<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, 2000
--------------------------------------------
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 (I.R.S. Employer
incorporation 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 27
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HEARTLAND PARTNERS, L.P.
MARCH 31, 2000
INDEX
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 Operations............................13
Item 3 Quantitative and Qualitative Disclosure About Market Risk......22
PART II. OTHER INFORMATION
Item 1 Legal Proceedings and Contingencies............................22
Item 6 Exhibits and Reports on Form 8-K...............................25
Signatures................................................26
Page 2 of 27
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEARTLAND PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Assets:
Cash $ 143 $ 230
Restricted cash 4,424 4,182
Accounts receivable (net) 412 373
Due from affiliate 1,533 1,093
Prepaid and other assets 298 217
Investment in joint venture 440 410
------- -------
Total 7,250 6,505
------- -------
Property:
Land, buildings and other 4,085 4,049
Less accumulated depreciation 1,112 1,065
------- -------
Net land, buildings and other 2,973 2,984
Land held for sale 761 766
Housing inventories 39,925 34,263
Land held for development 5,287 5,287
Capitalized predevelopment costs 7,933 7,451
------- -------
Net properties 56,879 50,751
------- -------
Total assets $64,129 $57,256
======= =======
Liabilities:
Notes payable $40,729 $32,770
Accounts payable and accrued expenses 9,650 10,330
Accrued real estate taxes 915 893
Allowance for claims and liabilities 2,851 2,804
Unearned rents and deferred income 1,708 1,733
Other liabilities 3,543 3,074
------- -------
Total liabilities 59,396 51,604
------- -------
Partners' Capital:
General Partner - -
Class A Limited Partners-2142 units authorized,
issued and outstanding - -
Class B Limited Partner 4,733 5,652
------- -------
Total partners' capital 4,733 5,652
------- -------
Total liabilities and partners' capital $64,129 $57,256
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3 of 27
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HEARTLAND PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED
MARCH 31, 2000 AND MARCH 31, 1999
(dollars in thousands except per unit data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31, March 31,
2000 1999
--------- ---------
<S> <C> <C>
Income:
- -------
Property sales $ 2,650 $ 2,042
Less: Cost of property sales 2,594 1,945
------- -------
Gross profit on property sales 56 97
------- -------
Operating Expenses:
- -------------------
Selling expenses 587 620
General and administrative expenses 534 617
Real estate taxes 22 60
Environmental expense 77 30
------- -------
Total operating expenses 1,220 1,327
------- -------
Net operating income (1,164) (1,230)
Other Income and (Expense):
- ---------------------------
Portfolio income 54 18
Rental income 158 248
Other income 80 257
Depreciation and amortization (47) (34)
Management fee - (106)
------- -------
Total other income and (expense) 245 383
------- -------
Net income (loss) $ (919) $ (847)
======= =======
Net (Loss) allocated to General Partner $ - $ -
======= =======
Net (Loss) allocated to Class B Limited Partner $ (919) $ (847)
======= =======
Net (Loss) allocated to Class A Limited Partners $ - $ -
======= =======
Net (Loss) per Class A Limited Partnership Unit $ - $ -
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4 of 27
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HEARTLAND PARTNERS, L. P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Cash Flow from Operating Activities:
- -----------------------------------
Net (loss)...................................................................... $ (919) $ (847)
Adjustments reconciling net (loss) to net cash used in operating activities:
Depreciation.................................................................... 47 34
Net change in allowance for claims and liabilities.............................. 47 (144)
Net change in assets and liabilities:
Increase in accounts receivable.............................................. (479) (168)
Increase in housing inventories, net......................................... (5,662) (2,477)
Decrease in land held for sale............................................... 5 7
Increase in capitalized development costs.................................... (482) (448)
Decrease in accounts payable and accrued liabilities......................... (680) (311)
Increase in management fee due affiliate..................................... - 107
Net change in other assets and liabilities................................... 355 (435)
------- -------
Net cash used in Operating Activities........................................... (7,768) (4,682)
------- -------
Cash Flow from Investing Activities:
- -----------------------------------
Additions to land, buildings and other.......................................... (36) (268)
Net sales and maturities of marketable securities............................... 0 1
------- -------
Net cash used in investing activities........................................... (36) (267)
------- -------
Cash Flow from Financing Activities:
- -----------------------------------
Advances on notes payable, net.................................................. 7,959 4,102
Increase in restricted cash..................................................... (242) (159)
------- -------
Net cash provided by financing activities....................................... 7,717 3,943
------- -------
Decrease in cash................................................................ (87) (1,006)
Cash at beginning of the period................................................. 230 1,115
------- -------
Cash at end of the period....................................................... $ 143 $ 109
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5 of 27
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HEARTLAND PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
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 1999 Annual
Report on Form 10-K (the "1999 Form 10-K"). The following Notes to Consolidated
Financial Statements highlight significant changes to the Notes included in the
1999 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
Page 6 of 27
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HEARTLAND PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
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 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, 2000 (amounts in
thousands):
Land under development................................... $ 4,373
Direct construction costs................................ 24,739
Capitalized project costs................................ 10,813
-------
$39,925
=======
In December, 1999, Heartland decided to cease building operations in its Osprey
Cove and Bloomfield communities. The homes and lots will be sold in the ordinary
course of business.
2. Contingencies
At March 31, 2000, Heartland's allowance for claims and liabilities was
approximately $2.9 million of which $0.4 million was for the resolution of non-
environmental claims and $2.5 million was for environmental matters. Significant
legal proceedings and contingencies are discussed in the 1999 Form 10-K. During
the second quarter of 1999, the Company modified its October 1, 1998 settlement
agreement with the Port of Tacoma in which the Port of Tacoma released all
claims against the Company and the Company agreed either to (a) pay $1.1 million
on or before December 31, 2000, plus interest from January 1, 1999, or (b)
convey real property to be agreed upon at a later date.
Page 7 of 27
<PAGE>
HEARTLAND PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
In July 1999, suit was filed against the Company in Minnesota District Court by
a buyer under an expired real estate sale contract originally entered into in
1995, and extended to June 30, 1999. The plaintiff in the suit demanded specific
performance by conveyance to it of the vacant 5.95 acre parcel in Minneapolis,
Minnesota in consideration of $562,000. By findings of Fact and Conclusions of
Law dated April 13, 2000, the District Court ruled in favor of the Company's
motion for summary judgement.
Also, the Company is a third party defendant in a suit filed in the United
States District Court for the Northern District of Illinois in which the
plaintiff railroad employee alleges that while he was riding the bottom step of
a locomotive a piece of rail struck the step, causing the step to bend and
injure the plaintiff's foot. The defendant/third party plaintiff alleges that
the Company negligently removed trackage so as to leave the rail piece in place.
The Company has forwarded this matter to its insurance carrier and has not yet
determined its exposure.
3. Restricted Cash
The total restricted cash at March 31, 2000 and 1999 was $4,424,000 and
$2,723,000, respectively. Restricted cash increased $242,000 from December 31,
1999 to March 31, 2000. This increase was additional earnest money deposited on
Kinzie Station sold units.
4. Notes Payable
Heartland has a line of credit agreement in the amount of $15.3 million with
LaSalle National Bank ("LNB"), pursuant to which CMC granted LNB a first lien on
certain parcels of land in Chicago, Illinois, Milwaukee, Wisconsin and Fife,
Washington which had a carrying value of $13,269,000 and $5,560,000 as of March
31, 2000, and 1999 respectively. The Company has also pledged as collateral its
interest in the Goose Island Joint Venture which has a carrying value of
$440,000 at March 31, 2000. Also, pursuant to the line of credit agreement, CMC
has pledged cash in the amount of $1,150,000 as an interest reserve. The
maturity date of the line of credit is December 31, 2000. Advances against the
line of credit bear interest at the prime rate of LNB plus 1.5% (10.5% at March
31, 2000). At March 31, 2000, and 1999, $14,300,000 and $7,721,000 respectively,
had been advanced to the Company by LNB against the line of credit. As of March
31, 2000, Heartland was in violation of its loan covenant that required the
Company maintain a net worth of $5,500,000. LNB waived this violation. On April
24, 2000, Heartland sold 17 acres of its Galewood property for $1,660,000. As of
April 30, 2000, the Company because of the Galewood property closing was in
compliance with this net worth requirement.
As of March 31, 2000, CMCV has a revolving line of credit agreement in the
amount of $3 million with Bank of America (formerly NationsBank) ("B of A") to
acquire lots and construct homes in the Osprey Cove subdivision, St. Marys,
Georgia, pursuant to which CMC granted a first mortgage to B of A on specific
lots in said subdivision with a carrying value of $308,000 and $4,254,000 at
March
Page 8 of 27
<PAGE>
HEARTLAND PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
31, 2000, and 1999, respectively. The revolving line of credit agreement matures
June 30, 2000. The line of credit bears interest at the prime rate of B of A
plus 1% (10.0% at March 31, 2000). B of A had advanced $214,000 and $2,179,000
at March 31, 2000, and 1999, respectively, against the revolving line of credit
facility.
In the fourth quarter of 1999, First National Bank of St. Mary's ("FNB") in
Georgia made two loans totaling $588,374 to build two unsold homes in Osprey
Cove. The carrying value of these two homes is $538,000 at March 31, 2000. The
loan terms are for one year and bear interest at the prime rate plus 1% (10.0%
at March 31, 2000). At March 31, 2000, FNB had advanced $518,000 to the Company
on the two loans.
