rights of Lender
against Borrower; (b) takes any action to protect, collect, sell, liquidate, or
otherwise dispose of any Collateral; and/or (c) attempts to or enforces any of
Lender's rights and remedies against Borrower or any Guarantor, then in such
event, the reasonable fees, costs and expenses incurred by Lender in any manner
or way with
14
<PAGE>
respect to the foregoing shall be part of the indebtedness evidenced by the
Note, payable by Borrower to Lender upon demand. Without limiting the generality
of the foregoing, such fees, costs and expenses, shall include reasonable fees,
costs and expenses of attorneys, accountants and consultants; court costs and
expenses; court reporter fees, costs and expenses; long distance telephone
charges, telegram and telecopier charges; and expenses for travel lodging and
food. For purposes of this paragraph, the term "attorneys" includes attorneys
who are employees of Lender acting as counsel for Lender, and the terms "fees,
costs and expenses" shall include, without limitation, the fees charged by
Lender for its in-house counsel provided such fees are within the range of fees
charged by attorneys of similar experience at medium to large sized law firms
located in the City of Chicago, Illinois, and not to exceed $200.00 per hour.
SECTION 3.13. LATE CHARGES. In the event that any payment of interest,
principal, or principal and interest shall not be paid within fifteen (15) days
after the date on which such payment is due (whether by acceleration or
otherwise), a "late charge" calculated at the rate of five percent (5%) on such
overdue installment shall be charged by Lender, for the purpose of defraying the
expenses incident to handling such delinquent payments, which "late charge"
shall be payable on the same day of the month as payments of interest, PROVIDED,
HOWEVER, in no event shall Borrower be required to pay a late fee greater than
the maximum amount permitted under applicable Laws. Such charge shall be in
addition to, and not in lieu of, any other remedy Lender or any Lender may have
and is in addition to any reasonable fees and charges of any Lenders or
attorneys which Lender is entitled to employ upon any default by Borrower
hereunder or under any other Loan Document, whether authorized herein or by law.
SECTION 3.14. LOAN DOCUMENTS. In consideration of Lender's entry into this
Agreement and Lender's agreement to fund the Loan, Borrower agrees that, in
addition to the Note, and in order to secure the due and prompt payment and
performance of all of the Obligations, Borrower shall execute and deliver, or
cause to be executed and delivered by Guarantor, each of the following documents
or instruments, all in scope, form, substance and legal sufficiency acceptable
to Lender:
(A) a valid and subsisting first priority mortgage and security agreement
(the "MORTGAGE") securing the Note, subject only to the Permitted Exceptions;
(B) first priority security agreement(s), collateral assignment(s) and
such financing statements and other documents and instruments as Lender deems
desirable to perfect in Lender first priority security interests in all of the
Collateral which is not Real Estate;
(C) a first priority Assignment of Leases and Rents;
(D) the Assignment of Construction Documents;
(E) the Assignment of Architectural Documents;
(F) the Assignment of Accounts;
(G) the Environmental Indemnity Agreement;
15
<PAGE>
(H) the Year 2000 Certificate:
(I) the Guaranty; and
(J) such other documents as Lender or Lender's counsel may require.
SECTION 3.15. INTEREST RESERVE. A portion of the proceeds of the Loan in
----------------
the amount of $1,743,025.00 has been designated as the Interest Reserve for the
payment of accrued interest through the Completion Date. In the event that at
anytime during the Loan Term, the cash flow from the Project is insufficient to
pay accrued interest on the Loan advances then outstanding hereunder at the time
such interest is due and payable, and Borrower has not otherwise paid such
interest from Outside Sources, then, provided that no Default or Event of
Default shall have occurred and be continuing, Lender shall disburse to itself
from the Interest Reserve an amount sufficient to pay all such accrued but
unpaid interest, and such disbursement shall be deemed to be an advance of the
Loan hereunder, and Borrower hereby directs Lender to make such disbursement.
Nothing contained in this Section 3.15 shall relieve Borrower of the absolute
------------
and unconditional obligation to pay accrued interest on the Loan as provided
herein and in the Note and other Loan Documents. If the funds under the
Interest Reserve are insufficient or are otherwise unavailable for disbursement
(as the result of an Event of Default), then Borrower shall pay or cause to be
paid, from sources other than the Loan, directly to Lender (and not through any
construction escrow) the accrued interest then due and payable in the amount set
forth in a notice to Borrower.
ARTICLE 4.
LOAN EXPENSES AND ADVANCES;
SECURITY OF MORTGAGE FOR SAME
SECTION 4.1. LOAN EXPENSES. Borrower agrees to pay when due all
-------------
reasonable expenses of the Loan (the "Loan Expenses"), whether incurred before
or after closing, including all recording charges, title insurance charges,
escrow charges, transfer taxes, if any, mortgage taxes, if any, costs of
surveys, costs for certified copies of instruments, fees and expenses of
Lender's attorneys (including without limitation, its in-house-counsel) and all
costs and expenses incurred by Lender, including appraisal fees, environmental
report fees, structural report fees, Lender Construction Consultant Fees,
insurance consultant fees, credit searches, out-of-pocket expenses, and travel,
lodging and food expenses incurred by Lender, out-of-pocket expenses, inspection
fees incurred by Lender during the construction of the Project in connection
with the determination of whether Borrower has performed the obligations
undertaken by Borrower under this Agreement or has satisfied any conditions
precedent to the obligations of Lender under this Agreement. All of the
foregoing expenses that are incurred in connection with the Closing of the Loan
and the satisfaction of all conditions precedent thereto may be hereinafter
referred to collectively as the "CLOSING EXPENSES". All expenses, charges, costs
and fees described herein (including the Closing Expenses) shall be the
Borrower's obligation regardless of whether the Loan is disbursed in whole or in
part unless such failure to disburse is due to Lender's wrongful failure to
disburse hereunder.
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<PAGE>
SECTION 4.2. TIME OF PAYMENT OF FEES. Borrower shall pay all Closing
-----------------------
Expenses due and payable at the Closing and, with respect to other fees and
expenses described in Section 4.1 upon and on demand at such subsequent times as
-----------
Lender may determine in its sole discretion. Lender may require the payment of
such fees and expenses as a condition to any disbursement of the Loan. Borrower
hereby authorizes Lender to make an advance to itself to pay all Loan Expenses
and Closing Expenses on or after the date on which such expenses shall be due
and payable.
SECTION 4.3. EXPENSES AND ADVANCES SECURED BY LOAN DOCUMENTS. Any and all
-----------------------------------------------
advances, payments, amounts expended or made by Lender under this Agreement from
time to time for attorneys' fees (based upon services rendered at hourly rates)
and expenses, if any, and all other Loan Expenses shall, including, without
limitation, all fees and expenses of Lender's Construction Consultant, as and
when advanced or incurred by Lender, there shall be paid by Borrower and shall
constitute additional indebtedness evidenced by the Note and secured by the
Mortgage and the other Loan Documents to the same extent and effect as if the
terms and provisions of this Agreement were set forth therein, whether or not
the aggregate of such indebtedness shall exceed the aggregate face amount of the
Note.
SECTION 4.4. BANK FEES. In consideration of Lender's making the Loan
---------
to Borrower (and in addition to other amounts payable under this Agreement and
the other Loan Documents), Borrower shall pay to Lender interest in the form of
-
a fee in an aggregate amount equal to Two Hundred Eighty-Five Thousand Dollars
($285,000), of which: (a) $85,000 (the "APPLICATION FEE") was paid (and Lender
-
hereby acknowledges receipt) upon Borrower's acceptance of the letter of
application, dated September 24, 1998, (b) $100,000 (the "COMMITMENT FEE") was
paid (and Lender hereby acknowledges receipt) upon Borrower's acceptance of the
Commitment, and (c) $100,000 (the "CLOSING FEE") shall be due and payable on the
First Disbursement Date (which Closing Fee shall be paid through an Advance of
Loan proceeds for the benefit of Borrower).
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
SECTION 5.1. REPRESENTATIONS AND WARRANTIES OF BORROWER. To induce
------------------------------------------
Lender to make the Loan and perform its obligations under the Loan Documents,
Borrower hereby represents and warrants to Lender as follows:
(a) Borrower has good and indefeasible fee simple title to the Real Estate
free and clear of all liens, charges and encumbrances, except for the Permitted
Exceptions.
(b) Borrower is the sole owner of, and has good title to, all of the
Collateral which constitutes personal property free and clear of all liens,
charges and encumbrances, other than the Permitted Exceptions.
(c) Borrower is (i) a limited liability company duly formed validly
existing and in good standing under the Laws of the State of Delaware, (ii) is
duly qualified and in good
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<PAGE>
standing a foreign limited liability company under the Laws of the State of
Illinois, and (iii) has the power, authority and legal right to carry on the
business now being conducted by it and to engage in the transactions
contemplated by this Agreement. The execution and delivery of the Loan Documents
and the performance and observance of the provisions thereof have been duly
authorized by all necessary actions as required by Borrower's Organizational
Documents and by applicable Laws.
(d) This Agreement, the Note, the Mortgage, the other Loan Documents and
any other documents and instruments required to be executed and delivered by
Borrower in connection with this Loan, when executed and delivered, will
constitute the duly authorized, valid and legally binding obligations of the
party required to execute the same and will be enforceable strictly in
accordance with their respective terms; the Loan Documents grant to Lender a
direct, valid and enforceable first lien on the Project and on all of the other
Collateral.
(e) The execution, delivery and performance of the Loan Documents and any
other documents or instruments to be executed and delivered by Borrower pursuant
to this Agreement or in connection with the Loan, and the construction, use,
occupancy and operation of the Project, will not: (i) violate any Laws or (ii)
conflict with, be inconsistent with, or result in any breach or default of any
of the terms, covenants, conditions, or provisions of any indenture, mortgage,
deed of trust, corporate charter or bylaws, instrument, document, agreement or
contract of any kind to which Borrower is a party or by which it may be bound.
Borrower is not in default (without regard to grace or cure periods) under any
Agreements or other contract or agreement to which it is a party, the effect of
which default will adversely affect the performance by Borrower of its
obligations pursuant to and as contemplated by the terms and provisions of this
Agreement and the other Loan Documents.
(f) No litigation or proceedings are pending, or are threatened, against
Borrower or any Guarantor or any Member: (i) which have or will affect the
validity or priority of the liens and security interests granted to Lender under
the Loan Documents, (ii) which will affect the ability of Borrower to perform
its obligations pursuant to and as contemplated by the terms and provisions of
this Agreement and the other Loan Documents, or any of the Construction
Documents, (iii) which could materially affect the occupancy, use or operation
of the Project or the performance or completion of the Improvements or the sale
of residential [or commercial] condominium units at the Project, or (iv) which
could materially affect the operations or financial condition of Borrower, any
Guarantor or the Project. Without limitation of the foregoing, there are no
pending or threatened proceedings or actions to revoke, attack, invalidate,
rescind, or modify the zoning of the Project or any part thereof, or any
building or other permits heretofore issued with respect thereto, including the
Permits, or asserting that such zoning or permits do not permit the construction
of the Improvements or the occupancy, use or operation of the Project.
(g) There are no pending civil (including actions by private parties),
criminal, or administrative proceedings against Borrower, or to Borrower's best
knowledge, affecting the Project relating to environmental, health or safety
matters ("ENVIRONMENTAL PROCEEDINGS"), and to Borrower's best knowledge no
Environmental Proceedings are being threatened nor do any facts or circumstances
exist which may give rise to any future Environmental Proceedings.
18
<PAGE>
(h) To the best knowledge of Borrower (after diligent inquiry and
investigation), the Project and all uses existing as of the date of this
Agreement of the Project, are in compliance with all Environmental Laws, and
Borrower has not received any notice of any violation issued pursuant to any
Environmental Law with respect to the Project or any use or condition thereof.
To the best knowledge of Borrower (after diligent inquiry and investigation),
there are no Hazardous Materials on, in, or under, or stored at the Project, and
Borrower has not used, handled, generated, produced, manufactured, treated,
stored, transported, released, discharged or disposed of any Hazardous Materials
on, under or from the Project (other than Hazardous Materials of a kind and in
such quantities as are commonly used in the construction, operation and
maintenance of a residential condominium building and in any case, in compliance
with applicable Environmental Laws). To the best knowledge of Borrower (after
diligent inquiry and investigation), no release, spilling, leaking, pumping,
pouring, emitting, discharging, injecting, escaping, leaching, dumping or
disposing into the environment of any Hazardous Material (including the
abandonment or discarding of barrels, containers, and other receptacles
containing any Hazardous Material) has occurred on, beneath or from the Project
or in the surface or ground water associated with the Project, except as
specifically disclosed in the Environmental Reports. All Permits, required to be
held by Borrower or issued to Borrower pursuant to any Environmental Law for the
construction, ownership, use, occupancy or operation of the Project, have been
obtained or will be obtained, as and when required by Environmental Law, by
Borrower, and are presently maintained in full force and effect by Borrower and
the Project and the operations conducted by Borrower at the Project, is in
compliance with such Permits. To Borrower's best knowledge after diligent
inquiry and investigation, the Project is not subject to any use restrictions
arising out of any Environmental Law. There are no writs, injunctions, decrees,
orders or judgments against Borrower or any lawsuit, claim, proceeding,
citation, directive, summons or investigation pending or to the best knowledge
of Borrower (after diligent inquiry and investigation), threatened against
Borrower, pursuant to any Environmental Law relating to (1) the construction,
ownership, leasing, occupancy or use of any portion of the Project by Borrower
or any current or former owner or tenant of any portion of the Project, (2) any
alleged violation of any Environmental Law by Borrower or (3) a release of any
Hazardous Material under, in or from any portion of the Project. There are no
above-ground or underground, storage tanks located on the Project. There are no
written reports, surveys or environmental assessments of the Project or any part
thereof in the possession or control of Borrower or its contractors or
consultants concerning the environmental condition of the Project or the
presence of Hazardous Materials on or under the Project or in the ambient air at
the Project, complete copies of which have not been delivered to Lender. As used
in the foregoing paragraph, the phrase "the best of Borrower's knowledge" shall
mean the knowledge of the officers of Heartland Technology, Inc., the managing
general partner of the Member, and the knowledge of Lawrence S. Adelson, the
general counsel of Borrower and Charles Harrison, the special environmental in-
house counsel of Borrower.
(i) The factual matters relating to the opinions of Borrower's counsel, as
set forth in Section 6.1(b)(vi) hereof, are true and accurate.
------------------
(j) (i) No condemnation of any portion of the Project, or relocation or
condemnation of any roadways abutting the Project has commenced or, to the best
of Borrower's knowledge, is contemplated by any Governmental Authority, and (ii)
no denial of access to the Project from
19
<PAGE>
any point of access to the Project has commenced or, to the best of Borrower's
knowledge, is contemplated by any Governmental Authority.
(k) To the best of Borrower's Knowledge, the surveys of the Real Estate,
one dated January 12, 1996, prepared by Chicago Guaranty Survey Co. as Job No.
9812015, and the other of a portion of the Real Estate, dated September 14,
1998, and revised on November 12, 1998, December 23, 1998, and January 5, 1999,
prepared by Chicago Guaranty Survey Co. as Job No. 9807027 (collectively, the
"SURVEY"), are true, accurate and complete in all respects as of the date of
certification, including with respect to: (i) the outline of the Land (or
portion thereof depicted), and the outline of all buildings, structures and
other improvements thereon, if any, and all paving, driveways and fences, if
any, in place, (ii) the square footage of the Land (or portion thereof
depicted), (iii) the existence of all buildings, improvements, foundations and
other structures on the Land, if any, (iv) encroachments by improvements located
on adjoining property onto the Land or of buildings, improvements, foundations
or other structures on the Land, if any, onto adjoining property, (v) means of
ingress and egress to and from the Land, (vi) the flood area designation of the
Real Estate shown on the official maps of the Secretary of Housing and Urban
Development, (vii) the identification of any portion of the Real Estate which
lies within a federally designated wetlands protection area as determined by the
maps of the Army Corps of Engineers, (viii) the identification, location, size
and use of all easements affecting the Real Estate, and (ix) all other matters
shown, indicated or noted thereon.
(l) All financial statements, reports or other financial information of
any kind or description of Borrower, Guarantor and/or any Member heretofore and
hereafter delivered to Lender are true and correct in all material respects,
have been prepared in accordance with GAAP, and fairly present the
representative financial conditions of the subject thereof as of the respective
dates thereof. All financial statements, reports or other financial information
of any kind or description heretofore or hereafter delivered to Lender are true,
complete and accurate in all material respects and fairly present the financial
condition of the Project as of the date thereof. No material adverse change has
occurred in the financial conditions reflected therein since the respective
dates thereof, and no additional borrows have been made by Borrower or Guarantor
since the date thereof other than the borrowing contemplated hereby or otherwise
expressly approved in writing by Lender.
(m) No information, certification, report or financial information
submitted to Lender by or on behalf of Borrower or any Guarantor pursuant to
this Agreement or otherwise in connection with the Loan or Borrower's request or
application therefor contains any material misstatement of fact or omits to
state a material fact or any fact necessary to make the information not
misleading in any material respect.
(n) The Project does not now, and following Completion, will not, violate
(i) any existing Laws applicable thereto, (ii) any of the Permits, including
any building or occupancy permits, any restrictions or conditions of record, or
any of the Agreements, or (iii) the requirements of each and every insurer
covering any of the risks against which the Project is or is to be insured
pursuant to Section 8.1(a) hereof. Neither the zoning, nor any other right to
--------------
construct or to occupy, use or operate the Project is to any extent dependent
upon or related to any real estate other than the Real Estate. Without limiting
the generality of the foregoing, all consents, licenses, certificate, and
permits and all other authorizations or approvals, including the
20
<PAGE>
requirements of each and every insurer covering any of the risks against which
the Project is to be insured pursuant to Section 8.1(a) hereof (collectively,
--------------
"GOVERNMENTAL APPROVALS") required to perform and Complete the Project in
accordance with the Approved Plans, and to occupy, use and operate the Project
have been, or will timely be, obtained (as the case may be); and all Laws
relating to the construction, occupation, use and operation of the Project have
been, or will timely be, complied with (as the case may be).
(o) All utility services necessary for the Completion of the Project and
the operation thereof for its intended purposes are presently available to the
boundaries of the Land through dedicated public rights-of-way or through
perpetual private easements with respect to which the Loan Documents create a
valid, binding and enforceable first lien or first security title. No such
utility services are subject to any moratorium, or would be subject to any
presently threatened moratorium, imposed by any authority having jurisdiction.
(p) The rights-of-way for all roads necessary for the full utilization of
the Project for its intended purposes as required by this Agreement, the other
Loan Documents, the Construction Contracts, or any covenant, condition,
restriction, easement or other matter affecting Borrower or the Land have been
dedicated to public use and accepted by the appropriate governmental authority,
or are covered by private easements with respect to which the Loan Documents
create a valid, binding and enforceable first lien or first security title. All
curb cuts and traffic signals which are shown on the Approved Plans (or are
necessary although not so shown) are existing and operating or permits therefor
have been obtained.
(q) No brokerage commission or similar compensation is due to any Person in
connection with the loan transaction contemplated by this Agreement. Borrower
shall indemnify Lender from any liability, claims or losses, including
reasonable attorneys' fees incurred by Lender and arising by reason of any claim
for such brokerage commissions (except to the extent arising our of an express
written agreement by Lender). This provision shall survive the repayment of the
Loan and shall continue in full force and effect so long as the possibility of
such liability, claims or losses exists.
(r) The Project as developed, constructed and equipped will not, encroach
upon any building line, setback line, side yard line, or any recorded or visible
easement (or other easement of which Borrower has knowledge of or has reason to
believe may exist with respect to the Project).
(s) The Land is not and does not contain any lands classified as wetlands
or lands which are subject to periodic flooding or have thereon standing or
moving bodies of water. No portion of the Project will be located in an area
having special flood hazards according to the flood hazard boundary maps used by
the United States Department of Housing and Urban Development in connection with
the National Flood Insurance Program.
(t) Intentionally Deleted.
(u) The Project is taxed separately without regard to any other property
and, for all purposes, may be mortgaged, conveyed, and otherwise dealt with as
an independent parcel.