In December, 1998, the Company signed a commitment letter for a $3,000,000 line
of credit with B of A to construct homes in the Longleaf community. B of A
provided individual loans on each home as it is started. The developer
subordinated its lot to B of A's construction loan. The term of each loan was
one year and interest accrued at the B of A prime rate plus 1%. On December 9,
1999, Heartland executed an agreement for a $5,000,000 revolving credit line for
the construction of homes in Longleaf with Bank One of Illinois ("Bank One").
The first draw from Bank One on December 9, 1999 was used to purchase 22 lots
(of which 5 have closed as of March 31, 2000) from the developer for $690,500
and repaid B of A all outstanding principal and accrued interest. As new homes
to be built are added to the revolving credit line, the developer will
subordinate its lot to Bank One's revolving credit line. The carrying value of
the collateral at March 31, 2000 is $2,001,000. The revolving credit line is for
a term of 1 year and bears interest at the prime rate (9.0% at March 31,
2000). At March 31, 2000, $1,594,000 had been advanced by Bank One to the
Company.
On November 30, 1998, Heartland executed an agreement for a $2,500,000 loan from
Bank One relating to the Bloomfield project. The loan has a two year term and
bears interest at the prime rate (9.0% at March 31, 2000). The outstanding loan
balance is $2,460,000 at March 31, 2000. As a condition of the loan, $500,000
was placed in an interest reserve. In addition, Bank One is providing a
$1,750,000 development loan, letters of credit for $204,500 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 (9.0% at March 31, 2000). The loans mature on January
31, 2001 and January 31, 2000, respectively. At March 31, 2000, $548,000 had
been advanced against the development loan and $1,408,000 against the revolving
line of credit. The Company believes no additional financing will be needed for
Phase I. The carrying value of the collateral for these loans is $5,353,000 at
March 31, 2000. On March 31, 2000, the Company extended the revolving line of
credit that had matured January 31, 2000 to December 31, 2000 and reduced the
revolving loan amount from $4,000,000 to $2,000,000.
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 ("CB"). The loan bears interest at
the prime rate plus 1% (10.0% at March 31, 2000). This loan is collateralized by
the real estate contained in the project. In conjunction with the loan,
Page 9 of 27
<PAGE>
HEARTLAND PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
a Construction Contract with the guaranteed maximum price of $24,710,000 was
entered into with a general contractor. At March 31, 2000, $19,091,000 had been
advanced by CB to the Company.
On October 20, 1999, the Company executed loan documents with Bank One for a
loan of $5,250,000 to construct the Kinzie Station Plaza building. The loan is
for a term of 3 years and bears interest at the prime rate (9.0% at March 31,
2000). The loan is collateralized by real estate contained in the project. On
September 7, 1999, a construction contract with the guaranteed maximum price of
$4,864,022 was entered into with a general contractor. At March 31, 2000,
$596,000 had been advanced by Bank One to the Company.
5. Related Party Transactions
Heartland had a management agreement with Heartland Technology, Inc. ("HTI")
pursuant to which the Company was required to pay HTI an annual management fee
in the amount of $425,000 until December 31, 1999. This fee was paid in full at
December 31, 1999.
Under a management services agreement, HTI reimburses the Company for reasonable
and necessary costs and expenses for services. At March 31, 2000, HTI owed
Heartland approximately $1,533,000. This was an increase of $440,000 from
December 31, 1999.
Page 10 of 27
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HEARTLAND PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
6. Reportable Segments
The following tables set forth the reconciliation of net income for Heartland's
reportable segments for the quarters ended March 31, 2000 and 1999 (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,
2000 1999 2000 1999 2000 1999 2000 1999
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income:
Property sales $ 60 $ 37 $ 2,590 $ 2,005 $ - $ - $ 2,650 $ 2,042
Less: Cost of property sales 9 7 2,585 1,938 - - 2,594 1,945
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit on property sales 51 30 5 67 - - 56 97
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Selling expenses 189 255 398 365 - - 587 620
General and administrative - - 60 149 474 468 534 617
Real estate taxes - 30 22 30 - - 22 60
Environmental expense 48 - 29 30 - - 77 30
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses 237 285 509 574 474 468 1,220 1,327
-------- -------- -------- -------- -------- -------- -------- --------
Net operating (loss) (186) (255) (504) (507) (474) (468) (1,164) (1,230)
Other Income and (Expense):
Portfolio income - - - - 54 18 54 18
Rental income 158 248 - - - - 158 248
Other income - - 80 257 - - 80 257
Depreciation and amortization - - (22) (22) (25) (12) (47) (34)
Management fee - - - - - (106) - (106)
-------- -------- -------- -------- -------- -------- -------- --------
Total other income and
(expense) 158 248 58 235 29 (100) 245 383
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) $ (28) $ (7) $ (446) $ (272) $ (445) $ (568) $ (919) $ (847)
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Page 11 of 27
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HEARTLAND PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
1. The Land Sales business segment consists of approximately 14,411 acres of
land located throughout 12 states for sale as of March 31, 2000, and the
related sales and marketing and general and administrative expenses.
2. The Property Development business segment consists of the approximately 886
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.
7. Employee Compensation Arrangements
Effective January 1, 2000, the Company approved the CMC HEARTLAND PARTNERS
INCENTIVE PLAN ("CMC Plan") and the SALES INCENTIVE PLAN ("Sales Plan") to
provide incentives to attract, retain or motivate highly competent persons
of CMC Heartland Partners. The aggregate benefits payable under the CMC Plan
shall be computed by multiplying the following percentages (3% for the years
2000 and 2001, 2% for the year 2002 and 1% for the year 2003) by the net
proceeds from the sale of certain land parcels during those years. The
aggregate benefits payable under the Sales Plan shall be computed by
multiplying 3% for the years 2000 and 2001 by the net proceeds from the sale
of certain real estate during those years. As of March 31, 2000, no benefits
under the plans had been earned.
Page 12 of 27
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 2000
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 Operations 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 Units, 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 from operating activities has been derived primarily from proceeds of
property sales and rental income. Cash was $4,567,000 (including $4,424,000 of
restricted cash) at March 31, 2000, and $4,412,000 (including $4,182,000 of
restricted cash) at December 31, 1999. The increase of $155,000 from December
31, 1999 to March 31, 2000, is mainly attributable to an increase in deposits on
sold units in Kinzie Station. (See Consolidated Statements of Cash Flows).
Net cash used in operating activities was $7,768,000 in the first quarter of
2000, compared to $4,682,000 used in operating activities in the first quarter
of 1999. The increase in net cash used in operating activities between the years
of $3,086,000 is mainly attributable to an increase in capital expenditures of
$3,185,000 for housing inventories.
At the quarter ending March 31, 2000, property designated for development
consisted of 15 sites comprising approximately 886 acres. The book value of this
land is $10 million or an average of $10,900 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.
Kinzie Station
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 of the first phase of the project started on October 1, 1998.
Since last reported in the 1999 Form 10-K, the number of units sold at Kinzie
Station Phase I has increased 16% and the dollar sales volume has increased 23%.
The first closings have taken place in the second quarter of the year 2000.
Page 13 of 27
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 2000
Kinzie Station
Phase I
Unit Detail
As of March 31, 2000
Total Number
of Units
Tower Building 163
Plaza 24
Townhomes 5
---
Total 192
===
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. In October 1999,
Heartland executed a sales contract to sell a part of this acreage to Home Depot
U.S.A., Inc. However, the Company retained certain air rights associated with
this property. Also during 1999, the Company executed contracts to sell 3 2/3
acres of industrial land west of Kinzie Station to 2 other parties for
approximately $3,900,000.
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 ("CB"). The loan bears interest at
the prime rate plus 1% (10.0% at March 31, 2000). 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, 2000, $19,090,907 had been
advanced by CB to the Company.
On October 20, 1999, the Company executed loan documents with Bank One of
Illinois ("Bank One") for a loan of $5,250,000 to construct the Kinzie Station
Plaza building. The loan is for a term of 3 years and bears interest at the
prime rate (9.0% at March 31, 2000). The loan is collateralized by real estate
contained in the project. On September 7, 1999, a construction contract with the
guaranteed maximum price of $4,864,022 was entered into with a general
contractor. At March 31, 2000, $595,460 had been advanced by Bank One to the
Company.
Osprey Cove
Included in the aforementioned 886 acres are approximately 8 acres consisting of
28 lots purchased for $1.1 million, or an average of $38,000 per lot at Osprey
Cove in St. Marys, GA. 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. In December 1999,
the Company decided to cease operations at Osprey Cove.
The homes under construction will be completed and closed during the first nine
months of the year 2000. The 25 lots owned by Heartland are being marketed and
will be sold and closed in the ordinary course of business. It is anticipated it
may take to the end of the year 2001 to sell all the lots.
Page 14 of 27
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 2000
As of March 31, 2000, 41 contracts have closed in Osprey; 6 in 2000, 20 in 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, 2000, CMC has sold 1 lot for those owners.
Osprey Cove
Unit Inventory Detail
As of March 31, 2000
Sold homes under construction 1
Inventory homes under construction 2
Lots owned-inventory 22
Lots owned-sold 3
--
Total unit inventory 28
==
As of March 31, 2000, CMC has a revolving line of credit agreement in the amount
of $3,000,000 with Bank of America (formerly NationsBank, N.A.) ("B of A"). The
line of credit bears interest at the prime rate of B of A plus 1% (10.0% at
March 31, 2000). At maturity, all outstanding advances and any accrued interest
must be paid. At March 31, 2000, $214,492 has been advanced by B of A against
the revolving line of credit.
In the fourth quarter of 1999, First National Bank of St. Mary's ("FNB") in
Georgia made two loans totaling $588,374 to build two inventory homes in Osprey
Cove. The loan terms are for one year and bear interest at the prime rate plus
1% (10.0% at March 31, 2000). At March 31, 2000, FNB had advanced $517,985 to
the Company on the two loans.