21
<PAGE>
(v) The Loan is not being made for the purpose of purchasing or carrying
"margin stock" within the meaning of Regulation G, T, U, or X issued by the
Board of Governors of the Federal Reserve System, as at any time amended, and
the Borrower agrees to execute all instruments necessary to comply with all the
requirements of Regulation U of the Federal Reserve System, as at any time
amended.
(w) Intentionally deleted.
(x) Borrower does not have a defined benefit pension plan under ERISA.
(y) Except as described on Exhibit F, there are no union contracts, labor
---------
agreements, or employment agreements relating to any employees of Borrower
currently working at the Project.
(z) No Default or Event of Default by Borrower exists under this Agreement
or any of the other Loan Documents, and no event has occurred and is continuing
which with notice or the passage of time or both would constitute a Default or
Event of Default under any of the Loan Documents.
(aa) The Mortgage is a good and valid first lien on the Project, and Lender
has a perfected, good and valid first security interest in all items of personal
property described in the granting clause of the Mortgage.
(bb) Each of Borrower and Guarantor has filed or caused to be filed all
federal, state and local tax returns required to be filed by it, has remitted
all trust fund taxes, and has paid all taxes shown to be due and payable by it
on said returns or on any assessments made against it or the Project, except
those which are being contested in good faith by appropriate proceedings and for
which reasonable reserves as may be required by GAAP are being maintained on its
books.
(cc) After giving effect to the execution and delivery of the Loan
Documents and the making of any disbursements under the Note, Borrower will not
be "insolvent," within the meaning of such term as defined in (S) 101 of the
Bankruptcy Code, or be unable to pay its debts generally as such debts become
due, or have an unreasonably small capital.
(dd) Borrower has not received any notice from any insurance company of any
defects or inadequacies in the Project which would adversely affect the
insurability of the Project or materially increase the cost of insuring the
Project beyond that which is customarily charged for similar property in the
vicinity of the Project used for a similar purpose.
(ee) The principal place of business and chief executive office of Borrower
is as stated in the preamble and Section 17.3 hereof.
------------
(ff) Borrower is not a "foreign person" within the meaning of Sections 1445
or 7701 of the Internal Revenue Code.
(gg) Borrower has furnished to Lender true, correct and complete copies of
all documents, instruments and other papers constituting the entire
organizational documents of
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<PAGE>
Borrower and any and all amendments thereto including without limitation,
Borrower's articles of incorporation and bylaws (the "ORGANIZATIONAL
DOCUMENTS"), such Organizational Documents are in full force and effect and have
not been modified, amended or terminated and there exists no violation of the
Organizational Documents, or circumstances which given notice or the passage of
time or both would constitute a violation of the Organizational Documents.
(hh) Exhibit G contains a true, complete and accurate list of all leases,
---------
occupancy agreements, concession agreements and other agreements for the use or
occupancy of all or any portion of the Project (the "LEASES") as of the date
hereof, including all amendments, modifications and supplements thereto, and (i)
there exist no defaults by Borrower, as landlord thereunder, or by the tenant
thereunder, nor, to the best of Borrower's knowledge, do any circumstances exist
which, with the passage of time or the giving of notice or both, would
constitute a default thereunder by either Borrower or any tenant, (ii) there
have been no amendments, supplements, modifications or other changes thereto
except as described on such Exhibit G or otherwise as approved by Lender; and
---------
(iii) construction of all tenant work required to be constructed thereunder have
been satisfactorily completed, and the respective tenant thereunder has accepted
and is in sole possession and occupancy of the leased premises.
(ii) Exhibit H contains a true, complete and accurate list of all
---------
Agreements as of the date hereof, including all amendments, modifications and
supplements thereto, and, (i) there exist no defaults by Borrower thereunder or
by any other party thereto, nor, to the best of Borrower's knowledge, do any
circumstances exist which, with the passage of time or the giving of notice or
both, would constitute a default thereunder by either Borrower or any other
party thereto; (ii) there have been no amendments, supplements, modifications or
other changes thereto except as described on such Exhibit H or otherwise as
---------
approved by Lender to the extent such approval is required hereunder; (iii)
except as set forth on Exhibit H, no other material contract, agreement or
---------
arrangements of any kind exist with respect to the ownership, use, occupancy,
operation, maintenance, repair or servicing of the Project or any part thereof
and (iv) except as specifically set forth on Exhibit H, all of the Agreements
---------
may be terminated on no more than ninety (90) days' notice without termination
penalty or other cost.
(jj) Exhibit I contains a true, complete and accurate list of all Permits
---------
obtained as of the date hereof, including all amendments, modifications and
supplements thereto, and (i) the Permits have been acquired by Borrower and are
in full force and effect, (ii) there have been no amendments, supplements,
modifications or other changes thereto except as described on such Exhibit I,
---------
(iii) Borrower has not received any notice of a revocation, termination or
violation of any Permit, (iv) the Permits listed on Exhibit I are all licenses,
---------
approvals, and permits which are necessary to develop, construct, own, use,
occupy, operate, maintain, market and sell the Project under all applicable
Laws, and (v) except as set forth in Exhibit I, to the best knowledge of
---------
Borrower, all of the Permits are assignable and transferrable.
(kk) Borrower is a single-purpose entity whose sole asset is the Project
and whose sole business and purpose is to own, operate, construct, market and
sell the Project, all as more fully set forth in the Organizational Documents.
(ll) The proceeds of Loan will be used only for the purposes described and
proved in this Agreement.
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(mm) Except as specifically described on Exhibit J attached hereto (the
---------
"AFFILIATE DEBT"), Borrower is not indebted to any Affiliate, nor has Borrower
assumed or guaranteed any indebtedness of any Affiliate. As of the Closing
Date, and throughout the term of the Loan, all Affiliate Debt shall be subject
and subordinate in all respects to the Loan and the Obligations, and Borrower
hereby covenants and agrees to cause each holder of Affiliate Debt to execute
and deliver to Lender at the Closing a subordination agreement in scope, form,
substance and legal sufficiency satisfactory to Lender.
SECTION 5.2 EFFECT OF DRAW REQUEST. Each Request for Advance hereunder
----------------------
shall constitute an affirmation that Borrower's representations and warranties
set forth in this Article 5 and elsewhere in this Agreement remain true and
---------
correct as of the date thereof, and, unless Lender is notified to the contrary
prior to the disbursement of the requested advance or any portion thereof, shall
constitute an affirmation that the same remain true and correct on the date of
such disbursement.
ARTICLE 6.
CONDITIONS PRECEDENT TO CLOSING
SECTION 6.1 CONDITIONS PRECEDENT TO CLOSING. Borrower agrees that
-------------------------------
Borrower will perform and satisfy all of the following conditions precedent, and
Borrower agrees that Lender's obligation to close the Loan, is conditioned,
among other things, upon Borrower's performance or satisfaction of all these
conditions precedent:
(A) Borrower shall not be in Default under this Agreement (including,
without limitation, the representations and warranties contained herein) or any
of the Loan Documents, and Borrower shall have timely complied with and
performed all of Borrower's covenants, agreements and obligations under this
Agreement which by their terms are required to have been complied with and
performed by Borrower.
(B) Borrower shall have furnished to Lender the following, all in form and
substance satisfactory to Lender:
(I) a marked Title Commitment to issue a Mortgagee's Title Insurance
Policy (ALTA Form B-1992) (the "TITLE POLICY") in the face amount of the
Loan, establishing that the Title Insurer insures the lien of the Mortgage
to be a prior and paramount lien against Borrower's fee simple interest in
the Project, subject only to the Permitted Exceptions. The Title Policy
shall contain such title endorsements as Lender shall determine (and as are
available under applicable Laws) and shall delete, or modify in a manner
reasonably acceptable to Lender, the standard exceptions set forth therein;
(II) plat of survey of the Project, made by a Illinois registered or
certified land surveyor satisfactory to the Lender, in triplicate, showing
the outline of the Land, all other structures and improvements thereon, if
any, and all paving, driveways and fences, if any, in place. Said survey
shall be currently dated and shall contain a proper certificate by the
surveyor, which certificate shall include the legal description of the Land
and shall
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<PAGE>
be made in favor of Borrower, Title Insurer and Lender. The survey shall be
made according to the current "Minimum Standard of the Illinois State
Association of Professional Land Surveyors" and shall also show (A) the
square footage of the Land; (B) that all buildings, improvements,
foundations, and other structures, if any, are within the lot lines and in
compliance with any restrictions of record or ordinances relating to the
location thereof; (C) no encroachments by improvements located on adjoining
property onto the Land or of buildings, improvements, foundations or other
structures on the Land, if any, onto adjoining property, except Permitted
Exceptions; (D) adequate means of ingress and egress to and from the Land;
and (E) such additional information as may be required by Lender or the
Title Insurer in order to permit Title Insurer to issue the Title Policy
without any standard or general exception for survey matters. In addition,
Borrower will provide Lender with a certification from the surveyor that
the Project is not in an area designated by the Secretary of Housing and
Urban Development as having special flood hazards;
(III) all policies of insurance required by Lender in accordance with
Section 8.1 of this Agreement or certified copies or binders thereof,
-----------
together with all required endorsements and proof that the premiums
therefor have been paid;
(IV) letters from appropriate utility companies or governmental
agencies or other evidence satisfactory to Lender that the Project will
have adequate water, gas and electrical supply, storm and sanitary sewerage
facilities, any other required public utilities, fire and police protection
and means of access between the Project and public rights-of-way. Borrower
also shall have furnished to Lender evidence reasonably satisfactory to
Lender that no such supplies or facilities will be delayed or impeded by
virtue of any requirements under any Laws, that all such facilities comply
with any and all applicable Laws, ordinance, regulations, restrictive
covenants and requirements of Governmental Authorities (including, without
limitation, zoning Laws and environmental regulations) that in the event of
any damage or destruction of all or a portion of the Project caused by fire
or other casualty, such Laws will permit the restoration or repair of the
Project, and that the source of supply for each of the foregoing utilities
is from the public right of way adjacent to the Project. If any of such
facilities are located on land beyond the Project, other than land which
has been dedicated to the public or to the utility which is to furnish the
service, Borrower shall have forwarded to Lender evidence satisfactory to
Lender of the existence of permanent easement rights therefor benefitting
the Project which easement rights shall be covered by the lien of the
Mortgage and which easement shall be insured under the Title Insurance
Policy described in Section 6.1(b);
--------------
(V) one or more opinions of independent counsel to Borrower
acceptable to Lender, dated as of the Closing and containing only such
qualifications and assumptions as Lender and its counsel may approve,
stating, among other things, the following: (A) that Borrower is duly
organized, validly existing and in good standing under the Laws of the
State of Delaware, (B) that Borrower is duly qualified and in good standing
as a foreign limited liability company under the Laws of the State of
Illinois, (C) that the execution and delivery by Borrower and performance
of its obligations under all of the Loan Documents (1) have been duly
authorized by all necessary corporation action; (2) constitute legal,
valid, binding and enforceable obligations of Borrower; (3) do not
25
<PAGE>
conflict with any of Borrower's Organizational Documents; (4) that the
Borrower has all the power and authority to own its properties and to enter
into, execute, deliver this Agreement and each of the Loan Documents and
Borrower has the power and authority to perform all of its obligations
under this Agreement and each of the Loan Documents; (5) that the rate of
interest payable in respect to the Loan is not usurious under Illinois or
Illinois law; and (6) to the actual knowledge of Borrower's counsel, that
there is no action, proceeding or investigation pending, or threatened,
against Borrower, against or in respect of the Loan, the Loan Documents or
this Agreement, or against or in respect of the Project or the use,
occupancy and operation or contemplated use, occupancy and operation
thereof, which would or could have a material, adverse affect on any of the
following: (x) the operation of the Project for the purposes contemplated
by this Agreement; (y) the repayment of the Loan; or (z) the ability of
Borrower to observe, perform and comply with its obligations under any of
the Loan Documents to which it is a party; (D) such other opinions as
Lender or its counsel shall reasonably request;
(VI) a certified copy of Borrower's Limited Liability Company
Agreement, together with evidence satisfactory to Lender that Borrower has
complied with all Laws necessary to conduct its business in the State of
Illinois;
(VII) evidence satisfactory to Lender that the persons executing this
Agreement and the other Loan Documents on behalf of Borrower, have been
duly authorized by all appropriate action to execute and deliver this
Agreement and the Loan Documents on behalf of the Borrower;
(VIII) copies of all of Borrower's other Organizational Documents,
including without limitation, Borrower's Operating Agreement, and all
amendments thereto, certified to be true, correct and complete by the
Managing Member of Borrower's Managing Member;
(IX) evidence satisfactory to Lender that the Project is benefitted
by such easements or other rights as may be necessary for the vehicular and
pedestrian ingress and egress, the installation and maintenance of
utilities, parking and other site improvements, and the operation of the
Project;
(X) evidence satisfactory to Lender that the Project is in
compliance with all applicable Laws;
(XI) current searches (which will be updated from time to time, but
no more frequently than annually unless Borrower shall be in Default
hereunder, at Borrower's expense upon the request of Lender) of all Uniform
Commercial Code financing statements filed with the Illinois Secretary of
State and the Illinois County, Illinois Recorder's Office, against each of
Borrower and Guarantor, as debtor, showing that no Uniform Commercial Code
financing statements are filed or recorded against Borrower or Guarantor in
which the collateral is described as any of all of the Collateral;
26
<PAGE>
(XII) true, correct and complete copies of all Leases, if any,
together with estoppel certificates in form acceptable to Lender from each
space tenant thereunder with respect to Leases of space in the Project, if
any;
(XIII) judgment and state and federal tax lien search reports on
Borrower and Guarantor;
(VXI) current financial statements of Borrower, each Guarantor, and
the Project reflecting no material adverse change in their respective
financial conditions;
(XVII) Lender shall have received all reports and audits required by
the Commitment to be delivered to and approved by Lender, including without
limitation, the structural and engineering report and an environmental
audit;
(XVI) all documents and other assurances reasonably required by
Lender to evidence and secure the Loan and otherwise required in connection
with the Loan pursuant to this Agreement;
(XVII) evidence satisfactory to Lender that Borrower has contributed
the Initial Equity Contribution as set forth in Section 3.1(b).
--------------
(C) Borrower shall have taken all action and done all things which may be
necessary (as reasonably determined by Lender and its counsel) to ensure that
the Loan, the lien of the Mortgage and the security interests and liens created
by the other Loan Documents, are, as of the Closing, senior and superior in all
respects to the rights and claims (including without limitation any lien rights
or claims) of any Contractor, subcontractor, materialman, supplier or other
person or entity who has performed or supplied, is performing or supplying, or
will perform or supply in the future any work or materials on or with respect to
the Project.
ARTICLE 7.
CONSTRUCTION; CONSTRUCTION BUDGET; ADVANCES
SECTION 7.1 CONDITIONS PRECEDENT TO FIRST ADVANCE OF LOAN PROCEEDS.
------------------------------------------------------
Prior to any Advance of Loan proceeds (other than for the Recoupment Advance),
Borrower shall cause each of the following conditions to have been satisfied
(and upon satisfaction of the following conditions and the other conditions set
forth in this Agreement, including, without limitation, the provisions of
Sections 7.3 and 7.4 hereof) Lender shall make the first Advance hereunder in
- --------------------
accordance with the provisions of this Agreement:
(A) The Plans for the development, construction and equipping of the
Project shall have been completed and approved by Lender, and duplicate
complete copies thereof shall have been deliver to Lender. Lender shall
not have been deemed to have approved the Plans unless and until Lender has
executed a letter in which the Plans as approved by Lender have been
identified with specificity and Lender's approval thereof has been set
forth in such letter.
27
<PAGE>
(B) The Construction Budget for the development, construction and
equipping of the Project in accordance with the Plans shall have been
completed and approved by Lender and shall be in form and substance
consistent with the preliminary budget attached to the Commitment Letter.
The submission by Borrower of the Construction Budget to Lender shall
constitute Borrower's representation and warranty to Lender: (i) that such
Construction Budget and all amounts set forth therein present a full,
complete and accurate representation of all costs, expenses, and fees which
Borrower expects to pay or anticipates becoming obligated to pay to
Complete Construction the Project, (ii) that the total costs of the Project
will not exceed in any event more than $42,840,547.00 (or if such costs
exceed such amount Borrower shall be required to comply with the provisions
of Section 7.13 hereof), and (iii) that no amounts set forth in the
------------
Construction Budget are payable to Borrower, Guarantor or any Affiliate of
Borrower or Guarantor (other than: (x) the Recoupment Advance, (y) Advances
for payroll, media, and trailer rental in accordance with the approved
Construction Budget and pursuant to a Request for Advance made in
accordance with the terms and conditions of this Agreement, and an Advance
for amounts paid by Borrower to General Contractor prior to the Closing
Date for work done pursuant to the General Contract, in accordance with the
approved Construction Budget and pursuant to a Request for Advance made in
accordance with the terms and conditions of this Agreement). Lender
shall not have been deemed to have approved the Construction Budget
proposed by Borrower unless and until Lender has indicated such approval by
either signing the proposed Construction Budget or executing a letter of
approval to which the approved Construction Budget is attached.
(C) The Construction Schedule for the development, construction and
equipping of the Project shall have been completed and approved by Lender.
(D) Borrower shall have delivered to Lender complete copies of the
following documents, each in a form approved by Lender: (i) the
Architect's Contract; (ii) the General Contract; (iii) all other then
existing Construction Contracts; and (iv) all then existing subcontracts
(to the extent delivered by the General Contractor). For each Contractor
whose Construction Contract(s) exceed individually or in the aggregate an
amount in excess of $1,000,000, Borrower shall use its best efforts to
obtain and deliver to Lender, for Lender's review and approval, trade
references regarding each such Contractor and such current financial
information regarding each such Contractor as may be requested by Lender
and which Borrower has the right to request under the General Contract.
(E) Borrower shall have delivered to Lender a collateral assignment of
each of the Construction Documents to which Borrower is a party related to
the development, construction and equipping of the Project which were not
included in the collateral assignment delivered to Lender on the Closing
Date pursuant to Section 3.14(c), in the form of the collateral assignment
---------------
delivered on the Closing Date, together with all consents thereto by the
counterparty, if any, to such Construction Documents.
(F) Borrower shall have delivered to Lender a statement from Borrower
setting forth a description of all contracts let by Borrower and a
statement from the
28
<PAGE>
General Contractor and each Contractor setting forth a description of all
subcontracts and purchase orders let and issued by such General Contractor
or Contractor, as the case may be, and a similar statement or statements
from all other contractors, relating to the development, construction and
equipping of the Project, setting forth the name or names of the
contractor, subcontractor and material supplier in question, the date of
the contract, subcontract and purchase order in question and of any
supplements or amendments thereto, the scope of the work covered thereby,
and the aggregate amounts payable to the contractor, subcontractor or
material supplier thereunder. Any statement furnished to satisfy the
requirements of this paragraph need not contain any information which is
included in the sworn statements furnished pursuant to subparagraph (g)
below.
(G) Borrower shall have delivered to Lender initial sworn statements
of Borrower, the General Contractor, all other Contractors, and all other
contractors of Borrower and of any subcontractors and material suppliers to
whom payments have already been made, in form satisfactory to and approved
by Lender, and by Borrower and Architect, covering all work done and to be
done, together with waivers of lien and subordinations of lien covering all
work and materials for which payments have been made by Borrower prior to
the first Advance of Loan proceeds.
(H) Borrower shall have obtained and shall have delivered to Lender
two (2) photocopies of all building permits required to construct the
Improvements. In addition to the building permits, Borrower shall also
have obtained and delivered copies of each other Governmental Approval
which is required under applicable Law in connection with the development,
construction and equipping of the Project.
(I) Evidence reasonably satisfactory to Lender that the Project as
described in the Plans will, when built, be in compliance with all
applicable zoning and land use Laws;
(J) Borrower shall have obtained Builder's Risk Insurance covering the
development, construction and equipping of the Project through the
Completion as required by the provisions of Section 8.1 and shall have
-----------
delivered a certificate of such insurance to Lender.
(K) Borrower shall have furnished to Lender evidence reasonably
satisfactory to Lender that Borrower and each Contractor performing any
work on the Project maintains adequate workmen's compensation insurance,
employer's liability insurance and comprehensive liability insurance
(including contractual liability), and that each policy for the same shall
name Lender as an additional insured, with liability insurance limits of
$1,000,000.00 per occurrence for personal injury and property damage.
(L) Borrower shall have furnished to Lender certificates evidencing
the Errors & Omissions insurance required by Section 8.4 hereof, covering
-----------
the Architect and all architects and engineers identified in the
certification required under Section 7.3(e) hereof, such insurance to be in
--------------
a form satisfactory to Lender.
29
<PAGE>
(N) Evidence reasonably satisfactory to Lender that there shall not
have occurred any material adverse change to the condition of the Project
or to the financial condition of Borrower or Guarantor;
(O) Evidence reasonably satisfactory to Lender that there shall not
have occurred any casualty to the Project, and that there shall not be
pending or threatened any condemnation, eminent domain or similar
proceedings against the Project or any part thereof;
(P) No Default or Event of Default shall have occurred and be
continuing hereunder;
(Q) Evidence reasonably satisfactory to Lender that there is no
pending or threatened litigation against Borrower or the Guarantor, or
involving or in respect of the Project;
(R) Evidence satisfactory to Lender that the Project is in compliance
with all applicable Laws, including without limitation, all Environmental
Laws;
(S) Borrower either: (i) shall have caused all escrow accounts in
which any earnest money deposits of a purchaser of a Condominium Unit are
being held (currently held by LaSalle National Bank as escrowee) to be
transferred to Lender as escrowee, and shall have executed and delivered a
collateral assignment of Borrower's interest in such escrow accounts to
Lender, in a form satisfactory to Lender, or (ii) shall have elected not
cause such escrow accounts to be transferred to Lender and shall have
executed and delivered to Lender a collateral assignment of Borrower's
interest in such escrow accounts to Lender, with an acknowledgment signed
by LaSalle National Bank (or the then actual escrowee), in form and
substance satisfactory to Lender.
SECTION 7.2 LENDER'S VERIFICATION OF SUBCONTRACTS. From time to time
-------------------------------------
during the period of the development, construction and equipping of the Project,
Lender may forward to all Contractors, subcontractors, material suppliers,
architects, engineers and other parties listed on the sworn statement, a
contract verification to ascertain the correctness of the amount of the contract
for each Contractor, subcontractor, material supplier, architect, engineer and
any other party as contained on the statement (but Lender acknowledges that it
may not receive responses from all contractors or subcontractors). In the event
of any discrepancy between the amounts as shown by the executed copies of the
contracts, the sworn statement, and the verification of contract forms, the
Lender shall have the right to require that such discrepancies be eliminated to
its reasonable satisfaction.
SECTION 7.3 DOCUMENTS TO BE FURNISHED FOR EACH DISBURSEMENT. It shall
-----------------------------------------------
be a condition precedent to each Advance that Borrower shall furnish or cause to
be furnished to Lender in sufficient time for review by Lender (but in no event
less than ten (10) Business Days prior to disbursement), the following documents
covering each disbursement, in form and substance satisfactory to Lender:
30
<PAGE>
(A) the AIA form of "Application for Payment and Sworn Statement for
Contractor, Subcontractor and Architect" covering all work for which
disbursement is to be made to a date specified therein, and covering all
work otherwise paid for or to be paid for in connection with the Project;
(B) Contractor's and subcontractors' conditional waivers of liens,
subordinations of liens, and all other statements and forms required for
compliance with the mechanics' lien laws of the State of Illinois through
the date such Contractor or subcontractor has been paid;
(C) All such invoices, contracts, or other supporting data regarding
mechanics' liens as Lender may require, in its sole reasonable discretion;
(D) A Request for Advance, together with a disbursement request
summary, executed on behalf of Borrower, for such disbursement of proceeds
of the Loan;
(E) Lender's form[s] or the AIA form of "Certification[s] of the
Architect" (and of Lender's Construction Consultant) properly executed by
the Architect and the Lender's Construction Consultant and, at the option
of Lender, certificates from Borrower, the Architect and Lender's
Construction Consultant to the effect that, in their opinion, the
construction of the Project theretofore performed was performed in
accordance with the Plans, stating the estimated total cost of construction
of the Project, stating the percentage of in-place construction of the
Project attained by Borrower as of the date of the advance request, and
stating that the remaining non-disbursed portion of the Loan allocated for
such purpose is adequate to Complete the Project;
(F) Copies of any change orders, whether proposed or executed, which
have not been previously furnished to Lender;
(G) Such other documentation as may be required by the Title Insurer
and which may be necessary to enable the Title Insurer to issue, dated the
date of such disbursement, a so-called Date-Down Endorsement and mechanics'
lien interim certification (and a pending disbursement endorsement)
covering the requested disbursement satisfying the requirements set forth
in Section 7.4 hereof;
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(H) If any material dispute arises between or among Borrower, a
Contractor, or any other contractor, subcontractor and/or material
supplier, or if any extra or change order is being negotiated by Borrower,
a written summary of the nature of such dispute, or the status of such
negotiations, as the case may be; and
(I) With respect to the request for an Advance immediately following
completion of the foundation footprint of the Improvements, an updated
survey showing the location of the Improvements's foundation thereon.
Borrower shall also furnish to Lender, from time to time,
supplementary statements advising Lender of any changes in the information
covered by the statements from Borrower previously furnished pursuant to Section
-------
7.1 above. If no such supplementary
- ---
31
<PAGE>
statement is furnished in connection with any disbursement, Lender shall have
the right to require Borrower to certify in writing that no changes have
occurred since the most recent statement previously furnished.
Borrower shall make available to Lender for inspection and copying at
any time, any documentation supporting Borrower's requests for disbursements
hereunder, relating to the construction of the Project and not to be delivered
to Lender under this Section 7.3.
-----------
SECTION 7.4. CONDITIONS TO DISBURSEMENTS OF LOAN PROCEEDS. Borrower
--------------------------------------------
shall be entitled to receive further successive Advances of the proceeds of the
Loan in accordance with provisions of this Article 7 of this Agreement within
---------
ten (10) Business Days after each successive compliance with all applicable
conditions precedent thereto, but Advances of the Loan under this Agreement
shall be made only on a Business Day and provided that at the time of and prior
to each such disbursement (in addition to the other conditions and requirements
set forth in this Article 7):
---------
(A) no Default or Event of Default shall have occurred and be
continuing hereunder or under any of the other Loan Documents;
(B) the Loan is "in balance" as provided in Section 7.13 of this
------------
Agreement;
(C) Borrower shall have furnished or caused to be furnished to
Lender, concurrently with the funding of the Advance, a Date Down
Endorsement to the Policy issued to Lender covering the date of
disbursement (with mechanics lien coverage if such coverage is given by the
issuers of title insurance under applicable Laws) and showing the Mortgage
as a first, prior and paramount lien on the Project subject only to the
Permitted Exceptions (and such other encumbrances as may be expressly
permitted under this Agreement);
(D) The Project shall not have been injured or damaged by fire or
other casualty, unless Lender shall have received insurance proceeds
sufficient in Lender's judgment to effect the satisfactory restoration of
the Project and to permit the Completion thereof prior to the Completion
Date;
(E) The Project shall not be the subject of any pending or threatened
condemnation, eminent domain or similar proceeding; and
(F) The warranties, representations and covenants of Borrower in the
Loan Documents shall be true and correct on and as of the date of the
Advance with the same effect as if made on such date.
Such disbursements of Loan proceeds shall be made no more frequently than once
in each calendar month. Such disbursement may be made through the Title
Insurer, or the affiliate thereof licensed to perform trust functions ("TRUST
COMPANY"), in accordance with the terms of a construction escrow agreement in
form and substance satisfactory to the Lender. If such option is exercised, all
documents required under Section 7.3 hereof shall be delivered to the Trust
-----------
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<PAGE>
Company, with copies thereof delivered to Lender, and the provisions of Section
-------
7.9 of this Agreement shall apply.
- ---
SECTION 7.5. REQUESTS LESS OFTEN THAN MONTHLY. In the event Borrower
--------------------------------
does not request a disbursement within thirty (30) days after the previous
disbursement, Borrower will nonetheless within such thirty (30) day period and
during each subsequent thirty (30) day period in which Borrower does not request
a disbursement, satisfy the conditions precedent to interim disbursements set
forth in this Agreement as may be reasonably required by Lender.
SECTION 7.6. LIMITATION OF DISBURSEMENTS BY CATEGORY. Notwithstanding
---------------------------------------
the terms set forth in Borrower's Draw Request Certification, Lender shall not
be obligated to disburse any amount for any category of costs set forth as a
line item of the Construction Budget which is greater than: (a) the amount set
forth for such category in the applicable line item of the Construction Budget
(as may be reallocated by Borrower to the extent permitted by and in accordance
with the requirements of this Section 7.6 as set forth below) and (b) the amount
-----------
of any unused contingency line item. In addition to the contingency line item
in the Construction Budget approved by Lender, Lender agrees that Borrower shall
have the right, reasonably exercised, to reallocate line items in the
Construction Budget so long as: (i) no such reallocation would result in or
create an increase or decrease in any single line item of the Construction
Budget of more than ten percent (10%), (ii) the reallocation does not include
any funds in the "interest reserve" line item, (iii) the Lender is advised in
advance of the proposed line item reallocation and has an opportunity to review
the same with Borrower and to obtain from Borrower such documentation regarding
the need for such reallocation as Lender shall reasonably require, (iv) the
Construction Budget is not, and may not reasonably be expected to be, increased
as a result or consequence of any such reallocation, and (v) Borrower can
demonstrate to the reasonable satisfaction of Lender that the source of the
reallocation of funds is from actual savings in one or more given line items,
which savings in the Lender's judgment does not result in a diminishment or
reduction in the quality of the Project. Borrower also shall be entitled to
reallocate and use the contingency line item funds from time to time in a
percentage which is proportionate to the stage of Completion of the Project.
SECTION 7.7. RETAINAGES. At the time of each Advance of the Loan,
----------
retainage in the amount of ten percent (10%) shall be withheld from the hard
costs of construction due from Borrower to any Contractor, and the various
contractors, subcontractors and material suppliers for the development,
construction and equipping of the Project as certified by the Architect and the
Lender's Construction Consultant. Unless otherwise agreed to in writing by
Lender, in its sole discretion, and notwithstanding the terms and provisions of
any Construction Contract, all such retention shall be retained until the
conditions for final disbursement as set forth in Section 7.14 hereof have been
------------
satisfied. Notwithstanding the foregoing to the contrary, Lender agrees that
upon proof satisfactory to Lender in its sole discretion that the construction
of the Project is fifty percent (50%) complete (as certified by the Architect)
and confirmed by Lender, and provided that no Default or Event of Default
exists, subsequent draws on the hard costs line items for the balance of the
construction of the Project shall be subject to a reduced retainage of five
percent (5%)
SECTION 7.8. PAYMENTS DIRECTLY TO CONTRACTORS AND SUBCONTRACTORS.
---------------------------------------------------
Following the occurrence of a Default hereunder, Lender, in its sole discretion,
through an Advance of Loan
33
<PAGE>
proceeds, may make payments due for the cost of the development, construction
and equipping of the Project directly to any Contractor, any subcontractor,
material supplier or any vendor of fixtures, equipment, furniture, furnishings
and other property.
SECTION 7.9. CONSTRUCTION ESCROW PROVISION. If Lender elects, Advances of
-----------------------------
the Loan proceeds shall be made by and through the Title Insurer pursuant to the
provisions of a construction escrow agreement in form and substance reasonably
satisfactory to Lender. In such event, Borrower agrees to join as a party to
such escrow, to comply with the requirements set forth therein (which shall be
in addition to and not in substitution for the requirements contained in this
Agreement) and to pay all fees and expenses of the escrowee charged in
connection with the performance of its duties under such construction escrow
agreement.
SECTION 7.10. LENDER'S RIGHT TO EMPLOY LENDER'S CONSTRUCTION CONSULTANT.
----------------------------------------------------------
Lender shall have the right to employ Lender's Construction Consultant to review
the Plans and the Construction Budget, to assure that the development,
construction and equipping of the Project in accordance with the Plans is
proceeding in accordance therewith, and to inspect the Project and the progress
of the same. All fees and expenses of Lender's Construction Consultant shall be
borne by Borrower as Loan Expenses. All references in this Agreement to the
Architect shall also, where the context so requires, include the Lender's
Construction Consultant. The inspections of the Project and the progress of the
development, construction and equipping of the Project by Lender or by Lender's
Construction Consultant, and the review and approval of the Plans by Lender are
solely for the benefit of Lender, and Lender's approval thereof shall not be
deemed in any respect to be a representation or warranty, expressed or implied,
that the Project is or will be structurally sound, have a value of any
particular magnitude or otherwise satisfy a particular standard.
SECTION 7.11. DISBURSEMENT FOR OFFSITE MATERIALS. Any requests for
----------------------------------
disbursements which, in whole or in part, relate to payment for materials not
yet incorporated into the Project, shall be reasonably approved by Lender
subject to satisfaction of all other conditions for disbursements herein and, in
addition, shall be subject to receipt by Lender of: (i) proof reasonably
satisfactory to Lender that such offsite materials are included within the
coverages of insurance policies carried by Borrower or proof of other insurance
which has been approved by Lender, (ii) evidence reasonably satisfactory to
Lender that the ownership of such materials is vested in Borrower and such
ownership is free of any liens and claims of third parties, (iii) evidence
reasonably satisfactory to Lender that such materials are protected against
theft or damage, (iv) certification of the Borrower and Lender's Construction
Consultant that the materials are located at such offsite location and that
Borrower and Lender's Construction Consultant have each inspected such materials
and certifies them to be the same materials for which Borrower is requesting a
disbursement in the Borrower's Draw Request Certification, and (v) evidence
reasonably satisfactory to Lender that such materials are tagged, marked and
physically separated so as to be readily identified as owned by Borrower. Lender
may require a separate security agreement and uniform commercial code financing
statements to cover any such offsite materials, equipment or furnishings and
such other information and assurances as Lender may reasonably require.
SECTION 7.12. DISBURSEMENTS FOR STORED MATERIALS. Any requests for
----------------------------------
disbursements which in whole or in part relate to materials, equipment or
furnishings which are owned by
34
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Borrower and are not incorporated into the Project as of the date of the request
for disbursement, but are to be temporarily stored at the Project, shall be
approved by Lender for disbursement (subject to satisfaction of the other
disbursement conditions set forth herein) to the extent such request relates to
such stored materials, and shall be subject to receipt by Lender of: (i) proof
reasonably satisfactory to Lender that such stored materials are included within
the coverages of insurance policies carried by Borrower or proof of other
insurance which has been approved by Lender; (ii) evidence reasonably
satisfactory to Lender that the ownership of such materials is vested in
Borrower and such ownership is free of any liens and claims of third parties;
(iii) evidence reasonably satisfactory to Lender that such materials are
protected against theft or damage; and (iv) certification of Borrower and
Lender's Construction Consultant that such materials stored at the Project have
been inspected by Borrower and Lender's Construction Consultant and that such
materials are the same materials as described in Borrower's Draw Request
Certification. Lender may require a separate security agreement and uniform
commercial code financing statements to cover any such materials, equipment or
furnishings so stored at the Project and such other information and assurances
as Lender may reasonably require.
SECTION 7.13. SUFFICIENCY OF THE LOAN. (A) Anything in this Agreement
-----------------------
contained to the contrary notwithstanding, it is expressly understood and agreed
that the Loan shall at all times be "in balance" as hereinafter defined. The
Loan shall be deemed to be "in balance" only at such time and from time to time,
as Lender may reasonably determine that either: (a) the then undisbursed
portion of the Loan (giving effect to all escrow reserves and retainage) equals
or exceeds the amount necessary to pay for (i) all hard costs for work done and
not theretofore paid for or to be done in connection with the Completion of the
Project in accordance with the Plans based on "LENDER'S ESTIMATE OF CONSTRUCTION
COSTS", (as defined below), (ii) all soft costs and other costs payable by
Borrower under this Agreement or otherwise in connection with the construction
and equipping of the Project until Completion of the Project , and (iii) all
costs incurred and not theretofore paid for, or to be incurred in connection
with the items described in Section 7.7 or (b) the then undisbursed portion of
-----------
the Loan does not equal or exceed the foregoing described amount, but Borrower
either: (i) has deposited with Lender cash sufficient to bring the Loan "in
balance", (ii) has, with Lender's prior approval (which approval may be given or
withheld at Lender's sole discretion) delivered to Lender financial assurances
of Borrower's ability to complete and fund the cost of the construction of the
Project (which assurances shall be determined by Lender in its sole discretion,
but which may include, letters of credit, cash or cash equivalent), or (iii)
has, with Lender's prior approval (which approval may be given or withheld in
Lender's sole discretion) agreed to fund, and is funding, the deficiency from
Outside Sources, as payments for the costs of the construction of the Project to
come due and, until the Loan is in balance, prior to any further disbursements
of the Loan.
(B) Borrower agrees that Lender shall have the right to make from time
to time in Lender's reasonable discretion, an estimate of the cost of the
construction of the Project, which estimate is herein sometimes called "LENDER'S
ESTIMATE OF CONSTRUCTION COSTS." In the first instance, Lender's Estimate of
Cost of Construction shall be made upon the basis of the General Contract,
executed subcontracts and purchase orders, or, in those instances where
subcontracts or purchase orders have not yet been let, upon the basis of either
written bids with responsible contractors, tradesmen and material suppliers
obtained by Borrower and approved by Lender, or Lender's estimate of such costs
where written bids have not been obtained, and shall
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take into account all soft costs and other costs and expenses to be paid by
Borrower hereunder through the Completion of the Project, with such allowances
for reserves and contingencies as Lender shall deem appropriate in its
reasonable discretion. Thereafter, Lender's Estimate of Construction Costs will
take into account, in addition to the General Contract, subcontracts and
purchase orders, and other considerations which Lender, in its reasonable
judgment, deems relevant or likely to have an impact upon the cost of the
construction of the Project.
(C) Borrower agrees that if for any reason the amount of undisbursed
proceeds of the Loan shall at any time be or become insufficient for the
purposes described in this Section 7.13, regardless of how such condition may
------------
have been brought about, upon ten (10) Business Days written notice to Borrower
during which time Borrower shall have the right to bring the Loan into balance,
and upon Borrower's failure to bring the Loan into balance, it shall be an Event
of Default hereunder and, in addition to any other rights or remedies of Lender
hereunder or at law or in equity, Lender shall not be obligated to disburse the
Loan during the period of such insufficiency.