Longleaf
The Company has signed a contract to be the exclusive homebuilder and marketer
for the Longleaf Country Club in Southern Pines, North Carolina. Under the terms
of the contract, CMC is entitled to sell and build up to 244 homes on lots
currently owned by Longleaf Associates Limited Partnership ("LALP"), an
affiliate of General Investment & Development, an unrelated party. Heartland
assumed the day to day operations on April 1, 1998. At March 31, 2000, the
Company owned 17 lots purchased for approximately $526,000, an average of
$30,900 per lot. These 17 lots comprising approximately 5 acres of land, are
also included in the aforementioned 886 acres. Also, the Company is building 1
sold home on an individual's own lot.
In Longleaf, the Company has closed 15 homes as of March 31, 2000; 2 in 2000 and
13 in 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, 2000, the
Company has sold 29 units and 3 lots for these owners since April 1, 1998.
Page 15 of 27
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 2000
Longleaf
Unit Inventory Detail
As of March 31, 2000
Model homes 2
Sold homes under construction 8
Inventory homes under construction 4
Lots owned 3
--
Total unit inventory 17
==
In December, 1998, the Company signed a commitment letter for a $3,000,000 line
of credit with B of A to finance the construction of homes in the Longleaf
community. B of A provided individual loans on each home as it is started. The
developer subordinated its lot to B of A's construction loan. The term of each
loan was one year and interest accrued at the B of A prime rate plus 1%. On
December 9, 1999, Heartland executed an agreement for a $5,000,000 revolving
credit line for the construction of homes in Longleaf with Bank One. The first
draw from Bank One on December 9, 1999 was used to purchase 22 lots (of which 5
have closed as of March 31, 2000) from LALP for $690,500 and repaid B of A all
outstanding principal and accrued interest. As new homes to be built are added
to the revolving credit line, the developer will subordinate its lot to Bank
One's revolving credit line. The revolving credit line is for a term of 1 year
and bears interest at the prime rate (9.0% at March 31, 2000). At March 31,
2000, $1,593,823 had been advanced by Bank One to the Company.
Bloomfield
Heartland has received approval for the development of the 226 acre site it owns
in Rosemount, Minnesota from the city of Rosemount. 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. The Company also owns 103 acres of land adjacent to this
development.
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 has completed the
Phase I infrastructure. Phase I consists of 120 townhomes, 27 single-family
homes and 10 twinhomes. Phase II of Bloomfield has site plan approval from the
City of Rosemount for the construction of 20 twinhomes and 97 single-family
homes.
Page 16 of 27
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 2000
As of March 31, 2000, 5 townhomes and 3 single-family detached homes were
closed; 2 in 2000 and 6 in 1999.
Rosemount
(Phase I)
Unit Inventory Detail
As of March 31, 2000
Model homes 3
Sold homes under construction 3
Inventory homes under construction 6
Townhome building foundation 6
Lots owned 131
---
Total unit inventory 149
===
In December 1999, Heartland decided to cease homebuilding operations in
Bloomfield. The sold and inventory homes under construction will be completed,
sold and closed in the ordinary course of business. The completed model homes
and the 6 townhome building foundation are currently being marketed and will be
sold (and closed) during the ordinary course of business. The remaining
developed lots and undeveloped acreage will also be sold. Heartland anticipates
that the sale of the remaining home inventory, lots and undeveloped acreage may
take place during the year 2000.
A contract on the aforementioned 103 adjacent acres was executed in January 2000
for $4,000,000 and is projected to close by September 30, 2000. While the
Company has no reason to believe the above-described sale will not close, the
contract contains contingencies typical of such contracts and there can be no
assurance the transaction will be completed.
On November 30, 1998, Heartland executed an agreement for a $2,500,000 loan from
Bank One relating to the Bloomfield project. The loan has a two year term and
bears interest at the prime rate (9.0% at March 31, 2000). The outstanding loan
balance is $2,460,000 at March 31, 2000. As a condition of the loan, $500,000
was placed in an interest reserve. In addition, Bank One is providing a
$1,750,000 development loan, letters of credit for $204,500 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 (9.0% at March 31, 2000). The loans mature on January
31, 2001 and January 31, 2000, respectively. At March 31, 2000, $547,840 had
been advanced against the development loan and $1,408,149 against the revolving
line of credit. The Company believes no additional financing will be needed for
Phase I. On March 31, 2000, the Company extended the revolving line of credit
that had matured January 31, 2000 to December 31, 2000 and reduced the revolving
loan amount from $4,000,000 to $2,000,000.
Galewood
The Company executed a sales contract in March 24, 2000 to sell 50 acres of its
Galewood property located in Chicago, Illinois for $7.75 million to an
industrial park developer. This sale is projected to close by June 30, 2000.
While the Company has no reason to believe the above-described sale will not
close, the contact
Page 17 of 27
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 2000
contains contingencies typical of such contracts and there can be no assurance
the transaction will be completed.
On April 19, 2000, Heartland sold the remaining 17 acres of its Galewood
property to METRA, the Chicago commuter rail authority for $1,660,000. This sale
closed April 24, 2000.
Other Development Activities
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, 2000, the buildings had
been built and leases had been signed for all of the 265,000 square feet.
On December 1, 1998 the Fife property was annexed to the City of Fife,
Washington. A Local Improvement District (LID) has been approved in order to
support the improvement and extension of sewers and sewer capacity for the site.
The city of Fife has zoned the property for residential usage. Heartland has
prepared the preliminary site plan for the site. The Company has submitted the
site plan for approval, and expects it to be approved by the end of the year
2000.
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 has made applications with the state
and federal governments to have the approximately $4 million in funds
appropriated for this facility. The appropriation of the funds should be
completed during the year 2000. The Company has started preliminary design work
on this project in the third quarter of 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 14,411 acres
located throughout 12 states. The book value of this inventory is approximately
$761,000. The majority of the land is former railroad rights-of-way, long,
narrow strips of land that varies 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.
Page 18 of 27
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 2000
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 approximately 160 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 cancellable 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, 2000, and 1999.
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 recorded a liability in the
amount of $2.5 million at March 31, 2000 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.
Page 19 of 27
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 2000
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 $15.3 million. Cash in the amount of $1,150,000 is pledged as an
interest reserve. The line of credit matures December 31, 2000. Advances against
the line of credit bear interest at the prime rate of LNB plus 1.5% (10.5% at
March 31, 2000). At March 31, 2000, $14,300,000 had been advanced to the Company
by LNB against the line of credit. As of March 31, 2000, Heartland was in
violation of its loan covenant that required the Company maintain a net worth of
$5,500,000. LNB waived this violation. On April 24, 2000, Heartland sold 17
acres of its Galewood property for $1,660,000. As of April 30, 2000, the Company
because of the Galewood property closing was in compliance with this net worth
requirement.
Results of Operations
For the quarter ended March 31, 2000, operations resulted in a net loss of
$919,000 or $0 per Class A Unit. Operations for the quarter ended March 31,
1999, resulted in a net loss of $847,000 or $0 per Class A Unit. No loss is
allocated to the Class A Unitholders because the partnership agreement provides
that if an allocation of a net loss to a partner would cause that partner to
have a negative balance in its capital account at a time when one or more
partners would have a positive balance in their capital account such net loss
shall be allocated only among partners having positive balances in their capital
account.
The increase in the net loss for the first quarter of 2000 compared to 1999 of
$72,000 is due to the recognition in the first quarter of 1999 of $190,000 in
other income related to the reimbursement of prior years environmental expenses.
Heartland has approximately 160 active leases on its real estate properties,
which generated $158,000 and $248,000 of revenue for the first quarter of 2000
and 1999, respectively. The decrease in the rental income from the first quarter
of 2000 compared to 1999 of $90,000 is due to the sale of properties in 1999 on
which lessees were paying rent and the cancellation of several leases due to
non-payment of rent.
Total operating expenses were $1,220,000 and $1,327,000 for the periods ending
March 31, 2000 and 1999, respectively. The decrease of $107,000 is primarily due
to decreased general and administrative expenses of $83,000 and a decrease in
real estate taxes of $38,000.
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
Page 20 of 27
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 2000
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, 2000, Heartland's
total consolidated indebtedness was $40,729,000. 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.
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, 2000 is $40,729,000.
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 $102,000.
The Company does not have any other financial instruments for which there is a
significant exposure to interest rate changes.
Year 2000
As of December 31, 1999, the Company had completed its two-year technology plan,
which included initiatives to mitigate any material risks associated with the
year 2000 issues. This technology plan resulted in the re-design and replacement
of most of the Company's information systems and equipment platforms.
Page 21 of 27
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 2000
The Company also identified areas other than these information systems for which
it might be at risk due to the year 2000, including telecommunications systems
and third party vendors. As of December 31, 1999, the Company had upgraded or
replaced all non-compliant telecommunications systems, identified risk issues
and installed upgrade software system-wide.
The Company incurred approximately $200,000 to complete this project.
Approximately $150,000 was capitalized for new systems, software and equipment
and approximately $50,000 was expensed.
Through May 13, 2000, the Company has not encountered any year 2000 related
issues which would have affected its operations in the areas described above. It
will continue to monitor its internal software and equipment over the next few
months to detect whether any such problems arise. No future significant
expenditures are expected related to year 2000 compliance.
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, 2000, Heartland's allowance for claims and liabilities was
approximately $2.9 million. During the quarter ended March 31, 2000, an increase
of approximately $47,000 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
- ------------------
Page 22 of 27
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 2000
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, subsequently modified effective June 1999, in which the Port released all
claims and the Company agreed either to (a) pay $1.1 million on or before
December 31, 2000, plus interest from January 1, 1999, or (b) to convey to the
Port real property to be agreed upon at a later date. At March 31, 2000,
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
Page 23 of 27
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 2000
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.