SECTION 7.14. FINAL DISBURSEMENT OF LOAN. Lender shall make the final
--------------------------
disbursement from the Loan (subject to the provisions of Section 7.13 above) for
------------
costs of the construction and equipping of the Project, provided that all of the
following conditions have been complied with and satisfied on or before the
Completion Date. Borrower covenants to satisfy the following conditions on or
before the Completion Date:
(A) The development, construction and equipping of the Project has
been completed substantially in accordance with the Plans;
(B) Borrower has furnished Lender with final lien waivers,
subordination of liens and sworn statements as to the Project from all
contractors, subcontractors and material suppliers who have provided
materials, labor or both with respect to the construction of the
Improvements and/or the Project;
(C) Borrower shall have furnished to Lender proof, satisfactory to
Lender in its reasonable discretion, that the Project, as constructed, is
in compliance with all applicable Laws of all applicable Governmental
Authorities, including, but not limited to, zoning regulations and building
restrictions, environmental requirements, occupational safety and health
requirements and similar laws, ordinances and regulations;
(D) Borrower shall have delivered to Lender the final as-built
Plans showing all changes from the Plans approved by Lender as of the date
hereof;
(E) Borrower shall have furnished Lender with: (i) a final
certificate of occupancy for the Project from the applicable Governmental
Authority having jurisdiction thereof; and (ii) such other certificates,
approvals, Licenses and Permits of each Governmental Authority required (or
customarily procured) concerning the then existing construction, use,
occupancy and operation of the Project;
(F) There shall be no governmental actions, proceedings or
investigations pending or overtly threatened (evidencing an intent to sue
or to commence such a
36
<PAGE>
proceeding or investigation) against or filed by Borrower which might: (i)
have an adverse effect on the Project or the value of the Project or (ii)
adversely impair the Lender's security for full and timely performance of
all obligations hereunder;
(G) The Project shall be undamaged by fire or other cause and
there shall be no material condemnation or eminent domain proceedings
pending or overtly threatened (evidencing an intent to sue or to commence
such a proceeding or investigation) against the Project;
(H) Borrower shall have furnished to Lender a certificate from
Borrower, currently dated, certifying that: (i) no notices from any
Governmental Authority of any claimed violations of applicable Laws arising
from the construction or operation of the Project which have not been cured
were served upon Borrower or, to the best of Borrower's Knowledge, any
contractor or subcontractor or their respective agents or representatives
and (ii) Borrower is not aware of any circumstances which could give rise
to the issuance of any such notice of claimed violation;
(I) Borrower shall have furnished to Lender a certificate from
the Architect covering the Completion Date and stating that: (i) the
Project has been completed in accordance with the Plans, and (ii) the
Project as so completed complies with all applicable Laws, Licenses and
Permits, and all applicable Governmental Approvals;
(J) Lender shall have received a certificate from the Lender's
Construction Consultant, in form and substance satisfactory to Lender, that
the Project has been Completed in accordance with the Plans;
(K) All Fixtures, Furnishings, Equipment, all Inventory and all
other property contemplated under the Construction Budget and the Plans to
be incorporated into or installed in the Project shall have been
incorporated or installed free and clear of all liens and security
interests other than the Permitted Exceptions and the liens and security
interests expressly permitted by Section 11.20(d) of this Agreement;
----------------
(L) Borrower shall have furnished to Lender a final so-called
Date Down Endorsement in the full amount of the Loan and such Title Policy
shall otherwise conform with the requirements of Section 6.1(b);
--------------
(M) Borrower shall have furnished Lender with current searches
of all Uniform Commercial Code financing statements filed with the
Secretary of State of Illinois, the Secretary of State of Illinois, and the
County Recorder for Cook County, Illinois against Borrower and Guarantor as
debtors, showing that no Uniform Commercial Code financing statements are
filed or recorded against Borrower or Guarantor in which the collateral is
described as any of the Collateral, including any Fixtures, Furnishings and
Equipment or other personal property located on the Project or used in
connection with the Project;
(N) All other requirements of this Loan Agreement for
disbursement of Loan proceeds have been satisfied.
37
<PAGE>
SECTION 7.15. FINAL AS-BUILT SURVEY. Borrower shall deliver to Lender not
---------------------
later than ninety (90) days after the date on which the temporary certificate of
occupancy is issued an "as-built" version of the Survey satisfactory to Lender,
and showing the location thereon of the Project and all other improvements
located on the Land, and otherwise in a form complying with the "Minimum
Standard Detail Requirements for ALTA/ACSM (Urban) Land Title Surveys."
SECTION 7.16. SIGN REGARDING CONSTRUCTION FINANCING. Unless Lender shall
-------------------------------------
otherwise determine, any and all signs placed on the Land to describe the
Project or the development of the Land shall indicate in a manner satisfactory
to Lender that construction financing is being provided by Lender. Furthermore,
Borrower will maintain on a suitable site on the Land any sign furnished by
Lender indicating that construction financing is being provided by Lender and
will prevent the destruction or removal thereof.
SECTION 7.17. NOTICES. Promptly following the giving or receipt by
-------
Borrower of any notice given to or received from any Contractor or any
subcontractor or materialman with respect to the Project, if such notice
concerns any default or failure to perform by any party, or relates to any
matter requiring Lender's approval under this Agreement, Borrower shall forward
to Lender a complete copy of any such notice.
ARTICLE 8.
INSURANCE
SECTION 8.1. INSURANCE. Borrower shall obtain, and shall maintain at all
---------
times during the term of the Loan, such insurance as Lender may reasonably
require, including, but not limited to the following:
(A) Insurance of the Project against loss or damage by fire or other
casualty on an "all-risk" form, including demolition and increased cost of
construction, debris removal and pollution clean-up in the full replacement cost
of the Project (including increased cost of law and ordinance coverage), without
deduction for foundations and footings (and without co-insurance), and
containing an agreed amount endorsement (the "CASUALTY INSURANCE"), and, from
the Closing until the Improvements are completed, "all-risk" form of builder's
risk insurance, together with rents, earnings and extra expense insurance
covering loss due to delay in completion of the construction of the Improvements
(the "BUILDER'S RISK INSURANCE").
(B) Flood, Earthquake, Wind Storm and Collapse coverage for the full
replacement cost of the Project.
(C) Insurance on the Project against loss or damage from an accident to
and/or caused by boilers and machinery, including but not limited to: heating
apparatus, pressure vessels, pressure pipes, electrical or air conditioning
equipment on a blanket comprehensive coverage form, in such amount as Borrower
shall deem advisable and as approved by Lender. Additional provisions providing
coverage for removal of contaminated equipment and/or hazardous or toxic
substances contained within such equipment to approved disposal sites shall be
considered and obtained if required by Lender.
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<PAGE>
(D) Worker's compensation insurance to statutory limits, including USL&H
and Jones Act (if applicable) and employer's liability insurance covering
Borrower's employees (to the extent required, and in the amounts required by
applicable Laws).
(E) Commercial general liability insurance covering Borrower ownership of
and operations at the Project including personal injury; employee benefits
liability; products and completed operations liability; blanket contractual
liability; advertising liability; automobile liability including owned, non-
owned or hired vehicles; garage liability and garage keeper's legal liability;
marine and wharf liability (if applicable), and having a limit of not less than
$1,000,000.00 on a per occurrence basis.
(F) At all time when construction is occurring at the Project,
Contractor's Liability Insurance to a limit of not less than $1,000,000.00 on a
per occurrence basis covering the Contractor's construction operations at the
Project with the Borrower and the Lender as Additional Insureds.
(G) Business income insurance, including business interruption and extra
expense, against the perils enumerated in (a), (b) and (e) above for a limit
equal to twelve (12) months exposure.
(H) Umbrella liability on a following-form basis with limits of
$10,000,000.00 per occurrence and annual aggregate.
(I) Such other insurance as may be reasonably requested by Lender.
SECTION 8.2. GENERAL REQUIREMENTS. All insurance acquired hereunder
--------------------
shall be with companies and in form, amounts and with coverage and deductibles
reasonably satisfactory to the Lender and, with respect to the insurance
described in Section 8.1(a), (b) , (c) and (g), a mortgagee's loss payable
-------------- --- --- ---
clause attached naming Lender as mortgagee and loss payee, with respect to the
insurance described in Section 8.1(e) (other than contractual liability
--------------
coverage), and Sections 8.1(h), containing an endorsement naming Lender as an
---------------
Additional Insured thereunder. All insurers shall have a Best Insurance Guide,
(1994) rating of "A-V" or better (or the equivalent thereof if the rating
designations in Best Insurance Guide shall change subsequent to the date hereof)
and shall be qualified to do business in the State of Illinois. All policies,
except the umbrella policy referred to in Section 8.1(i), shall be written on a
--------------
primary, not excess, basis. All policies required hereunder shall provide that
the insurance evidenced thereby shall not be canceled or modified without at
least thirty (30) days' prior written notice from the insurance carrier to
Lender and shall provide that no claim shall be paid hereunder without ten (10)
days' advance written notice to Lender. Borrower shall deliver renewal
certificates of all insurance required hereunder. Borrower shall deliver copies
of all insurance policies to Lender at the Closing and shall deliver the
original policies to Lender not later than forty-five (45) after the Closing.
SECTION 8.3. INTENTIONALLY DELETED.
---------------------
SECTION 8.4. ERRORS AND OMISSIONS. Borrower shall require Architect
--------------------
to: (a) obtain and maintain professional errors and omissions coverage for
Architect and all of its principals
39
<PAGE>
and employees performing architectural and design services for the Project, and
(b) require all engineer and design professional subcontractors to obtain or
maintain professional errors and omissions coverage in connection with such
subcontracted work. Professional errors and omissions insurance shall be
endorsed to provide contractual liability coverage. Certificates of such
coverage shall be furnished along with other certificates of insurance hereunder
and such coverage for Architect and each such professional subcontractor shall
be in an amount reasonably required by Lender, but not less than $1,000,000.00.
ARTICLE 9.
CREATION, SALE AND RELEASE OF CONDOMINIUM UNITS
SECTION 9.1. ESTABLISHING CONDOMINIUM REGIME. Borrower has caused to be
-------------------------------
prepared the Declaration, (y) the Plat, and (z) By-Laws, and all other documents
and instruments required to convert the Land and the Improvements to a
condominium regime under the Laws of the State of Illinois and to prepare the
offering of the Condominium Units to the public in conformance with the
requirements of applicable Laws. All of the Condominium Documents are subject to
the approval of Lender and once approved by Lender, the Declaration and the
other Condominium Documents shall not be revised or amended without Lender's
prior approval. Borrower shall collaterally assigned to Lender (i) Borrower's
interest as developer/sponsor under Declaration and other Condominium Documents
and (ii) all agreements then or thereafter existing for sale of Condominium
Units, by the Assignment of Construction and Operation Documents or such other
form as Lender may require. Not later than [90] days prior to the closing of the
sale of the first Condominium Unit (or on such earlier date as may be required
by applicable Laws), Borrower shall cause: (x) the Declaration, (y) the Plat,
and (z) By-Laws, and all other documents and instruments required by applicable
Laws to be duly recorded in the Cook County, Illinois Recorder's Office.
Borrower hereby covenants to include in the Offering Materials all disclosures
regarding the Project required by applicable Laws.
SECTION 9.2. SALES CONTRACTS. All contracts for the sale of Condominium
---------------
Units at the Project shall be Valid Sale Contracts and there shall be no
material amendment to or modification of any such Valid Sale Contract without
Lender's prior written approval. To the extent permitted by applicable Laws,
Borrower shall place the deposits made under the Valid Sale Contracts into a
segregated account at a financial institution which is approved in writing by
Lender, certificates of deposit issued by such institution, money market funds
or other short term investments approved by Lender. Borrower shall comply with
all applicable laws, rules and regulations governing the retention and
disposition of the deposits made under the Valid Sale Contracts. Lender shall
have no responsibility or liability for the security or safety of such deposits
or investments.
SECTION 9.3. SALES OF UNITS. Prior to the transfer of title of any
--------------
Condominium Units, Borrower shall, in addition to and not in limitation of any
other requirements set forth herein, and the requirements of applicable Laws,
satisfy each of the following conditions:
(A) Borrower shall have provided Lender with not less than ten (10) days'
prior written notice of the intended transfer of title, which written notice
shall be accompanied by (i) a
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<PAGE>
copy of the draft closing statement for the proposed transfer, and (ii) the
partial release to be executed by Lender in order to release its security
interest under the Mortgage in the applicable Condominium Unit and/or parking
space, as applicable, to be sold and containing a description of the Condominium
Unit and/or parking space, as applicable, to be released, which partial release
shall be prepared by Borrower at Borrower's expense but subject to Lender's
approval in its sole discretion;.
(b) All Offering Materials shall have been approved by Lender and shall
contain all documents and instruments by which Condominium Units will be
transferred to purchasers, including, without limitation, the Declaration
pursuant to which the Land and the Improvements shall be converted to
condominium ownership; the By-laws and other governing instruments pursuant to
which the association of owners of such Condominium Units shall be created and
governed; and the forms of the purchase agreement and deed by which the
Condominium Units shall be conveyed to unit purchasers.
(c) Borrower shall have filed and recorded the Declaration in accordance
with the provisions of Section 9.1, and contemporaneously therewith, Lender
-----------
shall have executed a document or documents, prepared by Borrower at Borrower's
expense but subject to Lender's approval in its reasonable discretion,
subordinating the lien of the Mortgages, the Assignment of Leases and Rents and
the UCC Financing Statements to the Declaration and the condominium by-laws and
floor plans filed in connection with the Declaration.
(d) Borrower shall have obtained a temporary or permanent certificate of
occupancy covering the Improvements or the Condominium Unit proposed to be
transferred;.
(e) At Borrower's expense, Lender shall have received from the Title
Company or another title insurance company, duly licensed to do business and in
good standing in Illinois, a copy of a written bulk commitment from such title
insurance company to prospective purchasers of the Condominium Units committing
to insure title of purchasers of such units who desire such insurance.
(f) No Event of Default shall have occurred and be continuing under the
Loan Documents.
(f) Borrower shall have satisfied any other conditions required to be
satisfied prior to such transfer of title pursuant to the Loan Documents and
applicable Laws.
SECTION 9.4 RELEASE OF UNITS. In the event of a sale of a Condominium
----------------
Unit (which shall be permitted only after the events described in Section 9.3
-----------
shall have occurred), Lender shall release the Condominium Unit, and its
appurtenant undivided interest in the common elements, from the lien of the
Mortgage and the other Loan Documents provided the sale of such condominium unit
is pursuant to a Valid Sale Contract and Lender shall have received (a) the
greater of: (herein, the "RELEASE PRICE"): (i) 100% of the Net Sale Proceeds for
such Condominium Unit, as the case may be, or (ii) 93% of the gross contract
sales price, which gross contract sales price shall not be less than the minimum
sales price of the Condominium Unit, as set forth on Exhibit E attached to this
---------
Agreement, as Exhibit E may be amended from time to time with Lender's approval
---------
in its sole discretion (the "MINIMUM SALES PRICE"), and (b) the legal
41
<PAGE>
fees and expenses incurred by Lender in processing each such release. In no
event shall: (x) the gross contract sales price for the applicable Condominium
Unit and/or parking space, as the case may be (exclusive of concessions, extras
and/or upgrades) be less than the Minimum Sales Price for such Condominium Unit
and/or parking space, as the case may be, as set forth on Exhibit E attached to
---------
this Agreement; and (y) the Net Sales Proceeds realized and payable to Borrower
upon the closing of the sale of the applicable Condominium Unit be less than
ninety-three percent (93%) of the Minimum Sales Price (exclusive of concessions
of up to $5,000.00, extras and upgrades, if any) applicable to such Condominium
Unit. Borrower acknowledges and agrees that upon release of each Approved
Holdback by the Title Company, the funds therein shall be released directly to
Lender and shall be applied to the payment of principal (until such time as the
Obligations have been paid in full).
SECTION 9.5 APPLICATION OF NET SALE PROCEEDS. (A) Immediately upon the
closing of any sale of a condominium unit, Borrower shall remit to Lender one
hundred percent (100%) of the Net Sales Proceeds as shown on the closing
statement executed by Borrower and the purchaser with respect to such sale (and
so long as Borrower shall have satisfied the requirements of Section 9.4 of this
-----------
Agreement), Lender shall release the unit from the lien of the Mortgage.
(b) Provided no Default shall have occurred and be continuing
hereunder or under any other Loan Document, all payments received by Lender
pursuant to Section 9.5(a) shall be applied or paid, on the date such funds are
--------------
immediately available to Lender, as follows:
(1) First to the then-due payments of Interest on the Note, but
only if and to the extent that the Interest Reserve has then been exhausted
or has become unavailable to Borrower as a result of a Default or Event of
Default;
(2) Then, at Lender's option and so long as no Default has
occurred and is continuing, to the then-due portions of the escrows for Tax
Deposits (if such deposits are required hereunder);
(3) Then, to repayment of any late charges, Protective Advances
made by Lender and any other amounts payable hereunder or under the other
Loan Documents (other than the repayment of principal);
(4) Then, to repayment of the principal amount of the Note then
outstanding until such principal shall have been fully paid.
Upon the occurrence of a Default, and in addition to all other
rights, powers and remedies of Lender hereunder or under any other Loan
Document, Lender may, at its option, apply all amounts paid to Lender under this
Agreement, the Note or any other Loan Document shall be applied to Lender in
such order and manner as Lender may elect in its sole discretion. The
application of Net Sales Proceeds pursuant to and accordance with this
Section 9.5 shall not be deemed a prepayment of the Loan on which a prepayment
- -----------
fee or charge is due as set forth in the Note.
SECTION 9.6 PROHIBITION ON SALE OR REFINANCE. Neither the Project nor
--------------------------------
any component thereof, nor any interest therein, may be transferred, conveyed or
sold, except in
42
<PAGE>
accordance with the express provisions of this Agreement, and no subordinate or
replacement financing of the Project may be effected unless Lender in its sole
discretion consents thereto in writing.
ARTICLE 10.
TAX ESCROW
SECTION 10.1 DEPOSITS FOR TAXES. All real estate taxes and assessments
------------------
required to be paid by Borrower pursuant to Section 11.7 hereof (the "TAXES")
------------
shall be paid from Loan proceeds to the extent set forth in the Construction
Budget approved by Lender. If the applicable line item in the Construction
Budget has been depleted, Borrower shall, in order to assure that there are,
during the balance of the Loan Term, sufficient funds to pay Taxes, as and when
the same shall become due and payable, at Lender's option upon written notice to
Borrower, deposit with Lender in an interest bearing account (at Lender's
standard passbook savings rate) on the first (1st) day of each and every month
during the Loan Term an amount equal to one-twelfth (1/12) of 110% of the
annual Taxes next to become due upon the Project; provided that in the case of
the first such deposit, there shall be deposited, in addition, an amount which,
when added to the aggregate amount of monthly sums next payable under this
Section 10.1, will result in a sufficient reserve to pay the Taxes next becoming
- -------------
due one month prior to the date when such Taxes are, in fact, due and payable
pursuant to applicable law. The amount of such deposits (herein generally
called "TAX DEPOSITS") shall be based upon Lender's reasonable estimate as to
the amount of Taxes next to be payable.
SECTION 10.2 APPLICATION OF TAX DEPOSIT.
--------------------------
(a) The aggregate of the monthly Tax Deposit, together with monthly
payments of interest and/or principal and interest payable on the Note shall be
paid in a single payment each month, to be applied, so long as no Default has
occurred hereunder and is continuing, first to payment of Taxes and then in the
order set forth in Section 9.5.
-----------
(b) It shall be the responsibility of Borrower to furnish Lender with the
bills for the Taxes not later than twenty (20) days prior to the date on which
the same are due and payable without penalty or premium of any kind. If the
total Tax Deposit on hand shall not be sufficient to pay all of the Taxes when
the same shall become due, then Borrower shall deliver to Lender at the time of
the submission of the bills to Lender as above an amount equal to the
deficiency. If the total of such Tax Deposit exceeds the amount required to pay
the Taxes, such excess shall be credited against subsequent payments to be made
for such deposits.
(c) Upon the occurrence of a Default hereunder, and in addition to all
other rights, powers and remedies of Lender hereunder or under any other Loan
Document, Lender may, at its option, without being required do to so and to the
extent permitted by Law, apply any Tax Deposits on hand to any of the
Obligations, in such order and manner as Lender may elect in its discretion.
When the Obligations have been fully paid and performed, as the case may be, any
remaining Tax Deposits shall be paid to Borrower. All Tax Deposits are hereby
pledged as additional security for the Obligations, and shall be held by Lender
to be irrevocably applied for
43
<PAGE>
the purposes for which made as herein provided, and shall not be subject to the
direction or control of Borrower.
(d) Notwithstanding anything herein contained to the contrary, and except
as provided in the immediately succeeding sentence, Lender, and its loan
servicing agent, if any, or their successors and assigns, shall not be liable
for any failure to apply to the payment of Taxes any amounts deposited as Tax
Deposits. Provided that Borrower shall furnish the bills for the Taxes and the
amount of any deficiency on or before the time required for such delivery as
provided in Section 9.2(b) hereof, and so long as no Default has occurred,
--------------
Lender shall use its reasonable efforts to cause such bills to be paid on or
before the dates on which the bills are due and payable without premium or
penalty, and if Lender fails to timely pay the Taxes under those circumstances,
Lender shall be responsible for penalties and interest assessed for late
payments.
ARTICLE 11.
BORROWER'S ADDITIONAL COVENANTS
Borrower further covenants and agrees as follows:
SECTION 11.1 CONSTRUCTION. The development, construction and equipping
------------
of the Project: (i) commenced on or about October 1, 1998, (ii) will continue
with diligence and continuity and in accordance with the Construction Schedule
and will be completed by the Completion Date, (iii) will be completed in a good
and workmanlike manner with materials of high quality in accordance with the
Approved Plans, free of defects, and free from liens or security interest other
than those of Lender, and (iv) will be completed in accordance with all
applicable Laws, the requirements of all Governmental Authorities.
SECTION 11.2 CONSTRUCTION CONTRACTS. Borrower will not (i) default under
----------------------
the terms of any Construction Contract, (ii) waive any of the material
obligations of any Contractor thereunder, (iii) do any act which would relieve
any Contractor from its material obligations under its applicable Construction
Contract, (iv) make any amendments to any Construction Contract, without the
prior written consent of Lender.
SECTION 11.3 CHANGES IN APPROVED PLANS. No changes will be made in the
-------------------------
Approved Plans without the prior written approval of Lender, which consent may
be given or withheld in Lender's sole discretion; provided, however, that
Borrower shall have the right to make changes to the Approved Plans without
Lender's consent (but with notice to Lender): (a) to extent necessary in
connection with an upgrade for a Condominium Unit, so long as the contract
purchaser of such Condominium Unit shall have deposited not less than twenty-
five percent (25%) of the costs of such upgrade(s), and (b) for other changes to
the Approved Plans the cost of which to implement does not exceed $5,000.00
individually or $15,000.00 in the aggregate (and which, in any event, would not
result in any change to the Plat or the Declaration).
SECTION 11.4 INSPECTION BY LENDER. Borrower will cooperate (and will use
--------------------
its best efforts to cause its agents and independent contractors to cooperate)
with Lender in arranging the inspections of the Project or any part thereof or
any of the other Collateral by Lender and its
44
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agents and representatives, including, without limitations, Lender's
Construction Consultant, at such times as Lender shall determine in its
reasonable discretion.
SECTION 11.5 MECHANICS' LIENS CONTEST THEREOF; OTHER LIENS. Borrower
---------------------------------------------
will not suffer or permit any mechanics' lien claims to be filed or otherwise
asserted against the Project, and will promptly discharge the same if any claims
for lien or any proceedings for the enforcement thereof are filed or commenced;
provided, however, that Borrower shall have the right to contest in good faith
and with due diligence the validity of any such lien or claim upon furnishing to
Lender a bond covering such contested mechanics lien in form, scope and
substance satisfactory to Lender (and from a bonding company approved by Lender)
or by furnishing the Title Insurer such security or indemnity as it may require
to induce the Title Insurer to issue an endorsement to the Title Policy insuring
against all such claims, liens or proceedings. Except as expressly permitted by
this Agreement or the other Loan Documents, Borrower shall not cause, create,
suffer or otherwise permit to exist, any lien, security interest, or other
encumbrance against the Project or any other Collateral.
SECTION 11.6 SETTLEMENT OF MECHANICS' LIEN CLAIMS. If Borrower shall
------------------------------------
fail promptly to discharge any mechanics' lien claim filed or otherwise asserted
or to contest any such claims and give security or indemnity in the manner
provided in Section 11.5 hereof, or, having commenced to contest the same, and
------------
having given such security or indemnity, shall thereafter fail to prosecute such
contest in good faith or with due diligence, or fail to maintain such indemnity
or security so required by the Title Insurer for its full amount, or, upon
adverse conclusion of any such contest, shall fail to cause any judgment or
decree to be satisfied and lien to be promptly released, then, and in any such
event, Lender may at its election (but shall not be required to), with prior
written notice to Borrower (i) procure the release and discharge of any such
claim and any judgment or decree thereon, without inquiring into or
investigating the amount, validity or enforceability of such lien or claim and
(ii) effect any settlement or compromise of the same, or may furnish such
security or indemnity to the Title Insurer, and any amounts so expended by
Lender, including premiums paid or security furnished in connection with the
issuance of any surety company bonds, shall be deemed to constitute advances
under the Note.
SECTION 11.7 INTENTIONALLY DELETED.
---------------------
SECTION 11.8 RENEWAL OF INSURANCE. Borrower shall timely pay premiums on
--------------------
all insurance policies required under this Agreement or under any other Loan
Document from time to time; and when and as additional insurance is required
from time to time during the term of the Loan and when and as any policies of
insurance may expire, (i) prior to the expiration of any such policies furnish
to Lender evidence of their renewal and (ii) not later than sixty (60) days
following the renewal of such policies furnish to Lender, additional and renewal
insurance policies (or certified copies thereof) issued by companies, and with
coverage and amounts, reasonably satisfactory to Lender. Notwithstanding this
Section 11.8 in the event of Borrower's Default under this Section 11.8 or
- ------------ ------------
Article 8 hereof, or if an Event of Default shall occur under this Agreement or
- ---------
under any of the Loan Documents, Lender shall have the right (but not the
obligation) to place and maintain insurance required to be placed and maintained
by Borrower hereunder and treat the amounts expended therefor as additional
indebtedness hereunder and under the Note.
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SECTION 11.9 PAYMENT OF TAXES. Borrower shall pay all Taxes upon or with
----------------
respect to the Project or any part thereof when same are due, but subject to any
right to contest such Taxes as expressly permitted by the Mortgage and in the
manner expressly permitted by the Mortgage.
SECTION 11.10 PERSONAL PROPERTY. (i) All of Borrower's personal property,
-----------------
attachments and equipment located on or used in connection with the Project
shall always be located at the Project, except as expressly permitted by the
terms of this Agreement, and shall also be kept free and clear of all chattel
mortgages, conditional vendor's liens and all other liens, encumbrances and
security interests of any kind whatever (other than as expressly permitted
hereunder or as otherwise approved by Lender in writing), and (ii) Borrower
shall, from time to time upon request by Lender, furnish Lender with evidence of
such ownership satisfactory to Lender, including searches of applicable public
records. Borrower shall have the right to sell obsolete or damaged and unusable
tangible personal property, so long as all of the proceeds thereof shall be used
to replace such tangible personal property. Lender acknowledges and agrees that
the sales trailer and model Condominium Unit shall not be located on the Land.
SECTION 11.11 PROCEEDINGS. If any Proceedings are filed seeking to enjoin
-----------
or otherwise prevent or declare unlawful the construction, use, occupancy,
operation or maintenance of the Project or any portion thereof, or any other
proceedings of the nature described in Section 5.1(g) of this Agreement are
--------------
filed, Borrower shall give immediate notice thereof to Lender and, to the extent
permitted by Law and at its sole expense (i) cause such proceedings to be
vigorously contested in good faith and (ii) in the event of an adverse ruling or
decision, prosecute all allowable appeals therefrom. Without limiting the
generality of the foregoing, Borrower shall resist the entry or seek the stay of
any temporary or permanent injunction that may be entered and use its best
efforts to bring about a favorable and speedy disposition of all such
proceedings, as well as any other proceedings of the nature described in Section
-------
5.1(g) of this Agreement.
- ------
SECTION 11.12 INTENTIONALLY DELETED.
----------------------
SECTION 11.13 LENDER'S ACTION FOR ITS OWN PROTECTION ONLY. The authority
-------------------------------------------
herein conferred upon Lender, and any action taken by Lender, to inspect the
Project, to approve contracts, to approve the Approved Budget, and all other
documents and instruments submitted to Lender, will be exercised and taken by
Lender and any of Lender's agents or independent contractors retained by Lender
for such purposes as aforesaid for their own protection only and may not be
relied upon by Borrower or any other party for any purposes whatever; and
neither Lender nor any of Lender's agents or independent contractors shall be
deemed to have assumed any responsibility to Borrower or any other party with
respect to any such action herein authorized or taken by Lender or such agents
or independent contractors. Any review, investigation or inspection conducted
by Lender or any agent or representative of Lender in order to verify
independently Borrower's satisfaction of any conditions precedent to the Closing
of the Loan under this Agreement, Borrower's performance of any of the
covenants, agreements and obligations of Borrower under this Agreement or under
any of the other Loan Documents, or the truth of any representations and
warranties made by Borrower hereunder or under any of the other Loan Documents
(regardless of whether or not the party conducting such review, investigation or
inspection should have discovered that any of such conditions precedent were not
satisfied or that any such covenants, agreements or obligations were not
performed or that any such representations or warranties were not true), shall
not affect (or constitute a waiver by
46
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Lender of) (i) any of Borrower's representations and warranties under this
Agreement or Lender's reliance thereon, or (ii) Lender's reliance upon any
certifications of Borrower or any other person or entity required under this
Agreement or any other facts, information or reports furnished Lender by
Borrower hereunder.
SECTION 11.14. FURNISHING INFORMATION. Borrower will:
----------------------
(a) promptly supply Lender with such information concerning its
affairs and properties relating to the ownership, construction, use,
occupancy, operation and maintenance of the Project as Lender may hereafter
request from time to time, including, without limiting the generality of
the foregoing, copies of such utility bills, real estate tax bills and
insurance bills as Lender may request;
(b) promptly notify Lender of any condition or event which constitutes
(or which upon the giving of notice or lapse of time or both would
constitute) a Default or an Event of Default of any term, condition,
warranty, representation or provision of this Agreement or of any of the
other Loan Documents; and
(c) promptly notify Lender of any adverse financial change with
respect to Borrower or Guarantor or in connection with the operation of the
Project.
SECTION 11.15. DOCUMENTS OF FURTHER ASSURANCE. Borrower shall, from time
------------------------------
to time, upon Lender's reasonable request, execute, deliver, record and furnish
such documents as Lender may reasonably deem necessary or desirable to (i)
perfect and maintain perfected as valid liens upon the Project and the other
Collateral, the liens granted by Borrower to Lender under the Mortgage and the
other Loan Documents as contemplated by this Agreement, (ii) correct any errors
of a typographical nature or inconsistencies which may be contained in any of
the other Loan Documents, and (iii) consummate fully the transaction
contemplated under this Agreement.
SECTION 11.16. FURNISHING REPORTS. In addition to the reports, records
------------------
and other documents required to be delivered to Lender pursuant to Article 8
---------
hereof, Borrower shall, upon request by Lender, provide Lender promptly after
receipt with copies of all written inspections, reports, test results, and
management reports received by Borrower from time to time from its employees,
agents, representatives, architects, engineers, contractors and any other
parties involved in the operation, maintenance and renovation of the Project,
which in any way relate to the Project, the operation of the Project, or any
part thereof, including, without limitation, the ADA Plan and the budget for
same.
SECTION 11.17. LEASES AND LEASE REPORTS. Borrower shall not enter into
------------------------
any Leases or modify, amend, supplement, waive any material provision of,
terminate or cancel any Leases of space in the Project involving square footage
in excess of 5,000 square feet without the prior written approval of Lender. All
space tenants shall be required at Lender's election to execute estoppel
certificates and subordination, non-disturbance and attornment agreements in the
scope, form, substance and legal sufficiency as Lender shall determine.
SECTION 11.18. FURNISHING NOTICES. Borrower shall deliver to Lender
------------------
copies of all default notices received or given by Borrower (or its agents or
representatives) under any of the
47
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Leases, Permits, and Agreements, within three (3) Business Days after such
notice is given or received, as the case may be. Borrower shall also provide
Lender with copies of all notices pertaining to the Project or any part thereof
received by Borrower or any of Borrower's agents or employees from any
Governmental Authority or from any insurance company providing insurance on any
of the Project and all other material notices, within three (3) business days
after such notices are received.
SECTION 11.19. CORRECTION OF DEFECTS. Within five (5) days after
---------------------
Borrower acquires knowledge of or is given notice of a material defect in the
Project or any departure from other requirements of this Agreement, Borrower
will proceed with diligence to correct all such defects and departures. Borrower
shall complete such corrections within thirty (30) days after Borrower acquires
such knowledge or is given such notice, or, if such corrections cannot
reasonably be completed within thirty (30) days, such additional period of time
as it shall take with diligence to complete such corrections. Upon Borrower
acquiring knowledge of such defect (other than as a result of written notice to
Borrower from Lender), Borrower shall promptly advise Lender in writing of such
matter and the measures being taken to make such corrections along with an
estimate of the time of Completion.
SECTION 11.20. NO ADDITIONAL DEBT. Borrower shall not, without the prior
------------------
written consent of Lender, create, incur, assume, guarantee or be or remain
liable for any indebtedness (whether personal or nonrecourse, secured or
unsecured, and whether owed to a third party or to an Affiliate) other than:
(a) Indebtedness to Lender arising under this Agreement, the
Note or any of the other Loan Documents;
(b) Customary and necessary trade payables in respect of the
Project reasonably incurred in the ordinary course of business, but not
incurred through (i) the borrowing of money, or (ii) the obtaining of
credit except for credit on an open account basis customarily extended and
in fact extended in connection with normal purchases of goods and services;
(c) Indebtedness in respect of Taxes to the extent that payment
therefore shall not, at the time, be required to be made in accordance with
the provisions of Section 11.9 hereof (but nothing contained in this
------------
paragraph shall be construed to permit Borrower to borrow funds or incur
other indebtedness to pay such Taxes); and
(d) Security interests of vendors or lessors of equipment in and
to the equipment leased or sold by such lessor or vendor, as the case may
be, so long as such equipment lease or purchase agreement is expressly
permitted under Section 11.33 hereof.
-------------
SECTION 11.21. PERMITS. During the development, construction and
-------
conversion of the Project and at all times prior to the Completion thereof,
Borrower shall keep all Permits which are necessary under applicable Laws in
order to commence, perform and complete the development, construction and
equipping of the Project in full force and effect, shall promptly comply with
all conditions thereof, and shall promptly deliver to Lender copies of all
material
48
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notices sent or received by Borrower or Borrower's agents in connection with the
Permits or matters pertaining thereto. Borrower shall timely apply for and shall
obtain all Permits which are necessary to use, occupy, operate and maintain the
Project as a residential condominium facility under all applicable Laws not
later than the Completion of the Project. Once issued, Borrower shall keep all
Permits in full force and effect, shall promptly comply with all conditions
thereof, and shall promptly deliver to Lender copies of all material notices
sent or received by Borrower or Borrower's agents in connection with the Permits
or matters pertaining thereto.
SECTION 11.22. INDEMNIFICATION. Borrower shall indemnify, defend and
---------------
hold Lender harmless from and against all claims, injury, damage, loss, costs,
including attorneys' fees (based upon services rendered at hourly rates) and
costs, and liability of any and every kind to any persons or property by reason
of (i) the ownership, construction, use, operation or maintenance of the
Project; (ii) any other action or inaction by, or matter which is the
responsibility of, Borrower; and (iii) the breach of any representation or
warranty or failure to fulfill any of Borrower's obligations under this
Agreement or any other Loan Document, unless caused by Lender's gross negligence
or willful misconduct.
SECTION 11.23. PROHIBITION AGAINST CASH DISTRIBUTIONS. Borrower shall
--------------------------------------
make no Distributions of any kind prior to the Completion of the Project.
Subsequent to the Completion of the Project, Borrower shall have the right to
make Distributions to the extent that such Distributions will not impair the
Borrower's ability to pay all costs and expenses of the Project payable by
Borrower, including in its role as the developer of the Project, and including
all debt service on the Loan, in a timely manner.
SECTION 11.24. INSURANCE REPORTING REQUIREMENTS. Borrower shall promptly
--------------------------------
notify the insurance carrier or agent therefor (with a copy of such notification
being provided to Lender) if there is any increase in hazard relating to the
Project, or transfer of title to the Project or any part thereof.
SECTION 11.25. COMPLIANCE WITH LAWS; ADA. Borrower shall promptly comply
-------------------------
with all applicable Laws, together with all notices to correct all violations
thereof, of any Governmental Authority having jurisdiction over Borrower or the
Project.
SECTION 11.26. ORGANIZATIONAL DOCUMENTS. Without the prior written
------------------------
consent of Lender (which consent shall not be unreasonably withheld), Borrower
shall not permit or suffer any amendment or modification of either its (a)
articles of incorporation or (b) bylaws in any material respect or which has any
adverse impact on Lender or the security provided to Lender pursuant to this
Agreement and the other Loan Documents and shall not permit or suffer the
issuance of any new shares in Borrower or the transfer of any of the shares in
Borrower. Borrower shall provide to Lender copies of all amendments to its
article of incorporation or bylaws which do not require the consent of Lender
within five (5) days after execution. Lender shall notify Borrower of its
approval or disapproval of any changes to Borrower's article of incorporation or
bylaws requiring Lender's approval within fifteen (15) Business Days following
Lender's receipt of any proposed amendment, together with sufficient information
to enable Lender to evaluate such proposed documents.
49
<PAGE>
SECTION 11.27. POST-CONSTRUCTION ALTERATIONS. Following Completion of
-----------------------------
the Project, Borrower shall not make any material alterations to the Project
without the prior written consent of Lender.
SECTION 11.28. LOST NOTE. Borrower shall, if any of the Note is
---------
mutilated, destroyed, lost, or stolen, promptly deliver to Lender, in
substitution therefor, a new promissory note containing the same terms and
conditions as the Note mutilated, destroyed, lost, or stolen, and with a
notation thereon of the unpaid principal and accrued and unpaid interest.
Borrower shall provide fifteen (15) days' prior notice to Lender before making
any duplicate payments to any third parties in connection with a lost Note. Upon
Borrower's delivery of a replacement note, Lender shall deliver to Borrower a
lost note indemnity.
SECTION 11.29. HAZARDOUS MATERIAL. Borrower shall keep the Project
------------------
free of any Hazardous Material contamination. Borrower shall comply with any and
all Laws with respect to the discharge and removal of Hazardous Material, shall
pay immediately when due the costs of removal of any such Hazardous Material,
and shall keep the Project free of any lien imposed pursuant to such Laws. In
the event Borrower fails to do so within twenty (20) days, after written notice
to Borrower, Lender may declare an Event of Default under this Agreement and/or
cause the Project to be freed from the Hazardous Material (to the extent
necessary to comply with all applicable Environmental Laws) with the cost of the
removal added to the indebtedness evidenced by the Note and secured by the
Mortgage (regardless of whether such indebtedness then increases the outstanding
balance of the Note to an amount in excess of the face amount thereof). Borrower
further agrees not to release or dispose, or allow the release or disposal, of
any Hazardous Material at the Project in violation of any applicable Laws.
Lender shall have the right at any time during the Loan Term (but not more often
than once per annum unless and Event of Default has occurred or Lender has, in
Lender's reasonable judgment, reasonable cause to believe that either a release
of Hazardous Materials or a violation of Environmental Laws has occurred on or
with respect to the Project), following notice to Borrower, to conduct an
environmental audit of the Project and Borrower shall cooperate in the conduct
of such environmental audit. The cost of the audit shall be paid by Lender
unless such audit is done by Lender because Lender reasonably believes there has
been a violation of Environmental Laws or unless such audit is done following
the occurrence of an Event of Default. Borrower shall give Lender and its agents
and its employees access to the Project to remove Hazardous Material and
Borrower agrees to indemnify and hold Lender free and harmless from and against
all loss, costs, including attorneys' fees (based upon services rendered at
hourly rates) and costs, damage (including consequential damages), and expenses
Lender may sustain by reason of the assertion against Lender by any party of any
claim in connection with such Hazardous Material related to or arising from the
Project. The foregoing indemnification shall survive repayment of the Note, and
shall be in addition to the separate indemnity and other agreements contained in
the environmental remediation and indemnification agreement executed and
delivered by Borrower at the Closing.
SECTION 11.30. ASBESTOS. Borrower shall not install nor permit to be
--------
installed in the Project any product or material containing more than 0.1
percent asbestos by weight that when dry, may be crumbled, pulverized or reduced
to powder by hand pressure or any substance containing asbestos and deemed
hazardous by Laws respecting such material, and with respect to any such
material currently present in the Project shall promptly either (a) remove any
material
50
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which such Laws deem hazardous and require to be removed or (b) otherwise comply
with such federal and state Laws, at Borrower's expense and sole risk. If
Borrower shall fail to so remove or otherwise comply, Lender may declare an
Event of Default under this Agreement and/or do whatever is necessary to
eliminate said substances from the Project or otherwise comply with applicable
Law, and the costs thereof shall be added to the indebtedness evidenced by the
Note and secured by the Mortgage (regardless of whether such indebtedness then
increases the outstanding balance of the Note to an amount in excess of the face
amount thereof). Borrower shall give Lender and its agents and employees access
to the Project to remove such asbestos or substances. Borrower shall defend,
indemnify, and save Lender harmless from all loss, costs, including attorneys'
fees (based upon services rendered at hourly rates) and costs, damages
(including consequential damages) and expenses asserted or proven against Lender
by any party, as a result of the presence of such substances, and any removal or
compliance with Laws. The foregoing indemnification shall survive repayment of
the Note.