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. A portion
of the Company's property is located over a well field which was placed on the
national priority list in October 1992. 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. The Company has not been named as a PRP.
In July 1999, suit was filed against the Company in Minnesota District Court by
a buyer under an expired real estate sale contract originally entered into in
1995, and extended to June 20, 1999. The Plaintiff in the suit demanded specific
performance by conveyance to it of the vacant 5.95 acre parcel in Minneapolis,
Minnesota originally to be sold to the buyer for $562,000 pursuant to the real
estate contract. By findings of Fact and Conclusions of Law, dated April 13,
2000, the court ruled in favor of the Company's motion for summary judgement.
Environmental sampling in 1995 disclosed that the parcel was impacted by
releases of regulated materials from the 1960s operations of a former lessee.
The Company continues to investigate the environmental condition of the property
on a voluntary basis under the direction of the Minnesota Department of
Agriculture.
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 24 of 27
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 2000
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
- ------------ ------------------------------------------------------------------
10.23 Fourth amendment to Amended and Restated Loan and Security
Agreement dated March 20, 2000 among CMC Heartland Partners, and
Heartland Partners, L.P. and LaSalle Bank National Association, a
national banking association (filed herewith).
10.24 Second Amendment to Construction Loan Agreement dated March 31,
2000 between CMC Heartland Partners I, Limited Partnership, a
Delaware limited partnership and Bank One, Illinois, N.A., a
national banking association (filed herewith).
10.25 First Amendment to Employment Agreement, dated December 20, 1999,
between CMC Heartland Partners and Edwin Jacobson (filed
herewith).*
10.26 CMC Heartland Partners Incentive Plan effective January 1, 2000
(filed herewith).
10.27 The Sales Incentive Plan effective January 1, 2000 (filed
herewith).
27 Financial Data Schedule (filed herewith).
* Management contract required to be filed as an exhibit pursuant to item
14(c).
(b) Reports on Form 8-K; No report on Form 8-K was filed during the quarter
ended March 31, 2000.
Page 25 of 27
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 2000
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 15, 2000 BY: /s/ Edwin Jacobson
-----------------------------
Edwin Jacobson
President and Chief Executive Officer
Heartland Technology, Inc.
the General Partner
(Principal Executive Officer)
Date: May 15, 2000 BY: /s/ Richard P. Brandstatter
------------------------------
Richard P. Brandstatter
Vice-President-Finance, Secretary
and Treasurer of
Heartland Technology, Inc.
the General Partner
(Principal Financial and Accounting
Officer)
Page 26 of 27
<PAGE>
HEARTLAND PARTNERS, L.P.
MARCH 31, 2000
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -------------------------------------------------------------------
10.23 Fourth amendment to Amended and Restated Loan and Security
Agreement dated March 20, 2000 among CMC Heartland Partners, and
Heartland Partners, L.P. and LaSalle Bank National Association, a
national banking association (filed herewith).
10.24 Second Amendment to Construction Loan Agreement dated March 31,
2000 between CMC Heartland Partners I, Limited Partnership, a
Delaware limited partnership and Bank One, Illinois, N.A., a
national banking association (filed herewith).
10.25 First Amendment to Employment Agreement, dated December 20, 1999,
between CMC Heartland Partners and Edwin Jacobson (filed herewith).
10.26 CMC Heartland Partners Incentive Plan effective January 1, 2000
(filed herewith).
10.27 The Sales Incentive Plan effective January 1, 2000 (filed
herewith).
27 Financial Data Schedule (filed herewith).
Page 27 of 27
<PAGE>
EXHIBIT 10.23
FOURTH AMENDMENT TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
---------------------------
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
(this "Amendment") is dated as of the 20th day of March, 2000 by and among CMC
HEARTLAND PARTNERS, a Delaware general partnership ("CMC") and HEARTLAND
PARTNERS, L.P., a Delaware limited partnership ("Heartland"), jointly and
severally (CMC and Heartland are referred to herein from time to time
individually as a "Borrower" and collectively as "Borrowers"); and LASALLE BANK
NATIONAL ASSOCIATION, a national banking association ("Bank").
W I T N E S S E T H:
WHEREAS, Bank and Borrowers entered into that certain Amended and Restated
Loan and Security Agreement dated as of June 30, 1998, as amended by that
certain Amendment to Amended and Restated Loan and Security Agreement dated as
of October 23, 1998, that certain Second Amendment to Amended and Restated Loan
and Security Agreement dated as of April 29, 1999 and that certain Third
Amendment to Amended and Restated Loan and Security Agreement dated as of
November 18, 1999 (the "Agreement"), and now desire to amend the Agreement to,
among other things, (i) add CMC Heartland Partners IV, LLC, a Delaware limited
liability company ("Partners"), as a party to the Agreement, (ii) increase
Bank's commitment to Borrowers, (iii) increase the interest rate, and (iv) add a
certain parcel of real property located in Fife, Washington to the collateral
securing the Loans (as defined in the Agreement) as further set forth in this
Amendment.
NOW, THEREFORE, for and in consideration of the premises and mutual
agreements herein contained and for the purposes of setting forth the terms and
conditions of this Fourth Amendment, the parties, intending to be bound, hereby
agree as follows:
1. Incorporation of the Agreement. All capitalized terms which are not
------------------------------
defined hereunder shall have the same meanings as set forth in the Agreement,
and the Agreement to the extent not inconsistent with this Amendment is
incorporated herein by this reference as though the same were set forth in its
entirety. To the extent any terms and provisions of the Agreement are
inconsistent with the amendments set forth in Paragraph 2 below, such terms and
-----------
provisions shall be deemed superseded hereby. Except as specifically set forth
herein, the Agreement shall remain in full force and effect and its provisions
shall be binding on the parties hereto.
2. Amendment of the Agreement. The Agreement is hereby amended as
--------------------------
follows:
<PAGE>
(1) Any and all references to the Agreement shall be deemed to refer
to and include this Amendment, as the same may be further amended, modified or
supplemented from time to time.
(2) The definition of the term "Environmental Indemnity Agreement" in
Paragraph 1.1 is hereby amended and restated to read in its entirety as follows:
- -------------
"Environmental Indemnity Agreement" means that certain
---------------------------------
Amended and Restated Environmental Indemnity Agreement
dated as of June 30, 1998 made by Borrowers in favor of
Bank, as amended by that certain Amendment to Amended
and Restated Environmental Indemnity Agreement dated as
of April 29, 1999 and that certain Second Amendment to
Amended and Restated Environmental Indemnity Agreement
dated as of March 20, 2000.
(3) The definition of the term "Galewood Assignment of Rents" in
Paragraph 1.1 is hereby amended and restated to read in its entirety as follows:
- -------------
"Galewood Assignment of Rents" means that certain
----------------------------
Assignment of Rents and Leases dated as of June 30,
1998 between CMC and Bank with respect to the Galewood
Mortgaged Property, as amended by that certain
Amendment to Assignment of Rents and Leases dated as of
October 23, 1998, that certain Second Amendment to
Assignment of Rents and Leases dated as of April 29,
1999, that certain Second Amendment to Assignment of
Rents and Leases dated November 18, 1999 and that
certain Fourth Amendment to Assignment of Rents and
Leases dated as of March 20, 2000, as the same may be
amended, modified or supplemented from time to time.
(4) The definition of the term "Galewood Mortgage" in Paragraph 1.1
-------------
is hereby amended and restated to read in its entirety as follows:
"Galewood Mortgage" means that certain Mortgage and
-----------------
Security Agreement dated June 30, 1998 between CMC and
Bank with respect to the Galewood Mortgaged Property,
as amended by that certain Amendment to Mortgage and
Security Agreement dated as of October 23, 1998, that
certain Second Amendment to Mortgage and Security
Agreement dated as of April 29, 1999, that certain
Third Amendment to Mortgage and Security Agreement
dated as of November 18, 1999 and that certain Fourth
Amendment to Mortgage to Security Agreement dated as of
March 20, 2000, as the same
<PAGE>
may be further amended, modified or supplemented from
time to time.
(5) The definition of the term "Kinzie Station Assignment of Rents"
in Paragraph 1.1 is hereby amended and restated to read in its entirety as
-------------
follows:
"Kinzie Station Assignment of Rents" means that certain
----------------------------------
Assignment of Rents and Leases dated as of March 15,
1996 made by CMC in favor of Bank with respect to the
Kinzie Station Mortgaged Property, as amended by that
certain Amendment to Assignment of Rents and Leases
dated as of May 14, 1997, that certain Second Amendment
to Assignment of Rents and Leases dated as of April 30,
1998, that certain Third Amendment to Assignment of
Rents and Leases dated as of June 30, 1998, that
certain Fourth Amendment to Assignment of Rents and
Leases dated as of October 23, 1998, that certain Fifth
Amendment to Assignment of Rents and Leases dated as of
April 29, 1999, that certain Sixth Amendment to
Assignment of Rents and Leases dated as of November 18,
1999 and that certain Seventh Amendment to Assignment
of Rents and Leases dated as of March 20, 2000, as the
same may be further amended, modified or supplemented
from time to time.