SECTION 11.31. TRANSACTIONS WITH AFFILIATES. Borrower shall not enter
----------------------------
into, or be a party to, any transaction with respect to the Project with any
Affiliate, except in the ordinary course of business and except upon fair and
reasonable terms which are fully disclosed to Lender and such terms are no less
favorable to Borrower than would be obtained in a comparable arm's length
transaction with a Person which is not an Affiliate. In seeking approval of any
transaction with an Affiliate, Borrower shall disclose to Lender and identify
such proposed transaction as an Affiliate transaction.
SECTION 11.32. INTENTIONALLY DELETED.
---------------------
SECTION 11.33. CONTRACTS. Borrower shall not enter into any leasing,
---------
service, parking, maintenance, management, leases or purchase agreements of
equipment (whether as an installment sale or otherwise), or other contract or
agreement relating to the Project or the operation and maintenance thereof which
requires expenditures in excess of $20,000.00 in the aggregate in any one year
period, or, with respect to purchase agreements for equipment, which are for a
purchase price in excess of $20,000.00 in the aggregate, without the prior
written consent of Lender (which consent shall not be unreasonably withheld).
All such contracts, leases and agreements (other than equipment purchase
agreements) shall provide, or Borrower will deliver a letter, in form and
substance satisfactory to Lender (which approval shall not be unreasonably
withheld), executed by the other party to said agreement to the effect, that
upon the occurrence of an Event of Default hereunder, or under the Loan, or any
of the other Loan Documents, and Lender's acquisition and/or obtaining control
of the Project, through foreclosure, sale or other means, such agreement either
shall not be binding upon Lender or the Project or any part thereof or shall
terminate upon Lender's request at no cost to Lender, upon prior notice of not
more than ninety (90) days. Security interests of vendors or lessors of
equipment in and to the equipment leased or sold by such lessor or vendor, as
the case may be, shall not be deemed to violate the prohibition against
additional indebtedness as set forth in Section 11.20 hereof, nor the
-------------
prohibition against the creation or sufferance of liens or encumbrances set
forth in Section 11.5 hereof, so long as such equipment lease or purchase
------------
agreement is expressly permitted under this Section 11.33 or has been approved
-------------
in advance by Lender as above-described.
SECTION 11.34. FINANCIAL REPORTING. (A) Borrower shall keep and maintain
-------------------
at Borrower's sole cost and expense complete and accurate books and records in
accordance with
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GAAP and Borrower shall report its operations for tax purposes in accordance
with GAAP. The fiscal year of Borrower shall end on December 31 of each year,
unless a different fiscal year shall be required by the Internal Revenue Code.
Borrower shall permit Lender and any authorized representatives of Lender to
have reasonable access to and to inspect, examine and make copies of the books
and records, any and all accounts, data and other documents of Borrower at all
reasonable times upon the giving of reasonable notice of such intent. In
addition, in the event that any default, adverse litigation or material adverse
change occurs in the financial condition of Borrower, then Borrower shall
promptly notify Lender of such occurrence.
(b) Borrower will prepare, at Borrower's sole cost and expense, and furnish
to Lender all financial information related to the Project as Lender shall
determine, including, without limitation:
(A) within fifteen (15) calendar days after the end of each calendar
month, (A) an unaudited income statement of Borrower for the prior calendar
month on a cash basis setting forth all Permitted Expenses, Gross Sale
Proceeds, Net Sales Proceeds, and Rents received during such month, (B) a
current list of all agreements relating to or pertaining to services to the
Project or the management, operation, sale, leasing, construction or
renovation of the Project, including, without limitation, any Agreements
relating to any Approved Sale, and (C) a summary of all activities
undertaken in regard to the development of the Project, including a summary
of all development expenses paid during such month, together with copies of
any permits obtained by Borrower, and (D) a summary of any sale of
Condominium Units at the Project during such month, including a description
of the Gross Sale Proceeds, the Approved Closing Costs and Net Sale
Proceeds.
(B) within sixty (60) calendar days after the end of each fiscal
quarter of Borrower (A) unless such fiscal quarter is the last fiscal
quarter of any fiscal year of Borrower, (1) an unaudited balance sheet of
Borrower dated as of the end of such fiscal quarter on a GAAP basis, (2) an
unaudited related income statement of Borrower for such fiscal quarter on a
GAAP basis, (3) an unaudited statement of cash flows for such fiscal
quarter on a GAAP basis, and (4) an unaudited statement of member's capital
on a GAAP basis and (B) a status report of Borrower's activities during
such fiscal quarter reflecting summary descriptions of material additions
to, material dispositions of the Premises during such fiscal quarter, all
of which shall be certified by Guarantor as being, to the best of
Guarantor's knowledge, true and correct.
(C) by no later than ninety (90) days after the end of such fiscal
year (A) an unaudited balance sheet of Borrower dated as of the end of such
fiscal year, (B) an unaudited related income statement of Borrower for such
fiscal year, (C) an unaudited statement of cash flows as of the end of the
fiscal year, and (D) previously prepared supporting schedules and backup
information as reasonably requested by Lender, all of which shall be
certified by each Guarantor as being, to the best of such Guarantor's
knowledge, true and correct.
(D) by no later than February 15 after the end of each fiscal year
(A) an unaudited cumulative income statement of Borrower for the prior
fiscal year on a cash basis setting
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forth all Permitted Expenses, Gross Sale Proceeds, Net Sales Proceeds, and
Rents received during such period, as well as the calculation of the
Additional Interest, if any, paid during such period, (b) a summary of all
activities undertaken in regard to the construction of the Improvements
during such previous fiscal year, including a summary of all development
expenses paid during such period, together with copies of any permits
obtained by Borrower, and (c) a summary of any sales of condominium units
at the Project during such period, including a description of the Gross
Sale Proceeds, the Approved Closing Costs and Net Sale Proceeds.
(E) if Lender reasonably determines same to be necessary, by not
later than March 31 of each year, annual audited financial statements of
Guarantor (with a consolidated schedule including the results of Borrower),
which audited statements shall be certified with an (if available)
unqualified opinion of a firm of independent certified public accountants
which are approved by Lender. The audited financial statements shall
include (a) an audited balance sheet of Guarantor dated as of the end of
such fiscal year, (b) an audited income statement of Guarantor for such
fiscal year, and (c) an audited statement of cash flows for such fiscal
year.
(F) for each of Borrower, each Guarantor and each entity reporting
income and expense of the Project, by not later than each March 31, all tax
return and any related tax schedules reasonably requested by Lender,
together with the current personal financial statements for each Guarantor.
(G) Promptly after the end of each fiscal year, but by no later than
each February 15, Borrower will prepare and deliver to Lender a report
setting forth in sufficient detail all such additional information and data
with respect to business transactions effected by or involving Borrower,
including, without limitation, all Approved Sales, during the fiscal year
as will enable Lender to timely comply with applicable Laws, rules and
regulations. Borrower shall prepare such additional financial reports and
other information as Lender may determine are appropriate. Borrower shall
supply such additional information and detail as to any time or items
contained on any such statement that Lender may reasonably require.
(H) Throughout the term of the Loan, (i) prior to the closing of
any Approved Sale, a draft settlement statement with respect to such
Approved Sale, setting forth all amounts to be paid with respect thereto,
which draft shall substantially conform to the settlement statement
delivered to Lender on the closing date of such Approved Sale; and (ii) any
financial information or other information bearing on the financial status
of the Loan which is reasonably requested by Lender.
SECTION 11.35. USE OF PROCEEDS. Borrower will apply all proceeds of the
---------------
Loan advanced hereunder solely in accordance with the Construction Budget and
the applicable Request for Advance.
ARTICLE 12.
53
<PAGE>
CASUALTIES
SECTION 12.1. CASUALTY. Borrower shall give Lender prompt written notice
--------
of the occurrence of any casualty affecting any or all of the Project, or any
portion thereof. All insurance proceeds on the Project and all causes of
action, claims, compensation, awards and recoveries for any damage to any part
of the Project, as the case may be, or for any damage or injury to the Project,
for any loss or diminution in value of the same or any part thereof, are hereby
assigned to and shall be paid to Lender. Lender may participate in any suits or
proceedings relating to any such proceeds, causes of action, claims,
compensation, awards or recoveries and Lender is hereby authorized, in its own
name or in Borrower's name, to adjust any loss covered by insurance claim or
cause of action, and to settle or compromise any claim or cause of action in
connection therewith, and Borrower shall from time to time deliver to Lender any
instruments required to permit such participation. Lender shall apply any sums
received by it under this Section 12.1 first to the payment of all of its out-
------------
of-pocket costs and expenses (including, but not limited to, legal fees and
disbursements) incurred in obtaining those sums, and then, as follows:
(a) If the damage to the Project occurs prior to the Completion of
the Project and such damage involves less than twenty percent (20%) of the
floor space of the Improvements or the cost of which is less than twenty
percent (20%) of the original hard costs set forth in the approved
Construction Budget (excluding the costs of the Land), and if:
(1) The insurance claim for the damage is adjusted within one
hundred twenty (120) days after the occurrence of such damage;
(2) No Default or Event of Default shall have occurred
hereunder and be continuing; and
(3) the Project can, in Lender's reasonable judgment, with
diligent restoration or repair, be returned to a condition at least
equal to the condition thereof that existed prior to the casualty
causing the loss or damage within six (6) months after the receipt of
insurance proceeds by either Borrower or Lender and at least six (6)
months prior to Loan Maturity; and
(4) all necessary Governmental Approvals can be obtained to
allow the rebuilding and reoccupancy of the Project as described in
Section 12.1(a)(ii) above; and
-------------------
(5) there are sufficient sums available (through insurance
proceeds and contributions by Borrower, the full amount of which
shall, at Lender's option, have been deposited with Lender to be held
by Lender in an interest-bearing account) for such restoration or
repair (including, without limitation, for any out-of-pocket costs and
expenses of Lender to be incurred in administering payments on account
of said restoration or repair) and for payment of all debt service on
the Loan to become due and payable during such restoration or repair,
and
54
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(6) Borrower shall have delivered to Lender, at Borrower's sole
cost and expense, an appraisal report in form and substance
satisfactory to Lender appraising the value of the Project as so
restored or repaired to be not less than the appraised value of the
same considered by Lender in its determination to make the Loan;
(7) In the event that the casualty occurs prior to the date on
which all Condominium Units are sold and closed, then with respect to
the remaining Condominium Units under contract, a sufficient number
(in Lender's reasonable judgment) thereof either: (a) do not have the
right, as a result of the casualty and any delay in construction
caused thereby, to terminate their contracts or, if they have such a
right, a sufficient number (in Lender's reasonable judgment) have
reaffirmed their contracts and have agreed in writing to extend their
closing dates; and
(8) Borrower so elects by written notice delivered to Lender
within ten Business Days after the occurrence of the casualty,
then Lender shall, solely for the purposes of such restoration or repair,
advance so much of the insurance claim proceeds which have been received,
and any funds deposited by Borrower therefor, to Borrower for restoration
and repair in the manner and upon such terms and conditions as would be
required by a prudent interim construction lender, including, but not
limited to, the prior approval by Lender of plans and specifications,
contractors and form of construction contracts and the furnishing to Lender
of permits, bonds, lien waivers, invoices, receipts and affidavits from
contractors and subcontractors in form and substance satisfactory to Lender
in its reasonable discretion, with any remainder proportionately allocated
for either return to Borrower or for application to a prepayment of the
principal of the Loan, as the case may be. The determination of the
portion of the remainder allocated for refund to Borrower and the portion
of the remainder allocated to prepayment of the Loan shall be based upon
the proportion of Borrower contributed funds and insurance proceeds used in
restoration and repair of the Project.
(C) In all other cases, namely, in the event that the damage involves
more than twenty percent (20%) of the Improvements, or occurs after
Completion of the Project, or Borrower does not elect to restore or repair
the Project pursuant to Section 12.1(a) or 12.1(b) above, or otherwise
--------------- -------
fails to meet the requirements of Section 12.1(a) or 12.1(b) above, as
--------------- -------
applicable, then, in any of such events, Lender shall elect, in Lender's
absolute discretion and without regard to the adequacy of Lender's
security, to accelerate the Obligations and declare the Obligations to be
immediately due and payable and apply the remainder of such sums received
pursuant to this Section 12.1 to the payment of the Obligations (and
------------
including, without limitation, the Appreciation Interest) in whatever order
Lender directs in its absolute discretion, with any remainder being paid to
Borrower.
Any reduction in the Obligations resulting from Lender's application
of any sums received by it hereunder shall take effect only when Lender
actually receives such sums
55
<PAGE>
and applies such sums to the Obligations and, in any event, the unpaid
portion of the Obligations shall remain in full force and effect and
Borrower shall not be excused in the payment thereof. If Borrower has the
right to, and Borrower elects to, restore or repair the Project after the
occurrence of a casualty as provided above, Borrower shall promptly and
diligently, at Borrower's sole cost and expense and regardless of whether
the insurance proceeds shall be sufficient for the purpose, restore,
repair, replace and rebuild the Project as nearly as possible to its value,
condition and character immediately prior to such casualty in accordance
with the foregoing provisions and Borrower shall pay to Lender all out-of-
pocket costs and expenses of Lender incurred in administering payments on
account of said rebuilding, restoration or repair, provided that Lender
makes such proceeds or award available for such purpose. Borrower agrees to
execute and deliver from time to time such further instruments as may be
requested by Lender to confirm the foregoing assignment to Lender of any
award, damage, insurance proceeds, payment or other compensation. Lender is
hereby irrevocably constituted and appointed the attorney-in-fact of
Borrower (which power of attorney shall be irrevocable so long as any
indebtedness secured hereby is outstanding, shall be deemed coupled with an
interest, shall survive the voluntary or involuntary dissolution of
Borrower and shall not be affected by any disability or incapacity suffered
by Borrower subsequent to the date hereof), with full power of
substitution, subject to the terms of this Section, to collect and receive
any such awards, damages, insurance proceeds, payments or other
compensation from the parties or authorities making the same, to appear in
any proceedings therefor and to give receipts therefor.
ARTICLE 13.
CONDEMNATION
SECTION 13.1 CONDEMNATION. In the event any of the Project or any
------------
portion thereof is taken or damaged by eminent domain powers of any Governmental
Authority, the award shall be paid to Lender (and all awards and proceeds on the
Project and all causes of action, claims, compensation, awards and recoveries
for any such taking, or for any damage or injury to the Project for any loss or
diminution in value of the same or any part thereof, is hereby assigned to
Lender) and applied to the payment of the Obligations, after deducting any costs
incurred by Lender in connection therewith, in whatever order Lender directs in
its sole and absolute discretion.
ARTICLE 14.
ASSIGNMENTS
SECTION 14.1 PROHIBITION OF ASSIGNMENTS BY BORROWER OR OF INTERESTS IN
---------------------------------------------------------
BORROWER.
- --------
(a) Borrower shall not assign or attempt to assign its rights under this
Agreement or under any other Loan Document, and Borrower will not suffer or
permit any of its interest or rights in the Project and the other Collateral to
be assigned, sold, pledged, encumbered,
56
<PAGE>
transferred, hypothecated or otherwise disposed of until the provisions of this
Agreement and the other Loan Documents have been fully complied with and the
Obligations have been repaid in full.
(b) None of the Members of Borrower, nor any of the partners of the Member,
shall sell, assign, transfer, convey, pledge, encumber or otherwise hypothecate
any or all of its interest in Borrower, or in the Member, as the case may be,
without the prior written consent of Lender.
(c) Notwithstanding the provisions of this Section 14.1, a transfer of
------------
limited partnership interests in Guarantor in accordance with applicable
securities Laws shall not constitute a violation of this provisions of this
Article 14..
- ----------
SECTION 14.2 SUCCESSORS AND ASSIGNS. Subject to the foregoing
----------------------
restrictions on transfer and assignment contained in this Article 13, this
----------
Agreement shall inure to the benefit of and shall be binding on the parties
hereto and their respective successors and assigns.
SECTION 14.3 TRANSFER, ASSIGNMENT AND/OR PARTICIPATION BY LENDER. Lender
---------------------------------------------------
may, at any time and from time to time, sell, transfer or assign the Note, the
Mortgage and the other Loan Documents, or grant participation therein, or issue
certificates or securities evidencing a beneficial interest therein in a rated
or unrated public offering or private placement, and Lender may forward to any
purchaser, transferee, assignee, service, participant, investor or credit rating
agency rating such securities (collectively, an "INVESTOR") or prospective
Investor all documents and information in Lender's possession with respect to
Borrower, any Guarantor, the Project and the Loan Documents as such Investor or
prospective Investor may request. Upon any such sale, transfer or assignment,
Lender shall be automatically released from any liability hereunder, provided
that such assignee or transferee agrees to assume Lender's obligations to fund
the Loan. Notwithstanding the foregoing, unless an Event of Default shall have
occurred, Lender agrees that it shall not assign or transfer its interest in the
Loan (other than participations thereof) prior to the final disbursement as
contemplated in Section 7.14 of this Agreement.
------------
ARTICLE 15.
EVENTS OF DEFAULT
SECTION 15.1. EVENTS OF DEFAULT. The occurrence of any one or more of the
-----------------
following shall constitute an "EVENT OF DEFAULT," as such term is used herein:
(a) Borrower shall fail to pay within five (5) days after the same shall be
due and payable, any principal of the Loan, whether at the stated date of
maturity or any accelerated date of maturity or at any other date fixed for
payment;
(b) Borrower shall fail to pay, when the same shall be due and payable, any
interest on the Loan or any other sums due hereunder or under any of the other
Loan Documents, whether at the stated date of maturity or any accelerated date
of maturity or at any other date fixed for payment;
57
<PAGE>
(c) Borrower shall fail to comply with any of its covenants contained in
Article 11 hereof for five (5) days after written notice of such failure has
- ----------
been given to the Borrower by Lender;
(d) Borrower shall fail to comply with any of its covenants contained in
Articles 12 and 14 or any of the comparable covenants contained in any of the
- ------------------
other Loan Documents;
(e) Borrower shall fail to perform any other term, covenant or agreement
contained herein or in any of the other Loan Documents (other than those
specified elsewhere in this Article 15) for thirty (30) days after written
----------
notice of such failure has been given to the Borrower by Lender; provided,
however, that if such default is of a nature that it cannot be cured within
thirty (30) days and the Borrower commences and diligently proceeds to cure
such default, such cure period shall be extended for such period of time as
required to cure such default but in no event more than thirty (30) additional
days;
(f) Any material representation or warranty of Borrower, any Member or any
Guarantor in this Agreement or any of the other Loan Documents or in any other
document or instrument delivered pursuant to or in connection with this
Agreement shall prove to have been false in any material respect upon the date
when made or deemed to have been made or repeated;
(g) Borrower, any Member or any Guarantor shall fail to pay at maturity, or
within any applicable period of grace, any indebtedness in excess of $50,000.00,
or fail to observe or perform any material term, covenant or agreement contained
in any agreement by which it or he, as the case may be, is bound, evidencing or
securing indebtedness in excess of $50,000.00 for such period of time as would
permit (assuming the giving of appropriate notice if required) the holder or
holders thereof or of any obligations issued thereunder to accelerate the
maturity thereof, and as to which the holder or holders thereof have commenced
legal action with respect thereto, provided that the foregoing shall not
constitute an Event of Default to the extent that Borrower, any Member or any
Guarantor is diligently, and in good faith, contesting any such payment or
performance and so long as any enforcement of judgment or execution against the
Property, Borrower, any Member or any Guarantor has been stayed;
(h) Borrower, any Member or any Guarantor shall make a general assignment
for the benefit of creditors, or admit in writing its inability to pay or
generally fail to pay its debts as they mature or become due, or shall petition
or apply for the appointment of a trustee or other custodian, liquidator or
receiver or of any substantial part of their assets or shall commence any case
or other proceeding under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar law of
any jurisdiction, now or hereafter in effect, or shall take any action to
authorize or in furtherance of any of the foregoing, or if any such petition or
application shall be filed or any such case of other proceeding shall be
commenced against Borrower, any Member or any Guarantor, or Borrower, any Member
or any Guarantor or their respective authorized representative shall indicate
its approval thereof, consent thereto or acquiescence therein;
(i) A decree or order is entered appointing any such trustee, custodian,
liquidator or receiver or adjudicating Borrower, any Member or any Guarantor
bankrupt or insolvent, or approving a petition in any such case or other
proceeding; or a decree or order for relief is entered in respect of Borrower,
any Member or any Guarantor in an involuntary case under federal
58
<PAGE>
bankruptcy laws as now or hereafter constituted and such decree or order for
relief entered in an involuntary case under federal bankruptcy laws remains
undischarged for more than sixty (60) days;
(j) There shall remain in force, undischarged, unsatisfied and unstated, for
more than sixty (60) days, whether or not consecutive, any uninsured final
judgment against Borrower, any Member or any Guarantor in the amount of
$50,000.00 or that, with all other outstanding, uninsured, final judgments
undischarged against Borrower, any Member or any Guarantor, as the case may be,
exceeds in the aggregate $50,000.00;
(k) If any of the Loan Documents shall be canceled, terminated, revoked or
rescinded otherwise than in accordance with the terms thereof or with the
express prior written agreement, consent or approval of Lender, or any action at
law, suit or in equity or other legal proceeding to cancel, revoke or rescind
any of the Loan Documents shall be commenced by or on behalf of Borrower, any
Member or any Guarantor, or any court or any other governmental or regulatory
authority or agency of competent jurisdiction shall make a determination that,
or issue a judgment, order, decree or ruling to the effect that, any one or more
of the Loan Documents is illegal, invalid or unenforceable in accordance with
the terms thereof;
(l) Borrower, any Member or any Guarantor shall be indicted for a federal
crime, a punishment for which could include the forfeiture of any assets of
Borrower, any Member or any Guarantor;
(m) Borrower shall be in default or in breach of any term of any Contract
(after any requisite notice or cure periods contained in such Contract) and such
default could, in Lender's reasonable judgment, have a materially adverse effect
on the construction, use, occupancy, operation or maintenance of the Project for
its intended purpose as described in this Agreement;
(n) If a default occurs under any of the other Loan Documents and continues
beyond the applicable grace period, if any, contained therein;
(0) Borrower shall amend, modify, or otherwise change the Approved Plans,
except as expressly permitted in this Agreement, without first obtaining the
consent and approval of Lender;
(p) Borrower shall fail to Complete the Project in accordance with the
requirements of this Agreement on or before the Completion Date;
ARTICLE 16.