(6) The definition of the term "Kinzie Station Mortgage" in Paragraph
---------
1.1 is hereby amended and restated in its entirety to read as follows:
- ---
"Kinzie Station Mortgage" means that certain Mortgage
-----------------------
and Security Agreement dated as of March 15, 1996, made
by CMC in favor of Bank with respect to the Kinzie
Station Mortgaged Property, as amended by that certain
Amendment to Mortgage and Security Agreement dated as
of May 14, 1997, that certain Second Amendment to
Mortgage and Security Agreement dated as of April 30,
1998, that certain Third Amendment to Mortgage and
Security Agreement dated as of June 30, 1998, that
certain Fourth Amendment to Mortgage and Security
Agreement dated as of October 23, 1998, that certain
Fifth Amendment to Mortgage and Security Agreement
dated as of April 29, 1999, that certain Sixth
Amendment to Mortgage and Security Agreement dated as
of November 18, 1999 and that certain Seventh Amendment
to Mortgage and Security Agreement dated as of March
20, 2000, as the same may be further amended, modified
or supplemented from time to time.
3
<PAGE>
(7) The definition of the term "Mortgaged Properties" in Paragraph
---------
1.1 is hereby amended and restated to read in its entirety as follows:
- ---
"Mortgaged Properties" means the Galewood Mortgaged
--------------------
Property, the Kinzie Station Mortgaged Property, the
Milwaukee Mortgaged Property and the Fife Mortgaged
Property.
(8) The definition of the term "Other Agreements" in Paragraph 1.1 is
-------------
hereby amended and restated to read in its entirety as follows:
"Other Agreements" means all agreements, instruments
----------------
and documents, including, without limitation, Letters
of Credit, guaranties, mortgages, deeds of trust,
pledges, powers of attorney, consents, assignments,
contracts, notices, security agreements, leases,
financing statements and all other written matter
heretofore, now and/or from time to time hereafter
executed by and/or on behalf of Borrowers in favor of
Bank including, without limitation, the Revolving Note,
the Pledge Agreement, the Galewood Mortgage, the
Galewood Assignment of Rents, the Kinzie Station
Mortgage, the Kinzie Station Assignment of Rents, the
Milwaukee Mortgage, the Milwaukee Assignment of Rents,
the Fife Mortgage, the Fife Assignment of Rents and the
Environmental Indemnity Agreement, all as may be
modified, amended or supplemented from time to time.
(9) The definition of the term "Revolving Margin" in Paragraph 1.1 is
-------------
hereby amended and restated to read in its entirety as follows:
"Revolving Margin" means One and One-Half percent (1 1/2%).
----------------
(10) The definition of the term "Revolving Note" in Paragraph 1.1 is
-------------
hereby amended and restated to read in its entirety as follows:
"Revolving Note" means that certain Substitute
--------------
Revolving Note dated as of March 20, 2000 made by
Borrowers, jointly and severally, in favor of Bank, in
the maximum principal amount available of Fifteen
Million Three Hundred Thousand and 00/100 Dollars
($15,300,000), as the same may be amended, modified or
supplemented from time to time, together with any
renewals thereof or exchanges or substitutes therefor.
4
<PAGE>
(11) The following definitions are hereby added to Paragraph 1.1 to
-------------
read in their entirety as follows:
"Fife Assignment of Rents" means that certain
------------------------
Assignment of Rents and Leases dated as of March 20,
2000 between Partners and Bank with respect to the Fife
Mortgaged Property, as the same may be amended,
modified or supplemented from time to time.
"Fife Mortgage" means that certain Mortgage and
-------------
Security Agreement dated as of March 20, 2000 between
Partners and Bank with respect to the Fife Mortgaged
Property, as the same may be amended, modified or
supplemented from time to time.
"Fife Mortgaged Property" means that certain parcel of
-----------------------
land consisting of approximately 177 acres, located in
Fife, Washington in the county of Pierce, serving as
collateral hereunder and legally described on Schedule
--------
1.1D attached hereto and made a part hereof.
----
(12) Paragraph 2.1 is hereby amended and restated to read in its
-------------
entirety as follows:
2.1 Revolving Credit Commitment. On the terms and
---------------------------
subject to the conditions set forth in this Agreement,
Bank agrees to make revolving credit available and
Letters of Credit available to Borrowers from time to
time prior to the Revolving Credit Termination Date
with respect to revolving credit loans and the Letter
of Credit Termination Date with respect to Letters of
Credit, in such aggregate amounts as Borrowers may from
time to time request but in no event exceeding Fifteen
Million Three Hundred Thousand Dollars ($15,300,000) in
the aggregate (the "Revolving Credit Commitment");
provided, however, that in no event shall the aggregate
amount of Letters of Credit outstanding at any one time
exceed the Letter of Credit Limit. The Revolving Credit
Commitment shall be available to Borrowers by means of
Loans, it being understood that the Loans may be repaid
and used again during the period from the date hereof
to and including the Revolving Credit Termination Date,
at which time the Revolving Credit Commitment shall
expire.
3. Assent to Agreement. Partners is hereby made a Borrower under the
-------------------
Agreement and agrees to be bound by the applicable terms and conditions of the
Agreement as of the date hereof,
5
<PAGE>
and hereby assumes all obligations and is entitled to the rights and benefits of
a Borrower under the Agreement. From and after the date hereof, any and all
references to the Borrowers shall be deemed to include Partners, except for
references to the Borrowers relating to their status prior to this Amendment and
with respect to representations and warranties made as of or with respect to a
specific prior date(s).
4. Grant of Security Interest. In consideration of the Loans, and as
--------------------------
security therefor and for the payment of any and all liabilities and obligations
of each Borrower to the Bank, howsoever created, arising or evidenced, and
howsoever owned, held or acquired, whether now or hereafter existing, whether
now due or to become due, whether direct or indirect, or absolute or contingent,
and whether several, joint or joint and several (the "Obligations"), CMC and
Heartland hereby reaffirm their grants of security interests to Bank pursuant to
Section 7.1 of the Agreement as security for the Obligations of each Borrower
- -----------
under the Agreement and Partners hereby pledges, assigns, transfers and delivers
to the Bank and does hereby grant to the Bank a continuing and unconditional
security interest in and to any and all property of each Borrower of any kind or
description, tangible or intangible, whether now owned or existing, or hereafter
acquired or coming into existence, wherever now or hereafter located, including,
but not limited to (a) cash, negotiable instruments, documents of title, chattel
paper, securities, certificates of deposit, deposit accounts, interest or
dividends thereon, other cash equivalents and all other property of whatever
description of such Borrower, whether now existing or hereafter acquired, and
wherever now or hereafter located, and now or hereafter in transit to, or in
possession or control of or assigned to the Bank, and the products and proceeds
therefrom; and (b) the additional property of such Borrower, whether now
existing or hereafter acquired, wherever now or hereafter located, and the
products and proceeds therefrom and additions and accessions with respect
thereto identified and set forth as follows:
(1) All accounts, and all Goods, repossessed from or returned by an
Account Debtor, whose sale, lease, or other disposition any Borrower have given
rise to Accounts;
(2) All Inventory; All Goods, other than Inventory;
(3) All Equipment (including without limitation vehicles and
furniture) and Fixtures;
(4) All Chattel Paper, Instruments, Documents and General
Intangibles;
(5) All insurance policies and proceeds insuring the foregoing
property or any part thereof, including unearned premiums; and
(6) All books, records, customer lists, supplier lists and all other
evidences of such Borrower's business records; and all computer records,
software and programs.
5. Commitment Fee. As a condition of Bank's agreement to enter into this
--------------
Agreement, Borrowers hereby agree to pay to Bank a commitment fee equal to One
Hundred Sixty Three Thousand Dollars ($153,000) which shall be due and payable
as of the date of this Amendment (the "Commitment Fee").
6
<PAGE>
6. Closing Documents. All the documents on the Closing Checklist
-----------------
(attached hereto as Exhibit A) shall be delivered concurrently with this
---------
Amendment, each in form and substance satisfactory to Bank.
7. Representations and Warranties; No Event of Default; Schedules. The
--------------------------------------------------------------
representations and warranties set forth in Paragraph 8.1 of the Agreement are
-------------
deemed remade as of the date hereof and each Borrower represents that such
representations and warranties are true and correct as of the date hereof. No
Event of Default exists nor does there exist any event or condition which with
notice, lapse of time and/or the consummation of the transactions contemplated
hereby would constitute an Event of Default. The following schedules to the
Agreement, attached hereto as Exhibit B, are hereby deemed amended and restated:
---------
A new Schedule 1.1D attached hereto is hereby added to the Agreement in its
-------------
entirety. [OTHERS TO BE DETERMINED]
8. Fees and Expenses. The Borrowers agree to pay on demand all costs and
-----------------
expenses of or incurred by Bank in connection with the evaluation, negotiation,
preparation, execution and delivery of this Amendment and the other instruments
and documents executed and delivered in connection with the transactions
described herein (including the filing or recording thereof), including, but not
limited to, the fees and expenses of counsel for the Bank and any future
amendments to the Agreement. Borrowers also agree to pay to Bank the Commitment
Fee on the date hereof.
9. Effectuation. The amendments to the Agreement contemplated by this
------------
Amendment shall be deemed effective immediately upon the full execution of this
Amendment and without any further action required by the parties hereto. There
are no conditions precedent or subsequent to the effectiveness of this
Amendment.
10. Counterparts. This Amendment may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Fourth
Amendment as of the date first above written.
CMC HEARTLAND PARTNERS, a
Delaware general partnership
By: HEARTLAND TECHNOLOGY, INC., a
Delaware corporation and an
authorized general partner
By:________________________________
Its President
By: HEARTLAND PARTNERS, L.P., a
Delaware limited partnership
and an authorized general
partner
By: Heartland Technology, Inc.,
Its: General Partner
By:________________________________
Its President
HEARTLAND PARTNERS, L.P.,
a Delaware limited partnership
By: Heartland Technology, Inc.
Its: General Partner
By:________________________________
Its President
8
<PAGE>
CMC HEARTLAND PARTNERS IV, a
Delaware limited liability company
By:________________________________
Its:_______________________________
LASALLE BANK NATIONAL ASSOCIATION,
a national banking association
By:________________________________
Its:_______________________________
9
<PAGE>
EXHIBIT A
---------
[Closing Checklist Attached]
<PAGE>
EXHIBIT B
---------
[See Attached Schedules]
<PAGE>
SCHEDULE 1.1D
-------------
[Attached Legal Description for Fife Mortgaged Property]
12
<PAGE>
EXHIBIT 10.24
SECOND AMENDMENT TO CONSTRUCTION LOAN AGREEMENT
THIS SECOND AMENDMENT TO CONSTRUCTION LOAN AGREEMENT ("Amendment") is dated
---------
as of March 31, 2000, 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. Lender has previously made (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 (as amended, restated,
supplemented or modified and in effect from time to time, the "Construction Loan
-----------------
Agreement"), dated as of February 1, 1999. All capitalized terms which are not
- ---------
defined herein shall have the meaning ascribed thereto in the Construction Loan
Agreement.
C. Lender and Borrower desire to amend the Construction Loan Agreement as
herein set forth.
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. Reduction of the Revolving Loan. Effective as of the Amendment
-------------------------------
Effective Date, the Construction Loan Agreement is amended by (a) reducing the
maximum outstanding principal amount of the Revolving Loan from $4,000,000 to
$2,000,000, and (b) amending and restating the definition of "Revolving Note"
contained in Section 2.63 with "that certain Amended and Restated Revolving Loan
Note, dated as of the date of this Amendment, made by Borrower in the original
principal amount of $2,000,000 to evidence the Revolving Loan."
3. Revolving Loan Maturity Date. Effective as of the Amendment
----------------------------
Effective Date and notwithstanding anything to the contrary, the Construction
Loan Agreement is amended by extending the Revolving Loan Maturity Date to
December 1, 2000. Effective as of the
<PAGE>
Amendment Effective Date, all references to the "Revolving Loan Maturity Date"
shall mean December 1, 2000.
4. Revolving Loan Commitment. Notwithstanding anything to the contrary,
-------------------------
the Construction Loan Agreement is amended by deleting any requirement Lender
may have to make disbursements of the Revolving Loan for any Sold Unit, Model or
Spec Home that Lender has not previously financed through disbursements of the
Revolving Loan.
5. Maximum Amount of Revolving Loan. Effective as of the Amendment
--------------------------------
Effective Date, the Construction Loan Agreement is amended by amending and
restating Section 3.1(i) in its entirety as follows:
"(i) 80% of the appraised value of such Unit if such Unit at such
time is a Sold Unit, or 75% of the appraised value of such Unit if such
Unit at such time is a Model or Spec Home (provided that such percentage of
appraised value of such Spec Home shall be reduced from 75% to 70% twelve
months after the date on which the first draw of proceeds of the Revolving
Loan for such Spec Home was made, if applicable, and from 70% to 65%
eighteen months after the date on which the first draw of proceeds of the
Revolving Loan for such Spec Home was made, if applicable), or"
--
6. Voluntary Prepayment. Effective as of the Amendment Effective Date,
--------------------
the Construction Loan Agreement is amended by amending and restating Section 3.4
in its entirety as follows:
"3.4 Voluntary Prepayment. Borrower may prepay all or any part of
--------------------
the Revolving Loan or the Development Loan at any time and from time to
time without cost or penalty."
7. Mandatory Principal Payments on the Development Loan. Effective as
----------------------------------------------------
of the Amendment Effective Date, the Construction Loan Agreement is amended by
inserting the following sentence at the end of Section 3.7: "If the outstanding
principal balance of the Development Loan exceeds the maximum permitted amount
set forth in Section 3.2 above, Borrower shall immediately repay the amount of
such excess."
8. Mandatory Principal Payments on the Revolving Loan. Effective as of
--------------------------------------------------
the Amendment Effective Date, the Construction Loan Agreement is amended by
amending and restating Section 3.8 in its entirety as follows:
"3.8 Mandatory Principal Payments on the Revolving Loan.
--------------------------------------------------
(a) If the outstanding principal balance of the Revolving Loan
at any time exceeds the maximum permitted amount set forth in Section
3.1 above, Borrower shall immediately repay the amount of such excess.
<PAGE>
(b) Concurrently with the closing of the sale of each Unit,
Borrower shall make a principal payment on the Revolving Loan equal to
the amount of the Revolving Loan previously disbursed by Lender with
respect to such Unit.
(c) Borrower must make a mandatory principal payment on the
Revolving Loan equal to the aggregate amount of the Revolving Loan
previously disbursed by Lender with respect to each Sold Unit nine
months after the date on which the first draw of proceeds of the
Revolving Loan for such Sold Unit was made.
(d) Borrower must make a mandatory principal payment on the
Revolving Loan equal to the aggregate amount of the Revolving Loan
previously disbursed by Lender with respect to each Spec Home twenty-
four months after the date on which the first draw of proceeds of the
Revolving Loan for such Spec Home was made.
(e) Borrower must make a mandatory principal payment on the
Revolving Loan equal to the aggregate amount of the Revolving Loan
previously disbursed by Lender with respect to each Model eighteen
months after the date on which the first draw of proceeds of the
Revolving Loan for such Model was made."
9. Revolving Loan Extension Options. Effective as of the Amendment
--------------------------------
Effective Date, the Construction Loan Agreement is amended by deleting Section
3.12 in its entirety.
10. Conditions to Effectiveness. This Amendment shall become effective
---------------------------
on the date (the "Amendment Effective Date") on which the following conditions
------------------------
precedent have been satisfied or waived in writing:
(a) Borrower and Lender shall have each executed and delivered this
Amendment to Lender.
(b) Lender receives a fee in the amount of $20,000.
(c) Borrower shall have executed and delivered an amended and
restated Revolving Note in substantially the form of Exhibit A attached
---------
hereto.
(d) Lender and Bremer Bank shall have each executed and delivered
that certain First Amendment of Construction Loan Participation Agreement
to Lender.
(e) Lender shall have received a certificate signed by an
authorized officer of Borrower, dated as the Amendment Effective Date,
certifying the incumbency of Borrower's officers and copies of resolutions
of the board of directors of Borrower approving and authorizing the
execution, delivery and performance of Borrower of this
<PAGE>
Amendment, the amended and restated Revolving Note and each other
instrument, document or agreement to be executed or delivered by Borrower
hereunder.
(f) a legal opinion in form and substance, as Lender may reasonably
require.
11. Representation and Warranties. To induce Lender to enter into this
-----------------------------
Amendment, Borrower hereby represents and warrants to Lender as of the Amendment
Effective Date that:
(a) Except for mechanics' liens which have been filed against the
Project, since February 1, 1999, there has been no development or event,
which has had or could reasonably be expected to have a material adverse
effect on the business, property, condition (financial or other), results
of operations or prospects of Borrower, or the validity or enforceability
of any of the Loan Documents or the rights or remedies of Lender
thereunder. No Unmatured Default or Event of Default has occurred and will
be continuing on the Amendment Effective Date after giving effect to this
Amendment.
(b) Borrower has the power and authority, and the legal right, to
make and deliver this Amendment and to perform all of its obligations under
the Loan Agreement, as amended by this Amendment, the Loan Documents, and
has taken all necessary action to authorize the execution and delivery of
this Amendment and the performance of the Loan Documents, as so amended.
(c) When executed and delivered, this Amendment and the Loan
Agreement, as amended by this Amendment, will constitute legal, valid and
binding obligations of Borrower, enforceable against it, in accordance with
its terms, except as affected by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to
or affecting the enforcement of creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at
law) and an implied covenant of good faith and fair dealing.
(d) The representations and warranties made by the Borrower in the
Loan Agreement are true and correct in all material respects on and as of
the Amendment Effective Date, before and after giving effect to the
effectiveness of this Amendment, as if made on and as of the Amendment
Effective Date, other than those that relate to an earlier or specific
date.
12. 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.
13. Continued Effectiveness. Except as expressly provided herein, the
-----------------------
Loan Documents and the shall remain in full force and effect in accordance with
their respective terms.
<PAGE>
14. Governing Law. The validity and interpretation of this Amendment
-------------
shall be construed in accordance with the laws and decisions of the State of
Illinois.
15. Invalidity of Provisions. If any provision of this Amendment 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
Amendment.
16. Counterparts. This Amendment may be executed in counterparts, and all
------------
said counterparts when taken together shall constitute one and the same
Amendment.
17. Headings. The titles and headings of the articles, sections and
--------
paragraphs of this Amendment have been inserted as a matter of convenience of
reference only and shall not control or affect the meaning or construction of
any of the terms or provisions of this Amendment.
IN WITNESS WHEREOF, this Amendment has been entered into as of the date
first above written.