LENDER'S REMEDIES IN EVENT OF DEFAULT
SECTION 16.1 REMEDIES CONFERRED UPON LENDER. Upon the occurrence of any
------------------------------
Event of Default, Lender shall, in addition to all remedies conferred upon
Lender by Law and by the terms of the Note, Mortgage and the other Loan
Documents, have the right but not the obligation to pursue any one or more of
the following remedies concurrently or successively, it being the intent hereof
that all such remedies shall be cumulative and that no such remedy shall be to
the exclusion of any other:
59
<PAGE>
(a) Take possession of and operate the Project, collect all Rent and other
revenues from the Project, whether or not Lender shall take possession, make
entry or engage in any other activity with respect to the Project, and do any
and every act which Borrower might do in its own behalf, and, Borrower hereby
irrevocably appoints and constitutes Lender its lawful attorney-in-fact, with
full power of substitution for the purposes aforesaid, it being understood and
agreed that the foregoing power of attorney shall be a power coupled with an
interest and cannot be revoked.
(b) Withhold further disbursement, if any, of the proceeds of the Loan;
(c) Declare the Note to be immediately due and payable;
(d) Use and apply any monies deposited by Borrower with Lender, regardless
of the purpose for which the same was deposited, to cure any such Event of
Default or to apply on account of any Obligations which is due and owing to
Lender; and
(e) Exercise or pursue any other right or remedy permitted under this
Agreement or any of the other Loan Documents or conferred upon Lender by
operation of Law.
SECTION 16.2 WAIVER OF AUTOMATIC STAY. IN THE EVENT BORROWER OR GUARANTOR
------------------------
SHALL (I) FILE A PETITION WITH ANY COURT OF COMPETENT JURISDICTION OR BE THE
SUBJECT OF ANY PETITION UNDER THE BANKRUPTCY CODE, AS AMENDED (THE "CODE"), (II)
BE THE SUBJECT OF ANY ORDER FOR RELIEF ISSUED UNDER THE CODE, (III) FILE OR BE
THE SUBJECT OF ANY PETITION SEEKING ANY REORGANIZATION, ARRANGEMENT,
COMPOSITION, READJUSTMENT, LIQUIDATION, DISSOLUTION, OR SIMILAR RELIEF UNDER ANY
PRESENT OR FUTURE FEDERAL OR STATE ACT OR LAW RELATING TO BANKRUPTCY,
INSOLVENCY, OR OTHER RELIEF, (IV) HAVE SOUGHT OR CONSENTED TO OR ACQUIESCED IN
THE APPOINTMENT OF ANY TRUSTEE, RECEIVER, CONSERVATOR, OR LIQUIDATOR FOR ALL OR
SUBSTANTIALLY ALL OF ITS ASSETS, OR (V) BE THE SUBJECT OF ANY ORDER, JUDGMENT,
OR DECREE ENTERED BY ANY COURT OF COMPETENT JURISDICTION APPROVING A PETITION
FILED AGAINST BORROWER OR GUARANTOR FOR ANY REORGANIZATION, ARRANGEMENT,
COMPOSITION, READJUSTMENT, LIQUIDATION, DISSOLUTION, OR SIMILAR RELIEF UNDER ANY
PRESENT OR FUTURE FEDERAL OR STATE ACT OR LAW RELATING TO BANKRUPTCY,
INSOLVENCY, OR RELIEF FOR BORROWER, THEN, LENDER SHALL THEREUPON BE ENTITLED TO
OBTAIN AND BORROWER AND GUARANTOR, AS THE CASE MAY BE, TO THE FULLEST EXTENT
PERMITTED BY LAW, IRREVOCABLY AND UNCONDITIONALLY CONSENT TO GRANT LENDER
IMMEDIATE RELIEF FROM ANY AUTOMATIC STAY IMPOSED BY SECTION 362 OF THE CODE, OR
OTHERWISE, ON OR AGAINST THE EXERCISE OF THE RIGHTS AND REMEDIES WHICH WOULD
OTHERWISE BE AVAILABLE TO LENDER AS PROVIDED IN THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENTS AND AS OTHERWISE PROVIDED BY LAW, AND BORROWER AND GUARANTOR, AS THE
CASE MAY BE, TO THE EXTENT PERMITTED BY LAW, HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE THEIR RIGHT TO OBJECT TO SUCH RELIEF.
60
<PAGE>
SECTION 16.3. NON-WAIVER OF REMEDIES. No waiver of any breach or default
----------------------
hereunder shall constitute or be construed as a waiver by Lender of any
subsequent breach or default or of any breach or default of any other provision
of this Agreement.
ARTICLE 17.
GENERAL PROVISIONS
SECTION 17.1. CAPTIONS. The captions and headings of various Articles and
--------
Sections of this Agreement and Exhibits pertaining hereto are for convenience
only and are not to be considered as defining or limiting in any way, the scope
or intent of the provisions hereof.
SECTION 17.2. ENTIRE AGREEMENT. This Agreement and the other Loan
----------------
Documents and instruments delivered in connection herewith, as may be amended
from time to time in writing, constitute the entire agreement of the parties
with respect to the Project and the Loan, and all prior discussions,
negotiations and document drafts are merged herein and therein. Neither Lender
nor any employee of Lender has made or is authorized to make any representation
or agreement upon which Borrower may rely unless such matter is made for the
benefit of Borrower and is in writing signed by an authorized officer of Lender.
Borrower agrees that it has not and will not rely on any custom or practice of
Lender, or on any course of dealing with Lender, in connection with the Loan
unless such matters are set forth in this Agreement or the other Loan Documents
or in an instrument made for the benefit of Borrower and in a writing signed by
an authorized officer of Lender.
SECTION 17.3. NOTICES. Any notice, demand, request or other communication
-------
which any party hereto may be required or may desire to give hereunder shall be
in writing, addressed as follows and shall be deemed to have been properly given
if hand delivered, if sent by reputable overnight courier for next Business Day
delivery (effective the Business Day following delivery to such courier), if
sent by telecopy with confirmation of receipt and a hard copy mailed in
accordance with the provisions of this Section 17.3 (effective the business day
------------
following receipt of confirmation of receipt) or if mailed (effective two
business days after mailing) by United States registered or certified mail,
postage prepaid, return receipt requested:
If to the Borrower:
CMC Heartland Partners III, LLC
547 W. Jackson Blvd.
Suite 1510
Chicago, Illinois 60661
Attn: Lawrence S. Adelson
Telecopy Number: (312) 663-9397
Confirmation Number: (312) 294-0471
with a copy to:
Jenner & Block
61
<PAGE>
One IBM Plaza, Suite 4400
Chicago, Illinois 60611
Attn: Michael Z. Margolies, Esq.
Telecopy Number: (312) 840-7682
Confirmation Number: (312) 923-2682
If to Lender:
CORUS Bank, N.A.
--
3959 N. Lincoln Avenue
Chicago, Illinois 60613
Attention: Michael Stein
Executive Vice President
Telecopy Number: (773) 832-3540
Confirmation Number: (773) 832-3542
with a copy to:
Joel C. Solomon, Esq,
General Counsel
CORUS Bank, N.A.
--
3959 N. Lincoln Avenue
Chicago, Illinois 60613
Telecopy Number: (773) 832-3540
Confirmation Number: (773) 832-3526
with a copy to:
CORUS Bank, N.A.
--
3959 N. Lincoln Avenue
Chicago, Illinois 60613
Attention: John R. Markowicz
Vice President
Telecopy Number: (773) 832-3540
Confirmation Number: (773) 832-3147
Refusal to accept delivery of any notice shall be deemed to
constitute receipt of such notice.
SECTION 17.4. MODIFICATION, WAIVER. No modification, waiver,
--------------------
amendment, discharge or change of this Agreement is valid unless the same is in
writing and signed by the party against which the enforcement of such
modification, waiver, amendment, discharge or change is sought.
SECTION 17.5. GOVERNING LAW. Borrower hereby acknowledges, consents
-------------
and agrees that the provisions of this Agreement and the rights of all parties
mentioned herein shall be
62
<PAGE>
governed by the Laws of the State of Illinois and interpreted and construed in
accordance with such Laws (excluding the conflict of Laws for the State of
Illinois).
SECTION 17.6. ACQUIESCENCE NOT TO CONSTITUTE WAIVER OF LENDER'S
-------------------------------------------------
REQUIREMENTS. Each and every covenant and condition for the benefit of Lender
- ------------
contained in this Agreement may be waived by Lender, provided, however, that to
the extent that Lender may have acquiesced in any noncompliance with any
conditions precedent to the Closing, such acquiescence shall not be deemed to
constitute a waiver by Lender of such requirements.
SECTION 17.7. DISCLAIMER BY LENDER. This Agreement is made for the
--------------------
sole benefit of Borrower and Lender (and Lender's successors and assigns and
participants, if any,) and no other person or persons shall have any benefits,
rights or remedies under or by reason of this Agreement. Lender shall not be
liable to any contractors, subcontractors, supplier, laborer, architect,
engineer, tenant, or other party for labor or services performed or materials
supplied in connection any work done on or about or in respect of the Project.
Lender shall not be liable for any debts or claims accruing in favor of any such
parties against Borrower or others or against the Project. Borrower is not and
shall not be an agent of Lender for any purposes. Except as expressly set forth
in the Loan Documents, Lender is not and shall not be an agent of Borrower for
any purposes. Lender, by making the Loan or any action taken pursuant to any of
the Loan Documents, shall not be deemed a partner or a joint venturer with
Borrower. Lender shall not be deemed to be in privity of contract with any
contractor or provider of services to the Project, nor shall any payment of
funds directly to a contractor or subcontractor or provider of services be
deemed to create any third-party beneficiary status or recognition of same by
Lender.
SECTION 17.8. RIGHT OF LENDER TO MAKE ADVANCES TO CURE BORROWER'S
---------------------------------------------------
DEFAULTS. If Borrower shall fail to perform in a timely fashion any of
- --------
Borrower's covenants, agreements or obligations contained in this Agreement, the
Note or the other Loan Documents, Lender may upon prior notice to Borrower (but
shall not be required to) perform any of such covenants, agreements and
obligations. Loan proceeds advanced by Lender in the exercise of its reasonable
judgment in accordance with this Agreement to the extent that the same are
needed to protect its security for the Loan are deemed to be obligatory advances
hereunder and any amounts expended (whether by disbursement of undisbursed Loan
proceeds or otherwise) by Lender in so doing shall constitute additional
indebtedness evidenced and secured by the Mortgage and the other Loan Documents.
SECTION 17.9. DEFINITIONS INCLUDED IN AMENDMENT. Definitions
---------------------------------
contained in this Agreement which identify documents, including the Loan
Documents, shall deemed to include all amendments and supplements to such
documents from the date hereof and all future amendments and supplements thereto
entered into from time to time to satisfy the requirements of this Agreement or
otherwise with the consent of the Lender. Reference to this Agreement contained
in any of the foregoing documents shall be deemed to include all amendments and
supplements to this Agreement.
SECTION 17.10. TIME IS OF THE ESSENCE. Subject to any applicable
----------------------
notice, grace and/or cure periods provided in the Loan Documents, time is hereby
declared to be of the essence of this Agreement and of every part hereof.
SECTION 17.11. EXECUTION IN COUNTERPARTS. This Agreement may be
-------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so
63
<PAGE>
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
SECTION 17.12. WAIVER OF JURY TRIAL. BORROWER AND LENDER EACH HEREBY
--------------------
WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR
DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR RELATING THERETO OR ARISING FROM THE
LENDING RELATIONSHIP WHICH IS THE SUBJECT OF THIS AGREEMENT AND AGREES THAT ANY
SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
SECTION 17.13. CONFLICTS. In the event of any inconsistency between
---------
the terms of this Agreement and any of the other Loan Documents (other than the
Note), the terms of this Agreement shall control.
SECTION 17.14. SUBMISSION TO JURISDICTION; CERTAIN WAIVERS. Borrower
-------------------------------------------
irrevocably (a) submits to the non-exclusive personal jurisdiction of any state
or federal court in the State of Illinois in any suit, action or other legal
proceeding relating to this Agreement; (b) agrees that all claims in respect of
any such suit, action or other legal proceeding may be heard and determined in,
and enforced in and by, any such court; (c) waives any objection that it may now
or hereafter have to venue in any such court sitting in Cook County, Illinois or
that such court sitting in Cook County, Illinois is an inconvenient forum; (d)
agrees to service of process in any manner permitted by law, to any then active
agent for service of process at any specified address or to Borrower at its
address set forth above or to such other address of which Lender shall have been
notified in writing; (e) to the extent that Borrower has acquired, or hereafter
may acquire, any immunity from jurisdiction of any such court or from legal
process therein, waives, to the fullest extent permitted by applicable law, such
immunity; (f) to the fullest extent permitted by applicable law, in connection
with, or with respect to, any suit, action or other legal proceeding relating to
this Assignment (g) WAIVES any claim that it is immune from any legal process
(whether through service or notice, attachment prior to judgment, attachment in
aid of execution, execution or otherwise) with respect to it or any of its
property, (ii) WAIVES any claim that it is not personally subject to the
jurisdiction of any such court, and (iii) WAIVES ANY RIGHT TO ASSERT ANY
COUNTERCLAIM THEREIN; and (h) agrees that Lender shall have the right to bring
any legal proceedings (including a proceeding for enforcement of a judgment
entered by any of the aforementioned courts) against Borrower in any other
court or jurisdiction in accordance with applicable law. Notwithstanding the
foregoing, nothing in this Section shall affect the right of Lender to bring
any action or proceeding relating to this Agreement in the courts of any
jurisdiction or the right, in connection with any legal action or proceeding
whatsoever, to serve legal process in any other manner permitted by law.
SECTION 17.15. SET-OFFS. (i) From time to time in connection with the
--------
payment of interest due and payable under the Note, and (ii) in all other
instances, after the occurrence and during the continuance of an Event of
Default, Borrower hereby irrevocably authorizes and directs Lender, to charge
Borrower's accounts and deposits, if any, with Lender (general or special, time
or demand, provisional or final), other than tenant security accounts, and to
pay over to Lender an amount equal to any amounts from time to time due and
payable to the Lender hereunder, under the Note or under any other Loan
Document. Borrower hereby grants to the Lender a security interest in and to
all such accounts and deposits, if any, maintained by the Borrower with Lender.
64
<PAGE>
SECTION 17.16. ADVERTISING. Borrower hereby agrees that Lender shall
-----------
have the right, following the Closing, to publicly announce in print or
otherwise, that Lender has made and closed the Loan to Borrower, and in
connection therewith, Lender shall have the right to identify the Project and
the location thereof.
SECTION 17.17. RIGHT OF FIRST REFUSAL. Borrower hereby grants to
----------------------
Lender, during the period commencing on the First Disbursement Date and
terminating on the last day of the thirtieth month (or if the Loan Term is
extended as provided herein, the thirty-sixth month) thereafter (the "Right of
First Refusal Term"), a right of first refusal to provide financing for any
additional proposed development of the Land (other than the Project) (the "First
Refusal Right"), whereby Lender shall have the right but not the obligation
(unless and until it commits in writing to do so) to provide financing for such
proposed development on such terms as Lender and Borrower may agree or on such
terms as may be set forth in a bona fide executed letter of intent, term sheet
or loan commitment from another lender (which must be a third party
institutional lender unaffiliated with and unrelated to Borrower or Guarantors)
containing all of the material terms and conditions of the proposed refinancing
(the "OTHER FINANCING OFFER"). Should Borrower receive any such Other Financing
Offer which it desires to pursue, Borrower promptly shall deliver such Other
Financing Offer to Lender, and Lender shall have the right (but not the
obligation), exercisable by Lender within thirty (30) business days of Lender's
receipt of the Other Financing Offer, to provide the financing on terms that
are, in all material respects, substantially the same terms and conditions as
set forth in the Other Financing Offer. Lender shall be deemed to have properly
and effectively exercised its First Refusal Right hereunder if it issues to
Borrower its Application Letter (on substantially the same terms, in all
material respects, as the Other Financing Offer) within thirty (30) business
days of Lender's receipt of the Other Financing Offer, with a Commitment Letter
to follow not later than 30 days after issuance of said Application Letter
subject to Lender's receipt of an appraisal of the proposed project satisfactory
to Lender . If Lender fails to deliver its Application Letter within said thirty
(30) business day period, and fails within thirty (30) days after such
Application Letter to deliver a Commitment Letter, then Lender shall be deemed
to have waived or chosen not to exercise its First Refusal Right as to said
Other Financing Offer. In the event that: (a) during the Right of First Refusal
Term, Borrower does not present an Other Financing Offer (actually received by
or on behalf of Borrower which Borrower desires to accept) to Lender as above
provided, or (b) if Lender fails to exercise its First Refusal Right with
respect to any Other Financing Offer and thereafter Borrower accepts or closes a
loan on terms not the same in any material respect to the terms set forth in the
Other Financing Offer, then Lender shall be entitled to liquidated damages in
the amount of $100,000.00. The First Refusal Right granted herein shall survive
the repayment of the Loan.
65
<PAGE>
Borrower and Lender have executed this Agreement as of the day and
year first set forth above.
BORROWER:
--------
CMC HEARTLAND PARTNERS III, LLC, a
Delaware limited liability company
By: CMC Heartland Partners, a Delaware general
partnership, its sole member
By: Heartland Technology, Inc., a Delaware
corporation, its managing general
partner
By: ____________________________________
Name: __________________________________
Its: ___________________________________
LENDER:
------
CORUS BANK, N.A.