CMC HEARTLAND PARTNERS I, LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: Heartland Development Corporation,
a Delaware corporation
By: ____________________________
Title: ____________________________
<PAGE>
BANK ONE, ILLINOIS, NA, a national banking association
By: ______________________________
Title: ______________________________
6
<PAGE>
EXHIBIT 10.25
CMC Heartland Partners
547 West Jackson Boulevard
Chicago, Illinois 60661
[date]
Mr. Edwin Jacobson
161 East Chicago Avenue
Apartment 43H
Chicago, Illinois 60611
Re: First Amendment to Employment Agreement
Dear Mr. Jacobson:
We are writing with respect to your employment by CMC Heartland
Partners (the "Company") as President and Chief Executive Officer of the
Company, pursuant to an Employment Agreement, dated December 20, 1999 (the
"Employment Agreement"), the terms of which expire on May 30, 2002. The Company
acknowledges and recognizes the value of your experience and abilities to the
Company and desires to amend the Employment Agreement as hereinafter set forth:
Therefore, subject to your signing and returning to the Company, c/o
Richard P. Brandstatter, a duplicate original of this letter, effective as of
the date hereof, the Employment Agreement is amended in the following manner:
1. Section 1 and Section 7(d)(i) are hereby amended to delete the
date "May 30, 2002" and substitute therefor the date "May 30, 2005";
2. Section 3(a) is hereby amended to delete "$275,000" and substitute
therefor "$350,000";
3. Section 3(b)(ii)(1) is hereby deleted in its entirety and replaced
with the following Section 3(b)(ii)(1):
"(ii) (1) The Capital Amount initially will be $26,789,044.75, which
is equal to the product of (x) the average of the publicly reported
per Unit closing sales prices for the first 30 trading days after the
date the Units were distributed by Chicago Milwaukee Company ("CMC")
to its common stockholders (the "Distribution Date") and (y) 2,142,438
(the number of Units distributed on the Distribution Date). For
purposes of this subsection (ii), the "closing sales prices" of the
Units as of a particular date shall mean the closing price (or, if
there is no closing price, then the mean between the closing bid and
asked prices), of such Unit as reported on the Composite Tape, or if
not reported thereon, then such price as reported in the trading
reports of the principal securities exchange in the United States on
which such partnership interests are listed, or if the Units are not
listed on a securities exchange in the United States, the mean between
the dealer closing "bid" and "asked" prices as reported by the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") or NASDAQ's successor, or if not reported on NASDAQ, the
<PAGE>
fair market value of such Unit as determined by the Board of Directors
of the Managing General Partner in good faith."
4. Section 3(b)(ii)(2)(x)(ii) is hereby deleted in its entirety and
replaced with the following Section 3(b)(ii)(2)(x)(ii):
"(ii) amounts paid by Heartland or the Company to repurchase
Units and Class B limited partnership interests during such time
period and"
5. Section 3(b) is amended by the addition of the following Section
3(b)(iii):
"(iii) In addition to the incentive payments that you will receive
pursuant to Section 3(b)(i), effective for the period commencing January 1,
2000 and continuing thereafter during the time you are an employee of the
Company, you will also receive incentive payments equal to 1/2% override of
net proceeds from sales of real estate (after deducting all debt
obligations on the property sold, seller's sales closing costs (including,
but not limited to title changes and transfer taxes) and any real estate
broker's commissions, which incentive payment shall be paid on the 15/th/
day of the following month in which the respective sale of the real estate
occurred."
6. Section 3(b) is amended by the addition of the following Section
3(b)(iv):
"(iv) (1) Upon your death, disability or termination without cause
(as that term is defined in Section 6(c)), you, your designated
beneficiary or estate upon written notice (the "Put Notice") delivered
to the Company shall cause the Company to pay to you, your designated
beneficiary or estate, as the case may be (collectively referred to as
"Jacobson"), the then present value of your incentive payments under
Section 3(b)(i) (the "Incentive Put"). In the event the Incentive Put
is exercised by the Put Notice delivered to the Company, within 45
days after receipt of the Put Notice, the Board of Directors of the
Company shall, in good faith based upon the appraised value of the
assets of the Company, make a determination as to the then present
value of such incentive payments and prior to the expiration of the 45
day period shall deliver to Jacobson a statement (the "Company
Statement") setting forth the amount the Company proposes to pay to
satisfy its obligation under the Incentive Put and a calculation on
which the amount was determined.
(2) If Jacobson does not object in writing, delivered to the
Company within 20 days after receipt of the Company Statement, the
Company shall pay the incentive amount set forth in the Company
Statement no later than six months following the date of receipt by
the Company of the Put Notice.
(3) If prior to the expiration of the 20 day period Jacobson
delivers to the Company written notice (the "Objecting Notice")
objecting to the amount of the incentive payment set forth in the
Company Statement, the Company and Jacobson shall negotiate in good
faith to reach agreement on the amount of the incentive payment. If
during the 15 day period following receipt by the Company of the
Objecting Notice, or such longer period as the Company and Jacobson
agree in
-2-
<PAGE>
writing (the "Negotiating Period"), the Company and Jacobson reach
agreement on the amount of the incentive payment, the Company shall
pay the amount no later than six months following the date the Company
received the Put Notice.
(4) If during the Negotiating Period, the Company and Jacobson do
not reach agreement on the amount of the incentive payment (the
"Disagreement"), the Disagreement shall be submitted for resolution to
an M.A.I. Appraiser selected by the Company and Jacobson. If within
10 days following the expiration of the Negotiating Period, the
Company and Jacobson are not able to reach an agreement on the M.A.I.
Appraiser to resolve the Disagreement, the Company and Jacobson within
15 days following expiration of the Negotiating Period shall each
select an M.A.I. Appraiser and the two M.A.I. Appraisers promptly
after their selection shall each select a third M.A.I. Appraiser,
which may not be the Company's M.A.I. Appraiser. The third M.A.I.
Appraiser prior to the expiration of sixty days after its selection
shall make a determination as to the then present value of the
incentive payment payable pursuant to the Incentive Put and shall
deliver to the Company and Jacobson written notice of the amount
determined (the "Resolution Notice"). The determination by the third
M.A.I. Appraiser shall be binding on the Company and Jacobson and the
Company shall pay the amount no later than the longer of (x) six
months after the date the Company received the Put Notice or (y)
thirty days after the Company received the Resolution Notice. The
fees and expenses of the M.A.I. Appraiser resolving the Disagreement
shall be shared equally between the parties."
Except as amended by this letter, the Employment Agreement remains in
full force and effect in accordance with its terms.
If the foregoing is satisfactory, please indicate your agreement by
signing and returning to the Company the enclosed copy of this letter whereupon
this will constitute our agreement on the subject.
CMC HEARTLAND PARTNERS
By: Heartland Technology, Inc.
as General Managing Partner
By: ______________________________
Name: ______________________________
Title: ______________________________
ACCEPTED AND AGREED TO:
______________________________
Edwin Jacobson
-3-
<PAGE>
EXHIBIT 10.26
THE CMC HEARTLAND PARTNERS INCENTIVE PLAN
Effective January 1, 2000
1. Purpose. The CMC Heartland Partners Incentive Plan (the "Plan")
-------
is intended to provide incentives which will attract, retain and motivate highly
competent persons of CMC Heartland Partners (the "Company").
2. Administration. The Plan will be administered by a committee of
--------------
the Board of Directors of the Company (the "Board") or a subcommittee of a
committee of the Board appointed by the Board from among its members (the
"Committee"). The Committee is authorized, subject to the provisions of the
Plan, to establish such rules and regulations as it deems necessary for the
proper administration of the Plan and to make such determinations and
interpretations and to take such action in connection with the Plan as it deems
necessary or advisable. All determinations and interpretations made by the
Committee shall be binding and conclusive on all participants and their legal
representatives. No member of the Board, no member of the Committee and no
employees of the Company shall be liable for any act or failure to act
hereunder, except in circumstances involving his or her bad faith, gross
negligence or willful misconduct, or for any failure to act hereunder by any
other member or employee or by any agent to whom duties in connection with the
administration of the Plan have been delegated. The Company shall indemnify
members of the Committee and any agent of the Committee who is an employee of
the Company, against any and all liabilities or expenses to which they may be
subjected by reason of any act or failure to act with respect to their duties on
behalf of the Plan, except in circumstances involving such person's bad faith,
gross negligence or willful misconduct.
3. Term. The Plan shall be effective January 1, 2000 and shall end
----
on December 31, 2003.
4. Participants. Participants shall consist of such employees of
------------
the Company as the Committee in its sole discretion determines to be in a
position to impact the success and future growth and profitability of the
Company and whom the Committee may designate from time to time to receive
benefits under the Plan. The Committee shall consider such factors as it deems
pertinent in selecting participants. Each participant and the respective
participant's share of the Benefit Pool (as that term is defined below), or a
specific pool within the Benefit Pool, shall be listed on Exhibit A attached to
the Plan. The Committee may make additions from time to time to Exhibit A.
5. Benefit Pool. The aggregate benefits payable under the Plan (the
------------
"Benefit Pool") shall be the following percentages of the net proceeds (the "Net
Proceeds") received by the Company on the sale of real estate after deducting
all debt obligations on the property sold, seller's closing costs (including,
but not limited to title changes and transfer taxes) and any real estate
broker's commissions:
a. 3% of the Net Proceeds received by the Company in 2000 from
sales of real property closed in 2000 (the "2000 Benefit
Pool");
b. 3% of Net Proceeds received by the Company in 2001 from
sales of real property closed in 2001 (the "2001 Benefit
Pool");
<PAGE>
c. 2% of the Net Proceeds received by the Company in 2002 from
sales of real property closed in 2002 (the "2002 Benefit
Pool"); and
d. 1% of the Net Proceeds received by the Company in 2003 from
sales of real property closed in 2003 (the "2003 Benefit
Pool").