--
By: _____________________________________________
Name:
Title:
66
<PAGE>
EXHIBIT A LEGAL DESCRIPTION
EXHIBIT B PERMITTED EXCEPTIONS
EXHIBIT C PERMITTED COMMISSIONS
EXHIBIT D REQUEST FOR ADVANCE
EXHIBIT E MINIMUM RELEASE PRICE
EXHIBIT F LIST OF UNION CONTRACTS
EXHIBIT G LIST OF LEASES
EXHIBIT H LIST OF AGREEMENTS
EXHIBIT I LIST OF PERMITS
EXHIBIT J AFFILIATE DEBT
67
<PAGE>
Exhibit 10.17
FIRST AMENDMENT OF MORTGAGE
AND OTHER LOAN DOCUMENTS
THIS FIRST AMENDMENT OF MORTGAGE AND OTHER LOAN DOCUMENTS ("Amendment") is
dated as of February 1, 1999, by and between CMC HEARTLAND PARTNERS I, LIMITED
PARTNERSHIP, a Delaware limited partnership ("Borrower"), and BANK ONE,
ILLINOIS, NA, a national banking association ("Lender").
RECITALS:
--------
A. Lender has previously made a term loan to Borrower in the principal
amount of $2,500,000 (the "Term Loan") pursuant to and in accordance with that
certain Loan Agreement, as amended from time to time (the "Term Loan
Agreement"), dated as of November 30, 1998, by and between Borrower and Lender.
The Term Loan is evidenced by a certain Promissory Note dated as of November 30,
1998 (the "Term Note"), made by Borrower in the original principal amount of
$2,500,000 and payable to Lender.
B. The Term Loan is secured by, among other things, the following
documents:
(i) Mortgage (the "Mortgage") made by Borrower to Lender, dated as
of November 30, 1998 and recorded in the Dakota County Recorder's Office on
December 7, 1998, as Document No. 1556095 creating a first mortgage lien
on certain unimproved real estate located in Rosemount, Dakota County,
Minnesota, and legally described in Exhibit A hereto ("Parcel A");
---------
(ii) Assignment of Rents and Leases (the "Assignment of Rents") made
by the Borrower to Lender, dated as of November 30, 1998 and recorded in
the Dakota County Recorder's Office on December 7, 1998, as Document No.
1556096;
(iii) Security Agreement (the "Security Agreement") made by Borrower,
as Debtor, to Lender, as Secured Party, dated as of November 30, 1998; and
(iv) Environmental Indemnity Agreement (the "Indemnity Agreement")
made by Borrower to Lender, dated as of November 30, 1998.
The Mortgage, the Assignment of Rents, Security Agreement and the Indemnity
Agreement are hereafter referred to collectively as the "Term Loan Security
Documents". The Term Loan Security Documents, the Term Loan Agreement, the Term
Note and all of the other documents or agreements delivered to Lender to secure
or evidence the Term Loan or to otherwise induce Lender to disburse the proceeds
of the Term Loan are hereinafter referred to collectively as the "Term Loan
Documents".
C. Minnesota mortgage registration tax in the amount of $5,750 has been
paid on the Mortgage on December 7, 1998, county receipt number 357306.
<PAGE>
D. Concurrently herewith, Lender is making (i) a revolving line of credit
(the "Revolving Loan") in the maximum outstanding principal amount of
$4,000,000, and (ii) a $1,750,000 construction loan (the "Development Loan")
pursuant to and in accordance with that certain Construction Loan Agreement
dated as of the date hereof by and between Borrower and Lender, as amended from
time to time (the "Construction Loan Agreement"). The Revolving Loan (including
all advances, payments and readvances) is evidenced by a certain Note dated as
of the date hereof (the "Revolving Note") made by Borrower in the maximum
principal amount of $4,000,000 payable to Lender. The Development Loan is
evidenced by a certain Note dated as of the date hereof (the "Development Note")
made by Borrower in the maximum principal amount of $1,750,000 payable to
Lender. The proceeds of the Revolving Loan and the Development Loan shall be
used in part to finance the construction of certain improvements on certain real
estate owned by Borrower and located in Dakota County, Minnesota, and legally
described in Exhibit B hereto ("Parcel B"). All capitalized terms which are not
---------
defined herein shall have the meaning ascribed thereto in the Construction Loan
Agreement.
E. Prior to an Event of Default, the Term Loan, the Revolving Loan and
the Development Loan shall each accrue interest at the Prime Rate, as determined
from time to time, and after an Event of Default shall accrue interest at the
Default Rate. The Term Loan matures on December 1, 2000. The Revolving Loan
matures on the Revolving Loan Maturity Date. The Development Loan matures on
the Development Loan Maturity Date.
F. A condition precedent to Lender's extension of the Revolving Loan and
the Development Loan is Borrower's agreement to execute and deliver this
Amendment, in order to cross-collateralize and cross-default the Term Loan, the
Revolving Loan and the Development Loan.
NOW, THEREFORE, for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower and Lender hereby agree
as follows:
1. INCORPORATION OF RECITALS. The Recitals set forth above are
-------------------------
incorporated herein and made a part hereof.
2. AMENDMENTS AND REFERENCES.
-------------------------
(a) Lender and Borrower hereby agree that the legal description of
the premises mortgaged pursuant to the Mortgage be and the same hereby is
amended by adding thereto Parcel B; and Borrower hereby MORTGAGES, GRANTS,
ASSIGNS, REMISES, RELEASES, WARRANTS, BARGAINS, SELLS, AND CONVEYS to
Lender, its successors, substitutes and assigns, with the power of sale and
right of entry and possession, as additional security for the Term Loan,
Parcel B.
(b) All Arbitration Provisions contained in the Term Loan Documents
are hereby deleted in their entirety.
-2-
<PAGE>
(c) The Mortgage is hereby amended by adding the following new
subsection (d) at the end of Section 15 as follows:
"(d) Notwithstanding anything to the contrary contained herein,
the Premises may be foreclosed in one or more parcels."
(d) The Mortgage is hereby amended by amending and restating Section
18 of the Mortgage in its entirety as follows:
"18. Assignment of Rents and Leases. Concurrently with the
------------------------------
execution of this Mortgage, Borrower has executed and delivered
to Lender that certain Assignment of Rents and Leases in
accordance with Minn. Stat. (S) 559.17, in favor of Lender as
additional security for all obligations of Borrower to Lender."
(e) The Mortgage is hereby amended by amending and restating Section
19 of the Mortgage in its entirety as follows:
"19. Application of Income. After a receiver is appointed, such
---------------------
receiver shall have full power to use and apply the avails,
rents, issues and profits of the Premises collected from the date
of his appointment through the redemption period from any
foreclosure sale as follows: First as provided in Minn. Stat.
-----
(S) 576.01, subdivision 2, Second to the payment of all operating
------
expenses of the Premises (which shall include compensation to
Lender and its agents, if management is delegated to an agent or
agents) and Third to the payment of any indebtedness secured
-----
hereby, including any deficiency which may result from any
foreclosure sale."
(f) The Mortgage is hereby amended by amending and restating Section
32 of the Mortgage in its entirety as follows:
"32. Additional Indebtedness Secured; Future Advances.
------------------------------------------------
(a) To the extent that this Mortgage secures future
advances, the amount of such advances is not currently known. By
accepting this Mortgage, Borrower acknowledges that it is aware
of the provisions of Minnesota Statutes Section 287.05, subd. 5
and intends to comply with the requirements contained therein.
(b) The maximum principal amount of indebtedness secured by
this Mortgage at any one time, excluding advances made by Lender
in protection of the Premises or the lien of this Mortgage, shall
be $8,250,000
-3-
<PAGE>
($2,5 00,000 for the Term Loan, $4,000,000 for the Revolving Loan
and $1,750,00 for the Development Loan).
(c) The representations contained in this Paragraph 32 are
made solely for the benefit of county recording authorities in
determining the mortgage registry tax payable. Borrower
acknowledges that such representations do not constitute or imply
an agreement by Lender to make any future advances to Borrower.
(d) Notwithstanding subparagraph (b) above, this Mortgage
secures more than the stated principal amounts of the Term Note,
the Revolving Note and the Development Note and the interest
thereon; this Mortgage secures any and all other amounts which
may become due under the Term Note, the Revolving Note or the
Development Note, including, without limitation, any and all
amounts expended by Lender, to operate, manage, or maintain the
Premises or to otherwise protect the Premises or the lien of this
Mortgage."
(g) The Assignment of Rents is hereby amended by amending and
restating Section 8 of the Assignment of Rents in its entirety as follows:
"8. Application of Proceeds. After a receiver is appointed,
-----------------------
such receiver shall have full power to use and apply the avails,
rents, issues and profits of the Premises collected from the date
of his appointment through the redemption period from any
foreclosure sale as follows:
(a) First, as provided in Minn. Stat. (S) 576.01,
subdivision 2;
(b) Second, to reimburse Assignee for all of the following
expenses, together with court costs and reasonable attorneys'
fees and including interest thereon at the Default Rate: (i)
taking and retaining possession of the Premises; (ii) managing
the Premises and collecting the rents, issues, income and profits
thereof, including without limitation, salaries, fees and wages
of a managing agent and such other employees as Assignee may deem
necessary and proper; (iii) operating and maintaining the
Premises, including without limitation, payment of taxes,
charges, claims, assessments, water rents, sewer rents, other
liens, and premiums for any insurance required under the Mortgage
or any of the other Loan Documents; and (iv) the cost of all
alterations, renovations,
-4-
<PAGE>
repairs or replacements of or to the Premises which Assignee may
deem necessary and proper;
(c) Third, to reimburse Assignee for all sums expended by
Assignee pursuant to Paragraph 7(d) above, together with interest
thereon at the Default Rate;
(d) Fourth, to reimburse Assignee for all other sums with
respect to which Assignee is indemnified pursuant to Paragraph 9
below, together with interest thereon at the Default Rate;
(e) Fifth, to reimburse Assignee for all other sums
expended or advanced by Assignee pursuant to the terms and
provisions of or constituting additional indebtedness under any
of the other Loan Documents, together with interest thereon at
the Default Rate;
(f) Sixth, to the payment of all accrued and unpaid
interest under the Note;
(g) Seventh, to payment of the unpaid principal balance of
the Note and any and all other amounts due thereunder or under
the other Loan Documents; and
(h) Eighth, any balance remaining to Assignor, its
respective legal representatives, successors and assigns or to
such other parties which may be legally entitled thereto."
All references to the Land, the Real Estate, the Property or the Premises
contained in the Term Loan Security Documents hereinafter collectively
refer to Parcel A and Parcel B. All references to the Mortgage, the
Assignment of Rents, the Security Agreement and the Indemnity Agreement
contained in any of the Term Loan Security Documents shall be deemed to
refer to each of such documents as further amended by this Amendment.
3. ADDITIONAL COLLATERAL FOR THE REVOLVING LOAN AND DEVELOPMENT LOAN.
-----------------------------------------------------------------
All of the Term Loan Security Documents securing the Term Loan shall
additionally secure the Revolving Loan and Development Loan on a pari passu
basis; and Borrower hereby grants to Lender as additional security for the
Revolving Loan and Development Loan, all of the security interests granted to
Lender under the Term Loan Security Documents. All references to the Note in
the Term Loan Security Documents shall collectively refer to the Term Note, the
Revolving Note and the Development Note.
4. CROSS-DEFAULTS: INTEGRATION OF LOAN DOCUMENTS. Any Event of Default
---------------------------------------------
under any of the Term Loan Documents shall, at Lender's election, be deemed an
Event of Default
-5-
<PAGE>
under the Construction Loan Agreement, the Revolving Loan and the Development
Loan and any Event of Default under the Construction Loan Agreement, the
Revolving Loan or the Development Loan shall, at Lender's election, be deemed an
Event of Default under the Term Loan. Notwithstanding the foregoing, the parties
intend that, in the event that either of the Term Loan, Development Loan or
Revolving Loan shall be retired prior to the retirement of the other loans, the
lien of the Mortgage and all other security interests securing the remaining
loans shall continue in full force and effect.
5. STATUTORY POWER OF SALE, WAIVER AND AGREEMENT. At maturity of the
---------------------------------------------
Term Loan, the Revolving Loan or the Development Loan as the case may be,
whether at the stated time or prior thereto by the acceleration of maturity
pursuant hereto, Lender (in addition to any other remedies provided for in the
Mortgage, as amended by this Amendment, or which it may have at law or equity)
shall have the statutory power of sale, and on foreclosure may retain statutory
costs and attorneys' fees. BORROWER HEREBY EXPRESSLY CONSENTS TO THE
FORECLOSURE AND SALE OF THE PREMISES BY ACTION PURSUANT TO MINNESOTA STATUTES
CHAPTER 581 OR, AT THE OPTION OF LENDER, BY ADVERTISEMENT PURSUANT TO MINNESOTA
STATUTES CHAPTER 580, WHICH PROVIDES FOR SALE AFTER SERVICE OF NOTICE THEREOF
UPON THE OCCUPANTS OF THE PREMISES AND PUBLICATION OF SAID NOTICE FOR SIX WEEKS
IN THE COUNTY IN MINNESOTA WHERE BY PREMISES IS SITUATED; ACKNOWLEDGES THAT
SERVICE NEED NOT BE MADE UPON BORROWER PERSONALLY (UNLESS BORROWER IS AN
OCCUPANT) AND THAT NO HEARING OF ANY TYPE IS REQUIRED IN CONNECTION WITH THE
SALE; AND EXCEPT AS MAY BE PROVIDED IN SAID STATUTES, EXPRESSLY WAIVES ANY AND
ALL RIGHT TO PRIOR NOTICE OF SALE OF THE PREMISES AND ANY AND ALL RIGHTS TO A
PRIOR HEARING OF ANY TYPE IN CONNECTION WITH THE SALE OF THE PREMISES.
6. MATURITY DATE. The Mortgage, as amended by this Amendment shall
-------------
mature the later of the Revolving Loan Maturity Date or the Development Loan
Maturity Date.
7. CONFIRMATORY DOCUMENTS.
----------------------
(a) Borrower hereby covenants and agrees that it shall execute such
confirmatory documents as Lender may reasonably request in order to
implement the purpose and intent of this Amendment.
(b) Borrower, at its sole cost and expense, shall provide Lender with
an endorsement to the title insurance policy issued to Lender with respect
to the Term Loan, satisfactory in form and substance to Lender, showing
that Parcel B has been subject to the Mortgage and showing no exceptions to
title other than the "Permitted Exceptions" as defined in the Term Loan
Agreement.
8. NOTICES. Any notices required or permitted hereunder may be given in
-------
accordance with notice provisions of the respective Term Loan Documents.
-6-
<PAGE>
9. AMENDMENT BINDING. This Amendment shall be binding on Borrower and
-----------------
its successors and permitted assigns, and shall inure to the benefit of Lender
and its successors and assigns.
10. CONTINUED EFFECTIVENESS. Except as expressly provided herein, the
-----------------------
Term Loan Documents shall remain in full force and effect in accordance with
their respective terms.
11. GOVERNING LAW. Except with respect to the creation, perfection and
-------------
priority of the liens and security interests created by the Term Loan Security
Documents, as amended by this Amendment, which shall be construed in accordance
with and governed by the laws of the State of Minnesota, the validity and
interpretation of the Term Loan Security Documents, as amended by this Amendment
shall be construed in accordance with the laws and decisions of the State of
Illinois.
12. INVALIDITY OF PROVISIONS. If any provision of this Agreement shall be
------------------------
prohibited by or be invalid under applicable law, such provision shall be deemed
ineffective to the extent of such prohibition or invalidity, without
invalidating the remained of such provisions or the remaining provisions of this
Agreement.
13. TIME IS OF THE ESSENCE. Time is of the essence of the payment of all
----------------------
amounts due Lender under this Agreement and performance and observance by
Borrower of each covenant, agreement, provision and term of this Agreement.
[remainder of page in intentionally blank; signature page follows]
-7-
<PAGE>
IN WITNESS WHEREOF, this Amendment has been entered into as of the date
first above written.
CMC HEARTLAND PARTNERS I, LIMITED BANK ONE, ILLINOIS, NA, a national
PARTNERSHIP, a Delaware limited banking association
partnership
By: ______________________________
By: Heartland Development Title: ______________________________
Corporation, a Delaware
corporation
By: ________________________
Title: ________________________
This instrument was prepared by and, after recording, return to:
Schwartz, Cooper, Greenberger & Krauss
180 North LaSalle Street, Suite 2700
Chicago, Illinois 60601
Attn: Gary P. Segal, Esq.
-8-
<PAGE>
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
I, ____________________________, a Notary Public in and for said County, in
the State aforesaid, do hereby certify that ________________, the
__________________ of Heartland Development Corporation, a Delaware corporation,
the general partner of CMC Heartland Partners I, Limited Partnership, a Delaware
limited partnership who is personally known to me to be the same person whose
name is subscribed to the foregoing instrument in such capacity, appeared before
me this day in person and acknowledged that he signed and delivered the said
instrument as his own free and voluntary act and as the free and voluntary act
of the corporate general partner, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal, this ____ day of January, 1999.
____________________________________
NOTARY PUBLIC
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
I, ____________________________, a Notary Public in and for said County, in
the State aforesaid, do hereby certify that ___________, a __________ vice
president of Bank One, Illinois, NA, who is personally known to me to be the
same person whose name is subscribed to the foregoing instrument in such
capacity, appeared before me this day in person and acknowledged that he signed
and delivered the said instrument as his own free and voluntary act and as the
free and voluntary act of the bank, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal, this ____ day of January, 1999.
____________________________________
NOTARY PUBLIC
-9-
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION OF PARCEL A
-----------------------------
PARCEL ONE:
Lot Sixty-five (65) of Auditor's Subdivision No. One (1), Rosemount,
according to the plat thereof now on file and of record in the office of
the Register of Deeds in and for said County and State; the same being all
that part of the Southeast Quarter (SE 1/4) of Section 29, Township 115,
Range 19, lying East of the railroad right of way of the former Chicago,
Milwaukee and St. Paul Railway, excepting therefrom the following:
A. A strip of land heretofore deeded to the Burlington, Cedar Rapids and
Northern Railway Company of Iowa, by deed dated October 4, 1901,
recorded in Book 113 of Deeds, page 190;
B. An easement to Minnesota Northern Natural Gas Company, a Minnesota
corporation, dated September 30, 1933, recorded in Book 195 of Deeds,
page 15;
C. An easement containing 3.37 acres, more or less, to the United States
of America described in Judgment on Declaration of Taking dated
December 15, 1943, recorded in Book 51 of M.R., page 552;
D. All that part of Lot 65 of Auditor's Subdivision No. 1, Rosemount,
according to the plat thereof now on file and of record in the office
of the Register of Deeds for said County and State; (the same being
all that part of the Southeast Quarter (SE 1/4) of Section 29,
Township 115, Range 19, lying East of the railroad right of way;)
which lies North of the North line of that certain easement dated
December 15, 1943, and recorded in Book 51 of Miscellaneous Records at
page 552, in the office of the Register of Deeds of Dakota County, and
West of a line parallel to and 920 feet West of the East line of the
Southeast Quarter (SE1/4) of Section 29, Township 115, Range 19,
Dakota County, Minnesota. Subject to the rights of the public and
public utilities easements in the roadway along the North side of the
premises herein conveyed, containing 16.6 acres, more or less.
PARCEL 2
Outlots A, B, C and D; all in Bloomfield.
Said parcels being in Dakota County, State of Minnesota
-10-
<PAGE>
EXHIBIT B
---------
LEGAL DESCRIPTION OF PARCEL B
-----------------------------
Lots 1 through 18 inclusive, Block 1; Lots 1 through 9 inclusive, Block 2;
Lots 1 through 11, inclusive, Block 3; Lots 1 through 39 inclusive, Block
4; Lots 1 through 88 inclusive, Block 5; all in Bloomfield.
Said parcel being in Dakota County, State of Minnesota
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
1999 Form 10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 109 1,115
<SECURITIES> 150 149
<RECEIVABLES> 942 769
<ALLOWANCES> 416 416
<INVENTORY> 16,455 13,978
<CURRENT-ASSETS> 2,108 2,337
<PP&E> 32,169 28,983
<DEPRECIATION> 965 931
<TOTAL-ASSETS> 36,313 33,231
<CURRENT-LIABILITIES> 23,303 19,198
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 8,562 9,409
<TOTAL-LIABILITY-AND-EQUITY> 36,313 33,231
<SALES> 2,042 1,265
<TOTAL-REVENUES> 2,565 1,526
<CGS> 1,945 1,433
<TOTAL-COSTS> 1,467 1,944
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (847) (1,851)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (847) (1,851)
<EPS-PRIMARY> 0 (.85)
<EPS-DILUTED> 0 0
</TABLE>