6. Payments.
--------
a. 2000 Benefit Pool. As soon as administratively practicable
-----------------
after December 31, 2000, but in no event later than March
31, 2001, each participant shall receive 50% of his/her
share in the 2000 Benefit Pool determined as of December 31,
2000. If the participant is an employee of the Company on
December 31, 2003, the balance of the participant's share of
the 2000 Benefit Pool shall be paid to the participant
without interest on December 31, 2003. If the participant
is not an employee on December 31, 2003, the unpaid balance
of the participant's share of the 2000 Benefit Pool shall be
forfeited.
b. 2001 Benefit Pool. As soon as administratively practicable
-----------------
after December 31, 2001, but in no event later than March
31, 2002, each participant shall receive 50% of his/her
share in the 2001 Benefit Pool determined as of December 31,
2001. If the participant is an employee of the Company on
December 31, 2003, the balance of the participant's share of
the 2001 Benefit Pool shall be paid to the participant
without interest on December 31, 2003. If the participant
is not an employee on December 31, 2003, the unpaid balance
of the participant's share of the 2001 Benefit Pool shall be
forfeited.
c. 2002 Benefit Pool. As soon as administratively practicable
-----------------
after December 31, 2002, but in no event later than March
31, 2003, each participant shall receive 50% of his/her
share in the 2002 Benefit Pool determined as of December 31,
2002. If the participant is an employee of the Company on
December 31, 2003, the balance of the participant's share of
the 2002 Benefit Pool shall be paid to the participant
without interest on December 31, 2003. If the participant
is not an employee on December 31, 2003, unpaid balance of
the participant's share of the 2002 Benefit Pool shall be
forfeited.
d. 2003 Benefit Pool. As soon as administratively practicable
-----------------
after December 31, 2003, but in no event later than March
31, 2004, each participant shall receive 100% of his/her
share in the 2003 Benefit Pool determined as of December 31,
2003.
-2-
<PAGE>
7. Cessation of Employment.
-----------------------
a. In the event a participant ceases to be an employee of the
Company as a result of the participant's death, total and permanent
disability, resignation, retirement or termination without cause, such
participant, or the participant's designated beneficiary or estate shall
receive, except as provided in Section 6, all accrued benefits through the
date on which the participant ceased to be an employee of the Company.
b. In the event a participant ceases to be an employee of the
Company as a result of the participant's termination with cause, such
participant shall forfeit all accrued benefits through such date of
termination with cause.
c. For purposes of subsection b of this Section 7, termination
with cause shall have the following meaning:
(i) a participant's commission of a material act of fraud
against the Company or its affiliates;
(ii) a participant's conviction of any crime which
constitutes a felony in the jurisdiction involved; or
(iii) a participant's willful, repeated and demonstrable
failure to substantially perform his/her duties over
a period of not less than 30 days, other than any
such failure resulting from incapacity due to
physical or mental illness, or material breach of any
obligations under this Agreement, and failure to cure
such failure or breach within 30 days after receipt
of written notice from the Board. No act or failure
to act will be considered "willful" unless done, or
omitted to be done in good faith and without
reasonable belief that such action or omission was in
the best interests of the Company and its affiliates.
d. All amounts in the Benefit Pool which are forfeited may be
allocated by the Committee to existing participants in the Plan or to
additional participants or not allocated in whole or part. Any
amounts not allocated under the Plan shall not be included in any
benefits payable under the Plan.
8. Amendment and Termination. The Committee, in its absolute
-------------------------
discretion and without any notice, may at any time modify or amend, in whole or
in part, any or all of the provisions of this Plan, or suspend or terminate it
entirely.
9. Withholding. All payments made pursuant to this Plan shall be
-----------
net of any amounts required to be withheld pursuant to applicable federal, state
and local tax withholding requirements.
10 Governing Law. The Plan shall be construed, administered and
-------------
governed in all respects under and by the laws of the state of Illinois.
-3-
<PAGE>
CMC HEARTLAND PARTNERS
By: _________________________________
Its: _________________________________
-4-
<PAGE>
EXHIBIT 10.27
THE ___________________ SALES INCENTIVE PLAN
Effective January 1, 2000
1. Purpose. The ____________________ Sales Incentive Plan (the
-------
"Plan") is intended to provide incentives which will attract, retain and
motivate highly competent persons of ____________________ (the "Company".
2. Administration. The Plan will be administered by a committee of
--------------
the Board of Directors of the Company (the "Board") or a subcommittee of a
committee of the Board appointed by the Board from among its members (the
"Committee"). The Committee is authorized, subject to the provisions of the
Plan, to establish such rules and regulations as it deems necessary for the
proper administration of the Plan and to make such determinations and
interpretations and to take such action in connection with the Plan as it deems
necessary or advisable. All determinations and interpretations made by the
Committee shall be binding and conclusive on all participants and their legal
representatives. No member of the Board, no member of the Committee and no
employees of the Company shall be liable for any act or failure to act
hereunder, except in circumstances involving his or her bad faith, gross
negligence or willful misconduct, or for any failure to act hereunder by any
other member or employee or by any agent to whom duties in connection with the
administration of the Plan have been delegated. The Company shall indemnify
members of the Committee and any agent of the Committee who is an employee of
the Company, against any and all liabilities or expenses to which they may be
subjected by reason of any act or failure to act with respect to their duties on
behalf of the Plan, except in circumstances involving such person's bad faith,
gross negligence or willful misconduct.
3. Term. The Plan shall be effective January 1, 2000 and shall end
----
on December 31, 2001.
4. Participants. Participants shall consist of such employees of the
------------
Company as the Committee in its sole discretion determines to be in a position
to impact the success and future growth and profitability of the Company and
whom the Committee may designate from time to time to receive benefits under the
Plan. The Committee shall consider such factors as it deems pertinent in
selecting participants. Each participant and the respective participant's
share of the Benefit Pool (as that term is defined below), or a specific pool
within the Benefit Pool, shall be listed on Exhibit A attached to the Plan. The
Committee may make additions from time to time to Exhibit A.
5. Benefit Pool. The aggregate benefits payable under the Plan (the
------------
"Benefit Pool") shall be the following percentages of the net proceeds (the "Net
Proceeds") received by the Company on the sale of real estate after deducting
all debt obligations on the property sold, seller's closing costs (including,
but not limited to, title changes and transfer taxes) and any real estate
broker's commissions:
a. 3% of the Net Proceeds received by the Company in 2000 from
sales of real property closed in 2000 (the "2000 Benefit
Pool"); and
b. 3% of the Net Proceeds received by the Company in 2001 on
sales of real property closed in 2001 (the "2001 Benefit
Pool").
6. Payments.
--------
<PAGE>
a. As soon as administratively practicable after December 31,
2000, but in no event later than March 31, 2001, each participant shall
receive 50% of his/her share in the 2000 Benefit Pool. If the participant
is an employee of the Company on December 31, 2000, the balance of the 2000
Benefit Pool shall be paid on December 31, 2001 without interest. If the
participant is not an employee on December 31, 2000, the unpaid balance of
the 2000 Benefit Pool shall be forfeited.
b. As soon as administratively practicable after December 31,
2001, but in no event later than March 31, 2002, if a participant is an
employee of the Company as of December 31, 2001, such participant shall
receive 100% of his/her share in the 2001 Benefit Pool. If the participant
is not an employee on December 31, 2001, the unpaid balance of the 2001
Benefit Pool shall be forfeited.
7. Cessation of Employment.
-----------------------
a. In the event a participant ceases to be an employee of the
Company as a result of the participant's death, total and permanent
disability, resignation, retirement or termination without cause, such
participant, or the participant's designated beneficiary or estate shall
receive, except as provided in Section 6, all accrued benefits through the
date on which the participant ceased to be an employee of the Company.
b. In the event a participant ceases to be an employee of the
Company as a result of the participant's termination with cause, such
participant shall forfeit all accrued benefits through such date of
termination with cause.
c. For purposes of subsection b of this Section 7, termination
with cause shall have the following meaning:
(i) a participant's commission of a material act of fraud
against the Company or its affiliates;
(ii) a participant's conviction of any crime which
constitutes a felony in the jurisdiction involved; or
(iii) a participant's willful, repeated and demonstrable
failure to substantially perform his/her duties over
a period of not less than 30 days, other than any
such failure resulting from incapacity due to
physical or mental illness, or material breach of any
obligations under this Agreement, and failure to cure
such failure or breach within 30 days after receipt
of written notice from the Board. No act or failure
to act will be considered "willful" unless done, or
omitted to be done in good faith and without
reasonable belief that such action or omission was in
the best interests of the Company and its affiliates.
-2-
<PAGE>
d. All amounts in the Benefit Pool which are forfeited may be
allocated by the Committee to existing participants in the Plan or to
additional participants or not allocated in whole or part. Any
amounts not allocated under the Plan shall not be included in any
benefits payable under the Plan.
8. Amendment and Termination. The Committee, in its absolute
-------------------------
discretion and without any notice, may at any time modify or amend, in whole or
in part, any or all of the provisions of this Plan, or suspend or terminate it
entirely.
9. Withholding. All payments made pursuant to this Plan shall be net
-----------
of any amounts required to be withheld pursuant to applicable federal, state and
local tax withholding requirements.
10 Governing Law. The Plan shall be construed, administered and
-------------
governed in all respects under and by the laws of the state of Illinois.
____________________________________
By:_________________________________
Its: _______________________________
-3-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
YEAR 2000 FORM 10Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 143 230
<SECURITIES> 0 0
<RECEIVABLES> 828 789
<ALLOWANCES> 416 416
<INVENTORY> 39,925 34,263
<CURRENT-ASSETS> 2,386 1,913
<PP&E> 57,991 51,816
<DEPRECIATION> 1,112 1,065
<TOTAL-ASSETS> 64,129 57,256
<CURRENT-LIABILITIES> 54,847 47,067
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 4,733 5,652
<TOTAL-LIABILITY-AND-EQUITY> 64,129 57,256
<SALES> 2,650 2,042
<TOTAL-REVENUES> 2,942 2,565
<CGS> 2,594 1,945
<TOTAL-COSTS> 1,267 1,467
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (919) (847)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (919) (847)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
